South Africa

Details

  • Industry: Business Desk, China
  • Type: Business and industry issue
  • Date: 2010/07/07

Trade, not aid, the future of Africa’s success 

Africa is increasingly being recognised as potentially the next major engine of economic growth. Industries based in China may find Africa a suitable base to set up its operations on the continent.

A continent of close to one billion people, rich in natural resources, a young population and well-positioned geographically between Europe, the Middle East and the Americas…

 

Internationally, South Africa has also been recognised for its economic, political and other achievements well beyond the size of the country and its population.

 

Currently Brazil, Russia, India and China (BRIC) countries have been identified as being the most promising emerging markets. However, there is increased recognition of the Brazil, South Africa, India and China (BASIC) group as well, particularly its role at the Copenhagen Climate Change talks.

 

Labour shortages in the workshop of the world

 

There have been recent reports out of China about the shortage of labour as many migrant workers have not returned to the cities after the Chinese New Year. Workers at motor vehicle manufacturing plants as well as those in other industries have negotiated better wages in recent times. Although there is still a vast amount of labour in China’s rural areas that can enter the market, demographic trends indicate that even the world’s most populous country could face labour shortages.

 

China’s share of labour force growth has been at more than 30%, but is estimated to be approximately half that in the future. This may have a direct impact on the cost of goods globally that have been ‘subsidised’ by the low cost base of goods manufactured in China. Alternate manufacturing sites such as Vietnam and Indonesia may alleviate this shortage of labour and increase labour costs. Due to the efficiencies in infrastructure, some companies may want to remain in China even with the increased labour costs.

 

A labour shortage in the world’s most populous country is almost unthinkable but as China aims to move up the value chain, manufacturing bases may well be relocated to the African continent. Currently, minimum wages in China have also been rising in the established manufacturing hubs on the South and East Coast.

 

The East Asian Developmental Model

 

Industries based in China may find Africa a suitable base to set up its operations on the continent. Demographically, Africa’s share of the growth in the labour force is estimated to be about 25% for the period 2000 to 2010.

 

A common assumption is that China’s interest in Africa is primarily around extractive industries, but there has been a significant amount of investment. Professor Deborah Brautigam, author of The Dragon’s Gift (Oxford Press), refers to the fact that in 2005, China’s investment in manufacturing in Africa exceeded its investment in mining.

 

In the early 1980s, Japan engaged China economically by purchasing coal and oil resources and providing technology, expertise and foreign exchange. China itself has applied this model in its engagement with Africa.

 

Africa’s response to investment in the continent

 

The recent G20 Summit and CNN/Fortune 500 Summit have highlighted Africa’s potential as the most promising frontier of growth. Africa can apply many of the lessons that China learnt in its developmental path and enter into a similar growth trajectory with ‘African characteristics’. Africa needs to be strategic in its approach in terms of infrastructure development, skills transfer, trade relations and the rules of engagement.

 

To help reach its full potential, the African continent needs to define the outcome from its engagement with China and other investors and trade partners.