How Africa can benefit from China’s slowdown and reorientation

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This article first appeared in my weekly column with the Business Daily on March 6, 2016.

An analyst with the Brookings Institution made an important point during a podcast recently; China will shed 85 million jobs at the bottom end of the manufacturing sector between now and 2030. So naturally the question becomes: where will they go? The analyst made the point that at the moment most of the jobs are being absorbed by China’s neighbours. But a more important question for Africa is: how can the continent poise itself to be a key absorber of those jobs?

Before answering that question, key details of the shedding of jobs in manufacturing by China need to be more intimately understood. There are two key drivers that are pushing jobs out of manufacturing in China; the first is the general slowdown of China. China has been slowing and growth in 2015 was the slowest in 25 years. Part of the consequences of this slowdown is the shutdown of numerous factories in textile, machine tool and chemicals industries. The boom China enjoyed for decades has created factory overcapacity. Combined with slowing demand in global markets China’s manufacturing sector is struggling. The second factor that is informing the migration of jobs from China is that the Chinese economy is going through a fundamental reorientation where services and household consumption fuel economic growth rather than the investment and industry. China is shifting from being the ‘world’s factory’ with an aggressive export orientation strategy to one led by consumption and services.

(source: http://media.oregonlive.com/business_impact/photo/chinafactory5jpg-1c120a5a64eae8c7_large.jpg)

The scale of this reorientation is made clear when one considers that China’s growth in the past 15 years or so has been driven by exports and exports account for about 20% to 30% of China’s economic growth. The Chinese government has long sought to encourage this reorientation and indeed, in 2015 the service industries absorbed some job losses from manufacturing. Perhaps another factor informing the reorientation is the reality that China will soon face labour shortages and coupled with rising wages, export driven growth will be difficult.

This scenario should be good news for Africa, a continent that has yet to effectively industrialise. Indeed, many African countries are going through premature deindustrialisation driven by several factors the most salient of which is the lack of robust industrial policy by African governments. As it stands, it seems likely that what will inform African economic growth will shift from agriculture straight into the services sector and bypass industry altogether. At the moment the African economy is not leveraging industry to drive growth. This is a concern for the continent as industry is an important and large employer not only for the manufacture of goods consumed locally, but global markets as well. Through encouraging manufacturing and industry the continent can make a dent in the poverty problem as millions are absorbed in waged employment.

(source: http://www.southafrica.be/wp-content/uploads/2012/04/Trade2-copy.jpg)

So there is no better time than now for Africa to finally get serious about industrialisation and absorb some of the 85 million jobs in low end manufacturing migrating out of China. What is required for this to happen? Four elements; the first is aggressive, well thought out and strategic industrial policy formulation and implementation by African governments.

The other three, as the Brooking analyst stated, are competition, clustering and management. Africa has to deliberately encourage the creation of a competitive manufacturing sector to create strong businesses that can survive domestic and global economic shocks. Clustering is also important because analysts have observed that businesses are more productive when they are located next to businesses that engage in similar activity. This has been encouraged, to a certain extent, through the creation of Special Economic Zones etc., but more research has to be done to determine the specific type of clustering that can facilitate robust African industrialisation. The final factor is effective management; poorly managed companies do not stand of chance of surviving in a global economic context that is difficult. So the time is now for Africa to lay the ground work for industrialisation so that when the global economy eventually recovers, the continent will be well poised to reap the dividends of industrialisation.

Anzetse Were is a development economist; anzetsew@gmail.com

 

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