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The East African : October 26th 2013
42 The EastAfrican BUSINESS OCTOBER 26 - NOVEMBER 1, 2013 Going East: Indust≥ialisation lessons in Chinese fo≥ Af≥ican policymake≥s that sub-Saharan Africa can learn from the Chinese industrialisation experience — that C in- credible transformation from an old, inward-looking, heavy industrial sector that provided relatively little employment, exported almost nothing, and was owned and managed by the state, into the world’s most formidable light-manufacturing machine, run by private entrepreneurs and home to hundreds of millions of jobs. In two decades, the country’s share of global manufacturing exports rose from nearly zero to 15 per cent — to a third if you only count labour-intensive products. Here are the main lessons African policymakers can draw from this: First, China’s march toward factories actually started on its farms. In the late 1970s, rural households were given the freedom to manage the land they worked on. They were not given ownership of the land, just the power to decide what to do with it. This raised their productivity and income, eventually allowing many of them to move to cities in a flow of labour that kept wages very low for 30-plus years. Africa is far from that. Its agriculture is still dominated by subsistence farming. Yes, it has a large and youthful population. But no African country can offer a supply of workers of the same magnitude, quality, or mobility that China had. Second, China integrated it- self globally, regionally and sub-nationally. The driver of industrialisation was a relentless pursuit of exports. That required not just cheap prices but also borders that were open to imported inputs, foreign investment, new technologies, and knowledge of what other societies like and want to buy. It also called for fluid trade with countries in the immediate SouthEast Asian neighbourhood, to form “value chains” in which final products are assembled with components manufactured wherever the cost was lowest. And, of course, within China, people, capital, and ideas went wherever new export industries demanded them—primarily to the coastal areas. This kind of multidimensional integration of trade corridors does not exist in Africa. The region has succeeded at globalisation—selling commodities to other regions—but it has failed at “continentalisation,” that is, at letting goods and services flow from one African country to another. It remains a highly fragmented place, even in basic industries like food. This is due to a bad combination of misregulation, monopolies and corruption. The Political leaders made it their job— actually competed—to attract new industrial projects.” an Africa follow China’s industrialisation path? The simple answer is “No”. But there is a lot Dilemma fo≥ EA cement companies TURN FROM PAGE 41 The report by the committee — which includes representatives from the government and private sector — is expected to inform changes in the country’s policy towards cement imports. In March, Pascal Lesoinne, the CEO of Twiga Cement, said the problem boils down to the country’s failure to effectively apply the necessary taxes. “The main reason for this particular situation in Tanzania is the failure to properly implement the common external tariff (CET), and having cement imported under duty and taxes exemption. Most of this importation is happening in Zanzibar, bringing into question the application of CET there,” Mr Lesoinne said. Meanwhile, in Rwanda, No African country can offer a supply of workers of the same magnitude, quality, or mobility that China has. Picture: File COMMENTARY MARCELO GIUGALE “The driver of China’s industrialisation was a relentless pursuit of exports.” result is that only 10 per cent of an average African country’s exports go to another African country; the equivalent number in South-East Asia is more like 40 per cent. In other words, Africa must first defragment itself if it wants to industrialise. Third, the Chinese govern- ment became an unwavering promoter of export-oriented private investment. Political leaders, both central and local, made it their job — actually competed — to attract new industrial projects. They removed logistical obstacles. They formed joint ventures. They built industrial parks, zones and clusters. They even mortgaged public land to get bank loans and use them to build better infrastructure for business. [Chinese households save almost half of their income and deposit most of it in banks.] Not every project was effec- tive, profitable, or easy to administer transparently. But the single-mindedness of it became a magnet for private investors. Few African countries today can show that kind of strategic clarity. Even fewer have achieved a level of government decentralisation where local officials have the power, the means, or the institutional capacity to lead development policy. Devolution remains a pending agenda. Fourth, China did not count on massive natural resources. Economic growth was gained the hard way — farm by farm, factory by factory, and shop by shop. There was no oil, gas, or mineral bonanza pumping billions of dollars into the economy and into the government’s coffers. If anything, China had to import all that. This should make industrialisation relatively easier for Africa, a region superrich in commodities. But that depends on how that wealth is spent. Is it going to build Africa’s human capital? A more reliable electricity supply? Better roads? Faster ports? A more efficient civil service? While progress is slowly being made, the jury is still out on that. Finally, China’s industrialisa- tion also carries lessons for Africa about what not to do. Letting local officials, rather than markets, decide which firm gets land or a phone line or water service, and which one doesn’t, may not be the best or cleanest way for Africa to allocate inputs. The continent already has plenty of experience in this and, by and large, it has not been a happy one — think of fertiliser distribution programmes. Setting up and managing a giant network of public enterprises, some owned centrally and some locally, some in full and some in part, some collectively and some individually, some with private investors and some not, may be beyond the institutional capacity of the average African government. And channeling people’s bank deposits into public industrial ventures may deter Africans from saving more, which they need to do. But, why is all this important for Africa now? Outside South Africa, isn’t the region’s industrial base puny anyway? Less than five per cent of its GDP? Well, a new book by Hinh T. Dinh and his colleagues at the World Bank argues that Africa should get ready to capture some of the lower-tech, lightmanufacturing industries — and jobs — that China will be shedding over the next decade. These are things like garments, shoes, food, and furniture. By some estimates, there may be some 85 million jobs for the taking. Even if many of these jobs end up staying in South and East Asia, it is still a great opportunity to jumpstart Africa’s industry. At the very least, it could help focus the attention of African leaders and encourage them to remove the many bottlenecks in their countries’ industrialisation path (the “marginal binding constraints”, in technical speak). The book masterfully lists those bottlenecks, not in theory, but by chronicling the life of actual Chinese enterprises, comparing that with what their African peers go through, and urging African politicians to do something about it. That would be good, for if there is a message in China’s industrial success, it is this: There are no short-cuts. Marcelo Giugale is the World Bank’s Director of Economic Policy and Poverty Reduction Programmes for Africa. last December, PPC Ltd spent $69.4 million to acquire a 51 per cent state in Cimerwa. The remaining 49 per cent is shared by the government of Rwanda through the Finance Ministry, Rwanda Investment Group, Rwanda Social Security 100,000 Tonnes of cement currently produced by the Cimerwa cement factory in Rwanda Fund and Sonarwa, a leading insurance company. Cimerwa currently produces some 100,000 tonnes of cement annually, and is building a plant that will produce 600,000 tonnes. The added capacity is expected to change the cement industry in Rwanda as the country imports 80 per cent of its cement. Analysts say the expansion plans could push down the company’s per unit cost, enabling it to compete with regional players. Currently, the company uses wet processing technology, which will be replaced by dry processing, which is more energy efficient. This partly explains why cement manufactured in Rwanda is more expensive. A 50kg bag of cement imported from Uganda costs $13 while locally manufactured cement costs $14-$18 per bag, depending on the quality. The realignments in Rwanda could go further if, as analysts expect, Kenya’s Athi River Mining (ARM) decides to expand Kigali cement, a company that it has a 35 per cent stake and in which it controls 53 per cent of all voting rights. Additional reporting by Joseph Mwamunyange, Isaac Khisa and Kabona Esiara.
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