What Economic Lessons Might Africa Learn from China?

VENTURES AFRICA – Let’s be honest, while some economic progress is being made in Africa, it is belated, too slow, and not widespread. How did China succeed, and what might African countries learn from that? What aspects of China’s economic progress might be adapted to Africa’s reality? This article will cover the fundamentals.

To begin, forget the objection that Africa is not China. China covers an immense amount of geography and has a large population. Each region has distinct differences of climate, population distribution, and resource availability. In many ways, the same is true of Africa, as a continent. The major difference is that China has one government, organized into Provinces, many of which equate in size and characteristics to the disparate countries that comprise Africa.

Of course, despite the similar scope of Africa’s challenge, a set of policies adopted in one country cannot be transposed to another. If Africa is to learn from China, it must pick and chose what to apply, and where to apply it.

How Did China Start to Modernize?

By way of background, until the late-1970s, China was a closed Marxist society (much like North Korea today), suffering from social and political crisis, with an economy in decline and the mass of the population impoverished. Without change, there would have been a social and political upheaval of immense proportions. During the 1970s, China’s top economist Ma Hong, whom I knew but is now deceased, was asked to propose a new economic strategy. While he was referred to as a Marxist economist, he took a quite different Leninist approach to reform, based on Lenin’s New Economic Policy (NEP) of the early-1930s. One feature of NEP was to invite Western industrialists to bring capital and technology to Russia, which they did, in great amounts. Ma’s strategy for China was similar, as explained below. It was embraced by Premier Zhou Enlai in 1975 (who had himself first proposed it as early as 1963!), and then by Deng Xiaoping who came to power after Zhou died, with Mao Zedong already deceased.

Officially launched by Deng in 1978, China’s strategy was called “Four Modernizations.” The over-riding goal was to modernize four sectors of the economy: Agriculture, Industry, Science & Technology, National Defense. This concept was very similar to that articulated by futurist Alvin Toffler in his book “The Third Wave” which described the transition from 1^st-wave agriculture-dominated, to 2^nd-wave industry-dominated, to a 3^rd-wave post-industrial economy that had ensued in developed Western economies. Toffler’s book was translated into Chinese and was mandatory reading for all Party members, down to factory level, and “third wave” became part of the everyday policy vocabulary.

It should be noted that each new economic wave overlays on top of the previous wave(s); it does not replace them. Thus, for example, industry did not replace agriculture, but it brought mechanization to modernize agriculture, thus freeing up labor to work in factories while expanding agricultural yields with less labor. Similarly, information technology is not just a stand-alone industry but is applied to modernize agriculture and manufacturing.

 

Can You Leapfrog Industrialization?

This raises the question, which is asked in Africa, as to whether you can leap-frog from one sector to another. In some cases, the answer is yes, but in most cases not. Each wave needs the others. People still need to be fed, housed, transported, and found jobs. Economies dependent on one sector are possible, but rare. For example, Hawaii is a tourism economy, but its agriculture sector was displaced and so it imports almost all its own food and every technology it needs. Likewise, Hong Kong and Singapore are mainly services and technology economies.

In China, some areas do specialize, but they are dependent on the others for various needs. The same could occur in Africa to some degree, where some areas are the food producers, some are mining or manufacturing zones, some are high-tech or tourism zones. But overall, there needs to be a balance, with free and fair trade between countries, or the continent at large could be forced to import some essential needs as it grows and prospers.

How China Launched Economic Reforms

To reform agriculture, China switched away from inefficient state-owned collective farms. Deng doubled the price of crops overnight, and gave farmers the freedom to sell any production above a quota onto their local market. In response to this incentive, farm output soared, and national nutrition levels increased. Supply quickly became so large that China abandoned food rationing. Today, China feeds its population on a relatively small amount of land, in proportion to other countries, and imports little. There is no reason why Africa cannot do the same. Indeed one study once showed that Angola alone could feed all of Africa. Why isn’t it happening?

To attract foreign investment and technology, China started by opening up four Special Economic Zones (SEZs) which offered tax-free opportunities for foreign joint-ventures with Chinese firms. Sole ventures were allowed later. This was part of an initial export-driven economic strategy, modeled on Japan, South Korea, and Taiwan at the time. The SEZs were a huge success, particularly the one at Shenzhen, immediately across the Hong Kong border. Manufacturing moved out of Hong Kong to capitalize on the low labor and infrastructure costs of the mainland. As Shenzhen grew, manufacturing slowly moved farther inland to find even lower wage rates, and Shenzhen transformed itself away from making cheap exports such as toys to become a high-value high-tech center. Other SEZs were set up around the coast at strategic locations vis-à-vis international markets.

Certain coastal countries in Africa could consider setting up one such experimental SEZ to attract foreign investment and technology. They would require a modern deep-water port, so might be in Kenya or Tanzania (to attract Indian and SE Asian investment, for example), or almost anywhere along the so-called “gold coast” (to attract investment from the Americas). The economic sectors to be targeted should harmonize with the long-term plan for development, and the economic “waves” discussed earlier.

China long-since moved beyond the 3-wave model. In 1986, China asked me, “What comes after the 3^rd wave?” Because the 3^rd-wave was already so large in developed economies, I divided it into separate waves and proposed a 6-wave model: (1) Agriculture / Natural Resources; (2) Industry; (3) Services; (4) High-Tech; (5) Leisure/Tourism; and (6) Outer Space. China adopted this model and simultaneously has been modernizing the first two waves and building the last four waves. China has astronauts and plans a lunar landing by 2015. No, I am not proposing that Africa start a space program (at least not just yet), but each of the other five waves should be modernized and/or built up to world-class standards.

Long-Term Vision is Needed

Whatever economic modernization program is initiated in Africa, as a continent, it cannot be accomplished overnight. But an immovable long-term goal must be set, and aggressive policies put in place to make it achievable. When China launched its “Four Modernizations” program, the initial goal was to quadruple GDP between 1980 and 2000 (an ambitious goal that was achieved in 1996), and to attain a GDP-per-capita that matched middle-income developed economies by 2050 (already close to being achieved).

Of course, “stuck-in-the-past naysayers” will say that it cannot be done. They will offer every reason under the African sun as to why not. None of their reasons are valid; just lame excuses.

Some will say that regimes are too corrupt or that elites will refuse to change. Such elites must come to realize that it is in their best self-interest to modernize the economy and spread the wealth, or otherwise they will lose everything they have in due course. Some will say that Africa does not have the financial, natural or human skills required to achieve what China has achieved. On the contrary, as with China in 1980, Africa has hundreds of millions of people who merely need to be motivated to raise their quality of life, and shown how to do so. Africa does not lack resources, it lacks the imaginative political will to innovate and make fuller use of its resources. Africa does not lack financial capital either, because the world is full of capital looking for higher returns on investment (ROI). There can be no higher ROI than investing in an Africa that one day can catch up and match China and the rest of the world.

African countries can attract the necessary capital, technology, know-how, and management skills, by setting up SEZs with an attractive and reliable economic package. As those SEZs take off, they will inject capital into the economic blood stream of all of Africa, sending it surging across the continent and lifting people up to unimagined heights.

New Policy Environment is Needed

Of course, this all needs a new policy environment, with a change in business culture, and an uplifting of the spirit of society itself. But if China, a previously closed, backward, poverty-stricken, state-owned communist society can do it, anybody can do it, no matter how conservative or bureaucratic it may be.

This requires true leadership. True leaders see the future, and lead people towards that future. Deng Xiaoping said that China could not continue the way it was, and that it must change. He said that it should not fear foreign ideas; that “it doesn’t matter whether the cat is black or white, so long as it catches mice” and that “it is okay for some regions and some people to get rich before others.” He unleashed a pent-up demand for change among a billion people, the likes of which the world has never seen.

Policy-makers and companies also need innovative and fearless think tanks and planning departments, to plot the journey forward. They must be willing to experiment with pilot projects, and adjust them (or kill them) as needed until the right formula is found. With the right mindset, the winning formula will be found. Innovative thinking will lead to brand new solutions and unimagined ways of doing things.

Need for Modern Transport and Communication

Two keys to economic development are rapid and smooth transportation and communications. This is where African countries have some advantages, if they is willing to take them.

During the mid-1980s, I was asked what I thought of China’s progress. This was still “the land of the bicycle.” My response was that modernization could not occur at the speed of the one-speed bike; that highways were needed to move exports rapidly to the ports. They protested that China did not have enough land to build a highway structure like North America. I told them that they would in fact do so, that their fear over losing farmland was false because their agriculture was grossly inefficient, and that poor transport would bring reform to a standstill. Today, China has a modern inter-provincial highway system spanning the country. It has the world’s fastest high-speed trains, and an airport infrastructure second to none. More cars are now made in China than in USA. Africa must assess how it can modernize its transport infrastructure. Without it, economic modernization is a dream; at least it will fall well short of its significant potential.

China managed to leapfrog in telecommunications infrastructure, going straight to cellular. In 1985 in China, the only people with a phone were party officials, doctors, and police. Now, almost everybody has a mobile device. Likewise, Africans are leading the world in adopting mobile technology. This gives Africa the ability to catch up very fast in facilitating commerce in national, local, and continent-wide markets. Mobile commerce is a major channel that must be embraced as a key pillar of macro-economic modernization — and in the operation of companies.

Conclusion

With long-term visionary leadership, African countries and companies might be able to leapfrog some of the development process. For sure, with the right policy tools, a 6-wave economic model, and practical applications such as aggressive agricultural reform, pilot program SEZs, and leading-edge transport/telecom systems, Africa can catch up fast — maybe as fast as a cheetah. The details of Africa’s future are right there waiting for it — in its collective imagination.