Over the weekend I met a Jamaican guy with whom I struck an almost instant friendship. We had long and intense discussions about matters relating to the economies of developing countries. Of course, there is hardly any discussion about developing countries that would not touch on China and India, and the advantages the countries have.
Size and cost
The Economist did a special report on technology in India and China in their November 10th – 16th edition. Part of the report says that China’s biggest advantage – while discussing technological innovations – is the shere size of its market. That statement was made in relation to the role of “venturesome and resourceful customers” in steering technological innovation. The principle is simple: a company does not need to wait till it has perfected its products before presenting it to the public. Because China has a huge population that is gradually becoming more and more economically empowered, you can throw what is not yet perfect to the market, and then let the feedback determine areas that need attention. It is best captured by this statement, “You can afford to waste some customers with imperfect product, because there are always another 100m out there to whom you can sell version 2.0.” If we translate that to other parts of the economy, one would realise that shere population is strength for both China and India. There is a large chance for a country that is growing to expand inside itself as more and more citizens gain economic strength. In other words, simply empowering the citizens provides a space for economic growth. Also, there is a tendency for the country to attract FDI, based simply on the size of its market.
Another advantage that one keeps hearing about is the price of labour in China. With an increasing population of members of the middle class, and a large army of cheap labour to boot, China seems not only to be ready for growth based on the strength of an increasing middle class, but also because of its large army of cheap labour. With this large army, it can produce at a very cheap rate for exportation. And it has been doing this. One major point that is sometimes missing in the moral debate on China’s business in Africa is that there is a large amount of made-in-China products in African markets, and these goods are so cheap that they sell more cheaply than locally produced ones. The price of labour is also an important attraction for FDI.
Please, help!
What exactly do I need help with? The problem is this: what is the comparative advantage that African countries have? Why would African countries be attractive for production and not just servicing? I think of shere size of population in the case of China and India, and I think of cheap labour, especially in the case of China. Are African countries doomed to simply supplying developed and emerging economies with raw materials to which value is added and then brought back to be sold in African countries? I am asking for help because it seems that my rudimentary knowledge of economics cannot fully appreciate the situation.
Comparative advantage for what ?
In an ideal world, with a cheap educated workforce and a better investment climate some places could become attractive for production. Think about a cluster of industries developing in the drc-zambia copperbelt if energy (easy) and transport (harder) becomes cheap.
Comparative Advantage may be a sort of irrelevant story.. I mean what makes Finland so competitive in engineering, telecommunications and electronics industries ? And why the hell are processors made in Costa Rica ?
Comparative advantage for what ?
In an ideal world, with a cheap educated workforce and a better investment climate some places could become attractive for production. Think about a cluster of industries developing in the drc-zambia copperbelt if energy (easy) and transport (harder) becomes cheap.
Comparative Advantage may be a sort of irrelevant story.. I mean what makes Finland so competitive in engineering, telecommunications and electronics industries ? And why the hell are processors made in Costa Rica ?
Thanks RA…. I meant the competitiveness of a country, or region, in attracting FDI, for instance. One answer to the Finland story would be to say that it is one of the early starters(I would have to check and see that). I was thinking about reasons a person would want to site industries in African countries. The cases of India and China sound pretty straightforward, that was why I used them as an example…. And in the case of Costa Rica, proximity to the US gives producers easy access to the American market. And yes, I could think about a cluster of industries developing at the DRC-Zambia area, but my question is why would they develop there? Or better still why have they not developed there?
I think I get your point though… there are a whole lot of issues one needs to think about. One of them would be the impact of political stability and government policies. But then, I have a friend who always says that the most volatile area of the Nigerian economy is the part that gets the most FDI….
Thanks RA…. I meant the competitiveness of a country, or region, in attracting FDI, for instance. One answer to the Finland story would be to say that it is one of the early starters(I would have to check and see that). I was thinking about reasons a person would want to site industries in African countries. The cases of India and China sound pretty straightforward, that was why I used them as an example…. And in the case of Costa Rica, proximity to the US gives producers easy access to the American market. And yes, I could think about a cluster of industries developing at the DRC-Zambia area, but my question is why would they develop there? Or better still why have they not developed there?
I think I get your point though… there are a whole lot of issues one needs to think about. One of them would be the impact of political stability and government policies. But then, I have a friend who always says that the most volatile area of the Nigerian economy is the part that gets the most FDI….
The Copperbelt already has cheap copper (and other minerals) on site. There is a huge hydroelectrical potential in the region so there is potential for cheap energy. From that you could imagine machinery and other related industries could devellop around.
why hasn’t it develloped ? well, first it’s transport costs, the ocean is not close and the quality of roads, railroads and political instability often causes transportation problems. then there’s of course the cheap educated labour issue and finally policies.
as far as volatile area getting FDI, well it’s simple, high risk can be balanced out by high returns on investment. so investments in oil or minerals even with the risk of nationalization more attractive than manufacturing.
and what eventually makes Africa attractive ? well, it’s underdevellopment of course. millions of square miles still waiting for modern farming.. millions of everything yet to be produced, consumed, sold, bought, used..
The Copperbelt already has cheap copper (and other minerals) on site. There is a huge hydroelectrical potential in the region so there is potential for cheap energy. From that you could imagine machinery and other related industries could devellop around.
why hasn’t it develloped ? well, first it’s transport costs, the ocean is not close and the quality of roads, railroads and political instability often causes transportation problems. then there’s of course the cheap educated labour issue and finally policies.
as far as volatile area getting FDI, well it’s simple, high risk can be balanced out by high returns on investment. so investments in oil or minerals even with the risk of nationalization more attractive than manufacturing.
and what eventually makes Africa attractive ? well, it’s underdevellopment of course. millions of square miles still waiting for modern farming.. millions of everything yet to be produced, consumed, sold, bought, used..
oh yeah also:
– i never really understand why we africans are looking at the indian and chinese models. i mean they’re both very special cases and no african country will ever become the new China or the new India. Malaysia, Korea, Brazil, Costa Rica, Mexico, Japan, Taiwan, Indonesia, Singapore, european countries are all more relevant models.
– there is a little statistical detail often overlooked: in India growth accelerated 10 years before pro-FDI reforms were made. (http://endpovertyinsouthasia.worldbank.org/four-incovenient-truths-about-indias-economic-growth) I suspect the Green Revolution has something to do with it. In China too, growth accelerated with a reform in the agricultural sector before the FDI-driven agricultural sector kicked off.The same could be said for modern Brazil or the early 20th century Argentine miracle. That’s one of the reasons why I tend to think african growth will all start in agriculture too.
oh yeah also:
– i never really understand why we africans are looking at the indian and chinese models. i mean they’re both very special cases and no african country will ever become the new China or the new India. Malaysia, Korea, Brazil, Costa Rica, Mexico, Japan, Taiwan, Indonesia, Singapore, european countries are all more relevant models.
– there is a little statistical detail often overlooked: in India growth accelerated 10 years before pro-FDI reforms were made. (http://endpovertyinsouthasia.worldbank.org/four-incovenient-truths-about-indias-economic-growth) I suspect the Green Revolution has something to do with it. In China too, growth accelerated with a reform in the agricultural sector before the FDI-driven agricultural sector kicked off.The same could be said for modern Brazil or the early 20th century Argentine miracle. That’s one of the reasons why I tend to think african growth will all start in agriculture too.
At the moment African countries have no comparative advantage. Zilch! However, this can be achieved by leaning from the two countries you listed – China and India. Looking at Nigeria for instance, the country has a lot of similarities with India.
What measures did India take in the last 15 to 30 years that have now pushed them to where they are today?
Education, with strong emphasis on technology, is one. While on a trip to New Delhi last year, I was surprised to see how packed their dailies are with ads on education – classes and classes on MCAT, Microsoft certification exams, GRE, GMAT, TOEFL, name it, you will find it in their newspapers.
India has also created a thriving environment for the small business owners, particularly those focused on technology.
Despite, the insane levels of corruption and it’s multiethnic setup, and sharp divide in socioeconomic status, India has found means to set its priorities right in ways that African nations can’t or yet to fathom.
At the moment African countries have no comparative advantage. Zilch! However, this can be achieved by leaning from the two countries you listed – China and India. Looking at Nigeria for instance, the country has a lot of similarities with India.
What measures did India take in the last 15 to 30 years that have now pushed them to where they are today?
Education, with strong emphasis on technology, is one. While on a trip to New Delhi last year, I was surprised to see how packed their dailies are with ads on education – classes and classes on MCAT, Microsoft certification exams, GRE, GMAT, TOEFL, name it, you will find it in their newspapers.
India has also created a thriving environment for the small business owners, particularly those focused on technology.
Despite, the insane levels of corruption and it’s multiethnic setup, and sharp divide in socioeconomic status, India has found means to set its priorities right in ways that African nations can’t or yet to fathom.
@ Random African
Thank you for your insight. I agree with you on the transportation issue, but I don’t think reducing the solution to fixing the transportation problem is exactly the panacea…. This actually reminds me of the recent comments at Omodudu’s blog. Transportation is an important aspect of the equation, especially if one wants to deal with the issue of agriculture and food security. Also, are we thinking of agricultural produce for exportation? We should, at the same time, remember the protectionism of rich countries.
@Imnakoya
Actually, I tend to agree with you on the education bit. Yes, African countries need to work on educating their citizens. India became a hub for outsourced IT servicing jobs because there were educated people to take up the jobs when they became available. China too has invested – and continues to invest – a lot in technological development, even if it seems now that they copy more than they invent. But then, one cannot choose bits and pieces of countries to pay attention to; many of the problems are so linked together that it makes it difficult to determine what the entrance point should be.
@ Random African
Thank you for your insight. I agree with you on the transportation issue, but I don’t think reducing the solution to fixing the transportation problem is exactly the panacea…. This actually reminds me of the recent comments at Omodudu’s blog. Transportation is an important aspect of the equation, especially if one wants to deal with the issue of agriculture and food security. Also, are we thinking of agricultural produce for exportation? We should, at the same time, remember the protectionism of rich countries.
@Imnakoya
Actually, I tend to agree with you on the education bit. Yes, African countries need to work on educating their citizens. India became a hub for outsourced IT servicing jobs because there were educated people to take up the jobs when they became available. China too has invested – and continues to invest – a lot in technological development, even if it seems now that they copy more than they invent. But then, one cannot choose bits and pieces of countries to pay attention to; many of the problems are so linked together that it makes it difficult to determine what the entrance point should be.
errrr..
It goes far beyond agriculture, Lomnie. Manufacturing in China became profitable also because of lowest transport costs. And China invested billions in its transportation facilities, especially the ports. That is why the factories are on the coast and because China is now investing in the interior’s infrastructure, the activity spreading too. I mean what’s the point of taking advantage of cheap labour or cheap energy if you end up spending the money you just saved on transportation ?
Furthermore, if we’re talking about agriculture, no african country ever fulfilled its quota in APC treaties, so protectionism doesn’t have much to do with it and Zimbabwe managed to do quite good during the 80’s, didnt it ?
You don’t even have to export produce. Agricultural growth can make the workforce cheaper (by reducing the price of food) or create a demand for other types of products (by increasing the disposable income for everything else).
the Indian story about education/devellopment is weird. they still lower literacy rates than most african countries and more hungry people than the whole continent. but somehow we’re fooled by the IT services.
errrr..
It goes far beyond agriculture, Lomnie. Manufacturing in China became profitable also because of lowest transport costs. And China invested billions in its transportation facilities, especially the ports. That is why the factories are on the coast and because China is now investing in the interior’s infrastructure, the activity spreading too. I mean what’s the point of taking advantage of cheap labour or cheap energy if you end up spending the money you just saved on transportation ?
Furthermore, if we’re talking about agriculture, no african country ever fulfilled its quota in APC treaties, so protectionism doesn’t have much to do with it and Zimbabwe managed to do quite good during the 80’s, didnt it ?
You don’t even have to export produce. Agricultural growth can make the workforce cheaper (by reducing the price of food) or create a demand for other types of products (by increasing the disposable income for everything else).
the Indian story about education/devellopment is weird. they still lower literacy rates than most african countries and more hungry people than the whole continent. but somehow we’re fooled by the IT services.
Reading this post and the comments it elicited makes me want to research this issue.
I am sure someone has already done the research necessary to answer your question, Loomnie. Anyway, I passed this on to a couple people. Hopefully one of them will have some more insight to add to this good conversation…
Reading this post and the comments it elicited makes me want to research this issue.
I am sure someone has already done the research necessary to answer your question, Loomnie. Anyway, I passed this on to a couple people. Hopefully one of them will have some more insight to add to this good conversation…
Hi Loomnie,
It’s been a while. This is my first time on ur new site. I think it’s kool. I’m sure it offers more advanced features. You may want to read my new snippets of my NYSC experience in Ekiti, as a Lagos corps member. Check my blog, pls. Bye.
Hi Loomnie,
It’s been a while. This is my first time on ur new site. I think it’s kool. I’m sure it offers more advanced features. You may want to read my new snippets of my NYSC experience in Ekiti, as a Lagos corps member. Check my blog, pls. Bye.
Ah, Chris, that’s where you are now. I hope you are having a nice time there! Many greetings from London!
Ah, Chris, that’s where you are now. I hope you are having a nice time there! Many greetings from London!
searching for comparative advantages is a Herculean labour. it has to do with juggling relative and marginal costs both in the intra-economy and in the international system. alas, nobody can claim expertise in this area unless it is expertise of a purely theoretical sort. for instance, we need to assume perfect knowledge; we also need to presume that production in whatever environment results in homogenous commodities and that there is a taste everywhere for any commodity produced according to the dictates and principles of Ricardian comparative advantage. what is more, we forget also that comparative advantage is nothing without the ideological back-up of advertising hype, or that, for the strategic reasons of realpolitik, countries have seen it fit to maintain a tangible sense of self-sufficiency. african countries need to produce simple and short. they need to give a thought to what to produce and how to distribute. and as for those of them that are resource-dependent and/or are seeking to industrialize in a massive way, they need to know that production incurs destruction to the environment and depletion of resources in addition to some of its other unintended outcomes. the perennial problems for me are: the mindless exploitation of people for private profit and the denial of individual self-fulfilment by the politico-economic directorate.
searching for comparative advantages is a Herculean labour. it has to do with juggling relative and marginal costs both in the intra-economy and in the international system. alas, nobody can claim expertise in this area unless it is expertise of a purely theoretical sort. for instance, we need to assume perfect knowledge; we also need to presume that production in whatever environment results in homogenous commodities and that there is a taste everywhere for any commodity produced according to the dictates and principles of Ricardian comparative advantage. what is more, we forget also that comparative advantage is nothing without the ideological back-up of advertising hype, or that, for the strategic reasons of realpolitik, countries have seen it fit to maintain a tangible sense of self-sufficiency. african countries need to produce simple and short. they need to give a thought to what to produce and how to distribute. and as for those of them that are resource-dependent and/or are seeking to industrialize in a massive way, they need to know that production incurs destruction to the environment and depletion of resources in addition to some of its other unintended outcomes. the perennial problems for me are: the mindless exploitation of people for private profit and the denial of individual self-fulfilment by the politico-economic directorate.
someone on this forum has somewhat pu india in its place. so let me attempt to tackle the fascination that the dragon holds in the imaginings of many of us: it is impossible to finger the chinese ‘miracle’ as an expression of comparative advantage. unless in that special acceptation of the concept which dreams of establishing a utopia at the level of the international political economy without acknowledging that the benefits of so-called free trade are never equally distributed among nations and within nations. what then is china? it is capitalism developing along a trajectory that quickens the theoretical bones of supposedly dead good old marxism. tne paradox of it all is not lost on those of us who can humourize history. here is a communist-controlled society with a marxism that is a perfect political masque meant not at all to disguise authoritarianism but rather to amplify it and make it an obscene celebration of the proliferation of whips and the stock market. no doubt, there is production in china. but this would be nothing without the unscrupulousness of a regime that is bothered neither about the conditions of labour on the homefront nor about the character and social ethic and preoccupation of its external trading partners. at this juncture, we are beginning to immerse ourselves in the comparative advantages we are looking for. the level and amount of technology trained on production is always an important factor in these matters. but it requires an appropriate political directorate wielding a particular social philosophy to propel it the chinese way. the idea of comparative advantage is the dog-eat-dog policy of the international economy. but we are cajoled to participate in it in the belief that what is being promoted is free trade and a plenitude of global enjoyment. i think that we don’t need to cudgel our brains before we may formaulate a strategy for africa. let us start with this statement of the problem: how may africa (or any african country) thru the subterfuge of production and international trade hold its people and the rest of the world to economic ransom?
someone on this forum has somewhat pu india in its place. so let me attempt to tackle the fascination that the dragon holds in the imaginings of many of us: it is impossible to finger the chinese ‘miracle’ as an expression of comparative advantage. unless in that special acceptation of the concept which dreams of establishing a utopia at the level of the international political economy without acknowledging that the benefits of so-called free trade are never equally distributed among nations and within nations. what then is china? it is capitalism developing along a trajectory that quickens the theoretical bones of supposedly dead good old marxism. tne paradox of it all is not lost on those of us who can humourize history. here is a communist-controlled society with a marxism that is a perfect political masque meant not at all to disguise authoritarianism but rather to amplify it and make it an obscene celebration of the proliferation of whips and the stock market. no doubt, there is production in china. but this would be nothing without the unscrupulousness of a regime that is bothered neither about the conditions of labour on the homefront nor about the character and social ethic and preoccupation of its external trading partners. at this juncture, we are beginning to immerse ourselves in the comparative advantages we are looking for. the level and amount of technology trained on production is always an important factor in these matters. but it requires an appropriate political directorate wielding a particular social philosophy to propel it the chinese way. the idea of comparative advantage is the dog-eat-dog policy of the international economy. but we are cajoled to participate in it in the belief that what is being promoted is free trade and a plenitude of global enjoyment. i think that we don’t need to cudgel our brains before we may formaulate a strategy for africa. let us start with this statement of the problem: how may africa (or any african country) thru the subterfuge of production and international trade hold its people and the rest of the world to economic ransom?
Maybe the problem is in looking for “comparative advantage.” The question might be better placed as, “which sustainable industries and activities can each African country support?” THe key word for me is, of course, ‘sustainable’. This is a green thought, but not entirely. The difference is in the objective. if the objective is to prosper, then all one has to do is well. As I recall, ‘comparative advantage’ requires balancing against another entity, and if that entity is already far ahead of the game in terms of infrastructure and other basics, there’s not a lot of point talking about competition. Rather, it makes sense (to me) to talk in terms of sustainability: what will contribute to future human survival within the region. Setting up requirements that such innovation be high tech is to miss the point. In terms of Africa, it seems to me that the issue is one of gaining control over the resources that exist and then using them to the benefit of the country. That’s not the objective of capitalism, but realistically, what’s the alternative?? Try looking at Canadian economist Mark Anielski’s The Economics of Happiness. I think this is the current cutting edge of where things might go in the West fairly soon.
Maybe the problem is in looking for “comparative advantage.” The question might be better placed as, “which sustainable industries and activities can each African country support?” THe key word for me is, of course, ‘sustainable’. This is a green thought, but not entirely. The difference is in the objective. if the objective is to prosper, then all one has to do is well. As I recall, ‘comparative advantage’ requires balancing against another entity, and if that entity is already far ahead of the game in terms of infrastructure and other basics, there’s not a lot of point talking about competition. Rather, it makes sense (to me) to talk in terms of sustainability: what will contribute to future human survival within the region. Setting up requirements that such innovation be high tech is to miss the point. In terms of Africa, it seems to me that the issue is one of gaining control over the resources that exist and then using them to the benefit of the country. That’s not the objective of capitalism, but realistically, what’s the alternative?? Try looking at Canadian economist Mark Anielski’s The Economics of Happiness. I think this is the current cutting edge of where things might go in the West fairly soon.
If Ghana allows Nigeria to produce wool which they have enormous capability to produce, Nigeria will allow them the freedom to produce cocoa. Thereby enabling them to exchange and buy products from each other. African heads of state need a conference to confederate. Its lond overdue.
Africans and its leader have got to wake up. The world is moving on very fast lane and for us not to be left farther back than we are, we have to do something for ourselves.
First, Japan is an island but created a niche for itself. All they built was on water. who gave them the ideas, who helped them? Inward assessment and dedication to help improve themselves with what they have.
China, as a poor nation didnt wait for somebody to advise them before they go into isolation. closed their border and began their productions with materials sourced within. They didnt wait for any announcements before showcasing their products even when it was not perfect. Knowing that feedbacks from the market will give them the ideas they need for perfections.
African is endowed with great natural resources that can lead any nation to greatness if they choose. It looks like Africa is more in love with the beautiful life other continents have created for themselves and the junks coming with it that they just refused to look inward and do same.
Its time to say No to Imported products, No to dependency syndrome, No to Exploitation
If they have Equipment, We have the Raw materials, its time for trade by barter, give me what you have to get what i have.
Comparative advantage could be done in Africa. All african countries have what they know how to do well. Let the market be created with the looted monies from the treasuries. Bring back the monies and it could be made good use of here. Its the same money they use as loan to african countries through their world bank, so where are we? The same raw materials bought very cheap is used for the imported products which we in africa shamelessly go for. Who is fooling who?
We will not be removed from the planet if we decide as african to create our market where our products will be sold within ourselves. We have the manpower if not the superpower. This is war of the mind not of guns.
If China, India, japan can do it, Africans can also. Independence is the ultimate that will enable each country in africa have comparative advantage that will enable each nation to produce what they have manpower, materials and wherewithal to produce cheaply, instead of all the countries producing the same thing that have caused this confusion we found ourselves in.
If Ghana allows Nigeria to produce wool which they have enormous capability to produce, Nigeria will allow them the freedom to produce cocoa. Thereby enabling them to exchange and buy products from each other. African heads of state need a conference to confederate. Its lond overdue.
Africans and its leader have got to wake up. The world is moving on very fast lane and for us not to be left farther back than we are, we have to do something for ourselves.
First, Japan is an island but created a niche for itself. All they built was on water. who gave them the ideas, who helped them? Inward assessment and dedication to help improve themselves with what they have.
China, as a poor nation didnt wait for somebody to advise them before they go into isolation. closed their border and began their productions with materials sourced within. They didnt wait for any announcements before showcasing their products even when it was not perfect. Knowing that feedbacks from the market will give them the ideas they need for perfections.
African is endowed with great natural resources that can lead any nation to greatness if they choose. It looks like Africa is more in love with the beautiful life other continents have created for themselves and the junks coming with it that they just refused to look inward and do same.
Its time to say No to Imported products, No to dependency syndrome, No to Exploitation
If they have Equipment, We have the Raw materials, its time for trade by barter, give me what you have to get what i have.
Comparative advantage could be done in Africa. All african countries have what they know how to do well. Let the market be created with the looted monies from the treasuries. Bring back the monies and it could be made good use of here. Its the same money they use as loan to african countries through their world bank, so where are we? The same raw materials bought very cheap is used for the imported products which we in africa shamelessly go for. Who is fooling who?
We will not be removed from the planet if we decide as african to create our market where our products will be sold within ourselves. We have the manpower if not the superpower. This is war of the mind not of guns.
If China, India, japan can do it, Africans can also. Independence is the ultimate that will enable each country in africa have comparative advantage that will enable each nation to produce what they have manpower, materials and wherewithal to produce cheaply, instead of all the countries producing the same thing that have caused this confusion we found ourselves in.