The African Model: Asia’s path may not work, but there is an alternative
Labour-intensive export-led industrialisation worked for China, but Africa is not China. It must come up with its own strategies to reduce poverty.
If Asia’s labour-intensive export-led industrialisation won’t work, could an African model focus on the domestic market? Credit: Chris Eason.
Africa’s economic progress over the last 25 years has been a mixed bag. On the one hand, the proportion of people living in extreme poverty has declined from 54% to 41%. On the other, the absolute number of people living in poverty has increased in this same period as population growth has outpaced the 0.5% average fall in the poverty rate.
In order to reduce poverty at a faster pace, some development specialists suggest Africa should follow the path previously taken by several Asian economies: namely, embarking on a path of labour-intensive export-led industrialisation. At different points of the 20th century, several countries – such as Japan, South Korea, Taiwan, Malaysia and, of course, China – grew their economies rapidly by exploiting their relatively low labour costs to manufacture products for the world market at lower prices than industrialised economies could.
Those advocating for this approach in Africa point out that wages in China and elsewhere in Asia are now rising. This means international manufacturing companies could be looking to relocate in search of lower labour costs. They hope Africa will be this next location.
But, as we asked in a recent African Affairs article, is labour-intensive export-led industrialisation the most viable option for African countries? And does it actually reduce poverty?
Will the Asian model work for Africa?
There are various reasons why following the Asian model of industrialisation might not work so well for Africa.
To begin with, the necessary conditions on the continent are less optimal than they were for Japan in the late-19th century or many other Asian economies in the 20th century. Around 1900, for example, real wages in Japan were about one-eighth of those in Britain. This allowed it to significantly undercut the production costs in Western nations.
The wage gaps between African countries and the currently industrialising nations of Asia today, however, are not nearly so large. Wages on the continent are on average a third of those in China and on par with those in more recently-risen economies such as Vietnam and Bangladesh. Labour in most parts of Africa is probably not cheap enough (yet) to compete with Asian manufacturing whose competitive edge has not yet faded.
At the same time, other factors that were crucial to industrialisation elsewhere are currently weaker in Africa. In both Asia and Europe, for example, the existence of strong “proto-industries” – such as the skill-intensive production of textiles, pottery and furniture – were central to industrialisation. Most early industrialisers also had strong states with the ability to suppress domestic labour costs at home and the power to influence global export markets abroad. They used this crucial geo-political power to forcibly open up foreign consumer markets – for example in European colonies – and/or extract inputs such as palm oil, cotton, rubber or minerals at low prices.
By contrast, African countries today have less extensive proto-industrial foundations, weaker states able to steer the industrialisation process, and less geo-political influence to set the terms of international trade.
Does export-led industrialisation reduce poverty?
These differences in historical context suggest African countries will struggle to replicate Asia’s path. This may seem like bad news for the continent’s poor, but a look at the historical evidence questions the notion that a big industrial push necessarily leads to rapid poverty alleviation. In both Japan and Britain, for instance, it took several generations before lower-income classes saw any improvement in their living conditions.
Ethiopia may also be illustrative. The East African nation is one of the few exceptions on the continent in that it is actively following the path of Asian-style labour-intensive export-led growth. Its wage gap with China is in the order of 1:8. Its strong state is concertedly pursuing industrialisation. And it has created thousands of new manufacturing jobs. Yet, so far, economists have found few signs that these developments are significantly improving the material well-being of Ethiopia’s lower-income groups.
The lesson for African countries here is that poverty alleviation through industrial growth either requires lots of patience or active government intervention to support the poor (albeit without raising labour costs).
An alternative African model
All this suggests that the Asian path may be both unfeasible and undesirable for Africa. But there is an alternative. It may be impossible to reduce poverty without industrialisation, but industrialisation does not necessarily need to focus on exports.
Africa’s “population boom” does not just create challenges but also opportunities through a process of domestic market integration. Growing domestic markets enhance consumer demand, while rapid urbanisation increases labour productivity. The greater population density of cities allows for a higher degree of resource sharing, access to public goods such as a health and education, divisions of labour, and faster spill-overs of knowledge. A stronger focus on domestic markets also tends to strengthen the linkages between a country’s agricultural, industrial and service sectors without having one sector alone (i.e. manufacturing) pulling the economy to higher GDP levels.
This suggests that rather than producing for international markets, most of Africa’s economic growth in the coming decades may be better realised by catering to and connecting growing domestic markets.
For policy-makers, the path chosen and the focus for industrialisation raises many questions. For example, which road should be built or improved next; one that connects urban hubs or one to the coast? Should domestic firms be granted start-up subsidies, and if so, which ones? Under what conditions should African countries allow foreign investors to operate?
A path that focuses on strengthening domestic markets is not going to reduce poverty at the pace witnessed in China over the past 40 years, but it may provide a much safer bet for raising living standards in the short- to medium-term.
Dear authors, this is an excellent approach which up to now is not widely perceived in the developed economies and also in International development policies or programmes. Additionally to the strengthening of the domestic markets, still exports – to neighbouring African countries should be taken into account, especially after the signing of african continental free trade area (afcfta). So 3 phases could be developed:
1. domestic market 2. intra-african exports 3. exports to other regions. And by the way: a great tool to enhance market activites domestically and abroad are trade shows!
Great article. Personally I have very often asked the rhetorical question of why Africa cannot developing following the Asian vs Western model. This article is the best answer I have got to date.
However, once more, a great discussion on development that misses the one greatest common denominator in all developing and developed countries – energy. Until Africa engages in massive energy development, growth will always be limited.
Authors – please check out our article entitled ‘Exploring Micro -Industrial Potentials in Kenya under the name Donna Pido on Academia.edu
This is a very good article which points out factors which are well known but ignored because we continue looking for answers outside the continent. The domestic and regional market is where most african countries should focus on. There are just next door; so easy to reach and there are not many stringent conditions. There is a need to improve the road network in order to boost such trade. What is more important though is the elimination of Non-tariff barriers. Leaders talk about it at every conference but without concrete action. Another area which needs to be looked at seriously is sub-optimal use of labor because of ethnic considerations. This is common in a number of african countries. Yet another draw-back is decisions on project location based on the voting choice of a particular village/ district
Considering the natural resources and human capital the continent is endowed with, it is a complete travesty if one considers the number of Africans living in poverty.
To shape the nature of development policy and practice, and to achieve better results relative to those achieved over the past five decades, it is imperative to situate ‘Africanness’ at the center of sustainable social, economic and political development in Africa. A better understanding of ’Africanness’ and a deeper appreciation of African heritage can be achieved through focused research and rigorous analyses in order to shape policy and practice on critical issues of governance, integrated economic development and the evolution of African institutions.
Effective and sustainable development can only be achieved if development policies and practices are founded on the cultural heritage, value and knowledge systems and institutions of the people who are the subjects or beneficiaries of the development interventions.
A question comes to my mind: how will African countries produce manufactured goods for their domestic markets in a sufficiently competitive way to dissuade their citizens to simply import similar goods from, say, China?
A very sober message that should be handed as a vade mecum to decision makers. Too many of the latter tend to fall into the trap of entering competitions that are already decried (in highly industrialised and urbanised economies) as counterproductive as far as environment, wellbeing and social harmony (GINI) indicators are concerned. A concrete example: in countries where agriculture is lagging behind in terms of its capacity to meet domestic demand, one should hope that the new decision makers will not address the problem by inviting major agro-industries to occupy large swathes of land, hire and turn less than 1/100 of available peasants into employees of their farm/factories and poison Heaven-like soils with Monsanto-Bayer chemicals.
Having written that, decision makers must also remain aware of what… their own children, and other members of the rising middle class, dream to buy: these are essentially manufactured goods and services that require a constant stock of foreign currencies. In other words, each and every African nation needs to secure a minimum of exportable activities to be in a position to satisfy its domestic demands while trying as much as possible to arouse a “patriotic” taste for local goods – as well as a taste for a common way of life at regional level, so as to grow together and to overcome mutual suspicions.
It is refreshing to read an article which acknowledges that not every country or continent deemed to be ‘under-developed’ needs to follow the Western model of industrialisation in order to succeed and progress. However, this does not automatically mean that Africa, the continent in question, has to instead follow the Asian model just because it is an example of a successfully developed continent in the Global South. Therefore, this article is interesting because it recognises that Africa most likely requires the ‘African model’ in order for the majority of the countries within it to successfully advance, progress and develop, instead of the models provided by the Global North or Asia.
In order for Africa and the countries in the continent to successfully develop in all sectors, not just their economies, it is imperative that African populations are involved in the policies and strategies created with the aim of achieving this development.
What about countries with small domestics markets that do not lend themselves well to economies of scale, like Lesotho?
cholorquine https://chloroquineorigin.com/# what is hydroxychloride
Hello. And Bye.