Can Africa Follow China's Industrialization Path?

10/02/2013 07:28 pm ET | Updated Jan 23, 2014

The simple answer is "No". But there is a lot that sub-Saharan Africa ("Africa" for short) can learn from the Chinese industrialization experience -- that incredible transformation from an old, inward-looking, heavy industrial sector which 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 manufacture exports rose from nearly zero to 15 percent -- to a third if you only count labor-intensive products. Here are the main lessons African policy-makers can draw from this.

First, China's march toward factories actually started in 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 labor that kept wages very low for thirty-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 itself globally, regionally and sub-nationally. The driver of industrialization 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 south-east Asian neighborhood, 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 globalization -- selling commodities to other regions -- but it has failed at "continentalization", 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 result is that only ten percent of an average African country's exports go to another African country; the equivalent number in south-east Asia is more like 40 percent. In other words, Africa must first defragment itself if it wants to industrialize.

Third, the Chinese government 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. [It doesn't hurt that Chinese households save almost half of their income and deposit most of it in banks.] Not every project was effective, 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 decentralization 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 industrialization relatively easier for Africa, a region super-rich 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 industrialization 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 fertilizer distribution programs. 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 percent of its GDP? Well, a new book by Hinh T. Dinh and his colleagues at the World Bank argue that Africa should get ready to capture some of the lower-tech, light-manufacturing 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 jump-start Africa's industry. At the very least, it could help focus the attention of African leaders and usher them to remove the many bottlenecks in their countries' industrialization 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 to 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.