China’s importance to Africa

During the last decade, China’s economic engagement with Africa has been increasing writes Alebel Bayrau Weldesilassie.

#Focac: During the last decade, China’s economic engagement with Africa has been increasing. Evidences show that China became the largest trading and investment partners of Africa.

In this regard, an important milestone is the China – Africa cooperation. Mutual benefit is the foundation for the sustainability of this cooperation.

However, such cooperation entails each party to do ‘good’ for the other partner to gain something ‘equivalent’ to it. That is, each part is required to formulate its objective function with the principle of ‘give and take’.

The cooperation may fail in the absence of ‘mutual benefits’. To avoid this, each side is expected to have clear understanding on their expected benefits that they value most from such cooperation both in terms of its contents and realisation.

Accordingly, formulating the ‘right’ benefit that each party aims to gain for what each party is willing to ‘give up’ is most important for the sustainability of the cooperation. In addition, given this benefit, it is expected that the realisation of the benefit requires not only cooperative effort from both sides but also efficiency and effectiveness in goods and service delivery.

While the ‘impact’ of such economic Cooperation in Africa or ‘who benefits’ more from it is open for discussions, my aim is not to outline/comment on ‘what should constitute the potential benefits’.

Neither is to contribute to the discussion on the impact of the Cooperation on Africa. My aim is to contribute on ‘how to promote and realise mutual benefit from the cooperation’.

More specifically, I focus on the conceptual issues that should be given due emphasise in formulating and realisation of the ‘mutual benefits2’, with particular focus from Africa side.

Despite its good economic performance in the last decade, structural transformation is still limited in Africa.

Thus, Africa needs to work towards transforming its economy to an economic model based on high productivity and value addition sectors, especially the manufacturing and modern agriculture and services so that it can benefit from the Cooperation in the years to come.

On the other hand, the development of Industrial Zones (IZs) is a central platform in China’s announced strategy of engagement in Africa as ‘mutual benefit’.

IZs have been and are key policy instruments in enhancing economic transformation by attracting investment, promoting technological learning, upgrading and innovation and generating stable and decent employment.

However, the challenge is that IZs Development requires setting realistic goals and designing feasible pathways towards the effective achievement of their goals.

In this regard, Chinese experience in the development of Special Economic Zones (SEZs), a variant name of IZs in China, is exceptionally rich to draw relevant lessons for Africa.

This article, therefore, aims to draw some important lessons that African countries can learn from the successful and remarkable contributions of SEZs to China’s structural transformation. I believe the lessons can help African countries in formulating their benefits and work to realise the same from the Cooperation.

The lessons, if adapted well to suit to each country’s specific feature, will not only help to improve and strengthen the mutual benefits of the cooperation but also benefit African countries in enhancing the process of economic transformation3.

3 The lessons are identified based on a field level primary data, expert interviews and review of relevant literature.

The first lesson is ‘What should be the basic concept of IZs in Africa? The success story from China’s experience shows that the concept of IZs should fundamentally originated from the overall development thinking of Africa.

First, African governments should have clear understanding of the development problems and challenges of their continent. Then, this helps to formulate effective development path.

While China’s development path was ‘a gradualist approach towards reform’, it is important that African countries consider approach that is pragmatic so that they are able to identify problems, sort out issues, develop measures, and test and evaluate results before they incur huge costs as a result of their policy decisions.

Besides, it is essential that policy reforms or Cooperation to be governed based on ‘Problem – and Development – oriented strategy, rather than an ideological-based policy’. Such development thinking can be the foundation to set clear objectives and roles of the development of Industrial Zones in Africa.

Africa can benefit from the cooperation if it uses IZs as a strategy to ‘generate foreign knowledge and capital by attracting China’s investment’, generate employment as well as to ‘serve as a venue to experiment reforms and new policies’.

The second lesson from China’s SEZs development path is that African countries need to have clear understanding on ‘What should be the institutional arrangement for the effective implementation and realisation of IZs pre-defined goals?

In this regard, the experience of SEZs in China is worth to consider. IZs were designed to support the economic development of the regions with SEZs and of the rest of the country. Most importantly, four key lessons can be drawn from their implementation mechanisms.

First, Africa should give due consideration to its internal political economy features in designing their implementation mechanisms though the international opportunities including China should also be considered.

Second, it is also advisable to use IZs to experiment some policy reforms that Africa did not experience before. However, this requires committed leadership and inclusive institutional arrangement to experiment and quickly learn from both its-own and the other partner’s successes and failures.

Third, while other factors (resource, labor, domestic market, etc) play important role in attracting China’s investment, Africa should also use targeted preferential policies to promote the development of its IPs.

Fourth, Africa should also target improving its productive capability rather than focusing on short terms benefit & costs, which can be realised through good institutional arrangement designed to strengthen domestic linkage & technology transfer.

The third lesson from China’s experience is that African countries need to have clear idea on ‘how should IZs be governed? The experience of China SEZs revealed that their governance system was designed based on the principle of government led and market operating.

Accordingly, a special administrative system was established to administer and manage the SEZs by the central government. The administrative system is designed with core management concept of efficiency and effectiveness in service delivery and decision making.

Its main central idea is to simplify procedure of examination and approval, as well as improve administrative efficiency and to provide flexible measures to facilitate investment and trade according to the principle of efficiency and convenience.

Finally, Africa should also give due attention to minimise the negative outcomes. This requires a careful formulation of its institutional and organisational arrangements.

Such arrangements should enable Africa to not only identify fundamental development constraints, the potential benefit and costs from the Cooperative; and effectively delivering the required service with cooperative efforts but also minimise the negative outcomes so that it is possible to realise the mutual benefit from the Cooperation.

Alebel Bayrau Weldesilassie is a senior researcher with the Ethiopian Development Research Insititute.

This article first appeared in an Independent Media supplement.