Factories in Africa and China’s Special Economic Zones

Magatte Wade, an African entrepreneur and columnist for the Huffington Post, has a vision for the future of Africa that entails becoming a manufacturing powerhouse.  African countries have abundant human capital and low-cost labor.  The current manufacturing giant, China, has recently seen an uptick in labor strikes, with workers gaining more bargaining power, which will ultimately drive up wages.  Here she explains her vision:

My vision for Africa is one in which it becomes the first region of the world to create a socially and environmentally responsible manufacturing base. But key to that vision is that Africa does create a manufacturing base. Because we will never be helped by those Americans who are strictly selfish and self-indulgent, I am appealing to those Americans who want to help to transcend their romance with foreign aid and microfinance, and begin to take seriously investing in African manufacturing and purchasing products made in Africa. Yes, pay attention to the kind of manufacturing that produces the goods you buy. But also remember that we Africans deserve the same respect and quality of life that you have. Microfinance and arts and crafts alone will not get us there.

The article is worth reading in full, as are most of her columns.  She hates Jeffrey Sachs and Bono, the two lightning rods of criticism for the counter-productive aid approach to development, and her screeds are a good read.  But back to the topic at hand. Ms. Wade is in luck, because China is making moves to transfer its role of the world’s go-to manufacturer to Africa, so that it can move up the value chain and focus on other, less polluting endeavors.  Here’s how.

China is setting up special economic zones – a critical element in their own development, which resulted in hundreds of millions of people escaping poverty – in partner African countries.  It covers the startup costs, the building of the special economic zones, and even is responsible for managing them once they’ve been built.  China’s state venture capital fund for investments in Africa has taken an equity stake in three of the seven zones being built.  The goal is to encourage Chinese companies to move some operations to Africa.  In this short article from Foreign Affairs, the author explains the reasoning behind the decision:

Why would the Chinese government push some of its labor- and energy-intensive industries to move to special economic zones in Africa, even as the U.S. Congress bans the U.S. Agency for International Development from financing any activities that could relocate the jobs of Americans overseas? Because Chinese planners want industrialists at home to move up the value chain. Polluting industries such as leather tanneries and metal smelters are no longer tolerated in many Chinese cities. And as the world economy recovers from the recent economic recession, wages and benefits will resume rising in China’s coastal belt, as they had been before the crisis. Some factories will move further inland, but others will go offshore, closer to both the sources of and the markets for raw materials.

The early stages of industrialization might bring pollution, low wages, and long workdays, especially if the Chinese zones are successful. But like China’s resource-backed loans, the planned economic zones promise to provide African countries with some things they very much want: employment opportunities, new technologies, and badly needed infrastructure. This is an opportunity for African states to ride into the global economy on China’s shirttails rather than remain natural-resource suppliers to the world.

While the West supports microfinance for the poor in Africa, China is setting up a $5 billion equity fund to foster investment there. The West advocates trade liberalization to open African markets; China constructs special economic zones to draw Chinese firms to the continent. Westerners support government and democracy; the Chinese build roads and dams. In so doing, China may wind up supporting some dictatorial and corrupt regimes, but — and this is an inconvenient truth — the West also supports such regimes when it advances its interests. And given the limits of the West’s success in promoting development in Africa so far, perhaps Westerners should be less judgmental and more open-minded in assessing China’s initiatives there.

While the West ambles along counter-productively with Bono leading the charge, China makes a far-sighted move.  Unfortunately for Ms. Wade, the new manufacturing sector in Africa will probably not be the clean, green machine that she envisions.  But it will at least create the manufacturing base that Africa needs to catalyze development in the way the Asian tiger economies have done over the last twenty years.

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