Business
Getting Rich the Hard Way
Crony capitalism is a key danger for any government, even those historically recent converts to the free mar- ket such as the US, as regular bust-ups surrounding lobbyists in Washington DC show. Congressman Frank Lucas, chair of the House of Representatives Agriculture Committee, received more than $744,000 in campaign donations from agribusiness giants for the 2012 US elections.
A clear African example was President Zine el-Abidine Ben Ali’s Tunisia, and there are countless others. Economists such as South Korea’s Ha-Joon Chang suggest that it is not ‘state’ or ‘market’ that is the issue. After all, Japan and South Korea both created fierce domestic competition between companies for access to export credit, establishing ‘export discipline’. Rather, the key is in the management of the transition from initial state protection to an open liberal market – a subject on which there is little research.
Factories first, roads after
Justin Lin dismisses another of the commonly held preconceptions against the drive to boost manufacturing in Africa: the lack of infrastructure. “I remember driving around the new factories in Shenzhen in the 1980s”, says Lin, referring to the launch site of China’s manufacturing miracle around the Pearl River Delta.
“The roads were nowhere near what you have in Ethiopia.” And even in chronic laggards like Nigeria, new port projects are seeing the light of day. If African governments choose to go slow on manufacturing, there are plenty of others that are keen to eat their lunch. Explosive wages in Asia are forcing manufacturers of all stripes to look for cheaper production sites.
For Lin, governments need to bulldoze through traditional business handicaps of red tape and bureaucracy by creating export processing zones. The Chinese government is sponsoring several such zones across the continent. African governments will have to look long and hard at the Mexican maquiladoras (factories in free trade zones) experience and see if that is for them.
For example, because maquiladora companies import nearly all components and technology, there is very little secondary industry stimulated by the vast export processing zones on the Mexican side of the 3,000km border with the US. Perhaps China and South Korea’s experiences in pushing for joint ventures and requiring technology transfers would be an interesting model to follow.
Internationally minded manufacturers will first go to countries where they are welcomed by an active government, such as Ethiopia’s, which has been one of the most strident in its rejection of Bretton Woods laissez-faire doctrine. “I think that there is great potential in sub-Saharan Africa when it comes to production,” H&M chief executive Karl-Johan Persson told Swedish newspaper Dagens Industri in January. “We have started producing on a small scale in Ethiopia and we will see how it goes.”
