African governments are not creating the conditions to benefit from the effect of rising wage levels in China, argues Alemayehu Geda, Professor of economics, Addis Ababa University.
The Africa Report: Workers in leading China-based electronics manufacturer Foxconn are now permitted to organise their own unions, which could lead to higher Chinese wages across the economy. This would potentially leave a space for cheaper manufacturers elsewhere. Can Africa dream of replacing the Chinese shop floor?
Alemayehu Geda: In China, there may eventually be a move to relocate manufacturing to Africa. But in our recent study we have seen that, apart from Morocco, Tunisia and to some extent South Africa, African countries cannot take advantage of increasing wage inflation in China because they don't have the capacity, at least in the short term.
Is the problem African wages or African infrastructure?
African wages are relatively competitive, especially compared to China. The problem is that the cost of doing business in Africa is very high: infrastructure, customs clearance, the skills base. This is extremely poor compared to what you see in China. African policy makers are not conscious of this and are not making decisions to take advantage of any Chinese wage inflation. So this is also now an institutional problem as well.
Has there been an attempt to address these problems in Ethiopia?
There has been. They are creating export processing zones, industrial zones and improved infrastructure. But a recent survey of Chinese foreign direct investors reveals that they have a major problem with what we call trade facilitation. One of these firms says that if they want to sell manufactured goods in the US or EU market, it takes them about 100 days to make it and ship it to the client in the US. But if they were to do it in China, it would take them half the time because of customs clearance, bureaucracy, all this red tape.
What do African policy makers need to do?
First they have to be conscious of the problem. Are we planning to replace the manufacturing space left by China as China moves up the value chain? We should be in the position to move into this high labour-intensive work in the same way as this happened in Asia. Our leaders need to be knowledgeable about this phenomenon. Second, we need to put in place the policies to get there. That will include appropriate infrastructure – we compare badly not just to developed countries but to developing countries. Then we need to develop the soft infrastructure, and the correct incentive structures to attract investors.
Are there other regions that could seize this opportunity before Africa?
Of course. I don't think that if we just wait for market forces to act it will come here. Other countries are far more adapted compared to us. Because they themselves don't follow the market principle as such. They work hard on research and development, they give incentives to investors, they push their companies into cost-effective ways of doing business●