Asia vs Africa

Shawn Hagedorn writes on the advantages our continent could exploit

Asia vs Africa 

11 September 2019

Will the future favour Singapore or SA? Whereas maps pinpoint Singapore’s pertinence to Asia’s ascent, trend-focused lenses illuminate SA’s untapped relevance. Our lack of a workable growth plan evidences aloofness toward shifts spanning demographics, technology and China. While Singapore’s prosperity is established, global trends favour SA’s positioning. 

While they are declining or plunging elsewhere, in sub-Saharan Africa (SSA) youth populations are soaring. This region is headed toward having nearly half the world’s population under age-five by mid century. Its growing share of the world’s extreme poverty already exceeds 50% versus its 1% share of discretionary income. Singapore did not grow rich by advancing trade among poor countries as that provokes tortuously slow progress. Rather, it soared through connecting low-income Asian workers with wealthy consumers in distant regions.

SSA’s pervasive poverty reflects modest global integration which further traces to a lack of snow covered mountain ranges. Thus this region always lacked the networks of all-season navigable rivers common elsewhere. Conversely, the digital interconnectivity now reconceiving SA’s potential exceeds how container shipping helped fast-track Singapore’s economic stardom.

No one understands today’s global economic shifts better than China’s leaders. Their workforce is now sharply contracting due to decades of a “one-child policy”. China’s manufacturing output can continue to grow through increasing investments in machines, including robots. The problem for China, and the world, is that declining youth populations soften both consumer demand and economic dynamism.

That many affluent nations face prolonged economic stagnation traces to their declining youth populations. As older workers and pensioners are unlikely to borrow to fund consumption, central bank easing is less likely to boost spending. 

China’s decades of vibrant growth relied heavily on huge trade surpluses. For over three decades, China surged its competitiveness and exports amid a virtuous cycle with poverty plunging as worker productivity and household wealth compounded. Once China became the number one manufacturer and exporter, a new path was required. 

The Federal Reserve Bank’s increased willingness to support Donald Trump’s trade-war tariffs by lowering interest rates echo a growing awareness that China’s policy pivots from 2012 onwards menace specific democracies and the global order generally. Next year’s US elections are expected to include leading Democrats, such as Senators Warren and Schumer, accusing Trump of not being tough enough on China.

The devout communist leaders that pivoted China by embracing capitalism included many engineers. Fully grasping margin formulas and compounding effects, they committed to competitiveness to sustain high growth through exporting to wealthy consumers - while encouraging household thriftiness. 

Asian economies aligned mostly around supply chain integration to manufacture products for affluent consumer markets. Initially, key western nations welcomed exports from Japan and Asian Tigers to counter Soviet advances. These countries are again poised to gain market share, along with Mexico, Vietnam and others, as China’s efforts, along with Russia’s, to undermine democracies provoke tensions leading to supply chain shifts.

A background consideration is how the “resource curse” hinders development whereas river networks encourage commercial mindedness. Asia will buy mostly commodities from Africa. In general, Asia is more of a competitor whereas western consumers import massive volumes of high margin goods and services to which SSA workers can add much value.

SSA will soon have most of the world’s young-and-low-cost workforce while digital technologies are currently collapsing communication and transport costs thus spurring new integration possibilities. The rise of Asia was not inevitable. Rather it began with Japanese public and private leaders devising plans to aggressively integrate into western markets. As countries in Asia and elsewhere followed, supply chains became global and poverty plummeted everywhere except across SSA.

SA’s growth blockages trace to policy thinking detached from global trends; despite the nation lacking sufficient domestic purchasing power to fuel adequate growth.

SA’s successes at tourism, movie making and the 2010 World Cup should all be seen as dress rehearsals for the enormous growth projects that have become doable. This region’s less formally educated school leavers can add value to products and services in ways not apparent to our older, more formally educated public and private sector leaders. To successfully integrate this region into tomorrow’s tumultuous global economy requires SA’s diverse entrepreneurs woo buyers by stirring fresh expectations. 

The core 21st century upliftment formula combines youthful ambitions with technology and access to deep-pocketed consumer markets. SA’s policy makers and business leaders must enthusiastically support export-focused small businesses.

New value-added export initiatives should merit Special Economic Zones status leading to relief from anti-competitive regulations. While there are a few strategic “themes” that warrant specific government support, most new export channels will be created with little fanfare by determined entrepreneurs. Some export-enabling measures by government to assist them are quite cost effective.

SA is better positioned to generate tremendous growth over the coming decades than Singapore. Exploring this country’s global relevance helps uncover exporting possibilities.

Shawn Hagedorn (@shawnhagedorn) is an independent strategy adviser