WHAT DOES THE RISE OF THE ASIAN DRIVER ECONOMIES DO FOR CLUSTER DEVELOPMENT IN THE 21 ST CENTURY? CHALLENGES, THREATS AND OPPORTUNITIES Raphael Kaplinsky, Development Policy and Practice, Open University, UK.

My home in Barcombe Mills The River

Barcombe Mills - 13 th July 2005

The button factory in Barcombe Mills

The workforce- 1939

It didn’t end happily…

Working in a Qiaotou zip factory

Qiaotou In a remote area of China First commercial workshop making buttons established in 1980 Now 700 factories, making 15bn buttons and 200m metres of zips 1,300 button shops selling 1,400 varieties of buttons 60% of global button production and most of China’s zip production (80% of world production) Guardian, 25 th May 2005

China’s growth is not unique..

VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive The impact of the Asian Drivers on Africa

VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive The impacts may be competitive or complementary

VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive And they may be direct or indirect

VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive We know much more about the direct impacts

Commodities-manufactures terms of trade

The drive to industrialisation Close association between incomes and industrialisation Demand for manufactures increases with incomes Synthetic substitutes for natural products Manufacturing is more profitable Manufacturing can be labour intensive – primary commodities are very capital intensive

The orthodoxy Manufacturing exports are key: Competitive effects Scale effects Learning effects

Distribution of MVA Share of the World Share of developing countries By Income S. and E. Asia of which: China Latin America Sub-Saharan Africa

World Manufacturing Export Price, IMF, World Economic Outlook Database

EU Imports from China 1 st Q 2005/1 st Q 2004China Market Share in EU-25 Imports Volumes %Price %1 Q 2004 %1 Q 2005 % T-shirts Pullovers Men’s trousers Blouses Women’s coats Bras Socks and pantyhose Linen and ramie yarns Linen fabrics Source: Euratex data as reported by Nathan Associates

Caught between a rock and a hard place Percentage of sectors with negative price trends, 1988/ /2001 by technological intensity and country-grouping

Actual and projected global share of China’s consumption of base metals Source: Macquarie Mining

Manufacturing for the domestic market SMEs in Ethiopian shoe industry –28% bankrupt –32% downsize SA Clothing and textiles –Employment fell from 119,000 in 2004 to 87,000 in 2005 Zambia’s Mulungushi mill –Closure in 2007 with

What happens when Africa exports the same products as China to the USA? ( ) Exports fromValue of Country’s exports AGOA-26 Kenya-5 Lesotho-15 Madagascar-26 Mauritius-48 SA-53 Swazi-24

What happens when Africa exports the same products as China to the USA? ( ) Exports fromValue of Country’s exports Value of China’s exports AGOA-2685 Kenya-5113 Lesotho Madagascar Mauritius SA-5389 Swazi-24136

SSA EXPORTS SSA IMPORTS CHINA IMPORTS CHINA EXPORTS SSA GAIN SSA LOSS Clothing footwear Hard commodities Clothing footwear Oil All SSA SA, Lesotho, Swaziland, Madagascar, Kenya, Mauritius Most SSA Oil exporters, Zambia, SA, DRC, Botswana, Ghana, Gabon, etc

WHAT is to be done? HOW is it to be done? WHO is to do it?

What is to be done? Competitiveness, upgrading and innovation are key SSA requires protection in the domestic market, but: –Scale is important –Upgrading is critical SSA requires preferential access to global markets FDI has a major role to play in building supply chain capabilities Regional markets promote capabilities

World (excl. China, India) Primary Commodities 67 Resource Based 16 Low Technology 4 Medium Technology 9 High Technology 1

World (excl. China, India)China Primary Commodities 6781 Resource Based 1615 Low Technology 41 Medium Technology 92 High Technology 10.1

World (excl. China, India)ChinaIntra-SSA Primary Commodities Resource Based Low Technology 4113 Medium Technology 9223 High Technology 10.15

African Development Bank (2008), African Development Report 2007: Abidjan: African Development Bank MAKING THE MOST OF COMMODITIES

High roads and low roads Backward linkages –Material inputs –Services Forward linkages –Processing National System of Innovation

How is it to be done? Getting the macro policies right Getting meso policies right –Sectors –Industrial districts Change at the micro level –Benchmarking is critical

Who is to do it? Industrial policy is a journey of discovery –State failure –Market failure Systemic efficiency is key: –Value chain consortia

Production Design Marketing Services Competitive pressures The increasing globalisation of VCs Competitive pressures

Who is to do it? Industrial policy is a journey of discovery –State failure –Market failure Systemic efficiency is key: –Value chain consortia IPA’s have a major role to play So, too, does the international community

Firms need to upgrade: Is Innovation enough? ‘Nearly there!’ the Queen repeated. ‘Why, we passed it ten minutes ago! Faster!’ And they ran on for a time in silence, with the wind whistling in Alice’s ears, and almost blowing her hair off, she fancied. ‘Now! Now!’ cried the Queen. ‘Faster! Faster!’ And they went so fast that at last they seemed to skim through the air, hardly touching the ground with their feet, till suddenly, just as Alice was getting quite exhausted, they stopped, and she found herself sitting on the ground, breathless and giddy. The Queen propped her up against a tree, and said kindly, ‘You may rest a little now.’ Alice looked around her in great surprise. ‘Why, I do believe we have been under this tree the whole time! Everything’s just as it was!’ ‘Of course it is’ said the Queen. ‘What would you have it?’ Well, in our country,’ said Alice, still panting a little, ‘you’d generally get to somewhere else – if you ran very fast for a long time, as we’ve been doing.’ ‘A slow sort of country!’ said the Queen. ‘Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’ Source: Alice through the Looking Glass