1. THE RISE OF CHINA AND THE CHALLENGE TO DEVELOPMENT STRATEGY IN SSA Raphael Kaplinsky, Dept of Policy and Practice, The Open University, UK

2. 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 Chinas zip production (80% of world production) Guardian, 25 th May 2005

3. Chinas growth is not unique..

5. Special Issue World Development, Vol. 36, No. 2, February 2008 http://asiandrivers.open.ac.uk/ http://asiandrivers.open.ac.uk/

6. VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive A taxonomy for assessing the impact of Asian Drivers on other economies

7. 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

8. 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

9. 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

10. VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive From the rich country perspective, we tend to focus on the competitive effects

11. VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive But in SSA, the complementary impacts are often much more visible

12. The drive to industrialisation Close association between incomes and industrialisation The terms of trade favour manufactures

13. Commodities-manufactures terms of trade

14. The drive to industrialisation Close association between incomes and industrialisation The terms of trade favour manufactures Manufactures are (relative to agriculture) income elastic and price inelastic Synthetic substitutes for natural products Manufacturing embodies rents – agriculture does not Manufacturing can be labour intensive – primary commodities are very capital intensive

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

16. Share of manufacturing value added Share of the world Share of developing countries 1985199819851998 East Asia China South Asia Latin America and Caribbean Sub-Saharan Africa Middle East, North Africa, Turkey 4.1 1.4 0.8 6.7 1.0 1.5 13.9 7.0 1.8 5.2 0.8 2.4 29.2 10.2 5.9 46.9 7.1 10.8 57.7 29.3 7.3 21.8 3.4 9.8

17. World Manufacturing Export Price, 1986-2000 IMF, World Economic Outlook Database

18. 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-shirts164-26717 Pullovers534-47638 Mens trousers413-16635 Blouses186-24622 Womens coats184-18610 Bras139-153049 Socks and pantyhose 63-223054 Linen and ramie yarns 5112745 Linen fabrics25711045 Source: Euratex data as reported by Nathan Associates

19. Caught between a rock and a hard place Percentage of sectors with negative price trends, 1988/9- 2000/2001 by technological intensity and country-grouping

20. Actual and projected global share of Chinas consumption of base metals Source: Macquarie Mining

22. Enormous demand potential Kgs/capitaGDP per capita ($US1995) AluminiumCopperSteel Japan 1955 1975 0.6 10.5 1.2 7.4 80 599 5,559 21,869 Korea 1975 1995 1.0 15.0 1.3 8.1 84 827 2,891 10,841 China 1990 1999 2002 2003 0.7 2.3 3.3 4.0 0.6 1.2 2.0 2.4 59 108 160 200 342 756 933 1,103

25. The agricultural sector, 2007-2016 (OECD/FAO, 2007) Biofuels raise grain prices Raised demand in China for: –Beef –Pigmeat –Milk powder –Oilseeds for cattle

26. … structural changes such as increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, may keep [agricultural product] prices above historic equilibrium levels during the next 10 years…. Winners are: Brazil (sugar, oilseeds, meat) Argentina (cereals and dairy products) Russia/Ukraine (coarse grains) East and south east Asia (rice, veg oils, poultry)

27. SSAs Recent Experience with growth, industrialisation and exports

28. Annual growth rates 1998-2005 (%) World SSAChinaIndia GDP growth2.93.78.96.4 Agricultural value added2.33.63.52.4 Industrial value added2.23.69.96.2 Manufacturing, value added2.5 NA6.1 Services value added2.93.79.68.3

29. 199520002004 Africa12.112.312.1 China34.736.739 India16.315.715.0 Developing (excl China)19.22020.4 WORLD19.820.119.9 Share of Manufacturing in GDP

30. SSA: Growth of merchandise trade, 1998-2004 (%) ExportsImports World8.89.0 SSA12.58.1 China21.426.5 India13.814.5

31. Composition of SSA exports 2005 Oil/Gas as % of Total47% Manufactures as % of Total21%

32. Broad and narrow manufactures Narrow manufactures are total manufactures minus –diamonds –precious stones –re-exports –oil and gas by-products –uranium

33. 199520002005 Broad Manufactures"6,0396,83812,453 Narrow Manufactures2,6683,4354,641 Narrow as % total445037 SSA Manufactured exports excl SA ($mn)

34. 199520002005 Apparel414850 Textiles853 Share of SSA (excl SA) manufactured exports (%)

35. Value of SSA and China C+T exports to US, 2004/2006 AGOA-2685 Kenya-5113 Lesotho-15171 Madagascar-26108 Mauritius-48104 SA-5389 Swazi-24136

37. Technological Intensity of SSAs trade: Share of exports comprising different categories of products, 2005 (%). World (excl. China, India)ChinaIntra-SSA Primary Commodities 678117 Resource Based 161535 Low Technology 4113 Medium Technology 9223 High Technology 10.15

42. 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

43. So what? A complex picture with nuanced impacts and opportunities Imbalances in the global economy We dont know the spread effects How long will the terms of trade reversal last?

44. Regarding precious stones and hard commodities Descent into conflict? The economic management of mineral rents – stability – over time Impact on other sectors (Dutch Disease) Adverse distributional effects But this is a small gorup of countries

45. Regarding soft commodities How to take maximum advantage, and speedily How to maximise positive distributional impact by including small scale producers Also addressing niche sectors

46. Regarding manufactures Manufacturing is the source of capability-growth and employment But the Washington Consensus circumscribes trade and industrial policies, So: –How to protect producers in the local market? –How to maintain access to external markets –How to sustain industrial policies

47. Conclusions Indirect impacts are more important direct ones A problem for the future as well as the present Relevance to the rest of the world? Open playing field? – tilted against whom? What attraction does globalisation hold for SSA?