Nov

18

Help Needed… What is the Comparative Advantage of Africa?

Filed Under Idea | 14 Comments

Over the weekend I met a Jamaican guy with whom I struck an almost instant friendship. We had long and intense discussions about matters relating to the economies of developing countries. Of course, there is hardly any discussion about developing countries that would not touch on China and India, and the advantages the countries have.

Size and cost
The Economist did a special report on technology in India and China in their November 10th - 16th edition. Part of the report says that China’s biggest advantage - while discussing technological innovations - is the shere size of its market. That statement was made in relation to the role of “venturesome and resourceful customers” in steering technological innovation. The principle is simple: a company does not need to wait till it has perfected its products before presenting it to the public. Because China has a huge population that is gradually becoming more and more economically empowered, you can throw what is not yet perfect to the market, and then let the feedback determine areas that need attention. It is best captured by this statement, “You can afford to waste some customers with imperfect product, because there are always another 100m out there to whom you can sell version 2.0.” If we translate that to other parts of the economy, one would realise that shere population is strength for both China and India. There is a large chance for a country that is growing to expand inside itself as more and more citizens gain economic strength. In other words, simply empowering the citizens provides a space for economic growth. Also, there is a tendency for the country to attract FDI, based simply on the size of its market.

Another advantage that one keeps hearing about is the price of labour in China. With an increasing population of members of the middle class, and a large army of cheap labour to boot, China seems not only to be ready for growth based on the strength of an increasing middle class, but also because of its large army of cheap labour. With this large army, it can produce at a very cheap rate for exportation. And it has been doing this. One major point that is sometimes missing in the moral debate on China’s business in Africa is that there is a large amount of made-in-China products in African markets, and these goods are so cheap that they sell more cheaply than locally produced ones. The price of labour is also an important attraction for FDI.

Please, help!
What exactly do I need help with? The problem is this: what is the comparative advantage that African countries have? Why would African countries be attractive for production and not just servicing? I think of shere size of population in the case of China and India, and I think of cheap labour, especially in the case of China. Are African countries doomed to simply supplying developed and emerging economies with raw materials to which value is added and then brought back to be sold in African countries? I am asking for help because it seems that my rudimentary knowledge of economics cannot fully appreciate the situation.

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