Is China helping African countries industrialize?

Noah Smith published a column on Bloomberg earlier this week about the importance of industrialization to Africa’s future. Smith argues that both international aid programs and policy interventions have been inadequate at transforming African economies and improving living standards on the continent.

The article focuses on the role that Chinese entrepreneurs and firms are playing in spurring industrialization. Smith reviews a new book by Irene Yuan Sun that highlights the phenomenon of Chinese entrepreneurs setting up factories in Africa.

It is refreshing to see a prominent journalist such as Smith draw attention to the issue of economic development in Africa. Smith is particularly good when he discusses the moral stakes of economic development in Africa (i.e. Why we should care).

However, Smith’s argument about why African industrialization is likely to continue is not very compelling.

For example, he writes,

Rising labor costs in China, and the threat of U.S. tariffs, are finally causing manufacturers to diversify their supply chains. Some of their factories will go to Vietnam and Bangladesh, two rising stars of the developing world. But those countries won’t be big enough to replace China, which means that if manufacturers really want to keep costs down, many will have to look to Africa.

While it is true that manufacturers are searching for other bases due to high labor costs in China, it is not clear that sub-Saharan African countries are attractive destinations for this investment. For example, this study by the Center for Global Development highlights high labor costs in sub-Saharan Africa as a threat to manufacturing competitiveness.

However, it is important to consider the mechanism(s) by which increasing Chinese investment in manufacturing could help accelerate the industrialization process and economic growth.

As this paper by Dani Rodrik, Xinshen Diao, and Margaret McMillan points out, unlike in Asia, growth in Africa has been driven by increased productivity in agriculture and the movement of workers from agriculture to non-agricultural sectors but not by increased productivity in non-agricultural (“modern”) sectors. The paper discusses why increased productivity in the modern sector is essential for sustained economic growth.

My takeaway is that if Chinese firms in sub-Saharan Africa continue to grow and increase productivity in the nonagricultural sector, that transformation could help sub-Saharan African countries achieve a growth trajectory similar to Asian countries.

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