A new success story begins to unfold

Economic expansion across the entire continent will continue apace

In recent years Africa has outstripped much of the world in growth.

A report by the World Bank on development in sub-Saharan Africa shows that the rate of return on capital investment is higher than in many other regions. For example, it is 50 percent higher than that of India, the Philippines and Vietnam. In the foreseeable future the trend of labor-intensive manufacturing shifting from Asia to Africa will be inexorable. One of the main reasons is that Africa is a huge source of raw materials and labor.

Africa's economic fortunes have changed dramatically in the past 20 years, one of the highlights being the global commodities boom between 2006 and 2009. Many African countries are now well positioned to take advantage of substantially increased export earnings for their natural resources to support the development of other industries outside of resource extraction.

The increasing pace of economic development in Africa also reflects the improvement of foreign enterprises' corporate profit margins there. The China Chamber of International Commerce says the rate of return on investment in Africa is higher than anywhere else. For some enterprise investment in Africa, such as that of large multinational companies like Coca-Cola, Mobil and the French carmaker Renault, the average rate of return on capital is 40 percent higher than that in China, Brazil, India, Vietnam and Cambodia.

African countries' commodity shortages and expansion of consumer demand have also propelled Africa to become the market with the greatest potential. Population increase will inevitably lead to the expansion of consumer demand.

Since most African countries gained their independence, health and social conditions have gradually improved, and the population is growing at about 3 or 4 percent a year, growth that the China Chamber of International Commerce reckons will be maintained.

By dint of huge market demand, many African countries need to buy a lot of industrial products and high-quality infrastructure for development projects. So if the focus is on profit margins, it is not difficult to see that return on capital investment in Africa is higher than elsewhere.

Africa has abundant mineral resources, too, and once these are discovered, harnessed and developed, commodity exports will rise sharply. These resources will be found in countries that are not renowned for exporting resources, and as opportunities arise, Africa's economic landscape will undergo significant change. Bulk commodity exports at a high level across the continent will allow certain regions to flex their economic muscle.

In the meantime, economic expansion across the entire continent will continue apace.

Africa is proving to be a model of regional economic success that Asia can draw benefits from. For example, Ghana is experiencing high GDP growth, is committed to economic reform and is giving priority to the development of petroleum, manufacturing and information technology industries.

South Africa, Kenya and Nigeria, which now have a more favorable industrial structure, also maintain a healthy pace of development. As happened in Asia, their success will have influence far beyond their borders.

Africa's economic potential is not confined to commodity exports. Low-wage employment in the BRIC countries will not last long, and Africa will soon become the world's last remaining low-wage employment market. Africa has a long coastline, and is closer to Europe and North America than Asia is. Since the 1980s, labor-intensive manufacturing has been moving from developed countries to China and other emerging Asian economies. As the world, particularly developed economies, wake up to what is happening in Africa, manufacturing will start moving there from Asia.

The vast majority of African countries that have gained independence have still to rid themselves of resource exploitation practices from the colonial period. Most rely on agricultural production, and the pillar industry remains mining. Manufacturing remains weak.

What is manufactured includes food and the products of agro-processing, wood processing, paper making, smelting and metal processing, which account for more than 60 percent of their total industry. Textiles, machinery and chemicals account for less than 40 percent. Africa is keen to change this situation, and most African governments want to promote large-scale industrialization to improve exports and economic development, and to bring in more foreign exchange to support continuing development.

China's direct investment in Africa is mostly concentrated on infrastructure construction, oil, gas, mineral resources, agricultural development and fisheries. But resource-oriented investment is no longer China's only aim, and investment is diversifying into manufacturing.

At the same time, many countries recognize that Africa is at a turning point in attracting foreign investment on a large scale, and if the right policies are developed the potential is immense.

For low-income countries that have just entered the international market, the competitive advantages are clear. Many African governments would do well to put in place practical, clear polices to encourage foreign capital investment, to promote the development of domestic industries and improve people's living standards.

Simultaneously, the reallocation of labor-intensive manufacturing industries will take place, bringing new opportunities to light industry, raising private economic investment and creating jobs.

China has been the world's biggest economic success story of the past 30 years, and Africa stands ready to be the subject of a similar story.

The author is a professor of economics and vice-president at Chengdu University who specializes in China-Africa trade and investment. The views do not necessarily reflect those of China Daily.

(China Daily 03/01/2013 page7)