Transformational, interventionist states: lessons from China

In the previous article, I touched on the issue of an undefined African strategic relationship with view that we have left it for others to define and determine what is good for Africa.

In the previous article, I touched on the issue of an undefined African strategic relationship with view that we have left it for others to define and determine what is good for Africa.

We simply have to fit in the relationship.

This has been true for some multilateral relationships as well as bilateral. Some multilateral or even bilateral agreements are even predesigned so much so that Africa’s take over her interests is pretty limited.

Some of these are ‘take it or leave it’ phenomenon which belittles Africans’ sense of integrity and, above all, dignity. Such relationships have left African interests to be defined by parties that put theirs first (which is rational for them).

If Africa is rising (which is true) it has to also raise the bar in negotiating for her interests, and shape her destiny.

For instance, in the think tank forum mentioned in the previous article, Africa was observed as a price taker even on goods and services produced by and in Africa.

This was the case in colonial, ‘post colonial’ and now in the Chinese strategic relationship.

This is an issue over which African countries cannot keep blaming others. Not at this age and stage of her development. If we cannot develop our industries and keep on exporting commodities which are then processed abroad and re-exported to Africa at several times their original prices, how can Africa have a healthy balance of trade later on payments under these conditions?

And by asking China or even the West to develop value addition industries for us to rectify – which is not a prudent policy choice and not one that is an attainable one, given the self interest values characteristic of business relationships that defines diplomacy today – we have to remember that, even huge Western industries were originally state planned, owned and managed until they were privatized.

To leave Africa industrialisation to ‘market forces’ and ‘private sector drivers’ is tantamount to avoiding/evading the problem. But we can’t avoid nor evade the realities of unbalanced economy.

Country specificity

As pointed out in the earlier series, country specific solutions to an otherwise general continental problem of balance of payment deficits and currency depreciations is the only answer to the Africa’s trade deficit problems.

Trade deficits facing most African economies are as pointed out earlier, a result of the structure of their economies which have remained agrarian for far too long.

This seems to be a comfort zone, whose time is up as the realities have shown. Africa’s demographic structures have changed fundamentally with education systems that have created an educated class that in turn shifted the demand patterns which the underlying economies were not restructured to cope with.

The African emerging middle class cannot fit in the agrarian economy, as their needs and aspirations can only be met by a restructured economy that produces goods and services to meet the demands for the new population structure we can no longer hold constant nor underestimate.

Even if we did, the real sector will as expected sends us signals that we are wrong and this is why African countries will have to industrialize and produce goods and services to cater for changed needs of the new demographic structure.

Lest Africa keep importing goods and services for this group and given its rudimentary commodity exports our balance of payment deficits will be endemic and in the extreme affect Africa’s ability to repay its ballooning external debt.

The policy of relying on commodity exports is not a sustainable choice given the emerging realities. Currency depreciations which are caused by low levels of exports amidst high levels of imports (among other reasons) simply implies that, we have high demand for other currencies with which to pay for our imports thus higher price of exporting countries’ currencies.

Industrial development like any other forms of development has to be properly phased and sequenced to cater for the short-term as well as long needs of its people.

A survey of an economy’s imports gives empirical evidence as to which substitutions industries should urgently be in place.

Since an economy cannot produce all goods and services due to laws of comparative advantage (disadvantage—cheaper to import than produce at home) countries then need to undertake surveys of what can be exported to earn revenues to finance these other imports especially in regional captive markets and later on abroad.

But this policy choice seems to have found basic economic fundamentals (energy and infrastructure) only if these had been sequentially planned and implemented accordingly.

Energy and infrastructure choices

Africa has ambitious energy and infrastructure projects a number of which are on track. Question is, for what and where? Development of energy projects should be in tandem with industrial development, otherwise we end up having underutilised energy resource.

For instance, energy resources, of say 500 megawatts, can power 33 major industrial establishments on 24 hour operational schedule. If such industrial establishments are not planned with such energy capabilities means that, downstream the country runs the risk of having redundant energy it can’t use, and yet this may be financed by foreign investors whose tariffs have to be paid whether this energy is used or not.

This will then complicate balance of payments even further. The same is true for roads and rail projects.

These should not be another Uganda rail which was constructed by UK colonial power from Mombasa to Kasese in Uganda to carry commodities (copper, coffee and tea etc) for UK industries in Liverpool and elsewhere.

Our roads and rail networks should have industrial integration so that they carry our industrial goods to the final markets. Otherwise loans for such huge projects will never repaid by commodity exports alone.

Kagamenomics

There are no successful industrialisation processes without an interventionist state. A big state is needed to co-ordinate economic development, to provide the right kind of regulations, and to facilitate access to capital.

All research available are unanimous and conclusive to the fact that, every single successful experience of industrialization is based on the premise of “a clear interventionist state.”

This is may sound controversial for, it goes against decades of free-market, laissez-faire orthodoxy imposed on African countries by international partners that have little to show for most polices they have financed for a while.

The most obvious examples of interventionist states in Africa are Rwanda and Ethiopia which have both achieved good economic growth over the last decade.

In our case, however, our growth and thus development has defied the textbook economics of ‘demands creates its own supply economics’ which is again premised on market forces.

If we trace our growth averaging 8% for the last 12 years or so, the usual economics factors that should have driven this growth becomes a myth.

We as a country have no luxury of massive land (a factor of production in simple economics) not even labour for our capacities were decimated by Genocide against the Tutsi of 1994.

Capital has been limited on account of the fact that, donors and other development partners as well as multilateral institutions tie their funding on the ‘size’ of the economy and we then naturally get less allocations compared to ‘large’ economies.

In the aforementioned China-Africa think tank, I and the Rwandan ambassador to China, Charles Kayonga, did emphasize the fact that our transformational development against all odds possible was driven and accounted for by the exemplary leadership of President Kagame. Period.

Any other proxies one may use to try and explain or capture how our economy has grown cannot be validated by any economic model.

President Kagame’s approaches to development are fundamentally unorthodox to classic development economics. And some of us who have been lucky to work with and under him, are sometimes overwhelmed by the manner in which he approaches development problems.

His demands for extremely high deliverables that defies available resources is worth fundamental research and modeling. For what we see around our country is literally his handiwork. To traditional economists, this is a new frontier of economics that has worked for Rwanda.

I have no doubt that, downstream our country is headed for unprecedented growth episodes emanating from Kagamenomics. No wonder then that, our country is a case study in development economics.

The only constraint in using such studies in other areas/countries is that, it is not easy to apply such economics for they require similar leadership qualities. These cannot be replicated or modeled so as to be used by other countries in similar phase of growth and thus development.

The writer is an economist and financial expert.

Email: nshutim@gmail.com.

To be continued…

 

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