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China/Africa: Development Lessons, 1

AfricaFocus Bulletin
Aug 29, 2011 (110829)
(Reposted from sources cited below)

Editor's Note

"A consensus is building, in both private and official appraisals, and in OECD as well as emerging market countries, that Africa will be the next big emerging region. It is well-placed to benefit from the new sources of demand, investment and technology in the multipolar global economy; poverty is declining on the whole; the HIV/AIDS challenge is now being kept in check in most countries; the trajectory of progress towards the Millennium Development Goals (MDGs) has been striking on some fronts, and there is still the possibility of reaching the targets by 2015 in many countries." - China-DAC Study Group

While the rising economic involvement of China in Africa has drawn wide attention in recent years, there has been significantly less attention to the impact of the Chinese model in thinking about development strategies in Africa. A new joint report from the International Poverty Reduction Center in China (IPRCC) and the Development Assistance Committee (DAC)of the Organisation for Economic Cooperation and Development, made up of the developed countries, is an index of the growing impact of such reflection.

The report excludes issues on which significant disagreement would be likely, such as the roles of democratic institutions and civil society. And it only touches briefly on "serious economic, social and environmental costs" in China. But the extent of consensus emerging from the study process is notable, and a clear contrast with the free-market "Washington consensus" that dominated "donor" involvement in Africa in earlier decades.

This AfricaFocus Bulletin contains extensive excerpts from the first half of the report, summarizing the Chinese experience Excerpts from the second half of the report, which focuses on development strategies in Africa, are available on the web at http://www.africafocus.org/docs11/ch-af1108b.php The full report, as well as additional background on the China-DAC Study Group, is available on http://www.iprcc.org or http://www.oecd.org/dac/cdsg

For a previous AfricaFocus Bulletin on the emerging consensus about the need for a developmental state, see http://www.africafocus.org/docs11/eca1103.php

For previous AfricaFocus Bulletins on economic issues, see http://www.africafocus.org/econexp.php

++++++++++++++++++++++end editor's note+++++++++++++++++

Economic Transformation and Poverty Reduction - How It Happened in China, Helping It Happen in Africa

The China-DAC Study Group

Development Co-operation Directorate

Organisation for Economic Co-operation and Development 24- Aug-2011

DCD(2011)4

Full text available as pdf at:
http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DCD(2011)4&docLanguage=En

China-DAC Study Group information is available at: http://www.iprcc.org or http://www.oecd.org/dac/cdsg Contact: Michael Laird - Tel: + 33 (0)1 45 24 90 33 - Email: michael.laird@oecd.org

Overview

The experiences and lessons from China's economic transformation and poverty reduction have been attracting much interest from both African countries and the international development community. To respond to this interest for the exchange of perspectives and experience, the China-DAC Study Group was jointly set up by the International Poverty Reduction Center in China (IPRCC) and OECD's Development Assistance Committee (DAC). The Study Group is supported by leading Chinese development research institutions, several DAC members and observers and African experts and institutions.

Through a series of international conferences involving over 500 participants from China, Africa and the donor community, the China-DAC Study Group has, since 2009, focused this exchange and learning on four important topics related to promoting growth and reducing poverty: i) development partnerships; ii) agriculture, food security and rural development; iii) infrastructure; and iv) the enabling environment for enterprise development. Specifically, these events focussed on two themes:

  • China's experience of economic growth and poverty reduction, including the contribution of international assistance, and its relevance for other developing countries, particularly in Africa.
  • China's economic co-operation with Africa and the lessons that China and DAC Members can share with each other to increase the collective impact of foreign aid on reducing poverty in Africa.

This note summarises the main lessons learnt through this dialogue on each of these themes.

The essential findings are:

  • China's experience shows, again, that rapid economic and social development in poor countries can happen, in a context of globalisation, when strong development-oriented leadership emerges, focused on development performance rather than on entrenched policies and interests. In such a context, the articulation of a national project for economic transformation within a generation, motivates and activates people across the country in a new national consensus.
  • As in the case of China's economic transformation, international assistance can support and speed up Africa's transformation and poverty reduction process, when conceived and designed in this transformation framework.

Economic Transformation and Poverty Reduction

Economic transformation is the process in which a poor, rural-based country becomes a middle-income country with a rising share of industry and services in gross domestic product (GDP) and employment. Productivity and income per capita and job creation grow fast. In this process, agricultural productivity rises, while labour moves from farms to towns and cities, and there is a demographic transition as birth rates fall. The economy becomes involved in global supply chains in ways that generate continuous learning by doing and up-grading of enterpriselevel capacities (i.e .dynamic capacity development). A supportive, developmental state provides vision, planning, budgeting, co-ordination and the means for participatory national engagement. Infrastructure investment and institutional development are dynamic elements of economic transformation.

What is so striking in the last sixty years is that the transformation process can change poor developing countries into prosperous countries in only a few decades, with a dramatic fall in poverty rates. China stands out as a notable and recent example.

China's growth and poverty reduction process over the last thirty years

Agricultural reform and development initiated China's growth path and provided the foundation for a wider urbanisation/export-oriented growth process. A villagebased experiment with changing land tenure arrangements for families provided a critical new incentive for production, and when quickly replicated across China, generated a major increase in food supplies and incomes. Backed up by public investment in rural infrastructure, enterprise and technological improvements, the rural surpluses generated by small farms became the basis for a whole system of national economic development through the transfer of capital and labour to towns and cities from an increasingly diversified and productive agricultural sector.

An early experiment with a special economic zone (SEZ) in Shenzen opened the way for a supply chain-based model of industrial learning, which was also replicated in other SEZs and various other industrial clusters and networks. Progressive liberalisation of the domestic market with extensive privatisation, created a highly competitive enterprise-based economy with extensive regional and national transport linkages. The Chinese authorities actively sought international aid and investment as a supplement to national resources, not as a major on-going financing stream. They saw and managed foreign aid and investment as a means to acquire know-how and management skills to speed up the modernisation of Chinese agriculture, industry and infrastructure. China joined the WTO through a process that generated wide discussion and learning in China about engagement in the global economy. Bilateral and multilateral donors have provided considerable expertise, knowledge and training, bringing in world-class analytical methods for public management and economic development, including poverty reduction.

The state and provincial and city authorities have been active supporters of enterprise development through the provision of infrastructure, often on a cost-recovery basis, and the expansion of the science and technology base. The institutional infrastructures for higher education, including management training, were developed at scale. The enterprise sector has flourished in this context, with fast learning processes from engagement in international supply chains and joint ventures with foreign investors as well as major programmes for Chinese graduate scholarships abroad and schemes to attract back Chinese expatriates and engage eminent international experts. Close and forward-looking interaction between state authorities and enterprises has been an integral part of the growth model.

The private sector has been substantially developed and has become now the dominant source of employment (over 90%) and income (over 70% of GDP). Although there are still a significant number of large state enterprises and the financial sector is dominated by state banks and other institutions, they are market oriented often with extensive external business linkages, including in Africa. (The Industrial and Commercial Bank of China - the ICBC - owns 20% of the Standard Bank in South Africa).

The immense transformation process over the last 30 years has not been accomplished without serious economic, social and environmental costs: structural economic imbalances, a rural-urban divide, land rights issues, internal migration stresses, natural resource degradation associated with intensive farming and social disparities across China, with a high degree of income inequality, including the persistence of extreme poverty which still affects over 170 million people. As described below, these challenges are now the focus of attention of the Chinese authorities.

Dynamic capacity development

China's experience shows again, that rapid economic and social development in poor countries can happen, in a context of globalisation, when strong development–oriented leadership emerges, focused on development performance rather than on entrenched policies and interests. In such a context the articulation of a national project for economic transformation within a generation, motivates and activates people across the nation in a new national consensus.

Interacting with the rich sources of ideas and global knowledge available through flows of trade, investment, aid and people, such a project releases human energy and productivity, generating dynamic and diversified capacities, and creating a modern, enterprise economy that integrates the nation and links into regional and global economic dynamics.

Transformation experiences are not uniform. They are highly contextual and diverse. But they all consist of a dynamic learning process, starting from the initial conditions of each country and then progressively and pragmatically building on existing strengths. The on-going process of learning and dynamic capacity development soon begins to change the economic and life possibilities for millions of citizens, with multiplying centres of initiative and enterprise. The growing range of emerging economies today, including China, India and Brazil, each provide different variations of this basic underlying process.

The China-DAC Study Group found that economic transformation and its dramatic impact in reducing poverty became a recurring theme in each of its events. Dynamic capacity development was an explicit topic in the event on Enterprise Development. The implications of this approach are reflected in the lessons detailed below.

Economic transformation is possible in Africa within a generation

A consensus is building, in both private and official appraisals, and in OECD as well as emerging market countries, that Africa will be the next big emerging region. It is well-placed to benefit from the new sources of demand, investment and technology in the multipolar global economy; poverty is declining on the whole; the HIV/AIDS challenge is now being kept in check in most countries; the trajectory of progress towards the Millennium Development Goals (MDGs) has been striking on some fronts, and there is still the possibility of reaching the targets by 2015 in many countries.

Governance trends have been positive, though not universally. Breaking out of recurring situations of fragility remains a frontier for those countries where the transition from a patrimonial state to a capable state is still work in progress. A national economic transformation project may in fact provide the way forward in such cases as a rallying point for a new national consensus.

Overall, this last decade has been the best for Africa since independence, and Africa is enjoying one of the highest economic growth rates in the world, projected to reach 5% in 2011, up from 4.7% in 2010 after a quick rebound from the global recession of 2009. Recent debt relief initiatives have markedly reduced debt burdens and improved creditworthiness.

Employment growth remains constrained by a still narrow export and production base. But with population in subSaharan Africa projected to rise to 963 million in 2015, up from 517 million in 1990, there is a promising market with dynamic human capital. A new middle class is rising. The potential for fast growth and structural transformation is thus enormous and in a world where ideas and organisation are the key drivers of growth, Africa could see very fast progress towards middle-income status and large-scale poverty reduction in the coming decades.

The transformation process in Africa could even be faster than elsewhere, given the possibilities for global economic structural change and technological leapfrogging. Affordable tablet devices for web connection coupled with the undersea fibre-optic cables now in place, small-scale solar technologies, and nanotechnologies for, inter alia, plant breeding; such technological advances are of huge relevance to the particular geography of the African continent and can transform development prospects on many fronts, economic, social and political. Another new 21st century phenomenon is the scope for interaction with the range of newly emerging countries, including China, India, Brazil and others, that are creating the new, multipolar world economy of today, further enriching the flow of ideas and knowledge from which African countries can draw.

Thinking in terms of a transformation paradigm itself changes the way in which a country sees itself, and is perceived.

The China-DAC Study Group, with strong involvement of African officials and experts, has been assessing how economic transformation in Africa can happen, against the background of the Chinese experience, and how collective aid efforts can help in the wider transformation process.

What makes rapid transformation processes possible? Development as a learning process.

The common features of the transformation process are deeply connected to the fundamental sources of economic growth – ideas, innovation and organisation. This is what is replicable with development-oriented leadership. And these sources of growth are becoming more powerful than ever as knowledge accumulates and disseminates faster than ever before in history, as China's record shows.

A dynamic learning process takes hold in a country via interactions with new ideas, products and organisational models that are increasingly abundant in the multipolar, connected, global economy of the 21st century. Business models that are found to work locally, become widely replicated and then progressively improved, in an endogenous process of continual upgrading, across the economy - agriculture, industry, infrastructure and services.

The state shapes the overall economic policy framework and the human and institutional incentives and capacities to absorb and spread ideas and organisational processes. That generates an expanding, entrepreneurial enterprise sector, in the formal economy, able to participate in competitive local, regional and global value chains. The state plays an active role in supplying "hard" and "soft" infrastructure at each stage, generating large externalities which are essential to the growth process. Rising employment and incomes stimulate the local economy and create new jobs. Poverty rates begin to fall dramatically. Intensive feedback mechanisms between the state and the enterprise sector identify what is working and what needs corrective action. Performance, rather than established interests, becomes the reference point for policymaking. The state invests attention and resources in entrepreneurship and innovation, which are undersupplied in a poor economy. Economic and social change becomes transformational rather than incremental.

African institutions are paying much attention now to how to foster the developmental state in Africa. This was the central theme of the Annual Joint AU/UNECA Meeting of African Ministers of Finance, which produced a set of recommendations for fostering the developmental state in Africa. The latest joint Annual Report of the African Union and the UN Economic Commission for Africa provides a comprehensive prospectus for how developmental states could lead the economic transformation process in Africa. The African Centre for Economic Transformation, based in Accra, is conducting case studies of African countries using the transformation lens and will publish an annual African Transformation Report from 2012.

References

[see full report]

Key Elements of China's Experience

The following are the fundamental elements in China's success in massively reducing poverty and creating a middle-income country and will continue to underlie China's on-going efforts to address the many remaining challenges that China has identified for its development, adjustment and social well-being.

The responsible development-oriented state

Making economic transformation the central guiding objective of government, as China did in the late 1970s, with its reform and opening up policies:

  • Provides a basis for wide consensus and participation across society in a national project.
  • Drives pragmatic, evidence-based policy making and close on-going review of performance.
  • Makes performance in terms of growth and poverty reduction the test for policies and resource allocation.
  • Strengthens learning and innovation.
  • Exercises discipline on the efficiency and effectiveness of both government and enterprises.
  • Puts a high priority on policymaking capacity and investment in research and extension capacities in universities and institutes and linking them to ministries and the decision and implementation processes.
  • Encourages the emergence of a well-educated professional middle class and attracts talented people to return home to work for their countries.

Self-reliance and ownership

Self-reliance has been a fundamental principle of Chinese strategy. This principle is imbedded deeply in China's strong ownership of its own development path while absorbing knowledge from a wide range of external actors, including investors and experts, and engaging with bilateral and multilateral policy processes:

  • China has been developing its medium and long-term development strategies in relation to on-going changes in the national and global context and uses its Five-Year Plan instrument to implement those strategies with adjusted policy interventions.
  • External support, such as foreign investment and aid, is incorporated within those strategies and policies, which makes this external support more effective.
  • Policy development and technical capacities have always been central policy concerns, providing a basis for monitoring and accountability systems at both the central and local government levels.

Performance-based public management and decentralisation

Development-oriented leadership required a high quality public management corps for policy formation and implementation at central and local levels:

  • Selection procedures for civil service and political office were reformed to require educational attainment, hands-on experience and proven individual performance.
  • The central planning system was replaced by a market oriented planning system.
  • Significant decentralisation generated bottom-up initiatives that were widely replicated.
  • Development competition between cities and towns fostered increased growth and poverty reduction.
  • Taxation system reform reinforced local revenues and budgets.

Policy research capacities and innovation systems

The transformation process is intensive in on-going policy testing and adaptation based on evidence. China has created an extensive set of institutional capacities in the hard and soft sciences to enable the analysis of performance, problems and solutions. The experiment-evaluate-scale up success principle is widely applied and rapidly implemented. This has demanded the expansion of higher education and the development of research institutions linked to policy decision making and implementation. World expertise has been sought and attracted through incentive schemes, international partnerships and often via aid programmes.

Feedback mechanisms for identifying and addressing challenges

China's impressive transformation has also generated stresses and imbalances both internally and externally, as noted above. These major challenges are identified and addressed in the new five-year plan which includes policy actions aimed at:

  • Focussing more on the quality of growth and improving the functioning of accountability systems.
  • Tackling income and regional disparities, including rural/urban income and equity issues.
  • Raising domestic consumption and reducing reliance on external demand.
  • Repairing environmental damage, including farmland degradation, and managing urbanisation.
  • Eliminating extreme poverty through targeted measures for the still large numbers of very poor people.

Responsible development-oriented government remains essential in a more diverse and complex economy and society:

  • With the challenges of becoming a high-income country and an active part of the global governance system, China's policy review and adjustment processes, informed by feedback mechanisms and global change, are more important than ever, both domestically and internationally.

(continued in second part at http://www.africafocus.org/docs11/ch-af1108b.php


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org


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