Economic growth is the rate at which a countryincreases its production of goods and services per head and in relation to thetotal population over a certain period of time. As a result of economic growth,economic development is achieved through the constant flow of input and outputof products and services. Chinese andSub-Saharan Africa markets have utilised the aspect of economic growth anddevelopment by tapping into emerging markets to drive their Gross DomesticProduct (GDP). Some of the key markets that have shaped these markets includeindustrialisation, agriculture, technology, and institutions. Despite theirsuccess in the new emerging markets, China and Sub-Saharan countries haveexperienced diminishing returns and reforms that have impacted their economicgrowth and utilisation of new markets effectively. In contrasting these twomarkets and their economic growth, this paper will explore the Foreign Direct Investment(FDI) and Gross Domestic Product (GDP). (Olamosuand Wynne, 2015).
Sub-Saharan Africa is a larger region consisting of 53nations thus larger than China. According to the World Bank, it consists of1.02 billion people as of 2017. The Sub-Saharan Africa’s growth performancesince the colonial rule had been disappointing during the 1970s and 1980s.
Interms of the global economy, Africa has insufficient resources, high populationwith no resources to cater for its rising population. (Sundaram, Schwankand Arnim, 2011). The economic history of Sub-Saharan African can bedivided into four broad periods that indicate the level of economic growthbased on the GDP. Between 1960 and 1980, there was a high growth of manyAfrican nations, which resulted to an annual GDP of 4.
8 percent. The nextperiod was between 1980 and 2000 whereby there was an economic crisis henceexternal shocks on increased oil prices and declining interests and trade dealsled to as 2.1 percent GDP. From theeconomic crisis, Africa’s economic growth rose again between 2000 and 2007whereby their GDP improved to 3.9 percent. As of 2008 to the present, there have been a lot of economicuncertainties because of the slowed American and European markets as well asthe slowed Chinese growth.
In spite ofthe uncertainties, countries such as South Africa and Nigeria have shownpromise in the economic growth during the period termed as “Africarising” time, which began with SSA establishing pro-market institutions inthe early 1980s. (Olamosu and Wynne, 2015)When it comes to growth and development, Sub-SaharanAfrica (SSA)’s economic population has doubled in size since 2000 with some ofits nations reaching a GDP growth of 8%. Angola and Mozambique reached GDPgrowth of 8 percent thus exceeding that of China and India. Additionally, countries such as Angola,Liberia, Sierra Leone and Burkina Faso had faster economic growth than China.In an effort to grow their economy and enter emerging markets, SSA has investedin tourism, agricultural sector, telecoms and technology. These sectors ofdevelopment are meant to increase SSA’s economic growth and GDP growth.
Thecontributing factors to such a growth have been political stability, climatechanges and structural changes that support growth between African countries.One major element that has hindered SSA’s economic growth is their lacks,failures and dysfunctional, collapsing and underdeveloped attributessurrounding its description. Moreover, these attributes are true based on thelow human development index of 0.475 (compared to the global HDI of 0.694) asof 2012.
(Olamosu and Wynne, 2015)The Chinese economic growth has been greatlyattributed its reforms in driving the country forward and maximising theirmanufacturing opportunities. China dominated the manufacturing industry since1950s when it targeted metals and machinery. As of 1960s, China becamedependent on the manufacturing sector with a third of its GDP growth beinggenerated from industrialisation. (Knight, 2014). 1978 was a defining moment for China’s economic growthbecause of the shift from an unsteady government to a sustainable path for thecountry’s growth. The Law on Chinese Foreign Equity Joint Ventures allowedforeign capital to become a part of its economy and boost its growth until the mid-1980s.In fact, the law allowed companies to retain more profits and ease pricingrestrictions on products and services.
Because of such laws, China had amiraculous rise of their GDP from 6 percent in 1978 to 9.4 percent at the endof 2012. (Cheremukhin et al., 2015). Consequently, urbanisation became a big part of Chinawhen more workers moved from rural to urban regions for higher-payingjobs. Other sectors that experienced thediversification include mental products, chemicals, agricultural implements,and consumer goods. (Hou, 2011)China’s economic reforms played a major role inshaping its emerging markets.
Some ofthese reforms include population reform, rural reform, financial reform, tradeand investment reform, and Reform of SOE’s. Thepopulation reform was passed to manage the population growth rates impactingeconomic developing. Unlike Africa whereby economic growth is hindered bypoverty and insufficient food supplies due to overpopulation, China’s one childpolicy was designed to manage the rising birth rates in 1980s. (Olamosu andWynne, 2015). Despite such reforms, China’s population is still a concernbecause of the high rates of urbanisation and population growth. For instance,as of 1982 China had 182 cities which increased to 666 of 1996. Its populationas of 2017 was 1.3 billion and it is expected to increase to 1.
6 billion in2050. (Kochhar, 2017).Although urbanisation was a positive element inChina’s economy it also came with pressures on China’s land resources.
Forinstance, China’s land resources fell from 99.4 million hectares in 1978 to94.9 million hectares in 1995. Also, the population between these periods grewfrom 962 million to 1.2 billion. The growth in population and shrinking landresources resulted to a question of whether China might experience diminishingreturns on its food supply market.
In addressing these consequences, Chinaformed the land reforms in the agricultural economy to help farmers keep moreland under the farmer collectives. Land transactions were banned, and thehousing and land market grew based on their property rights. The reforms werealso important in offering economic freedom to land owners and a fast growth inthe real-estate market. (Qian, 2002). Another reform that contributed to China’s economicgrowth was the price system reform implemented in 1984. This reform allowedprices to be set by market forces thus decontrolling the prices.
The reformstransformed the Chinese market from a comprehensive economic reform (CER) to asocialist market economy. This meant that the Chinese economy would bemarket-oriented based on property rights, factor income and macroeconomicoperating structure. The introduction of land reforms led to property rightswhereby farmers could cultivate on a piece of land for 30 years and transfer itto another farmer. While SSA countries were suffering with equality anddistribution of resources, China’s economy factored in the factor income bypermitting equal distribution of resources. The Chinese government worked toeliminate inequalities by offering smooth transition of long-run dynamicsprocess from a partial disequilibrium to general equilibrium.
(Hou,2011)Other gradual reforms that have contributed to China’seconomic growth in emerging markets include the fiscal reforms which introducedthe de facto federalism in relation to the expenditure-revenue matchingprinciple. This reform offers a central system in central taxes, central-localsharing taxes and local taxes. The Financial reforms were made in the financialsector and they have been modified to fit the economic changes today.
For instance, the People’s Bank of Chinaserved as the central and business bank before the reforms in 1978. Upon the implementationof the financial reforms, the PBC became a sole monetary authority while themodern financial sector was formed by policy banks, investments banks, andbusiness banks among others. Consequently, the Exchange rate reformscontributed to economic growth in China. China had different foreign trade,regulated, financial and black markets systems that were abolished in 1994.This led to the adoption of a floating exchange rate system that unified fourdifferent rates thus boosting the Chinese economy. (Yang, 2015) China’s reformrelates to the institutional theory by creating processes and rules thatsupport its economic growth and control the social behaviour in China. Forinstance, the land reforms created processes whereby one owned the physicalstructures of the land but not the land itself.
This meant that farmers andreal-estate entrepreneurs owned the rights of the land and benefited from itfor a period of time. It also supports the aspect of general equilibrium in theend and managing equity in all sectors. Additionally, the reforms relate to theinstitutional theory by establishing how rules are applied on financialinstitutions and followed to establish a socialist market economy that supportsthe Chinese growth and development. (Hou, 2011)Another factor that supports the Chinese economicgrowth is the constant opening-up of new business through the principle ofgradualism. China has extremely leveraged their manufacturing industry whichled to them entering the World Trading Organisation (WTO) in 2001. As a resultof this move, China opened up to more policy measure and institutional arrangementin their labour market.
In fact, they utilised labour division in the globalmarket in order to support mutual benefits from other countries. Unlike SSAcountries whereby most nations depend on one or two commodities for export,China has a long list of primary products and manufactured products to dependon. Although their rates of manufacturing declined after joining WTO, they werestill higher than Africa’s rates. For example, in 2010, China’s manufacturingrates for all products, primary products and manufacturing products were 4.0%,1.
8% and 3.6% respectively compared to SSA’s 4.3%, 2.
7% and 5.2% respectively. Also, China’s Foreign Direct Investment (FDI)is an indicator of its success in economic growth whereby in 1992 it attracted$11.16 billion of FDI and had an increase from the previous year’s 1.15% GDP to2.64% GDP. (Yang, 2015). Even with such differencesin FDI, SSA nations’ FDI increased by 5.
5% in 2012 withseveral mines expanding and new oil wells and gas discoveries being made inCoast of Africa. (The World Bank, 2013)China’s growth is also indicated by its high savingsand investment in industrialisation and agriculture. Since 1980, China hasexcelled in industrialisation and manufacturing. As a result, its ratio ofsavings to GDP goes hand in hand. China has shown higher savings compared toSub-Saharan Africa nations. While the global average saving was at 20%, China’saverage rate of saving is at 47.4% at the end of 2008.
In fact, Sub-Saharannations such as Angola and South have had a decline in their average savingbecause of increased population and high poverty rates. For instance, China’sratio of savings to GDP% between 1990-1999 and 2000-2011 was 40.9 and 47.
4%respectively. In contrast, South Africa’s ratio of average savings to GDP was16.7 and 19.
9% in the respective years under the Chinese economy. This showed amajor different in economic growth between Sub-Saharan countries and China. (Yang,2015).Although the market-oriented reforms have supportedthe Chinese economic growth, there seems to be reduced growth in Chineseeconomy since 2012.
According to theChinese Academy of Social Sciences (CASS), the growth rate range during2011-2015 was between 7.8%-8.7%, however between 2016 and 2020, it has beendeclining between 5.7%-6.6%.
Such a decrease in growth has raised the questionof whether China has reached its Lewis Turning Point. Unlike the AfricanPopulation whereby 60% of its population is below 30 years of age, China’s workingage population is about to reach an historical peak. This means that there willbe more low-cost workers and labour shortage to contribute towards the economicproductions of goods and services that support the economy. According to theInternational Monetary Fund projections, China may reach the Lewis turningpoint between 2020 and 2025. China’s large pool of rural labour in agriculturaland industrial sector may end based on the rapid nominal wage increases and labourshortages for cheap labour. (Das and N’Diaye, 2013)In contrast to China’s economy concerns, SSA’sintroduction of pro-market institutions in 1980s is showing economic prosperityand promise in its GDP. The growth has been experienced since 2000 whereby theGDP between 2000 and 2009 was 7% growth in Sub-Sahara countries.
The impressivegrowth has also shown an increase in capital on Foreign Direct Investment (FDI)and remittances inflow. Just like China, SSA countries developed reforms tosupport economic growth and development. (Okonjo-Iweala,2010). In 2009, some regions in the Sub-Saharan Africannations developed reforms to ease business opening in region. Some of thesenations include Ghana, Namibia, Kenya Mozambique, Nigeria, South Africa,Uganda, Tanzania, and Zambia. During these reforms, Rwanda was the first toimplement the “Doing Business 2010 reform”, followed by two-thirds ofthe Sub-Saharan African nations. Based on the low human development index ofSSA nations, the reform was meant to increase investment in human developmentand infrastructure in African nations. (TheWorld Bank, 2017).
Sub-Saharan Africa is soon catching up with China’sslowing economy and surpassing it in emerging markets. (Hattinghet al., 2002). Before the foodcrisis in 2008, Southern Africa nations such as Kenya, Tanzania and Uganda hada GDP growth like Asian nations. In fact, in 2011 Africa had a GDP of 4.
8 %growth, which showed the highest growth rate compared to Asian nations andsurpassed Mexico, Russia and Eastern Europe. Its success has been shaped byAfrican domestic market which is largest outside China and India. Also, theprivate consumption of goods and services support two thirds of Africa’s GDPgrowth. Apart from agriculture, a studyby the World Bank Program reported that Africa Infrastructure Country Diagnostichas improved their shares in telecoms thus contributing to at least 1% of theGDP and in fiscal policies.
(Staff, 2013).Another study by an Oxford Economists indicated thatAfrican companies’ annual return on capital was averagely 65% higher than Chinaand India’s between 2000 and 2007. As a result of Sub-Saharan Africa’s economicgrowth, international brands such as Nestle, Unilever and International Swissreport more growth in their African branches.
More evidently, during theForeign Direct Investment (FDI) fall to 20% globally in 2008; Africa had itshighest capital in-flows of 16%. This made Chinese companies set up industrialsources in Ethiopia. (Staff, 2013)With so much promise in Sub-Saharan nations, China isscrambling to invest more in its trade deals with African nations and developother business. As of2012, China had $200 billion invested in SSA trading witha 26% average annual compound growth rate. Similarly, China’s Foreign Direct Investmentin Sub-Saharan Africa was $21.23 billion, supporting over 2373 firms across 50nations in 2012.
China’s “Going Out” Policy has supported 85% of the Chineseinvestors who are private firms. Some of the dominating sectors where the FDI isutilised include the mining sector, business services, finance, and transportand telecoms. A larger percentage of FDI capital in-flow supports three topperforming nations which are South Africa, Nigeria, and Sudan at 16%, 14% and13% respectively as of 2007. Consequently, China imports more products fromAfrica while SSA exports mineral products and base materials to China. WhileChina strives in industrialisation, it requires materials from Africa tosupport its industrial maw thus expanding the need for fair trade deals betweenthe two regions. (Ayers, 2013).
In spite of such growth, Africa’s economic structuredoes not create room for employment to counter the increased poverty rates andsupply of resources. The economic structure is vulnerable because it depends onone single export commodity. According to the UN Economic report in 2013, jobcreation and unemployment remain the major concerns affecting the growth ofAfrican nations.
(Lundvalland Lema, 2014). Structural changein Sub-Saharan Africa is also concerning because of the rural-urban populationshift, composition of resource-rich nations and its level of production. Forinstance, in 2013 one-third of SSA’s population moved from rural to urbanregions. This created a challenge in terms of productivity growth and movinglabour. The evidence of growth-reducing structural changes raises concerns interms of the productivity gaps among agriculture, mining, technology, telecommunications,and tourism sectors.
(Page, 2011). When workers move from rural to urban areas theydisrupt economic development by removing labour resources from highproductivity sectors and availing them to low productivity sectors. Structural change has also been evident incountries such as Ethiopia whereby the leather industry is growing and mobiletechnology growth in Kenya. (Lundvall and Lema, 2014)In conclusion, Sub-Saharan Africa and China have showngreat economic development using formal and informal institutions based on theinstitutional theory perspective. Since the 1980s, both China and Sub-SaharanAfrica have had success in entering emerging markets and supporting theireconomic development.
The top indicators of their success or failure in theemerging markets include Foreign Direct Investment and Gross DomesticInvestment (GDP). Based on these two indicators, China’s economic growth hasbeen steady due to the implementation of economic reforms such as financial,land, population, and exchange rate reforms. These reforms have shaped China’sincreasing population by increasing productivity to support the population.
Incontrast, Sub-Saharan African nations have had a lot of struggles inmaintaining economic development and growth. This was because of poverty,insufficient resources, food insecurity and overpopulation. Although China’seconomy may be facing Lewis’ turning point concern, its economic prowess hasremained stable to support the Chinese population. SSA’s economy has shown muchpromise due to an increase in their FDI, GDP and emerging markets in China, India,and Brazil.