Africa

Which factors favor the recovery of corona-affected emerging markets?

Tuesday, August 11th, 2020

In my blog from June 12, I stressed the importance of renewed satisfactory or good economic growth in OECD countries for the future recovery in emerging market countries. Another important source for single emerging markets can be increasing price trends for their most important commodities, for example oil, copper, tin and many agricultural products and – interrelated – particularly the development of the U.S. dollar and U.S. rates.

In this article, a somewhat closer look is also taken on the domestic conditions for a visible recovery of a single emerging country. Below, some of these growth-favoring conditions are listed up. The impact of these different factors can, of course, differ substantially from country to country.

Some structural relationships are well-known, such as the links between institutions and economic growth, education and growth, infrastructure and growth, entrepreneurship and growth, the environment and growth, political efficiency and growth, macroeconomic stability and growth, to mention a few.

Most emerging countries have some shortcomings in the above-mentioned respects, with Brazil and its strongly underperforming political leadership probably at the very end of the globalized emerging markets. International sources for comprehensive country information can be, for example, picked from international organizations like the IMF, the World Bank (“Doing Business”), Transparency International, continental development banks like the ADB in Asia or the AfDB in Africa. Embassies and companies from the own country may hint at changes of the business sentiment in the emerging world, sometimes with a certain bias for their geographical and professional location. Good country reports by specialized analysts may also help.

Altogether, the analysis of emerging countries will be even more complex in the forthcoming quarters than normally. This enormous complexity also includes, of course, the fight against the corona virus.

But how much do the affected emerging countries know themselves about their own corona contagion – and how much are they able or want to publish?

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China’s two strategies

Tuesday, December 18th, 2018

A few weeks ago, I attended one of these interesting conferences on China. One of the presentations there focused on Chinese political strategies, singling out that China more or less exclusively concentrates on domestic developments. This is not quite in line with reality.

China’s global ambitions
Sure, politicians in all countries primarily work with the future of their own country. So does China, for example by putting more weight than before on private consumption at the expense of unnecessary investments – and by favoring education, research, innovation, technical progress (digitalization and AI) and competitive (new) products, also for exports.

Nonetheless, there is no doubt about China’s global ambitions. Economically, China already performs as the no 1 in the world when measuring total GDP in PPP terms – and in dollar terms this may happen in the next decade.

Global ambitions can be underlined by different kinds of clarifications. Huawei and a number of construction companies can serve serve as visible corporate (micro) examples.

Africa
On a geographical level, strong Chinese efforts can be watched in a number of African countries. The other week, there was quite an illuminating article in China Daily about China’s ambitions in Africa. They do not write about about China’s future needs of commodities. Instead, China Daily points at Chinese opportunities to contribute to Africa’s future development – for example by projects dealing with construction, energy, manufacturing, information and communications technology, AI, and by giving skills to Africans about the Chinese market.

The rapidly growing African population is frequently mentioned, probably as an indicator for market potential (despite the fact that African GDP-growth numbers are not really comparable to those of China because of their different levels of development).

Another example: China’s particularly ambitious Belt and Road Initiative (BRI) is intended to link together even several continents – Asia and Europe but obviously also to some extent Africa – because there is also a maritime component in the BRI project. China’s strongly prioritized BRI plans aim to increase cross-border trade for 65 countries by constructing roads, railways, harbors etc. – including both a land and maritime Silk Road. From China to Duisburg in Germany!

It will be most interesting to watch the future of the BRI project which is highly ranked by Chinese political leaders – but not sufficiently observed and analyzed in Europe. Perhaps more Chinese transparency would be helpful in this respect.

Also the international upgrading of the currency renminbi fits into China’s internationalization strategy. The renminbi is now part of the IMF:s Special Drawing Rights (SDRs). Furthermore, the renminbi (RMB) belongs these days to the five most frequently used currencies in international trade finance – which happened without convertibility of the RMB. Thus, reality reflects the importance of China in international trade.

Potential threats
Certainly, American protectionism will remain a threat to Chinese globalization efforts – at least as long president Trump remains in power. But China will also make strong attempts to intensify or enlarge other international or bilateral alliances. The UK is already quite aggressive in getting closer to China.

Another threat – so far not outspoken – may some day come from potential deficits in the current account. The net of Chinese exports and imports will this year end quite close to zero and – in any case – confirm the weakening trend of the current account balance.

Persisting deficits at some point in the future – if they should show up but the risk is there – could shatter at least to some extent China’s ambitious global strategy.

Simply because China would have less own money to invest outside the country.

I wish you all a wonderful holiday season!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Summer reflections – new opportunities for the EU, China and Africa

Wednesday, June 28th, 2017

Pro-European citizens in the currently 28 EU states certainly dislike the British decision to leave the European Union (EU), probably in 2019. However, the British departure from the EU should now encourage the remaining EU-member countries and Brussels to think more strategically and concretely about the future of the EU. What should be done? What can be done?

First signals in such a positive and more encouraging direction can already be recognized. Important topics and reform areas, however, should be addressed more transparently already in the near future. Many of them are well known, others have been scarcely discussed so far. Much can be done to rejuvenize the image of Europe and the EU itself. In this respect, the British withdrawal from the EU – with all its disadvantages – also offers new opportunities.

Below, three examples are summed up and briefly elaborated on, dealing with digitalization and relations of the EU to China and Africa. All three different cases affect both politics and business, i.e. the EU as an institution and the corporate sector in the member states.

Readers of this article may wonder why an economist wants to deal with such a complicated political issue as the EU exit of the UK. The answer, however, is much easier than one may believe: political and economic developments have been interlinked in the past few decades to an extent that they in many cases cannot be separated from each other anymore. This is certainly true also what concerns the economic future of Europe. However, this obvious reality of internationalization and globalization has not reached out to all producers and users of economic forecasts so far.

A similar kind of lagging interdisciplinary understanding can also be found between the large areas of microeconomics and macroeconomics. Microeconomic improvements – for instance when it comes to education, innovation, entrepreneurship, working conditions for women, foreign direct investments, taxes, etc., can indeed have a positive impact on long-term macroeconomic GDP growth as well – a correlation that is often forgotten or neglected by forecasters, other kind of economists and politicians. The EU and its member countries should work with these microeconomic issues much more intensively and ambitiously than in the past. It could mean a good way into the future.

Let’s now get back to three above-mentioned examples of areas which the EU and its member countries should focus on in the next few years, among many others. These three areas serve only as exemplifications and do not reflect – despite their importance – any given preference of the author.

Digitalization

Digitalization is certainly an area that will gain much more momentum in the foreseeable future – a most probable development that should be taken increasingly seriously by the EU and its member states, employers and unions. Many new, interesting IT-products or products with applied IT-technology will enter domestic and international markets in the forthcoming years. To get there, the EU, its member states and corporations have to raise IT skills on all kind of research, development and application levels, also in order to meet all upcoming future cyber risks in an appropriate way.

All these needs urge for many future cross-border activities within the EU – as indicated also what concerns the important area of cyber security. Promising and in praxi working ways forward have also to be found in order to reduce the IT-outsider and IT-insider problem on the labor markets (applying here the outsider-research results of the great Swedish economist Assar Lindbeck who, by the way, really deserves the Nobel Prize in Economics as soon as possible).

China

EU relations with China should be regarded as another area that could be improved considerably, including bilateral trade and co-operation in research, investment, the environment, energy, urban planning, health care, institutional improvements, IT protection and cyber security, exchange of students, etc. Increasing trust between the EU and China could mean more trade and other commercial business between these two giants and, consequently, contribute to better economic growth on both sides.

Without doubt, the EU has now a fair chance to improve European co-operation with China which certainly would be a win-win situation for the EU and its member countries, China and the rest of the world – particularly if China really is willing to stick ambitiously to the Paris climate agreement. It should not be forgotten that more clarification and progress in EU-/China-relations could support European corporate activities in and with China in times when many companies have to change their business model for China already as a result of China’s ongoing reform policy. In this commercial context, generally improving European relations with China may appear even more relevant. This should be concluded without considering China’s self-proclaimed global role as prominent defender of free trade and the Paris climate agreement.

Africa

The third example for concrete new opportunities for the EU and its member countries deals with Africa. Africa must in most respects be considered as a lagging continent – but with a rapidly increasing population and still hidden good economic potential. Time has come when traditional European aid-oriented development politics for less advanced countries should be replaced by more concrete long-term growth strategies and measures – a necessary policy change that the German Chancellor Angela Merkel repeatedly has pointed at more recently.

Sure, a long-term perspective has to be applied in the hopefully modified EU relations with Africa. However, if taken seriously, it could be worth-while to increase efforts – from the north to the south of Africa but also for the EU itself. New commercial opportunities could show up – and possibly at some point less pressure from (potential) African migrants. It would, of course, be wonderful if more and more African citizens gradually prefer to stay in their home countries for one specific reason – i.e. that the future finally looks better and more promising.

Ways forward for the EU

Altogether, the examples chosen above hopefully give some alternatives how and where the EU could move forward in the forthcoming years. Certain positive changes may be quite costly, others relatively cheap – particularly when it comes to many institutional improvements.

“L’union fait la force”(“unity makes strength”) is an old proverb in a number of countries. These words are still valid – also in the Europe (EU) of today and tomorrow.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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