China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

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

June 28, 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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Africa – a continent of future “growth lions” ?

May 7, 2014

Africa – a continent of future “growth lions” ?

Some minutes ago, I listened to Toto’s wonderful song “Africa “ from the early 1980s. Good music and jogging often lead to new ideas. So why not changing the topic of my blog contribution a little bit and writing some lines on the economically and politically lagging – but wonderful and kind – continent of Africa?

Sure, I have visited Sub-Saharan African countries to a much lesser extent than all the Asian “growth tigers”. But I read also all over the years all the discouraging reports on Africa and – more or less – most individual Sub-Saharan countries. Just a few countries proved to be a little bit more future-oriented than all the others since the 1980s. In quite a number of countries, economic conditions have even worsened considerably in the past decades. The rest of the Sub-Saharan countries remained more or less unchanged on low economic and social levels, at least during the past decade.

Now – finally – Africa is increasingly “in” – particularly in the eyes of many politicians and analysts/strategists in our part of the world. Positive messages are spread all over the world, more lately also by the Swedish minister of finance. Africa is more and more praised as the continent of the future.

I really do hope that these conclusions turn out to be right. Looking at the African country-wise GDP-growth for the past decade, however, does not reveal any major acceleration of growth rates. According to the African Development Bank (AfDB), GDP-growth rates have been more and more less unchanged during the past decade, something like stable 5 ½ percent on average (Morocco, Tunisia and Libya included) – without major volatility. Also on country levels, growths fluctuations were quite limited in the past ten years. Positive outliers are, for instance, Ghana, Togo and Zambia, whereas South Africa, Sudan and Uganda are characterized by a weakening growth trend.

Some of the Sub-Saharan African countries have achieved structural improvements in the past 10-15 years or so. What may be even more important is the fact that also foreign investment interests in Africa has been growing. However, there are still only six Sub-Saharan countries among the leading 100 countries when it comes to the World Bank’s/IFC’s ranking of business conditions out of totally 189 countries (Mauritius on number 20, Rwanda [!] 32, South Africa 41 (only!), Botswana 56, Ghana 67, Zambia 83, Namibia 98 – and 20 countries are among the last 25 countries on the list of “Doing Business 2013”).

All in all, things have been moving (somewhat) in the right direction all the same. However, by far too many African countries south of the Sahara still have not created satisfactory political and institutional conditions for a sustainable upward trend. Modern definitions of institutions are quite broad and include also traditions and habits, both the good ones and the bad ones. The bad habits and traditions include even factors like corruption, lagging application of existing laws and insufficient statistics. Badly working institutions may exist within the political, social and financial sector, government administration, property rights, etc. Both researchers and practitioners know that it usually takes a long time to change institutional shortcomings to the better. This includes also health care, the environment, more broadly anchored education, etc.

It is, of course, positive that the economies in a number of Sub-Saharan countries probably have entered a more positive – or less negative – stage of their economic development. In certain cases political progress can be noted as well. But these specific cases do not allow putting all Sub-Saharan African countries in the same promising basket. Africa has to be analyzed country by country and case by case – and not so much by using general conclusions that unify developments to the “African economy”. Similar – misguiding – aggregated views were already created after the fall of the Berlin Wall and the Iron Curtain by summarizing all the reforming countries to “Eastern Europe” – and not to forget the BRICS countries which nowadays definitely do not manifest themselves as a homogenous group of countries.

In many ways, impressing developments in China are often taken as an argument against the quite common view that institutions mean a lot to economic growth – as, for example, institutional economists like Douglass North, Dani Rodrik and Daron Acemoglu so strongly are pleading for in their research. In other words: Opponents to the strong supporters of institutional economics normally use China’s on average poor institutional standards and its simultaneously good economic growth as the most prominent example for their skeptical position (result from our very recent China Survey Panel for Chinese institutions on a scale from 1-10: 4.1 , 10=very good).

On the other hand, we have noticed more recently that also China must do much more for a sustainable future good GDP growth than in the past (which is reflected in the official documents from the Third Plenum last November). There is no doubt that also China has to improve its institutional standards substantially in the next five to ten years for not be being caught in the so-called middle-income trap.

Thus, the main conclusion of this article is that Africa south of the Sahara should not be analyzed in the aggregated way as it’s mostly done these days. Analysis and investments there should be made country by country – even if the currently more positive mood for the continent may help. Hopefully, China can manage its growth problems smoothly – also because of most African countries´ dependence on commodity prices (where Chinese demand usually is the main price driver). But more value-added production should be created in Africa, too. Hopefully, trends in the world economy are moving to a new kind of equilibrium that favors the whole global economy, Africa included.

Right now, there is at least a starting point for more hope, supported by a better psychological mood on Africa outside the one-billion people continent. GDP growth around 5-5 ½ percent means that at least the younger lions have entered the global economic growth scene – like the young Asian tigers did young some 25-35 years ago. However, we have to understand that lions and tigers are very different – like the fundamentals for the Asian and African economies. But this should not refrain from hoping for Africa’s best while the young lions are growing up! They will have a long way to go …

 

Hubert Fromlet
Visiting Professor of International Economics, Linnaeus University
Editorial board

 

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