Investment in Human Capital Has Paid Off

Approach should undoubtedly be the main lesson African countries can learn from China's reform and opening-up

Hodan Osman Abdi

Hodan Osman Abdi is executive director of the Center for East African Studies, and vicedirector of the Center for African Film and TV studies at the Institurte of African Studies, Zhejiang Normal University. She has translated J.T Hamilton's highly acclaimed book All the News that's Fit to Sell.

Prior to the implementation of China's reform and opening-up policy, the poverty rate in China stood much higher than the majority of countries on the African continent. In 1978, China's per capita GDP was measured at $156 — less than a third of the average GDP in sub-Saharan countries at the same time. In the 40 years that followed, China's GDP grew at an average annual rate of 9.5 percent, lifting an estimated 700 million people out of poverty. What's worth noting is that in four decades, as China transited into an upper-middle-income country, poverty rates in the majority of African countries either worsened or remained stagnant despite countless attempts at economic restructuring and development. However, the increase of revenue from exports and trade with China — Africa's largest trading partner —has undoubtedly been one of the most significant development factors witnessed in the African continent in recent history.

The spillover effect of China's rapid growth on the rest of the world has become one of the most discussed development topics worldwide. But more specifically, China's contribution to growth in sub-Saharan African countries has attracted much analysis and debate. China's growth and development have made major positive contributions to global growth and stability, with significant development outcomes witnessed in Africa in the past two decades of strong China-Africa cooperation under the FOCAC framework. In the past 20 years, Africa's exports of raw materials increased five-fold in real value. And for the past nine consecutive years, China has remained Africa's top trading partner, providing a growing source of aid, investment and loans that have reshaped the continent.

As witnessed in China, accumulation of capital is an essential driver of economic growth, and although Africa's trade of natural resources for cash has brought about visible development on the continent, it is yet to produce significant poverty alleviation. As China's growth model transitions from an investment-led to a consumption-led model of growth, the influx of capital into the continent is estimated to witness a sharp decrease unless dramatic reforms in the industrial and socio-economic policies are taken in resource-dependent African countries.

I offer a few policy suggestions based on the experience of China's four decades of reform and opening-up.

Deng Xiaoping, the father of China's reform and opening-up policy, began pushing for a shift to economic development in 1978. This policy created a clear development agenda that targeted high economic growth through industrial policy, while at the same time enforcing social development strategies targeting poverty reduction. Deng targeted certain regions with several experiments in economic reform, such as the establishing of special economic zones (SEZ) in several cities, including Shenzhen, Zhuhai, Shantou in Guangdong Province and Xiamen in Fujian Province. In six years, as these SEZs proved effective catalysts of growth, this experiment was later extended to 14 cities in coastal areas, opening the country up further to the international economy. All the while, socio-economic polices such as land reform, continued to be carried out across the country creating further domestic growth. This broad multifaceted approach was successful in achieving overall economic growth while at the same time improving basic living conditions, and raising the standards of education and health among the population as a whole. Today, China's GDP per capita in terms of purchasing power parity is equivalent to 86 percent of the world's average.

While foreign enterprises were attracted to the prospects of cheap labor and favorable investment policies, today Chinese enterprises are among the largest investors, taxpayers and job creators in the world. In 2016, overseas Chinese enterprises paid taxes in host countries nearing $30 billion. In the same year, the total number of employees in Chinese ODI firms reached 2.87 million, almost half of which (1.34 million, 46.7 percent) were foreign. In Africa, research shows that Chinese firms created more than 38,000 jobs in 2016, the highest number when compared with jobs created by firms from other countries (Ernst &Young, 2017). According to figures published by the Brookings Institute in September 2018, Africa ranks as the third-largest destination of Chinese overseas investment, creating vast amounts of jobs in both the formal and informal sectors. Chinese investments in Africa have also radically reshaped African infrastructure with more than 66 percent of Chinese investments on the continent focused on the transport and energy sectors, boosting connectivity and creating the conditions to boost Africa's industrialization.

At the same time, in less than two decades, China has grown to become the world's most powerful outbound tourism force. Chinese tourists are viewed as fueling the global tourism industry. Overseas travel of Chinese citizens has risen with a staggering increase of 1,380 percent from 10.5 million trips made in 2000, to 130 million trips made in 2017. According to a world tourism report released in 2018 by the United Nations World Tourism Organization, Chinese tourists spent $258 billion overseas, accounting for a fifth of the world's total spending on tourism. Most recently, during the week-long national holiday from October 1 to 7 in 2018, 7 million outbound trips to more than 1,000 destinations worldwide were made from the Chinese mainland.

Africa is now quickly becoming one of the favored destinations for Chinese tourists. In the past few years, Tunisia and Morocco witnessed a 240 percent and 378 percent year-on-year growth in Chinese arrivals respectively. In 2017, about 69,000 Chinese tourists visited Kenya, while South Africa welcomed more than 97,000. According to figures recently published by Xinhua news agency, more than 100,000 Chinese tourists visited Morocco in the first five months of 2018 alone. Researchers and industry insiders alike estimate the number of Chinese tourists to the continent will continue to grow significantly, as Africa's beautiful landscapes and diverse cultures as well as increasingly relaxed visa requirements act as attractive factors. The rise in travel to Africa is a further example of how China has redefined Africa's economic landscape.One may ask how did this exactly happen?

Many economists are of the opinion that the “the latecomer advantage” may be the principal factor that led to China's extraordinarily rapid rate of development. However, research has shown that the comprehensive approach combining socio-economic reform at the grassroots with industrial policies to capitalize on China's demographic dividend was key to achieving these phenomenal results. The fact that many other transitional economies, especially in Africa, failed to perform as well as China did under similar conditions is further indication of the complexity of reform agendas. The reform and opening-up policy was designed to capitalize on China's comparative advantage of having an abundance of cheap labor. However, the plan of-fered policies that enhanced hard and soft infrastructure to create a comprehensive competitive business environment, while at the same time cultivating high-quality human capital. Put simply, while economic reforms allowed for capital accumulation that fueled overall growth, these plans used social development policies to ensure the steady provision of high-quality labor, and allow for the cultivation of consumption driven domestic economic growth in the future.

China's policies worked, and its population is now one of the largest factors fueling both domestic and global growth.

Investment in human capital has been pivotal in the success of China's reform and opening-up — that led to unprecedented socio-economic growth in a nation that has a population close to that of Africa's 54 nations. In my opinion, this should undoubtedly be the most important lesson African countries could learn from China's experience. At the same time, development of Africa's human capital should be at the core of China-Africa cooperation in the next two decades.

The latest report published by the Bill and Melinda Gates Foundation indicates that by 2050, while Africa will have the largest number of people aged 0-24, 86 percent of the world's extreme poor will live in sub-Saharan Africa. This report bases its premise on existing policies that fail to focus resources toward youth development through the provision of adequate health and education. Development is for the people, but we should never forget that development is also performed by the people. For African countries to capitalize on the opportunity of the demographic dividend offered by growth in young populations, significant policy reforms are needed that provide these youth with the skills needed to be productive members of their societies. While China has been one of the most generous providers of scholarships and training opportunities for Africa's youth, as well as health services through Chinese medical teams in Africa, more could be done by the Chinese and African governments to ensure that by 2050, Africa is home to a larger percentage of the world's middle-to-high income populations. Here are a few suggestions:

First, Africa is a resource-rich continent. With the proper skills, technologies and infrastructure, these resources can be transformed into value-added products that can be extremely competitive in world markets. Although it can be said that China has been already a major participant in Africa's industrialization process, lack of political stability and sustained economic policy in many African counties has hindered these efforts. African nations need to re-assess their priorities and address the looming devastating dangers of population growth by adopting adequate reform policies and sustaining them in spite of changes in political leadership. Commitment and prolonged sustained implemen tation are essential for development agendas to yield positive results.

Second, education is one of the most important factors that fuels innovation and development. While China is increasingly becoming one of the most popular destinations for African students studying abroad, a sharp rise in the popularity of the Chinese language is being witnessed on the continent. Learning Mandarin in Africa is closely associated with employability, entrepreneurship and upward social mobility.

However, with the rebalancing of China's economy from outward investment-driven to domestic-consumption driven, the need arises for a shift in the functions of Chinese education for African youth. According to Professor Li Anshan, medicine and engineering have been some of the most popular subjects of scholarship for African students in China, the majority of whom are self-funded. In the next few years, as prospects of China becoming one of the highest consumers of African goods rise, there is need for African students to refocus their scholarship toward industrial skills such as business, entrepreneurship, law, marketing, industrial engineering and even Chinese history and culture.

Third, language is an important medium and tool for communication, without which no form of cooperation is viable. Studies show that a large number of African students in China study in English, spending an average of four to five years in China and going back home after graduation with limited skills in spoken or written Mandarin. Acquiring proficient language skills and having a more intimate understanding of Chinese culture are vital elements in allowing African markets to capitalize on these opportunities. Furthermore, the functions of Confucius institutes must adjust from teaching Mandarin skills and Chinese culture to students mostly targeting employment with Chinese investors in Africa, to a more comprehensive introduction of contemporary aspects of the Chinese society. Contemporary phrases in China such as “waimai”, “kuaidi” and “xiadan” that contribute to consumer behavior and thought are seldom introduced in Chinese language curriculums or discussed in language lessons. However, for today's African youth, these are vital pieces of information crucial to their development.

Fourth, while the increase of outbound tourism from China to Africa is a welcome event, the fact remains that the majority of the Chinese visiting the continent don't know much about African languages, history or culture. It is vital that channels be established to educate people in China about Africa-related knowledge. These channels may include: establishing African heritage museums in major Chinese cities; the introduction of African history and literature in university curriculums; and the increase of original African popular media content such as African feature films, TV series, and documentaries. Through these approaches, knowledge about Africa will gradually migrate from the educated elite to the general population, which will decrease the chances of hostility and friction that might occur as a result of the lack of understanding and cultural sensitivity as interaction increases.

Last, the majority of academic and media resources relating to China available in Africa today is produced by third parties that are neither Chinese nor African. As agenda-setting differs, the analysis and opinions expressed in these contents would differ as well, and as policy makers seek out these resources, some of the biases that exist in these publications constitute major implications for China-Africa cooperation.It is highly advisable that African nations, on their part, pay more attention to research and establish their own think tanks and centers for Chinese studies that conduct first-hand research and provide analysis and policy advice that is based on bilateral and multilateral concerns.

At the same time, China is encouraged to equip its researchers and students with more opportunities to have a better understanding of African languages and cultures that are vital tools to equip them with the capabilities to conduct in-depth firsthand fieldwork and research in African countries, and provide a better basis for policy formations. By establishing more bilateral relations between Chinese and African universities, and increasing the number of Chinese scholarships to Africa, China can increase its pool of African experts who will prove vital in the progress of China-Africa relations. Substantial investment is needed to boost understanding between China and Africa's youth, and in order for China-Africa relations to continue their robust rate of growth, governments on both sides must increase resource mobilization toward this goal.