Report: Africa, Others Will Replace China As World’s ‘Economic Miracle’

Report: Africa, Others Will Replace China As World’s ‘Economic Miracle’

China’s export strategy is running out of gas as wages there rise, and 16 other countries will replace it as low-cost, global producers, says George Friedman, founder and chairman of Stratfor, a private intelligence group in Austin.

In July, Stratfor released a special study identifying 16 countries, dubbed the Post-China 16, that are likely to be China’s successors in the global economy. They include Ethiopia, Kenya, Tanzania and Uganda, according to a Barron’s report.

“No one country can replace China, but China will be replaced as the low-cost, global producer,” Friedman said.

Foreign direct investment is pouring into Ethiopia from Chinese shoe manufacturers and Indian, Korean, and Turkish textile producers, the report said. Samsung Electronics and Microsoft are setting up electronic-assembly plants there, and clothing retailer H&M last week said it would begin large-scale manufacturing there this fall.

Income inequality and over-reliance on exports to the developed world will leave China without the domestic consumer demand to compensate for the shortfall in future growth opportunities, Friedman said. Domestic consumption as a percentage of gross domestic product has barely budged over the past 10 years, at about 35 percent, while in developed economies it’s more like twice that. “China is facing literally years of economic degradation,” Friedman told Barron’s.

If the economic miracle is ending for China, it is only just beginning for Tanzania, Laos, and Peru, he says. Friedman contends that China’s twilight opens the way for other nations, large and small, to exploit low wage rates. They will follow the Chinese export strategy to jump-start their economies, develop trained workforces, and steadily move up the economic food chain, from producing textiles and footwear to assembling simple electronic goods.

The countries are clustered in areas away from the Pacific Rim and boast wage rates 50 percent to 75 percent below China’s. Many lack the infrastructure China has developed to move goods internally or to seamlessly ship products overseas. Likewise, corruption abounds in many of the 16, and corporate governance and the rule of law in these lands are hardly up to Western standards.

Yet foreign capital, ever in search of low labor costs, is starting to flow into these nations, although it barely registers in official statistics in the few cases where the numbers are even tabulated.

The major beneficiaries of the new economic order will be countries in the Indian Ocean Basin — Ethiopia, Kenya, Tanzania, Uganda, Bangladesh, Sri Lanka, Indonesia, and Myanmar. Also making the cut are Cambodia, Laos, the Philippines, and Vietnam, which Stratfor places in the South China Sea periphery. Finally, Stratfor sees big futures for Latin America’s Dominican Republic, Mexico, Peru, and Nicaragua.