«Flying geese» hypothesis – China in Africa

Makhynia Ksenia

The flying geese model, a theory of industrial development in latecomer

economies is used to explore the prospects of South Africa playing the role of a
leading 'goose' in the economic development of Africa. The model forms one
theoretical framework that has been advanced to explain the economic growth of
Asia as having been underpinned by the Japanese economy (Asia's leading goose).
South Africa's experience of import substitution during the period of international
isolation resulted in the achievement of self-sufficiency in particular sectors of the
economy, including food, textile, financial services etc. After 1994 following the
first democratic elections, the focus of the government shifted to export promotion
and capital account liberalization, which resulted in substantial involvement of
South African corporations in the rest of Africa.

The flying geese model argues that Japanese companies indeed started a series of
successful product and process innovations and spread these innovations from
developed East Asian countries to less developed Southeast Asian countries. This
concept of national geese flying in formation shaped the pattern of what diversified
Asian-owned companies invested in next and where multinationals located their
activities in Asia.

The countries comprising the Southern African Customs Union (SACU) are
currently not very integrated into global value chains (GVCs), potentially missing
out on important development opportunities. That was initiated by Japanese
multinational corporations (MNCs) investing in successive EastAsian countries
thereby becoming the lead geese, to be joined subsequently by MNCs from other
countries.

Most are targeting local markets, substituting for imports, and hoping that reduced
transportation costs and local knowledge will allow them a higher profit margin. A
small but significant group could, perhaps, be seen as the vanguard of the flying
geese – relocating to Africa to take advantage of lower costs and integrating
African producers into global value chains. But so far, these firms are few and far
between.

Some might argue that firms substituting for imports are not going to be able to
reap the economies of scale and productivity improvements that global production
allows. Yet I would note that African countries are presently importing some $100
billion in goods and services from China. Many of the Chinese firms see capturing
some of that market as feasible, even without the generous protections of an earlier
era of import substitution.
China sojourn into Africa is become more prevalent and has a lot to do with supply
and demand. A generation under the one-child policy has had an impact on the
supply of labour causing shortages to arise and ultimately wages – 12% annually
since 2001 and productivity adjusted manufacturing wages nearly tripled from
2004 to 2014.

According to Justin Yifu Lin, a former chief economist at the World Bank. China
is about to graduate from low-skilled manufacturing jobs which will free up nearly
100 million labour-intensive manufacturing jobs, enough to more than quadruple
manufacturing employment in low-income countries. To put that into perspective,
when manufacturing employment reached its peak in the United States, in 1978,
only 20 million people had jobs in American factories. Now five times that number
of jobs are about to migrate out of China.

Industrialization will allow Africa to follow in the footsteps of Japan, South Korea,
Taiwan, and China: to build factories that employ its booming population and to
refashion its institutions to meet the demands of modern capitalism.

Most important, it will provide a real chance to raise living standards across broad
sectors of the populace. If Africa could lift just half as many people out of poverty
as China has in a mere three decades, it will eliminate extreme poverty within its
borders.

Southern Africa, in particular the group of countries comprising SACU, is

currently not appropriately integrated into the global division of labour or, more
precisely, into GVCs. As a consequence, the region suffers from unemployment
and development problems. Several options for SACU to integrate closer are
discussed in this think piece. We first assessed the probability that SACU can
copy the Asian flying geese pattern, which was initiated by Japanese MNCs that
invested in several East and Southeast Asian countries and became the lead geese.
This investment was accompanied by technological transfer and spillovers, leading
to a catching-up process termed the reverse production cycle. It is also obvious
that the flying geese pattern was supported by stable political governance –
albeit not necessarily in Western style liberalism – educational efforts, export
orientation and subsequent market opening. It built on third-countries’ investors
who also behaved like lead geese. The conditions for the flying geese pattern to
be transferred to SACU are not given. Neither is the manufacturing base existent
in South Africa, nor does the level of education in the SACU members enable a
reverse production cycle. Simply speaking, South Africa cannot play Japan’s role.
Therefore, it is sensible to check another potential model to link SACU to the rest
of the world. This is the gateway model, implying that a country, in SACU’s case
South Africa, is the gateway for trade and investment into the region. This can
indeed be seen as a realistic option, at least regarding transport infrastructure
(airports, harbours, railway lines and roads), which is the best in the region. In
addition, South Africa can be regarded as services hub in the region. Here the
gateway idea is already realised: companies from overseas purchase South African
enterprises, which themselves have created African networks. In addition, South
Africa’s two major cities – Cape Town and Johannesburg – are the most attractive
places in sub-Saharan Africa in which to locate regional headquarters. Thus,
South Africa could be the gateway for MNCs from third countries, who could play
the role of lead geese. Thereby, the flying geese and the gateway models become
compliments. However, there are substantial obstacles to this approach. Problems
first occur with respect to trade across borders in the region: there still are many
NTBs to be removed, and customs procedures are burdensome. These problems are
intensified by a current policy stance in some SACU governments in favour of
import substitution over export orientation, advertising the idea of RVCs as
opposing to GVCs. Experience in Latin America and India throughout the 1970s
and 1980s suggests that this policy model has enormous information requirements
and cuts off the economy from the latest innovations. Nonetheless, we are
convinced that RVCs can well have a value when seen as complements to GVCs.
Indeed, it may well be the case that the SACU members do not attract too many
world leading MNCs but rather regional players (from South Africa, China or
elsewhere). By building regional networks, the countries may benefit from
technological spillovers, education and the like in the short run and qualify for
integration into GVCs in the longer run. Nevertheless, this still requires an
investment friendly climate and trade openness. Then a Factory SACU can be
feasible.

Litterature

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Stylized Facts.”
4. Hirano, K. (2014). Comment on “Changing China, Changing Africa: Future
contours of an emerging relationship”
5. Kojima, K. (2000). The “flying geese” model of Asian economic development:
origin, theoretical extensions, and regional policy implications.