Learning from Chinese entrepreneurs in Africa

A fascinating piece from Mothusi Turner (Think Africa Press) on how the Chinese (from China’s Fujian province) succeeded in Lesotho may hold for our own entrepreneurs:

Rather than being in some way tied to Chinese state assistance to Lesotho then, migrants come to Lesotho under their own steam, lured by rumours of easy profits. But they do not arrive as hostages to fortune, without a plan and alone. Rather, given that kinship networks are the main pull factor behind Fujianese migration to Lesotho, new arrivals usually have links to one of the local Fujianese business associations before they even land.

These commercial networks link Fujianese traders across Lesotho with wholesalers in neighbouring South Africa and suppliers in Mainland China, and help new arrivals in number of ways. The presence of Fujianese merchants in villages that, at first glance, seem too small or remote to support a retail business, is testament to the success these associations have had.

To begin with, these networks direct new migrants towards niches in the market and away from areas already saturated by Fujianese businesses; in this way, they create a centrifugal force, pushing new arrivals into remote corners of the country.

Fujianese commercial associations also give advice and provide start-up loans and insurance for new ventures. In fact, Fujianese traders typically spend their first couple of years in Lesotho paying off debts to these associations and to the migratory agents who facilitated their entry into the country. This is part of the reason Fujianese businesses have a reputation for being open 24 hours a day, seven days a week – their owners must work extremely hard and live very frugally simply in order to pay their initial debts.

Start-up capital, hard work and frugality are central to Chinese traders’ success. Also crucial, however, is the ability of Chinese businesspeople to undercut their local competitors. This is made possible by using local Chinese business associations to buy and ship goods in bulk. This helps lower wholesale costs and, additionally, given that the many of the goods sold by Chinese businesses are non-perishable, they can also be stored on site for long periods of time to save on transport costs.

All these factors help make the Chinese community in Lesotho commercially successful.

In short the Chinese entrepreneurs key features that makes them successful in Lesotho are simple: they forge formidable kinship networks; tap into commercial networks for knowledge and start-up capital; do not compete with one another – more collaboration as they seek to make money for themselves; and work very hard!

Unfortunately, instead of the locals trying to emulate these things they have resorted to vilify them. By the time they realise these lessons the Fujian may have become rich and possibly move back to China or some other richer parts of Africa. And there will be nothing left or worse, they may be replaced by another wave of foreign merchants – if not from China, then from West Africa or elsewhere in the global South. And one cannot really blame the Chinese for that!

Copyright © Zambian Economist 2013

Implications of China’s New Path for Zambia

Martin Feldstein has some interesting reflections on China’s new strategic direction under leadership of President Xi Jinping , Premier Li Keqiang  and Finance Minister Liu. He observers that recent appointments signals a shift that may be less favourite to slower growth which in turn would reduce demand for commodities :

Taken together, these appointments demonstrate the new Chinese leadership’s emphasis on pro-market reforms and a shift from heavy industry to greater reliance on consumption and services. That shift is likely to mean a slower rate of GDP growth than the annual rate of nearly 10% that China achieved during the last three decades. But a slowdown to 7% annual growth would still double China’s GDP over the next decade.

More consumption and less heavy industry will also reduce China’s demand for raw materials, dampening global commodity prices. Even more significant, shifting income from state-owned enterprises to middle-class workers and increasing consumer spending will reduce China’s enormous saving rate. Since a country’s current-account surplus is the difference between its national saving and its national investment, China’s current-account surplus is likely to continue to shrink in the coming years. That is consistent with the Five-Year Plan’s goal of basing GDP growth more on domestic demand and less on exports.

Since China’s external surplus is already down to less than 2% of GDP, a decline in domestic saving could result in China beginning to run a current-account deficit. In that case, China would no longer be a net buyer of foreign bonds and other assets. If China wanted to continue to invest in foreign businesses and natural resources, it would have to become a net seller of bonds from its portfolio.

I have previously touched on potential vulnerability to Zambia's economic growth of a Chinese slowdown here. What is interesting of course is that Xi Jinping appears to have propriotised Africa since he took power. Tanzania was his first foreign visit and of course our own President Sata has already made a state visit there. China clearly has Africa at the centre of its economic strategy, but Fieldstein is spot on the broader implications of a slow down. It is up to Zambia and other African countries to factor that in their plans.

Copyright © Zambian Economist 2013

Removal of Fuel Subsdies (Guest Post)

By Gabriel Pollen

In discussing the question of fuel subsidies, we first need to explicitly define what a subsidy is. A subsidy is an amount paid by government to keep prices below free market. The amount is equal to difference between the consumer pump price of fuel versus the total actual cost of producing or importing.

Arguments against fuel subsidies are based on the understanding that fuel subsidies cause distortions that result in huge economic costs such as rent-seeking behaviour and smuggling . Proponents for the removal of fuel subsidies argue that several studies in recent years have quantified fossil fuel consumption subsidies and examined whether they are effective tools for poverty alleviation. Generally, lower-income populations only receive a tiny share of the benefits and fossil fuel consumption subsidies are not an effective strategy to protect “real” incomes of poor households, since they involve substantial leakage of benefits to higher-income groups.

Aid Watch (Saudi Arabia)

Finance Alexander Chikwanda recently announced that the Kingdom of Saudi Arabia has pledged to provide assistance to the Zambian government in the health and agricultural sectors. Around US$15 million will support the rehabilitation of the country’s main referral hospital. The two countries are also exploring the cooperation in the area of localized fertilizer production, particularly the possible revitalization of the Nitrogen Chemicals of Zambia (NCZ) plant in Kafue.

Copyright © Zambian Economist 2013