The Sunday Mail
Persistence Gwanyanya
WEDNESDAY marked Africa Day and today my instalment is precisely meant for leadership at both national and corporate level.
Leaders have to be appraised about the prospects of our beloved continent and the risks we face today and tomorrow. Equally, there is also need to know the challenges that lie ahead and how to respond to them.
The thrust of this article therefore is to shape an understanding of the world economic environment post the 2008/9 global financial crisis. In 2009, a US hedge fund, Pumico, coined the words, “new normal”, to describe the world post the global financial crisis. It predicted more far-reaching structural changes in the world.
Notably, Pumico indicated that post the financial crisis, the world would be characterised by an eastwards shift in wealth and economic power, the growing strength of the emerging markets, end of the Sino-America (dominance of China-America relationship) and changing technologies. So far, it seems Pumico’s prediction of the post-recession era is proving to be correct.
Leaders should change their global and national economic strategies in response to the dictates of the new environment, and corporate leaders should rethink their business models.
The shift in economic power and influence from the West to the East is particularly important to Africa. Trade between Africa and Asia has been on the increase as the latter adopted an investment and export-led growth model.
The growth of Asian economies has, by consequence, led to the increased demand for commodities from Africa.
The Sino-Africa relationship worked very well between 2002 and 2008 when the world experienced a global commodities price boom.
The dividends from this relationship could have influenced Zimbabwe’s Look East policy. However, the export-led growth model that has done so well in Asia may no longer continue to drive the Asia economies due to serious structural problems. By concentrating mainly on manufactured exports that depend on consumption patterns in the West, Asian economies have now become vulnerable to the performance of the same.
It is unsurprising that when demand in the West collapsed, Asia’s industry, especially China, suffered a huge setback.
The consumption binge from the West may not return anytime soon, so there is need for Asian economies, mainly China, to rebalance their economies.
Slowing demand for commodities by China would mean that resource-rich countries such as Zimbabwe would be negatively affected. So, the bust cycle of commodity prices might be with us for some time.
It is bad news for Africa as this implies reduced revenues. Africa therefore has to look for new markets in the East.
But it is also urgent for African economies to seriously consider value addition and beneficiation, which enables them to market their products to diverse markets, including the West. However, value addition is heavily dependent on other key enablers such as electricity.
Suffice to say that Sub-Saharan Africa currently has an acute power deficit.
There is obviously need for new investments in the sector. As economic power shifts from the East to the West, capital flows will likely be more South to South and less North to South.
Official development assistance may decline as a result. Consequently, the dependency syndrome has to go.
Also, technology and climate change will influence how African policymakers will respond.
Resource-based (RB) and low-tech manufacturing is losing global share to medium and high tech (MHT) manufacturing. Competitiveness may depend on different factors than it does at present.
Emerging markets are still heavily dependent on RB industry but are increasingly moving out of low-tech to medium and high tech.
Rapid technological change has shifted the structure of manufacturing towards more complex technology and skills-intensive activities. It is also increasing skill or technology requirements within industries. Even simple industries like clothing, textiles and food processing have upgraded technologically.
Technological change is not the only influence at work. Globalisation and liberalisation make it vital for enterprises to attain global “best practice” standards.
Failure to do so means that firms cannot survive without protection and barriers to imports.
In the post global financial crisis era, economic clusters will assume an increasingly important role as industry strategy.
Clusters are made up of independent and informally-linked firms, making them looser, less structured and more flexible.
Clustering will influence location decisions and competitiveness.
Economic clusters involve the critical masses in one location of firms that are highly competitive in their particular fields. Examples of clusters are Silicon Valley in California, which has become the hub for technologies; or the South-West Cape in South Africa, which is renowned for wine. Other examples include the Italian leather cluster and the Cairns tourism cluster in Australia.
In Zimbabwe, for example, there is potential for a diamond cluster in Mutare, where firms in the diamond value chain can be located.
Linkages within clusters mean that the whole is greater than the sum of the parts.
A concentrated customer base encourages new suppliers to set up and costs and risks are lower.
Managers can more easily see gaps and opportunities to be exploited.
The proximity of firms and institutions in one location fosters better co-ordination and greater trust.
In tourism, the quality of a tourist’s experience depends not just on the game park or the Victoria Falls, but the quality and efficiency of hotels, transport infrastructure, restaurants and supplementary services.
Location remains fundamental to business decision-making, but its role is very different from 20 years ago. Then, competition was driven by input costs so that a country with cheap labour, or plentiful coal, or natural harbours or hydro-electricity enjoyed a competitive advantage that could be sustained over time.
Today, the situation is very different because firms can offset location advantage (or disadvantage) through offshoring and global sourcing.
A cluster is an alternative way of organising the firm’s value chain.
The proximity of firms and institutions in one location fosters better co-ordination and greater trust.
Being part of a cluster enables firms to operate more productively in sourcing inputs, accessing information, technology, research and back-up institutions, skilled employees and finance.
Compared with vertical integration, clusters are often more cost effective in component production and in services such as training.
Many new businesses grow up within clusters.
Clusters are supported – and fostered – by the State, community or private sector institutions.
A belated happy Africa Day to you all.
Persistence Gwanyanya is an economist and banker. He is also a member of the Zimbabwe Economics Society. He writes in his personal capacity and this article does not represent the views of his employer. For feedback email [email protected] or WhatsApp +263 773 030 691.
