Prediction 5 – Africa Outperforms
Earlier in the year, I invited Dan Gay, to write a guest post on the African Continental Free Trade Area. In his excellent account, Dan cautioned that we should recognise that the success of the ACFTA was constrained by the continued dependence of Africa on the developed economies of North America, Europe and Asia, and the continued role that the history of colonialism played in its economic condition.
It is, of course, true that Africa cannot sever links with the global economy. But, that is not just true for Africa. Its true for North America, Asia and Europe too. That is even more the case, today, in a globalised world economy. The experience of Trump's trade wars, and of Brexit illustrate that point. Any attempt at economic nationalism is reactionary and doomed to failure. So, of course, Africa cannot de-link from the advanced economies. And, it is absolutely true that Africa's economies were shaped by colonialism, just as were the economies of Asia, and Latin America. The starting point for any economy, must always exert an influence on its subsequent development.
Large parts of Africa were developed as sources of raw materials, such as gold, copper, iron ore and so on, as well as of diamonds, just as was the case in Latin America, whilst in Asia, and Australasia, the emphasis was placed more on the production of agricultural products, such as cotton, silk, rubber, as well as sheep and cattle. In 1800, India accounted for 25% of all global textile production, but a combination of UK tariffs on Indian textiles, along with the destruction of the Indian village commune, the basis of its handicraft production, soon undermined it, turning India instead into a market for cheap, industrially produced UK textiles, and supplier instead of cotton, and opium sold to China, in exchange for tea.
But Britain, and all other countries began as primarily agricultural producers too. The expansion of markets, leads to the development of commodity production and competition, which leads to the differentiation of peasant producers into a bourgeoisie and proletariat, which, in turn, leads to the development of industrial capitalism. As I've set out in my series on Lenin on Economic Romanticism, this same process unfolded in Russia, after 1861. But, it can be seen everywhere. The destruction of the Indian village was a more brutal and rapid creation of a proletariat than the process of dispossession by competition, and land seizures that occurred in Europe. But, having done so, this same dichotomy of capital and labour is reproduced, and the capital increasingly must engage in industrial production, and the creation of surplus value as the basis of profit, and other revenues. The development of the railway in India, initially to ship cotton and opium in one direction, and textiles and other products in the other, leads also to the development of steel production and engineering, and associated industrial production. That industrial development in India has continued into its role as a major producer of IT.
Increasingly, the defining characteristics of colonialism, of profit derived from unequal exchange diminish, and the defining characteristics of imperialism, and industrial capitalism, based upon the creation of surplus value in production, begin to dominate.
India, was also a colonial country, like many more in Asia, and yet that fact has not prevented the rapid industrialisation and development of India, Taiwan, Singapore, Malaysia, Indonesia, South Korea and so on. On the contrary, India now outranks Britain in terms of the size of its economy, and it is now India whose companies like Tata, own large parts of British industry, like its steel industry, Jaguar Land Rover and so on.
Similarly, although Africa, like everywhere else, cannot delink from the developed economies, when, in 2008, global economies contracted sharply, in response to the global financial crash, the existing growth in Africa continued almost unabated. Part of the reason for that is precisely the existing low level of industrialisation in Africa, creating the potential for more rapid industrial growth, on the basis of the growth of internal rather than external markets. The creation of the ACFTA, enhances that potential. We know from experience across the globe that the greatest growth of trade comes from those in closest proximity. Indeed, that is why national markets, and the nation state developed in the first place. The greatest degree of trade always takes place within a national economy, rather than between national economies, but that does not at all diminish the importance of the development of foreign trade alongside it, especially as such foreign trade usually is conducted by the largest companies.
The development of the ACFTA, along with the decision of the African Union to establish the free movement of labour, capital and goods, provides a substantial stimulus to such development. Africa continues to be a major producer of primary products, but as with the development of the railways in India, the extraction of minerals, especially as new mines are developed, in new areas, requiring new developments of infrastructure, of itself acts to promote the development of additional industrial capital, even where it does not lead to the local processing of those products. In addition, Africa has seen inward investment by other countries into the development of industrial scale agriculture, primarily for export, but also to meet the requirements of a growing African working-class. It means that existing peasant agriculture in Africa will disappear as it did elsewhere, being replaced by more efficient and sustainable capitalist farming. That in itself will result in an increase in the market, and growth.
Next year, I expect two things to happen. Firstly, by mid year, COVID will stop being a major issue as herd immunity arises, either because of the natural spread of infections amongst populations, or else as a result of the development of vaccines, or both. That in itself will result in a splurge of consumption, prompting a demand for capital accumulation, fuelling rapid growth. Second, and enhanced by the former, I expect that rising interest rates will cause a crash in asset prices, on a scale that cannot be countered by central banks money printing, and which cannot be countered by fiscal austerity, as economies try to deal with the immediate effects of lockdowns on their economies. In other words, from the middle of next year, there is going to be rapid global economic growth. It can already be seen, in part, in China, which is shipping goods to the US in huge quantities, to an extent that shipping rates have soared.
This surge in capital accumulation, with money now flowing into it rather than into speculation into crashed financial and property assets, will lead to a surge in demand for primary products, similar to that seen in 1999. It will not lead to the kinds of price rises seen then, other than as a result of monetary inflation, because since 1999, huge investments in new mines and farms has made available large amounts of potential supply. But, the surge in demand will be enough to lead to much higher rates of growth amongst these primary product producers – benefiting economies in Latin America too.
But, there is another aspect of this surge in capital accumulation. China has already had to concede higher wages to workers over the last decade. Indeed, concede may be the wrong word, because like Singapore and Malaysia before it, China based its industrial and economic development on moving up the value chain of production, moving from lower valued, labour-intensive production, to higher value, capital intensive production, employing higher value, higher paid labour. China some years ago, now, began exporting capital and production to lower wage Asian economies like Vietnam. But, these economies too are now reaching a point where their further development cannot come from the employment of additional low paid labour. Enter, those African economies that also now have reached a certain level of economic and industrial development, with adequate levels of infrastructure, and education for workers, to take on some of this industrial production. Again, the development of the ACFTA and free movement enhances this capacity, as well as the ability of the ACFTA to negotiate with these other trading blocs, over the terms of trade between them.
As the global economy begins to grow rapidly in the second half of next year, I expect Africa to outperform as part of that growth.
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