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Sat. August 08, 2020
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Around the World, Across the Political Spectrum

What Nigeria Should Learn from China’s Great Economic Transformation

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Before 1978, China was amongst the poorest countries on Earth and was on the verge of total collapse, macro-economically. However, from 1978 to 2019, the country’s Gross Domestic Product (GDP) grew from $150 billion to $14 trillion, while its per capita income rose from $153 to $10,000. In the same vein, between 1981 and 2015, the country’s poverty rate fell from 88% to 0.7%; while its foreign reserves grew from $0.17 billion in 1978 to $3.14 trillion in 2015. It could be summarized that in just three decades, China has transformed its economy from a communist backwater into a capitalist dynamo. Currently, China is the second largest economy in the world by nominal GDP, following the United States, and the first in purchasing power parity. Its economic growth rate has averaged 6% for 3 decades. China is projected to be the largest economy in the world by 2032 according to the Centre for Economics and Business Research, a UK-based economic forecasting firm.

A comparison between China and Nigeria presents a reversal of fortunes. While China’s per capita income was $153 in 1978, Nigeria’s was $527. Similarly, while 88% of Chinese citizens were poor in 1981, Nigeria only had 30% of its population living in poverty at the same time. In addition, while China’s foreign reserves were at $0.17 billion in 1978, Nigeria’s was at $2 billion. Fast forward to present day, China is now the world’s second largest economy, while Nigeria currently faces several macro-economic battles primarily as a result of its dependence on oil for government revenues and as a base source of foreign exchange.

These challenges include a reduction in government revenues, following the fall in oil prices since the end of 2015 which caused an economic recession (an echolalia of the scenario in early 1980); a rising debt profile which makes up 27.26% of its GDP; a paltry per capita income of $1,900; a rising unemployment rate; a worsening poverty statistics (Nigeria is currently the poverty capital of the world); gross infrastructural gaps; and a failure to industrialize its economy for decades, amongst other considerable number of economic issues.

There is literature that has interrogated the factors that gave birth to China’s macroeconomic strides, starting with its market economy reforms in 1978. These studies present strategies and tactics that developing countries could adopt in their quest to develop. However, development is not a one-size-fits-all phenomenon. While China and Nigeria may have a few things in common, there are many other areas in which there is little to no common ground regarding the duo political economy, history and geography. Keeping this in mind, this article narrows down five (5) strategies or factors that catalyzed China’s growth which Nigeria could learn from.

1) Building markets with weak institutions, and allowing co-evolution of institutions and market.

An essential takeaway from China’s growth is the actuality that it was unconventional and went against the traditional Weberian bureaucratic and developmental (modernization) theses. China kick-started a development drive by transitioning from communism to capitalism; with inherent poor institutions characterized by limited property rights, poor standardization, personalization of public service, weak infrastructure and rule of law; red tape; poor judicial systems; etc. China built markets with weak institutions. It did not wait to build strong institutions before its economic takeoff (Weberian bureaucracies) or built markets through massive capital injection from foreign aid (modernization thesis) before building strong institutions. Both markets and governance co-evolved in its development. How China did this is examined further below.

2) An aggressive attraction of Foreign Direct Investments (FDI) by all rank and file in China’s bureaucracy.

There is no country that has ever successfully attempted growth and industrialization without foreign investments. This traditional growth principle was obvious in China’s growth. With weak institutions and market, China unleashed an aggressive drive for investment attraction through having every local official and agency courting investors. Special Economic Zones (SEZ) were established in a few areas where all the enabling factors for manufacturing were provided. What China used to its advantage on this were 1) its network of diaspora communities; and 2) the communism strategy of mobilization. Considering the latter, the investment drive was campaign-styled and less technocratic (as evident in East Asia).

A significant extraction from this was that the communist discipline instilled in the citizens and local officials was apparent. Investments were sought after from every place and by everyone. Nigeria has a lot to learn from this especially through thinking about how to engage and involve the diaspora. With its market size and availability of raw materials, Nigeria has no excuses to explain its industrial backwardness.

3) Incentivizing Public Service Performance - Assigning targets to party and state officials and have them evaluated like Chief Executive Officers (CEOs).

At the start of reforms in China, as aforementioned, its bureaucracy was predatory. However, across its 5-year developmental phases, Beijing franchised its bureaucracy. Public agencies and institutions were all given economic targets in the form of investments, revenues, industrial outputs, value of exports, etc., and respectively evaluated on periodic performance basis. Government officials were evaluated like CEOs in the private sector. Those who generated more revenues had the extras retained which translated into added remunerative benefits for their workers. Those who did not meet targets were penalized. In incentivizing its public service, outstanding officials were recognized and promoted. This provided incentives for performance, productivity, and innovation, as well as an aggressive drive for revenues and investments, amongst local officials. This is quite essential for every developing country’s bureaucracy. Nigeria has a bloated public service where incentives are lacking, and officials often getting complacent. In its bid to reform, Nigeria must incentivize its bureaucracy and have its workers give their best through target appropriation and subsequent evaluation.

4) Growing rich from the coastal areas, and encouraging industrial transfers to the landlocked locales (flying geese thesis).

Massive regional inequalities still exist in China, which was intended from the start. In the words of China’s chief reformist, Deng Xiaoping, “Let some get rich first.”  Deng was referring to the coastal locales such as Xiamen, Shenzhen, etc. which piloted China’s industrialization and development agenda, and had the first set of SEZs. The coastal maximization provided incentives for investors and limited transaction and logistical costs for exporting. The first set of market reforms were initiated in these coastal regions. When the coastal regions reached a middle-income status with high labor costs and land values, the Chinese reformers began focusing less on quantity of investments and prioritized quality investments in these areas. This drive for high-end manufacturing in these areas led the migration of low-end industries into the hinterland. Beijing therefore provided the necessary inter-regional infrastructure that made the landlocked regions economically competitive.

At the same time, state and local officials from the interior regions (the non-coastal areas) were trained and taking to tours in the already-economic prospering coastal cities and local governments. To this effect, Beijing crafted initiatives such as Expo Central China, a convention that matched coastal manufacturers with inland governments. This is in line with the flying geese thesis of the Japanese economist, Kaname Akamatsu. Nigeria can replicate this through having the hinterlands provide the necessary raw materials and low labour costs, and by establishing SEZ in the coastal areas. When the coastal areas eventually take off, the flying geese model applies. But how will this be possible in Nigeria when the country has only one functional seaport? The port infrastructure has to be decentralized with functional ports in other coastal locales in Nigeria. The funding for this is not far-fetched if an effective Public Private Partnership (PPP) is operationalized where investors bring in funding for the ports. This is, then again, an amazing strategy Nigeria could replicate.

5) Fiscal decentralization and allowing local leaders modify central policies because of divergent local contexts.

Nigeria’s fiscal governance is centralized based on the country’s dependence on oil rents. The resultant outcome presents sub-national governance structures that are barely functioning, fiscal-wise. State governors for instance queue up monthly for federal allocations from Abuja, with which they run their states and bureaucracies. This has made these governors redundant and extractive. Decentralizing this can enable states compete, innovate and prosper. Such decentralization would jump-start development in the country. This is because, sub-national governments would manage their own natural resources, grow at their pace, become creative and tailor central reforms to their contexts. Doing this is inevitable for Nigeria if the country really aspires to industrialize, modernize and develop. In China, its fiscal governance is decentralized. And Beijing had a strategy of directed improvisation- a situation whereby authorizations were given from the center about the next economic agenda/phase while local leaders adapt the reforms following their contexts.

Amongst the significant takeaways from China for developing countries such as Nigeria is that economic development is realizable in a few decades. Development is all about GUTS! East Asian countries were already demonstrating this at the start of China’s take-off in the 1980s. In this regards, the utmost need in Nigeria is the adequate political will to develop through an aggressive drive for investments starting from Nigerians in the diaspora; fiscal decentralization and establishment of a competitive federalism; crafting of a smart population policy to control the population which has overburdened economic development; establishment of SEZs starting from the coastal locales while ensuring political stability; amongst other strategies listed above.

 

The author, Chambers Umezulike is a Development Governance Expert and Writer. He can be reached through chambers.umezulike@gmail.com and on Twitter via @Prof_Umezulike

 

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