The rise of the Asian Drivers and the implications of Development Strategy Raphael Kaplinsky Development Policy and Practice, The Open University.

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Presentation transcript:

The rise of the Asian Drivers and the implications of Development Strategy Raphael Kaplinsky Development Policy and Practice, The Open University

China’s growth is not unique..

VectorsDirectIndirect Trade Complementary Competitive Production and FDI DirectIndirect Complementary Competitive Finance DirectIndirect Complementary Competitive Governance DirectIndirect Complementary Competitive Migration DirectIndirect Complementary Competitive And they may be direct or indirect

The drive to industrialisation Close association between incomes and industrialisation The terms of trade favour manufactures

UNIDO World Industrial Development Report 2009

Commodities-manufactures terms of trade

The drive to industrialisation Close association between incomes and industrialisation The terms of trade favour manufactures Manufactures are (relative to agriculture) income elastic and price inelastic Synthetic substitutes for natural products Manufacturing embodies rents – agriculture does not Manufacturing can be labour intensive – primary commodities are very capital intensive

The orthodoxy Manufacturing exports are key: Competitive effects Scale effects Learning effects

Distribution of MVA Share of the World Share of developing countries By Income S. and E. Asia of which: China Latin America Sub-Saharan Africa

World Manufacturing Export Price, IMF, World Economic Outlook Database

EU Imports from China 1 st Q 2005/1 st Q 2004China Market Share in EU-25 Imports Volumes %Price %1 Q 2004 %1 Q 2005 % T-shirts Pullovers Men’s trousers Blouses Women’s coats Bras Socks and pantyhose Linen and ramie yarns Linen fabrics Source: Euratex data as reported by Nathan Associates

% of sectors with negative price trends, 1988/9-2000/2001

Commodity Price Movements Source: UNCTAD All Commodity Price Index, 2000=100

The Rise in Commodity Prices Early 2003 Mid 2008 % Change Food Ores & Metals Oil All UNCTAD Commodity Price Index (2000=100)

Actual and projected global share of China’s consumption of base metals Source: Macquarie Mining

China’s demand for agricultural commodities 20% world population, 7% arable land Biofuels Industrial inputs 22% global rubber consumption (2006) Imports 27mt cotton vs 7mt domestic production(2008) Pork, other meat and animal feeds Switch domestically from grains to fruit and vegetables

 “… structural changes such as increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, may keep [agricultural product] prices above historic equilibrium levels during the next 10 years….  Winners are:  Brazil (sugar, oilseeds, meat)  Argentina (cereals and dairy products)  Russia/Ukraine (coarse grains)  East and south east Asia (rice, veg oils, poultry) Global outlook for the agricultural sector, (OECD/FAO, 2007)

The Impact on Africa

Manufacturing for the domestic market SMEs in Ethiopian shoe industry –28% bankrupt –32% downsize SA Clothing and textiles –Employment fell from 119,000 in 2004 to 87,000 in 2005 Zambia’s Mulungushi mill –Closure in 2007 with

What happens when Africa exports the same products as China to the USA? ( ) Exports fromValue of Country’s exports Value of China’s exports AGOA-2685 Kenya-5113 Lesotho Madagascar Mauritius SA-5389 Swazi-24136

SSA EXPORTS SSA IMPORTS CHINA IMPORTS CHINA EXPORTS SSA GAIN SSA LOSS Clothing footwear Hard commodities Clothing footwear Oil All SSA SA, Lesotho, Swaziland, Madagascar, Kenya, Mauritius Most SSA Oil exporters, Zambia, SA, DRC, Botswana, Ghana, Gabon, etc

Slow Down in Global Growth GDP Growth (% Change) Source: IMF WEO January 2009

The Fall of Commodity Prices Mid 2008 End 2008 % Change Food Ores & Metals Oil All UNCTAD Commodity Price Index (2000=100)

What’s in a Price Movement? Commodity Boom: A peak that is much higher than previous peaks. The Cycle: Short Term, 2-4 years; a peak/trough to peak/trough measurement. The Super Cycle: Medium Term, 6-10 years; a prolonged trend rise over a decade. The Structural Break: Long Term; a long-run change in relative prices.

Commodities-manufactures terms of trade: What does the future hold?