Economic growth performance since the colonial rule had

Economic growth is the rate at which a country
increases its production of goods and services per head and in relation to the
total population over a certain period of time. As a result of economic growth,
economic development is achieved through the constant flow of input and output
of products and services.  Chinese and
Sub-Saharan Africa markets have utilised the aspect of economic growth and
development by tapping into emerging markets to drive their Gross Domestic
Product (GDP). Some of the key markets that have shaped these markets include
industrialisation, agriculture, technology, and institutions. Despite their
success in the new emerging markets, China and Sub-Saharan countries have
experienced diminishing returns and reforms that have impacted their economic
growth and utilisation of new markets effectively. In contrasting these two
markets and their economic growth, this paper will explore the Foreign Direct Investment
(FDI) and Gross Domestic Product (GDP).  (Olamosu
and Wynne, 2015).

Sub-Saharan Africa is a larger region consisting of 53
nations thus larger than China. According to the World Bank, it consists of
1.02 billion people as of 2017. The Sub-Saharan Africa’s growth performance
since the colonial rule had been disappointing during the 1970s and 1980s. In
terms of the global economy, Africa has insufficient resources, high population
with no resources to cater for its rising population. (Sundaram, Schwank
and Arnim, 2011). The economic history of Sub-Saharan African can be
divided into four broad periods that indicate the level of economic growth
based on the GDP. Between 1960 and 1980, there was a high growth of many
African nations, which resulted to an annual GDP of 4.8 percent. The next
period was between 1980 and 2000 whereby there was an economic crisis hence
external shocks on increased oil prices and declining interests and trade deals
led to as 2.1 percent GDP.  From the
economic crisis, Africa’s economic growth rose again between 2000 and 2007
whereby their GDP improved to 3.9 percent. 
As of 2008 to the present, there have been a lot of economic
uncertainties because of the slowed American and European markets as well as
the slowed Chinese growth.  In spite of
the uncertainties, countries such as South Africa and Nigeria have shown
promise in the economic growth during the period termed as “Africa
rising” time, which began with SSA establishing pro-market institutions in
the early 1980s. (Olamosu and Wynne, 2015)

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When it comes to growth and development, Sub-Saharan
Africa (SSA)’s economic population has doubled in size since 2000 with some of
its nations reaching a GDP growth of 8%. Angola and Mozambique reached GDP
growth of 8 percent thus exceeding that of China and India.  Additionally, countries such as Angola,
Liberia, Sierra Leone and Burkina Faso had faster economic growth than China.
In an effort to grow their economy and enter emerging markets, SSA has invested
in tourism, agricultural sector, telecoms and technology. These sectors of
development are meant to increase SSA’s economic growth and GDP growth. The
contributing factors to such a growth have been political stability, climate
changes and structural changes that support growth between African countries.
One major element that has hindered SSA’s economic growth is their lacks,
failures and dysfunctional, collapsing and underdeveloped attributes
surrounding its description. Moreover, these attributes are true based on the
low human development index of 0.475 (compared to the global HDI of 0.694) as
of 2012. (Olamosu and Wynne, 2015)

The Chinese economic growth has been greatly
attributed its reforms in driving the country forward and maximising their
manufacturing opportunities. China dominated the manufacturing industry since
1950s when it targeted metals and machinery. As of 1960s, China became
dependent on the manufacturing sector with a third of its GDP growth being
generated from industrialisation. (Knight, 2014). 1978 was a defining moment for China’s economic growth
because of the shift from an unsteady government to a sustainable path for the
country’s growth. The Law on Chinese Foreign Equity Joint Ventures allowed
foreign capital to become a part of its economy and boost its growth until the mid-1980s.
In fact, the law allowed companies to retain more profits and ease pricing
restrictions on products and services. Because of such laws, China had a
miraculous rise of their GDP from 6 percent in 1978 to 9.4 percent at the end
of 2012. (Cheremukhin et al., 2015). Consequently, urbanisation became a big part of China
when more workers moved from rural to urban regions for higher-paying
jobs.  Other sectors that experienced the
diversification include mental products, chemicals, agricultural implements,
and consumer goods. (Hou, 2011)

China’s economic reforms played a major role in
shaping its emerging markets.  Some of
these reforms include population reform, rural reform, financial reform, trade
and investment reform, and Reform of SOE’s. The
population reform was passed to manage the population growth rates impacting
economic developing. Unlike Africa whereby economic growth is hindered by
poverty and insufficient food supplies due to overpopulation, China’s one child
policy was designed to manage the rising birth rates in 1980s. (Olamosu and
Wynne, 2015). Despite such reforms, China’s population is still a concern
because of the high rates of urbanisation and population growth. For instance,
as of 1982 China had 182 cities which increased to 666 of 1996. Its population
as of 2017 was 1.3 billion and it is expected to increase to 1.6 billion in
2050. (Kochhar, 2017).

Although urbanisation was a positive element in
China’s economy it also came with pressures on China’s land resources. For
instance, China’s land resources fell from 99.4 million hectares in 1978 to
94.9 million hectares in 1995. Also, the population between these periods grew
from 962 million to 1.2 billion. The growth in population and shrinking land
resources resulted to a question of whether China might experience diminishing
returns on its food supply market. In addressing these consequences, China
formed the land reforms in the agricultural economy to help farmers keep more
land under the farmer collectives. Land transactions were banned, and the
housing and land market grew based on their property rights. The reforms were
also important in offering economic freedom to land owners and a fast growth in
the real-estate market. (Qian, 2002).

Another reform that contributed to China’s economic
growth was the price system reform implemented in 1984. This reform allowed
prices to be set by market forces thus decontrolling the prices. The reforms
transformed the Chinese market from a comprehensive economic reform (CER) to a
socialist market economy. This meant that the Chinese economy would be
market-oriented based on property rights, factor income and macroeconomic
operating structure. The introduction of land reforms led to property rights
whereby farmers could cultivate on a piece of land for 30 years and transfer it
to another farmer. While SSA countries were suffering with equality and
distribution of resources, China’s economy factored in the factor income by
permitting equal distribution of resources. The Chinese government worked to
eliminate inequalities by offering smooth transition of long-run dynamics
process from a partial disequilibrium to general equilibrium. (Hou,
2011)

Other gradual reforms that have contributed to China’s
economic growth in emerging markets include the fiscal reforms which introduced
the de facto federalism in relation to the expenditure-revenue matching
principle. This reform offers a central system in central taxes, central-local
sharing taxes and local taxes. The Financial reforms were made in the financial
sector and they have been modified to fit the economic changes today.  For instance, the People’s Bank of China
served as the central and business bank before the reforms in 1978. Upon the implementation
of the financial reforms, the PBC became a sole monetary authority while the
modern financial sector was formed by policy banks, investments banks, and
business banks among others. Consequently, the Exchange rate reforms
contributed to economic growth in China. China had different foreign trade,
regulated, financial and black markets systems that were abolished in 1994.
This led to the adoption of a floating exchange rate system that unified four
different rates thus boosting the Chinese economy.  (Yang, 2015)

 China’s reform
relates to the institutional theory by creating processes and rules that
support its economic growth and control the social behaviour in China. For
instance, the land reforms created processes whereby one owned the physical
structures of the land but not the land itself. This meant that farmers and
real-estate entrepreneurs owned the rights of the land and benefited from it
for a period of time. It also supports the aspect of general equilibrium in the
end and managing equity in all sectors. Additionally, the reforms relate to the
institutional theory by establishing how rules are applied on financial
institutions and followed to establish a socialist market economy that supports
the Chinese growth and development. (Hou, 2011)

Another factor that supports the Chinese economic
growth is the constant opening-up of new business through the principle of
gradualism. China has extremely leveraged their manufacturing industry which
led to them entering the World Trading Organisation (WTO) in 2001. As a result
of this move, China opened up to more policy measure and institutional arrangement
in their labour market. In fact, they utilised labour division in the global
market in order to support mutual benefits from other countries. Unlike SSA
countries whereby most nations depend on one or two commodities for export,
China has a long list of primary products and manufactured products to depend
on. Although their rates of manufacturing declined after joining WTO, they were
still higher than Africa’s rates. For example, in 2010, China’s manufacturing
rates for all products, primary products and manufacturing products were 4.0%,
1.8% and 3.6% respectively compared to SSA’s 4.3%, 2.7% and 5.2% respectively.  Also, China’s Foreign Direct Investment (FDI)
is an indicator of its success in economic growth whereby in 1992 it attracted
$11.16 billion of FDI and had an increase from the previous year’s 1.15% GDP to
2.64% GDP. (Yang, 2015). Even with such differences
in FDI, SSA nations’ FDI increased by 5.5% in 2012 with
several mines expanding and new oil wells and gas discoveries being made in
Coast of Africa. (The World Bank, 2013)

China’s growth is also indicated by its high savings
and investment in industrialisation and agriculture. Since 1980, China has
excelled in industrialisation and manufacturing. As a result, its ratio of
savings to GDP goes hand in hand. China has shown higher savings compared to
Sub-Saharan Africa nations. While the global average saving was at 20%, China’s
average rate of saving is at 47.4% at the end of 2008. In fact, Sub-Saharan
nations such as Angola and South have had a decline in their average saving
because of increased population and high poverty rates. For instance, China’s
ratio of savings to GDP% between 1990-1999 and 2000-2011 was 40.9 and 47.4%
respectively. In contrast, South Africa’s ratio of average savings to GDP was
16.7 and 19.9% in the respective years under the Chinese economy. This showed a
major different in economic growth between Sub-Saharan countries and China. (Yang,
2015).

Although the market-oriented reforms have supported
the Chinese economic growth, there seems to be reduced growth in Chinese
economy since 2012.  According to the
Chinese Academy of Social Sciences (CASS), the growth rate range during
2011-2015 was between 7.8%-8.7%, however between 2016 and 2020, it has been
declining between 5.7%-6.6%. Such a decrease in growth has raised the question
of whether China has reached its Lewis Turning Point. Unlike the African
Population whereby 60% of its population is below 30 years of age, China’s working
age population is about to reach an historical peak. This means that there will
be more low-cost workers and labour shortage to contribute towards the economic
productions of goods and services that support the economy. According to the
International Monetary Fund projections, China may reach the Lewis turning
point between 2020 and 2025. China’s large pool of rural labour in agricultural
and industrial sector may end based on the rapid nominal wage increases and labour
shortages for cheap labour. (Das and N’Diaye, 2013)

In contrast to China’s economy concerns, SSA’s
introduction of pro-market institutions in 1980s is showing economic prosperity
and promise in its GDP. The growth has been experienced since 2000 whereby the
GDP between 2000 and 2009 was 7% growth in Sub-Sahara countries. The impressive
growth has also shown an increase in capital on Foreign Direct Investment (FDI)
and remittances inflow. Just like China, SSA countries developed reforms to
support economic growth and development. (Okonjo-Iweala,
2010). In 2009, some regions in the Sub-Saharan African
nations developed reforms to ease business opening in region. Some of these
nations include Ghana, Namibia, Kenya Mozambique, Nigeria, South Africa,
Uganda, Tanzania, and Zambia. During these reforms, Rwanda was the first to
implement the “Doing Business 2010 reform”, followed by two-thirds of
the Sub-Saharan African nations. Based on the low human development index of
SSA nations, the reform was meant to increase investment in human development
and infrastructure in African nations. (The
World Bank, 2017).

Sub-Saharan Africa is soon catching up with China’s
slowing economy and surpassing it in emerging markets. (Hattingh
et al., 2002). Before the food
crisis in 2008, Southern Africa nations such as Kenya, Tanzania and Uganda had
a GDP growth like Asian nations. In fact, in 2011 Africa had a GDP of 4.8 %
growth, which showed the highest growth rate compared to Asian nations and
surpassed Mexico, Russia and Eastern Europe. Its success has been shaped by
African domestic market which is largest outside China and India. Also, the
private consumption of goods and services support two thirds of Africa’s GDP
growth.  Apart from agriculture, a study
by the World Bank Program reported that Africa Infrastructure Country Diagnostic
has improved their shares in telecoms thus contributing to at least 1% of the
GDP and in fiscal policies. (Staff, 2013).

Another study by an Oxford Economists indicated that
African companies’ annual return on capital was averagely 65% higher than China
and India’s between 2000 and 2007. As a result of Sub-Saharan Africa’s economic
growth, international brands such as Nestle, Unilever and International Swiss
report more growth in their African branches. More evidently, during the
Foreign Direct Investment (FDI) fall to 20% globally in 2008; Africa had its
highest capital in-flows of 16%. This made Chinese companies set up industrial
sources in Ethiopia. (Staff, 2013)

With so much promise in Sub-Saharan nations, China is
scrambling to invest more in its trade deals with African nations and develop
other business. As of2012, China had $200 billion invested in SSA trading with
a 26% average annual compound growth rate. Similarly, China’s Foreign Direct Investment
in Sub-Saharan Africa was $21.23 billion, supporting over 2373 firms across 50
nations in 2012. China’s “Going Out” Policy has supported 85% of the Chinese
investors who are private firms. Some of the dominating sectors where the FDI is
utilised include the mining sector, business services, finance, and transport
and telecoms. A larger percentage of FDI capital in-flow supports three top
performing nations which are South Africa, Nigeria, and Sudan at 16%, 14% and
13% respectively as of 2007. Consequently, China imports more products from
Africa while SSA exports mineral products and base materials to China. While
China strives in industrialisation, it requires materials from Africa to
support its industrial maw thus expanding the need for fair trade deals between
the two regions. (Ayers, 2013).

In spite of such growth, Africa’s economic structure
does not create room for employment to counter the increased poverty rates and
supply of resources. The economic structure is vulnerable because it depends on
one single export commodity. According to the UN Economic report in 2013, job
creation and unemployment remain the major concerns affecting the growth of
African nations.  (Lundvall
and Lema, 2014). Structural change
in Sub-Saharan Africa is also concerning because of the rural-urban population
shift, composition of resource-rich nations and its level of production. For
instance, in 2013 one-third of SSA’s population moved from rural to urban
regions. This created a challenge in terms of productivity growth and moving
labour. The evidence of growth-reducing structural changes raises concerns in
terms of the productivity gaps among agriculture, mining, technology, telecommunications,
and tourism sectors. (Page, 2011). When workers move from rural to urban areas they
disrupt economic development by removing labour resources from high
productivity sectors and availing them to low productivity sectors.  Structural change has also been evident in
countries such as Ethiopia whereby the leather industry is growing and mobile
technology growth in Kenya. (Lundvall and Lema, 2014)

In conclusion, Sub-Saharan Africa and China have shown
great economic development using formal and informal institutions based on the
institutional theory perspective. Since the 1980s, both China and Sub-Saharan
Africa have had success in entering emerging markets and supporting their
economic development. The top indicators of their success or failure in the
emerging markets include Foreign Direct Investment and Gross Domestic
Investment (GDP). Based on these two indicators, China’s economic growth has
been steady due to the implementation of economic reforms such as financial,
land, population, and exchange rate reforms. These reforms have shaped China’s
increasing population by increasing productivity to support the population. In
contrast, Sub-Saharan African nations have had a lot of struggles in
maintaining economic development and growth. This was because of poverty,
insufficient resources, food insecurity and overpopulation. Although China’s
economy may be facing Lewis’ turning point concern, its economic prowess has
remained stable to support the Chinese population. SSA’s economy has shown much
promise due to an increase in their FDI, GDP and emerging markets in China, India,
and Brazil.

 

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