Miruna Codeanu

I (don’t) hate to say it, but…I told you so! (on world economy)

In espresso on November 8, 2013 at 8:25 am

It has been here for years, but now we’re acknowledging it. I saw it coming and I have to brag. No, I’m no Nostradamus or other fortuneteller. So I’ll say it again, so that, when it is go actually going to happen,  I can tell you: “but I told you so, so many times”. So, China will become the world leading economy which means manufacturing in China for mass consumption will be too expensive which means many companies will have moved their manufacturing units to Africa. No, you will not wake up tomorrow and see it happening, but it will happen. Forbes  Magazine features and entitled: Africa the New Asia? No, it is not a prediction, it a fact: Marriott International is planning to buy Protea Hospitality of Cape Town, South Africa which holds units in South Africa, Malawi, Namibia, Nigeria, Tanzania, Uganda and Zambia, thus investing $200 million. 

30 september 2011, Nokia was closing its unit in Romania, packing and moving to Asia. Today’s contemporary business model requires expansion, higher profits with lower manufacturing costs and that will always mean lower income, lower social security, lower healthcare costs,  and lower working conditions. Your social security and your comfort as an employee cost money which mean less profit. I’m not saying people are terribly unhappy working in China, and most of the times we’re terribly wrong when we judge working conditions in China by our standards. Probably, most of the people in China are happy because they are employed. It is with gradual development  that makes standards rise. When Nokia came to Romania, they came from Finland, and when they left, they announced they will be moving somewhere in Asia. This was the road for many international companies: move from mother country to a third world country, and when the third world country starts to develop, move to another 3rd world country. This was China’s case too, China was cheap, with almost no environmental and social regulations. Along with the companies moving to China, people were rising their standards too and China was developing itself as a luxury consumer which meant their income was increasing and so were the manufacturing costs.

China is now booming, it will be the next leading economy.With China being the next leading economy, manufacturing in China will have higher costs, which only means companies will need to find other areas. However, this will be slowed down by the “local” trend and “buy local” campaigns. Although big companies like Apple are trying to move back home, most part of their products are still manufactured abroad, and it will continue being so for some year the “local” trend being that does not address mass consumption.

The only reasonable alternative left will be the African continent. It won’t be only the usual, American corporations investing in Africa, because by then, odds are, Chinese companies will be big enough as to afford relocation and they will need cheaper workforce too. Probably, somehow, China managed to see this coming, because China is massively investing in Africa. Also, BMW is one of the companies that is quite visionary in this domain. I am a BMW fan, but I do not judge their business moves by my attachment to the brand. BMW is building a plant in South Africa. Sure, South Africa is a little bit more than a regular third world country but there is also some know how and properly trained workforce needed to make cars. Robots are coming but they aren’t really here yet and there huge problems with the existent rates of unemployment for their use as workforce. South Africa is not quite a third world country but it is in Africa. So that when the other countries will be able to host manufacturing plants, BMW can easily expand. I’m not naive, I am pretty aware that unstable, hungry, poor, uneducated Africa cannot host manufacturing plants. However, with companies moving to the African continent, countries in Africa will not want unstable borders near them, so they will try and support the development of other underdeveloped countries. With Africa’s rise, Africa will also be a market. However, with the steps made by the Chinese government in Africa, I tend to doubt Africa will be a market for western products.

But again, I told you so, and yes, we live interesting times.

  1. Africa is and will be a manufacturing plant. Chinese textile companies begun years ago to expand in kenya or mozambique. But this won’t stop here. We will see in a couple of years record high production yelds for bananas, coffee and so on. And yes…the future is black!

    • I’d rather say that the future is yellow and Africa will be somehow their manufacturing plant. Don’t quite think the Chinese model (manufacture and then becoming a leading economy) applies to African countries or that will depend on the form of government states will have at the moment.

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