The role of “the world’s low-cost factory”, once fulfilled by China, is set to pass to Africa in the very near future. Indeed, labor-intensive sectors such as the fast-fashion and consumer electronics industries are looking for new countries to manufacture in. During the course of the following interview granted to the Aspen Italia website team, Maurizio Bussi, Director of the International Labour Organization’s Decent Work Technical Support Team for East and South-East Asia and the Pacific explained the opportunities and prospects ushered in by this trend.
So, is China reinventing itself?
China has its sights set on shifting the focus of its economic system towards creating a significant domestic market with greater consumption capacity. For this reason, it is trying to get beyond a model that hinges on cheap labor. As is often the case in China, this involves an incremental transition. Conglomerates in coastal areas are engaged in exporting products characterized by large volumes, low vertical integration, and limited technological input. In the textiles sector, for example, demand is steadily growing, as evidenced by the constant expansion of the major fast-fashion chains. We are looking at an industry that is still growing by 10% annually, one of the few that has maintained such levels of growth over the last decade. In short, it is still quite an attractive sector in terms of economic and employment growth. This is why Chinese firms delocalize their production, but do not surrender control of the supply chain.
Where are the factories being moved to?
Chinese firms wanting to shift production abroad look for low wage costs and suitable infrastructure. One of the countries benefiting from this trend is Vietnam, which boasts another competitive factor, having recently strengthened trade ties with Europe and the United States. Other Southeast Asian countries that are witnessing an influx of new Chinese investment in manufacturing are Cambodia and Myanmar.
Delocalization does not, however, only affect the region closest to China: Mozambique, for instance, has very similar potential to Vietnam but with lower wages. Over the past two years, 150,000 new jobs have been created in the African country. This is still far short of the 3 million Vietnam has created, but in Africa the potential is considerable, owing in part to wages being much lower. While a worker in China in this sector earns 500 dollars a month, in Vietnam this drops to 170 dollars. In some African countries, including Ethiopia, it can be as low as 60-70 dollars per month. Obviously, the respective levels of productivity are different, but interesting prospects are opening up linked to developments in supply chain management.
So is Africa the new El Dorado for manufacturing?
Firms in the fashion industry move very quickly and Africa could be attractive for them because it represents a diversification, including from the point of view of geopolitical risks. Let’s consider the case of Ethiopia again; there is a great deal of investment flowing into the country and lower wages are only one draw. In fact, the country has proper infrastructure, with good access to ports, a young and well-trained workforce, and labor market governance that is favorable to investors. In addition, the country is in the same time zone as Europe and is conveniently situated geographically with respect to target markets. In addition to Ethiopia and Mozambique, another country that is seeing increasing investment is Kenya. These are all countries where increased macroeconomic stability has been conducive to the influx of capital. Then there’s Rwanda, Africa’s number one success story. In this case, however, investment has been not so much in manufacturing as in services.
What are the risks and benefits of low-cost manufacturing?
This inflow of investment has generally led to job creation. But when production is being steered by very powerful and organized investors, like the Chinese, manufacturing countries are not able to vertically integrate such industry. The raw materials always come from China and Chinese conglomerates maintain control over all logistics, a crucial element for keeping pace with the rapid turnaround times of the electronics and textiles markets.
Another critical aspect to consider is labor market governance, that is, the regulatory and taxation framework which governs labor relations. Firms seek a favorable regulatory environment, but often those states that receive production investment are not able to offer optimum governance or to effectively monitor conditions. Even so, it must be stressed that, with the passage of time, the reputational risks for the major fast-fashion chains are acting as an incentive to improve working conditions. A final factor to consider is that only those countries that have progressive policies from the point of view of female employment are managing to attract investment. Many of the people employed in the textiles industry are, in fact, women. Hence, without such policies, the impact of investment on employment is very limited.
Maurizio Bussi is the Director of the ILO’s Decent Work Technical Support Team (East and South-East Asia and the Pacific), based in Bangkok. An international diplomat with 20 years of experience within the United Nations system, he has participated in complex humanitarian and development projects, both at central UN headquarters as well as in the Middle East and Asia. He began his career at the UN early in the 1990s within the Department of Peacekeeping Operations in New York, engaged particularly in the provision of assistance during elections in Namibia and Cambodia. He subsequently held other positions in New York, Geneva, Gaza, Jerusalem, New Delhi, and Beirut.
