The basic discipline in practicing economics is anchored in the requirement that when you make strong prescriptions, there has to be an underlying model. It doesn't have to be complicated. It nonetheless must be intuitive.
You may ask: why a model? Because it allows you to test whether there is enough logic for the arguments to hang together. If that test is passed, then the conclusion - however profound - could merit serious consideration for implementation.
So when I see a profound headline such as the one highlighting Ms Anzetse Were's commentary in the Business Daily of March 6, 2016 - "How African States can cash in on China’s economic slowdown" - I ask myself whether the inferences in the commentary are a function of what one could consider to be a good economic model.
I ask so because I would hope it is true that indeed Africa can take advantage of China's misery; only that it can't. I argue that it can't because the arguments in Ms. Were's commentary don't hang together; not even when there is an attempt to tie them to some Brookings Institution podcast .
Let's assume a Robinson Crusoe economy where there is no trade - the poor shipwrecked guy in Daniel Defoe's novel ended up in an island cut off from the rest of the world, making it a closed economy. The World is, strictly speaking, is closed economy - we don't trade with other planets; all the space missions are not trade or investment missions!
Instead, the trade and investment regime allows countries within the world to trade with each other. When for instance trade flows in one direction, finance flows (payment for trade) in the opposite direction. That the world is a closed economy necessitates that the current account surplus (cumulative for all countries than whose financial resource inflows exceed outflows - therefore exporters of savings) is equal to the capital account deficit (cumulative for economies whose financial recourse inflows are less than the outflows - therefore being importers of savings).
Why is this relevant to the story that Ms. Were is trying to sell - unsuccessfully, at least to me? Because China - the second biggest economy in the world - is systemically important such that its misery has negative ramification to the global economic performance. This is the message that the IMF's bi-annual seminal publication - the World Economic Outlook - has been consistently passing over the past 3 years (meaning 6 issues of rigorous analysis).
We are now seeing China's current account surplus - and in effect foreign exchange reserves - start to decline. This has obvious ramifications on China as exporter of savings at a time when many of the African economies are looking "East" - read China - for investment financing. [For what is worth Ms. Were's commentary does not make any arguments on how the prescriptions around industrialisations will be funded].
There are two more problems with any argument purporting to sell China's misery as a boon. One is the implicit, if killer, assumption of communality of Africa - what I call the Africa - China; Africa - US; Africa - India syndrome. Unlike China, Africa is not a country to have a common policy, ideology, or even strategy; it is a collection of disparate countries with differences in endowment, challenges, visions, institutions, even friends.
The other is assumption that China's woes will last long enough to allow that "country" called Africa to put its act together to and cash in. On this, yet another killer assumption, I will let Ms. Were speak for herself:
"So the time is now for Africa to lay the groundwork for industrialisation so that when the world economy eventually recovers, the continent will be well poised to reap dividends".
I know a thing or two about how long business/economic cycles last; it is certainly not long enough to craft an industrialisation strategy, put in place, and hit the markets. On this I am not alone (see here and here).
How I wish the arguments in Ms. Were's commentary were hanging together!
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