The Blog

Asia Is Still Worth the Hype - and Lessons Sub-Saharan Africa Can Learn From It

Similar scenes like this will likely be replicated at WEF's Forum in China this week, where local and foreign government leaders and multinational executives have descended upon Dalian, in northeastern China, to attend what has been dubbed as the "Summer Davos".

As business leaders settled into their plush seats at the Myanmar International Conventional Centre in early June this year, the room fell silent as Sergei Pun, the executive chairman of Yoma Strategic Holdings and Myanmar's foremost business impresario, doled out advice on how to succeed when doing business in Myanmar. Speaking at the World Economic Forum (WEF) on East Asia, which was held in Nay Pyi Taw, the capital city of Myanmar, Mr Pun's enthusiasm for his country was infectious.

Having amassed a personal fortune of $500 million from his sprawling real estate conglomerate, Yoma Strategic Holdings, which operates in Myanmar and China, he confidently claimed that the country held lucrative opportunities for investors with an appetite for frontier markets. "It is a great time for entrepreneurship to grow, and this is fertile ground for entrepreneurs," he said.

Similar scenes like this will likely be replicated at WEF's Forum in China this week, where local and foreign government leaders and multinational executives have descended upon Dalian, in northeastern China, to attend what has been dubbed as the "Summer Davos". The decision to locate the Forum in China this year reflects a wider, and continued optimism in Asia's growth prospects.

Yet in the backdrop of China's recent economic slowdown, this confidence may seem somewhat misplaced. China's growth slowed down from 7.8% in 2012, to 7.5% in the first two quarters of this year. Moreover the performance of Asia's other behemoth, India, is not much better. Its free-falling rupee has shed light on some of its systemic weaknesses, and its GDP has declined from 5% in 2012 to 4.4% in the second quarter of 2013. Moreover critics of Myanmar's recent boom contend that its growth rate of 6% last year rose from a low base, and far from being revolutionary, the government's ongoing reforms to attract FDI are, by global standards, quite basic.

Yet relative to other regions, Asia's growth appears enduring. Developing Asia - a term that encompasses the Association of Southeast Asian countries, as well as China and India, according to the Asian Development Bank (ADB) - will be the fastest growing region in the world this year. Despite exogenous shocks that may stem from a possible tapering of the US Federal Reserve's bond-buying scheme, as well as the European Union's protracted sovereign debt crisis, the ADB expects Asia to grow by 6.6% in 2013.

On a country level, Asia's governments have done much to ensure this growth is sustained. McKinsey maintained that that President Thein Sein's drive to privatise a host of its state-owned enterprises in sectors ranging from hotels and tourism, to electricity and natural resources in Myanmar, will enable it to quadruple the size of its economy to $200bn by 2030. In addition, Thailand, Indonesia and the Philippines have been lauded by WEF for placing their macroeconomic fundamentals in order. Their improving debt-to-GDP ratios, coupled with increased government spending on public education programmes and health services, have done much to improve the health, knowledge and innovative capacity of their populations. This will continue to make Asia a draw for foreign investors.

Although WEF rightly notes in its Global Competitiveness Report that developing Asia's countries "are not competitiveness champions", its forthcoming Forum in Dalian will be a significant opportunity for policy makers from sub-Saharan Africa to glean lessons on how to improve their own countries' prospects. Having faced similar developmental challenges to sub-Saharan Africa, successful Asian countries can offer the region tried-and-tested economic models of development. Indeed parallels could be drawn between both Asia and Africa. Both host a large and youthful population that are relatively cheap to employ, and both have an abundance of land and natural resources.

On a recent visit to Manila, the Philippines' capital, I was surprised at the similarities the city shared with Nairobi, the capital city of Kenya. Despite being a recipient of foreign aid like Kenya, the Philippines has undergone an economic transformation in recent years. Last year it overtook India to become the world's leading business process outsourcing centre, and its GDP is expected to grow in excess of 7% this year. Much like Kenya, this growth has brought with it social and economic distortions that are typical of a transitioning developing country. Sprawling slums coexist alongside gleaming, high-rise office blocks. The posh homes of residents living in the Makati business district in Manila, are hidden behind high walls which are heavily guarded by private security, much like what one would find in Nairobi's uptown Westlands neighbourhood.

Although both regions' challenges are similar, developing Asia has been able to shake off negative investor preconceptions. Conversely Ernst and Young in its "Africa Attractiveness" report identified negative stereotypes of corruption and bureaucratic red tape as posing the biggest deterrent to foreign investment in Africa. Enduring policy changes in Asia, coupled with continued spending on educating its workforce, as well as eliminating infrastructure and supply chain barriers, have enabled Asia to maintain its appeal as an investment destination. Yet bureaucratic opacity and an inconsistent application of the rule of law - particularly when enforcing business contracts - have been identified as some of the main challenges of doing business in sub-Saharan Africa.

As a result, sub-Saharan Africa received the dubious title of being the least competitive region to do business globally, according to WEF's Global Competitiveness Report. Infrastructure is in a dire state of repair in the region's oil exporters like Nigeria, Cameroon and Chad and as a result, goods market efficiency is low. Technological adoption, which is critical to enhancing productivity, is limited in non-oil exporting countries like Tanzania and Liberia, while labour market rigidity in middle-income economies like Mauritius and South Africa continues to constrain companies' hiring and firing practices. Having faced similar challenges, developing Asian countries offer sub-Saharan Africa alternative models of development. As nodes of economic activity continue to shift Eastwards, African policy makers would do well to pay attention to the lessons leaders impart in WEF's Dalian Forum this month.