China and Nigeria
Will Harford
Chinese exports of low cost manufactured goods
United
States
Manufacturing
China
Chinese exports of low
cost manufactured goods
Technology
Japan/Korea
• Our goal is to understand the economic relationship between China
and Nigeria in an attempt to confirm that the relationship:
• History of this relationship
• Examples of this relationship.
• Similarities between this partnership and the partnership between the US
and China.
The US economy required a change
• The US, as a consequence of the LA Riot’s required an alternative
supply of low cost goods resulting in happier US consumers.
• 52 Deaths, 2,500 injuries, at least $446million to $1bn USD in property
damage.
• Deployment of 10,000 California National Guard Soldiers and more than
3,500 US soldiers and Marines.
• 12,111 arrests
• Protecting US jobs was no longer a requirement.
• In 1982, demand existed in the US for production that would lower
the consumer cost for basic items.
• This demand did not involve high technology
Starting with the US and China
• China’s large labour allowed them to respond to the demand from
cheap manufactured goods in the US.
• In 1992, China was not considered an HPAE
• GDP $422.7 billion
• Population of 1,165,000,000
• GDP per Capita $362.81
• In 2014, China has the second largest GDP in the world
• GDP $9.469 trillion
• Population of 1,357,380,000
• GDP per Capita $6,959
So rather than choice we must look at:
• As a strong demand for cheap manufactured goods developed in the
US, they needed the supply.
• East Asian economies, recognized as HPAE’s, such as Japan, Korea and
Taiwan have been providing goods to the US for some time.
{Assembly Lines}
[United States]
?
{Industry}
{Scientific Technology}
[Japan]
[Taiwan & Korea]
{Industrial Technology}
China in 1992
• Solow Growth Model:
Y=f(K,L,T)
• China had large, underutilized
labour force
• Limited capital
• Limited Technology
China in 2014
• Solow Growth Model:
Y=f(K,L,T)
• China had large, better utilised
labour force
• Large capital
• Development of disruptive
technologies
…and China: starting with human capital
• ‘China's educational horizons are expanding. Ten years ago
the MBA was virtually unknown but by 2004 there were 47,000
MBAs, trained at 62 MBA schools. Many people also apply for
international professional qualifications, such as EMBA and MPA;
close to 10,000 MPA students are enrolled in 47 schools of higher
learning, including Peking University and Tsinghua University.’
• Limited information is available detailing Chinese education when
contrasted with other countries.
• Human Capital developed is different to other East Asian human
capital
China’s Social Capital
• Limited publicized conflict within the country suggesting a high level
of harmony.
• How can we tell : Confucian ethics promoted by Xi Haung promoting
the short text written by Li Yuxiu (around 1661-1722) titled, Di Zi Gui
• Xi Jinping recommended the text that promotes absolute compliance
with leaders.
• The World’s Most Popular Leader: China’s President Xi
At least that’s what they say….
• Mao Zedong denounced Confucianism
• Hong Kong dissent
• After Deadly Riots, Ethnic Tensions Heat Up in Urumqi
• China Xinjiang riots toll 'rises to 35'
• A dangerous year: Economic conditions and social media are making
protests more common in China—at a delicate time for the country’s
rulers
• Up to 21 dead, doctor says, as anti-China riots spread in Vietnam
Is China Approaching convergence?
• Yes, why because growth is slowing, resources are diminishing and
China is simply catching up.
• GDP=F(K,L); Capital grows with economy and Labour is expected to
slow.
• Gowth Models
• Labour is expected to level out shortly, however there are numerous
countries supplying labour to china.
• Capital is available because of the limited growth in
Now China needed the change
• The paper ‘When Fast Growing Economies Slow Down: International
Evidence and Implications for China’ suggest’s China’s growth will begin to
slow in 2015. http://www.nber.org/papers/w16919.pdf
• China must advance to the next growth curve. So how do they do it?
• They must increase their Total Factor Productivity or TFP.
• As we approach convergence, China must consider methods to raise their
TFP as well as consider new methods that will allow them to continue on
the existing curve.
• Today, China now has reached the point where they must either accept
convergence or jump to a new curve with continued growth as a result.
• Like the US in 1992 China has a Demand, but what for?
China’s growing Demand: Labour
• Labour
• China’s working age population fell by 2.44 million to 919.54 million in 2013,
marking the second consecutive year of decline, the National Bureau of
Statistics (NBS) reported.
• It noted that the number of migrant workers (living outside their home
province) increased by 3.4% last year.
• the income of migrant workers rose by 21.2% in 2012
• China’s labour force
China’s growing Demand: Demand!
• China is constantly searching for new markets that demonstrate a
demand for goods/services that it can supply.
• China's new tech rules play to local firms' strengths
China’s growing Demand: Natural Resources
• China’s access to Natural Resources is large for many items except
oil.
• As of 2010 China consumed 455 million tons oil of which over 200
million tons were imported. China's oil demand is expected to
increase by 6% in 2011 according to PetroChina.[17] In 2013 the
pace of China's economic growth exceeded the domestic oil
capacity and floods damaged the nation's oil fields in the middle of
the year. Consequently, China imported oil to compensate for the
supply reduction and surpassed the US in September 2013 to
become the world's largest importer of oil.[18]
http://en.wikipedia.org/wiki/Petroleum_industry_in_China
So, like the US in ‘92, China have the
demand….
• The countries GDP can be increased with a larger workforce, greater
access to Oil or they could just increase their Productivity.
• How can China increase their TFP?
• We must consider Endogenous Growth Theories. Japan and Korea
demonstrated high growth levels with the following factors of TFP.
• Human Capital
• Education
• Social Capital
• Harmony, Law & Order, Lack of Corruption
• Government Policies
• Industrial Policy, Export Promotion
Remember the riots in the US in 1992.
• Riots throughout China prompt the need for alternatives for social
• The Chinese government must lower costs for its population.
http://www.forbes.com/sites/joelkotkin/2014/10/13/theunrest-in-hong-kong-and-chinas-bigger-urban-crisis/
http://m.bbc.com/news/world-asia-china-26414016
http://www.cnbc.com/id/101918928
China’s search for its new ‘partner’.
• To supply its demand for labour, fulfil its demand for natural
resources and to introduce the products/services it provides to new
markets!
Sure China’s involved in trade with
lots of African nations.
GDP/Capita (USD)
2003
2013
Angola
920.10
5,783.37
Nigeria
510.42
3,005.51
South Africa
3,624.94
6,617.91
Angola
Nigeria
South Africa
Low Cost Natural
Resources (Oil)
2
1
3
Low Cost Labour
Yes
Yes
Yes, close to
China’s.
New Market (pop)
21.47m
173.6m
52.98m
Africa
Nigeria
South Africa
Angola
Oil Reserves
37.2 billion barrels
0.15 billion barrels
10.5 billion barrels
Literacy Rate
68.00
86.40
67.40
GDP/Capital
$2,500
$10,700
$8,200
Corruption
27
43
19
• Large Supply of Natural Resources.
• Low cost manual labour.
• Requirement to work.
A closer look at Nigeria
• Nigeria has the seventh largest population in the world.
• Largest population in sub-saharan Africa; 173.6m, almost 20% of Africa’s
population.
• 50.4% Islam, 48.2% Christianity of which 74% are Protestant and 25% are
Catholic
• According to a BBC world service poll, Nigeria is the most pro-Chinese
country in the world with 85% of the population recognizing China’s
influence as positive.
• Member of OPEC
• strong growth between 2003 and 2010 – averaging 7.6%
• Oil accounts for close to 90% of exports
Nigeria: Some numbers
http://data.worldbank.org/country/nigeria
Nigeria
• Remittances represented 6.7% of GDP in 2007
• Export more than 2.2m barrels/day
• Brain Drain – estimated 21,000 Nigerian doctors, in the US
• 100-188 million cubic feet of natural gas (largest in the world)
• 32-36bn barrels oils
Nigerian Education
• Nigeria appears to be increasing its human capital
• The education system is divided into Kindergarten, primary
education, secondary education and tertiary education
• Attendence rate for secondard education is 29%
• 68% of the population is illiterate (75% of men and 60% of women).
• Female Literacy is less than 35% in Northern Nigeria and more than
90% in areas surrounding the southern delta.
Nigeria – Social Capital
• Nigeria ranks 54th with respect to the human poverty
index (HPI) - making it the 20th poorest country in the
world.
• It is also ranked 30th in gender related development index
(GDI) while occupying 40th position from below in its
human development index (HD1).
Nigeria and Neo-Confucianism:
Frugality
• By 2004, the savings rate for Nigeria stood at 6.4
percent (Chinese savings rate is greater than 50%)
• GDP/Capita was $792 in 2009 according to MthembuSalter, Gregory. (2011).
• GDP/Capita is increasing at an increasing rate.
• According to the WorldBank, Nigeria’s Gini rating was in
the 4th quintile between 1995-1999.
What Drives Private Saving in Nigeria
Nigeria and Neo-Confucianism:
Hard Work
• 76.3% of the Nigerian Labour Force is employed.
• Unemployment rate is 8.5%
• Hard to find accurate means of measurement.
YOUTH AND LABOUR MARKET OUTCOMES IN
NIGERIA: EVIDENCE FROM NATIONAL LABOUR
MARKET SURVEY
Nigeria and Neo-Confucianism:
Social Harmony
• Strict division between the north and the south
• Boko Haram, want to implement Sharia Law across Nigeria.
• Over 250 sub-ethnicities, speaking over 500 different languages
Boko Haram insurgency
Conflict in the Niger Delta
Boko Haram crisis: How have Nigeria's militants
become so strong?
Nigeria and Neo-Confucianism:
Leadership
• Obasanjo left power in 1979 and Shehu Shagari became
President until 1983
• Shehu Shagari was deposed by Major-General Muhammadu
buhari until he was toppled two year later.
• Major-General Ibrahim Babangida then held power until it
was seized in 1993 by defence minister, Sani Abacha.
• Sani Abacha remained in power until his death in 1998
(apparently in company of two prostitutes).
• 2007: The first ever transfer of power between two civilians in
Nigeria’s post independence history. (although the results
were not endorsed by the EU or the US)
Nigeria and Neo-Confucianism:
Leadership
• Dr. Oby Ezekwesili while speaking at the 42nd
convocation ceremony of the University of Nigeria
Nsukka (UNN) stated that $45 billion in foreign
reserves and $22 billion in the Excess Crude Account
were unaccounted for by the Yar’Adua-Jonathan
administration
• According to the Corruption Perception Index(CPI),
Nigeria ranked 136/175 with a CPI of 27/100 in 2014.
http://www.transparency.org/cpi2014/results
http://www.transparency.org/cpi2014/in_detail
China/Nigeria: Why is the relationship strong?
• China’s relationship is strong with other African nations, so why is the
relationship with Nigeria stronger?
• Nigeria is OPEC’s largest member in Africa (in terms of exports) and
seventh worldwide. It produces 2.05 million barrels of oil per day. It’s
total refining 445000 barrels per day.
• Low cost of business, high corruption.
• High level of Protestantism surrounding the Niger delta
Flying Bird Model
US
Japan
Korea
China
Nigeria
What does Nigeria get?
• A well known fact is that Nigerian military have benefited from
China’s technical assistance form of military training and even supply
of military hardware.
• Health personnel and different categories of patients patronizing
public health providers are the main beneficiaries of technical
assistance offered by China mainly in the roll-back malaria
programme.
• Nigerian academia have also benefited from the cooperation
arrangement between Nigeria and China especially in the area of
exchange programs and promotion of the different culture.
So why the strong relationship between
Nigeria and China?
• Is it really that strong?
• Is it bi-directional?
• Can Nigeria be considered Confucian?
• Carlos Leite suggested that increasing human capital will allow Nigeria
to move from its reliance of Natural Resources (40% GDP!)
• This would increase Nigeria’s bargaining resources, increase
China’s cost in terms of the benefits they receive.
• China would search for another government to deal with!
The future…
Is the partnership based on expected growth?
Looking back at the United States
• 1982: La Riots
• The US required lower costs in order to maintain order.
• They used China manufacturing
Ethical Standards
• Neo Confucian/Protestant
• Weber concluded that growth in the US was due to the protestant work ethic
and limited consumption (leading to high savings and high investment).
• Short text written by Li Yuxiu (around 1661-1722) titled, Di Zi Gui
• Mao Zedong denounced Confucianism
• Xi Jinping recommended the text that promotes absolute compliance
with leaders.
China and the US
China and Nigeria
Similarities between China and US
Economics
In 2014, China has the second largest
GDP in the world.
In 2014, Nigeria is Africa’s largest
economy
GDP $9.469 trillion
Population of 1,357,380,000
GDP per Capita $6,959
GDP $594.257 billion
Population of 174,507,539
GDP per Capita $3,416
Nigeria/China Agreements
Agreement on Trade, Investment Promotion and Protection
2001
Agreement for the avoidance of double Taxation and Prevention of Fiscal
Evasion with respect to Tax and Income
2002
Agreement on Consular Affairs
2002
Agreement on Cooperation on Strengthening Management of narcotic
Drugs, Psychotropic Substances and diversion of Precursor Chemical
2002
Agreement on Tourist Cooperation
Strategic Partnership Agreement
2005
A memorandum of Understanding on Investment Cooperation between
the Federal Ministry of Commerce of Nigeria and Ministry of Commerce
of India
2006
Economic Cooperation Agreement between Nigeria and Xinguang
International Group of China
2006
Harrod Domar Model
• Is China approaching convergence?
Harrod Domar Model
• What are the options?
•
•
•
•
𝑆
𝑌−𝐶
=
= 𝑆𝑎𝑣𝑖𝑛𝑔𝑠 𝑟𝑎𝑡𝑒/𝑟𝑎𝑡𝑖𝑜; 𝑌 − 𝐶 =
𝑌
𝑌
∆𝐾
∆𝑌
= 𝑀𝑃𝐾;
= 𝐸𝑓𝑓𝑖𝑐𝑒𝑛𝑐𝑦 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑌
∆𝐾
∆𝐾
= 𝐼𝐶𝑂𝑅
∆𝑌
∆𝑌
Growth Rate = =
𝑌
Series Name
GDP growth (annual %)
GDP growth (annual %)
GDP growth (annual %)
GDP growth (annual %)
Series
Code
NY.GDP.
MKTP.KD
.ZG
NY.GDP.
MKTP.KD
.ZG
NY.GDP.
MKTP.KD
.ZG
NY.GDP.
MKTP.KD
.ZG
Country 2000
Country Name Code
[YR2000]
2001
[YR2001]
2002
[YR2002]
9.082068
2003
[YR2003]
10.0253788
2004
[YR2004]
10.0850399
∆𝐾
𝑆;
𝑌
2005
[YR2005]
11.3100352
2006
[YR2006]
12.6765342
=
𝑆
𝑌
2007
[YR2007]
14.162395
2008
[YR2008]
9.6346682
2009
[YR2009]
2010
[YR2010]
9.2141989 10.44698904
2011
[YR2011]
9.29988522
2012
[YR2012]
China
CHN
8.431279499 8.300317601
7.6525531
Japan
JPN
2.257495302 0.355461715 0.289548451 1.685111722 2.360730113 1.302728144 1.692904245 2.192186233 -1.041636034 -5.526976489 4.652030154 -0.452724839 1.753689775
Korea, Rep.
KOR
8.831278205 4.525319497 7.432433614 2.933207053 4.899851507
Nigeria
NGA
5.318093381 4.411065196 3.784648183 10.35418456 33.73577503 3.444666813 8.210964859 6.828398348 6.270263697 6.934416004 7.839739477 4.887386611 4.279277314
3.92368744 5.176133982 5.463406088 2.829214457 0.707518483 6.496785169 3.681704667 2.292382426
Does China conform to Neo-Confucianism
ethical standards?
’The philosophy can be characterized as humanistic and rationalistic,
with the belief that the universe could be understood through human
reason, and that it was up to humanity to create a harmonious
relationship between the universe and the individual’
• The limited effect of political discomfort on trade between east asain
countries could be replicated around the world in an attempt to
understand the relationship between neo-Confucian culture and nonneo-Confucian culture.
• I would suggest that non-neo-Confucian culture trade would see a
greater effect as a result of negative press. This difference would be
minor.
• Measure relationship between African Nations and China
• Trade=GDP+CPI+Natural Resources+
• http://www.oecd.org/countries/nigeria/49814032.pdf
• OECD: Provides an overview of the economic relationship between
China and Nigeria. Published in November 2011.