Search

WP 201504 - Can Africa Compete with China in Manufacturing? The Role of Relative Unit Labor Costs

Author: 
Janet Ceglowski, Stephen Golub, Aly Mbaye and Varun Prasad

Date of Publication: 
August 2015

Abstract:

Abstract: In this paper we examine Sub-Saharan Africa’s (SSA) bilateral trade and cost competitiveness with China. We review patterns of bilateral trade between SSA and China, showing an extraordinary imbalance in the structure of trade, in that China overwhelmingly exports manufactured products to SSA and almost exclusively imports primary products in return. Our principal means of assessing the competitiveness of SSA’s manufacturing sector, vis-à-vis China, are measures of relative unit labor costs (RULC). We find that African RULC levels have generally been very high relative to China, but declined over the 2000s as China’s wages have risen faster than Chinese productivity, while the reverse is true for the SSA countries in our sample. Nevertheless, RULC vis-à-vis China remained elevated for many SSA countries as of 2010. Generally high RULC along with weaknesses in the business climate suggest that most SSA countries are unlikely to be competitive in labor-intensive manufacturing any time soon.

Download Working Paper: DPRU WP 201504