Can Africa compete with China in manufacturing? The role of relative unit labour costs

Abstract

AbstractThis paper examines sub‐Saharan Africa's (SSA) bilateral trade and cost competitiveness with China. We document an extraordinary imbalance in the structure of bilateral 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 labour costs (RULC). We find that African RULCs declined over the 2000s as China's wages rose faster than Chinese productivity while the reverse was true for the SSA countries in our sample. Nevertheless, RULCs vis‐à‐vis China remain very high for many SSA countries. High RULCs along with weaknesses in the business climate suggest that most SSA countries are unlikely to be competitive in labour‐intensive manufacturing any time soon.