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Capitalism and Entrepreneurship in Southeast Asia and Subsaharan Africa in Comparative Historical Perspective, 600 A.D. to 1970 or so

Guest post by: United Nations University

Article Overview: Southeast Asia and Subsaharan Africa differ sharply in the extent of time each has been exposed to the stimulus, learning and accumulation opportunities inherent in international trade networks.

Capitalism and Entrepreneurship in Southeast Asia and Subsaharan Africa in Comparative Historical Perspective, 600 A.D. to 1970 or so

Southeast Asia and Subsaharan Africa differ sharply in the extent of time each has been exposed to the stimulus, learning and accumulation opportunities inherent in international trade networks. Southeast Asia is strategically located along the great ocean trade routes between India and China. The spices of Southeast Asia brought Arab, Indian and Chinese traders to the region by 600 A.D.. International trade had grown substantially by 1000 A.D., as Chinese and Indian traders visited trading ports from Malacca to Kerala. Between the 1300s and 1600s, indigenous entrepreneurs also played a major role in Southeast Asian trade: Malays, Sulus, Javanese and others contributed the bulk of the goods, ships, and finance for trade during this period.

During this period, parts of Subsaharan Africa were also linked to international trading circuits. Swahili Arab traders plied small vessels along the coasts of East Africa, establishing trading ports in Zanzibar and Mozambique and exporting ivory and gold. Camel caravans moved across the Sahara into the Sahel and Savannah regions, and large canoes made their way up and down the navigable African rivers. Yet the very different geography made transport much more difficult and impeded trade links. Furthermore, the Western coast and the interior were almost completely cut off from significant outside contacts. As Oliver and Atmore's history of the African Middle Ages notes, in 1400, "there was no maritime traffic anywhere between southern Morocco and the Limpopo, and for those living between these points the ocean marked the end of the world." It was not until the arrival of Europeans and the marked acceleration of the slave trade that Africa's many small, regional trading networks were finally linked into a continent-wide system in the late 18th century. Yet for another hundred years, until the demand for Africa's industrial raw materials rose in the mid-19th century, neither production nor trade grew in a sustained manner.

Colonialism brought intense competition and often brutal suppression for indigenous traders in both regions. In the 17th century, Portuguese and Dutch trading groups fragmented the "vibrant indigenous trading circuits" of Southeast Asia" which "failed to survive into the colonial era." The Chinese and Indian immigrants, on the other hand, were able to draw on the resources of ethnic networks and, as outsiders, to make themselves useful to the colonial powers. In some cases, their investments and trading networks rivaled those of the Europeans. Some wealthy Chinese entrepreneurs gave credit to European merchants, and others had important roles as middlemen.

In Subsaharan Africa, Portuguese efforts to capture the gold and ivory trade greatly reduced the activities of the Arabs who had traded along the east coast and also kept local groups from taking their place. As colonial trading enterprises penetrated further into the interior of Africa, they used their exclusive charters, greater access to capital, and the protection of colonial authorities to force African competition out of business. In Nigeria in the 1880s, for example, Ja Ja of Opobo, a successful indigenous trader, with some several thousand employees, was moving into direct export of palm oil to Europe when he was "deposed" by the British. Likewise, in Southern Africa, "Africans wishing to enter commerce were severely restricted in order to protect European commercial interests." In the early colonial period, these moves kept most indigenous African entrepreneurs from accumulating capital on any significant scale.

By the late 19th century, both regions were on different paths. Southeast Asia moved into modern manufacturing well before Africa, with almost exclusively foreign and Chinese or Indian investment. The first phase of industrial development in Southeast Asia -- cement production, food canning, beer, soap and biscuit manufacture, rubber processing and other basic industries -- began between 1870 and 1914, with the production of chemicals, refined sugar, light machinery, cycles, paper, textiles and other goods well in place by 1930. Dunlop invested in rubber plantations in Malaya in the early 1910s, Goodyear in Sumatra. Thailand imposed trade barriers as early as the 1930s to further stimulate domestic industry. The colonial authorities in Indonesia introduced quotas on textiles in the 1930s to stimulate textile production. As intended, this pushed domestic capital (mainly Chinese) and foreign capital into manufacturing. The colonial authorities in Malaysia, on the other hand, maintained essentially laissez-faire policies until a 1955 World Bank report urged Malaysia to raise tariffs on manufactured goods to stimulate import-substitution industrialization.

By 1941, although Southeast Asian industrialization could still be described as "patchy", it was well underway, led by Chinese, Indian, European and Japanese entrepreneurs, and already involving production for export: "Entrepreneurs had identified potential areas of investment and used their trading base to take the opportunities for specific industrial initiatives. They initially targetted the domestic market and later, through cartels, attempted to secure a market share in Asia." Even at this early point, the economies of Southeast Asia had already become well-integrated with extensive intra-regional trade and investment.

In contrast, the initial development of manufacturing in Subsaharan Africa lagged Southeast Asia's by some 30 to 40 years, and no region of the continent is anywhere near being well-integrated. The first modern factories were established in Kenya and other places in the first two decades of the 20th century. Nigeria appears to have established its first modern factories only in the 1920s. In one of the more advanced regions, Côte d'Ivoire, John Rapley notes that industrial development was almost nonexistent "until after the Second World War, and even then it was limited until the postcolonial period". Entrepreneurs in Côte d'Ivoire tended to focus on plantation agriculture, and diversify into services (transport, moneylending) and real estate. After World War II, as African countries moved closer to independence, some colonial authorities began to implement import substitution policies. For example, in the 1950s, Nigerian authorities raised tariff levels on some classes of imports. But in general, policies to stimulate domestic industry would wait until after independence.

Industrial development has an ethnic dimension in each region. Both Southeast Asia and Subsaharan Africa have found their indigenous entrepreneurs getting a later start than the Chinese, Indian, and other foreign entrepreneurs who entered as long-term residents. The Chinese and Indians have been a presence in Southeast Asia for more than a thousand years. The Chinese in particular have become important percentages of local populations, amounting to about 33 percent of Malaysians, 13 percent of Thais, and about 3 percent of Indonesians. Several centuries ago, local rulers used the resident Chinese for "tax farming" which enabled them to raise revenues without the risk of accruing obligations (and demands for power-sharing) from their indigenous noble families. Tax farming worked synergistically: the Chinese identified a sector or product that could be monopolized, obtained an agreement to control its production or distribution, and paid a fixed rent to the ruler, while keeping the surplus. This became a lucrative source of capital accumulation for Chinese business families, while also establishing the Chinese as a useful "comprador" for royal interests.

By the start of the 20th century, Southeast Asia had many very large Chinese family firms, already diversified into a number of activities. The Khaw family, for example, began their accumulation in the 19th century as tax farmers in Hong Kong and Southeast Asia, and moved in the early 20th century into insurance, shipping, and tin mining and smelting in Siam (Thailand), Burma and the Malay States. Their investments included several joint ventures with Australian companies, Chettiar groups, and other Chinese. Chinese firms in Southeast Asia dominated small-scale industry in the 1930s and 1940s, and moved increasingly into larger-scale manufacturing in the 1950s, although they tended still at that time to concentrate in sectors with simpler technology: garments, molded plastics, wood products, and paper, leaving the more complex sectors to foreign investment. The entire first wave of business activity in Southeast Asia depended heavily on foreign and Chinese investment. Brown notes that "in the 1930s, Chinese investment in Southeast Asia was of comparable size to that of western investment in the region."

Chinese, Indians and Lebanese immigrants first settled in Africa much later than in Southeast Asia. The earliest may have been the Chinese in Mauritius who by the mid-1780s already numbered several thousand, but with the exception of Mauritius (where the Chinese population is currently about 30,000), Madagascar (10,000), and South Africa (10,000), Chinese immigration was not significant in any African country. Indian immigrants began to arrive in significant numbers in Mauritius in 1834 as laborers in the sugar plantations, and came to the rest of Africa as traders throughout the 19th century, settling primarily in Southern and East Africa. By the 1930s, some Indian firms like Chellarams, a Sindhi Indian trading company with branches in Southeast Asia, the UK, the Middle East, the West Indies, and West Africa, and the Chandaria Group, with subsidiaries in Kenya, Nigeria and elsewhere, had become true multinationals. The Lebanese came predominantly to West Africa, arriving in Nigeria in the mid-1890s, where they became traders and transporters.

As the colonial period came to a close, indigenous African entrepreneurs remained concentrated in the service sector: trade, transport, real estate, and construction, where some amassed considerable investment. Others set up mills, bakeries, and other light industries but very rarely on any significant scale. For indigenous entrepreneurs in Southeast Asia, the situation was not very different. Even in the most advanced country, Malaysia, indigenous firms remained "feeble" and concentrated in batik printing, rattan products and other handicrafts. One handicap indigenous entrepreneurs had was their inability to, as one study reported, "develop business networks."

In both regions, it was non-indigenous entrepreneurs who had accumulated the networks, capital, and business skills, and who had the global linkages necessary to begin the transition from commerce to modern manufacturing. European capital in Nigeria first began to shift into larger-scale, import-substitution manufacturing after 1957 as a defensive reaction to new tariffs on imports. Kenyan Indians ("Asians") who had started out in commerce and banking in the late 19th century, slowly moved into manufacturing in the 1920s. By the 1950s, they were producing on a large and diversified scale, and by the mid-1980s, one study concluded that "Kenyan manufacturing industry is almost exclusively owned by multinational corporations, Kenyan Asians, or government parastatals; Africans own very few medium or large-sized manufacturing firms."

Ethnicity became an important political issue in both regions, as colonial governments reconsidered economic development strategies in the post World War II period. After independence, pressure grew for the new leadership to intervene to create opportunities for indigenous capital. A number of African countries, such as Kenya and Nigeria, attempted to promote indigenous African business by new licencing requirements and regulations that pressured Lebanese and Indian entrepreneurs to vacate trading and small-scale services (leaving these for African entrepreneurs), and move their capital into more sophisticated manufacturing. Some, like Uganda, expelled their Asian population.


Malaysia's New Economic Policy (NEP), put in place in 1971, was the most explicit effort to boost business opportunities for indigenous capital. The government pledged that by 1990, Malays and Malay interests would own at least 30 percent of the corporate capital in the country. Dozens of programs were put in place to promote Malay entrepreneurship. One effect of the NEP was that Chinese investment in manufacturing fell by 50 percent, as concern rose about the security of their property rights. Much of the difference was made up through state corporations, often in joint ventures with foreign firms. Up until the mid-1960s, Indonesian policies did little to support entrepreneurship for any ethnic group. As development economist Benjamin Higgins charged in 1963, "the story of Java seems to be one of repeated nipping off of a budding entrepreneurial upsurge by a political elite essentially hostile to it." After the 1965 coup, policy became more nurturing, targetting in particular the "pribumi" or indigenous Indonesians. Yet at present, Chinese Indonesians contribute some 70 percent of domestic investment, and they also continue to bear the wrath of the indigenous people whenever the economy slumps. Some 1000 Chinese were killed recently in the riots accompanying the price hikes introduced by the government to address the economic crisis. Thailand, which was never colonized, actually moved in a different direction by dropping its official policies of ethnic discrimination in the late 1950s. Consequently, "there has been virtually no significant indigenous business class in Thailand in competition with the Chinese."

By the end of the 20th century, despite the recent setbacks, the structural transformation and industrial advance of Southeast Asia is still substantially better than most of Africa. Manufacturing output first exceeded agricultural output in Thailand in 1981, in Malaysia in 1984, and in Indonesia in 1991. In 1995, only five Subsaharan countries -- Zambia, Zimbabwe, Lesotho, South Africa, and Mauritius -- had reached that level of structural transformation. Government policies were critical in creating, or not creating, an "enabling environment" for entrepreneurs in both regions, but as the discussion above points out, for various reasons, history has presented different paths to different groups of entrepreneurs in each region. Some have thus been more able than others to draw on networks and other informal institutions for support, accumulate substantial capital, and be exposed to models of capitalist rationality and external catalysts who can provide the ideas and the strategy for an initial industrial investment.

By: Deborah Bräutigam
Local Entrepreneurship in Southeast Asia and Subsaharan Africa: Networks and Linkages to the Global Economy
School of International Service
American University
Washington, DC

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Article Tags: african rivers, arab traders, asian trade, atmore, camel caravans, chinese traders, indian traders, indigenous entrepreneurs, industrial raw materials, malacca, malays, maritime traffic, ocean trade, regional trading, savannah regions, southeast asia, southern morocco, subsaharan africa, trade networks, trading networks



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