The Future Is Asian

by Parag Khanna

  During the early postcolonial decades, India supported African countries by bartering with them for goods rather than trading in their scarce holdings of dollars. Today Nigeria is India’s largest trade partner in Africa, and Indian companies are forging into the country on the back of the $10 billion credit scheme the Modi government has offered. As Nigerian tannery workers are displaced by the overwhelming competition from China’s synthetic leather dyes, many may wind up repairing Tata cars, which drive all over Africa, or work for India’s Bharti Airtel, the telecom market leader in eighteen African countries and the second largest telco on the continent. From their work in Afghanistan and the Himalayas, Indian road crews also know how to cope in harsh environments; India’s Infrastructure Leasing & Financial Services (IL&FS) has been awarded a growing number of construction contracts in strategic countries such as Ethiopia.

  When it comes to Asian migration to Africa, the presence of Chinese is novel, but it is only a small percentage of the total number of Asians in Africa. Since the nineteenth century, when the British brought Indians to build the Kenya-to-Uganda railway, the number of Indians in Africa has swelled to over 3 million, concentrated in South Africa, Mauritius, and East African countries such as Kenya.9 Durban, South Africa—where Mohandas K. Gandhi lived in the early twentieth century and launched his nonviolent campaigns against discrimination—is today the largest Indian city outside India.10 Africa’s two youngest homegrown billionaires, Dubai’s Ashish Thakkar and Tanzania’s Mohammed Dewji, are from Indian immigrant families. India’s NIIT educational system is the most prominent foreign educational force in Africa, bringing its model of aligning curricula to industry needs across the continent.

  Japan, too, has decades of experience across Africa through lending by the Japan International Cooperation Agency (JICA). Its current agenda pledges $40 billion toward infrastructure and development projects.11 Japan and India enjoy a warmer image across Africa than China does. They have also partnered in pledging more than $200 billion toward a new Asia-Africa Growth Corridor in partnership with the African Development Bank.12 Malaysian, Korean, and Singaporean companies are increasingly visible in the African business landscape as well. Despite accusations of “land grabbing,” Asian agribusiness investments help boost agricultural productivity, which is currently far lower in Africa than anywhere else in the world even though Africa is home to 60 percent of the world’s arable land. A much-needed green revolution may finally come to Africa through Asian investment in everything from hybrid seeds to rural roads to efficient trading.13 Indeed, as African harvests come under strain from climate change and rising consumption, African nations are importing ever more food from Asia.

  The long-term implications of renewed Afro-Asian synergy across the Indian Ocean are thus overwhelmingly positive. Asians are paving the way for Africa to cope with populations now triple (or quadruple) their size during the colonial era and to participate in the global economy on an equal footing. Though Western chatter about Chinese neocolonialism is inevitable given the West’s own history in Africa, a much better analogy (if a Western parallel is needed) would be a continental-scale Marshall Plan. The ultimate irony—and hypocrisy—of labeling China a neocolonial power is that China’s investments in cross-border infrastructures such as the East African Railway, spanning a half-dozen countries, are actually enabling Africans to overcome the artificial and restrictive boundaries they inherited from European colonialism. The fact that Asians are scrambling around Africa does not mean that Europe’s nineteenth-century “scramble for Africa” is being restaged. Asians are racing to connect Africa, not to divide it, building modern infrastructures that both Western multilateral agencies and African governments have been neglecting for decades. Afro-Asian linkages date back many centuries but have never been stronger.

  Aggressive courting of developing countries by major powers is often assumed to be a “race to the bottom,” but as African countries’ economies grow and their leaders become more pragmatic, shrewd diplomacy among various suitors can drive a race to the top where the winners accrue the most benefits from foreign interests. After all, Asians are buying African resources at a high price, not plundering them, providing revenues that governments can use to invest in economic diversification. African corruption is rife, especially in the mineral and infrastructure sectors—but it long predates Asia’s return to Africa: colonialism, the Cold War, and kleptocracy are the most significant factors. When it comes to bribery of African leaders, Europeans are unsurpassed. Indeed, only in the past several years have major European governments actually enforced (though not fully) the OECD Anti-Bribery Convention. There is much that Asian powers and investors can do to tame African corruption, but there is much more that Africans will have to do themselves. The combination of Asia’s continued dominance in global manufacturing and low-cost robotic automation means that Africa may never attract large-scale manufacturing, even at rock-bottom wages. Africa will therefore have to efficiently capitalize on its minerals to invest in livable cities, services jobs, and education of entrepreneurs to tailor products for African markets. The more Africans observe and partner with Asian investors, the more they will learn how to protect their key industries and pass laws that require joint ventures, technology transfer, and local worker upskilling—exactly the formula Asia took to spark its own ascent.

  Some African leaders have spoken of their admiration for the so-called China model, which they take to mean economic reform without political change. Yet Africa’s patchwork of fifty-three postcolonial states with highly divergent regimes most resembles postcolonial South Asia. India alone has nearly thirty states, representing a staggering multiethnic mix of civil war–ridden basket cases and bootstrapping growth champions. In both India and Africa, agriculture employs far more citizens than industry, business-government relations vary between collusion and conflict, and tycoon industrialists provide much-needed services for vast swaths of the population. One leading light of stable African development, Rwanda, has consciously modeled itself on Asia’s most successful city-state, Singapore. President Paul Kagame, a longtime admirer of Lee Kuan Yew, has delivered more than fifteen years of high growth while making large-scale social investments. Rwanda today ranks alongside Mauritius as Africa’s leader in competitiveness, government efficiency, and access to credit and leads the world in the percentage of parliamentarians (64 percent) who are women. Whatever African countries’ role models are for governance, they are all Asian. At the 2015 Forum on China-Africa Cooperation in Johannesburg, South Africa, President Xi said he supports allowing “Africans to solve African problems in an African way.”14 But in truth, the best thing for Africa would be to learn the Asian way.

  8

  The New Pacific Partnership

  There are many similarities between the Asianization of Africa and the dynamics transpiring across the even larger Pacific Ocean separating Asia from Latin America. Once firmly in Europe’s colonial orbit, then subservient to US hegemony, Latin American countries are connecting to Asia with ever greater efficiency. Commodities flow in one direction; investments in infrastructure, utilities, and industry in the other. Commercial relations intertwine, debts mount; migration accelerates, mistrust rises. China-centric ties gradually dissipate into much broader and more fruitful Asia-wide engagement.

  The fundamental differences between the African and Latin American circumstances, however, make the latter’s Asianization profoundly new. Consider that the Pacific Ocean has historically been Earth’s greatest barrier to regular contact between continents. Though ancient humans crossed the Bering Strait land bridge from Asia to the Americas more than 17,000 years ago, there is no thousand-plus-year history of regular trading relations between Asian and Latin American civilizations as there has been in the Afroeurasian realm. Furthermore, the United States’ dominant position in Latin America has scarcely been threatened since the Monroe Doctrine was articulated in the early nineteenth century. Neither Fidel Castro’s Cuba (despite the 1
962 missile crisis) nor Venezuela under Hugo Chávez spawned regionwide resistance, and the region’s nearly total economic dependence on trade and investment with the United States has imposed strict limits on Latin American geopolitical flirtations.

  This time really is different. Europe’s economic slowdown, North America’s energy revolution, and President Trump’s combative stance toward Hispanic immigration have been unfolding just as Asia’s ties with Latin America have blossomed. For most Latin American countries, China is already the largest trade partner, especially due to their export of beef, soy, oil, and lithium. The fast-growing Pacific Alliance nations from Mexico to Chile have been pursuing enhanced trade with Asia for years. Thus, even though the United States pulled out of the Trans-Pacific Partnership (TPP) negotiations,1 Chile went ahead with convening all the Latin and Asian participants just weeks after Trump’s inauguration—with the addition of China as an observer.2 When trade tensions between the United States and China threaten soy exports, South America benefits: Brazil and Argentina now export more soy to China than the United States does.3 The trade bloc Mercosur, which includes Argentina, Brazil, Paraguay, and Uruguay, is pushing for a free trade agreement with Japan, which even the United States does not have.

  Because Asia is such a lucrative destination for Latin exports, pushing westward is a strategic imperative, as evidenced by the fact that Chile and Peru have almost twenty free-trade agreements with Asian countries. Forty percent of Peru’s exports go across the Pacific, and Asia is the only region with which Argentina has a trade surplus. As difficult as penetrating Asia’s densely competitive business landscape is for Latin American companies, pioneers such as Brazil’s Vale, the world-leading iron ore and nickel producer, as well as Mexico’s baked goods supplier Grupo Bimbo, have made the leap to scale across Asia and encouraged others to follow suit.4

  Not just South America but the entire Western Hemisphere now differs from the United States on how to manage rising trade with Asia. US trade with China amounts to nearly $600 billion per year but has decelerated to under 2 percent annual growth, with the United States imposing tariffs on various Chinese goods (including solar panels and steel) in an attempt to reduce its swelling deficits. Though Canada also has a large deficit with China, it is pushing for a free-trade agreement to boost its exports of commodities, machinery, and services. Mexico, too, is seeking freer trade with China as its exports of copper, circuits, and cars steadily grow. Similarly, while the United States, Canada, and Mexico have trade deficits with Japan, only Canada and Mexico are liberalizing trade with that country. Since the Japan-Mexico Economic Partnership Agreement went into effect in 2005, Mexico has steadily cut its deficit with Japan as its exports have grown, even as it benefits from importing high-quality auto parts for its fast-growing car factories. ASEAN has now surpassed Japan as the United States’ second largest trade partner in Asia, and the United States’ combined trade with ASEAN, Japan, South Korea, and India substantially exceeds its trade with China. But without joining the TPP, the United States’ leverage over all these markets weakens. According to the Peterson Institute for International Economics, not joining the TPP will cost the United States more than $130 billion in lost trade and investment until 2030, with Canada and Australia displacing the United States’ market share in beef, pork, dairy, and grain sales and Singapore and Australia eating into the United States’ strong position in finance, consulting, and communications.5 Given the damage tariffs inflict on US industries by raising the cost of imports and killing jobs, the Trump administration’s regret at pulling out of TPP is logical.

  As with Asian countries’ ties to Africa, Asian–Latin American trade and investment volumes continue to grow even as commodities prices decline. China continues to make large pledges to Latin America, targeting $500 billion in trade and $250 billion in investment between 2015 and 2019.6 Together, the China Development Bank and Export-Import Bank of China provide more annual financing to Latin America than do the World Bank, Inter-American Development Bank, and Andean Development Corporation combined. On top of this, another $30 billion is coming from Asia in industrial and infrastructure cooperation funds.7 As depreciating currencies and price controls sent Brazilian utilities companies tumbling, Chinese power conglomerates bought more than twenty electricity companies there between 2015 and 2017. Chinese-backed funds are also making $20 billion in new investments in Brazilian ports, logistics, mining, technology, and agribusiness ventures. In Argentina, a $17 billion loan issued in 2017 will fund two nuclear power plants and solar energy projects and hydroelectric dams.8 In Mexico, the Chinese automaker JAC Motors is building a large plant that should employ six thousand workers. Like Tokyo and Seoul, Beijing and Guangzhou now have direct flights to Mexico City.

  Not unlike their counterparts in Africa, Latin American manufacturers often view Asian companies as unfair competitors and the resent informal barriers to entry in the Chinese market.9 They also fear that further opening could make it difficult to hold on to certain industries. In 2015, for example, Costa Rica lost its flagship Intel plant to Vietnam. China’s loans in South America face similar criticisms to those leveled about its financing of African governments. China’s massive loans to Venezuela have temporarily kept the kleptocratic regime of Presdident Nicolás Maduro afloat but have done nothing to enhance the country’s creditworthiness. Ecuador, too, owes alarmingly high sums to China, which it must pay with oil shipments until about 2025.10 China’s $100 million per year in arms exports to regimes such as Venezuela, Bolivia, Peru, and Argentina also raises eyebrows in Washington. While the United States has slashed the budget of its flagship International Military Education and Training (IMET) program, China has ramped up its equivalent, courting senior Latin American military officers. Then there are the social and environmental concerns over Brazil’s trans-Amazonian railway project, which China strongly supports; it may accelerate deforestation while mistreating indigenous peoples.

  Yet, as in Africa, this is not a neocolonial age. The leverage cuts both ways, and linear projections based on the past have little relevance. For example, rather than turning Venezuela into a bridgehead for its continental forays, China realized it was throwing money down a sinkhole and cut off additional loans. Venezuela subsequently defaulted on $160 billion of debt, much of which was owed to China and Russia. Brazil would not allow China to dictate a major electricity price hike, nor would China want to alienate hundreds of millions of Brazilians by doing so. China is learning that stability and openness serve its interests better than do hegemony and resentment.

  As South American economies work through their dynamic relations with China, they are also moving forward without inhibition to build ties with other Asian powers. For most Latin American countries, India has overtaken China as the fastest-growing export destination. Despite the distance, the region already provides 20 percent of India’s mineral imports and is a growing source of food as India gradually opens up its protected agricultural sector. In the reverse direction, Asians view the 650 million population of Latin America and the Caribbean as a huge market of fast-growing customers for all kinds of hardware from tractors to televisions. Latin America is a large destination for Indian car exports and represents more than $1 billion in annual Indian pharmaceutical exports. Twenty-five thousand Latin Americans work for Indian IT companies.11 Currently, India exports more to Mexico and Brazil than it does to Indonesia and Russia. The Japanese carmaker Honda, the Korean electronics juggernaut LG, and Vietnam’s key telecom services provider, Viettel Group, are all investing and growing across the region. The timing could not be better for the recent publication of a guide for Asians doing business in Latin America, Understanding Latin America: A Decoding Guide, by the veteran Venezuelan diplomat Dr. Alfredo Toro Hardy.

  Asians actually have a long history of assimilation in Latin America that is promising for future ties. In the mid–nineteenth century, nearly 225,000 Chinese “coolies” were taken to Cuba to work on plantations and Peru to work in
the mines. By the early 1900s, many of those manual laborers were running businesses in townships across the Andes. Today, the Wang and Wu families are among the richest in Peru, and central Lima’s Chinatown is home to a thriving and successful community of Chinese business families. Over the past century, Japanese went in waves to Brazil, first to substitute for the declining numbers of Italian migrants, but quickly became established professionals. Japanese Brazilians have become the largest Japanese diaspora, their population of 1.5 million larger than the number of Japanese in the United States. The Japanese Peruvian Alberto Fujimori served as the country’s president for a decade from 1990 to 2000, and his daughter Keiko narrowly lost the presidential election in 2016. Arabs have also assimilated well throughout Latin America, with Lebanese trading families establishing a succcessful presence from Mexico (the home of the billionaire Carlos Slim) to Colombia to Brazil. Indians, too, have circulated in the Caribbean and South America since the mid–nineteenth century, when they arrived as indentured workers of the British Empire in the East Indies. Indians make up the majority of the populations of Trinidad, Suriname, and Guyana, where Cheddi Jagan served as the premier in the 1960s and president in the 1990s.

  With its long history of Asian ties, South America’s largest economy, Brazil, has the biggest bilateral economic footprint with Asia as well, despite not having a Pacific coastline. Brazil’s experience is instructive for the future of Latin America’s ties to Asia. The Japan International Cooperation Agency (JICA) has been supporting Brazilian industrialization since the 1960s and helped make Cerrado the breadbasket region responsible for 70 percent of the country’s farm output.12 Though Japan’s trade with Latin America is much smaller than China’s, its investment portfolio is larger and far more diversified across industries such as shipbuilding, textiles, steel, and automobiles. There are lessons to be learned from the Japanese experience for Latin America as it deals with China—and for China as it deepens its presence in the Western Hemisphere. Japan, too, began with a focus on acquiring commodities and exporting manufactured goods but soon began transferring its technical and managerial know-how across Brazil’s economy.13 Over the course of the past decade, during which China has been Brazil’s largest trading partner, Brazil has turned a massive deficit into a $12 billion surplus. In fact, Brazil has a trade surplus with all Asian countries except Korea.