Robots a threat to low-cost nations

The robot revolution is here, and it’s not all good for emergingmarket economies. As the conversion to more automated factories picks up steam in countries like the US, Japan and Germany, there’ll be less factory work outsourced to developing nations with relatively low labour costs, according to a report by Moody’s Investors Service.

The impact will be most severe in Hungary, the Czech Republic, Slovakia, Vietnam, Malaysia and Thailand.

While most robot-related anxiety in popular culture has swirled around unfounded concern of a violent cyborg rebellion and the more likely possibility of blue-collar job losses, Moody’s raises the spectre that developing countries that depend on manufactured exports could be in for a painful reckoning. Automated factories require a huge up-front investment in technology, but once that’s in place the operational costs will often be far lower than in fully staffed manufacturing sites in eastern Europe and southeast Asia.

“As manufacturing has become highly integrated across countries, the adoption of automation in one country now has implications both within and beyond its borders,” wrote Moody’s analysts, including Samar Maziad.

Whether robotics is “positive or negative for a particular country will be contingent on how private-sector investment strategies, government policies and labour market dynamics evolve.”

The emerging markets most likely to be hurt by factory automation are those with the highest percentage of exports to the leading adapters of the technology, and those that produce relatively high-tech products that are most likely to eventually be made with robots.

The US, China, Germany, Japan and South Korea account for 75 per cent of global robot-technology purchases, according to Moody’s.

In Europe, between 2013 and 2015, exports of high-tech manufactured goods accounted on average for over half of gross domestic product in countries like Hungary, the Czech Republic, Slovenia and Slovakia, according to Moody’s. Up to 20 per cent of high-tech manufactured exports go to Germany, an active user of robots.

In Asia, between 2013 and 2015, high-tech manufactured exports made up on average about 30 per cent of Thailand’s GDP, 35 per cent of Malaysia’s and 31 per cent of Vietnam’s, said Moody’s.

A big chunk of those exports go to China, which has made robotics a focus of its industrial policy and is one of the world’s biggest buyers of the machines.

Latin America is is probably the region best positioned to withstand the shift, though Mexico and Costa Rica are most vulnerable, according to Moody’s.