HOW TECH WILL SHAPE AFRICA’S FUTURE
Technology could turn labour-intensive manufacturing redundant overnight. How can Africa remain relevant?
there are at least two views on the economic future of sub-Saharan Africa. One camp is largely optimistic, claiming that relatively high economic growth rates of the last decade (even during and after a global financial crisis) is evidence of “Africa rising”, slowly emerging from three decades of slumber. Another camp is less optimistic, claiming that growth was limited to natural resource industries benefitting from rapid Chinese growth. (China grew at “only” 6.9% in 2015, adding $714bn to its GDP. South Africa’s GDP in 2014 was $350bn – China added more than two South Africas to the global economy in 2015 alone.)
Both camps have elements of truth. Many African countries (some very poor) have seen high economic growth rates recently. Growth remains essential in lifting thousands out of poverty. But it’s also true that much of this growth has been limited to resource sectors that don’t have the same spill-overs into other parts of the economy that manufacturing, for example, has. This raises doubts about its sustainability.
In April, the United Nations Economic Commission for Africa published a report that sides with the cautious view. African countries are stuck in lowproductivity, primary-sector exports; the fall in the price of commodities, like oil over the past 18 months, has swelled budget deficits in places like Sudan, Nigeria and Angola. It is likely to have political consequences too.
To combat such vulnerability, the authors advocate “smart” industrial policies to “upgrade” the commodity sectors and promote the “development of higher-productivity sectors, especially manufacturing but also some high-end services”. They acknowledge two trends working against such industrial policy action. First, a shrinkage of the “policy space” due to the establishment of the World Trade Organization and the proliferation of bilateral and regional trade agreements. Simply put, countries have less scope for raising tariffs or other creative industrial measures than before. Second, the strengthening of global value chains makes “nationalistic” industrial policy less effective. The authors say there are “still many industrial policy measures” available.
What are these smart industrial policies? After spending 156 pages explaining the need for smart policies, the authors give us one page of very vague principles: policymakers “need to identify the ‘right’ policies”; policymakers “need to induce foreign firms to create linkages with the domestic economy”; and policymakers “should pay attention to the possibility of upgrading not just through the development of capabilities to physically produce goods, but also through the development of producer services, such as design, marketing, and branding”. So much for practical guidelines!
They’ve missed a golden opportunity to think more creatively about Africa’s economic future. Technology is changing Africa’s comparative advantage. Global manufacturing will become increasingly capital intensive as robotics and technologies like 3D-printing (not mentioned once in the report) advance. What we consider low-skilled labourintensive manufacturing (shoe-making, for example) may, overnight, become high-skilled, capital-intensive (once shoes can be printed), with production switching from countries like Vietnam and Bangladesh back to the developed world. Cheap labour will become less of an advantage as robotics becomes more affordable. (Also see story on p. 6.)
Trade costs also add to the expensive manufacturing costs in Africa. We have few large cities on the coasts with easily accessible port facilities. Landlocked Zambia has a railroad that goes through two other countries before reaching the eastern coast of Africa; Cambodia’s capital has a river port that can receive 8 000-ton ships. Statistics confirm this: the World Bank calculates the cost to import a 20-foot (6m) container to Cambodia at $930. It’s $7 060 in Zambia. It’s difficult to see how any smart industrial policy can mitigate such cost differences.
Does this mean Africa will remain a primary good exporter? Not necessarily. Mobile technology is revolutionising the way Africans do business. Technology negates Africa’s rugged terrain, leapfrogging the need for expensive fixed-line infrastructure. With the necessary investment, broadband and wireless technologies will do the same, allowing Africans to provide services to a world that would have been impossible to reach a decade earlier.
But, apart from a few small economies – Singapore and Luxembourg – there is little past evidence that services alone can propel Africa into the industrialised world. Little hope for the continent, then? An optimist may remember that technological innovation can revolutionise existing industries. Consider the much higher returns of Ugandan farmers after mobile technology allowed them access to real-time market prices. Or how middle-income South Africans with a spare room benefit from Airbnb. Or how renewable technologies – also neglected in the report – will affect African countries’ power-generation and -distribution capabilities, supplanting the need for coal and other minerals.
The image of factories with thousands of lowskilled labourers working 8-to-5 jobs clearly belongs to a previous century. To imagine that industrial policy can somehow transplant that image to Africa in the 21st century is foolish. The smartest industrial policy we can hope for is instead a belief that Africans have the agency to shape their own destiny, as long as they have access to the hard (fast and affordable internet and reliable electricity) and soft (IT colleges and programming degrees) infrastructure that will allow them to benefit from the technologies of the future.
Cheap labour will become less of an advantage as robotics becomes more affordable.