Tech­nol­ogy could turn labour-in­ten­sive man­u­fac­tur­ing re­dun­dant overnight. How can Africa re­main rel­e­vant?

Finweek English Edition - - FRONT PAGE - By Jo­han Fourie ed­i­to­rial@fin­ Jo­han Fourie is as­so­ci­ate pro­fes­sor in eco­nomics at Stel­len­bosch Univer­sity.

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.