Archive for June 2016
Much has been said about the economic future of sub-Saharan Africa. One camp is largely optimistic, claiming that the relatively high economic growth rates of the last decade (even during and after a global financial crisis) is evidence of ‘Africa rising’, a continent slowly emerging from three decades of slumber. Another camp is less optimistic, claiming that this growth was limited to natural resource industries benefiting from rapid Chinese growth. (To put Chinese growth in perspective: even though China grew at ‘only’ 6.9% in 2015, it added $714 billion to its GDP. In contrast, South Africa’s GDP in 2014 was $350 billion. In other words, China added more than two South Africas to the global economy in 2015 alone.)
Both camps, of course, have elements of the truth. Many African countries, some of them very poor, have seen high economic growth rates over the past few years, growth that was and remain essential in lifting many thousands of people out of poverty. But it is also true that much of this growth has been limited to resource sectors that do not 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 new report that clearly sides with the more cautious view. African countries are stuck in low-productivity, primary sector exports; the fall in the price of commodities, like oil in 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 that there are two trends working against such industrial policy action. First, a shrinkage of the ‘policy space’ due to the establishment of the WTO 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. But this does not deter them: ‘There are still many industrial policy measures that can be used. Moreover, if anything, these changes have made it even more necessary for developing country industrial policy-makers to be ‘smart’ about devising development strategy and designing industrial policy measures.’
So what are these so-called ‘smart’ industrial policies? Unfortunately, after spending 156 pages explaining the need for ‘smart’ policies, the authors give us only one page of very vague principles: policy-makers ‘need to identify the ‘right’ policies’; policy-makers ‘need to induce foreign firms to create linkages with the domestic economy’; and policy-makers ‘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!
The authors have missed a golden opportunity to actually 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 labour-intensive 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.
An additional factor that makes manufacturing in Africa so expensive is trade costs. We have few large cities on the coasts with easily accessible port facilities. How can landlocked Zambia compete with similar-sized Cambodia? Zambia has a railroad that goes through two other countries before it reaches the eastern coast of Africa; Cambodia’s capital has a river port that can receive 8000-ton ships. And statistics confirm this: the World Bank calculates that the cost to import a 20-foot container to Cambodia is $930. It is $7060 in Zambia. It is difficult to see how any ‘smart’ industrial policy can mitigate these massive cost differences.
Does this mean Africa is doomed to remain a primary good exporter? Not necessarily. Mobile technology is revolutionising the way Africans do business. It is a technology that negates Africa’s rugged terrain, leapfrogging the need for expensive fixed-line infrastructure. If it can receive the necessary investment, broadband and wireless technologies will do the same. This will allow Africans to provide services to a world that would have been impossible to reach only a decade earlier.
Can services alone propel Africa into the industrialised world? Apart from a few small economies – Singapore and Luxembourg – there is little past evidence that it can. A pessimist may thus proclaim little hope for the continent; an optimist may instead remember that technological innovation has a way to revolutionise existing industries. It is already happening: consider the much higher returns of Ugandan farmers after mobile technology allowed them access to real-time market prices for their goods. Or how Airbnb has empowered middle-income South Africans with a spare room to benefit from the country’s thriving tourism industry. Or how renewable technologies – also completely neglected in the UN report – will affect African countries’ power generation and distribution capabilities, supplanting the need for coal and other minerals.
What is clear is that the image of factories with thousands of low-skilled labourers working 8 to 5 jobs belongs to a previous century. To imagine that industrial policy can somehow transplant that image to Africa in the twenty-first century is fictional. 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.
*An edited version of this first appeared in Finweek magazine of 2 June.
Britain has decided to leave Europe. It is an utterly foolish thing to do, but that is the consequence of a referendum by people who have suffered from the austerity measures they voted in and now wants to blame Europe (and immigrants) for their malaise. Few can, unfortunately, distinguish cause and effect, and it doesn’t help when those few are distrusted.
The consequences of the UK leaving the EU is hard to determine because it depends on so many things. But one thing is for sure: the world economy is in for an even more bumpy ride. The pound has already taken a beating (see image below), and the effects will become more apparent when global markets open. But be wary of overreaction too. Until the details of the new arrangement are made clear, it’s best to take it slow. Keep calm and carry on.
The irony, of course, is that it is entirely self-inflicted, and could easily have been avoided. But those discussions are for another day. Instead of speculating what the consequences might be, let me leave you with a few brilliant early-morning (late-night) tweets to sum up the sentiment:
And my favourite:
For most of May, I walked in the footsteps of my father. Literally. Starting on the 6th of May, we hiked the Camino Primitivo, an ancient route from Oviedo in the north of Spain to Santiago de Compostela on the west coast. 343 kilometres in 11 days. It was tough but beautiful. I’ll let the pictures do the talking.
My father had turned sixty the previous year, and I decided to let him choose his birthday gift. (My gold standard for him is chocolate and I was unable to conjure up something more creative.) Sensing an opportunity, he mentioned that he has a short ‘bucket list’, and that hiking the Camino is at the top. Not knowing much about the Camino, I happily agreed. I would be in Europe in 2016 in any case, and we tentatively decided that May would be a good month to go to Spain.
His preparation started almost immediately after this conversation. He would put on his backpack and, almost daily, hike the 24km mountain route from our home in Paarl, South Africa. He would send me tonnes of emails of people who had done ‘the Camino’. Deciding to do some research of my own, I soon realised that there were many decisions to make long before arrival. What route? How many days? How to get there and back? Where and how to get a ‘Camino passport’? What shoes to wear? What to pack?
We decided on the Camino Primitivo for mostly three reasons. The first was that it is a manageable length given our available time. The Primitivo is also, according to legend, the most ancient route. Fearing the Moors to the south, two bishops from Oviedo hiked the Primitivo around 800 CE to visit St James’ tomb. And, according to the few sites I could find, it was also a physical challenge. That sounded like something we would enjoy.
Our journey started on the morning of the 6th. We met in Bilbao the day before, and took an ALSA bus that arrived at 22h30 in Oviedo. We had brought no map of the city, and had to ask a few people before we managed to find our hotel. That is also when we realised the language barrier may be bigger than expected. The next morning we were up early, ready for our first day. We found the cathedral where we would start from, but were slightly disappointed that there were no signs pointing the way. We still had no map, and we thus walked, a bit less confidently, in a generally western direction. And then, after maybe half-an-hour and an increasing unease, a random woman stopped us and pointed to the street where we would see our first arrow – we had found the route to Santiago de Compostela!
It was a beautiful hike through the farms and small villages that dotted the hilly landscape. Our first night we spent in Grada in an overpriced, dodgy hotel because we could not find the albergue, the hostel for pilgrims. The second day we stayed with Micheal in his private albergue in Salas, although, looking back, we could probably have hiked a bit further. We paid for it on the third day, when we hiked a total of 40km to Campiello. The day was memorable for another reason too. Walking down a hill, my father in front, I slowed down a bit to enjoy the view. Thinking my father was still in front of me, I continued downhill only to realise, at the bottom, that he was not in front of me anymore. I could see the shells (pointing to Santiago), so I knew I was on the ‘right’ route, but what had happened to my father? I asked a farmer who was working in a neighbouring field whether he had seen anyone, but his English was as bad as my Spanish. He did point me to the actual correct route whence my father should come, and so I decided to run (with my 8kg backpack) back on this route. Needless to say, after about 1km of running (having already hiked about 25km), I was dead tired. I also realised I wasn’t on the actual correct route anymore: there weren’t any shells. So I turned around and ran the 1km back again, deciding that I would probably just walk on and hope to either catch up with him or wait at the next town. But fortunately, just before the ‘correct’ route intersects with my ‘wrong’ route, I could see him coming down a hill towards me. We had a few laughs afterwards, but it wasn’t so funny at the time. That evening, another 15km after my run, we found a wonderful albergue, Herminia’s in Campiello. That was also the first evening we would meet people that we would see throughout our journey, and ultimately in the cathedral in Santiago de Compostela.
The next day the path split in two, and we decided to choose Hospitales. Here is the recommendation in a booklet we (unfortunately) only purchased after our trip: ‘The Hospitales option leads into the mountains and away from civilisation for most of the day. While this is one of the most demanding walks on any Camino, made more so by the lack of resources, it is strikingly beautiful with expansive mountain vistas unfolding in all directions.’ That is spot on. The views are just incredible, and we were fortunate that we had clear skies for most of it. (It can be misty, but the route is very well marked, in contrast to what we were told beforehand.)
That night we also had our first experience of one of the hallmarks of any Camino: snoring. We ended up in a room with 12 people. One of them, a Spanish guy, which we would unfortunately meet later on the journey again, had a remarkable snore which no earplug in the world could keep out. I’m not sensitive to sound; you can’t be if you’ve spent four years in a university dormitory. But I think I didn’t sleep more than two hours that night, and judging by the other people’s faces the next morning, neither did they. That is what makes the Camino a physical challenge: hiking 30kms and then not sleeping, and not eating very well, and hiking another 30kms, and not sleeping. We did this for another five nights until we reached Lugo, a city with an incredible Roman wall, where we decided to stay in a hotel. By that stage we were tired and dirty, but in good spirits. Our feet miraculously had no blisters (in contrast to some of our companions on the journey), and the next morning, after circling the Roman wall, we decided that we could push through to Santiago de Compostela in three days. That, in hindsight, was maybe the wrong call.
Our first night of the last stretch we stayed in a very nice albergue. Some fantastic paella was served, and the Spanish snorer had decided to go to a different spot so we could at least enjoy a good night’s rest. The route from Lugo to Santiago is less hilly. You walk along tarred roads most of the time. My expectation was that this would be easier, but it turned out that the hard surface was tougher on our feet and knees. By the second evening, after a 38km walk, I had cramps in my right leg, and my feet were beginning to show signs of wear and tear. The next day would be our final stretch to Santiago and I hoped the legs would last for just one more day.
They didn’t. With about 10km to go, my right leg could barely bend. Those last kilometres, when you could see Santiago in the distance but it would not get closer, was gruelling. The road into Santiago (the French route, which we joined two days earlier) descends steeply, and I had to shuffle sideways for most of it, keeping my leg straight. There were hundreds of other hikers on this stretch. Some had been on the road for weeks, even months. You could see it in their faces and the only thing you could do is to applaud their achievement. There were unfortunately also those, in larger numbers, that had just signed up for three days or even just one day of hiking, and were now crowding the route. That did make it feel a bit touristy.
After we entered the town, there were another three kilometres to endure before we finally reached, through the archway, the Cathedral square. It is difficult to describe the emotions at the ‘finish’. Elation, yes, but you’re mostly just dead tired. (Our last day was another 38km.) We took a few photos and then went to get our compostela (certificate), and then to find our hotel. The rest of the week we relaxed in Santiago and Finisterre, a small village on the western coast of Spain where the Camino reaches the ‘end of the world’.
Many have asked me since we’ve returned whether the Camino is what I expected. I envisaged a lot of time philosophising, thinking about life, liberty and the pursuit of happiness. That did not really happen, because, and this is perhaps due to nature of the Camino Primitivo, most of your time is spent deciding where to step so that you don’t fall. It is a technical walk, especially because it is almost constantly wet and muddy underfoot (both of us fell twice, luckily without serious injury). Yes, there were times when you could let your thoughts wander, but often those thoughts just wondered about where the next shell indicating the route might be.
I did not come to any major new insights. And, actually, I am perfectly fine with that. I did something with my father which we both enjoyed. It was challenging – I lost 4kgs in 11 days – and that ‘intellectual break’ was perhaps exactly what I needed after an eight-month sabbatical. We did meet some fascinating people along the way, many with their own compelling (and sometimes heartbreaking) stories. But I also think the pilgrims that choose the Primitivo are slightly different than the rest: they are there because they want the physical challenge. And they are okay with walking for an entire day without seeing anyone else.
Will I do it again? Maybe, but there is no urge to return immediately. And yet, there are times that I miss the simplicity of it all. Only two sets of clothing. Only two choices of bocadillo (ham or cheese), only two types of coffee (with or without milk). Just me and my dad on a mountain path in a country where no-one speaks your language. And where it is sometimes good to get lost, so that you realise what it is you value most.
The Primitivo route I’d suggest (if you want to do it in 11 days):
Oviedo -> San Juan de Villapanada -> Bodenaya -> Campiello -> (via Hospitales) Berducedo -> Castro (bookings required) -> Padron -> Castroverde -> Lugo -> Ferreira -> Arzua -> Santiago
During my first four years of high school, I delivered the Afrikaans daily Die Burger to about 50 homes in my neighbourhood every morning. For a fee, subscribers would have access to national and global world news over breakfast. Two decades later, nothing much has changed; a printed version of Die Burger is still delivered to subscribers. At the same time, everything has changed: there are far fewer subscribers to printed newspapers – the circulation of the Die Burger has halved since my newspaper delivery years – but far more consumers of digital news, including myself. I don’t buy a printed newspaper anymore, I read the news online.
The conundrum for national statisticians who are interested in measuring the living standards of South Africans over time is that the decline of newspaper sales will register as a decline in the Gross Domestic Product, the widely-used indicator for the general prosperity of society. And if people do not pay for their online news service – but instead get the news from free services like News24.com or the Huffington Post – then there will be no concomitant increase in GDP. What would appear like lower levels of living standards will in reality be significantly improved welfare; no need to get out of bed for a sometimes-late newspaper soaked in an unexpected rain shower when you can pick up your phone and read up-to-the-minute news in the comfort of your bed, for free.
This, in essence, is the problem with using Gross Domestic Product as an indicator of living standards. To be sure, GDP raises many problems that economists have known about for a long time: when Simon Kuznets (who is most famous for his work on inequality) first designed the measure in the 1940s, he was unsure whether to include home work in the measure. If you appoint a gardener, for example, it will be counted as part of GDP. If you instead choose to do the gardening yourself, it will not be included. (The obvious conclusion: If you marry your gardener, GDP will fall!)
But the rise of ICT – or what Michael Jordaan, former CEO of FNB and now CEO of Montegray Capital, has termed the ‘free economy’ – has made matters much worse: our ability to connect with friends (Facebook), or make international calls (WhatsApp) or study any topic on earth (Wikipedia) free of charge has without question boosted our living standards but won’t be reflected in GDP. It may well have resulted in a decline: we buy fewer albums, address books and encyclopedias. We may not be consuming more, but we are certainly consuming better, faster, and a greater variety with more comfort.
The failure of GDP to capture these advances is beginning to worry economists. The April 30th edition of The Economist calls for a ‘fresh approach’. Several new books by prominent economists – of which Diane Coyle’s ‘GDP: A Brief but Affectionate History’ is my favourite – have noted the need for change.
Measuring the improvement in living standards accurately is important, for at least two reasons. First, it has an influence on the political process. Weak GDP growth and opposition parties have more ammunition. But a focus on incomes only may miss the large improvements in living standards derived from both free public services and technology. Even the way we measure poverty may need adjustment to this new world of freeconomics.
Second, and often neglected, mismeasuring the improvement in living standards also implies a mismeasurement of the causes of that improvement. Poor growth suggests that technology has had little impact on our welfare. This has become known as the productivity paradox: Nobel-prize winning economist Robert Solow famously quipped: ‘You can see the computer age everywhere except in the productivity statistics’. The remark was aimed at the inability of computers to have the cataclysmic effect of the dynamo or the steam engine of an earlier age. But perhaps it did (and still does), but we are simply not measuring it accurately. I suspect the computer age has added far more ‘quality’ to our lives than what has been measured in GDP estimates.
Of course there have been many attempts at constructing a better measure of living standards. A few years ago, ‘happiness’ was touted as a better measure of general welfare. The problem is that, beyond a certain level of development, happiness changes very little. So too for light density, a measure of economic performance that rely on images from satellites. (Light density does have its uses, though: A new paper by Maxim Pinkovskiy and Xavier Sala-i-Martin in the Quarterly Journal of Economics use light density to show that living standards in developing countries have risen much faster, and that the world income distribution has become more equal, than previously thought. This is because the quality of surveys in these countries is often poor.)
A new NBER working paper by Charles Jones and Peter Klenow – Beyond GDP? Welfare across countries and time – is another attempt to measure the general improvement in living standards. They construct a composite indicator that consists of consumption, leisure, mortality, and inequality – the four main things, they argue, that determines welfare. Although welfare and GDP are correlated, there are large deviations – including South Africa. We rank much lower on welfare than we do on GDP because of our high level of inequality and low life expectancy.
And yet, even this composite measure fails to account for the immense gains from technology in the Digital Age, like free news, communication and information. GDP will remain a very useful measure, but it is not invincible. Politicians and their electorate should take note.
*An edited version of this first appeared in Finweek magazine of 19 May.
I finally read Sapiens: A Brief History of Humankind by Yuval Noah Harari. It is a provocative book, one that challenges many of our long-held beliefs. Religion, for example, is one topic that will upset many – one of the ‘myths’ or ‘fictions’ humans have, says Harari, like money or empire. But it is the discussion of how we have domesticated plants and animals and its implications for today – ‘We did not domesticate food. It domesticated us.’ – that is revealing, if sometimes leaning towards the sensationalist – ‘modern industrial agriculture might well be the greatest crime in history’.
The book sets out to explain the three most important revolutions in human history, the Cognitive Revolution (around 70 000 BCE), the Neolithic Revolution (around 10 000 BCE) and the Scientific Revolution (around 1500 CE). It is much better at the first and second than at the third. In fact, as with one of my favourite books, Jared Diamond’s Guns, Germs and Steel, Harari unsuccessfully attempts to make the post-1500 and particularly the post-1800 period fit into the simple framework of the two earlier epochs. (For example: he attributes the Industrial Revolution to only two things – imperialism and science. If this was true, then China should have had an Industrial Revolution in the 15th century, when they were the most advanced scientifically and were discovering the world with their giant fleets. But they didn’t.) Read the book for the first half, not for the last.
The topic of humans and their evolution is a fascinating, and also fast-changing one. The October 2015 edition of National Geographic tells the tale of Lee Berger’s discoveries of Homo Naledi in a cave near Johannesburg. Homo Naledi fits somewhere between the apelike australopithecines like Lucy, a skeleton discovered in Ehtiopia in 1974, and Homo Habilis, the ‘first’ known human ancestor of us, Homo Sapiens, which was classified in Kenya in the 1970s. This evolution occurred maybe two to three million years ago. Homo Habilis (or the myriad of other forms of proto-humans that existed but are still undiscovered) evolved into Homo Erectus, and then Homo Sapiens. These sapiens left Africa in two waves. Almost all human DNA derive from the second ‘Out-of-Africa migration’ around 75 000 BCE. (The Neanderthals derive from the first out-migration, and new evidence suggests may have left a tiny DNA footprint in some modern Europeans.) The Cognitive Revolution, when we begin to see evidence of art and burials and other cultural traits, begin around 70 000. Homo sapiens – modern humans in all respects similar to us today – reached South Asia around 50 000 years ago, Australia around 46 000 years ago, 43 000 years ago, North America around 15 000 years ago, the Pacific islands around 1300 BCE and New Zealand only around 1280, about the same time as University College in Oxford was founded.
The cave Berger and his large team of archaeologists uncovered was a remarkable find, a possible link between our apelike ancestors and modern humans. It has also shifted attention back to South Africa and our rich archaeological history. This is one area of science where we clearly have a comparative advantage, and more can be done to promote this field of research.
But why care about the evolution of humans, you may ask. In Sapiens we find the answer: according to Harari, we are about to be replaced by a superior human. After the Scientific Revolution came the Information Revolution of the twentieth century. And now we are at the cusp of the Biotechnological Revolution. Soon we will be able to engineer humans to become amortal (not immortal, because we would still be able to die in car crashes and terrorist attacks). And these humans might be smarter, quicker, better than us. And once artificial intelligence reaches the singularity, who knows what they will do to humans, to us.
I am less pessimistic that we will soon be replaced by Homo Mechanica. Biotechnology, instead of replicating human brains, might allow us to fully exploit our extraordinary creativity. Much like love, it might help us to become better versions of ourselves, a new and improved Homo Sapiens.