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How technology will shape Africa’s future

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Renewables

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.

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