Africa's only hope is industrialization

Company News of Saturday, April 27, 2019

Source: bloomberg.com

2019-04-27

African industrialization must be one of the most important things in the world today. The vast continent, home to more than 1.2 billion people, is home to a growing fraction of human beings still plunged in extreme poverty:

Lead in the wrong direction

Second, Africa has lagged behind in the industrialization needed to create mbad jobs. The absence of strong and stable governments – a legacy of colonialism – has made it difficult to provide education, infrastructure, justice systems and other public goods to prepare countries to move from one country to another. Farming at work in the factory. Well-meaning western aid and international development agencies could not fill this void. At the same time, the nations of East Asia and Southeast Asia have become the world's pre-Africa factories.

But late does not mean ever. Rising labor costs in China and the threat of US tariffs are finally prompting manufacturers to diversify their supply chains. Some of their plants will go to Vietnam and Bangladesh, two rising stars from the developing world. But these countries will not be big enough to replace China, which means that if manufacturers really want to cut costs, many will have to turn to Africa.

This process is already well underway. In her book "The Next Factory of the World: How Chinese Investment Reshapes Africa," Irene Yuan Sun – a development aid worker turned researcher from McKinsey & Co. – describes the wave of "the world's worst." private Chinese investments sweeping the African continent. This investment is often overlooked by the international press, which tends to focus on infrastructure projects and loans financed by the Chinese government. But what Sun describes is something else: Chinese businessmen who move to Africa and build private factories.

In 2017, Sun's research team estimated that there are about 10,000 such plants on the continent, and their numbers are certainly higher now. Nigeria, Zambia, Tanzania and Ethiopia have the highest concentrations, but many other countries are in the mix. Although China is still investing less in Africa than in other regions, it is catching up fast:

The picture that Sun paints of Chinese capitalism in Africa is not always beautiful. She cites anecdotes about corruption, pollution, burnout, injuries and leadership contempt for local workers – phenomena that seem universal to all countries in the early stages of manufacturing. But Sun strongly argues that this ugly and expensive process remains the only way for countries to escape poverty.

The liberalization and deregulation programs proposed by Western countries in the 1990s under the name of the Washington Consensus have not yielded the expected results. Development aid provided by rich countries has had a real (and sometimes negative) positive impact in Africa, but has not been enough to change the continent's basic economic conditions. And with a few small exceptions like Botswana, natural resources have generally been more of a curse than a blessing. The only thing that seems to be able to reliably transform poor countries into rich countries seems to be the so-called flying geese theory – the idea that the manufacturing sector is moving in waves, looking for the next base of cheap production and politically stable.

Now, geese are finally gathering in Africa. Some do not fear neo-colonialism – Sun finds that Chinese factories employ an overwhelming majority of local African workers rather than imported Chinese workers. Nor is there any indication that automation has made labor-intensive manufacturing obsolete. In other words, there is every indication that the process that brought Europe and Asia out of poverty is beginning to bear fruit in Africa.

The question for the United States and other developed countries is how they can help Africa's industrialization continue. An industrialized Africa is in the best interests of America. First, with rising costs in China, African factories are needed to prevent the prices of clothing, electronics and other goods from rising too high. And while some may argue that African competition is taking jobs at American manufacturers, the truth is that if it were manufactured in the United States, it would be mostly automated.

More importantly, Africa's development is the key to a stable world. An underdeveloped Africa, with an impoverished population in explosion, would fall prey to climate disasters and wars. This would create global tensions, as the United States, Russia and other powerful countries exerted influence over war-torn regions, as was the case in Syria. It would also create waves of refugees, knocking on the doors of rich countries – like Syria, but on a much larger scale.

To prevent this gloomy future and give hope and security to the poorest people in the world, the United States and other rich countries must encourage imports of products made in Africa. The law on growth and economic prospects in Africa, adopted in 2000, was a good start, but it is possible to do more. Market access ensures stable demand, which encourages Chinese and other entrepreneurs to invest and build in the long term.

African industrialization will complete the great transformation begun more than two centuries ago in Britain: the mbad movement of humanity ranging from indigence to material security. This is the last frontier of poverty reduction.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.