A skeptical perspective on African development

by on January 5, 2013 at 2:12 am in Current Affairs, Economics | Permalink

Rick Rowden thinks manufacturing is a key:

We can look at whether manufacturing has been increasing as a percentage of GDP, or whether the manufacturing value added (MVA) of exports has been rising. In these cases the comparison between Africa and East Asia is actually quite revealing — as demonstrated by a recent U.N. report that paints a far less flattering picture of Africa’s development prospects.

It finds that, despite some improvements in a few countries, the bulk of African countries are either stagnating or moving backwards when it comes to industrialization. The share of MVA in Africa’s GDP fell from 12.8 percent in 2000 to 10.5 percent in 2008, while in developing Asia it rose from 22 percent to 35 percent over the same period. There has also been a decline in the importance of manufacturing in Africa’s exports, with the share of manufactures in Africa’s total exports having fallen from 43 percent in 2000 to 39 percent in 2008. In terms of manufacturing growth, while most have stagnated, 23 African countries had negative MVA per capita growth during the period 1990 – 2010, and only five countries achieved an MVA per capita growth above 4 percent.

The report also finds that Africa remains marginal in global manufacturing trade. Its share of global MVA has actually fallen from an already paltry 1.2 percent in 2000 to 1.1 percent in 2008, while developing Asia’s share rose from 13 percent to 25 percent over the same period. In terms of exports, Africa’s share of global manufacturing exports rose from 1 percent in 2000 to only 1.3 percent in 2008.

The pointer is from the excellent @FGoria.

So Much for Subtlety January 5, 2013 at 2:58 am

I assume by Africa they mean Sub-Saharan Africa? So they are not counting Egypt or Algeria?

The really depressing thing would be to take South Africa out of the figures too. Who wants to bet that a strike in the South African automobile industry would send that share of global manufacturing well below 1%?

mw January 5, 2013 at 4:28 am

…and what of India? Perhaps countries with governments unwilling or unable to build roads and pipes will pursue a purely cell-phone-based development model.

Ray Lopez January 5, 2013 at 5:03 am

Article gated, but it’s interesting that manufacturing is the ‘key’. I agree, but with clustering and the fact one factory complex can typically supply nearly the entire world in output for many widgets, it begs the question ‘why would Africa need manufacturing’? However, for local manufacturing (for example, cement) or African-specific manufacturing for things that cannot be imported, you need to have PROTECTIONISM. Oops, I just said a dirty word. F*ck. Again. Haha. Alex Hamilton’s infant industry argument comes to mind. As does Brazil’s industrial policy, much maligned, but they do have Embraer (aircraft company). And witness the USA’s infant industry protection, historically. It was even made into US law: you can steal somebody’s invention overseas and within a year file for a patent in the USA and it’s yours (if they haven’t filed).

J. Otto Pohl January 5, 2013 at 6:03 am

Well I see that the article is gates so that us poor people here in Africa can not read it. I am not sure exactly what is encompassed in manufacturing. Is the article suggesting that Africa emulate a 19th and 20th century European/North American/Soviet model of building lots of big factories to produce steel and rail cars? Should we also emulate the Pullman company town or the Soviet complexes at Magnitogorsk and Karaganda with their use of GULag prisoners, special settlers, and labor army conscripts? I manufacture educated minds out of raw Ghanaian brains many of which are then exported abroad. I certainly add value to the raw material as do my colleagues here at the University of Ghana in Legon. But, I do not think that it was the article was talking about.

Ray Lopez January 5, 2013 at 8:09 am

JOP–you are fortunate to be in what is known as the Gold Coast of Africa, which is relatively successful. I think however the model you propose is for “big countries” only. Here in Greece, in the 1970s, they tried to sell a “Greek car” which was bolted together from parts imported. But it fell apart and nobody bought it. However, manufacturing of cheese, beer, wine is done locally and pretty good–so maybe Ghana can do the same. OT: the “Kru” and “Baga”, a stateless people in Ghana, historically resisted capture with such ferocious courage that the slave masters leaned not to try and capture them–these stateless people would even commit suicide rather than be captured. Now there’s an interesting economic solution that Nobel Prize-winning economist Elinor Ostrom talked about. Sacrifice of the self to preserve the whole.

J. Otto Pohl January 6, 2013 at 6:14 am

I am not proposing any model. I am rejecting the model as stupid. I think all of economics whether Classical, Marxist, Keynesian, or neo-liberal is totally worthless. Ju-ju has better predictive, explanatory, and prescriptive powers. Ghana produces high quality beer, pharmaceuticals, textiles, movies, music, and even a brand of lap top computers among other things. Unfortunately, it does not produce enough either to fully meet domestic demand or to export. It always irks me when the chemist is out of the cheap Ghanaian version of my BP script and I have to buy the European version at ten times the price. But, given the collapse of higher education in the US I am pretty sure that the brain processing industry here at the University of Ghana can be internationally competitive. I have no idea why anybody thinks Africa should produce steel in big giant combines like used to dominate industrial cities in the US, Europe, and the USSR.

TGGP January 6, 2013 at 7:53 pm

My understanding is that you teach history. To me, the humanities/liberal arts (including history) seem like “consumption” rather than “investment” goods, although there I’m sure there are many (likely including you) who would disagree. If you disagree, I’d like to hear your argument why.

J. Otto Pohl January 7, 2013 at 8:41 am

Because I am adding value to raw materials. The students come to me with nothing, but unprocessed intelligence and I teach them usable skills and knowledge that makes them more valuable workers. If nothing else being able to organize data and write it up in a coherent form is a useful skill in a country where over half the population is illiterate.

TGGP January 8, 2013 at 7:41 pm

Thank you for explaining.

Bill January 5, 2013 at 9:53 am

If you look at manufacturing as clustering and network dependent (ie, having suppliers, complements, and users in proximity) then why would you expect Africa to be a manufacturer, except for resource derived products. But, that may be enough. If you are smelting a mineral, to make it into slabs, we’ve long ago found that you don’t need to reheat it to fabricate it immediately into something of greater value–same with oil extraction, you refine it.

To expect electronics assembly, clothes manufacturing, exportable food processing….hmm. There are many poor places in the world with poor people who can make clothes and assemble electronics…and they are closer to the customer and their suppliers.

JVM January 5, 2013 at 12:50 pm

With wages soaring in Asia I’m sure it’s only a matter of time before Africa becomes competitive. They’re just not there yet.

Doug January 5, 2013 at 1:35 pm

For factories scheduled to open 2020 Africa doesn’t have to compete with low-wage workers in developing Asia. It has to compete with completely automated factories running dark in Japan, Korea, Northern Europe and the US. Unfortunately I don’t think anyone’s wages are low enough to out-compete machines (not to mention the quality issues).

J. Otto Pohl January 6, 2013 at 6:20 am

Wages in much of Africa are already higher than much of Asia. I used to live in Kyrgyzstan and the pay scales and standards of living in Ghana are much, much higher. One the main reasons that foreign companies have set up in China and Vietnam and not Africa is the fact that wages are lower in Asia than Africa. There is also not the problem of unions which are strong in places like Ghana and South Africa. Companies such clothing manufacturers that do operate in Africa compete on quality. If you want cheap you can go to China if you want good you come to Africa.

de Broglie January 5, 2013 at 1:32 pm

The average IQ of Sub-Saharan African nations is far below the average IQ in Western and Asian nations. This discrepancy is likely due to nutrition and lack of basic education. However, African-Americans in the United States have lower IQ’s than Whites in the United States, so there is likely a genetic component. Modern manufacturing requires a high degree of skill and know how. This may be lacking in Sub-Saharan African in countries other than South Africa. I don’t know if this is a partial cause, but we should be honest and consider it.

Doug January 5, 2013 at 1:40 pm

Turkey, Mexico and Indonesia all have large manufacturing export sectors while having mean IQs below 90. IQ’s more a limiting factor on the development of service sectors, rather than goods sectors. Think even in the US, bankers tend to be smarter than factory workers. Software engineers tend to be smarter than mechanics.

The only part of the manufacturing process that requires very smart people are the engineers who design the product and upper management. Both of which can be done overseas.

So Much For Subtlety January 5, 2013 at 10:49 pm

I think you under-estimate how many smart people are needed and how few Africa has. Judges and lawyers for instance.

As machine tools get more complicated the skills required to use them are moving in two ways – most workers need less education, but a lot of supervisors need to know something about computers. So it is more complicated than that. However if you’re not producing your own engineers, you need to import them from overseas. I am guessing that Turkey, Mexico and Indonesia allow foreign multinationals to do essentially that. They are not producing the next Toyota, or Hyundai or even Proton. That requires smart politicians. There is a reason Western multinationals do not invest in Africa if they can avoid it. Africa is rather short on smart politicians.

It will be interesting to see how long it takes the Chinese to figure this out. Investing in a mine takes billions up front and then requires decades to pay off. It is awfully tempting to take the mine after the initial investment and give it to a crony….

Ronald Brak January 6, 2013 at 12:59 am

North America’s industrial might was built by a populace with a much lower average IQ than what the current population has. Maybe we should consider a genetic component in the change in US IQs, but then we’d have to consider secret genetic engineering by aliens or something, and that’s just silly.

DocMerlin January 6, 2013 at 9:34 pm

Speaking of IQ. Places in the US have a maximum IQ for cops. Applicants that score better than that IQ, are not allowed to become cops.
http://abcnews.go.com/US/court-oks-barring-high-iqs-cops/story?id=95836#.UOozs4njnqc

Ronald Brak January 6, 2013 at 9:55 pm

I’m afraid that site automatically plays a video when you go to it. Do you have a link to the story at a site that isn’t so impolite?

chuck martel January 5, 2013 at 2:26 pm

” Software engineers tend to be smarter than mechanics.”

My son-in-law is a software engineer, I’m a pipefitter and I’m a lot smarter than he is.

DK January 5, 2013 at 4:29 pm

If you are so smart, you should understand what “tend to” means.

chuck martel January 6, 2013 at 3:38 pm

I understand that “tend to” really doesn’t have any meaning, in the aggregate or the particular.

TGGP January 6, 2013 at 7:54 pm

You have made it quite evident that you understand nothing.

TR W January 5, 2013 at 2:33 pm

Interesting. While people of European background are leaving sub-Sahara Africa and East Asians are moving in GDP and manufacturing is falling. For all those who think East Asians are kinda like Europeans or even better well the answer is no. This is just more proof for those who still can’t see it.

First, you have to acknowledge before European exploration Africans were in the Stone Age. They never went through the cultural evolution European people did. Most Africans are interested in personal low-level things like dancing or speaking. The website vice.com did a documentary on Western Africa. In one segment they filmed Africans defecating on the beach because they had no bathroom at the same time we also saw Africans talking on cellphones and painting pictures. Apparently, building an outhouse for the community never entered their minds. They have a foot in the door of modernity because of Europeans at the same time are content in their own self-made past.

Peter Schaeffer January 5, 2013 at 8:27 pm

Pre-colonial Africa was Iron age, not Stone age. See http://en.wikipedia.org/wiki/Iron_Age#Africa for the details of Iron metallurgy in Africa before colonialism.

Ray Lopez January 5, 2013 at 11:40 pm

But Africa went from Stone Age to Iron Age with no in-between. Also, as any student of Africa knows, and many papers have been written on this, Africa has been historically chronically underpopulated. Even today there’s the tyranny of distance. Just look at any map of Africa–you can fit almost the entire Balkans into just one country, Tanzania.

Nyongesa January 6, 2013 at 4:15 am

And masively diseased to boot. The incidence of incfectious disease and harmfull pathogens in Africa far exceeds any other region of the world. There are well developed arguments that seek to explain development challanges for Africans pre-colonization.

Nyongesa January 6, 2013 at 4:18 am

A jumble of prejiduces maraquarading as an argument.

Steve Sailer January 5, 2013 at 11:11 pm

Judging from the “Made In” text on the labels in my shirts, some African countries have moved into textiles, the traditional bottom rung of the ladder of industrialization. So, that’s promising.

Frank in South Africa January 6, 2013 at 12:59 am

@steve sailer

Cheap Chinese textile products have killed the local market in southern Africa. This combined with high labour costs & poor productivity have resulted in local manufacturers pricing themselves out of the market. See the article below.

Frank in South Africa January 6, 2013 at 1:00 am
Infopractical January 6, 2013 at 1:31 am

In a world where you’re screwed if you’re near the bottom of the social strata, it’s hard to imagine Africa will not continue to be very very screwed. It’s probably safe to assume any good data tells such a story.

The way for Africa to improve would be for the world to become to bountiful that the overflow feeds the poorest on Earth. That would be the Singularity in full effect, with wealth so abundant that aggregation is a waste of time for greedy people. Let us hope so. But should we expect it?

The other hope for Africa: substantial global upheaval. Perhaps.

Eh, I’m just bullshittin’, but so is everybody else.

Nyongesa January 6, 2013 at 5:29 am

As to the issue at hand, almost all global multinationals have manufacturing facilities in sub-Saharan Africa, although they represent a small percentage of their global manufacturing base, so there is a trove of intra-continent productivity data available to whichever aspiring PHD candidate wants to take a swipe at it, Anecdotally, all the regional managers of large multinational firms I’ve met personally, who have direct experience in several different regions globally have never complained about competence amongst their African factory workers as being a challenge. Typically it is corruption, infrastructure, etc. More-over, plenty of Large multinationals such as Coca Cola, IBM, Shell are well known incubators of management talent that migrate to the rest of the economy, seeding local firms with professional talent. Again this is anecdotal, but there are other possible arguments as to the manufacturing deficit in Africa other than IQ. and it would be nice to see them explored here.

Lastly from an economics perspective, Africa is awash in Chinese manufactured goods, and without large domestic industries to kick and scream for protectionist measures, the wave runs deeper and farther afield than it does in the west. Obviously not in total value but in percentage terms. The village kiosk, the (micro) Wal-Mart’s of the continent will have a very high percentage of non-food stuffs represented by Chinese manufactured product. Two thoughts come to mind:

Firstly, given the efficiencies and scale of Chinese production, Orthodox economics tell us that a large consumer surplus accrues to these African citizens versus that which would have been gained by higher cost local rent seeking manufacturers. What is the value of that surplus, as compared to the jobs, taxes skills etc. traded away to China. Isn’t the African peasant better of as an autonomous agent buying the cheapest product at his preferred quality level from whomever can deliver that world wide, then what he gains as a citizen of a manufacturing nation. The really successful global manufacturers’ such as Germany, China, Japan, the U.S. etc., have highly organized societies that allow for the efficient distribution of the surpluses of manufacturing among the citizenry. Something unlikely to happen in an tribal-corrupt Africa in the near term.

Secondly, I’ve noticed that productivity and technological gains in China quickly translates down into the products I see even at the lowest levels of the African economy. Now, if you sit with an Chinese export manager, they will quickly show you a price/quality chart that gives you the options for your particular market, do you want over-spec western quality/price or lower spec 3rd world quality/price. Or something in between. But, even the lowest end of that chart provides better quality and MUCH better pricing than anything locally produced. For Chinese producers the minimum efficiency scale dictates a quality floor. For example I started noticing that the lag between a new technology such as low flow toilets here in the U.S. and it’s presence in every toilet I encountered in Africa was much shorter than previously, and moreover the adoption was much, much broader. In essence, once Chinese manufacturers move to a newer process or technology, they will discontinue the older one, and with their production scales and market dominance drive adoption throughout there customer base. All impacting the consumer surplus accruing to the predominantly farming peasantry. This goes to tools as well, i.e. cheap and effective grain mills, tractors and so forth.

Ronald Brak January 6, 2013 at 8:38 am

Thank you for writing that, Nyongesa.

doctorpat January 7, 2013 at 1:27 am

I think I learned a lot more from your comment than I have from the article.

TGGP January 6, 2013 at 8:01 pm

I had never heard of Rick Rowden before. I thought that might be due to being less familiar with prominent economists than Cowen, but apparently he’s a doctoral candidate at Jawaharlal Nehru University (JNU) in New Delhi. How common is it for Anglos to get their phDs from such places?

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