There’s a race taking place right now between economic development in Africa and automation. In my opinion this race will weigh heavily on whether or not Africa becomes the lost continent. The classical model of economic development goes something like this, and you can see it currently taking place in various stages throughout South East Asia.
- Multi national companies usually in the energy and mining industries find deposits in country X.
- These companies invest in transportation infrastructure in order to extract deposits.
- Country X develops a trading hub and soon manufacturing companies enter to take advantage of cheap labor.
- Capital investment in further infrastructure development and civil society take place to support growing manufacturing sector.
- Domestic consumer markets develop attracting more outside capital.
- A middle class begins to form as finance and managerial staff enters the manufacturing sector.
- Manufacturing sector transforms from producing goods of low complexity to high complexity (think t-shirts to semiconductors).
- More capital investment takes place to support supporting industries and a domestic consumption economy seriously develops.
- Home grown domestic manufacturing companies begin competing with multi nationals.
- Knowledge work economy develops resulting in real estate boom.
- Country X is now importing finished goods to feed its domestic consumption.
- Development complete.
Obviously this is a massively simplified version of what takes place. But there’s no way around the fact that this is how it’s done, there has been no other way for a country to climb the economic ladder, this is it. In certain cases like Costa Rica which rely heavily on tourism, there has never really been large development of a manufacturing industry. But that’s also why Costa Rica’s growth has petered out, tourism and real estate only get you so far and infrastructure development in Costa Rica has suffered.
The threat to the African story is this. What happens if we completely remove the first rung on that ladder, the manufacturing of simple goods. What happens if automation makes it cheaper to build a high tech plant closer to your end market than it is to use cheap labor in Africa and ship to your market? What happens if that infrastructure development never takes place because multi national companies find no reason to make the investment. What happens if Africa has to pull itself up by its own bootstraps?
That’s a long road that’s never been successfully navigated. Without massive outside investment, and a large world power country to underwrite security to enable corporations to invest with confidence, it’s very difficult to reach the higher rungs on that ladder.
South East Asia may end of being the world’s last region to be seriously developed economically as they became the world’s manufacturers in the 90′s. China has ascended to higher rungs, they are now developing their own technology and have the beginnings of a thriving domestic consumption economy.
If Africa loses the race to the robots, there will have to be another model of economic development. In some conversations I’ve had the solution proposed is that Africa completely skips many of the rungs and moves straight to the higher rungs. Under this model you wouldn’t see the same massive investment in infrastructure like roads, power, rail, water, etc. Instead, we would see cheap solar power on an individual level, and knowledge workers access the world economy via the internet and online learning. We’re already seeing some of this in Africa where many don’t use banks, they just use their cell phones to transfer money. And without a real power grid, individual solar installations are providing power.
Here’s the problem though. This may work on a small scale with a small number of people, but it won’t work on a massive scale, an Africa scale. It will produce a small upper class, and leave the vast majority in the dust, literally. The power of the classic model of economic development is that it includes the majority of people, it at least gives them a lower middle class life eventually. It provides civil society and institutions, it produces stable-ish governments and economic reforms that are required by investors.
If Africa has to go it they may end up as the lost continent.
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My 2015 Stock Picks and Big Trends
Posted by Leigh Drogen on December 31st, 2014 at 5:08 pm, Comments: 0
Before we get into the 2015 picks, below are the 2012, 2013, and 2014 picks with their associated review posts. 2012 picks – 2012 review 2013 picks – 2013 review 2014 picks – 2014 review As always, a small caveat regarding my 10 stocks picks for the year. Nowhere outside of these yearly posts would I ever pick a […]
Is Israel In Danger of Being Destroyed?
Posted by Leigh Drogen on December 31st, 2014 at 12:03 am, Comments: 0
If you believed what you read in the global press you’d think that Israel was on the precipice of being wiped off the face of the earth. The drum beat of sensational alarmist press these past few years especially has been incredible to watch. I’ve been thinking about why that drum beat has become so loud. […]
Review Of My 2014 Picks and Trends
Posted by Leigh Drogen on December 28th, 2014 at 8:58 pm, Comments: 0
Ho-ly-bejesus, what a year. 2014 ranks up there with some of the hardest years ever for long/short equity traders (markets that go straight down are easy). There were land mines everywhere, a massive high beta meltdown for 2 months, the whole energy complex gets taken to the woodshed, the economy is on fire but traders […]
The Most Powerful 27 Year Old In Finance?
Posted by Leigh Drogen on July 3rd, 2014 at 9:49 pm, Comments: 0
According to someone at Business Insider I’m the most powerful 27 year old in the financial world, ok, I guess they had to give it to someone ¯\_(ツ)_/¯ The Most Powerful Person In Finance at Every Age – Business Insider By the way, a few notes and some background on that picture. The stats on there […]
You Won’t Believe What This Asshole Said About Yo
Posted by Leigh Drogen on June 24th, 2014 at 12:22 pm, Comments: 0
Unless you’ve been hiding under a rock this past week, you’re familiar with the Yo app and the cacophony of nonsense spewing forth from the internet since attempting to assign meaning to its meteoric rise (by the way that idiom makes no sense). Everything from, this is the inevitable result of technology being so cheap […]
Deltix Publishes Quant Strategy Using Estimize Data Producing 28.5% Cumulative Market Neutral Returns
Posted by Leigh Drogen on June 20th, 2014 at 6:50 pm, Comments: 0
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Here’s Why Airbnb and Uber Should Completely Ignore Government Regulations
Posted by Leigh Drogen on June 13th, 2014 at 5:13 pm, Comments: 0
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Beware The False Promises Of Quant Nirvana Behind New Financial Products Like Kensho
Posted by Leigh Drogen on June 11th, 2014 at 9:26 pm, Comments: 0
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My 10 Stocks and Big Trends for 2014
Posted by Leigh Drogen on December 30th, 2013 at 6:00 am, Comments: 0
Before we get into the 2014 picks, below are the 2012 and 2013 picks with their associated review posts. 2012 picks – 2012 review 2013 picks – 2013 review To recap, we returned 20% in 2012 and over 80% in 2013, crushing the market both years, beta adjusted. As a small caveat regarding my 10 […]
Leigh Drogen is the founder and chief investment officer of Surfview Capital, LLC, a New York based investment management firm employing an intermediate term long/short momentum strategy. More »
- Will Automation Make Africa The Lost Continent
- My 2015 Stock Picks and Big Trends
- Is Israel In Danger of Being Destroyed?
- Review Of My 2014 Picks and Trends
- The Most Powerful 27 Year Old In Finance?
- You Won’t Believe What This Asshole Said About Yo
- Deltix Publishes Quant Strategy Using Estimize Data Producing 28.5% Cumulative Market Neutral Returns
- Here’s Why Airbnb and Uber Should Completely Ignore Government Regulations
- Beware The False Promises Of Quant Nirvana Behind New Financial Products Like Kensho
- My 10 Stocks and Big Trends for 2014
- January 2015
- December 2014
- July 2014
- June 2014
- December 2013
- November 2013
- October 2013
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- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
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- December 2011
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