Will Automation Make Africa The Lost Continent

  • Posted by on January 4th, 2015 at 5:03 pm
  • Comments: 0

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.

  1. Multi national companies usually in the energy and mining industries find deposits in country X.
  2. These companies invest in transportation infrastructure in order to extract deposits.
  3. Country X develops a trading hub and soon manufacturing companies enter to take advantage of cheap labor.
  4. Capital investment in further infrastructure development and civil society take place to support growing manufacturing sector.
  5. Domestic consumer markets develop attracting more outside capital.
  6. A middle class begins to form as finance and managerial staff enters the manufacturing sector.
  7. Manufacturing sector transforms from producing goods of low complexity to high complexity (think t-shirts to semiconductors).
  8. More capital investment takes place to support supporting industries and a domestic consumption economy seriously develops.
  9. Home grown domestic manufacturing companies begin competing with multi nationals.
  10. Knowledge work economy develops resulting in real estate boom.
  11. Country X is now importing finished goods to feed its domestic consumption.
  12. 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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