In Ethiopia, where I live, the government has been promoting export-led development for years and it hasn't been particularly successful. I don't say it can't work but I think their policy of overvaluing the exchange rate more than cancels out all the forms of support they've provided through state-owned enterprises, Chinese-built industrial parks, etc. Developing countries that impose exchange controls should use those controls in just the opposite way: they should follow China's example and keep the currency undervalued so that FDI gets sucked in
If I had anything more than a BA in economics I'd try to theorize this. Maybe Rodrik or Yasheng Huang has already done it, but briefly:
During China's period of rapid growth its domestic savings rate and its domestic investment rate were roughly in balance, so there was very little net cross-border movement of capital. But there were huge *gross* cross-border flows in both directions: capital was pouring in as FDI and the People's Bank of China was pumping it back out by buying Treasuries to keep the yuan weak.
There were critics outside China who argued that this was a bad policy, because the rate of return on Treasury debt was much lower than the returns paid out to foreign investors. But that overlooked the fact that FDI contains a lot of embodied technology and know-how, which wouldn't have entered the country if it had relied on domestic investors to generate growth. (I think two other considerations were that SOEs are poor allocators of capital and a powerful class of domestic private capitalists might have become a political challenge to the CCP.)
There's one aspect of this that I don't fully understand (again, only a BA): how does currency undervaluation actually work? I get that when you overvalue, you're pushing up domestic wages and prices in dollar terms and making yourself less competitive. But how can you become super-competitive by pushing dollar wages *down*, below the scarcity value of labor? Why doesn't that immediately produce domestic cost inflation that offsets the weaker nominal exchange rate and leaves you in the same competitive position?
My hunch is that you have to invoke some version of the Lewis model here. Intervening in the forex market to weaken your currency won't work if your country has no surplus labor in rural areas, but if you're still at a stage where you can move labor out of the farm sector without reducing farm output then you can use undervaluation to depress real factory wages and accelerate the pace of sectoral transition.
Does that make sense? Because if that's how it works, then Ethiopia (very low level of urbanization, strong state, interventionist tradition) is probably the ideal candidate for this approach.
When I read this, my first thought was "sterilize African population en masse to change the shape of that graph's projections", and this didn't really mesh with your overall leanings… I'm guessing it's not this but some economical measure with an unfortunate name?
Yeah, this is exceeding my technical skills. But I'm still missing something here, because I don't see how any tools of monetary policy can overcome an underlying constraint in labor supply (assuming there is one and that you don't have a reserve army in the countryside).
Maybe the right way to put it is like this. When you overvalue, you're overpricing domestic factors of production relative to foreign ones. That gives you higher imports and worse export competitiveness, so your country's labor force and resources end up less than 100 percent utlilized. When you undervalue you get lots of foreign investors clamoring to hire your country's cheap labor, so domestic resources become more than 100 percent employed... which isn't possible. Abstracting from the monetary issue, what actually happens to the real economy when you do this?
The unfortunate thing for Africa is that most of the really big countries are economic basket cases (Nigeria, South Africa, Egypt) while the economically robust countries (Ghana, Botswana, Cape Verde, Rwanda, Ivory Coast) are not very big. (I know that South Africa is currently richer than Ivory Coast - I'm talking about rates of change here.) But also, this means a lot of upside and a very quick "shift in the narrative" could occur if Nigeria or South Africa got their act together. (Ramaphosa is showing some encouraging signs in South Africa.)
I also worry that success can turn to failure very quickly in Africa. In 2019, Ethiopia was showing some of the most successful economic growth on the continent. Then, civil war broke out. You're right that Africa is much more peaceful now than it was several decades ago, but ethnic conflicts and separatist movements are another kind of "frozen conflict" like you see in the former USSR. Ultimately, I think these frozen conflicts can only be resolved by a process of state capacity growth and national identity formation like you saw in 18th century Europe. That process was very violent, but I am somewhat hopeful that economic growth can be the channel for that process in Africa rather than the warfare that it entailed in Europe.
Ultimately, I share your optimism. In your favorite book, How Asia Works, Studwell talks about the steel plant in Korea that is arranged around a bay, with raw materials coming in one end and finished steel being pumped out the other. As Asia gets older and richer and becomes a less economical place for heavy manufacturing, it is not hard to imagine such a plant being built on the outskirts of Accra or Mombasa. Here's to hoping for the #AfricanCentury!
Hi, Noah, thanks for the piece, it was really good. I have read an article by Rodrik (or related to him in some fashion) in which it was suggested that the later the industrialization, the less effective it was (something along those lines). Do you remember reading about it as well or am I misremembering? I think it mentioned Turkey, India, I'm not sure. Sorry for the vague comment.
I had some other related questions in mind (like the degree to which we can have all the world being developed, the human costs of too-cheap/harsh environment jobs), but I need more reading in order to make a better statement and questions. Thanks again.
I appreciate the enthusiasm, especially the contrast with Rodrik, but perhaps I missed the 'futurism' in all of this. The primarily Anglo and predominantly European futurist vision is of a space-faring civilisation (even those of us who grew up in the third world and still live there can often find something aspirational in that idea, perhaps because we have endogenised so much of the European spirit and philosophy). Is there a contrasting futuristic idea coming out of African writers? Are there models of civilization, forms of government, or even utopias in the African narrative that young Africans can aspire to? Merely attaining some numerical parity (say in GDP terms) or even dominance compared to other continents, driven by (not illegitimate) colonial grievance, seems like an unsustainably narrow 'futurism', unable to inspire the greatest demographic dividend (the current and next generation of Africa as a continent) in history.
Hi Noah, this is the first article of yours I have read, very much enjoyed!
I like the sentiment that we need to pay more attention to Africa because broadly speaking they will indeed be the last to industrialise and as a result have the largest population (assuming there isn't a huge loss of life and/or migration due to climate change).
But that's actually the elephant in the room from this article. Traditional fossil fuelled industrialisation which pays little attention to waste, environmental degradation etc etc is no longer viable. By the middle of this century it will (at least I really hope so for all our sakes) be virtually banned for industries to operate like that. Those without the luxury of being able to afford, have progressive enough governments or be skilled enough to utilise non-traditional energy sources, efficient manufacturing processes, quality recycling infrastructure and environmentally sustainable materials (basically Africa only by this point because Asia will be mostly there already) will be massively disadvantaged (assuming that they don't get a helping hand from the rest of the world which I doubt...).
Modern day industrialisation has relied on fossil fuels. That is going to change and already is. Rare earth metals are likely going to be the new crude oil and gas. That's also going to change the global industrial dynamic massively.
So I agree that we need to pay attention to Africa, but I feel that using the last 50-100 years of industrialisation as a template for the next, without highlighting the massive shifts which are happening and will happen over the next 50 years is ignoring some key uncertainties.
I just wrote this above but the AU has a set of goals called Agenda 2063 that are in part about creating things that look like the EU. It's cool stuff. I expanded skittle above
What about Latin America -- population equal now and eventually greater than Europe and North America. More than 200 years of European contact, with closer involvement than was the case in Asia and Africa (maybe that is disputable). Is the political and cultural conflict between a Europeanized elite and a much larger indigenous population at fault for the curves you show trending down?
The thing people don't realize about LatAm is that it's already middle-class as regions go! Latin American countries tend to be much, much wealthier than African countries. That's a barrier to traditional manufacturing-led development.
This is the Time for the China-Africa Revolution - with these 9 steps
The USA and Russia do not have Africa,on their Radar - no time and no funds.The EU has no cash,and PRC has recovered from COVID,and has abundant cash.This is the time for the China-Africa Reinassance.The aim has to be to control Africa trade and finance,and thus,the shipping routes and the Horn of Africa.If some Indian clown chokes Malacca,PRC can choke The Horn of Africa. Simple !
COVID has made manufacturing obsolete in EU,and PRC has to lower its cost of production.The Solution is to shift PRC manufacturing to Africa,with a mix of Chinese and African staff,to avail of LDC benefits, to export to EU and PRC.Exports from Africa to EU,will be HAVE MUCH LOWER COST OF PRODUCTION, AND ALSO, VERY LOW FREIGHT COSTS,AND WILL BE ENTITLED TO EU GRANTS,SUBSIDIES AND SOFT LOANS. This will WIPE OUT ALL the EXPORTS FROM INDIA,TO THE EU.India has neither the funds nor the resolve and intellect,to replicate the abovesaid model. dindooohindoo
PRC companies in the mainland,can go up the value chain of manufacturing,with AI and Robotics,and outsource all "other manufacturing" to Africa,in Chinese companies,who have JVs with Africans.These companies will be funded by Chinese Banks,and their banking gains in Africa,will offset the NPAs of Chinese Banks,in the PRC.In the 1st step, the manufacturing in Africa,is for PRC,and then the same factory,is to be used ,for exports to EU,with LDC gains.
Each African nation has 1 VOTE IN THE UN,and ROTATE SEATS ON THE UNHRC - and will be a strategic counter, to the USA and the Indians.
PRC also has to ramp Defense exports to the African region,via JVs with Pakistani Ordinance factories - again to wipe out the Indian Defense exports - which are in any case,pure trash.With Chinese technology in African defense,it will become an extension of the PLA.
The African Banking sector is bankrupt,and the Insurance companies are costly and expensive. This is the time,for the Chinese to swoop in,and also,INCLUDE MICRO CREDIT AND HEALTH INSURANCE.Africans have a natural immunity to diseases - and universal health care in Africa - with funding from WB,IMF and WHO and EU,could be the game changer for PRC,alongwith Micro Credit - which will connect PRC,with the African populace.
The Chinese have NOT invested in AFRICAN EDUCATION.PRC has to invest in HIGHER AND SPECIALISED EDUCATION,AND NOT PRIMARY EDUCATION.The strategy is akin to the methods used by the Americans and The EU,who brainwash the overseas students in their universities -who are studying free of cost.These students will 1 day,be the political leaders of Africa.
The Chinese has to invest in the Chinese language education from the Primary Education stage in Africa,and then,in Afican tourism,using Chinese Infra and Entertainment companies,EXCLUSIVELY FOR CHINESE TOURISTS.
Lastly the PRC has to educate the good Africans,about the worth of the Indians.It was Idi Amin who assessed the worth of the Indians - a man who saw the future.Indians are the bania shopkeepers, money lenders and counterfeiters.They doomed the entire South African economy (The Gupta vermin scum and Zuma).
Thanks Noah. I don't see the Future of Africa as "the workshop of the world". There might be some possibilities to create Business Models in a new paradigm that reflect "Generative Justice", the bottom up circulation of Value . This means for more “generative” economic forms in which labor value, ecological value and social value can circulate without extraction or alienation
Noah- you are brilliant, and we love you, and this is an optimistic and thoughtful piece. But it was clearly written in a comfortable (perhaps unfriendly) coffee shop in Northern California, without much direct observation of economic / investment conditions on the ground in sub-Saharan Africa. The demographics part of the argument is ok, but the FDI part seems a bit misguided. Most of the conditions required to attract ‘hard money’ direct investment in size do not hold in most of the jurisdictions (possible exception for natural resources). There has been a bit of progress at the margins, but overall “two steps forward and one to three steps back.” Don’t like being pessimistic, but a huge amount of reform is needed before the Afrofuture you describe can come to pass.
Great piece, would love a series on African political economy.
I will probably interview an expert! Maybe Gyude Moore, who was Finance Minister for Liberia.
In Ethiopia, where I live, the government has been promoting export-led development for years and it hasn't been particularly successful. I don't say it can't work but I think their policy of overvaluing the exchange rate more than cancels out all the forms of support they've provided through state-owned enterprises, Chinese-built industrial parks, etc. Developing countries that impose exchange controls should use those controls in just the opposite way: they should follow China's example and keep the currency undervalued so that FDI gets sucked in
Definitely. This is Rodrik's suggestion as well.
If I had anything more than a BA in economics I'd try to theorize this. Maybe Rodrik or Yasheng Huang has already done it, but briefly:
During China's period of rapid growth its domestic savings rate and its domestic investment rate were roughly in balance, so there was very little net cross-border movement of capital. But there were huge *gross* cross-border flows in both directions: capital was pouring in as FDI and the People's Bank of China was pumping it back out by buying Treasuries to keep the yuan weak.
There were critics outside China who argued that this was a bad policy, because the rate of return on Treasury debt was much lower than the returns paid out to foreign investors. But that overlooked the fact that FDI contains a lot of embodied technology and know-how, which wouldn't have entered the country if it had relied on domestic investors to generate growth. (I think two other considerations were that SOEs are poor allocators of capital and a powerful class of domestic private capitalists might have become a political challenge to the CCP.)
There's one aspect of this that I don't fully understand (again, only a BA): how does currency undervaluation actually work? I get that when you overvalue, you're pushing up domestic wages and prices in dollar terms and making yourself less competitive. But how can you become super-competitive by pushing dollar wages *down*, below the scarcity value of labor? Why doesn't that immediately produce domestic cost inflation that offsets the weaker nominal exchange rate and leaves you in the same competitive position?
My hunch is that you have to invoke some version of the Lewis model here. Intervening in the forex market to weaken your currency won't work if your country has no surplus labor in rural areas, but if you're still at a stage where you can move labor out of the farm sector without reducing farm output then you can use undervaluation to depress real factory wages and accelerate the pace of sectoral transition.
Does that make sense? Because if that's how it works, then Ethiopia (very low level of urbanization, strong state, interventionist tradition) is probably the ideal candidate for this approach.
Ahh, so you're asking about sterilization! https://faculty.wharton.upenn.edu/wp-content/uploads/2012/04/SterilizationJun1.pdf
When I read this, my first thought was "sterilize African population en masse to change the shape of that graph's projections", and this didn't really mesh with your overall leanings… I'm guessing it's not this but some economical measure with an unfortunate name?
Yeah, this is exceeding my technical skills. But I'm still missing something here, because I don't see how any tools of monetary policy can overcome an underlying constraint in labor supply (assuming there is one and that you don't have a reserve army in the countryside).
Maybe the right way to put it is like this. When you overvalue, you're overpricing domestic factors of production relative to foreign ones. That gives you higher imports and worse export competitiveness, so your country's labor force and resources end up less than 100 percent utlilized. When you undervalue you get lots of foreign investors clamoring to hire your country's cheap labor, so domestic resources become more than 100 percent employed... which isn't possible. Abstracting from the monetary issue, what actually happens to the real economy when you do this?
great piece! thank you for writing on this
Thanks!!
The unfortunate thing for Africa is that most of the really big countries are economic basket cases (Nigeria, South Africa, Egypt) while the economically robust countries (Ghana, Botswana, Cape Verde, Rwanda, Ivory Coast) are not very big. (I know that South Africa is currently richer than Ivory Coast - I'm talking about rates of change here.) But also, this means a lot of upside and a very quick "shift in the narrative" could occur if Nigeria or South Africa got their act together. (Ramaphosa is showing some encouraging signs in South Africa.)
I also worry that success can turn to failure very quickly in Africa. In 2019, Ethiopia was showing some of the most successful economic growth on the continent. Then, civil war broke out. You're right that Africa is much more peaceful now than it was several decades ago, but ethnic conflicts and separatist movements are another kind of "frozen conflict" like you see in the former USSR. Ultimately, I think these frozen conflicts can only be resolved by a process of state capacity growth and national identity formation like you saw in 18th century Europe. That process was very violent, but I am somewhat hopeful that economic growth can be the channel for that process in Africa rather than the warfare that it entailed in Europe.
Ultimately, I share your optimism. In your favorite book, How Asia Works, Studwell talks about the steel plant in Korea that is arranged around a bay, with raw materials coming in one end and finished steel being pumped out the other. As Asia gets older and richer and becomes a less economical place for heavy manufacturing, it is not hard to imagine such a plant being built on the outskirts of Accra or Mombasa. Here's to hoping for the #AfricanCentury!
Yeah!!!
Hi, Noah, thanks for the piece, it was really good. I have read an article by Rodrik (or related to him in some fashion) in which it was suggested that the later the industrialization, the less effective it was (something along those lines). Do you remember reading about it as well or am I misremembering? I think it mentioned Turkey, India, I'm not sure. Sorry for the vague comment.
Yep, that's his "premature deindustrialization" paper that I linked to! Fortunately, looks like he's not right.
Thanks! I'll read it ASAP.
I had some other related questions in mind (like the degree to which we can have all the world being developed, the human costs of too-cheap/harsh environment jobs), but I need more reading in order to make a better statement and questions. Thanks again.
I think more then afro futurism future oof india is important. Because, how india grow(services led model) will make the pathway for africa...
Wht do u think service led growth model possible?
Great and important question! I'll write about this in the future.
I appreciate the enthusiasm, especially the contrast with Rodrik, but perhaps I missed the 'futurism' in all of this. The primarily Anglo and predominantly European futurist vision is of a space-faring civilisation (even those of us who grew up in the third world and still live there can often find something aspirational in that idea, perhaps because we have endogenised so much of the European spirit and philosophy). Is there a contrasting futuristic idea coming out of African writers? Are there models of civilization, forms of government, or even utopias in the African narrative that young Africans can aspire to? Merely attaining some numerical parity (say in GDP terms) or even dominance compared to other continents, driven by (not illegitimate) colonial grievance, seems like an unsustainably narrow 'futurism', unable to inspire the greatest demographic dividend (the current and next generation of Africa as a continent) in history.
Hi Noah, this is the first article of yours I have read, very much enjoyed!
I like the sentiment that we need to pay more attention to Africa because broadly speaking they will indeed be the last to industrialise and as a result have the largest population (assuming there isn't a huge loss of life and/or migration due to climate change).
But that's actually the elephant in the room from this article. Traditional fossil fuelled industrialisation which pays little attention to waste, environmental degradation etc etc is no longer viable. By the middle of this century it will (at least I really hope so for all our sakes) be virtually banned for industries to operate like that. Those without the luxury of being able to afford, have progressive enough governments or be skilled enough to utilise non-traditional energy sources, efficient manufacturing processes, quality recycling infrastructure and environmentally sustainable materials (basically Africa only by this point because Asia will be mostly there already) will be massively disadvantaged (assuming that they don't get a helping hand from the rest of the world which I doubt...).
Modern day industrialisation has relied on fossil fuels. That is going to change and already is. Rare earth metals are likely going to be the new crude oil and gas. That's also going to change the global industrial dynamic massively.
So I agree that we need to pay attention to Africa, but I feel that using the last 50-100 years of industrialisation as a template for the next, without highlighting the massive shifts which are happening and will happen over the next 50 years is ignoring some key uncertainties.
Great piece! I wonder how much you know about African Union and what affect it has/will have on economic development and industrialization of Africa.
I just wrote this above but the AU has a set of goals called Agenda 2063 that are in part about creating things that look like the EU. It's cool stuff. I expanded skittle above
What about Latin America -- population equal now and eventually greater than Europe and North America. More than 200 years of European contact, with closer involvement than was the case in Asia and Africa (maybe that is disputable). Is the political and cultural conflict between a Europeanized elite and a much larger indigenous population at fault for the curves you show trending down?
The thing people don't realize about LatAm is that it's already middle-class as regions go! Latin American countries tend to be much, much wealthier than African countries. That's a barrier to traditional manufacturing-led development.
This is the Time for the China-Africa Revolution - with these 9 steps
The USA and Russia do not have Africa,on their Radar - no time and no funds.The EU has no cash,and PRC has recovered from COVID,and has abundant cash.This is the time for the China-Africa Reinassance.The aim has to be to control Africa trade and finance,and thus,the shipping routes and the Horn of Africa.If some Indian clown chokes Malacca,PRC can choke The Horn of Africa. Simple !
COVID has made manufacturing obsolete in EU,and PRC has to lower its cost of production.The Solution is to shift PRC manufacturing to Africa,with a mix of Chinese and African staff,to avail of LDC benefits, to export to EU and PRC.Exports from Africa to EU,will be HAVE MUCH LOWER COST OF PRODUCTION, AND ALSO, VERY LOW FREIGHT COSTS,AND WILL BE ENTITLED TO EU GRANTS,SUBSIDIES AND SOFT LOANS. This will WIPE OUT ALL the EXPORTS FROM INDIA,TO THE EU.India has neither the funds nor the resolve and intellect,to replicate the abovesaid model. dindooohindoo
PRC companies in the mainland,can go up the value chain of manufacturing,with AI and Robotics,and outsource all "other manufacturing" to Africa,in Chinese companies,who have JVs with Africans.These companies will be funded by Chinese Banks,and their banking gains in Africa,will offset the NPAs of Chinese Banks,in the PRC.In the 1st step, the manufacturing in Africa,is for PRC,and then the same factory,is to be used ,for exports to EU,with LDC gains.
Each African nation has 1 VOTE IN THE UN,and ROTATE SEATS ON THE UNHRC - and will be a strategic counter, to the USA and the Indians.
PRC also has to ramp Defense exports to the African region,via JVs with Pakistani Ordinance factories - again to wipe out the Indian Defense exports - which are in any case,pure trash.With Chinese technology in African defense,it will become an extension of the PLA.
The African Banking sector is bankrupt,and the Insurance companies are costly and expensive. This is the time,for the Chinese to swoop in,and also,INCLUDE MICRO CREDIT AND HEALTH INSURANCE.Africans have a natural immunity to diseases - and universal health care in Africa - with funding from WB,IMF and WHO and EU,could be the game changer for PRC,alongwith Micro Credit - which will connect PRC,with the African populace.
The Chinese have NOT invested in AFRICAN EDUCATION.PRC has to invest in HIGHER AND SPECIALISED EDUCATION,AND NOT PRIMARY EDUCATION.The strategy is akin to the methods used by the Americans and The EU,who brainwash the overseas students in their universities -who are studying free of cost.These students will 1 day,be the political leaders of Africa.
The Chinese has to invest in the Chinese language education from the Primary Education stage in Africa,and then,in Afican tourism,using Chinese Infra and Entertainment companies,EXCLUSIVELY FOR CHINESE TOURISTS.
Lastly the PRC has to educate the good Africans,about the worth of the Indians.It was Idi Amin who assessed the worth of the Indians - a man who saw the future.Indians are the bania shopkeepers, money lenders and counterfeiters.They doomed the entire South African economy (The Gupta vermin scum and Zuma).
Thanks Noah. I don't see the Future of Africa as "the workshop of the world". There might be some possibilities to create Business Models in a new paradigm that reflect "Generative Justice", the bottom up circulation of Value . This means for more “generative” economic forms in which labor value, ecological value and social value can circulate without extraction or alienation
Noah- you are brilliant, and we love you, and this is an optimistic and thoughtful piece. But it was clearly written in a comfortable (perhaps unfriendly) coffee shop in Northern California, without much direct observation of economic / investment conditions on the ground in sub-Saharan Africa. The demographics part of the argument is ok, but the FDI part seems a bit misguided. Most of the conditions required to attract ‘hard money’ direct investment in size do not hold in most of the jurisdictions (possible exception for natural resources). There has been a bit of progress at the margins, but overall “two steps forward and one to three steps back.” Don’t like being pessimistic, but a huge amount of reform is needed before the Afrofuture you describe can come to pass.
Africa is held back by exceptional levels of institutional corruption. Until that is changed, I believe they will be hampered for some time to come.
incredible article. found your substack thanks to Twitter—looking forward to reading more of your work.
It always amazes how little the world talks about Africa. Thanks for an informative piece.