COWEN: Does Africa have a manufacturing future? Is robotics coming, AI, possibly some reshoring?
STUDWELL: Yes. I believe that Africa does have a manufacturing future.
COWEN: But making what? And at what cost of energy?
STUDWELL: They will start, as everybody does, producing garments, producing textiles, which in certain enclaves is already going on in Madagascar, in Lasutu, in Morocco, and they’ll move on to other things. They’ll start with those things because they are the most labor cost-sensitive products.
Africa is now in a position where — depending on which state you’re looking at, and taking China as a reference point — the cost of labor is now between a half and one-tenth of what it is in China. Factory labor is now around $600 a month at its cheapest. In a country like Ethiopia or Madagascar, it’s $60 or $65 a month. So, it’s a 10th of the cost, and that’s already beginning to have a bit of effect, often with Chinese firms moving production to Africa.
So, I think there is a future for manufacturing. It will depend on the extent to which African governments understand that you don’t really move forward fast for very long without manufacturing, that every developed country — apart from a few petro states and financial centers — has gone through a manufacturing phase of development. It depends on the extent to which African governments engage with that, but some, without doubt, will.
The Ethiopians, for instance, have already attempted to do that. What they’re trying to do has been somewhat derailed by the two-year civil war that took place from 2020, but they’re back on it now, and they’re trying to move forward.
The idea that robotics and AI are going to change the story I personally do not buy, principally for two reasons. One is the cost reason, because whenever people talk about what’s happening with robotics, no one ever talks about the cost of robots. In garmenting, for instance, even a basic robot will cost you in excess of $100,000, and you pay the cost upfront, and you’ve then paid that, whether there’s demand for your products or not. Also, in garmenting and in textiles, robots don’t work very well because they can’t work with material very well. They’re much better at working with solid things.
So, you’ve spent $100,000 for a robot when you can go out in somewhere like Tana in Madagascar and get another skilled — because they’ve been doing it now for 20 years — garmenting employee for $60 or $65 to make the new order that you just got. And if the order doesn’t come through, you can sack them. You see what I’m saying? There’s a point about the cost of robotics.
COWEN: But think of automation more generally — it’s not that expensive. Most countries are de-industrializing. Even South Africa has been de-industrializing for a while, and China maybe has peaked out at industrialization, measured in terms of employment. It’s hard to trust their numbers. But maybe just everywhere is going to deindustrialize, and that will be very bad for Africa.
STUDWELL: I don’t think so. I think South Africa is deindustrializing because the ANC has followed a hyper-liberal approach to economic policy. I don’t think the ANC has ever really understood economic policy, frankly, so South Africa is an outlier in that respect. There are many other states in Africa, whether Nigeria or Ethiopia, which understand they’ve got to have a manufacturing future and intend to pursue one.
Then, as I was saying, the other point is, what people miss is the flexibility with robotics and AI. There’s very limited flexibility with robotic and automated production. When demand goes up, you can’t just stick in more robots, but when demand goes up in a people-operated factory, where the cost of labor is low, you can stick in more people and produce more.
Just one example: during COVID, when everybody was having home deliveries of supermarket goods, the price of a UK firm called Ocado, which runs a supermarket, but was also developing the software and consulting around building blind warehouses went up through the roof, but now it’s down through the floor.
And only last week, Kroger supermarket in the US said, “We’re closing five of these super-modern blind warehouses.” And the reason, fundamentally, is because they lack the flexibility that human labor brings to the job. So, I’m not saying that robots, automation, and AI are not important. They are important. What I am saying is that they are not going to derail a manufacturing future for a number of African countries that aggressively pursue it.
COWEN: But there’re a lot of developing nations around the world — you could look at India, you could look at Pakistan, even Thailand — where manufacturing has not taken off the way one might have wanted. There’re just major forces operating against it. And in the US, manufacturing employment was once 37 percent of the workforce; now it’s 7 percent to 8 percent.
It just seems like it’s swimming upstream for Africa — which again, has quite expensive energy — to think it will do that well. And again, South Africa had very good technology, pretty high state capacity. I don’t see the alternate world state where a wiser ANC would have made that work.
STUDWELL: Well, oddly enough, before the end of Apartheid, the manufacturing performance of South Africa was really not bad at all, with classic industrial policy, quite high levels of protection, and so forth. I think that demand for manufactured goods will continue to be high around the world, and the labor cost will continue to be a prime determinant of where producers go for low value-added goods. So, I think that the opportunity is there for African countries.
COWEN: But say there’re transportation costs internally, energy costs, political order uncertainty. Where’s the place where people really want to put all these manufacturing firms?
Interesting throughout, recommended.
