Motoring Africa. Edward T. Hightower
what about the days when no cruise ships or tourists were in town? Business was completely dependent on whether customers visited the region. Sure, there was work to be done changing the oil and maintaining the vehicles, but that type of light work could be done by the operators between tour groups. In addition, the barriers to entering this business were very low. The beaches, trails, and public parks were open to all, meaning that anyone with two or more off-road vehicles could suddenly become a competitor.
Tourism has the potential to create many employment and economic opportunities, but it is limited by travel season and subject to the economic woes of the country from which the tourists are visiting. Tourism cannot be exported. You cannot ship an off-road experience halfway around the world and make a profit. Therefore, the market opportunity is limited.
Apps vs. assembly lines
Smartphones, tablets, and their software applications (apps) give us mobile access to the web and allow us to have virtually unlimited information and conveniences in our hip pockets and purses. Obviously, they are some of the greatest inventions of the early twenty-first century. Billions have benefitted from the creation of these technologies. Their software developers, company leaders, and shareholders have similarly enjoyed billions in value creation due to stock price escalation. While no one will argue how much these technologies have transformed our lives and made mundane tasks easier and more enjoyable, how does the mobile app industry compare to auto manufacturing in terms of job creation?
For a quick comparison between industries, the graph below takes the four largest US-based technology companies–Apple, Amazon, Alphabet (Google), and Microsoft–and compares them to the top four automakers in the world–Toyota, VW, GM, and Hyundai. While the combined market capitalizations of the tech companies are nearly eight times those of the automakers, the automakers create double the jobs of the tech companies.
Source: 2016 annual reports for each company
Like services, technology businesses concentrate wealth into the pockets of relatively few highly skilled (and deserving) professionals in the form of stock grants and stock options. In contrast, industrial ventures leverage higher amounts of labor and various skill levels to create value. This results in multiple and wider tiers of value creation.
Benefits of manufacturing and industrialization
Farming, mining, retail, services, and tourism are the business sectors that are most common in developing economies. These companies utilize available local resources, demand is local and visible, and they do not require significant amounts of skill or capital to launch. Introducing manufacturing sets up a new form of economic activity for a region. Local manufacturing enables the replacement of imported products with more cost effective, locally produced products and the creation of local jobs. But Motoring Africa’s proposition is not simply about introducing or increasing the number of manufacturing businesses in Africa. It is about building industries and enabling them to reach their full competitive potential. Industrialization and sustainable industrialization further the introduction of manufacturing by making the participating businesses as efficient and successful as possible, over the long term.
The potential benefits of industrialization have been known for quite some time. Every major developed region has gone through periods of industrialization on their path towards becoming major world economies, including Western Europe, North America, Japan, Southeast Asia, Latin America, and most recently China. While pockets of industrialization have taken root in parts of the African continent–the Eastern Cape and Gauteng Provinces of South Africa; the city of Addis Ababa, Ethiopia; and the cities of Casablanca and Tangier, Morocco for example–the continent as a whole is ripe with opportunities for economic transformation through a conversion to manufacturing.
While the opportunity for industrialization has been evident in Africa for quite some time, there were easier paths to prosperity, and the motivations were not always apparent. The commodity price boom of the early 2000s resulted in higher prices for oil, industrial metals, precious metals, chemicals, and food. As many African economies are driven by commodity exports, these higher prices resulted in periods of growth for their nations. As in many institutions, change is difficult when things are going well, and many African governments used their commodity boom riches for other budget priorities rather than investing in industrialization. Now that commodity prices have cooled significantly, these same economies are looking for new ways to drive growth. Creating the capabilities and capacity to manufacture high-value goods at scale through industrialization, in addition to creating jobs, would offer these nations the ability to offset swings in commodity prices. Economies would be less dependent on external forces, and the skills to convert some of the mined metals into exportable finished products would be developed. Industrialization helps nations become empowered participants in the global economy.
Putting the Growing Masses to Work
According to a United Nations 2015 report, the world’s population is forecast to grow from 7.3 billion people today to 8.5 billion in 2030, and 9.7 billion in 2050. Half of this growth is expected to occur in Africa, with the population of 28 of its 54 countries doubling. The continent’s total population of 1.2 billion people is expected to grow to 2.5 billion. The population of Nigeria is expected to exceed that of the United States by 2050.5 United Nations (UN) population analyses also show that 41% of Africa’s population are under the age of 15 and 19% are between the ages of 15-24 years old. These young people will make up the future workforce of the region. Many refer to this phenomenon as a demographic dividend. These population and future workforce growth forecasts demand that transformative actions be taken to gainfully employ Africa’s future young workers. Therefore, investments in emerging markets are not only about altruism. They should also be considered forward investments in making the people in the developing nations more secure at home.
In order to put this young and growing population to work, the UN’s Economic Commission for Africa estimates that 10 million jobs per year will need to be created on the African continent.
The McKinsey Global Institute forecasts that by the year 2034, Africa will have a working-age population of 1.1 billion, which will be larger than the workforce populations of either China or India. The value-creating and job-generating engine called industrialization can leverage this demographic dividend towards the creation of value-added manufacturing, along with opportunities in adjacent business sectors. McKinsey further estimates that 6-14 million jobs over the next decade can be created by industrialization alone.6 Industrialization creates jobs that benefit the nation and region, even if the end customers of the manufactured product are in another part of the world. Over the next thirty years, the end customer growth will take place in Africa.
Manufacturing takes raw inputs and creates higher value outputs. Industrialization increases the scale, success, and profitability of manufacturing ventures, which results in even more jobs being created. Nothing stimulates an economy like large numbers of employed people earning money and becoming consumers. Industrialization increases the number of job opportunities and the breadth and level of workers' skills. This is the greatest example of the positive impact that business can have on a community, region, and nation. Value-added manufacturing also allows workers to feel the pride that comes from creating and making high-value products for local consumption and export. Employed people tend to have higher levels of confidence and self-esteem. This leads to higher levels of care for and investment in their communities. Industrialization is an effective, lasting and sustainable economic hand up, as opposed to a handout. The skills gained through sustainable industrialization can put a region on a path to better controlling its own destiny.
Some will argue that the benefits of industrialization are no longer realizable due to robotics, artificial intelligence, 3D printing, advanced manufacturing, and other labor-saving technologies and innovations. They would argue that these advancements eliminate the need for manual labor. From my personal experience in industry, while these tools may eliminate some jobs, their net affect can still be positive. Robotic welding improves quality and reduces material scrap.