“Play the ball where it’s going, not where it is.”
That saying is attributed to a legendary Liverpool football manager, Bill Shankly, but the advice is widely applicable. We aren’t competing effectively in today’s global economy and high-profile deportation of migrants is bashing SA’s brand across sub-Saharan Africa.
To achieve adequate growth and employment, we must embrace the global economic shifts that are gathering momentum.
Plunging communication and transport costs in recent decades triggered higher global economic growth by spurring continuous efficiency gains within international supply chains. This largely explains Asia’s spectacular rise. As many countries advanced through embracing globalisation, global poverty plummeted.
Less well appreciated is how globalisation’s successes inflict harsh long-term costs on countries, like SA, whose policies leave their economies sidelined. This is most common among African commodity exporters.
The key metric in gauging a country’s success at integrating into the global economy is the portion of young workers who add value to exports on purely commercial terms. By this measure, Africa generally and SA in particular are outsiders amid a highly integrated global economy.
Energy and labour
Some Middle East countries, most notably the UAE, have made significant progress toward transitioning from overreliance on exporting commodities. As the risks of the Strait of Hormuz being impeded are now highlighted, it is easy to imagine many countries choosing to reduce their reliance on Persian Gulf exporters.
Technological advances have significantly expanded competitively priced alternatives to fossil fuels. Meanwhile, electric cars and trucks have become a mainstream option in most large markets.
Energy and labour are key economic inputs for countries and companies. The sources and uses of both are set to shift sharply over the next three decades. The exceedingly expensive rollout of data centres to support AI will sharply increase demand for electricity and this will spur a massive build out of nuclear power plants, particularly in China.
Yet much evidence suggests the coming shifts in labour markets will be even more consequential than shifting from fossil fuels to alternative energy sources and electric vehicles. Labour markets will be reset by workforces contracting amid much ageing in affluent societies. AI promises to be similarly disruptive.
For the first sixty years of the last century, the US dominated global production and exportation of oil. Then Venezuela took that crown, followed convincingly by Saudi Arabia. More recently Russia contended for the top spot.
No one was predicting twenty years ago that the US could again take the lead but this happened recently because the exploration and production of oil and natural gas is subject to technological shifts. The entrepreneurial flair that made both the rise of Asia and fracking profitable combined personal initiative, emerging technologies, and calculated risk taking. Similar forces will now be exerted to substantially reshape the global labour market.
The “father of fracking” was George Mitchell. At considerable personal expense and with many experts ridiculing his efforts, Mitchell discovered how to make fracking profitable and within two decades US oil and gas production soared. Similarly, the “father of container shipping” was Malcolm McLean. Evidence of his vision being publicly scorned includes a New York Times article scoffing at his innovation.
Demographics and geography
What makes Elon Musk’s Starlink so relevant is how demographics and geography can shape economic development prospects. Prior to globalisation, almost 90% of Chinese were extremely poor versus less than 1% today. Similar advances were common among many Asian nations.
Today, more than 35% of global births are in Africa and nearly 70% of the world’s extremely poor people live in sub-Saharan Africa – most of them are subsistence farmers. Container shipping was central to the various technological advances which led to Asian peasants escaping entrenched rural poverty by migrating to industrial centres. Starlink provides similar potential.
In the world’s most affluent nations, populations are rapidly ageing due to citizens living longer while birthrates plunge. Meanwhile, job creation is concentrated in service sectors. As robots take over more manufacturing functions and AI performs more service sector tasks, consumers will pay extra for products and services which have been personalised. Such preferences are evidenced by the premium pricing enjoyed by hand-made products and concierge services.
The rise of Asia was initially predicated on substantial labour-cost differentials. Toys could be made much cheaper in China and that provided a foundation. Today China has the world’s largest and most competitive manufacturing sector, which includes many very high-end products.
Rivers and cities
Most of the world’s major cities have long been found near where navigable rivers link farming communities to an open sea. Such natural trading posts are rare in Africa. Subsistence farming remains this continent’s primary activity as isolated communities eventually expand to the point of stressing the land’s carrying capacity.
Such communities always lacked trading opportunities as transportation costs are high and neighbouring communities grow similar crops and livestock. Nor do subsistence farmers generate surpluses sufficiently large and consistent to support cities that can develop diverse skills.
The situation was very similar across much of Asia until desperately poor farmers in China and elsewhere began in the 1980s to migrate toward industrialising areas. In effect, Starlink brings digital rivers to such communities, making it possible to recruit much low-cost labour.
Labour fracking
When shipping costs declined sharply through technological advancements, manufacturers found they could substitute low-cost Asian labour for much more expensive Western labour. Similarly, it makes no sense to try to staff lower-skilled digital jobs that can be performed anywhere with workers in high-cost regions.
As more than one out of three children is born in Africa, and it is now possible to provide low-cost internet access to remote villages, there are high commercial incentives to identify and employ talented young Africans. As with exploring for commodity deposits, upfront investments are required. For instance, low-cost tablets could be used to test for desired aptitudes.
Predicting how the internet would distort traditional economic relationships was mostly unknowable until various iterations had run their course. The same thing is true regarding how adopting AI and digitally connecting the world’s most isolated communities will provoke far-reaching changes that we can’t accurately predict.
Yet the labour-cost differences and the share of the global youth market are too large to ignore. There are powerful commercial incentives to employing young members of Africa’s most isolated communities and using AI to train them.
Little came of the African Renaissance which was idealistically envisaged a generation ago. SA should develop the skills, knowledge, and international relationships to digitally connect isolated rural communities with employment opportunities. Then, as with the football World Cup, many successes will surprise us.
[Image: Andrés Gómez on Unsplash]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
If you like what you have just read, support the Daily Friend