Celebrating Cheap Crap from Africa

Posted July 7, 2010

For reasons best known to her, my loving wife decided to wear a white skirt to our Fourth of July barbecue. But it was not the charred remains of salmon, beef, or tofu that did the skirt in. Before our guests had arrived, she noticed a blue stain spreading across her dress like the sky breaking through the clouds on a June morning in Oakland.

The culprit was cheap crap from Africa – and it made me smile. One of her grad students, back from a stint in Uganda, had given her a very attractive bracelet, which was making its debut on Independence Day. The indigo dye in the blue beads was water soluble, so after a bit of kitchen work, the beads were bleeding like a leaky pen.

I smiled because I remember disparaging cheap Japanese crap for a decade starting in late 1950s. Cheap Taiwanese crap followed in the 1970s and we joked about at it for perhaps 3-4 years. Korean crap was only cheap for a year or two. Each country industrialized faster, transferred quality standards and management technology more rapidly, and imposed lower per capital environmental costs than its predecessors. Today, nobody laughs at China — even when it occasionally exports crap.

Finally — finally, Americans are importing our cheap crap from Africa. Thanks to the World Cup, Africa has been on the world stage for the past two weeks. There are good economic reasons for this. Time Magazine reported that in 2006, foreign investment in Africa exceeded foreign aid for the first time. According to the IMF, “sub-Saharan Africa today resembles Asia in the 1980s. The private sector is the key driver and financial markets are opening up.“ In March, the African Development Bank forecast 4.5 percent real GDP growth for Africa in 2010 and 5.2 percent in 2011. Growth is broad-based, with more than 15 countries projected to grow by more than 5 percent in 2010. The IMF notes that “War is down. Democracy is up. Inflation and interest rates are in single digits. Terms of trade have improved”. As a result, growth is taking off.

africa map logo3 Some of this is growth is due to China’s growing need for energy and raw materials. Trade between Africa and China has grown an average of 30% in the past decade and topped $106 billion last year. Chinese engineers help mine copper in Zambia and cobalt in the Democratic Republic of Congo and they help drill for oil in Angola.

But China is not simply another neo-colonial power. In exchange for access to raw materials, China has built roads, railways, hospitals and schools across Africa. Nonetheless, McKinsey reports that a recent study of 24 countries conducted by the African Development Bank estimated that the total cost of bridging Africa’s infrastructure gap over the next decade will be about $93 billion a year, with about 40 percent of this in the power sector alone.

These sums are no longer unthinkable. Almost alone among world economies, Africa has not suffered a recession during the current economic crisis. Fortunately, African financial institutions were too “primitive” to speculate in collateralized debt obligations built on dicey US mortgages. Poor savages.

Africa, of course, is not a simple story or even a single one.

Africa is not a culture any more than Asia is. It is home to 14 percent of the world’s population, to more than 1,000 languages and to 53 countries (54 if you accept my eighth grader’s count of teenie Mayotte as separate from tiny Comoros — which I do). About 20 percent of all land on the planet is in Africa (much still unexplored), along with about 30 percent of all mineral reserves.
Africa remains a continent of commodities — with its forests, oil fields and mines. Commodity prices have fallen since the 90s (as they tend to over the long run in any case). The McKinsey Global Institute just completed a massive study of African economic development and rates commodities well behind consumer goods and near agriculture as an investment opportunity.
Parts of Africa remain a basket case. Darfur, Somalia, Congo, and Zimbabwe are, along with North Korea, the worst places on earth and run by the worst leaders on earth. But in many other countries, independent courts enforce contracts and property rights, governments are not utterly kleptocratic, and a basic social and physical infrastructure permits rapid and sustained economic growth.
African countries can improve. Twenty five years ago, Mozambique, Angola, and Namibia were being torn apart by war. Ghana was lurching from coup to coup. Today the capital of Angola is so short of housing that some surveys declare it the most expensive city on earth — ahead of Tokyo and Dubai.
Growth affects demographics, which affects growth. The growth economies of Africa are starting to develop an educated middle class. True to form, this group prefers to raise two educated children, not a dozen illiterate ones. A big question for the continent is how long it will take Africa to grow its way to a balanced population. For a perspective on the revolution in first vs third world demographics, consider that in 1950, there were two Europeans for every African. Today, there are two Africans for every European.

Africa benefits not only from Chinese investment; they also benefit from growing Chinese affluence. With per capita GDP in China already above the world average, China’s days as the low-wage factory of the world are limited. Indeed, China has been shedding manufacturing jobs for the past 3-4 years (and still does not add as much value through manufacturing as the US does, even though we have a third as many people as China).

But without China, where will our crap come from? Fear not, Africa will soon be the last major low-wage region on the planet. It has an enormous coastline and is actually closer to markets in Europe and North America than China. Just as labor-intensive manufacturing moved from OECD countries to Asia over the past three decades, it will begin to move from Asia to Africa over the next decade. In February, Oxford University economist Paul Collier and Obama Africa adviser Witney Schneidman noted that Africa now offers the world’s highest rate of return on investment. They concluded that:

Africa, usually the poorest performing region in the world economy, is now likely to be among the best-performing”

But wait. Isn’t this just another example of global capital ruthlessly exploiting cheap third world labor? Yep. Remember: the only thing worse for Africa than being exploited by the developing world is not to be exploited by the developing world. Think of it as Zen economics: a sweatshop can be reprehensible (especially if it keeps a child out of school) and it can simultaneously represent extraordinary economic progress.

As Stephen Hayes, president and CEO of the Corporate Council on Africa asserts that “Africa offers more opportunity than any place in the world.” He is paid to say that, but all signs are that Africa can replace China as the world center for low cost production. That day is being hastened by the return from Paris and London of many educated members of the African diaspora. Industrialization may not be pretty, but for Africans, it cannot come soon enough.