AT LUNCHTIME IN Mombasa, Kenya’s humid port city, groups of men gather in the shade for the day’s bunge la mwananchi (people’s parliament), where they debate the latest news and politics. Everyone takes his turn to discuss whether the local governor is any good, or whether a group of men arrested on charges of drug-smuggling should be extradited to America. Then the debate turns to economics. “Why should we export all of our tea to Britain?” asks one man. “It is because of the law of comparative advantage,” retorts another. “How will Kenya ever be able to catch up with the rich countries in Europe and America?” To this, nobody has an answer.
That tech and innovation can play a big role in making some countries richer than others is not in question. About half the differences in GDP per person between countries are due to differences in productivity. Countries that encourage their firms to innovate, and that invest in educating their people and pushing the boundaries of science, generally grow richer than those that do not. Yet the hope that ideas and technologies would flow across borders like air and be adopted by poor countries, letting them catch up quickly, has been realised only in part of the world. Asian countries such as Japan and later Taiwan, South Korea and China embraced many of the world’s latest technologies to build formidable manufacturing economies. But Africa was largely left out of the most recent waves of globalisation, in which labour-intensive manufacturing moved out of Europe and America and into Asia. In 1990 African countries accounted for about 9% of the developing world’s manufacturing output. By 2014 that share had slumped to 4%.
One reason was pinpointed in a recent study by economists at the Centre for Global Development in Washington, DC. It found that labour costs in Africa are about 60% higher than in comparable countries such as Bangladesh. More striking still, the capital cost of employing a worker in Kenya, at $10,000, is about nine times as much as in Bangladesh. This is partly because indirect costs caused by unreliable infrastructure, crime, corruption and poor regulation, among other things, can account for 20-30% of the total costs incurred by firms in Africa.
Run, or walk first?
So can technology help change the fortunes of Africa, or should the region’s governments focus on getting ports and power to work? Among those arguing for concentrating first on power, telecommunications and transport is Calestous Juma, a professor at Harvard’s Kennedy School, who sees these as “foundational infrastructure” upon which other industries can grow. It is wrong to assume that “Africa can leap into the service economy without first building a manufacturing base,” he says. Akinwumi Adesina, the president of the African Development Bank, takes a similar view, even though he pioneered the use of mobile-phone wallets to distribute fertiliser subsidies in a previous role as Nigeria’s agriculture minister. “You cannot develop in the dark,” he says. “It requires a major effort to fix structural problems as well as infrastructural problems in Africa, so we shouldn’t kid ourselves that we can just bypass those.”
Yet there is also reason to hope that even if technology is not a panacea, it can still help reduce some of the costs and frictions of doing business in Africa. A recent paper for the World Bank found that African firms using the internet are nearly four times as productive per employee as those that do not. But until just a few years ago most firms on the continent did not get to enjoy the benefits of higher productivity for lack of internet connections.
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In much the same way that solar power and minigrids are changing the lives of villagers, emerging technologies may provide big industrial firms with power on an industrial scale. One promising source is small-scale liquefied natural gas, which will deliver commercial quantities of gas without the need to build huge pipelines. “Technology is now letting you get atomised, bite-sized bits of infrastructure,” says Tope Lawani, a co-founder of Helios, a private-equity firm with investments across Africa.
To be fair, not all infrastructure can be “virtualised”, least of all ports, roads and railways. But technology is steadily dismantling barriers to growth. When venture capitalists made big bets on African e-commerce firms such as Konga and Jumia, they did not allow for the many difficulties such enterprises would encounter. Cities such as Lagos had no reliable street maps and addresses, no big logistics firms and no electronic payments systems to bill customers. Delivery drivers on motorcycles would keep having to ask for directions, so deliveries took much longer than expected. Often the buyers would have no cash and would refuse to accept the goods. “There was a lot of hype and people didn’t take into account the complications of operating in Africa,” says Manuel Koser, a founder of Silvertree Internet Holdings, which invests in internet retail companies across the region.
Now companies such as Flutterwave and Paystack are building electronic payments systems that will reduce costs across the economy and enable others to build internet-commerce firms on them. What3words, a British firm that has invented a way of mapping places down to a grid reference identified by three words, is helping governments like Nigeria’s to assign a unique postcode to every home.
Whether such efforts will be enough to allow Africa to catch up with the rich world, let alone “leapfrog” ahead of it, remains far from certain. Yet that may be the wrong question to ask. A more nuanced one would be whether the technologies discussed in this report—from the internet and mobile phones to simple plastic bags—can help overcome some of the barriers that have long held back Africa’s economies and people. And on that the evidence is clear, whether in the form of better health care for mothers, more effective education for children or bigger crops and higher prices in the market for farmers. All this adds up to grounds for optimism.
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