All this talk about Industrialization is old news. We are in the IT age
It is common to hear the times we live in, being described as the “Information Age”, understandably as a result of the immense role Information Technology (IT) has come to play in the global economy and also in our personal lives. In western media, the expression “Post-Industrial” is often used as a substitute for the “Information Age”, a term which suggests that we have exited the industrial age driven by industrial production and manufacturing and entered into an age driven solely by information. This seems to have the unfortunate tendency of creating in the minds of some people (and I have personally met some of them) that the economic activities stemming from Industry no longer matter or may even be irrelevant since they come from a previous era.
The folly of this kind of thinking can be shown by pointing out that if one is to take the argument to its logical conclusion, then Agriculture in this day and age, is even more irrelevant since the Agricultural age came before the Industrial Age. “But we need to eat!”, you say. We also need the products and processes stemming from Industry to create a society with the potential of lifting the majority of its citizenry from a crude existence and subsistence and to prevent societal ills that previously used to regularly afflict the world like famine and disease epidemics without the means of containing them.
I should also point out a society looking to lift the majority of its populace from poverty cannot continue to depend indefinitely on importation for the bulk of its industrial goods as this is inimical to the long-term growth and development of such a society and this manifests in a variety of ways that should be familiar to even casual observers of sub-Saharan African economies and they include; widely fluctuating national revenues, which bring on frequent economic instability, all stemming from an overdependence on exporting primary commodities, whose prices are subject to great volatility in the global commodity markets, all in a bid to generate foreign exchange needed to import badly needed industrial goods; an ever worsening exchange rate as the imbalance caused by heavy importation and an overreliance on primary commodities for generating forex continually goes unaddressed; markedly high levels of unemployment when compared to industrial nations as there is insufficient domestic economic activity to meet the demand for jobs from the teeming masses; a recurring experience of “brain drain”, as Africa’s best and brightest often try to take their chances in the more functional economies of the industrial west. These are just a few instances of the dysfunctionalities common to sub-Saharan African economies stemming from their so far inability, to transform from being primary commodity-driven to being industrial sector driven.
The reader can no doubt furnish more examples for herself (I am feminist-compliant). IT, though a much welcome development, doesn’t render everything that came before it irrelevant, it merely adds a new layer to the previous industrial layers, which if done properly, should upgrade industrial performance, much like how the original industrial revolution mostly powered by steam, was revolutionized with the advent of electricity in the 19th century. Electricity augmented Industry, it didn’t render it irrelevant, neither will IT.
Based on the discussion in the previous paragraphs, it should be readily seen that the suggestion of many IT aficionados, that sub-Saharan Africa skip the stage of industrial development to focus fully on IT, while well-meaning, is somewhat misguided. First of all, IT booming as it may be, does not transcend the economic laws of supply and demand. If every African looking for a job piles into the IT sector, wages should depress to the point that much IT work should become undesirable. This, some IT industry observers claim has already happened in the West at the lower rungs of IT employment.
Secondly, IT does not have the same level of economic multiplier effects, both in the variety of economic activities stimulated by it and in the absolute number of jobs created when compared to industrial production/manufacturing. Employment figures from India’s (a beacon of IT) manufacturing and IT sectors should make this clear. The economic data service Statista, presented figures suggesting that employment in India’s manufacturing sector in 2023 was about 35.6 million. Corresponding figures for India’s IT industry from other sources suggested that employment in the combined IT/Business Process Management sectors at about the same time was about 5.4 million. Note that Business Process Management isn’t strictly IT. These are back office operations like accounting and customer support/call centres that ordinarily can only be rendered to local clients, but because of the explosion in IT, India has been able to successfully package them into what are referred to as “tradable services” whereby a service like accounting has been packaged such that it can be exported to other countries like manufactured goods. These even take the lion’s share of the jobs that the combined sectors create at about 4.14 million, leaving roughly just a little bit over 1 million core IT jobs.
This fact about multiplier effects can be further seen if you consider employment records of flagship companies of the respective industries. In 1990 (when the world had a substantially smaller population), the three biggest auto companies in the USA had a combined market capitalization of $36 billion, revenues of $250 billion, and 1.2 million employees. In 2014, the three biggest companies in Silicon Valley had a considerably higher market capitalization ($1.09 trillion), generated roughly the same revenues ($247 billion), but with about 10 times fewer employees (137,000). Focusing on single companies, Google, had 61,814 full-time employees in 2015. At its peak in 1979, in contrast, General Motors counted 600,000 employees on its payroll.
Even in associated sectors like retail, there is a stark contrast in employment figures when you compare retail giants borne of the industrial age when compared to those borne of the IT age. Take Walmart and Alibaba: roughly around 2018, Walmart’s market capitalization was around US$300 billion, while Alibaba’s market capitalization was around US$400 billion; Walmart’s 2018 revenue was US$505.49 billion and its net income US$8.96 billion, while Alibaba’s revenue was US$39.3 billion and its net income US$10.72 billion; for the period 2010–2017, Walmart’s net sales rose by approximately 20%, while Alibaba’s rose 15-fold; roughly around 2018, the total number of Walmart’s staff was about 2.2 million worldwide, while Alibaba’s was 101,958. We should consider these numbers against the fact that the USA, the home of Walmart, has a population of over 320 million people while China, the home of Alibaba, has a population of over 1.3 billion people. Twitter (now called X) at the time, had about 3,860 employees and when Facebook purchased WhatsApp in 2014 for $19 billion, WhatsApp had a mere 55 employees. Instagram had just 13 employees when Facebook bought them for $1 billion in 2012.
Still on the subject of multiplier effects, the industry/manufacturing sector generally has more of what economists call backward and forward linkages when compared to either agriculture or services. In plain English, linkages simply refer to the number of other sectors/industries that economic activity could be stimulated in as a result of activity in another sector/industry. Take for instance the automobile industry. The number of other industries that are brought into play as a result of automobile production include Steel, Rubber (both raw and finished tires), Glass, Paints, Dyes, Silk and Rayon textiles, Chemical Fibres, Intermediate Organic Compounds, Electronics, Embedded Software Systems, Composite Plastics, Wood Pulp, Precision Car Parts, Petroleum Products and other Fossil Fuels, Road Freight Transport, Sea Shipping, Taxi and other Car Fleet Services, Wholesale and Retail Trade, Financing such as Auto loans etc., with all creating employment along the way. I think it is safe to say that IT services particularly software applications do not have that level of linkages. As for IT hardware production, that itself is a manufacturing business.
None of this of course, is to suggest that we shouldn’t be aggressive as to harnessing the benefits of IT to the fullest extent. To not do so would be foolish, as one would miss out on the huge productivity gains that IT could deliver. In fact, the logic of capitalism, with its incessant competition, compels companies to glean whatever benefits there are to be had in IT. What I am saying is that for Sub-Saharan Africa to solve its poverty and jobs crises, it can’t skip industrial development and pin all its hopes on IT, it has to be more broad based than that, particularly given the way most IT services are deployed where they usually used to automate an existing business process (There are other options but that is a topic for another day). Such activity should ordinarily lead to reduced number of jobs. That is the essence of productivity…well at least half of it…being able to do more with less…less would also include less staff. There is the other half to productivity, which I discussed in my previous post, that needs to be going on in tandem with the half that automates existing business processes for a society to be able to continually provide high wage jobs for the bulk of its citizenry, and that is the development of new capabilities that lead to new markets, new industries and hence new jobs. The obvious candidate for this in Sub-Saharan Africa is the industrial sector given that what currently obtains is operating far below its potential.
Some of you might point out that in the West that manufacturing does not provide the bulk of the jobs, that it is the service sector that does that. That is only because their manufacturing sector has become so productive that it has steadily reduced its share of employment while astronomically increasing output. Furthermore, the greatest demand creating those high wage service jobs comes from manufacturing. I have many times on this blog given the example of the British fashion industry, where only 10% of the jobs created in that industry are involved in the manufacturing of the product, but without that 10%, the remaining 90% wouldn’t exist.
The World Bank carried out a study in 2010 which suggested that Africa had the capacity to take part productively in the light manufacturing segment of the manufacturing sector, to both improve domestic productivity and compete in export markets, if we got our acts together policy wise. We must hurry though. Other Southeast Asian nations like Indonesia, Vietnam and Bangladesh have aggressively moved into this space, picking up where China has left off. To put it in perspective, Ethiopia’s (one of Sub-Saharan Africa’s leading lights when it comes to manufacturing) textile exports — were $235 million in 2017; Bangladesh’s textile and apparel exports were $37 billion in 2017.
That should make it really clear that we really need to quickly get clearly thought out Industrial Policies that are implemented with determined intent if we are to create the better life that much of the continent is desperately seeking.
Bibliography
1. Ford, Martin. 2015 Rise of the Robots: Technology and the Threat of a Jobless Future. New York: Basic Books
2. Yulek, Murat A. 2018 How Nations Succeed: Manufacturing, Trade, Industrial Policy, & Economic Development. Singapore: Palmgrave Macmillan
3. Paice, Edward. 2021 Youth Quake: Why African Demography Matters. London: Head of Zeus
4. Schwab Klaus. 2016 The Fourth Industrial Revolution. Geneva: World Economic Forum
5. Wikipedia article on Information Technology in India https://en.wikipedia.org/wiki/Information_technology _in_India
6. Statista 2024 ‘Number of employees in the manufacturing sector India FY 2017–2023’ statista.com https://www.statista.com/statistics/1284237/india-manufacturing-sector-employment
