Posts Tagged ‘manufacturing’

The Wire China

May 30, 2026

At the end of this paragraph is a link to the Wire China article in PDF, with all photos and graphs, about How Africa Works, and connected Asian issues. Below is the text with some textual illustrations but no photos or graphs. The Wire China Joe-Studwell-on-Getting-Africas-Economies-to-Work

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Q & A

Joe Studwell on Getting Africa’s Economies to Work

The author and journalist discusses whether the ‘Asian tigers’ model is one African countries can emulate, and China’s influence over the region’s development.

By Andrew Peaple — May 24, 2026

Economy

Joe Studwell’s 2013 book How Asia Works was a groundbreaking analysis of the rise of East Asia’s ‘tiger economies’, South Korea, Japan and Taiwan. In it, the British journalist and author showed how those countries had achieved success by pursuing state-led industrial and agricultural policies while limiting capital flows — a policy mix that ran counter to prevailing economic orthodoxy. In his new book, How Africa Works, Studwell takes a similar look at the world’s poorest region, and asks whether a similar policy mix could and should work there.

In a recent interview Studwell discussed the book’s main arguments and the role of China in African economies. The following is an edited transcript of that conversation.

 

Q: Can you start by explaining the similarities between Africa and Asia in terms of the economic development model that they could or should be following? 

A: Broadly the same policies that worked in East Asia have worked in a very small number of countries in Africa that have developed quickly. The first element is the same emphasis on smallholder agriculture and achieving an agricultural surplus, so that there are broadly distributed gains across society, meaning that essentially everyone’s in the capitalist game.

A second factor is the role of manufacturing and manufacturing policy. That has been important in the small number of countries in Africa that have so far undergone rapid development. And a third factor is financial controls, or what is sometimes called financial repression. The objective of that is to trap money in your country so that you can deploy it for domestic development, rather than letting it run off looking for higher returns elsewhere.

These policies are the connection between the small number of successful African countries and East Asia. But the context is massively different.

BIO AT A GLANCE
AGE 58
BIRTHPLACE Bradford, Yorkshire, England, UK
CURRENT POSITION Senior Visiting Fellow, Overseas Development Institute (ODI)

The striking thing about How Asia Works was the way it challenged the so-called Washington consensus — that free markets and free flows of capital are what developing countries should adopt. You pointed to the fact that state involvement and capital controls helped development in the countries that had success in Asia.

Where the state is sufficiently capable, it plays a big big role in developing countries, because you don’t have a developed private sector that can do things on its own. You need the state to act.

If you read the academic literature over the last 50 years, most of it will tell you that it’s been governance failures — corruption, kleptocracy, civil strife, particularly ethnic strife. But the book that I’ve written argues something different — that the fundamental difference and problem in Africa was demographic. 

Of course, this is not just an Asian thing: it’s not just about the Ministry of International Trade and Industry (MITI) in Japan or the National Development and Reform Commission (NDRC) in China, or the planning agencies in Korea or Taiwan that took a very proactive role in framing the development of their economies. This has happened previously, with the catch-up countries in Europe, and it happened in the United States as well, going back to the 19th century. It’s a universal truth that if you do have a sufficiently capable state, it can very usefully do a lot in the early stages of development.

MISCELLANEA
FAVORITE BOOK The Arabs, by Eugene Rogan. In a literal sense, magisterial.
FAVORITE FILM Ladejinksy, the movie I have yet to write.
FAVORITE MUSIC Folk/Hippy Shit
MOST ADMIRED Harry Truman. The president who finished in D.C. and took the train home.

In general terms, why is it that African countries haven’t been able to adopt the same kind of economic model that has worked in Asia?

If you read the academic literature over the last 50 years, most of it will tell you that it’s been governance failures — corruption, kleptocracy, civil strife, particularly ethnic strife. But the book that I’ve written argues something different — that the fundamental difference and problem in Africa was demographic.

It’s a vast continent: you can put Europe, India, China and the U.S. into Africa, that’s how huge it is. Because of its extraordinary and unique disease burden, thanks in particular to the prevalence of parasites unique to Africa, the population grew incredibly slowly for a long time. In 1960, if we take that as the start of the continent’s independence era, the population density in Africa was less than 10 people per square kilometer. For comparison, that is the same as Europe in 1500: there wasn’t much growth in Europe back then, and there wasn’t any growth in Africa for a long period after independence. This was the single biggest constraint.

From the 1950s onwards, though, you start to get new drugs, and the development of health care services and screening for things like sleeping sickness — which still kills vast numbers of people, but not the numbers that it did. That quite quickly reduces the infant mortality rate in Africa from the 1950s. Even within that decade Africa reached the highest rate of population growth, at about 2.4 percent a year, that East Asia ever had, and it went up to a peak of nearly 3 percent a year.

So suddenly you get a massive change. From 230 million people in Africa in 1945, today there’s 1.5 billion today; by 2050 there’s going to be 2.5 billion people, and by the end of the century it’s forecast there will be four billion. That will make Africa one of two dominant demographic blocks in the world, along with Asia. So things have changed very fundamentally there.

When there were 10 people per square kilometer, there weren’t big enough markets: you didn’t have enough people to buy anything that you could produce. Moreover, the costs of infrastructure at a per person level were totally unaffordable. So you couldn’t exploit the resources of Africa, because you couldn’t afford to build the roads and utilities that you would require. You don’t have enough people to have a good division of labor. And you don’t have what economists call the economies of agglomeration — you don’t have cities, apart from anything else. In 1900, Africa only had two cities with 20,000 people — Lagos and Dar Es Salaam. Given the disease burden in Africa, people didn’t live in close proximity because it increased their chances of dying from communicable diseases.

But at the end of this decade, Africa will finally be at the demographic density that Asia had in 1960 — the point when the Asian takeoff began. We can’t say precisely when it will be, but at some point you hit a tipping point where you’ve got enough people so that you can start to do things that you could not otherwise do.

The other huge problem for Africa at independence was that because there had been so few people in Africa, you couldn’t raise taxes. No colonial government, whether it was anglophone, francophone or lusophone, operated schools. They just didn’t have the money. All there was was a small number of missionary operated schools.

So when you kick off in 1960, you’ve got 16 percent literacy in Africa and 5 percent female literacy. It’s only after that point that countries started to generate literate and numerate populations, a fundamental requirement of any modern economy. Actually it’s very under-remarked that Africa did remarkably well in educating its population after 1960. Take someone like Julius Nyerere, who became the leader of independent Tanzania when literacy was 10 percent: he steps down 25 years later, and literacy is 85 percent. A World Bank study said Sub-Saharan Africa was the most rapid rollout, at the biggest scale, of a public education system that has ever happened.

So those are the huge contextual differences: those problems did not exist in Asia. There were always enough people, and colonial governments there operated schools and a reasonable share of people went to them.

 

Can you explain why developing smallholder agriculture is so key to development?

Smallholder agriculture has been key really for distributional reasons. If you get the situation there was in Africa where the population starts to increase almost 3 percent a year, it means that every 25 years, from the 1950s, the population doubled and demand for food tripled. Once people had a bit more money, poorer people spent half or often more than half of their income on food. It was a similar story in East Asia: demand for food went up, and then smallholder farmers started growing crops at increasing yields, and earning greater disposable income. In turn, that means that the early gains in terms of GDP growth are very broadly spread.

One outcome of this is the development of manufacturing and industry in rural areas, as happened in China. A classic example was that of the now Great Wall Motor, based in Baoding, south of Beijing. That firm was originally an agricultural repairs business, repairing agricultural machinery. It’s now the biggest producer of four-wheel drive vehicles in China.

So as agriculture prospers, parts of manufacturing and industry take off in rural areas, and all of this is very positive for development — particularly because while smallholder farmers make a bit of money, they don’t ever make enough money to be buying, say, an imported car. You get this great consumption picture where demand in the economy is for goods which can be produced locally. Farmers want cement, they want bricks, they want glass; and they want farming implements, and then they want household consumer goods, all things that can be produced within the domestic economy. It has a very positive supportive effect for domestic manufacturing.

Now in East Asia, or at least in Northeast Asia (including Vietnam), there was an almost perfect smallholder picture, because it was orchestrated by central governments with land reform measures that divided up the land equally among the farming population.

In Africa, historically there were large plantations which were operated by colonists: there were a dozen settler colonies, of which South Africa is the oldest, where white settlers came and basically grabbed the best land. The settlers tended to operate relatively large farms and they pushed the local indigenous population onto so-called native reserves, where they farmed on communal land and in small holdings.

Africa is so big and has so much cultivable land — even today, the World Bank reckons that half the unused cultivable land in the world is in Africa. The difficulty for the smallholders was that often they couldn’t get on the best land, because it had been grabbed by settlers. When the settlers were eventually driven out after wars of liberation, that land was taken over by new post-colonial governments.

But rather than giving land to the population at large, governments tended to divide it up among supporters of the regime to farm at scale. Land distribution remains a problem most obviously in South Africa. Apartheid ended in 1994, and since then still only about 10 percent of agricultural land has changed hands. They haven’t fundamentally confronted the problem.

Chinese public banks have put about $150 billion dollars of lending into Africa and that’s made a huge difference. 80 percent of the money has gone into infrastructure. It’s generally been very positive, because [China has] delivered at a cost which is significantly below what African governments would have paid to European or U.S. firms. 

However, the more important picture to grasp around Africa at the moment is that suddenly you’ve got nearly 40 cities with more than a million people, and scores more with over half a million. You can go to the periphery of any of these cities and where the city meets the first fields, look at how food is being grown. You’ll find classic smallholder-type farmers who have dug bore holes, who are irrigating their fields, so they can get a couple of crops of vegetables or of rice or whatever. They’re feeding into urban markets that are reliable sources of demand, of a kind that just was not there 20 years ago, and they are making thousands of dollars per hectare from their cultivation. This higher yield farming is going forward without any real government involvement: it’s down to a response to demand and the entrepreneurialism of the farmers.

Often these smallholders have other jobs in the cities. Just to give you examples of the people I met in northern Tanzania: one guy was a senior manager at the country’s driving license agency, farming on the side because it was profitable. Another guy farming tomatoes was a senior policeman. The money to be made in agriculture is sucking in a lot of urban entrepreneurs.

What has impeded Africa’s manufacturing sector to date and what are its prospects now?

Again, I think demographics are key. You need to have sufficient demand and sufficiently concentrated demand for products, because that helps you get through the learning experience with manufacturing.

It’s still early days, but both for consumer goods and the manufacturing that surrounds agriculture, there’s a lot going on. There’s not yet much going on for exports to the rest of the world, although there are signs of export growth within Africa — a lot of products produced locally are relatively more competitive within Africa because of logistics costs.

The leader in terms of where manufacturing investment is coming from is agribusiness and agricultural processing, because of the growth in consumption of processed foods in Africa. The money in agribusiness is such that conglomerates are developing, which are somewhat similar to the conglomerates that we saw in the development of Southeast Asia coming out of agriculture — like CP Group in Thailand, which was a seed business originally, or Salim Group in Indonesia, which dominated noodles.

The Bakhresa Group in Tanzania, for example, is in about 10 countries now: as well as milling they do everything from petroleum products to real estate and they’ve even got a football club and a TV station. It would not look out of place in Southeast Asia.

Do African countries have an opportunity to take a larger market share of global manufacturing?

It’s possible. When you look at the most labor intensive activities, garmenting is the most obvious sector where labor costs are decisive. Factory labor in China now costs around $6-700 a month per employee; in Ethiopia or in Madagascar, where there’s a garmenting center that employs a couple of hundred thousand people, it’s $60-65 a month. If port-road connections and shipping can be put in place, and the country can remain politically stable, then this can certainly be attractive.

People say at the moment that China is trying to hang on to every last bit of manufacturing. That certainly wasn’t the case a few years ago when legislation was passed in China which reduced the number of products that could get VAT rebates and other incentives. But even if they are trying to hang on to more manufacturing now, at the end of the day, a tenfold difference in labor cost is significant.

The greater challenge probably for Africa is from other lower labor-cost locations in Southeast Asia and in India. That’s quite hard to predict. The Indians talk the talk about manufacturing, but they’ve never really done anything, which is largely why they have an economy less than a fifth the size of China’s, even though it’s now growing faster. In Southeast Asia, there is Cambodia or Indonesia, although I would say neither of those is without a bit of political risk. So the opportunity is there for African countries if they get organized.

 

As you were traveling around and researching this book, how much did you notice Chinese investment across the continent? And what sort of difference do you think it’s making?

You see Chinese people everywhere in Africa. The Chinese public banks have put about $150 billion dollars of lending into Africa and that’s made a huge difference. 80 percent of the money has gone into infrastructure. It’s generally been very positive, because as China has managed to do with almost everything, it’s delivered at a cost which is significantly below what African governments would have paid to European or U.S. firms. China has sliced the cost of many things that other developing countries need in half, for everything from the cost of concrete to the cost of hydro turbines.

Still, the results are inevitably varied because these are transactions between China and different types of African country. If the African countries are like Ethiopia, they say no, you’re not bringing Chinese workers here, you’re going to train our workers; and if governments negotiate as hard on price as the Ethiopians did, I think they can get a pretty good deal.

If, on the other hand, you’ve got politicians who are willing to take a bung and then let the Chinese do what they want to do, they’ll probably turn up with lots of workers because they find it easier to get the job done that way. Even when things are bad, though, I’m not sure that it’s always genuinely negative for the African country. If you look at Angola, which is the biggest borrower from China, they managed to pay $6 billion for an airport. But at the same time they also got a significant buildout of their electricity infrastructure, road networks and so forth. Angola is such a failed state, they were not going to get that done themselves.

The bigger picture is the amount of credit that China made available to Africa was beyond anything they were going to get from the U.S. and Europe; and the cost at which most projects were delivered was at a significant discount to what they would have paid for U.S. and European involvement.

I do think there’s going to be increased tension between the African Union and China just because of the scale of the Chinese trade surplus. But this is the same as the tension that China’s getting with everyone in the world. You can’t run an aggregate trillion dollar goods trade surplus and have people be happy with you.

 

What about the various accusations made against China, such as the idea that it is creating debt traps for African countries to increase its leverage over them? How fair is such criticism?

In some cases the Chinese banks have over lent, there’s no doubt about it; and so countries are saddled with more debt than it would be prudent for the Chinese banks to have given. We also know that for instance in a country like Angola, there are unpublished contracts that we believe require Angola to turn over more oil as the oil price goes down — not the kind of contracts that, say, the World Bank would recommend as a good idea. The Angolans will sign those sorts of contracts; the Ethiopians wouldn’t have done. Part of being a country is to be sufficiently grown up to be able to deal with other countries.

There’s no way that Africa is going to cease to be very involved with China, just as in the 1980s, Southeast Asia played the role of a vent for Japan’s manufacturing surplus, and the Middle East did so for South Korea. Africa today is the primary location playing that role for China. Estimates also say that around 12 percent of manufacturing in Africa is currently Chinese-owned. They’re there for a range of different commercial activities, and not about to leave.

And in general, did you find people at the policy maker level were more comfortable dealing with Chinese than their Western counterparts?

People in what I would say are the more competent governments who I talked to about China were mainly thinking about the cost and what they’re getting. But I’m sure it’s a relief to them not to have to deal with all the stuff that they would have to deal with in getting European investment.

What’s a little unclear now is the availability of credit from China for infrastructure projects… The question is whether China’s ambitions in Africa are going to pick up again once the central government is happy that existing debts have been managed such that what has to be written off is written off, and what can be recovered can be recovered.

I don’t see an alliance between African countries and China. I think the relationship is economic and transactional. People I’ve spoken to do see Chinese politicians as quite well informed about Africa, and they obviously like that. Certainly Africa is taken seriously and Chinese ambassadors in African countries tend to be very active.

What’s a little unclear now is the availability of credit from China for infrastructure projects, and whether that’s going to end or whether we’re in more of a pause. The question is whether China’s ambitions in Africa are going to pick up again once the central government is happy that existing debts have been managed such that what has to be written off is written off, and what can be recovered can be recovered.

What about the political aspect to the Sino-African relationship? Do you think African countries look at a country like China and see it as a desirable model, and that a certain level of autocracy is necessary to implement the economic development that the country needs?

The debate about whether a bit of autocracy is a good thing for development is very particular in Africa, because of the ethnic fragmentation of countries, which again goes back to demographics. When there was such a low population density for such a long time, different ethnic groups could coexist without much conflict. If there was conflict, people could always take off and find a new place to live. That is the opposite of European or Asian history: in a more densely populated Europe or Asia, everybody fought each other for land and then the victors imposed their values on the losers.

In Africa, traditionally, you didn’t have that. What they have ended up with is several thousand ethnic groups in what generally are colonially created states. What has become apparent since independence is that many of these countries actually need to have democracy to take the heat out of the ethnic conflicts that arose. That is very different to the post-independence situation in Asia.

In East Asia, it was easier to effectively say ‘we’re going to do autocracy for 30 years while we get the economy built’ because these were monoethnic societies. The minorities in Japan or Korea or China were never more than 5 percent of the population. African states are having to develop in a very different context. Mauritius, for example, had a lot of ethnic friction around the time of independence. They’ve done remarkably well with genuine democracy, and so has Botswana. I argue in the book that what is different in Africa from East Asia is that you do tend to need a cross-ethnic coalition politically, and that’s a challenge.

Let’s turn to China’s economy for one last question. Are you more in the optimist or pessimist camp at the moment?

There’s a case for both. What China has created in terms of its manufacturing capability, controlling a third of the world’s manufacturing output, gives it a very powerful position and it’s begun to be genuinely innovative in a number of areas.

But at the same time they have got to the point that we always knew that they would get to with the real estate sector. Once the population stopped urbanizing, given the way that construction was handled in China with property built out ahead of the arrival of demand, that was always going to create a big overhang. We’ve had such periods in the property market before. This time, the difference is that there just aren’t the people to come into towns to take the property up.

But the economy is still growing 5 percent a year. When you’re at over $10,000 of GDP per capita, that’s a very significant growth rate. Most of China’s challenges are political ones, particularly in terms of its relationships with the rest of the world. And although it’s now quite a powerful country, I don’t think it’s wise for China to get into a situation of economic conflict with the U.S. and the EU, and potentially other parts of the world as well. Hubris is the biggest risk for successful states.

 

Andrew Peaple is a UK-based editor at The Wire. Previously, Andrew was a reporter and editor at The Wall Street Journal, including stints in Beijing from 2007 to 2010 and in Hong Kong from 2015 to 2019. Among other roles, Andrew was Asia editor for the Heard on the Street column, and the Asia markets editor. @andypeaps

 

 

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Financial Times podcast

May 24, 2026

Here is the link to an FT podcast about How Africa Works.

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Africa Urban Lab podcast

April 16, 2026

A nice podcast with AUL that also features video for the masochistically-minded.

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Cape Radio on How Africa Works

April 2, 2026

Here is a link to a 2 April chat on South Africa’s Cape Radio about How Asia Works.

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How Africa Works, first of the podcasts

February 10, 2026
There are lots of podcasts done and coming following the publication of How Africa Works and I will endeavour to provide links to more. To kick off, here is half an hour with an old friend — former IMF staffer, investment bank economist and independent emerging markets analyst Jon Anderson. This link should take you there. There are a few graphs that will help you understand what this book is banging on about.

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How Africa Works is out in the UK, FT review

February 10, 2026
My new book, How Africa Works, is out in the UK and will be out in the US on February 17 (and dates around this in other parts of the world). The first review that I have seen was published in the Financial Times. Here it is: ‘A dazzling reassessment of the continent’s historic handicaps, and its potential for economic development. … One of the most original and important books on Africa in years.’ How Africa Works by Joe Studwell — how to change the economic trajectory A dazzling reassessment of the continent’s historic handicaps, and its potential for economic development In 2013, writer and academic Joe Studwell produced a brilliant, intellectually daring account of the factors underlying Asia’s economic miracle. Called How Asia Works, the book flew in the face of the pro-market prescriptions of the Washington consensus, concluding that Asia’s most successful economies had thrived through unorthodox policies: a combination of agricultural reform based on intensively farmed small plots, financial repression and industrial policy turbocharged by a ruthless drive to export. Impressed, government officials in Ethiopia and Rwanda, both serious about development, suggested that Studwell write about their continent. “In Ethiopia, in particular, I was struck by my hosts’ depth of knowledge and their appetite for more,” Studwell writes, before concluding in typically terse style: “The invitations were flattering but pointless.” He knew nothing about Africa. Studwell subsequently set about putting that right. He devoted seven years to intense reading and field research, collecting empirical evidence rather than received wisdom. The result is one of the most original and important books on Africa in years. Especially in the dazzling first section, almost every page bristles with ideas and challenges to lazy (often prejudiced) thinking. How Africa Works is arranged in three parts. The first, contrary to the title, is an analysis of why Africa doesn’t work. More accurately, it catalogues the factors, sometimes surprising, that help explain why most of the 54 states into which Africa was corralled by colonialism have failed to emulate Asia’s economic take-off. The second section is a study of four states — Botswana, Mauritius, Ethiopia and Rwanda — that have managed to generate long periods of sustained growth. The third is an assessment of what it would take for other African economies to emulate that record, with particular emphasis on the agricultural and manufacturing revolutions that were essential to Asian growth. Throughout, Studwell steers carefully between the Scylla of fatalism and the Charybdis of frothy optimism. Africa’s two big development handicaps, he argues, are a sparse population and what he calls “low budget” colonialism. The first factor, in particular, challenges conventional thinking, but Studwell makes his case powerfully. At the start of the 20th century, Africa’s population density — at under five people per square kilometre — was similar to England’s in 1066 Before the 20th century, because of factors including a high disease burden, slavery and the preponderance of crop-destroying elephants, Africa was thinly populated. Between 1700 and 1850, the population barely budged and, even by 1950, there were fewer Africans than there had been Asians in 1500. At the start of the 20th century, Africa’s population density — at under five people per square kilometre — was similar to England’s in 1066. Studwell argues that this retarded development. In pre-colonial times, it slowed state formation. Unlike in crowded Europe, where nations were formed through war, in Africa, when one set of people didn’t like their leaders, they simply picked up and started someplace else. At the onset of colonialism, there were 10,000 African polities, some of them proto-states but many “loose groupings” of between 5,000 and 10,000 people “constituted as micro-monarchies”. Since independence, a sparse population has made it harder to deliver services, such as electricity and education, to rural populations. From Studwell’s perspective, the explosive population growth of recent decades, viewed with alarm by many Africa-watchers, is nothing more than “an extremely belated process of demographic normalisation”. Since 1960, around the time many African nations gained independence, the continent’s population has more than quintupled to 1.5bn and is forecast to add a further billion people in the next 25 years. The previously sparse population, overlaid by “low budget colonialism” — shallow, brief and extractive — made Africa less ready for take-off than many Asian states. Tanzania, by no means an outlier, gained independence with two engineers, 12 doctors, 120 ethnic groups and 85 per cent illiteracy. African leaders made a collective decision not to contest colonial borders. Since 1960, Studwell counts five interstate wars and 38 civil wars. “Most of Africa was frozen as an atomised, pre-modern ‘ethnic’ jigsaw,” he writes. “The violent process by which state formation took place in Europe was interrupted.” Studwell is too astute to blame everything on colonialism, or even on pre-colonial factors. The book’s second section examines how four countries set about overcoming their inheritance, albeit imperfectly. The chapters on Mauritius and Ethiopia are particularly enlightening. Mauritius, dismissed as “an overcrowded barracoon” (slave enclosure) by the writer VS Naipaul, is now on the cusp of becoming a high-income country. The key, argues Studwell, was to forge a political coalition across ethnic lines, one whose overriding goal was development. In lieu of the radical land reform that took place in Asia’s most successful economies, Franco-Mauritian sugar barons were forced to finance development through taxes. These were recycled into special economic zones and a textile industry that became the basis for a push into higher-end manufacturing, finance and luxury tourism. Mauritius has not done everything right. Studwell blames it for not pushing manufacturing beyond jewellery, watches and small-scale electronics. But the key to its significant success, he writes, has been a lack of ideology. Whether former Marxists or rampant capitalists, leaders emulated China’s cautious attitude described as “crossing the river by feeling the stones”. They experimented and then did more of what worked. Ethiopia has been even more important as a potential development template. With 137mn people, it is the continent’s most populous nation after Nigeria. Once a byword for famine and misrule, under Meles Zenawi, who came to power after the overthrow in 1991 of a disastrous Soviet-backed regime, Ethiopia modelled itself on South Korea and Taiwan. For Meles, everything was about instilling a sense of national mission. He liked the story of Taiwanese customs officers who extracted bribes on imported consumer items but never on the capital equipment needed for national improvement. Ethiopia prioritised agriculture — a Studwell essential — building rural roads and providing farmers with advice and fertiliser. Agricultural output quadrupled. Farmers’ savings were trapped by capital controls (Studwell’s financial repression), lifting investment to 41 per cent of GDP, on a par with Asia. Meles, who died in 2012, thought growth would trump ethnic conflict. After 1991, the economy expanded by 6-10 per cent annually, but conflict came anyway amid resentment over the political control exerted by officials from the northern Tigray region from where Meles came. Studwell calls the resulting 2020-22 war in Tigray, in which 600,000 people died, “the biggest development tragedy in a generation”. Still, growth continued and Studwell too hopes that economic gains can eventually smother ethnic divisions. The final section strikes a note of measured optimism. Some countries will fail, Studwell writes. But others have hit a stage at which development becomes possible. In 2030, Africa will finally reach the population density of Asia in 1960, its point of take-off. African urbanisation rates are the fastest in history. Ninety African cities have populations above 1mn against two in 1960. Scarcer land and more urban demand has forced an improvement in yields and created a landless peasantry fit for the factory. Relative wages have fallen, while education levels have soared. With the right policies, Studwell argues, the conditions are in place for Asian-style manufacturing-led development. He dismisses those who say technology means Africa has missed the boat. A textile machine costs $100,000 upfront, he says. A Madagascan worker costs $65, paid monthly. Studwell’s conclusion is that, while most African countries are not going to become development states, many can move the policy needle. If by 2060 they reach the African Development Bank’s target of $4,500 GDP per capita — a stretch for some admittedly — the continent would have an economy not much smaller than today’s China. Africa he concludes is not “a miracle waiting to happen”, nor is it “a monolithic failure”. The truth lies somewhere in between. How Africa Works: Success and Failure on the World’s Last Developmental Frontier by Joe Studwell Profile £25/Grove $32, 448 pages David Pilling is the FT’s Africa editor

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Notes from Africa 4: Mauritius

June 16, 2022

A series of notes from the world’s developmental frontier…

Mauritius is an island roughly 60 kilometres long and averaging just over 30 kilometres wide, located 850 kilometres east of Madagascar in the Indian Ocean. It is also the most complete and equitable economic development success story in Africa.   

Mauritius was uninhabited prior to the arrival of Europeans. Its original connection to the African continent was the importation by the French in the 18th century of slaves from Madagascar and Mozambique to work sugar plantations that dominated the colonial economy. In 1810, the British took Mauritius to prevent it being used as a base for attacks on British shipping. French sugar growers were left to carry on, except that from 1835 slavery was prohibited; over the next 70 years, 450,000 Indian labourers were imported to replace the African slaves, on harsh contracts termed indentures. By the time of independence in 1968, this meant that half the population was Hindu Indian, one sixth was Muslim Indian, 30 percent was Creole (as the descendants of the slave population are known), and small fractions were French and Chinese.

Political tensions were high around independence. Franco-Mauritian sugar barons believed they would be subjected to Hindu political hegemony after the British left and their capital was moved off the island; the Creole population also feared Hindu political dominance.  It was in these circumstances that Mauritius’ first premier, Seewoosagur Ramgoolam, set out to forge a developmental coalition.

Senior political figures representing Franco-Mauritian and Creole interests were invited to join the post-independence cabinet. Ramgoolam, an avowed socialist, embraced several institutions that linked government to the private sector dominated by the Franco-Mauritian elite. The most important was the Joint Economic Council (JEC), a forum in which key political and business leaders met on a regular basis, usually at the prime minister’s office. The tone was set for a developmental state in which government and private sector were partners, albeit with the government as the dominant partner.

A compromise with sugar

The biggest issue between Ramgoolam’s Labour Party and the Franco-Mauritian elite was how the post-independence government would deal with the sugar estates that dominated Mauritius’ economy, exported their profits and did little to address the island’s chronic unemployment. In the 1950s, many in the Labour Party favoured nationalisation of the farms of the so-called ‘sugar barons’. However, in the context of the coalition Ramgoolam found a more subtle but developmentally effective approach. His government created a Mauritius Sugar Syndicate as the sole sugar exporter, repatriating all proceeds which were not permitted to be invested offshore. And a tax on gross sugar receipts was introduced, initially at 5 percent.

Concurrently, incentives were established to encourage the sugar barons to invest in labour-intensive manufacturing. An Export Processing Zone (EPZ) – one without geographic limits – was created. Any approved factory enjoyed duty-free import of equipment and components and extremely generous income tax concessions for 20 years. The right to unionise was denied, unlike in all other parts of the economy, and the minimum wage was set lower than outside the EPZ. The prospect of tax-free earnings from manufacturing was combined with steady increases in the tax on sugar receipts, which rose from the initial 5 percent to a peak of 23.6 percent in the 1980s.

The fiscal environment meant there was no sense in new investment in sugar (except for smallholders who were exempt from the tax). Sugar barons had already dabbled in local non-sugar businesses prior to independence under a tariff protection scheme designed to reduce imports and foster local industry. They therefore confronted the export-oriented manufacturing promoted by the EPZ with a modicum of experience outside the sugar business. The key to the EPZ was Mauritius’ quota-free and duty-free access to European Economic Community (EEC) markets, which the island was granted from June 1973 under the EEC’s Yaoundé (later Lomé) convention for former African colonies.

The Mauritian government’s promotion activities drew a small number of mostly Hong Kong and French garment firms to invest in early EPZ factories. The sugar barons offered themselves as local partners with cash to invest. After the first year of the zone, six factories were operating, with 640 workers.  By the end of 1976, there were 85 EPZ factories with 16,404 workers, representing the beginnings of a revolution in employment fortunes in Mauritius, which experienced unemployment rates in excess of 20 percent. Knitwear was the dominant product.

The dawn of full employment

The Mauritian economy experienced a crisis brought on by excessive government spending and the second global oil shock at the end of the 1970s and start of the 1980s. However, the attraction of the local garment sector to international investors seeking diversification of production operations, plus a local economic elite pushed by government and fiscal incentives to invest in garment factories, kept the manufacturing sector growing. Indeed, the 1980s turned out to be its boom decade.

During the 1980s, the original woollen knitwear business expanded to a point where Mauritius became the third-biggest exporter in the world. Meanwhile, clothing companies responded to rising costs by becoming more capital-intensive and integrating vertically – larger firms began to make and dye their own fabric in Mauritius. The product range expanded to include everything from shirts to fine-knit items like jogging pants.

By the end of 1990, when the population was one million, there were 89,906 workers employed in 568 EPZ firms — nine out of ten of them in apparel and textile factories. Across its economy, Mauritius had the highest share of EPZ employment of any country in the world. One third of Mauritian workers were employed in EPZ businesses, compared with 10 percent in Singapore, 4 percent in South Korea or 2 percent in Malaysia. The EPZ alone accounted for 12 percent of GDP while sugar-dominated agriculture was 10 percent, down from one quarter in 1970. Unemployment was less than 3 percent.

Across the period from the inception of the EPZ in 1970 through 2000, Mauritian GDP rose by an average 5.8 percent a year, increasing from less than US$300 to US$4,000 per capita. Meanwhile, the rise of manufacturing helped Mauritius become a far more equal society than fellow fast-growth story Botswana because it offered opportunities to almost all Mauritians of working age, not least women. The Gini coefficient of income inequality, where one represents perfect inequality and zero perfect equality, decreased from 0.5 in 1962 to 0.42 in 1975 and 0.37 in 2000 — the latter on par with Taiwan, the economy whose development produced the lowest income inequality in East Asia. By 2000, Mauritius had almost no poverty by World Bank measures.

Manufacturing is special

The impulse to greater income equality delivered by the rise of manufacturing was complemented by policies in agriculture to support smallholder famers. In addition to the exemption from the sugar tax for producers of less than one thousand tonnes per year, government required sugar mills to give smallholders an improved share of sugar extracted from canes and sugar estates to provide parcels of land, as well as cash payments, to any workers laid off. The policies contributed to a degree of social mobility among smallholder farmers and estate workers that did not previously exist.

Subsequent to the garment and textile boom, what were once pure sugar businesses expanded into diversified conglomerates, the largest with turnovers of hundreds of millions of dollars a year. Mauritius, although still an island of only 1.3 million persons, offered or created opportunities in hotels, luxury real estate for wealthy foreigners, offshore financial and information and communications technology (ICT) services, and more. Government continued to support diversification efforts. Mauritian GDP per capita maintained its ascent, from less than US$300 in 1970 to US$11,000 in 2019.

The island’s annual GDP growth from 1970 to 2019 averaged 5.2 percent, or 4.4 percent per capita — compared with 1.3 percent per capita across sub-Saharan Africa. Growth with social equity saw Mauritius rise to ‘high-level’ status on the United Nation’s Human Development Index (HDI) as early as 1996. HDI combines GDP growth with progress in education and life expectancy to give a broader measure of human welfare. Today, Mauritius is the only country in Africa – including north Africa – to be ranked at the topmost ‘very high-level’ by HDI score.

Although the share of manufacturing in Mauritian GDP declined rapidly in recent years, falling from a peak of more than 20 percent in the 1980s to just 11 percent in 2020, its role in the rise of Mauritius cannot be overestimated. As the economist Dani Rodrik showed*, manufacturing is the only sector of an economy that provides an automatic ‘escalator’ for increasing productivity levels. Consequently, only those developing economies which built substantial manufacturing sectors exhibited the unconditional convergence with productivity levels of rich countries that orthodox economics assumes will happen in any poor country with access to global technologies.

Mauritius is unique in Africa for having used a manufacturing strategy to lift itself from poverty to rich-world living standards in just two generations. An agricultural policy that supported smallholders while redirecting capital from large sugar estates to garment manufacturing was the necessary precondition. The lesson about the special role of manufacturing in developing countries ought to be clear to every African state. And yet the continent has almost no other examples of governments developing and deploying coherent manufacturing strategies.

*Rodrik, D., 2013, ‘Unconditional convergence in manufacturing’, The Quarterly Journal of Economics, 128(1).

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A good car while it lasted

January 2, 2019

Subaru passing

Parked up and went for a walk on the beach on the Isle of Wight after Christmas. When we came back the car was not quite as we left it. There had been a small fire in the engine, of which there was no sign when we set off. The fire brigade, who kindly turned up while we were walking on the beach and wondering where all the black smoke was coming from, said it is not the first time they have seen this.

I had wanted to get rid of the car for some time, as I almost never use it. My wife is less pleased. Still, when it is time to go it is time to go, and I like to think that the Subaru’s soul is now in car heaven.

This post really isn’t about development, but I am hoping it might encourage me to start blogging again.

 

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Is Indonesia different?

August 2, 2013

Below is a critique of How Asia Works with specific reference to Indonesia. Indeed there is a second part of the critique that you can track down via the Lowy site. I am just posting the first part and, underneath it, rejoinders to the main points it makes.

 

Indonesia’s development formula

by Stephen Grenville – 25 July 2013 11:10AM

I share Sam Roggeveen’s enthusiasm for the iconoclastic approach of Joe Studwell’s How Asia Works (his previous book on Asian Godfathers was a great read too). I also share Studwell’s scepticism about the ‘magic of the market’, his views on the IMF, and his admiration for the achievements of the South Koreans.

But I’m unconvinced by Studwell’s three-step development prescription, not because it is intrinsically wrong but because it is too hard to implement successfully.

The Koreans might have done so, but the strategy requires a level of sustained administrative competence, single-minded toughness and luck which are rare. Just as important, there are alternative development strategies, less demanding of skilled policy-making and administrative competence. The growth outcome won’t match Korea’s, but will be more feasible for countries like Indonesia (which Studwell sees as a development failure).

Let’s go through the three elements of the Studwell strategy. The first stage requires land reform and a boost to agricultural productivity.

It’s an old and sensible idea that agriculture has to provide the investable surplus which will propel the rest of the economy along the path of development. Fifty years ago, Clifford Geertz (Agricultural Involution) despaired about Indonesia’s failure to follow the example of Japan, which shifted surplus agricultural labour into factory work to create a modern urban/manufacturing sector. This failure would lead the excess population to atrophy, farming progressively more Lilliputian plots.

But things turned out better. With the average size of farms on Java around half a hectare, the opportunity for land reform couldn’t play the key role that Studwell advocates. But Soeharto, with his roots in agriculture, gave rice production high priority (extension services, high-yield seeds, fertilizer, pesticides and attractive terms-of-trade between agriculture and urban consumers via an active price stabilisation authority). Not very free-market, but big yield increases and self-sufficiency were speedily achieved.

What about a vigorous industry policy, the second Studwell requirement? Despite inheriting the usual disaster story of failed prestige projects from Sukarno, Soeharto was ready to have a go at ‘picking winners’.

Cement, fertilizer, textiles, paper production, food processing and petroleum refining all fitted Indonesia’s comparative advantage and made sense. Others were less defensible: Krakatau Steel,Tommy Soeharto’s national car and Ibnu Sutowo’s tankers. Habibie‘s IPTN aeroplane fits the Studwell strategy and might have succeeded if it hadn’t been stopped by the Asian crisis: ex-aeronautical engineer Habibie was well-qualified to lead this project, plane construction is quite labour-intensive (all those rivets) and the Indonesian archipelago needs lots of them (one airline recently ordered several hundred in one hit).

Whether IPTN would have succeeded is not the issue here: the point is that Indonesia, for better or worse, did try the sort of hot-house industrialisation Studwell advocates, and the IMF wasn’t able to stop this, at least until the 1997 crisis. Planning retained a central role, just as Studwell wants, and state-owned enterprises did the government’s bidding. Where Indonesia had comparative advantage, this often worked out well, and where the industry didn’t suit Indonesia’s attributes, generally it was a failure.

Indonesia’s development experience doesn’t fit the Studwell formula. Java’s rice production has done well without relying on his key element of land reform, and industry policy based on domestic entrepreneurship has been tried without much success.

Governments attempting to steer the process of development need effective administrative capacity; in a follow-up post, I’ll expand on the idea that market failure is common enough, but so too is government failure.

…

Joe Studwell’s response:

1. I doubt, contra Mr Grenville, that there is some arbitrary minimum land holding that makes land reform unworkable. If this were the case, then the micro-plots of a few tens of square metres championed by groups like Landesa would make no sense, when historical evidence around the world shows that privately-held micro-plots produce very high yields.

I am presently up my hill in Italy, and using a very slow Internet connection, and so cannot readily check the average Javan landholding. I assume Mr Grenville means that the average Javan landholding is half a hectare now, and would therefore be less after land reform. (The average land holding in most parts of China, Japan, ROK, and Taiwan after land reform was roughly half a hectare.) If my understanding is correct, my response is that Java has some of the best soil and climate conditions in the whole of east Asia, and so even smaller plots should be more than viable — if indeed size matters at all in a downward direction, a question which I think deserves real scrutiny.

Mr Grenville is correct that yields on Java are high by south-east Asian standards. The rice yield is over five tonnes per hectare. However this is still less than the average in north-east Asia. Given its soil and climate, it would not surprise me if north-east Asian style household farming could produce as much as 9 tonnes per hectare on Java — about as high as has been managed anywhere, because the growing conditions are so favourable.

Mr Grenville is correct that Suharto invested heavily (if patchily) in agricultural extension services and (eventually) used minimum price guarantees to promote higher yields. However he is wrong to say that self-sufficiency was achieved ‘quickly’. Rice self-sufficiency was not achieved until the mid-1980s, 40 years after independence, and wheat self-sufficiency never was. So I maintain my position that Indonesia is a real relative failure in agriculture.

2. On industry, much of my criticism of policy in south-east Asia focuses on politicians’ efforts to ‘pick winners’ rather than run industrial policy that periodically culls losers. I also talk at length about the need for ‘export discipline’ to anchor industrial policy. And I avoid traditional discussions of what is or is not a society’s comparative advantage because, to my mind, development is about changing (within reason) your comparative advantage. Economic development is about investing in a learning process in order to reap higher future returns.

Mr Grenville’s points about industry in Indonesia therefore seem to me to be based on a misreading, or mere scanning, of How Asia Works. He highlights industrial projects that were picked as ‘winners’, were not subjected to sufficient competition or pressure to export, and which consequently produced a poor return on industrial policy investment. His observations are essentially supportive of the policy requisites I highlight.

The one thing I think is truly misplaced in Mr Grenville’s comments is the argument in the third paragraph that, essentially, Indonesians are politically and administratively ‘not up to’ the task of accelerated economic development, particularly compared to people like the Koreans. Is this true? In 1945, South Korea was the rural backwater of a brutally colonised state in which Koreans had been allowed to play perhaps the most restricted administrative and economic role in any east Asian colony. I cannot see that the Koreans had much political, administrative or educational capital. Elite Indonesians, by contrast, held senior civil service positions under the Dutch, could win scholarships to study in Europe, and had much greater (formal) political, administrative and educational resources. The difference was not the endowments, but the change politicians wrought over 60 years of independent government.

Why was the peasant Park Chung Hee able to achieve so much more than the superbly educated Sukarno? Probably, I think, because Park focused on the basics and got them right.

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