Hugo Scott-Gall: Today, it is my pleasure to welcome Joe Studwell to the podcast. Joe is a leading analyst of economic development and the author of the influential book, How Asia Works. Known for challenging conventional wisdom, he focuses on how countries actually get rich. In his new book, How Africa Works, he turns that lens to Africa, exploring why some countries have succeeded where others have struggled, and what their experience can teach the rest of the world. Joe, welcome to the show.
Joe Studwell: Thank you for having me.
Hugo Scott-Gall: Your book, as I just said, is called How Africa Works. So, I think it would be a lazy sort of trope to push back and say, “Well, is that true? Does Africa actually work?” I think you’re making the case for: “Well, if you think it isn’t working, you’re about to be proved wrong. It’s going to start working.” Before we get onto that, could we maybe go to what you see? You organized, certainly, the first half of the book around the main reasons why Africa has struggled when it comes to GDP per capita growth.
When you look at Africa, it has not been the growth success story that maybe thoughts of Asia has been. So, what are the things that, in your eyes, have held Africa back?
Joe Studwell: Well, I got into this book by reading back through the academic literature and looking at how Africa’s been analyzed over the last 50, 60 years. There are takes, really, that are familiar from the press as well as from academia. It’s all really governance failure, corruption, kleptocracy, civil strife, and particularly ethnic strife. And as I read back through the literature, I wasn’t really happy with any of these as fundamental explanations as to why Africa has underperformed so considerably in developmental terms.
And it was only really when I got back to the immediate post-independence era, and a couple of economists and one African historian who I read, who started talking about the demographics and saying that–
And this was in the period when people were quite optimistic about Africa, actually, around the time of independence. But there were a small number of people then who were saying, “Look, this is a continent with a population density of less than 10 people per square kilometer.” So, by comparison, that’s 1/5 of what it was across the whole of Asia or 1/7 of what it was in East Asia in 1960. And if you don’t have sufficient population density, you’re just not going to develop for all kinds of very good reasons.
You don’t have markets, so the demand is not there. And particularly, you don’t have big urban markets which are critical for demand and for tax raising, as well, for governments. And if you don’t have sufficient population density, the costs of infrastructure are unaffordable on a per capita basis. So, you’re not gonna be able to build the roads and the utilities that are gonna take advantage of the natural resources and the agricultural resource that Africa has.
And you’re not gonna get an adequate division of labor, and you’re not going to get the creativity that you get in population concentrations. And I thought this, to me, makes a lot more sense than the other explanations that I’ve read, which seem to be more symptomatic. More proximate. This seems fundamental. And just to put it in context, if you think of nine, 10 people per square kilometer, which is what Africa had in 1960, that was the same as Europe in 1500.
And then, you ask, “Well, how much growth was there in Europe in 1500?” There wasn’t any, and just like there wasn’t any growth for a long time in Africa after independence. But the positive news was that, really, from the ‘40s, ‘50s, drugs were developed. Medical services were rolled out. There were inoculation campaigns for the first time in Africa.
There were screening campaigns for things like sleeping sickness and already, by the 1950s, you see a rate of population jump up from levels which had been around zero for hundreds of years to over two percent and then surpass the maximum Asian rate of population growth, which was 2.4% in the ‘60s, and get up almost to three percent a year. And the result of that is that you go from 230 million Africans in 1960 to 1.5 billion today. And in 2050, there’ll be 2.5 billion, and at the end of the century, there’ll be four billion. And they will be, then, the second big population block in the world along with Asia.
Asia will be four billion, and Africa will be four billion at the end of the century on current projections. And the rest of the world will be two billion. So, people having what I call a normalized demographic picture is beginning to make a big difference in Africa.
And the first place that it’s shown up is that, since the turn of the century, agricultural growth has averaged 4.5% a year in Africa, which is the fastest rate in the world. And that’s consistent over 25 years now, and it’s what you’d expect because when you get population growth and a little bit of GDP growth, as Africa has had, then every 25 years, you get a doubling of population and a tripling of food demand. So, the part of the economy where all the action has been so far is in agriculture and downstream from agriculture in agricultural processing.
Hugo Scott-Gall: Well, according to the Studwell’s theory of development–I don’t know if you call it that, but the playbook from your previous book, How Asia Works, is agriculture to manufacturing to finance. And so, you would contend that, actually, Africa is–
Never mind how we got here, but right now is fulfilling or close to fulfilling the agriculture part. That it has dealt with some things like disease, which kept livestock low and therefore kept population low. That there is more technology coming into agriculture. So, agriculture is about to become sufficiently profitable to generate some capital along with urbanization that actually is putting–according to the Studwell theory of emerging market economic development, is actually putting Africa on the right track. Is that fair?
Joe Studwell: Yeah, that’s fair. And you can see, particularly if you go around, Africa has now almost 40 cities of more than a million people, and it had two in the 1980s. And if you go around any of those cities or, in fact, smaller cities as well, you’ll find that small farmers now are growing with irrigation.
So, they’re digging wells, and they’re taking however much water out that they need in order to get a couple of crops, or vegetables, or whatever. And they’re pushing yields up to more like Asian levels. If you look at averages across Sub-Saharan Africa, we’re still at or worse than Asia in 1960. But the point I’m making is that if you go to the most densely populated bits of the African continent now, you can see a very different pattern.
And then, because food production has increased so much, because distribution of food has become so much better, so much more efficient due to highway building in Africa, which has actually been better than most people imagine in terms of sort of kilometers laid down since 1960–because of all that, you’ve got phenomenal growth in agribusiness. In the processing of food products. And there’s been a huge shift in the last 20 years to people eating processed foods.
I mean, if you wanted maize flour, you used to get the maize, and you used to pound it yourself. Very few people do that anymore, even in rural areas. Food has gone processed, and big companies have evolved around that. We’ve got the first agricultural processing businesses now that are turning over billions of dollars a year, and that is the first step into the manufacturing sector. But how far manufacturing is going to go in Africa is a very difficult question to answer.
Hugo Scott-Gall: So, I think the other two big things you highlighted as problems, structural problems for Africa, were, I guess, the colonial inheritance, independence–low-budget colonialization, I think you call it. And then, alongside that, just a massive underinvestment in education. Just availability of education, and I think you gave some amazing stats on those, like how few graduates there were in most African countries circa 1960, 1970. And clearly, you need a minimum level of graduates to operate a government.
And so, the transition to independence from colonial, I guess, ownership, almost. So, is that right?
Joe Studwell: Yes, and I mean, to be clear, it wasn’t that the colonists turned up and were feeling particularly unpleasant in Africa. I mean, there was perhaps a higher level of racism, but it wasn’t that they were feeling particularly unpleasant. It again goes back to the demographics, that colonial powers in Africa had to reckon with this incredibly low population density, which meant that they could raise next to zero tax. And again, that was particularly the case because there were not large cities, and historically, cities have always been very important to sort of developing governments raising money.
In 1900 in Africa, the two biggest cities were Lagos and Dar es Salaam, and they both had populations around 20,000 people. The main reason for that was communicable disease. People didn’t live in cities because your chances of dying were actually greater in close proximity to other people.
So, because colonial governments could not raise tax, they didn’t operate school systems. I mean, there were no schools in Africa prior to the 1950s other than mission-operated schools, and they were pretty few and far between. And it was only in the ‘50s, when it was clear that independence was going to happen, that colonial governments opened the first schools. But in the late ‘50s and the early ‘60s, the beginning or the heart of the independence era, literacy in Africa was 16% and female literacy was five percent.
And it took African governments a very long time, necessarily, to sort that situation out and get to majority literate and numerate populations. I mean, one example is Nyerere’s Tanzania, and he always said he took it over with 10% literacy.
And in one generation, from 1960 to 1985, when he stepped down, literacy went from 10% to 85% in the country. And you’ve got to have literate and numerate people to create a modern economy. You just can’t do it with illiterate, innumerate people. So, that was a huge break on African development, and two things went hand in hand: the growth of populations to a point where population density was sufficient to get some positive economic growth and the education of the population.
Hugo Scott-Gall: Are there other aspects of the way that independence came about for quite a few countries in Africa that it’s very difficult for any country to, overnight, become independent or, overnight, have a big shift in how it’s run?
Joe Studwell: Yeah. It was very difficult in Africa.
And of course, colonial governments, which had operated largely by maintaining as much division as possible between different ethnic groups to divide and rule, then left and told political leaders to create national political parties and stand in national elections. So, when the Belgians left DRC, they did so with an election in which more than 100 ethnic groups were represented. And nobody got over 25% of the vote. So, it was, in that sense, a disaster waiting to happen.
But at the same time, over the last 60 years, what we’ve seen in Africa is that, as a continent, as a group of these 55 states, it actually has a need for democracy at an earlier stage of its development than other countries simply because of the ethnic complexity. And the ethnic complexity is, again, the outcome of historically very low population density.
Because Africa could have thousands of different polities, ethnicities, around it. And they didn’t, historically, get into much conflict with each other because there was almost always so much space relative to people, that if you had a disagreement with a different group, you could move into space and make yourself a new home. But today, what we see is that there’s more democracy in Africa relative to its level of development than we’ve seen elsewhere, and that’s because the democracy takes the heat out of the ethnic rivalries. And in East Asia, for instance, you don’t have that problem, right?
In a country like China, which is 95% ethnic Han, you can have a dictatorship, and people will buy into it so long as they get some economic growth, right? They don’t look at it and say, “That group, to which I do not belong, is ruling my life.” That’s not the way that they see it. Similarly, in the long period of authoritarianism in Taiwan or in Korea, and similarly in Japan.
So, it’s very, very different.
Hugo Scott-Gall: Two related questions: How would Africa have fared if it wasn’t for the Cold War using Africa as a proxy? And second question is: Did Africa have a resource curse? Was it actually, for some countries, a negative that they had economies concentrated around some resources the rest of the world wanted?
Joe Studwell: Without the Cold War, I don’t think things would’ve been–I mean, they would’ve been somewhat different, but I don’t think it would’ve been terribly different because Africa would still have been constrained by low population. Would still have been constrained by the need to educate its population. So, in that sense, it would still be waiting to have enough people and enough educated people to get some traction and economic growth. I mean, it’s only at the end of this decade that Africa will have the population density that Asia had in 1960.
So, we’re not even there yet with 1.5 billion because the continent of Africa is so huge. And the resource curse? So, there is a resource curse, and there’s a resource curse everywhere. And African states have not done well with it, but they’ve been politically very immature at the time that they’ve come into–or some of them have at the time that they’ve come into possession of minerals and hydrocarbons.
It has to be said that it’s perceived from the outside that Africa is sort of super mineral and hydrocarbon rich. It’s not. It’s not true at all. It’s only that, until recently, the only things in the economies of African states were hydrocarbons and minerals. But relative to a generally resource-rich country like the United States, it’s just not true. The most resource-rich state in Africa is the Republic of South Africa and always has been, but it’s not true of the rest of the continent.
Hugo Scott-Gall: Okay. So, we can dismiss those as inhibiting and explanatory factors for Africa’s slow economic growth. So, let’s talk about where it’s gone right. In your book, you highlight Botswana, Mauritius, and Rwanda. Are there any common threads between those three countries in terms of what they did right, and where else do you see as being on the right track? And sorry, you also talk about Ethiopia as well for a chapter or two.
Joe Studwell: Yeah. I mean, I think what struck me was that the policies that have worked in Africa aren’t really different to the ones that worked in Asia. I began thinking that there would be some sort of African recipe, and I don’t know why I thought that because the strategies that we used in East Asia were also seen in many European countries that pursued catch-up development. France. Italy. Germany.
And were used in the United States as well. All that’s really happened is that the policies have been refined somewhat over time. So, yeah, I was very struck that getting agriculture right at the front end is very important, particularly important for distributional reasons. That it spreads increased income very widely, and it gets everybody into the capitalist game.
And then, manufacturing is also extremely important because it raises up the quality of human capital in a way that other bits of the economy don’t, or at least it’s just not possible to do it so cheaply with value-added services because people need more training and more education before they can do more value-added jobs. Whereas, in factories, people learn on the production line. They learn as they go along. They’re making money as they’re learning. And then, the sort of finance stuff? Yes.
I mean, if you want to develop, you want to trap your money at home and deploy it in the domestic economy for development. So, yes, you still want capital controls, and you still want sufficient control over the banking system. That money goes in your developmental period to productive forces, if you like, and that it doesn’t all go to consumer lending because that might be very profitable for banks, but it’s not helpful for your development at an early stage. So, I was struck.
The policies that worked were similar within that. I was struck that there were some quite clever amendments that were made. I mean, in Mauritius, they debated confiscating the land of the so-called sugar barons who dominated the economy and doing an Asian-style land reform. And they decided, in the end, just to tax the sugar very heavily at the same time as which they offered a lot of investment incentives for getting into garmenting and textiles.
And they pushed their sugar barons into manufacturing, and that worked extremely well. So, I don’t think that new policy lessons have been learned from Africa, but as I said, you do get twists, and refinements, and so forth.
Hugo Scott-Gall: How important is leadership? And I guess we talked about the resource curse. If your economy is heavily dependent on the selling of hydrocarbons, minerals, it takes a very strong character to allocate those revenues correctly versus other alternatives, which we’ve seen happen many times. Offshore bank accounts and building up a huge security apparatus around you to protect you. So, how important is visionary leadership, and how important is it that visionary leadership has power for quite a long time?
‘Cause I think you’ve argued that premature democracy, premature demographic cycles, can do more damage than good. You kinda do need a visionary to make a country better. I mean, he or she does need to have power for a period of time to do that.
Joe Studwell: Yeah, that’s certainly the argument you’d get from–well, and did get very explicitly from someone like Lee Kuan Yew in Singapore. So, let me start by answering the first bit of the question that you’d put. I mean, leadership is super important in developing countries, in my experience. Much more important than leadership is in rich countries, which have more complex, broader, deeper institutions. And the leader’s just less important because the society’s that much more developed. Leaders in emerging countries are framing institutions as well as just leading.
But having said that, and while I can see the case for longevity for a developing country leader, there are cases in Africa, that we’ve seen already, where power has rotated, and the developmental project has held together extremely well. Mauritius would be one. And Botswana would be another. I mean, the Botswana democratic party is only out of power now for the first time since 1960, but prime minsters rotated and never served more than two terms.
And in Mauritius, political leaders rotated between different parties for the whole period since independence, and bizarrely, once the direction of development had been set, you had people who described themselves from being the far right to the far left who led the country but led it in extremely similar ways.
So, I think that leadership is very important, but probably the nuanced answer is that leadership in a developmental state, in a high-functioning emerging country, is gonna be several hundred people. And so long as you’ve got a group of people in place who are committed to the project, you can survive changes in the top leader.
Hugo Scott-Gall: Before we get on to your five-year, ten-year outlook for Africa, could we talk about China? Does China’s–I mean, it’s not dominance, but it’s not far off, of manufacturing exports globally make it a lot harder to go from agriculture to manufacturing? Because China is just so dominant and so good at making things, does that make it harder? And second is: China’s role as an investor into Africa. China has–maybe less so in the last five years, but certainly put a lot of capital into Africa.
How has that acted as a multiplier and helped, and how has that created problems?
Joe Studwell: I don’t think that China’s control of 30% of the world’s manufacturing means that Africa can’t do any manufacturing because China is still stuck with, in the long term, a strengthening currency, and in the long term, rising labor costs. So, factory labor now, in China, is about $600.00 a month. Six to $700.00 a month. In Ethiopia or Madagascar, which have garmenting production that would compete with some Chinese production, the cost of a month’s labor is $60.00 to $65.00. So, it’s 1/10 of the cost, and I think that that is probably what matters the most when African countries are trying to get into the lowest value-added parts of manufacturing.
I mean, I know you’re asking about China, but the point I’d add there, also, is that Africa is this huge continent with 1.5 billion now. In 2050, 2.5 billion people. There’s gonna be a lot of manufacturing that’s gonna get done in Africa for African buyers. And we can see that already in the data, that the intra-African trade in manufactures is increasing significantly where the export from Africa of manufactures isn’t moving much.
And then, China as an investor? I mean, Chinese state banks, principally, have lent about $150 billion, 80% of which has gone to road utility development. All of that has been really important, and Africa’s gotten that stuff at a big discount to what it would’ve paid European or U.S. contractors to do it.
So, that’s positive. There’s quite a lot of African manufacturing investment in China already. Best estimate? So, that’s something like 10% to 15% of all manufacturing in Africa is Chinese-owned already, and I think that that is likely to continue.
So, I think that China’s significant relationship with Africa is just going to continue. It’s the kind of vent for surplus for China in the way that Southeast Asia was for Japan, and then, subsequently, the Middle East was for South Korea when they became massive overproducers of manufactured output. So, that relationship will go on, but it will, I’m sure, adjust just as China’s trading relationship is adjusting with the whole world as the world decides that perhaps it’s not willing to take quite as much as China wants to sell it.
Hugo Scott-Gall: Yeah. Okay. So, let’s get to your outlook. Your prognosis. You end the book on quite an optimistic tone, and I think, if I have understood you correctly, you’re arguing as you’ve said several times, “Look, the demographics are destiny. When you have this much population growth, you will get urbanization. Better agriculture, along with the urbanization, leads to more skills. Human capital via manufacturing. Via education.”
And so, in some ways, that blueprint, the Studwell theory of economic development, we’ve seen it before. You’re saying it’s still intact. So, as a continent, it’s going to succeed. Now, individual countries? You might have a crazy person running it who screws it up for a while, but it is going to happen overall on an aggregate level. That’s quite optimistic. If, certainly, investing in equities is about understanding where growth is, Africa is going to become more relevant and more interesting.
Joe Studwell: Yeah. We’re at the front end of that, but I would say it’s still early days. But it’s something to have on your radar. I mean, one positive for an investor, I think, is that growth is starting to become a bit less bouncy in Africa, and that should continue going forward because the dependence on commodities, on minerals and hydrocarbons, in the past has made a graph of African GDP growth in any given state like a sort of comic book mountain range. Just straight up and straight down.
And that’s very bad for development because no one wants to invest when you might go from five percent growth this year to minus five percent next year. But the development of agriculture? The growth of agriculture and agricultural processing in other parts of the economy that are more stable is helping us, I think, to get away from that.
And that will continue to be the case. Beyond that, I think that what you say is absolutely right. That Africa, with 55 countries, is gonna be an absolute extraordinary mix of cases from total disaster to remarkable success. Asia holds the world record, as of today, for the greatest range of developmental outcomes, right? We go everything from Japan to Myanmar. I’m quite sure that Africa is gonna take over that record. We’ll see appalling poverty in some countries, and we’ll see unexpected growth in others. I think the main difference will be leadership, but not just the single leader. We’re talking about probably the sort of 300 people at the top of governance, and I see some reason to be optimistic there.
I mean, if you follow Nigeria, the most popular state, Tinubu came in as president there. Everybody said, as they’ve said with every president, “He’ll never get rid of the fuel subsidy.” Ten billion plus a year in fuel subsidy, which is a lot of money in Nigeria, and he got rid of it. And there just wasn’t any serious opposition to that. So, I just hold that up as leaders being willing to do difficult things. That’s important, and I think that African leaders need a bit of confidence, the kind of confidence that comes from actual success rather than bluster. And I hope that that will start to grow as well.
Hugo Scott-Gall: Well, I’m gonna write that down as, “Positive. Optimistic,” not pessimistic. So, before we finish, I do want to ask you.
So, your previous book, which appears quite correctly, in my view, on a lot of reading lists for those, I think, certainly in our industry but I think anyone who’s kind of interested in developmental economics or, indeed, 20th century economics. You know, How Asia Works. If you were writing that again today, where would you revise your overall thesis? Conclusions? Where has evolved in a way that you didn’t expect, and where has actually done even better? They’re slightly glib questions, but really, I’m just saying, “Do you think what’s happened since you wrote it kinda confirms the thesis with a little bit of nuance here and there, or is there anything that would make you think again?”
Joe Studwell: Well, it probably sounds arrogant, but I think what I’ve seen happen in East Asia since that book was written really confirms the thesis. And the main place that confirms it is the one that I chose not to write about: Vietnam. Because I just felt that Vietnam was going to make the book longer without really adding anything to the argument.
But I’ve spent some time in Vietnam in the last couple of years, and they are proof positive that it’s about a set of policies that you apply rather than where you are geographically, right? Because they are going to be the China-, South Korea-, Taiwan-, Japan-style country in Southeast Asia, right? And it doesn’t matter how humid it is. They’ve got the same set of policies, and it’s gonna make them the richest and most powerful country in Southeast Asia.
Hugo Scott-Gall: Yeah. Yeah, and nothing would surprise you on where South Korea is, for example, today versus when you wrote the book? And I guess, when you look at somewhere like Taiwan as well, these are countries that have benefited from strong, visionary–in the case of South Korea, a dominant leader for a period of time.
Do you think they can continue to innovate and remain relevant globally? They haven’t reached any kind of a ceiling?
Joe Studwell: I think it all looks fine apart from the thing that I didn’t talk about in How Asia Works, which is demographics, because in Asia, you never had to worry about demographics, right? In 1960, they already had sufficient population density to develop rapidly, and that tripled over the next 50, 60 years. Now, what we’ve seen is the most rapid declines in fertility that the world has ever experienced. In Korea. Now, in China. It was already bad in Japan. So, there is indeed a whole new question. It’s like, “What are you gonna do about that?” So, I mean, they really must be hoping that robotics and AI are gonna work and are gonna give them the productivity gains that will allow them to maintain their standard of living.
But I guess that’s the thing. That I suppose I could’ve foreseen how this was gonna become a regional problem, and that East Asia was gonna lead the world in demographic decline.
Hugo Scott-Gall: Yeah. I mean you didn’t really–well, I guess you did talk about Japan. What’s happening with Japan now is clearly changing again. Trying to address some of its problems. Trying to generate nominal GDP growth with some policies which, you can say reindustrializing is wrong, but it is focusing again on its industrial base, and its building up defense. Do you see that as a natural consequence of running out of growth and a need to certainly reimpose oneself or bolster oneself strategically both in terms of industrial excellence but also defense as well?
Joe Studwell: Yeah, I think it may be, but I don’t have a sense that they have a very clear plan.
Maybe they can afford to work one out over the next five or 10 years, but as I say, the numbers, the demographic numbers, look horrific. The thing that always makes me laugh is that, for 250 years, we’ve all had this Malthusian obsession. And if you’re sort of middle class, you have this Malthusian obsession that poor people are gonna breed your species into extinction. And in fact, that was never really, to my mind, a serious threat. But I think that the risk of depopulation is much more serious.
Hugo Scott-Gall: Not a problem Africa has to contend with.
Joe Studwell: Not yet, but it’ll turn around. It’ll turn around. It’ll turn around fast. I mean, yeah, population also is still growing fast in Africa partly because aid groups pulled a lot of funding in the ‘80s and ‘90s from female education.
And that has the strongest correlation with reduced fertility. Women who’ve got a minimum of primary education are way less likely to have seven or eight kids.
Hugo Scott-Gall: Yeah. Okay. Well, we’ve been around most of the eastern hemisphere of the world. And we started in Africa, and we finished in Africa. So, Joe, I wanna say, thank you very much for coming on the show. Thank you for writing the follow-up to your magisterial work on Asia with a piece on Africa. So, great to see you. Thank you.
Joe Studwell: Thank you.
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