Politically incorrect since 2009
18 September 2014 05:24 (South Africa)
World

The population explosion, manufacturing models and jobs

  • Greg Mills
  • World
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Unicef’s Generation 2030 report projects staggering figures about Africa’s population. Based on current trends, it estimates that by 2050, Africa’s people will double to 2.4 billion, with numbers expected to nearly double again by 2100. Almost two billion babies will be born in the next 35 years, by which time Africa will be host to 40% of the world’s children. By then, too, Africa’s under-18 population will increase by two-thirds, totalling almost one billion. An African demographic dividend – the positive surge of young people in the job market – is possible, but only by equipping citizens with the right skills and with government able to take the right long-term policy decisions. It’s not going to be easy. There’s plenty of competition in creating job opportunities, not least still from Southeast Asia. By GREG MILLS.

Cambodia’s Siem Riep International Airport is a model of efficiency. Several stations process visas on arrival, their aim to get the visitor in so they can spend their money in their country, as much as possible as quickly as possible. “No photo? No problem, we’ll do it anyway.” Within five minutes you are through, visa in hand.

And this was not because we were alone. Far from it. The plane was packed. The airport saw nearly 2.7 million passengers in 2013 and is projected to do well over three million this year.

No wonder the tourism business is booming, up fourfold from a million visitors 10 years ago. Many spend time at Angkor Watt near Siem Riep. It helps having the world’s largest religious temples, but you still have to make it easy and enjoyable for people to visit. While temple-gazing is the hook, many stay longer, hanging out in the city’s markets, restaurants, cooking classes, museums, and, if my wife would let me, massage parlours.

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Photo: Cambodia’s temples offer a unique attraction, but that does not mean they are not working on improving access for tourists. Angkor Watt by Judith via Flickr.

Its light years from the reality of the euphonic Pol Pot, ‘brother number one’, and the Khmer Rouge’s ‘Year Zero’ in 1975, the start of a genocide that wiped out perhaps as many as two million Cambodians, including those exhibiting any sign of education, cutting off the country from the rest of the world, and abolishing money and religion. Such autarkism denied Cambodians for a generation, though the inheritance even prior to Pol Pot, the chosen name of schoolteacher Saloth Sar, was hardly impressive. King Sihanouk’s eccentric rule was curtailed by a 1970 coup led by his prime minister Lon Nol, his feckless government best summed up by the name of his military spokesman, Am Rong. You could not make it up.

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Photo: Khmer Rouge fighters, circa 1975

It’s taken a long time to recover. A few of the temples opened to visitors again 10 years after the Vietnamese invasion that turfed out Pol Pot’s lot in 1978. Now tourism accounts directly for around 10% of GDP and an estimated 800,000 jobs.

But it’s not the only driver of Cambodia’s annual GDP growth of over 7% since 2010. Increased rice cultivation, both by area and by yields, has helped, but it’s the garment and footwear sector which provides 90% of the country’s exports. The number of apparel factories has increased from fewer than 10 to more than 600 in the last 20 years, industry growth touching 20% annually.

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Photo: Cambodian farmers work on a rice field in Kandal province, Cambodia, 11 July 2013. According to local media report, Cambodian private rice exporting companies plan to buy un-milled rice from farmers in the upcoming harvest season as their goal to export one million tons of milled rice by 2015. Cambodia mostly exports milled rice to European, United States and some Asian countries as well. EPA/MAK REMISSA

Cambodia is one of Asia’s poorest countries, where half the population of 15 million is under the age of 25, and the per capita income a shade under $1,000. The garment sector employs 400,000 people, accounting for a third of GDP, the investment principally sourced from China, Taiwan, Korea and Vietnam.

Make no mistake, it’s an industry built on cheap labour, with some of the lowest wages in the region. The minimum wage for garment and footwear workers was raised 25% in 2014 to just $100. Labour unrest and police retaliation has also frequently accompanied campaigns to increase wages.

This attempt to pick up the low wage manufacturing jobs discarded by higher-cost markets, including China, is not without stories of injustice and sadness.

Working conditions are often not pretty, and tales of the plight of workers pitiful. Children on short-term contracts work up to 14-hour days six days a week, with daily shirt sewing quotas of 950, and just $0.25 cents paid for every additional 100 shirts.

Still, without the garment sector, in the opinion of local specialists, the country’s economy would collapse. There are more recruits than available jobs. And it’s not as if consumers elsewhere of Nike, Puma and Adidas among other international brands are volunteering to pay more.

Compare Cambodia’s industrial growth to South Africa, the African continent’s most industrialised economy. According to Manufacturing Circle, which represents 36 major South African companies, the manufacturing sector has shed 250,000 jobs since 2008, and 59,000 in the second quarter of 2014 alone. Between 1996 and 2011 there was already a 23% decline in the number of South Africans working in manufacturing, the total today fewer than one million employees. Yet the SA population has increased by more than 10 million to number over 50 million during this time.

Factory owners point to five cost factors which make their life tough: Labour, electricity, transportation, tax, and the threat of subsidised imports from China. Though the latter is not a cost, it suppresses the prices at which the local industry can sell.

In the metal industry, factory owners relate the costs of labour to operation of the Metals Industry Bargaining Council, representing more than 10,000 companies and an alleged 318,810 workers, the ‘institutional wrapping’ covering diverse industries from steel production to distribution, manufacturing engineering, ship building and repairs, construction steel, electrical engineering manufacturing, general engineering, the lift industry, and plastics manufacturing.

In the Eastern Cape, for example, those under this Council rail against wage costs being set nationally, with the small guys included along with the mega-industries, very different businesses all lumped together. While the phasing out of apartheid era decentralisation incentives in the ‘border areas’ combined with increasing trade liberalisation resulted in an exodus of factories, contemporary labour costs help, in the minds of entrepreneurs, to explain why the region’s deindustrialisation continues. Of 158 factory sites in Dimbaza, for example, just one is now occupied by a going industrial concern, the area having fallen into desolate disrepair, the factory sites picked clean of usable metal.

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Photo: Desolation in Dimbaza.

Overall, manufacturing sector employment in the Eastern Cape has, according to official statistics, fallen from 130,000 to 90,000 between 1996 and 2013, a 31% decline, though unofficial stats put this reduction much higher, catastrophically so in the non-auto sector with more than 50 factory closures outside of the border industrial zones of Dimbaza and Butterworth by 2010 alone.

The South African government’s defence, predictably, has been that it did not struggle for sweatshops. As Cosatu’s Tony Ehrenreich has highlighted, “In South Africa, we've made a choice: we don't want to build a low-wage economy that's premised on exploitation of workers. We want to ensure that people have decent wages, that they participate in the economy, that they drive up demand for domestic products and that that in itself contributes to creating jobs.” As a result, South African policy is a case study of how not to go about trying to create jobs. It is battling to shake its ideological history in still attempting to be a command economy.

South Africa aspires to be high-wage and high-tech but is being squeezed out globally on the grounds of productivity, not only of its work force, but the costs of power and access to its export markets. The gap is seen in the informal sector and contract labour where the rates are below government-decreed terms. Employers avoid recruiting staff or adding to their labour force because of the difficulties in releasing workers, even though there is spiralling unemployment.

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Photo: Lesotho has benefited from AGOA access, creating 50,000 apparel jobs, but this has been reduced to 30,000 today a result of stiff competition, once buoyant Rand and high transport costs.

Cambodia offers one illustration of East Asian industrialisation: Low wages, minimum government interference, and openness to capital and trade. This is generally, but not exclusively, the model which has been pursued across Southeast Asia.

There has been another variant, however, preferred in Northeast Asia, one it seems the South African government would instinctively like to emulate.

Joe Studwell’s engrossing How Asia Works describes how the Japanese copied the US, British and German industrialisation model of protectionism, built behind tariffs and using monopolies, and founded on close co-operation between business and government through, in the Japanese case, the Ministry of International Trade and Industry (MITI). This government-business prototype was emulated, in turn, by the Taiwanese and (South) Koreans.

Subsidies, tax breaks and even free land were part of the government deal. In return, business had to maintain a rigorous export focus. Where there has been success with this model, it’s been a story of learning, foreign technology inhalation, discipline and continuous, ongoing expansion. In 1968 Chung Yu Jung’s Hyundai company obtained permission to assemble Ford Cortinas. But Detroit and Dagenham inadvertently helped a real competitor on its way. Studwell points out that in 2010, Hyundai along with Kia sold 5.7 million units world-wide, tying with Ford for the fourth biggest global auto group. Technology has helped is global ascendancy. It took 41,000 workers to make one million Hyundai’s at its Ulsan plant in 1994; and 34,000 to make 1.6 million in 2013.

Whether this model is possible partly hinges on government discipline: a willingness to efficiently administer the relationship with business, demanding a top-class interlocutor. It is questionable whether African countries – even South Africa for that matter – possess the capacity of a MITI or Taiwan’s Industrial Development Board and South Korea’s Economic Planning Board.

Success also demanded the discipline of getting out of those businesses that are unable to graduate from protectionism or subsidies – less picking winners than, Studwell notes, “weeding out losers”. While protectionism “is an entry ticket to industrialisation”, he points out, it “is expensive and inefficient because it adds cost, punishes consumers and invites retaliation”. Yet the rent-seeking that inevitably accompanies protectionism in less disciplined markets can mitigate against this transition.

Things can all-too-easily go badly wrong in other ways. Malaysia’s experience with the Proton points to the poverty of government attempting to pick winners. Even in South Korea, SsangYong and Daewoo bombed where Hyundai succeeded.

Manufacturing is critical to the rapid economic transformation of poor countries, promoting skills acquisition, technology inflows and encouraging trade. It has historically proven the school for learning in economic development, offering practical rather than the sort of theoretical problem-solving that governments tend to favour – not least since they usually have little experience of the former. At the heart of success, however, whether this be in Cambodia or South Korea, has been creating the space and finding the means to allow entrepreneurs to make money, by encouraging the spontaneity of private enterprise.

It’s puzzling why some African countries which have been successful on the bottom garment rung of manufacturing fail to make progress up the technology ladder. Troubled Lesotho, for example, enjoyed a wave of investment in apparel and textiles in the 2000s on the back of the US African Growth and Opportunity Act, creating 50,000 jobs in the process. But as costs have ramped up, jobs have shrunk rather than gone into high-technology manufactures.

In part the answer is in improving the conditions for employers rather than just employees. There is a need to resolve laws and practices that institutionalise uncompetitiveness. How else to ensure South Africa’s manufacturers can compete against China or others in Asia? And there is a need to re-examine the way in which mandatory bargaining councils coalesce heterogeneous businesses based on union membership rather than their specific needs, strengths and weaknesses.

Services seemingly offer a lucrative alternative to the sweaty, finicky business of manufacturing. But they are less freely traded than goods. Moreover they demand themselves a set of skills and degree of organisation and openness that few countries in Africa seem willing to match amidst ongoing talk of visa restrictions, rampant security problems in eastern and western Africa, and the continued high costs of market access.

Cambodia shows us what can be achieved when ordinary people have the opportunity to benefit from the influx of tourists,” says Barry Desker of Singapore’s Nanyang Technological University. “Most of its tourists are independent travellers, with many budget travellers.”

Anthony, an Australian who has set up an run several guest houses in Siem Riep in Cambodia over the last decade, and started a greenfield site hotel seven years ago, says “If a young person speaks English they can guarantee themselves a job in the tourism business which will pay five, six, maybe seven times what their parents ever earned in the fields.”

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Photo: Siem Riep, Cambodia (Greg Mills)

In tourism it helps to have something that others don’t possess: the Big Five in Africa, or Angkor Watt in Cambodia. It offers a unique comparative advantage. But Cambodia’s tourism is growing also because of its accessibility, the security it offers, and old fashioned service and value for money.

That comparative advantages are becoming, too, more competitive, is a further challenge for Africa in the midst of its demographic detonation. DM

Dr Mills, a visiting fellow at Singapore’s Rajaratnam School of International Studies, is the author most recently of ‘Why States Recover – Turning Walking Nations into Winning Societies’ (Picador).

Main Photo: A photo made available on 25 June 2013 shows Cambodian workers in a garment factory in Phnom Penh, Cambodia, 15 June 2013. According to local media sources, the Cambodian garment industry is the largest income earner of the national economy and employs about 500,000 mostly female workers.  EPA/MAK REMISSA

  • Greg Mills
  • World


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