Thursday, January 07, 2010

Africa's Comparative Advantage is Poverty

The Law of Comparative Advantage is one law of economics that is easily understood by everyone. Everyone should produce goods they produce best and most efficiently, and delegate the production of other goods to others, which insures the most efficient goods are always produces and wealth is maximised. Easy.

Vanilla Ice has previously stated that South Africa has no Comparative Advantage and he is correct. The entire continent of Africa is at a disadvantage because it cannot produce anything more efficiently than at least somewhere else.

Image: The position of African countries on the UNDP's 2004 list of countries by quality of life (first: best, last: worst)

Africa's trade with the rest of the world has declined steadily since most of its countries became independent in the 1960s, and that decline began immediately after World War II. It can never recover.

Why? Africa has been undercut consistently by other parts of the world and this trend is likely to continue. Latin America in particular has become a favoured trading partner of the West, even though Germans, for example, are still choosing to pay more for African bananas at the expense of Central American ones.

Coffee, fruit, and other exports are more easily and cheaply available elsewhere, most notably in Southeast Asia and Central America. Industrial production, needless to say, has never been an issue.

Two industries are available to Africa. Tourism, and raw materials. These are the same two industries that Australia relies on. Spot the difference? Australia, foolishly in the view of many economists, exports raw materials to Japan, particularly timber, and then imports paper, even though they have the capacity to process it themselves.

Australia thus acts like an African country, but the difference between Australia and Africa is huge. Australia has both the culture and the supporting infrastructure to stave off what is known as the Dutch Disease. It is also Pro-Western, and does not carry the baggage of "post-colonialism" which glorifies traditional structures and abhors globalisation.

This difference cannot be underestimated and results in stagnation for almost all of Africa. Even Libya, probably Africa's "richest" country, is a desert in every sense of the word.

What does Africa have to offer the world?

In an age of Globalised free trade peoples have been forced to accept that they must trade for what they want, rather than try to take it by force. As a result (see link), death by war is at its lowest level for years.

But Africa has nothing to trade.

The Western aid industry has succeeded only in replacing revenues from lost trade since the War with handouts, turning Africa into the world's largest Welfare State.

If the West is no longer demanding products from Africa in exchange for money, which is the arrangement almost everywhere else in the world, what is it we are demanding?

The answer is absolution. What Africa exports to the West is alleviation of guilt (real or imagined, but I suspect the latter) and the proliferation of good feelings. This falls under the category of tertiary industry, as it is a service performed for money.

As a result, Africans have become the modern-day sellers of indulgences, peddling salvation to gullible foreigners, and their industry is in full swing.

As a result, to support this industry, Africa must do what it does best, which is to produce and almost endless supply of poverty, helplessness, squalor and destitution to meet what seems like an inexhaustible demand.

Who says Africa has no Comparative Advantage?

6 Opinion(s):

Anonymous said...

Viking, good point. I never looked at it that way. The victim gig pays well, and Africa is good at it. It would be interesting to know what percentage of GDP is derived from foreign aid.

Anonymous said...

The article is a bit shallow and does not cover many aspects of Africa. Firstly what about AID and who really benefits from it. Wheat from US farms go to Africa. This wheat gets a subsidy from the US government. The shipping then gets a subsidy too. Not to long back shippers in the US kicked and screamed when USAID was talking about sourcing wheat and other grains locally. So instead of developing one mans wheat farm in a country a truck ride away. It gets shipped half way across the world so that US companies can make a buck while depressing prices in the countries next door as it buggers the market due to black market conditions.

AID is a curse.

The topic is too complex as I might just as well write a complete view of it including IMF loans and how they pull the countries down into complete debt. Pathetic African leaders of which there are loads and how foreign governments help to perpetuate wars so that they can get the minerals on the cheap. Africa will never get out of its sewer as nobody really wants it out of the sewer. Take oil.

The US consumes more than 20% of global oil production. Africa has seen an increase in oil exports to the US and this is increasing. Do you really want blacks in cars competing for the same resource with you? Do you really want Africa out of the sewer pushing up prices much as India and China are looking to live the American dream and consuming resources to hell and gone. Comparative Advantage, it would be a cold day in hell.


Viking said...

-Anon, wars in Africa tend to prevent the extraction of minerals, not encourage them,but most of your points are well taken.

We generally don't do such in-depth analysis here, else we would have no time to do anything else!

Farm-Communism in the USA is a relevant topic, as you say, and is completely against the spirit of free trade. The same happens in Europe, and it's usually justified as protecting the food supply, which is not an entirely bad argument.

Africa, though, does not even produce FOOD efficiently, except in South Africa and the former Rhodesia, and this is set to get even worse. It is almost cheaper for Africans to buy food from abroad than to produce it themselves, and this is what happens.

The IMF has done some very stupid things, and hopefully they will stick the formula they have been applying lately, which is basically to identify causes of corruption and insist they are remedied before loans are provided.

I absolutely do not want Africa on the same developmental level as, say, the US,and that will never happen. They have nothing to trade for the American dream.

Anonymous said...

Viking do we really want Africa to develop even to the South African level? With resources becoming limited is it then not best to keep Africa as it is. Sort of a resource pit for extraction only while manufacturing and industrialisation takes place elsewhere.

Zimbabwe sold off their mines to the Chinese. All the rocks get sent back to China for refinement and production. Is that not the way to go? Why create more resource hungry nations when there are already to many?

To bring Africa up to even a low level would take a huge amount of resources. This increases as it develops so why develop it in the first place?

Why not just ensure that development ensues in certain areas of Africa to ensure some form of stability. Let the Africans take care of the Africans while we extract the minerals for our own nations.

It makes perfect financial and political sense?

Viking said...

"do we really want Africa to develop even to the South African level?"

no, even that is impossible.
Africa is a vast warehouse full of resources, that's it. And a tourist attraction.

And, yep, let's leave them the f*** alone. It's what they want, after all.

Anonymous said...

Viking you are bloody funny! Cheers for that mate.