How come there's not more offshoring to sub-Saharan Africa?

Factual Questions
1

Most African countries must have very low wage rates and much less labor and environmental regulation as well as workers who would accept working long hours in difficult conditions. Why don’t we see more manufacturers set up shop along the western African coast to take advantage of that? They’d be closer to he US and very close to Europe.

I can see why they wouldn’t set up shop in landlocked or warring countries but there are many African countries which have neither problem.

Transportation could be a problem but by setting up along the coast, a lot of transport issues would be avoided.

I can think of a few possible reasons: insufficiently educated workforce, rigid capital controls, poorly thought out regulations and requirements, corruption, difficulty enforcing contracts, unreliable power supply and transportation costs when getting supplies from inland.

How accurate are these reasons? Do they apply to pretty much every sub-Saharan African country?

Are there other reasons?

Has it been tried in the past? If so, how did it work out?

2

Those are pretty goods ones, and they apply to varying degrees to most sub-Saharan countries.

I think the major problem is uncertainty and unpredictability. Corruption and potential government interference (especially in non-democratic regimes) make it difficult or impossible to make reliable business decisions or enforce contracts.

South Africa is probably the best among sub-Saharan countries, but even it has problems compared to other regions.

3

Here’s an article from The Economist last year about the issues involved in outsourcing to Africa. Regarding the issues in Kenya, it says:

To be fair, some of these issues exist elsewhere. India has unreliable power and crappy roads.

4

It’ll take a long time for the capacity of Asia to be used up. By which I mean inflation makes China/India/etc unattractive to industrialists.

That’s assuming that there isn’t an unforeseeable paradigm-shift or complete developed-world economic collapse in the meantime. Both of which are possible, but neither of which is inevitable or, indeed, predictable, despite the hordes of people confidently predicting one or the other.

5

There is outsourcing to Africa. It’s just not us that is doing it. China has been in the practice, for a while, of offshoring industries that are being phased out of the Chinese economy. Leatherwork is a big one- it’s messy, labor intensive, and just not anyone’s first choice of business. China’s labor force is becoming educated enough that leatherwork factories cannot make a profit after paying salaries. So Chinese companies are moving their leatherwork capacity to Africa, where they make pretty low margins, but more than nothing.

Chinese investors historically are willing to invest in enterprises that most developed-world investors consider too marginal to bother with. China long didn’t have access to the first-rate opportunities, so they became used to the idea of squeezing what they could out of low-profit enterprises. It helps that many Chinese people are used to similar living conditions as their African counterparts. Americans supervisors in offshoring operations expect cars with drivers, nice houses in a gated expat community, access to first-rate private schools, etc. Chinese people working in Africa often live about on par with middle-class Africans, which is not a horrible way to live, but doesn’t include perks like back of generators and Landcruisers.

The factors you listed are good, and I’d like to add one big one- education. India and China both have huge pools of people from internationally-recognized universities. They don’t just have the raw labor, but also the supervisors and managers. Why is this?

India has had, since at least the days of the Raj, an educated bureaucratic class. Britain saw India not as a mine, but as a market for British goods. Their big plan was to take raw materials from India, process them in Britain, and then sell it back to the Indian population, creating profit at every step. To be a decent market, you need a middle class. So Britain colonized in a way that created a that middle class. In the course of doing this, they set up a pretty functional education system, complete with competitive universities. And they had government jobs for people coming out of this education system. The British Colonial bureaucracy in India was heavily populated with educated Indian bureaucrats.

African colonization was a different story. Africa was seen as a mine, not a market. This may simply be because the toll of malaria made it impossible to get enough Europeans out there to make it worth developing as a colony. Outside of the most temperate and malaria free areas, African colonialism was a set of outposts, not a functioning (if extremely unfair) government like the Raj. Rule was indirect- Colonial powers offered weapons and support to local leaders. In exchange for this right to rule their area, the local leaders paid a set amount of taxes, often in natural resources or labor. A leader who failed to meet his quota was not educated or trained, but rather his rival was given some weapons and a chance to rule for a while. The few attempts to train a political class were limited to shipping off a round of kids to Paris universities now and then.

Please do not forget how recent this was. This 1962 Time magazine article is one of my favorites. It outlines the new countries of Africa, including how many educated people they have. Most countries had less than one hundred college graduates, anywhere in the country. Some places were starting a country with less than ten people holding bachelors degrees.

They just haven’t had the time to build the education it takes to compete globally. It’s coming, but it will take a while.

I think the other biggies are unstable, “nationalization” happy governments that make it difficult to run a lot of businesses, serious infrastructure and transportation problems, poor internet connectivity (even in South Africa big cities, it isn’t great) and difficult-to-impossible tax codes and legal regulations on business.

6

Also, Africa is not as cheap as you would think it is.

If you want to be a sustenance farmer, yeah, you can get by on almost nothing. But it take s a whole lot more money to sustain a middle-class African than a middle class Indian or Chinese.

Because few things are manufactured locally, a lot of goods need to be imported. Between the scarcity of quality goods and the work it takes to get them to markets, the prices end up out of control. I saw crazy stuff in Cameroon- I once saw a $25.00 box of four popsicles, and a $15 bag of frozen french fries (in a country where anyone who can afford that has a full-time cook). Ipods sold for around $900.00. Even basic items like shampoo, powdered milk, non-flipflop footware, and magazines sold for three to five times the cost that you’d pay in the US. Hotel rooms were a solid $30.00, even in the sticks…because, who stays in hotels? Government officials, businessmen, and the occasional traveller- not enough to sustain a normal local industry, but with enough low-elasticity demand to keep prices high.

I made about the same in Cameroon as I made in China. In Cameroon, I spent my salary on a basic life. A bottle of soda was an expensive once-a-week treat. Once a month I’d make it to the French store, where I’d agonize over laying out ten bucks for some dish soap. In China, with my salary I could consume like crazy. I ate at nice restaurants every night, bought whatever I needed- from breakfast cereal to little cups of yogurt, stayed at $3.00 hotels to visit friends, etc. It didn’t take much to be middle class.

7

In the case of South Africa, which has all the amenities of a developed economy, the labour laws are very worker-friendly, which is not attractive to outsourcers.

8

Certain sectors use to that kind of thing do well in SA. It’s a surprisingly large exporter of automobiles, for example. A big proportion of Mercedes and BMW cars sold in America are made in South Africa.

9

Look at it this way. When the British ran colonies in Africa, they had to import labourers from India to get things built. It is really hard to do anything in sub-Saharan Africa, for many reasons.