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Africa’s shift to Low-cost Manufacturing puts Women at Risk – 4 Lessons from the Asian Tigers

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African countries are trying to wean their economies off mineral resources. They’re not a great development option and can come with a host of social, political and economic challenges. Another option that’s been touted: a shift to low-cost and export-oriented manufacturing. This is what spurred strong growth in the economies of Hong Kong, South Korea, Singapore and Taiwan – known as the Asian Tigers. But the Asian model had a downside – one that’s especially worth noting on International Women’s Day. As Niamh Gaynor writes, those economies were built on conditions that weren’t fair to women. African states should learn from the experience.

Economists have urged African countries to shift to low-cost manufacturing – the path that led countries such as Hong KongSingaporeSouth Korea and Taiwan – to industrial prosperity. These East Asian economies – which recorded high growth rates of at least 7% between the 1950s and 1990s – are commonly referred to as the Asian Tigers.  Starting in the 2000s, many of Africa’s top economies achieved high growth rates through natural resource extraction. Mineral resources such as oil, natural gas and coal were the main export items.

Economists have cautioned that growth based on natural resources is vulnerable to global price fluctuations. Other limitations include weak linkages to domestic economies, low employment creation, negative impacts on local communities, tax avoidance by multinationals involved and climate change impacts.

By contrast, economists regard growth that is driven by low-cost export-producing manufacturing as more beneficial for development. This is because it is seen as globally competitive and able to create a lot of low-wage jobs. The Asian Tigers partly relied on it to achieve their economic prosperity.

As a result, economic commentators have been urging African countries to embrace export-led manufacturing. A recent book written by some of Africa’s influential leaders and advisors sums up the call:

The relevance of Asia’s example comes as Africa is facing a population boom, which can either lead to crisis or prosperity; and as Asia is again transforming, this time out of low-cost manufacturing into hi-tech, leaving a void that is Africa’s for the taking.

Many African countries have heeded the call, specialising mainly in the manufacture of textiles, cloth, food and beverages. They include Kenya, which has mainly been producing textiles at its export processing zones for sale to the US, and South Africa, where manufactured products, mostly food items, are key exports. Others include Botswana, which has been trying to diversify its mineral-driven economy, Mauritius, where export of services has taken root, and Madagascar. Between 2005 and 2014, manufacturing production across the continent more than doubled from US$73 billion to $157 billion. This was faster than the global average.

But the call to emulate the Asian Tigers could be ill-advised. As I argue in a recent paper, such a move has significant gendered implications. It can lead to increased discrimination, widening inequality and crises in family life. In particular, there are four lessons Africa’s fastest growing economies should learn from the four Asian Tigers.

Lessons from Asia

1. Exploitation and control of low-waged female labour. The Tigers have relied heavily on women’s labour as a specific asset which is cheap, productive and easy to control. Records show that low wages, poor working conditions, frequent layoffs and a lack of rights and union protection for women working in manufacturing industries have been rife in Asia since the 1980s. Rapid economic growth and wealth for a few have come at the expense of many, with wages often insufficient to support families and working conditions undermining family life.

2. Pushing more women into the informal economy. As women have sought to supplement the meagre incomes they get from their manufacturing work, female participation in the informal economy has surged. Studies from Asia reveal a direct correlation between growth in female participation in formal manufacturing sectors and growth in female participation in informal sectors.

In Africa, women already dominate the informal economy. In addition to the risks of unstable earnings and no access to health insurance or to other economic and social safety nets, women carry the double burden of informal work and care responsibilities in the home. They experience a disproportionate impact from lack of access to social protection. They are more likely to experience discrimination in accessing financial and other services. And they are more likely to be intimidated and abused by others in the informal sector.

3. Growing inequalities accompany growth. Tigers have succeeded in reducing poverty to varying degrees. But inequality has increased. A wide range of studies track the polarising impacts of changes in labour market and income distribution at both economic and social levels across the region. There’s a common pattern: highly skilled workers with more education see their incomes rise as those of low-skilled workers either stagnate or reduce. This trend is disproportionately felt by women. The pay gap is apparent even in countries where women have higher education attainment than men, such as Taiwan.

Widening inequalities are already a feature of many African states. In the absence of state policies to regulate wages, such inequalities are likely to deepen.

4. A crisis in social reproduction. The impossibility of juggling paid work with unpaid work at home and within the community has resulted in a crisis in social reproduction in Asia. Studies show increases in marriage age, decreases in fertility rates and growing numbers of divorces across the region. This may signal a newfound independence among Asian women – but it also represents a broader crisis in family life.

This crisis also threatens the very economic system which depends on it. African countries don’t usually have state support for family and community care. A similar crisis seems inevitable on the continent, where the nature and composition of families is already rapidly changing.

What can be done?

Asia’s labour-intensive and export-driven manufacturing path does provide an alternative to the environmentally damaging and socially dislocating natural resource exploitation which is also of limited benefit to Africa’s local economies. Yet not everyone stands to benefit from it equally. The overall lesson from Asia’s decades of experience is that export-led policy is not gender-neutral. The export-oriented manufacturing increases gendered inequalities and discrimination. African countries should not replicate Asian experiences, but instead learn from them.

African analysts and policymakers should promote fair and progressive pay and working conditions for all workers. Greater public investment in infrastructure and social services is needed. And there should be policies that support and redistribute unpaid domestic labour. As the Asian experiences have demonstrated, failure to act will worsen existing gendered inequalities and discrimination, and eventually undermine the essential social base of economic growth.

Niamh Gaynor is an Associate Professor of International Development, Dublin City University


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BUSINESS & ECONOMY

Inquiry on General Babangida’s Involvement in Conventional Banking despite Introduction of Islamic Finance in Nigeria

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Dear Editor,

I hope this letter finds you well. I am writing to express my curiosity and seek clarification on a matter that has caught my attention, specifically pertaining to General Babangida’s involvement in the conventional banking industry despite his role in introducing Islamic finance during the financial reforms of his military government in Nigeria. Vide your special article commemorating his 81st Birthday published in your esteemed news website: https://focus.afrief.org/trending/a-salutary-tribute-to-general-ibrahim-badamasi-babangida-architect-of-islamic-finance-in-nigeria/

It is indeed noteworthy that General Ibrahim Babangida played a pivotal role in shaping the economic landscape of Nigeria by introducing Islamic finance principles. It is fascinating to witness the implementation of Islamic finance in Nigeria, as it promotes principles that align with religious and ethical values. General Babangida’s efforts to introduce this form of finance were undoubtedly commendable, reflecting his commitment to establishing an alternative financial system that adheres to Islamic principles.

However, recent observations suggest his active participation in the conventional banking sector in Nigeria. Certainly, it is intriguing to see General Babangida’s continued involvement in the conventional banking industry, which operates under different principles. While some may argue that his involvement in both sectors is simply a matter of personal choice, it raises questions about the compatibility of his actions with the ideals and principles of Islamic finance. While the former is interest driven, the latter prohibits interest related transactions completely.

I wonder if General Babangida has ever publicly addressed this matter or explained his reasoning behind being active in both sectors. It would be enlightening to hear his perspective on how he reconciles his involvement in conventional banking with his efforts towards promoting Islamic finance. This has raised questions in my mind and perhaps in the minds of others as well.

I am keen to understand the rationale behind General Babangida’s dual engagement in both Islamic finance and conventional banking. Does this reflect a strategic approach to diversify Nigeria’s financial sector, or are there specific reasons behind his involvement in conventional banking despite advocating for Islamic finance principles?

Additionally, it would be interesting to explore the potential impact of his dual involvement on the perception and growth of Islamic finance in Nigeria. Does his presence in the conventional banking industry hinder the progress of Islamic finance, or does it have the potential to bridge the gap between the two sectors?

I believe that delving into these questions could provide valuable insights and generate constructive discussions within the Islamic finance community in Nigeria. By shedding light on General Babangida’s dual involvement and the potential implications, we can further enhance our understanding of the challenges and opportunities faced by the Islamic economy in our country.

Thank you for considering my questions, and I look forward to reading more about this topic in your esteemed Focus on Islamic Economy.

Sincerely,

 

Abba Musa Mamman Lagos

Kaduna


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BUSINESS & ECONOMY

10 Megatrends Shaping the World in 2024

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The report, “Navigating Megatrends Shaping Our Future in 2024”, was launched during the first day of the World Governments Summit (WGS) 2024, being held under the theme “Shaping Future Governments” from 12th-14th February in Dubai. The report examines the indicators that shape these megatrends, supported by evidence from today as well as future expectations. These trends inform decision-makers and foresight experts about various sectors and the potential opportunities in each.

Khalfan Belhoul, CEO of Dubai Future Foundation, said, “This report has been launched in line with DFF’s efforts to identify and communicate those trends with the most potential to shape opportunities and strengthen local and international partnerships to overcome current and future challenges.”

“The challenges that face us on our journey to the future require that we are agile enough to be able to adapt to rapid change. It is vital we pay attention to the signals we detect – only then can we be prepared to overcome challenges and seize opportunities. The World Governments Summit provides a platform for discussing these challenges and exploring the opportunities.”

Materials revolution

New types of materials will create a shift in the industry, with solutions based on artificial intelligence (AI) such as biopolymers, biorefineries, and chemical recycling paving the way. These solutions will facilitate the development of new biological and novel materials that could rival plastics.

Boundless Multidimensional Data

Enabled by developments such as 5G and 6G in addition to advanced connectivity, the availability of raw data will vastly increase. The Internet of Things (IoT) will continue being deployed in healthcare, agriculture, and smart cities, especially in the Middle East.

Technological Vulnerabilities

The cybersecurity sector will boom amid a sharp rise in smart home devices and wearable tech. According to a report by Allianz, the annual cost of ransomware is projected to reach around $265 billion by 2031. Meanwhile, the debate on the future of decentralised finance will continue.

Energy Boundaries

Advances in tech and the growing demand for energy will drive the pursuit of alternative sources of energy. Novel materials and machine intelligence will enhance current sources of energy, including their distribution around the world – and in space.

Saving Ecosystems

Approaches to conservation will be more interdisciplinary and future-focused, taking into account both societal and environmental factors. Driven by resource scarcity, climate change, and shifts in social values, environmental impact management will become increasingly holistic.

Borderless World – Fluid Economies

The world is witnessing a rise in unmediated transactions in finance, health, education, trade, services, and even space, which are blurring boundaries and creating more cross-border communities. Advances in communications, computing, and advanced machine intelligence will accelerate the creation of a borderless world that will change the way we work, live, and connect.

Digital Realities

The spread of 5G and 6G networks will enhance the applications of autonomous technologies and IoT. As quantum technologies become scalable and reliable, immersive experiences will become even more realistic.

Living with Autonomous Robots and Automation

Robotics and automation will increasingly be deployed across industries beyond automotive, manufacturing and supply chain logistics. This will provide opportunities for efficiency and innovation, although there will also be ethical challenges to address.

Future Humanity

New workplace norms will emerge, with people needing to adapt to non-traditional skill sets in areas such as digital literacy, communications, culture and sustainability.

Advanced Health and Nutrition

Accelerated progress in advanced machine intelligence, nano- and biotechnology, additive manufacturing, and IoT will transform health and nutrition, improving health and wellbeing for people of all ages. Technology will reduce, if not eradicate, some communicable and non-communicable diseases and enhance the sustainable use of and access to water and food.


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BUSINESS & ECONOMY

Africa’s New Online Foreign Exchange System will Enable Cross-border Payments in Local Currencies – what you need to know

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The high cost of making cross border payments on the African continent has driven governments on the continent to seek options of settling trade and other transactions in local currencies. This has given birth to the Pan-African Payment and Settlement System which was formally launched in Accra, Ghana, in January 2022.  Development economist Christopher Adam, who has studied the exchange rate policies of African countries, answers some key questions.

Why are African countries exposed in the international currency market?

Three main reasons. First, African economies are small and as such are highly dependent on trade with the rest of the world. Their exports are dominated by primary commodities including oil and gas, minerals and cash crop agriculture. On the import side, they purchase a whole range of goods – from essential commodities not produced at home such as fooddrugs and medicines, to capital goods and energy. A large proportion of these are sourced from China and other major economies of the global north. But because African countries are small relative to their trading partners they rarely have the power to determine the prices of imports and exports. They are “price takers” in world markets. And with world prices being set in the major reserve currencies of the world (the US dollar, euro, yen and renminbi), African countries are exposed to movements in these world prices. Second, “intra-African” trade is still a relatively small proportion of the total trade of African countries.

Finally, since African countries’ currencies mostly can’t be directly exchanged in international transactions, the dollar remains the most widely used currency in trade, even between African countries.

What’s required for the system to get off the ground?

The basic idea of the system is to be able to settle trade between African countries without having to use the US dollar.  There are two major challenges with that. First, intra-African trade accounts for less than 15% of Africa’s exports at present (although supporters of the African Continental Free Trade Area expect this to grow significantly over the coming decades). The African payment system therefore does not eliminate the role of the dollar (or other foreign currencies) in trade settlement entirely.

The second issue is that trade is not balanced between African countries. For example, Kenya exports goods of higher total value to Ethiopia than it imports from Ethiopia. If Ethiopia paid in its own currency, Kenya would end up with Ethiopian currency that it didn’t need. Some form of settlement currency that is acceptable to all is required – most likely the US dollar.

What are the challenges and potential risks?

Since trade rarely occurs instantaneously, some institution in the trade financing chain carries the exchange rate risk. Because of the gap between placing an order for imports and receiving them to sell in the local economy, there is a risk that the value of local currency will change relative to the currency in which the import is denominated.

In the “old” system, this risk is borne by the trader because everything is priced in dollars. The local currency value of the income from exports or the local currency cost of imports will change with movements between the local currency and the dollar, but the banks and those counterparts pricing in the dollar are protected.

Under the new system the same allocation of risk will remain in “external trade”. This currency risk is also present for intra-African trade.

An important question for the new African payment system is: who bears the exchange risk if one African currency depreciates relative to another? Should the importer carry the risk, or the exporter? Can and should the African payment system bear this risk of exchange rate movements itself? Where both currencies are volatile, traders might still prefer the relative stability of settlement through the US dollar.

The success of this system also depends on scale. The more trade settlement is routed through it, the easier it will be to settle in local currencies. Large currency imbalances will be less common. But until the system achieves this scale, the African payment system will need a strong balance sheet so that traders and participants can have confidence that settlement will be swift and risk free. It is unclear at the moment how this is to be achieved.

What is the best case scenario?

If the system can address the trade imbalance problem, provide clarity on risk management and reach scale, it could be very successful. But this is all going to be driven by underlying economic performance. Improved settlement will help but what is really driving this is the structure of trade. The more the economies of Africa can develop intra-African trade and the less dependent they are on extra-African trade, the less will be dollar dependence in trade. This growth in trade depends to some degree on trade settlement and trade financing but much more on production, consumption, trade policy and fiscal policy.

Christopher Adam is a Professor of Development Economics, University of Oxford


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