Economy

Why Asia's Industrialization Model Won't Work For Africa

Africa must not be industrialized like the Asian dragons. Instead, the continent must invest in a high-quality educational system to adapt to a new global labor market.

African countries are looking at Asia for their development
African countries are looking at Asia for their development
Yann Gwet

PARIS African governments and development agencies want nothing more than to see the continent industrialize. In the search for ideas about how to make that happen, Asia is an obvious place to look, as Adesina Akinwumi, president of the multilateral African Development Bank (AfDB), pointed out at a conference this summer called "Accelerate Africa's industrialization" hosted in Busan, South Korea.

Akinwumi's is a seductive idea. The development of the dragons of the Far East has indeed been spectacular. The host nation of the latest AfDB gathering is a prime example. In 1962, less than a decade after the devastating war, South Korea had a per capita GNP of roughly $120 (compared to $160 in Liberia), according to the World Bank. By 2016, per capita GDP had risen to $27,690, extreme poverty was completely eradicated, and the unemployment rate stood at just 4.5%.

This economic miracle was made possible partially due to a robust industrial policy. Between 1962 and 1994, the country's exports grew approximately 20% per year, while the volume of savings and investments exceeded 30% of GDP.

Busan, South Korea

View overlooking Busan, South Korea — Photo: Gregory Foster

Nevertheless, there is little possibility that African countries can follow the South Korean example. The industrialization of the latter rested on the mobilization of labor force that was abundant and cheap. But the world that is coming must shake up this paradigm. In the recent report devoted to the transformation of work caused by artificial intelligence and automation progress, the consulting firm McKinsey analyzed more than 2,000 functions covering some 800 professions. Unsurprisingly, the activities most susceptible to automation are those classified as "physical" in nature. In this new world, physical and manual competences depreciate in value, according to McKinsey, while social, emotional and cognitive capacities will continue to rise in value.

How many Africans will be hired by Google's Artificial Intelligence research center?

Clearly, if the predictions of McKinsey are verified, the strategy of Africa's industrialization by means of the exploitation of its young and abundant labor force will fail. Henceforward, machines make clothes and shoes, robots plant, water and gather agricultural products. In the future, what will be left for manual African workers to do?

Therefore, in this era of constant shocks, Africa should invest massively in education. The objective must be to create a high-quality educational system that is accessible to a larger number of people; to provide education that gives high-level fundamental knowledge, but that is also capable of responding to the needs of a labor market that is experiencing constant change. For example, how many Africans who were educated locally will be hired by Google's Artificial Intelligence research center slated to open in Ghana?

In this and other respects, the challenges are considerable: a recent UNESCO report says that in Sub-Saharan Africa, each fifth child aged 6-11 did not go to school in 2017, against a third of children aged 12-14, and 60% of young people aged 15-17. The World Bank meanwhile reports that in Sub-Saharan Africa fewer than 7% of pupils in primary school read fluently (the level of mathematics knowledge is hardly better).

The African partisans of the Asian model should embrace this strategy. A quick look at the ratings PISA that evaluates the level of pupils aged 15 in the OECD countries, reveals that the development strategy by education is in no respect original and is not incompatible with the industrialization strategy. In 2016 Singapore was rated first in the field of science, in front of Japan (second), Taiwan (fourth), China (tenth), and South Korea (eleventh). Even if they are not followed, all economic models offer useful lessons.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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