The continents economy would do well and in turn be able to support garment manufacturing. Consequently, workers would demand higher wages for low-margins, hypercompetitive garment factories. Following this, they would acquire high-wage jobs, the factories would shift to a lower-wage locale and as per Ricardo’s theory of comparative advantage, everyone would enjoy a higher income.
Effects of Ricardo’s theory
The effects of Ricardo’s theory of comparative advantage were experienced by everyone over the past few decades when economies moved up the value chain. One case in point is the ‘Made in Japan’ joke that was so common in the US, as Japan produced cheap products. The joke fell through as the Japanese leveraged their production to dominate global market and started competing with America. Japan outsourced it’s low-skill jobs to neighbouring countries such as China and South Korea.
Usually, one looks at work going to Bangladesh or Vietnam, but not Africa. However, all that is changing now as noted by The Wall Street Journal in its columns as a McKinsey & Co report suggests Ethiopia was identified as a top sourcing country by apparel companies. The Journal states that a garment worker in China earns approximately $150 to $300 a month, whereas in Ethiopia, the same worker earns only $21. These kind of wage differences are attractive.
Overcoming impediments
Yet, there are many hurdles that need to be overcome as African manufacturing is at present a blip on the radar compared to China. It will be a long time before a major upheaval takes place. After all catch-up growth takes a while to take off. There are many hurdles on its growth its path, such as lack of basic infrastructure. Then, there is armed conflict and corruption, to overcome. Many Asian countries though, have grown rapidly without strict measures of corruption control. Economically, what’s more important is that destinations provide reliable electric power and a convenient location for the container ship to dock.
Finally, the million-dollar question is whether manufacturing jobs should be taken to Africa by profit-seeking companies, where such low wages are offered. An unequivocal answer would be a ‘yes’ as the perception is that moving jobs to anywhere in Africa is beneficial for their impoverished population.
A $21-a-month manufacturing job is certainly an improvement, but there are alternatives too, such as raising the garments factory workers’ initial wages. However, such measures mean adding cost to employing workers there. Manufacturers would look at Africa as an option, only if the wage difference was high compared to other countries.
An improvement for African workers may act as a step towards bigger improvements. As the economy strengthens, garment factories would move from country to country, until every country has become industrialised to the point where nobody anywhere is working for $21 a month. Such jobs provide an above-average standard of living. The more Africa’s economy grows, the more the rise in people’s wages. This would be possible if Africa achieves the same level of growth as Asia has done in the past 70 years.
