Don't Make T-shirts

The end of industry in Africa

I recall a vivid dream I had when I first moved to Senegal with the goal of creating companies to provide jobs and economic prosperity in this beautiful country. I was going to pitch Puff Daddy to support the creation of a clothing manufacturing which, taking advantage of the new AGOA Act, whereby Africa exports tax free to the United States, would produce clothes for American brands. That was until I discovered and toured a football field sized clothing factory located a few hours north of the capitol Dakar with hundreds of sewing machines collecting dust. This factory, built in the home town of the mining magnate who sponsored its creation, lay dormant, never touched, too large to enable the flexibility required to keep up with the latest clothing trends. I stumbled upon the business plan which outlined how many polo type shirts would be made, and pants, etc. Africa has largely blown its industrialization process. With a goal of creating jobs bringing hundreds of thousands of formerly agricultural workers out of their low income existence, and compensating for a structural deficit in current account — imports minus exports — which placed a continual drag on the purchasing power of the currency, and leading to inflation, government default and economic malaise, industrialization seemed to be the obvious goal. I built an industrial company myself, when I was 26 years old, after working a few years in investment banking. With the worthy goal of import substitution, job creation and product category innovation, I believed we would build a platform onto which we could create a mini Shenzhen. After the first, easy industrial project, light manufacturing packaging sugar, we would move to heavier industry. Samsung, the giant Korean chaebol had gotten its start manufacturing sugar and then pivoted to electronics. I had already begun thinking through how to build a factory for making scooters. I am now beginning to question whether Africa will ever industrialize, and whether it would even be worth the effort. There are several problems with industry. Firstly, the advantage of industry is that you enter the world of Talib Nassim’s extremestan, exemplified by a book that can sell millions of copies. The essentially unlimited scale for widget making is a source of value in industry. However, industrial competition leading to commoditized low margin products, means value is captured by other parts of the value chain. Furthermore, unlimited scale is often limited by access to distribution. If you do not have access to a market, your product will not scale. Secondly, industry takes unskilled workers and trains them in skills applicable to that industry. Workers are beholden to the success of the business to such an extent that they become social burdens on the businesses themselves, who for social reasons may not be able to justify layoffs. Factory workers are not easily redeployed. Finally, industry requires machinery. Most often, the machinery you need to compete effectively with products made around the world is expensive. Economies of scale of world leading manufacturing create barriers to entry. The high precision, high volume machinery required for high quality competitive products is capital intensive with built-in assumptions about economies of scale. The value in this case accrues to the more sophisticated and technology driven equipment manufacturers, not the on-shore pieces of the value stream. All of this makes industry impervious to venture capital financing. Large projects require large upfront investment to manufacture a product for which distribution and adoption are both uncertain. Unskilled laborers make up a large portion of the company’s workforce, who require extensive training and are more difficultly redeployed. Innovation is stymied and followership reduces competitiveness. As a result, after half a decade of trying, Africa’s major exports continue to be its raw materials. When Commodities cycle down, African economies are directly affected by a reduction in export value, leading to inflation, weakened purchasing power and credit crunches. I think Africa has leapfrogged industrialization. The new model accesses creativity. It unleashes ideas that would otherwise be buried. It’s cultural specificity makes it resistant to international competition. And it inherently generates more value, through efficiencies, innovation and better pricing, than making t-shirts. Ethiopia produces 180,000 university graduates each year. In a country of 100 million people, its 42 universities train a small portion of its population. These graduates will all need to find jobs. Kukulu As he show’s me the opening animation for a video game featuring a chicken running through a village escaping dogs and leaping over obstacles he mentioned that initially the Kukulu team had sought to outsource the 3D video scenes that provide the narrative for the game. Taking too long the team decided to take on the VFX task themselves. One theme that underlies everything the team does, says this 24 year old director of Gebeya Media, “we believe we can do anything anyone else can do.” After showing me scenes from the video game we look over a recent advertisement the company had done for Ethiopian Airlines, the behemoth flag carrier for the second largest country in Africa, and the airline that brought me from South Africa. I observed the high definition footage and the smooth aerial scenes clearly produced by a drone. Nice video, I thought, but I didn't realize that there was something I missed. All of the scenes had been touched up with Video FX. Small details had been added to enhance the story. To highlight the main character’s trip to the airport, the team digitally added windows to taxis, showing only the main character’s window open. The final result was indistinguishable from actual windows, showing reflections of the trees as they passed by. Another product the team showed me was a 3D animated police officer character that they would later make into animated shorts for distribution on social media. The goal would be to distribute across africa once a major satelite bouquet picked up their content. I asked them if they could potentially make a feature animated film. They said that was part of the strategy. Beleke, is a graduate of Gebeya, a technical school that takes university graduates in computer sciences and provides them with industry driven specialist training to make them into specialist Dev Ops, API engineers, Backend Engineers and Web Developers. The company’s business model trains engineers on behalf of corporate customers before placing them in roles at the end company. The 25% management fee taken by the company enables fair compensation for the engineers, reducing the likelihood they will seek direct employment from companies they would otherwise have no chance of contacting. Gebeya, Inc.’s founder is a Senegalese software engineer working at GE, Accenture and a range of small tech firms prior to deciding to create an engineering school with four co-founders to clone himself in software engineering. The network they created prior to the school, Coder’s 4 Africa, had chapters all over Africa, including in Nigeria, where they potentially inspired Andela prior to that company’s founding. Gebeya recently consolidated with coders 4 Africa bringing an additional 3500 software developers to the 500 trained by Gebeya. Gebeya’s goal is to reach 5,000 developers, each generating 20,000 in revenues, brining the overall total to 100 million. Given their six figure contracts with global customers and the seemingly unlimited need for engineering talent globally, this lofty goal seems somewhat plausible. Startups with a need to scale up their prototypes or established firms needing to recruit software engineers can find fully trained specialists at Gebeya who will work remotely from Addis Ababa or any of the satellite offices, ready to go. I asked Amadou, the CEO if his engineers would be ready to work at Facebook, he said “Absolutely.” The future of Africa seems to be brightest along this path. The days of exporting t-shirts mass produced by teams of unskilled laborers are over. The new export, to the rest of the world as well as to customers within the continent, is creativity. Training graduates in the high value added skills of software development and expanding to the creative areas of media and social media can provide value added services that appeal to global and African audiences and provide technology solutions for major firms everywhere. This type of employment generates higher incomes than working in factories. With all of that extra income, they can just buy the t-shirts.