Africa isn't short of resources. It's short of population density
Dangote built his fortune on a monopoly concession, then spent $20 billion of his own money to build Nigeria's refinery and become Africa's richest man. But Studwell argues the variable that decides whether Africa can repeat the Asian miracle is the urban market size that comes with population density, not minerals and not aid.
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He traded a four-year monopoly for a factory, and beat the Swiss giants
Aliko Dangote comes from a Muslim trading family in Kano and got his start in soft commodities. Under President Obasanjo he cut a deal with the government: he would get a four-year monopoly on cement imports, on the condition that he build and operate a cement plant locally — at the time Nigeria produced no cement of its own. He delivered, then replicated the model across more than a dozen African countries, beating Swiss multinational cement giants like Holcim. That was the first signal that there was genuinely something to him.
— Joe StudwellThe refinery the government could never build, a businessman built
The Nigerian government had tried repeatedly to build its own refining capacity and failed every time. Dangote spent $20 billion on a giant refinery east of Lagos and got it running, which is what made him Africa's richest man. He then built a urea fertilizer plant next door, which now supplies most of Nigeria's fertilizer consumption, and he has already signed to replicate the same project in Ethiopia, the second most populous country in Africa. The IPO is expected to be heavily oversubscribed, because it is the first time investors can buy a genuinely high-quality listed industrial asset on the African continent.
— Joe StudwellAfrica looks resource-driven only because there was nothing else going on
Pressed on whether this is a resource-curse story, Studwell pushes back: minerals, oil and gas are a far smaller share of African GDP than outsiders assume. The continent looked resource-dominated in the past simply because there was so little other economic activity. Dangote's business is fundamentally demand-driven: population and population density are rising, which is creating real urban markets, and that makes demand for cement, refined fuel and fertilizer far bigger than it used to be.
— Joe StudwellAfrica's growth stalled because there were too few people, too spread out
The continent now has 1.5 billion people, a population density roughly equivalent to Asia's in 1960. Just after the Second World War, Africa had only 220 million people, at a density comparable to Europe in 1500. Studwell argues that is the root cause of weak growth in the past: urban markets determine who buys what you produce, infrastructure is only affordable per capita at sufficient population scale, and concentrating people also deepens the division of labor and raises creativity — 80% of global GDP is produced in cities.
— Joe StudwellIn Africa the most capable actor is the private sector, not the state
Unlike the East Asian ‘developmental state’ model, African governments are generally weak in capacity, and the private sector is often the most capable actor instead — Dangote being the obvious example. Studwell's reason for optimism is that rising population density produces bigger cities and more tax revenue, which in theory should gradually strengthen state capacity. But he concedes that this is still an expectation to be tested, not an accomplished fact.
— Joe StudwellChinese factories in Africa are built to sell locally, not to export
Against the worry that robots and AI will cause Africa to miss the manufacturing window, Studwell answers with numbers: Chinese manufacturing FDI into Africa reached $12.5 billion last year, for a very direct reason. Manufacturing margins inside China are already thin, while producing in Africa for local consumption is more profitable — steel runs $500 to $600 a ton domestically in China and sells for around $1000 a ton in Africa. That explains the Chinese-owned steel mills that have landed in Zimbabwe, South Africa, Algeria and Ethiopia one after another. He also points out that robots are a sunk cost and inflexible, whereas labor in Madagascar at $60 a month can be hired or let go at any time — and under volatile demand, that flexibility beats robots.
— Joe StudwellIndia bet on services and lost to a China that bet on factories
Manufacturing can pull people out of an agrarian economy into a modern urban one at a relatively low educational threshold — the factory itself is the vocational school — and the whole process is something a poor country can afford. High value-added services require far more investment in education, which neither poor governments nor poor individuals can pay for. Studwell uses India as the example: even with the IITs holding up its IT industry, that industry employs only about 6 million people, and India has grown at an average of 4.2% a year since the 1991 reforms, while China, which went all in on manufacturing, grew at an average of 10% a year over the past three decades. His question back to Nigerians: do you want to be India, or do you want to be China?
— Joe StudwellIn a continent where everyone had land, landless farmers are appearing
After the Second World War land in East Asia was extremely scarce, which is what enabled the Chinese Communist Party to take power on the basis of land redistribution, and what pushed the United States to drive land reform in Japan, South Korea and Taiwan. Africa is the opposite: sparse population meant almost everyone had land, and across 55 African countries the one instance of land reform was the overthrow of the feudal Omani elite in Zanzibar. But with agricultural growth now above 4% — the fastest anywhere in the world in 25 years — wealthy urbanites are starting to buy or rent land and push smallholders off it, and for the first time in African history a class of ‘landless farmers’ is beginning to appear.
— Joe StudwellIn their own words · checked verbatim
He spent twenty billion dollars. It's east of Legofs, a huge, huge plant, and it worked, it is working, and not only that, he's expanding it now.
Joe Studwell6:11
It's chaos, but it's productive chaos.
Joe Studwell14:18
I think that telling Africans that they're not going to succeed in manufacturing is very dangerous and very bad advice.
Joe Studwell27:46
any manufacturer who can make use of labor instead of paying upfront for robots is likely to continue to do so
Joe Studwell29:50
The problem in Africa was scarcity of people.
Joe Studwell44:15
Figures
| Dangote pre-IPO raise | $400 million (plus $1 billion of other institutional support) | 3:07 |
| Cost of the Dangote refinery | $20 billion | 6:11 |
| Population of the African continent | 1.5 billion | 10:12 |
| Nigeria's population density | about 250 people per square kilometer | 13:15 |
| Nigeria's annual agricultural growth (since 2000) | close to 6% | 13:15 |
| Chinese manufacturing FDI into Africa last year | $12.5 billion | 27:46 |
| Monthly wage for labor in Madagascar | about $60 | 29:50 |
Glossary
- flying geese paradigm
- The theory that East Asian industries migrate in sequence to lower-cost countries while each economy upgrades a rung.
- resource curse
- The phenomenon where abundant natural resources end up dragging on an economy's long-term development.
- developmental state
- A model in which government directs capital allocation and industrial policy to drive economic development.
- kulak
- Borrowed in the book to describe Africa's emerging class of wealthy urbanites who buy land and squeeze out smallholders.
- demonstration effect
- The policy and psychological chain reaction set off when a country sees a neighbor's development succeed.
How to listen
Investors tracking industrial policy in emerging markets and Africa/South-South trade opportunities, and policy researchers interested in how population, land and manufacturing interact in development.
The opening promotion for the Los Angeles live event, and the closing chit-chat.