How Will The Rise Of Robots Impact Frontier Markets?

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“We’re all going to be replaced by robots soon” has been a common sentiment these days. Manufacturing has felt the impact from industrialization and robots for decades, but with the advent of machine learning and artificial intelligence, even tertiary industries that were thought to be immune to the robotic wave are beginning to feel its impact. Its impact has been felt in the developed world such as in the US, where disenfranchised factory workers outside of city centres were a major source of Trump’s support. But how will frontier markets be impacted in the future? It is worth looking at some of the causes and solutions proposed for developed markets, then seeing how it can be translated to frontier markets.

Why Is The Rise Of Robots Such A Big Issue Now?

The current political climate has made industrialization a major issue, even if immigrants are being blamed for the loss of blue collar jobs. There is a lot of literature and articles out there about how automation has been the main cause for loss of manufacturing jobs, and that it is not just an issue in the developed world – China has been the biggest buyer of industrial robots since 2014. So if manufacturing jobs are even being lost in the manufacturing hub of Guangdong, it is no surprise that areas with higher labour costs have also been impacted.

Technological progress has been a main reason for the push towards automation. Such is the growth curve of technology that every year a piece of technology can be more powerful, more efficient, and yet cost the same. Businesses have also been awash in capital, helped in part by low interest rates. We have seen unprecedented levels of share buybacks in developed markets, and labour costs have been easy targets for cost-cutting measures. It’s nothing personal, it’s just business, and when deciding between capital or labour, capital has won out in a number of industries.

What Are The Main Solutions?

There have been two main solutions proposed so far that have been championed by technology CEOs at the forefront of this issue. The first has been universal income, essentially giving everyone a livable wage and accepted that unemployment will be sustained in a world where robot workers are preferred to human ones. The second more recent proposal has been a robot tax, highlighted by Bill Gates, as a new tax on robots in part to fund programs such as a universal income.

So How Will Frontier Markets Be Impacted?

1. The Main Solutions Are Not Feasible For Most Frontier Markets

A universal income is really only possible in a very developed nation with a decent safety net. For frontier markets, especially ones that are early in the economic growth cycle, a universal income is a non-starter. A robot tax is also very hard for an economy hungry for foreign investment. In fact, since frontier markets are usually behind the curve in terms of political policies, a cutting edge policy like a robot tax is unlikely to be a priority.

2. It Will Be Harder For Commodity-Focused Countries To Make The Leap

Many larger frontier market economies are focused on extracting natural resources, and have had difficulty diversifying away. The usual progression path has been to move on from resource extraction to resource refinement and manufacturing, usually with cheap labour as a major incentive of development. With automation, it will mean international companies are less incentivized to set up manufacturing hubs in frontier markets, opting instead to add robot capacity in existing hubs.

3. Domestic Markets Are As Important As Ever

While the balance between capital and labour has swung towards capital investment in developed countries, the high initial costs and infrastructure requirements of adopting robots is prohibitive in frontier markets. So in markets with larger local populations, there should be enough demand to sustain local manufacturing hubs that will continue to rely on human workers, at least for now.

4. What technology takes away, it also gives

We are not so pessimistic to believe that automation and the rise of robots will make employment obsolete. New technologies will open up new opportunities and avenues of work that have not even been invented yet. However, an educated workforce will be as important as ever, especially as the decline in blue-collar jobs will seem hard to stop. Frontier markets that do not adapt to the future with a well-equipped workforce will find it even harder to catch up to its developed peers.

 

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