When you zoom out 10,000 feet - what’s happening to the economy is a result of globalization failing. As I write this, the Nigerian stock market has dropped more than 90% in dollar terms versus its 2007 highs - while the population has expanded by over 70 million people (a full Canada).
The birth rate in Nigeria is 5.24 births per woman. So you can’t say this is due to demographic collapse. So what’s going on?
During this time, we’ve seen mass internet connectivity increases in Nigeria. In 2007 - connectivity was about 5-6%. In 2024 - connectivity is about 50%. 100 million users.
So - we have epic increases in the digital economy in Nigeria. We have massive increases in the population. And an imploding equity and currency market.
If the technological utopian globalization theory were true - we’d see a huge number of consumer tech applications being built in Nigeria. The problems with education would resolve themselves via the opportunity to learn for free from the internet. Much of the world’s functioning software is open source so you can’t say it’s gated.
But there is not a single widely adopted digital global application made in Nigeria. There is not a single cryptocurrency based in Nigeria, despite the fact the country has 10+ million active crypto users (one of the largest user bases on earth). There is not a single AI model on any leaderboard from Nigeria.
It doesn’t matter if people use technology, or have access to it via the internet. Because ultimately, the problem in Nigeria is a governance problem. Smart and competent Nigerians simply leave. The global nature of the tech economy allows them to do so. Massive cryptocurrency adoption in Nigeria means they can even send money back home without it ever touching the government rails.
If you were a smart Nigerian why would you work within a system that confiscated your IP and your wealth and exposed you to random risk factors?
So - the technology that was supposed to democratize the world, actually massively accelerates brain drain. Local governments cannot easily regulate the flow of people. And now - markets are telling us we’re at a tipping point, that even the US Department of Defense foresaw over a decade ago in its paper “Failed State 2030: Nigeria A Case Study”.
The lesson of Nigeria is that even if you 10x a country’s internet connectivity, mobile and PC adoption, and grow its population - it basically does not matter if the country’s government doesn’t improve. And in fact - a country’s population becoming technologically capable more or less guarantees the best and brightest people will leave for more lucrative opportunities elsewhere. Which guarantees that the government will not improve.
The difference between the digitization of the economy and the industrialization of the economy was that industrialization grew large fixed assets that could not be easily ported outside of a country’s borders. Industrial assets would therefore create a tax base which could be reinvested in local populations. Digitization is inherently the opposite - actually removing the best/brightest people and destroying local tax bases. By its very nature - the digital economy is portable.
There is no putting the genie back in the bottle. Starlink will vastly accelerate the global internet connectivity trend. And allow the best/brightest in every developing market to skill up - and subsequently leave. Thus - Nigeria - far from being an exception, is almost certainly going to be the rule. Which is exactly what we are witnessing globally.
This has played out in asset markets outside of Nigeria as well. The MSCI Frontier market index total return is negative since its 2007 highs. The MSCI Africa (ex South Africa) is down 47% from its 07-08 highs. MSCI Latin America is down 28% from its similar highs. Emerging markets have delivered all the volatility of small cap or tech stocks with none of the returns for over 15 years because of this phenomenon.
It’s worth noting that the Syrian refugee crisis - which sparked a political crisis across the EU, originated from a country of 20 million people. Nigeria is a country of 218 million people. The size - in people of Brazil.
Now the counterpoint could be that maybe these countries can grow via industrialization. But I’d argue this is also not the case. First - the dark secret of industrialization is dirty fossil fuel consumption. The typical American consumes about 20 barrels of oil a year whereas the typical Indian consumes about 1-2. A European consumes about 10.
If the entire global population were to industrialize - there’d be such massive costs of the pollution that it would cause major problems. Developing markets already account for 65% of global emissions. And if you were to double these emissions - you’ll tip ocean warming into an unsustainable place globally. And warming aside - the sheer amount of contaminants in the ocean is already rendering a large amount of seafood completely inedible. Imagine what it’d do at 5x the rate - enough to get frontier markets on track with European consumption levels.
So number one - existing developing countries aren’t going to import the industrial outputs as is already becoming the case with carbon markets, and import controls. And second - because robotics and tech like Full Self Driving, or automatic spraying for tractors are increasingly part of modern industrial equipment - the legacy stuff you build isn’t worthwhile. And this is going to get more extreme with AI.
You can’t do 1920s style industrialization and expect it to be competitive in the new economy. And it might kill us all if you tried.
So digitization is inevitable unless you crack down on your country’s internet. And if you crack down on your country’s internet you become a North Korea style backwater as a base case.
This creates the current configuration, politically in Europe and in the United States. Because Nigeria is so big, and is virtually certain to see mass population exodus (and simply one country of many confronting the exact same challenge of a digitized brain drain)- any democracy with open immigration policies is likely to be rapidly overwhelmed. This isn’t some racist dog whistle - rather - a simple empirical observation that the sheer scale of an African sourced migration crisis is just much bigger than anything that happened in Syria. And the situation described above is structural, and very unlikely to reverse - because it’s a direct result of digitization, which is itself accelerating.
GDP per capita in Nigeria is about $2500 while GDP in France is above $40,000 and the UK is $46k while the US is $76k. So as a Nigerian - you’d be a bit crazy not to move if you had the opportunity. Because the US birth rate is only 1.66, and the boomers are dying off - a phenomenon which is the same across the Western world - democratic politicians are incentivized to be pro-immigration. The largest generation is dying off and their native born children are not procreating. So the right long term bet is relaxing immigration policies - because 1 person has 1 vote.
I think Brexit is a good example of what happens when you attempt Nativism via a political process. Even if you use very anti-immigrant rhetoric to drive a democratic political outcome like Brexit - you end up with simple electoral math, and a large amount of legal and illegal migration. And the West has spent the last 40 years trying to eradicate racism in its societies - so this severely limits the viability of anti-immigrant democratic political movements.
The most recent US non farm payrolls saw vast growth of immigrant jobs and massive decline in “native born” jobs. Which is a trend set to continue more or less indefinitely because of the native born baby bust. And because workers vote, will cement itself shortly.
The problem is - of course, that it’s quite difficult for societies to integrate vast numbers of immigrants with extreme cultural differences. There’s no way the whole thing will be a peaceful or pleasant affair - as Europe/the UK are already demonstrating very clearly. You have a combination of clashing cultural values, and an incensed native population who is upset about their “stock being depleted”. At the same time you have job automation in the industrialized economies coming - so you’ll have more people competing for fewer jobs. Which adds a layer of scarcity to the entire equation.
In short, it will get very, very violent.
Somewhat ironically - this violence, in my view - is likely to cause the very brain drain condition that caused Nigeria to fail, in the West. Nvidia only has 30,000 employees and far fewer engineers. If all 30,000 of them left San Francisco and Seattle they’d barely be a blip on official government statistics. Yet their know-how commands $3 trillion of market capitalization.
As advanced AI models get increasingly small and require less industrial data centers to perform economically useful tasks (which seems quite likely) - you’ll get a migration of the AI economy to where its employees and their families are safe. This will further strain the resources of the democratic states that operate on a 1 person 1 vote basis - who won’t be able to marshal the votes or the societal structures to stop the brain drain.
So I guess, what I’m really saying is that Nigeria is early. It’s worth studying and understanding not because of some sort of esoteric fascination but because it’s the electoral base case in every Western country for the next 20 years.
The economy of bits is completely portable which means that it - will, in fact, move. And as it becomes the AI economy - the economy of models, these models will be able to fit on a hard drive.
The way to think about cryptocurrency - in such a world, is a store of value that transcends the specific locality you’re domiciled in. Nigeria has vast cryptocurrency adoption - which isn’t some sort of democratizing panacea - but rather a way to store value away from increasingly hostile government authorities.
It’s easier to lug around than a bunch of gold bricks, and easier to do business in a digital manner which is the basis of the new global economy and economic value structures.
Writing this has been rather unpleasant. I do think there’s some hope for developing markets - especially in places like India that are increasingly making their country a place their citizens want to stay and work. But it’s important to note that India has “accomplished” this via the suppression of dissent and establishment of a racial and cultural “super majority”. Which isn’t remotely acceptable in Western countries, and I don’t think is ever going to happen because of guilt over the legacy of slavery and colonialism.
This creates a simple mental model for asset prices, and capital flows going forward. There will be massive, and accelerating immigration due to surging frontier market populations along with asset price collapses there. Some countries will handle this well. Most won’t. Political disorder and a breakdown in the rule of law is a base case.
It’s likely that policing technologies and censorship will be adopted en masse to re-establish order. Eventually this will erode the democratic norms that facilitate the rule of law, leading to chaotic outcomes - and in my view, a likely increase in the required equity risk premium in G10 democracies as well as higher taxation and capital flight.
The UK Labour government is a good barometer to see if there’s hope. If you can have an orderly surge in immigration with a strong-man government with a decent mandate, and people don’t leave London - it would be a positive indicator for the West going forward.
The relatively small AI economy will move to where it’s best protected. Much like smart Nigerians left their country as it became unpalatable, so too will top AI talent. And much as crypto helped the top Nigerians get out with their funds in tact, so it will help the talent exodus from the increasingly dangerous West.
Globalization’s failure started by driving a wedge between the world’s rich societies and its poor ones. The problems this caused have happened outside sight and mind. But they are coming to roost. The problems the Western World brought to the developing world are coming home, like a boomerang.
Watch Nigeria. Watch the UK. They are important barometers of what is to come.