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Africa and South Africa must embrace 4IR to compete in...

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Opinionista

Africa and South Africa must embrace 4IR to compete in the global economic race

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Professor Tshilidzi Marwala is the outgoing vice-chancellor and principal of the University of Johannesburg, and on 1 March 2023, he will be the Rector of the United Nations (UN) University and UN under-secretary-general. He is the author of the upcoming book, ‘Heal Our World’. He is on Twitter at @txm1971.

Research on the impact of artificial intelligence in 12 developed economies reveals that AI could double annual economic growth rates by 2035 and could increase labour productivity by up to 40%, increasing efficiency.

As many South Africans continue to feel the pinch of the economic crisis, there seems to be a pervasive sense of resignation as to whether the country will ever pull itself out of this crisis. In 1982, US author Chalmers Johnson proposed the concept of a developmental state. This, Johnson explained in his book MTI and the Japanese Miracle, is a state that focuses on the growth and development of the economy, using interventionist policy measures. In Japan, this has led to sustained, rapid industrialisation and long-term economic development.

Asian countries such as Japan, South Korea, Vietnam and Singapore are effective case studies of developmental states that have seen substantial economic growth. The lessons we learn from these countries is that emerging economies should leapfrog in order to become transformational. Leapfrogging is the quick jump in economic development by harnessing technology with consensus achieved by governments, the private sector and citizens – thus enabling development. This is what ignited the boom in Asian countries that opted to tap into manufacturing. The fears of automation already pervade different sectors of society, economy and politics.

Identifying optimal solutions to the expected job displacements requires a rethinking of education, science, technology and innovation systems. Inequities and inequalities of communities can be eliminated through flattening the playing field so that technology does not become a new discriminatory barrier. Though poor and technologically deprived countries can rewrite their own stories and catch up (or even lead) technologically, accounts of late developers managing to do this are a rarity. China (in present terms), Singapore and South Korea in the late 20th century, as well as Japan in the early 20th century, stand out for a reason.

It is worth noting that these nations also did not engineer their economic miracles alone. The “flying geese” theory is a metaphor of how foreign direct investment (FDI) moved from North America to Japan, and then to the other Asian countries, leading to economic miracles in its wake. This theory explains how a country can rapidly develop by focusing on labour-intensive industries which then become the basis for exports to more developed countries as the level of quality improves, ultimately leading to exponential economic development.

As we navigate the Fourth Industrial Revolution (4IR), the argument for a developmental state once again has come to the fore. Characterised by advances in technology such as the Internet of Things (IoT), artificial intelligence, blockchain technology and big data, the 4IR is changing the way individuals and entire societies work, live and interact. In his State of the Nation Address last year, President Cyril Ramaphosa said that leveraging the 4IR is the key to improving education and health, fostering economic transformation and job creation and developing a capable, ethical and developmental state. As he put it, “this is what I believe can help us advance our priorities to speed our transformation. We need to focus on the growth in the South Africa we want.”

The economic benefits of the 4IR are vast. Accenture research on the impact of AI in 12 developed economies reveals that AI could double annual economic growth rates by 2035 and could increase labour productivity by up to 40%, increasing efficiency. Similarly, a report from PwC estimates that AI advances will increase global gross domestic product (GDP) by up to 14% by 2030, the equivalent of an additional $15.7-trillion contribution to the world’s economy.

In his Supplementary Budget speech last month, Finance Minister Tito Mboweni could not have put it better. He said, “[We must] not merely return our economy to where it was before the coronavirus, but forge a new economy in a new global reality”.  

According to the report, increased consumer demand for AI-enhanced offerings will overtake productivity gains and result in an additional $9.1-trillion of GDP growth by 2030. All of this, however, is expected to have a lesser impact on Africa. According to PwC, Africa, Oceania, and some less-developed Asian markets will see $1.2-trillion or 5.6% GDP growth. This is significantly less when compared to China, which is expected to see the most significant economic gains from AI with a $7-trillion or 26% boost in GDP growth, or North America, which is expected to see financial benefits of $3.7-trillion or 14.5% of GDP growth by 2030.

Added to this, we now find ourselves in a vastly different context from last year’s State of the Nation Address. The economy has taken a substantial hit in recent years. News sites were awash with headlines this week of a deepening recession following the release of the GDP figures for the first three months of the year. According to Statistics SA, GDP growth for this period was -2%, making it the third quarter of decline. Importantly, this data represents the state of the economy before the nationwide lockdown necessitated by the coronavirus pandemic was implemented. Forecasts indicate that the fallout from the pandemic in South Africa will be akin to the Great Depression almost a century ago.

In his Supplementary Budget speech last month, Finance Minister Tito Mboweni could not have put it better. He said, “[We must] not merely return our economy to where it was before the coronavirus, but forge a new economy in a new global reality”.  

This brings us back to the conversation around undoing the deindustrialisation that has occurred in the last few years. There have been successful instances of industrialisation in Africa in countries such as Rwanda, Ethiopia and Tanzania. These countries have implemented policies that focus on local manufacturing industries and investor-friendly policies. Yet, as we look to the technologies of the 4IR for alternatives, there are some factors to consider.

According to the International Labour Organisation, the unemployment rate in the sub-Saharan region is only around 6% – but this is because most available work is low-skilled or unskilled. This, in large part, is because of the lack of access to higher education. Of course, this means that a vast portion of the population is not skilled enough to work with and embrace the technologies of the 4IR. Our readiness is another hurdle. According to the World Economic Forum, all 15 African countries assessed for production readiness fall into the “nascent” category. According to Deloitte, when we compare Africa to the rest of the world, the adoption of 4IR is low.

Nonetheless, this is increasingly being acknowledged as important by economic and political leaders, mainly because of the impact that smart technologies can make at a socioeconomic level. The greatest challenges in Africa identified by Deloitte are digital skills, accessibility and connectivity. Out of the 15 African countries ranked, only South Africa fell within the top 50 countries for two subdivisions. Since the 1980s, South Africa’s manufacturing share of GDP has decreased from 25% to around 13% today. Nevertheless, the country still has the most substantial structure of production on the continent. Across the drivers of the production component, South Africa’s performance is mixed.

Overall, in the South African manufacturing industry, the adoption of smart technologies that accelerate 4IR remains at the foundation stage, with some sector differences.

On the one hand, the ability to innovate is one of South Africa’s greatest strengths, because the country has a strong innovation culture and formal entrepreneurial activity supported by a sophisticated financial sector. On the other hand, human capital remains the most pressing challenge in preparing for the future of production, because there remains a shortage of engineers and scientists, as well as digital skills. South Africa needs to improve its institutional framework in order to respond to change, offer a stable policy environment and direct innovation effectively.

We have seen the shift in recent years towards investment in Sub-Saharan Africa. According to the World Bank, between 2000 and 2013, FDI flows into the region increased six-fold to $45-billion, particularly in the manufacturing sectors. This showed a significant shift from the previous emphasis on the continent’s natural resources, which saw investment flow into the extractive sectors. According to Accenture, harnessing digital technologies can generate R5-trillion in value for South African industries over the next decade, particularly in agriculture, infrastructures, manufacturing and financial services.

Overall, in the South African manufacturing industry, the adoption of smart technologies that accelerate 4IR remains at the foundation stage, with some sector differences. There is an appreciation for advanced analytics within the automation and automotive sectors, but manufacturers have not yet explored the real opportunities for advanced analytics. The adoption of Cloud solutions is primarily driven more by consumers than businesses, the main concerns being the fear of cybercrime and privacy issues. Advanced sensor technologies are, with some exceptions – such as in the automotive industry – also still at a foundation stage.

There is, however, interest among manufacturers to take advantage of the potential for better monitoring, controlling and tracking. The use of robotics is mostly at an automated stage and not yet at a smart or advanced stage, with no widespread adoption of additive manufacturing or 3D printing which builds materials through a layering process in South Africa, even though the significance and the potential of this technology are increasingly acknowledged.

Perhaps a critical step will be for African economies to harness digital trade through the African Continental Free Trade Area (AfCFTA) that came into effect in 2019. The agreement brings together all 55 member states of the African Union (AU), with a combined population of 1.2 billion people, including a growing middle class, and a GDP of approximately $3.4-trillion. Already, the possibility of new markets presents new avenues for tech startups and e-businesses. The key, of course, is to continue to harness this potential.

Importantly, we need to be prepared for the shift the 4IR brings so that we can adopt technology that is beneficial to all sectors of our society. Science and innovation have the potential to enable development and are the drivers that will tackle global challenges such as water shortages, climate change, food insecurity and deep inequities. There are solutions that can be posited especially by emerging economies. There is a need to harmonise across both private and public sectors to build the scientific capacity of our country. Universities can unlock deadlocks that may develop directly or indirectly due to the 4IR.

We have to redirect research to explore meaningful and innovative solutions to real-world African problems and tackle the problems of inequality, poverty, health, and development. DM

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