South Africa is in crisis. Policy paralysis, corruption, rolling blackouts, water cuts and a stagnated economy unable to address unemployment, poverty and inequality have created an economic malaise.
A cursory glance at the top stories for major outlets provides greater insight into this convergence of forces. On the way to a technical recession, says one. A challenging six months in store for South Africans, says another. South Africa’s productivity plummets with a weak economy, warns another.
The statistics certainly back these headlines. In the third quarter of the year, the economy contracted by 0.7%, and the projections for the fourth quarter are equally low. The finance minister has warned that growth will fall short of the 2% mark this year.
While unemployment has decreased slightly, we cannot ignore the impact of an almost 34% unemployment rate and the warnings that this will rise to 40% by 2030. As we interrogate our economic story and beyond, South Africa faces difficult choices and an uncertain trajectory.
This is the juncture at which we find ourselves. Faced with a trough, we need to imagine a new path for South Africa. The impact of our negative lag reverberates through the African continent.
A recent Organisation for Economic Co-operation and Development (OECD) publication demonstrates that Africa’s growth rates in the aftermath of the Covid-19 pandemic hinder its convergence with other global economies. This negative growth lag stunts the continent’s development and has pushed more than 29 million people into extreme poverty.
Last week, the World Bank projected that sub-Saharan Africa’s economy would grow 3.3% this year, down from 4.1% in 2021. This was cut from a prediction of 3.6% made in its last biannual update in April, as the bank slashed projections for Nigeria and South Africa, two of Africa’s largest economies, and Ghana, which is battling an economic crisis. This was coupled with warnings of stagflation as low growth and rising inflation present a distressing economic context.
The Fourth Industrial Revolution (4IR) and the parallel reality of the pandemic have ushered in, to quote my favourite music group, REM, “
style="font-weight: 400;">the end of the world as we know it”. We have established commissions, crafted recommendations and emerged with the right rhetoric, but this is demonstrably not enough.
Our duty stretches beyond our borders as we respond to a rapidly changing world and weather the impact of a deeply interconnected world. Research by Accenture suggests that 4IR technology could expand Africa’s economy by $1.5-trillion by 2030 — about 50% of the continent’s current gross domestic product (GDP) — if it could only capture 10% of this fast-growing global market.
For South Africa, artificial intelligence (AI) can potentially double the growth rate and increase profitability by an average of 38% by 2035. But are we ready to capture this opportunity?
It is anticipated that technological innovation will emphasise supply-side chains with long-term gains in efficiency and productivity. Furthermore, the cost of trade will diminish, launching new markets and increasing economic growth. These more efficient markets will stoke higher economic growth.
Yet, there is also great fear that inequalities will increase if we do not create an enabling environment for this shift. How do we leverage this opportunity to gain rather than lose in the 4IR? In our urgent and desperate quest for economic recovery, how will we reframe our policies, systems and practices in line with the paradigm shift unfolding around us and emerge from the crisis? We shall fall behind without the right policies, processes, infrastructure, education, and incentives.
Already, we are trailing significantly behind the so-called AI superpowers as the overarching goal of the 21st century has emerged as a quest for dominance in the AI sphere.
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In 2018, Forbes declared that China was on its way to becoming the first AI superpower. In 2020, former Google CEO Eric Schmidt warned that China would usurp the US in AI capabilities by 2025. While over 20 nations already have AI strategies, China’s is by far the most ambitious.
The power battle between China and the US is playing itself out and the race to become a superpower is close. George Shen from IBM argued just a few weeks ago that China’s use of AI in industries through facial recognition, surveillance technology and population control is unparalleled.
However, an interrogation into AI research and development (R&D) indicates that the US still leads the pack. Yet, China’s gross expenditure on R&D has increased from 1.9% of the GDP to 2.4% in the past decade alone. South Africa spends 0.6% of its GDP on R&D, which needs to increase to 1%.
China spent more than $550-billion on R&D in 2020, double its 2012 expenditure. Between that and the $650-billion US R&D budget, the two countries spend more than half the world’s total of $1.7-trillion. Chinese president Xi Jinping has significantly moved science to the front of his presidency. It will be intriguing to see how this quiet battle plays out in the next few years, particularly as tensions between the nations rise and collaborations stall.
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 ignited the boom in South East Asian countries at the time.
We are now on the precipice of another boom. In this regard, if we do not invest heavily in AI and big data, countries that do will exploit inefficiencies in our markets — and to our detriment.
Policy expert Eleonore Pauwels studied the geopolitics of AI and observed that the amount of money invested by the US into AI startups between 2012 and 2016 was $17.9-billion, followed by $2.6-billion by China and then $800-million by Canada. Pauwels concluded that, given this asymmetry of investments, countries that lag behind would be cyber-colonised.
Given all these issues, what is to be done to reset our economy? Firstly, we need to reform our politics. As I write, I am not sure who the mayor of the City of Johannesburg is and this is a course of concern. We need to learn the politics of coalitions fast. We must reform how we elect Members of Parliament. As I write, I do not know who represents my constituency as an MP, and this is also a cause for concern.
Secondly, we need to modernise our economy. South Africa is the most industrialised country in Africa. However, there are significant gaps that need to be filled. For example, we have not sufficiently modernised our manufacturing by intensively infusing technologies such as AI in production. Consequently, our productivity has fallen, and production is emigrating to the East, leaving swathes of unemployed and poor people.
Thirdly, we need to reform our labour markets. Our labour setup is stuck in the Second Industrial Revolution while automation is changing the very mode of production. Our trade unions must adapt to the 4IR era, or they will die. We need to re-educate our labour force to understand modern ways of production. Failure to do this will result in a labour force that is unfit for the economy of our times, resulting in a much poorer South Africa.
Fourthly, we need to integrate our economy with the rest of Africa. The African Continental Free Trade Area (AfCFTA) is a good start, but we need to remove the barriers to the immigration of high-quality skills. We need to harmonise economic trade with those of the rest of Africa.
Fifthly, we need to reform our agricultural sector. We have to infuse this sector with more technology to increase productivity. As South Africa becomes more of a desert due to climate change, we need to counter that with technology for better agricultural production.
Sixth, we need to increase connectivity in South Africa and the rest of the African continent. The World Bank estimates that every 10% increase in mobile internet penetration in Africa could generate a 2.5% increase in GDP. Currently, over 60% of Africa is covered by 4G mobile phone networks, and there are an estimated 570 million internet users. What is required beyond connectivity is accessibility and affordability of power supply and devices as well as an enabling environment.
In conclusion, and to quote Acha Leke, Landry Signé and Vera Songwe, “the path to more robust and resilient African economies will be a challenging one, calling for boldness, imagination, and tenacious implementation on the part of policymakers.”
This is the spirit of the 4IR and the approach we must take if we have a fighting chance at a lasting Africa rise narrative and a much-needed jolt for the South African economy. DM