OPINION: Fourth Industrial Revolution seemingly holds the key to growth in South Africa
Opinion / 2 February 2018, 3:30pm / Kingsley Makhubela
JOHANNESBURG - Despite global economic uncertainty, the appeal of Africa’s sizeable and growing consumer class has continued to drive foreign direct investment (FDI) projects, particularly in telecommunications, financial services and retail.
With digital transformation gaining momentum, telecommunications remained the leading sector by investment in Africa, attracting almost one-fifth of FDI projects on the continent, according to Ernst & Young’s 2017 Attractiveness Programme Africa.
Most of the activity was centred in South Africa, where FDI projects more than doubled to 41 in 2016 from 19 in the previous year, notably in the consumer and retail sectors.
With its sophisticated financial system, solid infrastructure and supportive polices for encouraging investment in a range of industries, South Africa attracts the lion’s share of foreign direct investment into telecommunications on the continent.
In South Africa’s bustling cities and businesses in both the formal and informal sectors, the spectacular success of international apps such as Uber and locally developed apps show the opportunity for disruptive technologies in this growing emerging market.
With the Fourth Industrial Revolution expected to have a negative impact on low- and semi-skilled jobs it is critical for the country to grasp the opportunities offered by technological innovation.
Despite this, there are far greater benefits in the long run in supporting economic growth.
Technology can make processes more efficient and the provision of services more reliable. It is also a vital link in providing access to knowledge and information and bringing previously excluded populations into the formal economy.
However, careful handling with consequence management of this transition in the interim is required that provides support and assistance to the low skilled and semi-skilled, along with a willingness to invest and develop the skills required in the long-term.
Wim Naudé, the Dean of the Maastricht School of Management, argued in a recent paper that the Fourth Industrial Revolution offers opportunities for “new forms of manufacturing that would trigger a period of valuable growth”.
According to Naudé these new forms of manufacturing include “more competitive small-scale manufacturing through additive manufacturing, mass customisation, cheaper automation and cheaper input costs”.
It is these opportunities that are being embraced by South Africa’s digital entrepreneurs.
In Cape Town, for example, Silicon Cape, a non-profit organisation, aims to support the development of high growth, high tech businesses by building and catalysing the technology ecosystem in the Western Cape. It has become a hub of innovation for tech start-ups and established players testing out new and disruptive technologies.
Many investors have learnt that it’s important not only to create technologies for consumption, but to develop the ability and knowledge for technology to actually be built in South Africa. A look at South Africa on Angel List shows there are 1418 tech start-ups looking for funding in the sector.
Some of the country’s biggest success stories - such as e-government initiatives and electronic payment platforms have enabled the country to leapfrog technologies.
Many of the more established firms have built local research capabilities to encourage innovators to develop home-grown applications for real world problems. Facebook, which has about 16million South African users - 14million of which access the site from mobile devices - is also adapting its product to suit local conditions.
To encourage the uptake of internet services, it offers Free Basics, which offers zero-rated services at no cost in a bid to encourage people to get online for the first time. With people joining at a staggering rate, and in most cases doing so on mobile via 2G connections, this makes sense.
Not only do the opportunities for telecommunications provide economic, but social benefits too - creating a vital link between governments, businesses and citizens, access to knowledge and information and bringing previously excluded populations into the formal economy.
America’s tech giants - Microsoft, Oracle, Google, IBM - have established a firm presence in South Africa, and used it to successfully springboard into the rest of Africa. But it’s also the small tech start-ups that present an opportunity for international investors to seed disruptive technologies.
South Africa’s government has recognised this, implementing growth-friendly policies which have led to being a regional outperformer in terms of comparatively low levels of investment-related risks. The country is the region’s largest intra-regional investor and its sound regulatory framework protects investors and commercial and legal practices are on a par with those in the developed world.
With exponential growth in mobile and smartphone penetration, combined with the expansion of internet and broadband access, South Africa has seen the gap between its formal and informal markets slowly lessening.
Opportunity for disruptive technologies to drive financial inclusion, enable entrepreneurs to grow and enhance service delivery in sectors such as health and education have opened up and attracted global interest.
For example, a dedicated stock exchange has been launched in South Africa to cater specifically for small businesses by giving them access to the formal capital markets. It holds the promise of growing the economy from the ground up, spreading economic benefit and creating a more inclusive model of economic growth.
Connectivity remains an on-going challenge, but companies such as Google and Microsoft are using new ways to connect more South Africans. Through projects such as Project Link, companies invest in solar plants as well as using white spaces technology - which used unused radio spectrum to provide Wi-Fi connectivity at much lower cost - has helped bring more South Africans online. As the cost of data and devices comes down, opportunities for disruptive technologies are on the rise.
Access and affordability remain key considerations in emerging markets, and particularly in South Africa where small and medium-sized enterprises are the real drivers of growth, jobs and other economic opportunities.
Recognising the potential of improved connectivity and disruptive technologies to transform its economy, the government has driven a number of initiatives to encourage investment.
The Department of Trade and Industry established Invest SA as a one-stop facility to assist potential investors with the procedures required to meet regulatory requirements to grow the economy and create jobs.
There is in both government and business a realisation that the country needs to embrace the opportunities presented by the Fourth Industrial Revolution so as to capture its benefits to drive more inclusive economic growth.
A failure to do so will not only leave South Africa as a follower in the technological revolution but will mean its people will find themselves increasingly marginalised from the global economy and unable to compete in a world of automation and AI.
That is why both the public and private sector in South Africa are investing in the development of skills and human resources to harness these opportunities. It is only in this way that the true potential of integrating technologies into development policies - especially in health, education, agriculture and other important measures of economic progress - will be fully realised.
Dr Kingsley Makhubela is the chief executive of Brand South Africa.
The views expressed in this article are not necessarily those of the Independent Group.