The fourth industrial revolution in Africa: potential for inclusive growth?

Inclusive Economy10 Aug 2017Wim Naudé

Around 170 million Africans will enter the continent’s labour market between 2010 and 2020. African policymakers consider industrialization the way to create employment opportunities for these new labour market entrants. With new technological changes and the rise of robotization, how can industrialization ensure inclusive growth?

Where will the 170 million African labour market entrants find jobs? Agriculture is already characterized by surplus labour and low-income growth, and mechanization on farms may further limit job creation in future. Likewise in the mining sector, most new technologies are job-replacing. Even in spite of high commodity prices, the number of jobs in mining has declined in many of Africa’s largest mineral exporters.

Most future job opportunities in Africa will be in service sectors, including in household enterprises. While this will be welcome in terms of shifting labour out of farming and keeping unemployment from rising, it means that African economies will suffer from ‘productivity-reducing structural change’. Productivity growth is slower in the service sectors than in other sectors, particularly in service sectors requiring less-skilled labour and benefiting less from technology. If wages depend on labour productivity, then the wages of lower-skilled, poorer workers will grow slower than those of more skilled workers. ‘Productivity-reducing structural change’ will thus imply less inclusive growth.

To minimize the reduction of productivity and provide jobs for the millions of job seekers, African policymakers have in recent years put renewed emphasis on the promotion of industrialization. But despite many efforts, Africa has so far failed to industrialize. In 2013, manufacturing contributed only 9.9 percent on average to African countries’ GDP, less than any other region of the world. There is even evidence of premature de-industrialization. Current attempts to promote industrialization in Africa need to take into account the reasons for the continent’s failure to industrialize.

Another problem is that the very nature of manufacturing is changing irrevocably. Technologies such as automation (robotics), the industrial internet and ‘big’ data analytics are enabling a ‘fourth industrial revolution’ (4IR). These technologies are causing the loss of low-skilled routine jobs, of which Africa has a disproportionate share. It is estimated that up to 66% of all jobs in developing countries are at risk. The 4IR is furthermore leading to a ‘re-shoring’ of manufacturing back to advanced economies meaning that African countries may need to rethink their current approach, which is based largely on attracting foreign direct investment into manufacturing activities that require low-cost labour, such as assembly. With robots increasingly doing much of the work in factories, the question African policymakers have to ask themselves is “how important is low-cost labour when you don’t actually need labour?

Reducing the demand for low-skilled routine labour, the 4IR however, does not only threaten inclusive growth and equality in Africa, but also offers opportunities for “new forms of manufacturing that would trigger a period of valuable growth”. These new forms of manufacturing include more competitive small-scale manufacturing through additive manufacturing, mass customization, cheaper automation and cheaper input costs. Brynjolfsson and McAfee describe “cheap robots-in-a-box that make it possible for small business owners to quickly set up their own highly automated factory, dramatically reducing the costs and increasing the flexibility of manufacturing”. These ‘new forms of manufacturing’ also include new business models of bringing goods and services to the consumer such as products-as-services, the sharing (collaborative) economy, and digital services and exports. These are markets that are currently underdeveloped in Africa but are likely to have substantial potential given Africa’s geography, demography and on-going urbanization.

Trends such as urbanization and climate change will create problems and opportunities that new technologies, together with clever entrepreneurs, can address. In the process, they can also deliver growth that is more inclusive. For example, Africa’s rural populations will be the main beneficiaries of the use of drone technology to protect crops and livestock and deliver medical supplies. Rwanda is building the world’s first ‘drone port’ to be used in deliveries of medical supplies and other goods in a country with a very rugged, mountainous terrain. And recently Liberia piloted the first ‘Ebola-fighting robot’ that disinfects rooms and kills the Ebola virus in a hospital in Monrovia. The upshot is that the new business models associated with the 4IR will have positive spill-over effects, such as better alignment of the needs of African consumers with producers, greater accessibility to goods and services, better use of natural resources and less waste.

Given the above, the recommendation for achieving inclusive growth in Africa is to pursue industrialization strategies that can harness the opportunities and minimize the threats of the 4IR. Such strategies need to have entrepreneurship and education at their core, focusing strongly on science, technology, engineering, mathematics and management – skills predicted to be increasingly in demand in the 4IR. The hoped-for increased investment by individuals and governments in education and in new businesses is risky, particularly so in Africa with its vulnerability to conflict, natural disasters and often difficult business environment. Therefore, the expansion of social security, which is still under-provided in Africa, should be the bedrock of policies aiming at inclusive growth through industrialization.