The 4th industrial revolution in Africa: The next great frontier

By Jacques du Preez

Analysis in brief: The Fourth Industrial Revolution is now underway and is set to forever change the way in which economies relate to each other in the global market. This is a vital opportunity for the rapidly developing African economies to assert themselves as vital hubs in the international manufacturing sector.

What is the fourth industrial revolution?

The 4^th industrial revolution [1], otherwise known as the ‘Digital Industrial revolution’ or ‘Industry 4.0’, or simply ‘4IR’ is a broad term used to describe the ongoing global conversion of labour-intensive manufacturing processes toward incorporating robotics, artificial intelligence (AI), big data, customer service personalisation and other forms of digital innovation, pointing to a future where the knowledge economy and the manufacturing sector are in effect, inseparable. Like earlier industrial revolutions, those quickest to utilise these new technologies will reap the most benefit. Some estimates place the profits reaped by early adopting firms at almost 120%, with a measly 10% for those who only adopt these new technologies later on. Far from being at a disadvantage, Africa’s lack of legacy infrastructure might prove to be a key ingredient in securing its industries’ positions in the new global economy that the 4IR will bring about. Industrial growth in this context can be viewed through two key focus areas: the conventional development of an industrial base and the fostering of a local knowledge economy.

The new dawn for African heavy industry

Since the turn of the millennium African nations have enjoyed stable growth rates, with major regional economies often topping the charts as the fastest growing economies in the world. From the 1990’s onward China’s industrial boom fuelled a massive jump in commodity prices, driving African growth at a healthy 8% between 2000 and 2008. Service sectors, particularly finance [2], grew to meet this new demand. Although major economies like South Africa and Nigeria are presently struggling with slow growth rates, all signs point to the continent experiencing steady GDP growth through the 2020’s. Estimates place business-to-business spending in Africa at over US$600 billion by 2030. By that same year the African working age population will stand at over 1 billion [3] and half the continent’s population will be situated in urban areas [4], perfectly positioned for the estimated 100 million [5] labour-intensive manufacturing jobs Africa is projected to absorb from the far east by the middle of the century.

Governments on the continent are well aware of these opportunities. The African Union’s Agenda 2063 places heavy emphasis on the manufacturing sector as the key driver of growth in the coming decades. Traditionally, manufacturing in Africa has been focused around larger economies (Egypt, Nigeria, South Africa), but recent years have seen former industrialised states undergo economic transformation as well. Since 2012 Ethiopia’s capital, Addis Ababa, has adopted an ambitious plan to expand its manufacturing base, utilising its large population, low labour costs and access to maritime transport through Eritrea to build 14 industrial parks across the country. By February this year the project had created 64,000 jobs, chiefly in the leather and textiles industries [6]. Morocco has pursued a similar policy under the auspices of its Industrial Acceleration Plan 2020, utilising its close proximity to European markets and competitive labour and transport prices to develop value-added industries for its commodity exports.

However, 4IR will inevitably lead to the redundancy of labour-intensive production [7] and place a far bigger premium on technical and analytical skills. In South Africa, where both labour and transport costs are high, many manufacturers are looking to rapidly incorporate automation and digitisation into their production processes. This has in turn promoted growth in support industries [8] which assist firms with making these types of transitions. Such support industries in turn rely on externalities like a healthy tech sector to help cultivate this essential know-how.

Seeds of the future: The African knowledge economy

The African technology sector has, given its infrastructural restraints, performed remarkably well. The proliferation of internet access on the continent has fostered a whole generation of young tech entrepreneurs, with new African start-ups accumulating vast sums of investor capital each year. Partech estimates that these inflows amounted to US$1.2bn in 2018 alone [9]. The vast majority of these FDI inflows are bound for Africa’s big three economies – South Africa, Kenya and Nigeria. However, their share has been steadily decreasing as smaller nations begin to eke out their own niches. In 2015 the big three received approximately 80% [10] of Africa’s inbound start-up investment, however in 2018 this dropped to around 61%.

The key driver for the African tech sector is the desire to overcome developmental challenges [11] at local levels. The African public sector has jumped on board with initiatives like The Rwandan government-planned construction of an ‘Innovation City’ [12], an African answer to Silicon Valley, and the establishment of a drone network for the delivery of life saving medical supplies [13] in remote areas. However, high value fields with global industry applications like AI and Machine learning still have a limited footprint in Africa, confined mostly to larger regional economies where more institutional support can be found for such endeavours. Examples include South Africa, which boasts two internationally acclaimed research institutes at the Universities of Stellenbosch and Witwatersrand, as well as the presence of corporate institutes, such as IBM in Accra and Google labs in Nairobi and Johannesburg. Despite this, the International Institute of Management Development still ranked South Africa 43^rd out of 66 nations for its overall digital readiness, and was the only sub-Saharan country listed thereby highlighting the level of progress that is yet to be made.

This tendency for tech hubs to situate themselves in regional economic centres and to only employ small cliques of highly qualified technical experts also raises a concern that Africa might experience the same rise in inequality [14] that has overshadowed the development of tech hubs elsewhere in the world. Indeed, the largest critique of the 4IR is that it brings benefit to only a tiny minority of advantageously positioned technocrats at the expense of the vast majority of people who will eventually be phased out of the global workforce. This careful balance between competitive growth and public benefit will be one of the key policy challenges of the 21st century,

The policy environment

Whether the 4IR will ultimately be an opportunity or a threat to African societies and economies will come down to the type of policies that African governments pursue in response. To achieve true success in the 4IR, African states will have to generate holistic policy frameworks geared towards two key obstacles – infrastructure backlogs and lack of investment in human capital.

Concerns about Africa’s infrastructure constraints, as they pertain to the manufacturing sector specifically, can be summarised as i) shortfalls in transport infrastructure and ii) poor coverage of key utilities like electricity and telecommunications access. Altogether the infrastructure gap is estimated to cost African economies 40% of their productivity and impeding GDP growth by 2% [15] per annum, while around 650 million people still lack reliable access to electricity. In 2012, African Union member states adopted the Programme for Infrastructure Development in Africa (PIDA) [16], which aims to construct some 54 energy and 234 transport projects, including a high-speed rail network, by 2030. A recent progress report [17] shows that PIDA has taken past criticism of African development projects into account and has made considerable effort to enlist the local private sector to realise the efforts needed.

Another problem is Africa’s chronic shortage of critical skill sets. Skills shortages have throttled the developmental potential of many African nations since independence, and the 4IR will only compound these issues if left unaddressed. Chief to blame is the failure of African educational systems to achieve key outcomes in vital fields, such as science, technology, engineering and mathematics (STEM) up to this point. This is true even for more developed African countries like South Africa [18] and Kenya which experience a throttling effect on the amount of students pursuing STEM subjects at tertiary levels, which in turn limits the pool of technicians, researchers and scientists [19] that both the public and private sectors can draw upon to staff the data-reliant organisations of the future. To this end, the South African Department of Education has unveiled plans to implement robotics and coding as subjects from grades R to 9 [20], specifically citing the 4IR as motivation to do so. Such policies should ideally become a pan-African standard if broad-based participation in the 4IR is to be achieved. Equally vital is support for business leaders and academics who specialise in automation and AI. South Africa has led the way [21] in this regard, organising competitions, tech shows and trade fairs where researchers, entrepreneurs and investors can network. Recent years have seen these opportunities open to a wider audience across Africa, including Rwanda’s recent hosting of a pan-African Tech Fair, and the Deep Learning Indaba which itself has hosted events in over 30 African countries.

The Bottom Line

The stage is set for Africa’s manufacturing sector to become one of the great economic success stories of the 21st century. If sound policymaking and favourable macroeconomic conditions prevail, Africa could well be on its way to securing a vital spot in emerging global value chains.

Key Points

• The 4^th industrial revolution is about to upend the status quo on how we look at business processes, particularly with regards to manufacturing and consumption patterns.
• Developing regions such as Africa are well placed to adopt these changes early on in their economic development.
• African nations’ industrial policy has borne fruit both in labour-intensive industries and in the African knowledge economy, which are both growing at significant rates.
• Major obstacles do exist, particularly in terms of skills and infrastructure backlogs, however forward-thinking African policymakers are responding to these challenges in setting the stage for a manufacturing boom in the coming years.

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