PLAN IDENTIFIES FOUR ‘BIG BETS’ FOR SA’s DIGITAL ECONOMY

South Africa’s latest plan for the digital economy has identified four crucial elements which must be present if the country plans to move into the future in a sustainable and productive way.

THE CREATION OF TENS OF THOUSANDS OF JOBS AND ADDING BILLIONS OF RAND TO THE FISCUS ARE ON THE CARDS IF THE COUNTRY FOCUSES ON FOUR CORE ELEMENTS TO GIVE THE DIGITAL ECONOMY A MUCH-NEEDED SHOT IN THE ARM


The final draft of the ICT and Digital Economy Masterplan for South Africa says they are physical tech production, transformative tech applications, digital platforms, digitally traded services.

PHYSICAL TECHNOLOGY PRODUCTION
It says that with the onset of 4IR, producing the many components of the fast-growing transformative technologies sector is a lucrative opportunity for the country’s manufacturers. It also promises to create employment. While radio telecommunications technologies, electronics and microtronics are already being manufactured at high volumes, their production is still in the nascent stage. The country imported $8.16-billion worth of electronics in 2018.

“The South African manufacturing sector, historically, has struggled due to its constrained domestic market, inhibited economies of scale, and limited access to export markets. This is a missed opportunity given that production of hardware components remains labour intensive and thus the sector is labour absorptive.

“The sector also offers significant opportunities for transformation. Moreover, South Africa can leverage its existing areas of competitive advantage in manufacturing and scale them,” the document reads.

Opportunities include electronics and components for technologies including phones, tablets and wires, sensors and telematics such as lidar, smart meters for water and electricity, and applications such as car and weapons tracking, wildlife tracking for poacher prevention and pet tracking

It also advises that the country invests in electric vehicles and the components and batteries that feed into the growing demand for these cars. This is important as South Africa’s traditional auto export markets are shifting to these vehicles.

It says this sector has already shown strong indicators for transformation. Within the Internet of Things, the IoT Council membership is currently at 45% BEE for small companies, 21% for medium size companies and 34% for large companies. Overall, 37% are black owned, and 29% are minority black owned.

TRANSFORMATIVE TECH APPLICATIONS
The document says that research and development to commercialise and scale transformative tech applications into local and global markets from a South African base can support growth, job creation and transformation.

“In addition to becoming a market leader in the production of various physical technologies, South Africa also has the opportunity to apply these technologies across various economic domains.”

It says the development and adoption of these applications across the economy will require a pipeline of activities, starting with research and development (R&D) of the tech applications at universities, science councils or private companies. This is followed by commercialisation and scaling, which is often undertaken by startups or established firms. But a process of connecting these firms to sources of demand and financing is important for
their sustainability.

It is also paramount that the country identifies the domains with the greatest opportunity to scale – such as agriculture and healthcare.
It says while digital application opportunities in agriculture have largely resided with commercial farmers who have the capacity to adopt new technologies, it has not been the same for small-scale farmers. Tech applications can assist emerging farmers in agriculture, including forestry, to commercialise.

Also, tech applications which enable precision farming in South Africa, such as smart agri- systems or robotics, enabled by AI, present an opportunity to scale to and beyond the region. The document says linkages to retail markets are crucial for the growth and sustainability of small-scale farmers.

It says the application of transformative tech in healthcare services is occurring in pockets across country, but many opportunities have not been leveraged. These include the functions of diagnostics and personal treatment, and information systems that underpin these functions.

AI technology is helping access to quality healthcare services and overcoming the capacity challenges in public healthcare facilities. Telemedicine can include the treatment of patients via platforms and connected devices, and the monitoring them through enabled real-time
sensors and wearables. Also, 3D printing is being applied to automatically produce medical equipment and parts.

“Deepening adoption of transformative tech applications is key to unlocking productivity effects in the domestic economy. The value add to industry as result of such productivity effects across the domains of the economy was estimated to be in excess of R2-trillion over a 10-year period, largely underpinned by IoT and AI technology, as well as platforms,” the report reads.

“There is an opportunity to break incumbency in South Africa given the long history of market concentration and large corporates that monopolise industries. These opportunities in transformative tech application present strong opportunities for entrepreneurs and SMMEs to undertake the process of innovation, commercialisation and scaling.”

DIGITAL PLATFORMS
Digital platforms remove information asymmetries by digitally aggregating demand and supply, meaning that buyers and sellers are visible to one another. And because it helps standardise prices, locating customers or service providers is quicker and easier with fewer transaction costs. Sellers are connected to new customers or suppliers, which is essential for informal enterprises, market opportunities for suppliers are increased, and they provide income- generating opportunities for unemployed youth.

The plan says there are currently around 119 platforms operating across various sectors and serving different functions in the real economy. But they remain in their infancy because the efficiency and cost-reduction effects of demand and supply matching have not been extended to a number of low-skill service sectors, nor have they been scaled.

Also, there is no strong competition between digital platforms operating in a sector. Another reason why they are yet to mature is that South Africa’s platforms largely cater to the relatively affluent middle-class consumer market.

“To achieve serious scale domestically in a competitive environment, digital platforms will have to develop business models that are relevant to low income consumers.”

DIGITALLY TRADED SERVICES
The report says global business services (GBS) are growing at a faster rate and incline trend than many traditional sectors of both advanced and maturing economies. Since the Covid-19 pandemic, it has enabled global organisations to move work to nearshore or far-shore locations to dilute concentration risk geographically brought on by the pandemic.

Automation, digitisation and the instrumentation and interconnection of devices and communication channels has simultaneously accelerated a subset of the GBS industry, known as digitally traded services. So there has been an increase in new forms of IT-enabled globally traded services that
move beyond business services into consumer, social and niche domains.

“South Africa can leverage these opportunities to provide much-needed domestic business continuity solutions and services that can be exported globally.”

It says there are five core areas the country can exploit. They include digital contact centre services to create additional opportunities for the country to provide next generation omnichannel services to global markets such as digitised contact centre services including web chat, social media and instant messaging.

These non-voice, digital channels have the potential to create over 55,000 digital contact centre jobs, as part of the broader expansion of BPO services, by 2030. Also, these types of services can be facilitated via niche, SMME digital-interaction hubs that support larger, voice-based contact centre operations with the potential to create over 600 small and micro businesses within 10 years.

The country has a mature and progressive shared services sub-sector with highly qualified talent and digitised services, which provide sophisticated finance and accounting, human resource outsourcing, IT outsourcing, procurement and legal services to a growing international clientele.

If the country can develop a more robust and vibrant domestic shared services market, it can create over 51,000 globally focused jobs in specialist, niche services by 2030, the document reads. Around 40% of these jobs can be housed within over 400 small and micro enterprises.

The reshoring and bringing contracts and services back to South Africa that are outsourced to other markets such as China and India, will constitute a significant opportunity for growing domestic job creation and should be thought of as a form of export revenue. It is estimated that more than 28,000 jobs in the areas of testing and application development are being outsourced by South African corporates to foreign markets.

Also, township and village enterprises can play a major role and benefit greatly from digital trading platforms and IT-enabled SMME development programmes. These include township-based retail stores linking with urban retail chains, or mobile apps that connect township spaza shops with customers.

Currently Business Process Enabling South Africa, in partnership with the Harambee Youth Employment Accelerator and the Trade, Industry and Competition Department is engaging with stakeholders to start planning the recovery of the sector, and its gradual emergence into a new-look global economy and a new world of work.

This includes implementing a sector growth plan that can create 100,000 net new jobs in five years and scale significantly to 500,000 globally traded jobs over 10 years. This can contribute between R40-billion to R124-billion to the GDP by 2030.

This article forms part of a series of reports on the masterplan. The first can be accessed at https://www.4irsa.org/news/sas-digital-economy-plan-for-the-next-five-years/

By: Amy Musgrave