The devastation that the coronavirus has wreaked on the economy is well-documented, and varying statistics have been bandied around about what the economy will look like post-lockdown. The British Prime Minister Benjamin Disraeli once classified three types of lies according to their intensity as “lies, damn lies and statistics”. The reality is that we cannot accurately quantify the impact of the pandemic. It is simply difficult to estimate how many people have lost their jobs, how unemployment will rise, and the knock that economic growth will take. Financial institutions, economists and the likes have in the last few months had a constant slew of revisions to their projections.
In the opening paragraph of the Financial Mail’s latest issue, Claire Bisseker writes, “SA failed to return to its healthy pre-crisis growth path after the 2008 global financial meltdown. Instead, its growth potential more than halved. Covid-19 has further eroded that potential by destroying firms and jobs, fuelling concern that the country could take longer to recover from the pandemic than most.” This is a frank assessment of the fraught context we find ourselves in. It is not enough to say we need change and hope that the mere thought will yield economic reform and growth. We have to be decisive in the steps we will take. If the situation seemed worrying before lockdown, it almost seems dire now.
It is important to note, however, that it is not. Journal articles are awash with tales of countries that were on the brink of catastrophe but which clawed themselves out with the right policies and reforms and went on to see exponential growth. Our current economic troubles are not our prophecy. It is merely a current state that can be subverted.
The caveat is that we need to see implementation rather than continue to have talk shops that yield little change. In 2012, when the National Development Plan (NDP) was launched, there was little criticism about its contents. It was hailed as a sound plan with tangible deliverables. Now, eight years on, we have very little to show for it. In fact, unemployment and inequality have worsened, and the economy has been battered. The latest statistics – which do not even encompass the lockdown necessitated by the coronavirus – confirm this. Unemployment is sitting uncomfortably at 30% while economic growth contracted by 2% in the first three months of the year.
As we battle on, we are also facing a new reality: the Fourth Industrial Revolution (4IR). If the pandemic has produced any positives, it is that it has revealed which industries and sectors are best positioned to digitalise. Technologies such as artificial intelligence (AI), the Internet of Things (IoT), blockchain technology and big data are set to transform every sphere of society – and in many instances, particularly in the last few months, already have. The economic benefits of the 4IR are vast. Accenture research on the impact of AI in twelve developed economies reveals that AI could double annual economic growth rates in 2035 and could increase labour productivity by up to 40%, enabling people to make more efficient use of their time.
Similarly, a PwC report estimates that AI advances will increase global GDP by up to 14% by 2030, the equivalent of an additional $15.7 trillion contribution to the world’s economy. According to Irving Wladawsky-Berger, “around $6.6 trillion of this will come from productivity gains, especially in the near term. These include the continued automation of routine tasks and the development of increasingly sophisticated tools to augment human capabilities”.
It is difficult not to be pessimistic about South Africa’s prospects in the 4IR. While the numbers globally back up 4IR, what is the local case for it? As the pandemic wreaks havoc on the global and local economies and continues to disrupt our lives, now is the time to press reset and ensure that we forge our path within the 4IR. As we eke out ways to revitalise our economy and put ourselves back on a growth path, tapping into the opportunities of the 4IR provides an important solution. This will require us to invest in human capacity development, build AI capabilities, build manufacturing capabilities, invest in infrastructure, incentivise economic participation, modernise our legislation and develop implementation capacity. Doing so will ensure that South Africa becomes more competitive in the international arena.
We cannot move closer to the goals of the NDP, and create a developmental state, without a fundamental rejigging of our policies. In a country already plagued by the legacy of weak state capacity, with a dwindling economy and mass unemployment, there is much to be gained from the 4IR. It has the potential to counter slow economic growth and lagging productivity. Importantly, however, South Africa now has to position itself in such a way that we are ready for this transformation. We risk falling further behind if we don’t.
We need to identify our competitive edge. It is clear that we cannot invest in all sectors of the emerging economy. We need to make choices, and our competitive edge should guide this. America’s competitive edge, for instance, is the creation of new technology. A competitive edge for Asia is the cost of labour even though it is rapidly moving into the creation of technology space. The other is the economy of scale because of the number of people as India and China alone have 36% of the world’s population.
What then is South Africa’s competitive edge? I contend that our competitive edge is the fact that we are on a continent that has 1.3 billion people. However, the 54 nations make this market complex to operate because there are 54 different regulatory regimes to navigate. The Africa Continental Free Trade Agreement (AfCFTA) which was adopted in 2019 is the right direction towards making Africa a single market but the implementation of this will take some time. AfCFTA will not optimally work until we have free movement of people.
The 4IR, much like the NDP, exists as a blueprint for our economy. The focus must now be on implementation and collaboration to ensure its success. We find ourselves in a strained financial position as a country, leaving us with little room to manoeuvre. There has to be greater public and private collaboration, and we should seek to build on existing infrastructure. If we are to subvert our economic trajectory, revitalise growth and stem unemployment, the time to act is now. As Reserve Bank Governor Lesetja Kganyago said last month, “this is not a time to despair”. There is hope, there is a plan, and if we can get implementation right, there is an economic miracle in sight.