Wednesday, January 26

South Africa fails to ride the wave of the digital revolution

Workplaces are embracing new forms of advanced automation at a rate that suggests a digital revolution in the making.

Digital technologies such as sensorization, network data analysis and artificial intelligence allow data to be collected throughout the entire chain of production and consumption activities. They also allow the data to be used for a number of other purposes. These include shaping markets and industries, offering benefits such as reducing production costs and time to market, and increasing the quality of products and services.

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But it is a revolution that is unfolding unevenly, between countries and within them. This has consequences for the competitiveness, inclusion and sustainability of economies.

Countries have different capacities to take advantage of and optimally integrate these digitized technologies. Preconditions for adoption include, first and foremost, reliable enablement infrastructures. This includes connectivity and power. Second, there need to be foundational skills, such as digital skills.

Middle-income countries like South Africa are finding these conditions difficult to meet. This is because they have been affected by premature deindustrialization, a lack of diversification and a relative contraction of their production structure.

Our research shows that the adoption and diffusion of digital technologies in South Africa has been slow and uneven. Research and an ongoing digital survey shed light on adoption patterns and the factors that influence them.

We surveyed 516 companies in three key sectors. It involved manufacturing, engineering and related services, the chemical industry, and the fiber manufacturing and processing sector.

South Africa has structural limitations that have limited the development and diffusion of skills and capabilities beyond a few scattered islands of innovation. Limitations include limited productive diversification, its energy system, and a high unemployment rate.

But the country has the potential for faster progress. First, you need to take some crucial steps. You need training institutions with better resources and more digital training. You need a more enabling infrastructure, such as high-speed broadband. You also need a coherent digital industrial policy framework that enables a new industrial ecosystem.

What the research shows

Our research highlights the potential of advanced digital technologies to drive socially inclusive and environmentally sustainable industrial development. We also identify pockets of the South African economy where this is happening.

Some mining companies, for example, have made processes more efficient and reduced waste. Predictive maintenance uses data analysis to identify problems before they cause production failures.

In metal machinery value chains, some foundries are using artificial intelligence to predict defects below the surface and reduce internal scrap and rework rates. This has had an enormously positive impact on three fronts: reduction of energy use, environment and competitiveness.

In agriculture, some producers are using digital technologies such as blockchain and RFID tags. These give farms and their “cold chains” a competitive advantage in the export of high-value fresh fruits. This “industrialization of freshness” is enabling the expansion of intensive agriculture. The result is more and better jobs.

But the effective use of digital technologies requires a reliable digital infrastructure. And companies need skills at all levels. These include programming, web and application development, digital design, data management, visualization, and analytics. Analytics needs a solid foundation in literacy, numeracy, and information and communication technology.

Businesses also need the ability to coordinate technological change across chains of activities.

To identify what would enable progress in digital industrialization, we assessed digital readiness and adoption patterns at both the industry and company levels. We found a mixed bag.

A mixed bag

Many of the companies we analyzed still use manual and semi-automated technologies. A smaller group is fully automated and ICT enabled. The full adoption of advanced digital technologies remains very limited.

This was the case in four key business functions: supplier relationships, product development, production management, and customer-customer relationships.

The image was also mixed in the three sectors that we sampled. Companies in the manufacturing, engineering and related services industries are better prepared than others. They have adopted technologies enabled for digital systems in all four business functions. This is not the case for fiber manufacturing and processing companies and chemical industries.

Limited adoption of technologies, and slow and uneven diffusion, suggest that the process of change will be challenging. But the companies expressed the intention to start using more technologies in their production and other structures. They also intend to invest in advanced digital technologies.

Political framework

A broader digital industrial policy framework would help South Africa accelerate digital industrialization and make training institutions better resourced and aligned

Our survey suggests that you should have six related priorities:

  • improved cost, speed and reliability of ICT infrastructure (bandwidth)
  • digital skills policy
  • digital technology policy
  • financing and investment
  • links with development policy
  • economic regulation, competition policy and data.

It should aim to shape a new industrial ecosystem that allows participants to seize opportunities. The key to this is to improve the government’s ability to implement and enforce industrial policy. And ensure more effective cooperation with the private sector.

In general, digital industrialization will generate potential trade-offs and new conflicts in the economy. These cover issues such as employment and new skill requirements, as well as the need for industrial restructuring. There is also concern that digital technologies will widen the gap between large and small businesses. In turn, this will reinforce the existing concentration in the economy. That would be bad for reindustrialization.

Therefore, a digital industrial policy must ensure that the benefits are distributed among the different types of companies, their employees and society in general.

This challenge is certainly not unique to South Africa. Other middle-income economies face the same difficulties. They also face the need to figure out how to incorporate digital disruption into their existing policy instruments.

The research on which this article is based was conducted through the Industrial development think tank at the University of Johannesburg. The research was later incorporated into a book, Structural transformation in South Africa: the challenges of inclusive industrial development in a middle-income countryThe conversation

Antonio Andreoni, Associate Professor of Industrial Economics, Institute of Innovation and Public Purpose of the UCL and Visiting Associate Professor, Industrial Development of SARChI, University of Johannesburg and Elvis avenyo, Senior Researcher, Center for Competition, Regulation and Economic Development, University of Johannesburg

This article is republished from The conversation under a Creative Commons license. Read the Original article.

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