Fourth industrial revolution can be positive for African manufacturing


June 21, 2018 | 12:19 pm
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A newly released study into prospects for manufacturing in Africa offers a relatively upbeat assessment of the industrialisation opportunities that could arise should governments move decisively to harness the disruptive trends associated with the unfolding fourth industrial revolution.

Titled ‘Made in Africa: Manufacturing and the fourth industrial revolution’, the report was written by the Institute for Security Studies founder and chairperson Jakkie Cilliers, with support from the Hanns Seidel Foundation and the Swedish International Development Cooperation Agency.

It concludes that, while the contribution of manufacturing to gross domestic product has stagnated since the mid-1980s, Africa will not close its income gap with the rest of the world in the absence of greater industrialisation. The report also warns that the current rapid expansion of retail services is retarding growth.

“Rather than improving productivity, Africa’s structural transformation from low-productivity agriculture to low-productivity urban-based retail services has therefore been ‘growth reducing’.

This is because the share of workers employed in high-productivity sectors such as manufacturing is declining, offsetting positive ‘within sector’ productivity growth.”

The study stressed that the labour and capital-intensity of manufacturing was decreasing. Nevertheless, without moving up the productivity value chain “Africa will remain poor”. Reversing the prevailing trend of premature deindustrialisation would require a “huge effort” by governments in support of the expansion of their productive sectors of economy.

Furthermore, the social and economic rewards associated with targeted interventions to support industrialisation could increase Africa’s average yearly growth rate to 2040 by two percentage points to 6.5 percent and reduce, by 200 million people, the number of Africans living in absolute poverty.

The fourth industrial revolution offered Africa opportunities for “leapfrogging”, as well as to take advantage of the likelihood that some goods would be produced and consumed in regional rather than global markets.

“African countries must begin by trading among themselves, integrating their isolated markets. Such an approach he argued will eventually make it possible to modernize African agriculture, potentially an important source of food, income and employment opportunities.”

The first industrial revolution spanned 1760 to 1840, epitomised by the steam engine. The second started in the late 19th century and made mass production possible. The third began in the 1960s with mainframe computing and semi-conductors.

The argument for a new category – a fourth industrial revolution – is compelling. New technologies are developing with exponential velocity, breadth and depth. Their systemic impact is likely to be profound. Policymakers, academics and companies must understand why all these advances matter and what to do about them.

Perhaps most importantly for African countries, then, renewable energy offers the possibility of devolved, deep and broad access to electricity. Many have still not enjoyed the benefits of the second industrial revolution.

The fourth industrial revolution may finally deliver electricity because it no longer relies on centralised grid infrastructure. A smart grid can distribute power efficiently across a number of homes in very remote locations. Children will be able to study at night. Meals can be cooked on safe stoves. Indoor air pollution can basically be eradicated.

Beyond renewable energy, the Internet of Things and blockchain technology cast a vision for financial inclusion that has long been elusive or subject to exploitative practices.

And also beyong all the positives that go along with the fourth revolution, there are some elements of risks involved and these comes in different dimensions. No revolution comes without risks and one of this case is rising joblessness.

Developing countries have moved away from manufacturing into services long before their more developed counterparts did and at fractions of the income per capita.

The employment shares of manufacturing, along with its value addition to the economy, have long been declining in industrialised nations. But it’s also been declining in developing countries. This is unexpected, because manufacturing is still the primary channel through which to modernise, create employment especially by absorbing unskilled labour and alleviate poverty.

Looking ahead, African countries should avoid a proclivity back towards the import substitution industrialisation programmes of early independence. The answer to premature deindustrialisation is not to protect infant industries and manufacture expensively at home. Industrialisation in the 21st century has a totally different ambience. In policy terms, governments need to employ systems thinking, operating in concert rather than in silos.

Rapidly improving access to electricity should be a key policy priority. Governments should view energy security as a function of investment in renewables and the foundation for future growth.

More generically, African governments should be proactive in adopting new technologies. To do so they must stand firm against potential political losers who form barriers to economic development. It pays in the long-run to craft inclusive institutions that promote widespread innovation.

There are serious advantages to being a first mover in technology, and as a result of this, governments should begin to start building clear strategies that entail all the benefits of a fourth industrial revolution. If not, they risk being left behind.

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June 21, 2018 | 12:19 pm
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