Rethinking Africa’s economic and social development (2)

Various positive projections about Africa’s demographic prospects and preponderance in human resources in decades ahead remain, for now, as projections at the very best, and are vulnerable to confounding variables which could upset such projections in ways beyond contemplation in the very near future or thereafter. Some of those variables are already self-evident in their expressions and impacts. The convergence and fusion of technologies, manifested as blurring of the lines between the physical, digital, and biological spheres that characterise the fourth industrial revolution are no longer far-fetched in Africa, as they are already defining the way of life in the advanced countries.

The emerging technological breakthroughs in robotics, artificial intelligence, blockchain, nanotechnology, quantum computing, biotechnology, the Internet of Things, fifth-generation (5G) wireless technologies, additive manufacturing or 3D printing, autonomous vehicles and digital security devices are all too obvious to ignore, for their increasing ubiquity and pervasive influences in other technologies and economies. Their disruptive effects on industries and countries require keen sense of concern and call for proactive policy responses and governance structures. Africa’s prosperity or otherwise cannot be insulated or extricated from these emerging advancements.

The fourth industrial revolution affects Africa’s global competitiveness overwhelmingly. Considering the information technology (IT) industry, Africa must increase efforts, investment, manpower development and policy attention to gain and sustain competitiveness. IT is a catalyst and leading wealth and revenue generator of all the industries in the service sector. We need to come to terms with the growing relevance of the service sector, the importance of IT and its cascading effect on the global economy as well as its capacity to help other sectors improve productivity, operate more efficiently and innovate faster in the context of IT as a deeply knowledge-intensive industry with cross-cutting roles in various sectors.

It is also time to recognise IT as a driving force in markets, tool for transformative business value across a wide range of industries and markets and a contributor to improved productivity, more efficientoperation and faster innovation. Worldwide IT spending forecast from 2014 to 2019 was projected to grow, rising from $2,081.9 billion to $2,199.3 billion in 2015, to $2.252,9 billion in 2016 and $2,461.1 billion in 2019 (or $2.08 trillion, $2.19 trillion, $2.25 trillion and $2.46 trillion respectively). But in 2017, the global information technology industry surpassed $4.5 trillion, according to IDC, a research consultancy, with spending may eclipse the $4.8 trillion mark in 2018, If growth expectations materialise.

The IT industry is one of the most significant contributors to GDP. Two industry watchers, the IDC and CompTIA, forecast North America will be the source of 31 per cent of the global IT industry’s revenues worth $3.8 trillion worldwide, with Asia following closely behind at 29 per cent, and China fuelling the biggest shift in global industry allocations. In the aggregate, the Asia-Pacific region, which encompasses Japan, China, Australia, India, and surrounding countries, accounts for one-third of the total. By 2032, China is projected to claim the mantle of world’s largest economy. The forecast of the growth in the global share of IT industry by region showed that Africa was to rise from a mere seven per cent to 11 per cent share, while Asia’s was to be on a steady 29, the North America decreasing slightly from 31 to 30 per cent.

The IT industry’s growth and proliferation will depend, to a great extent, on the growth of the service sector in any country or region. The International Monetary Fund (IMF) estimated that the total global economy was worth $77.6 trillion in 2014. The rising profile of service sector is expected to provide reliable insights on its size, globally with an increasingly important role in the global economy and the growth and development of countries as available data show. According to the 2011 World Development Indicators, the services sector accounted for almost 71 per cent of global GDP in 2010 and is expanding at a quicker rate than the agriculture and the manufacturing sectors. Moreover, trade in services is growing at a pace faster than trade in goods since the 1980s. In 2011, commercial services exports grew 11 per cent to $4.1 trillion, with 29.82 per cent coming from developing countries and 2.85 per cent from transition economies.

Considering the continued leading roles played by low income developing countries’ (LIDC) governments in economic endeavours that has progressively moved to the private sector domain, an emphasis on the World Trade Organisation’s (WTO’s) General Agreement on Trade in Services (GATS) seems appropriate here. The GATS applies in principle to all service sectors, with two exceptions. Article I(3) of the GATS excludes “services supplied in the exercise of governmental authority,” notably services that are supplied neither on a commercial basis nor in competition with other suppliers. Examples are social security schemes and any other public service, such as health or education, provided at non-market conditions. These are relevant for Africa in that such services, and many others, albeit qualitatively poor and inefficient, are still held on to by public service institutions.

Much transformation is still needed to put Africa’s economy on sound footing. Overall services output and trade, though small, are growing rapidly, while dismal performance attributable to poor infrastructure and a lack of skilled workers continue to inhibit services sector expansion in the region. Informal sector participation significantly inhibits Africa’s services economy’s growth. Services account for a large and growing share of overall SubSaharan Africa’s economic output. In 2015, the services sector accounted for 58.0 per cent of gross domestic product (GDP), up from 47.6 per cent in 2005. The extent to which individual countries rely on services sector output varies widely. South Africa and Nigeria, two largest economies, dominate the Sub-Saharan Africa’s (SSA) services economy, respectively accounting for 29.9 per cent and 27.8 per cent of services value added in 2015.

The informal sector’s contribution to the SSA’s services economy, relative to the total economy is substantial; although there are no specific data on the informal sector’s contribution to the services economy, estimates suggest that the overall informal sector is large, and services activities generally account for a substantial share of its output and employment. Despite the multiple definitions of the informal sector, this segment of the economy is generally said to include unincorporated private enterprises typically run by individuals or groups on a small scale, not knowledge intensive and not concerned with data and high tech operations. Informal businesses may employ workers who are not covered by a formal employment contract. Common informal sector services providers in SSA include street or market vendors in the retail sector, unlicenced or temporary truck drivers in the transportation sector, local moneylenders in the financial sector, artisans and casual workers mostly excluded in data-driven policies and mostly overlooked or ignored despite their relevance, with consequential losses to states in unrealised taxes and other missed revenues within the informal space.

Informal employment is also often accompanied by low wages and a lack of labour protections, which can lead to bifurcated labour markets associated with higher levels of income inequality and associated problems of poor social and financial inclusion. According to the most recent estimates, the informal sector as a whole accounted for approximately 60 per cent of total employment in the region. South Africa recorded the lowest rate of informal employment, at 33 per cent in 2010, while Madagascar and Mali recorded the highest rates, at above 70 per cent in 2004 and 2005 respectively. However, countries with high levels of informality typically grow at slower rates and trade less than countries with lower levels of informality, due to the lower productivity of informal firms.

In 2015, Sub-Saharan Africa accounted for a small share (about two per cent) of global commercial services trade volume. The growth, however rapid in recent years, accounted for 24.6 per cent of total regional trade in 2015, with commercial services accounting for 16.9 per cent of total goods and services exports and for 29.7 per cent of imports. During 2005 to 2015, exports and imports of commercial services doubled, with exports increasing by 108.1 per cent to $58.1 billion and imports increasing 120.5 per cent to $156.9 billion. Not much of these transactions involved the use of modern IT, partly or wholly.

Juxtaposing India and Africa, with nearly the same population, each over 1 billion, will bring some points to light on Africa’s lower deployment of IT. India’s services sector has been described as a multi-trillion dollar opportunity for global symbiotic growth and the fastest growing service sector in the world, contributing more than 60 per cent to India’s economy and accounting for 28 per cent of the country’s employment. The sector has witnessed good revenue growth from some of the largest and upcoming sectors, including information technology, professional services, telecom, healthcare, space, education, among others. The Indian government has reportedly taken up a number of initiatives such as Digital India, Make in India and Smart Cities to boost the growth of the sector further.

The Indian IT industry has a large global presence, spanning 200 cities across 86 countries in the world and has been growing rapidly over the last few years. The size of the industry in 2015 to 2016 was $143 billion and was expected to reach $155 billion by 2017. IT contributed 9.5 per cent to the country’s GDP and more than 45 per cent in total services exports in 2015 to 2016. Total revenues amounted to $143 billion with majority of the revenues coming from exports, with value standing at $108 billion in 2016, and export market growing at a compound annual growth rate (CAGR) of 13.5 percent. North America is the major destination for IT exports which generates 60 per cent of India’s export revenue. The software and hardware sectors attracted cumulative foreign direct investment (FDI) inflows worth $21.02 billion between April 2000 and March 2016. With 3.7 million people employed, the IT industry is a major contributor to employment generation and the fourth largest urban employer of women, adding to gender parity and social progress.

Back in Africa: in 2015, services accounted for more than 70 per cent of GDP in Cape Verde, Mauritius, and Sao Tome and Principe. Distribution services (including restaurants and hotels), financial, business, and real estate services are large contributors to services output in each of these countries. However, services accounted for a particularly small share of output in Chad, at 33.4 per cent and Sierra Leone at 33.9 per cent in 2015. The agriculture sector accounted for over half of GDP in each of these countries in 2015, at 52.4 per cent for Chad and 61.3 per cent for Sierra Leone.

Employment data for the SSA services sector are sparse; even the overall number of employees in this sector is not known. From the International Labour Organisation’s (ILO) data on service sector employment among the 21 countries for which one or more years of data are available from 2010 to 2015, services accounted for particularly high shares of total employment in Seychelles at 80.4 per cent in 2015, South Africa at 70.6 per cent in 2015, and particularly low shares in Rwanda at 16.3 per cent in 2012 and Madagascar at 16.4 per cent in 2015.

Can it be safely affirmed that Africa is yet to participate profoundly in the IT industry? The global IT industry is valued at $4.8 trillion. Breaking the IT market down into its components, as analysed in a report, the traditional categories of hardware, software and services account for 53 per cent of the total. The other core category, telecom services, accounts for 30 per cent. The remaining 17 per cent covers various emerging technologies that either don’t fit into one of the traditional lots or span multiple categories, as in many emerging as-a-service solutions, including elements of hardware, software, and service. Rapid digital transformation across industries, growing internet penetration, affordable new age technologies such as artificial intelligence, robotics, and virtual reality and rising demand for cost effective IT services in emerging economies are some of the key demand drivers for this sector.

A vibrant service sector provides a fertile ground for a buoyant IT industry to flourish. As long as Africa’s formal service sector remains small, huge innovative opportunities and investment openings will continue to elude the continent. Opportunities from the various areas of job creation in the IT industry, which could boost Africa’s fortunes, can be thus classified by type. The hardware, including computers, servers, storage, mobile devices, printers, and network equipment are huge money spinners. They need software, namely: applications for productivity, business networks, systems, security or mobile apps to function.

The services, which involve deployment, integration, custom development, break or fix, managed services are creating huge contracts for IT professionals globally. Infrastructure, such as internet backbone, communication networks, cloud data centres are growing in importance and use. In today’s economy, information, in form of data, document, voice, video, images, social streams is what drives most day-to-day economic activities. Lastly, the digital business in commerce, communication, collaboration, automation and governance has become inescapable.

Global IT industry was valued at $644 billion in 2014, $657 billion in 2015, and projected at $672 billion in 2016, $687 billion in 2017, $704 billion in 2018, $724 billion in 2019 and $748 billion in 2020. In the US in 2017, nearly 5.4 million individuals worked as technology professionals across the U.S. economy. This represents an increase of 2.1 per cent, or nearly 110,000 net new jobs. Growth in the tech occupation category is also expected to hold steady in 2018. When will it be Africa’s new dawn? When will IT begin to spawn Africa’s growth, economic expansion and employment creation?