South Africa is failing to ride the wave of the digital revolution. What to do

Workplaces are embracing new forms of advanced automation at a rate that suggests an ongoing digital revolution.

Digital technologies such as sensorization, networked data analysis and artificial intelligence make it possible to collect data throughout the chain of production and consumption activities. They also allow the data to be used for other purposes. These include shaping markets and industries, delivering benefits such as reduced production costs and time to market, and increased quality of products and services.

But it is a revolution that is playing out unevenly, across and within countries. This has consequences for the competitiveness, inclusiveness and sustainability of economies.

Countries have varying capacities to make optimal use and integration of these digital technologies. The prerequisites for adoption include, first, a reliable enabling infrastructure. This includes connectivity and energy. Second, there must be fundamental capabilities, such as digital skills.

Middle-income countries like South Africa find these conditions difficult to meet. Indeed, they have been affected by premature deindustrialisation – a lack of diversification and a relative shrinking of their production structure.

Our research shows that the adoption and diffusion of digital technologies by 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. These included manufacturing, engineering and related services, chemical industry, and fiber processing and manufacturing.

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

But the country has the potential for faster progress. First of all, he must take some crucial action. It needs better resourced training institutions and more digital skills. It needs a more enabling infrastructure such as broadband broadband. It also needs 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 foster socially inclusive and ecologically sustainable industrial development. We have also identified 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 metallurgical machinery value chains, some foundries are using artificial intelligence to predict subsurface defects and reduce internal scrap and rework rates. This had an extremely positive impact on three fronts: reducing energy consumption, the 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 added value fresh fruit. This “industrialization of freshness” allows the development of intensive agriculture. The result is more and better jobs.

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

Companies must also be able to coordinate technological change along business chains.

To identify what would help advance digital industrialization, we assessed digital readiness and adoption models at industry and company level. We found a mixed bag.

A mixed bag

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

This was the case in four key functions of the company: supplier relations, product development, production management and customer-customer relations.

The picture was also mixed in the three sectors we sampled. Companies in manufacturing, engineering and related services are more ready than others. They adopted technologies compatible with the digital system in all four business functions. This is not the case for the processing and manufacturing of fibers and the chemical industries.

The limited adoption of technology – and the slow and uneven diffusion – suggests that the process of change will be difficult. But companies have expressed an intention to start using more technology in their production and other structures. They also intend to invest in advanced digital technologies.

Policy framework

A broader digital industrial policy framework would help South Africa accelerate digital industrialization and equip training institutions with better resources and better alignment

Our survey suggests that it should have six related priorities:

  • improved costs, speed and reliability of ICT infrastructure (bandwidth)

  • digital skills policy

  • digital policy

  • financing and investment

  • links with development policy

  • economic regulation, competition policy and data.

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

Overall, digital industrialization will lead to potential tradeoffs and new conflicts in the economy. These cover issues such as employment and new skills required as well as the need for industrial restructuring. There are also fears that digital technologies may widen the gap between large and small businesses. In turn, this will strengthen the existing concentration in the economy. It would be bad for reindustrialisation.

A digital industrial policy must therefore ensure that the benefits are distributed among different types of businesses, their employees and society at large.

This challenge is certainly not unique to South Africa. Other middle-income economies face the same challenges. They are also faced with the need to determine how to integrate 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 then incorporated into a book, Structural transformation in South Africa: the challenges of inclusive industrial development in a middle-income country

About Perry Perrie

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