This commentary is the result of a joint research project between the Tony Blair Institute for Global Change and ODI. The paper was written by Max Walter, Chema Triki, Dr Guendalina Anzolin, Dr Dirk Willem te Velde, Dr Prachi Agarwal and Dr Yohannes Ayele.
Africa’s population is projected to grow from 1.3 billion today to more than 2.4 billion by 2050 – that’s over 40 million additional people each year on average. Given that numerous studies over the last decade have warned that a large proportion of routine task-based jobs are susceptible to automation, leaders in Africa are understandably concerned about their economies’ job-creation capabilities in the era of artificial intelligence (AI) and automation tech. They must navigate the challenge of driving job-rich economic transformation in the context of disruptive global technological change and currently have access to little evidence-based advice to support this process.
Recent and ongoing technological breakthroughs are heralding a fourth industrial revolution (4IR). AI-powered industrial robots are becoming increasingly autonomous and versatile. Machinery, components and final products are beginning to generate large amounts of data through wireless sensor networks. Using big-data analysis, cloud computing and AI, companies are starting to harness this data to pioneer innovations such as predictive maintenance, process and task optimisation, user-led product design and automated waste reduction.
African policymakers are increasingly worried that this means manufacturing will no longer absorb low-skilled labour at scale and that labour-intensive manufacturing can no longer be the first rung on the ladder of economic transformation. On the other hand, many policymakers wonder whether African economies can skip this traditional rung and jump straight into digitally enabled services in the 4IR economy. Clarity on these questions is hard to come by as the existing evidence on the impact of 4IR technologies on employment and skills is both scarce and ambiguous, more so in developing countries in general and especially in Africa.
In this context, the Tony Blair Institute for Global Change and ODI have conducted original research and analysis that aims to empower African policymakers to navigate the 4IR. The report, Economic Transformation in the Fourth Industrial Revolution: Insights From African Manufacturing and Guidance for Policymakers, provides a framework, based on a global literature review, for thinking about the threats and opportunities posed by disruptive manufacturing technologies for economic transformation, job creation and investment in Africa. It also presents firm-level, on-the-ground insights from 33 in-depth interviews and factory visits to uncover the “what”, “why” and “how” of manufacturing-technology adoption on the continent. These interviews focused on three industries – automotive, textiles and apparel, and food and beverage – in three countries: Kenya, Ghana and South Africa. From these insights the report derives recommendations for the design of smart industrial policies to drive inclusive economic transformation in the context of rapid technological change.
The research delivered some surprising findings. First, much of the new technology being adopted is not primarily aimed at replacing human labour. 4IR technologies are enabling unprecedented precision, quality consistency and resource efficiency in production environments where most routine tasks were already done by machines – just less smart, less connected machines. Second, and related to this, in Africa’s most advanced manufacturing plants new digital production technologies that are being adopted are, by and large, not leading to net job losses. These firms are growing and, therefore, hiring more employees, even as several tasks become increasingly automated. Third, looking to the future, firms expect an incremental process of integrating 4IR technologies during the coming decade, not a rapid transformation. Fourth, and less surprisingly, these new technologies are fundamentally reshaping the skills profile of manufacturing.
As African leaders increasingly focus on adapting industrial policies to the 4IR in a way that generates job-rich growth, our report highlights three key messages for policymakers.
1. Pursue the Window of Opportunity to Develop Labour-Intensive Manufacturing Sectors Through Smart Industrial Policies
African economies can capitalise on a window of opportunity to create jobs in labour-intensive manufacturing activities. The comparative advantage of cheap labour will remain relevant for some time, but only in some subsectors. A window exists to drive labour-intensive manufacturing growth through industrial policies aimed at these subsectors. But to be globally competitive in the medium to long term, governments will need to upskill their workforces and develop better digital infrastructure, research and development (R&D) capabilities and technology-related services to create jobs in the context of the 4IR.
Several African economies are pursuing this window of opportunity with considerable success. For example, large warehouses full of sewing stations are appearing in West Africa, where most governments have ambitions to build export-oriented garment industries. Several innovators are experimenting with highly automated sewing machines, while the familiar models are becoming smarter (they can track each worker’s output, for example), but industry leaders agree that cutting the worker out of the equation won’t be economically viable anytime soon. Similarly in Morocco, where the automotive industry has created 220,000 direct jobs (with a large employment-multiplier effect), auto-industry leaders are actually reducing automation levels in many cases due to the rigidity and scale-intensity of highly automated production technologies in the sector.
2. Prepare to Upgrade Manufacturing Sectors Into 4IR Technologies, but Don’t Skip the 3IR: Build a Strong Industrial Base First
Building or maintaining a globally competitive economy will increasingly require embracing 4IR technologies. In some sectors – such as large-scale beverage production – the use of advanced technologies is already widespread. In others, 4IR technologies are gradually being adopted, leading to productivity and efficiency gains. Most developing countries are already lagging significantly behind the global frontier on 4IR readiness and adoption. African manufacturing sectors will need to embrace 4IR technologies to keep up.
Services tied to manufacturing will be an increasingly important job creator. It is clear, though, that these providers depend on the presence of local manufacturing clients, especially in initial phases. In African nations in which 4IR technologies are being rolled out, the “servicification” of manufacturing is beginning to emerge, albeit at a modest scale. In Kenya, global 4IR technology providers are partnering with local “system-integrator” small and medium-sized enterprises – teams of mechatronic engineers and data specialists who help manufacturers install, integrate and make the most of new tools such as energy-efficiency monitoring and optimisation tech. In South Africa, Jendamark is a similar service provider that has also begun developing proprietary 4IR hardware and software for sale to both domestic and international manufacturers. These 4IR service sectors are an exciting new avenue for job creation.
This underlines the broader point – that economies cannot jump into the 4IR without a strong industrial base. The 4IR builds on 3IR technologies, engineering and organisational capabilities, and is primarily about integrating and connecting existing 3IR technologies into a “smart factory”. These industrial capabilities emerge via learning-by-doing, as firms engage in industrial activities in a supportive and competitive environment.
African governments should adopt smart industrial policies to foster the development of competitive industries – this is the foundation of entering into and thriving in the 4IR. In addition to basic economic stability and crosscutting infrastructure and skills, this requires targeted efforts aimed at building competitive advantage in strategic priority industries. Across these industries, governments should actively foster technology adoption and innovation; this includes addressing constraints to technology adoption as well as supporting technology-related services such as system integration, software engineering, data analytics and machine maintenance.
At firm level, a range of policy tools can help firms achieve the economies of scale that make technology adoption viable, generate demand for technology-related services through targeted subsidies, incentivise R&D through grants and tax measures, and provide information and training on available technologies. At ecosystem level, policy interventions can support technology R&D and incubation, utilise public procurement to create demand for technology-intensive activities, strengthen key infrastructure such as internet, electricity and data centres, leverage data-localisation requirements to spur local data-storage and processing services, and foster 4IR skills development and concessional financing for technology adoption.
3. Foster 4IR Skills and Actively Manage the Transition of the Workforce Into the 4IR Economy
The net effect of 4IR-technology adoption in African manufacturing on the number of jobs so far appears to be neutral or positive. 4IR technologies are not primarily about replacing human labour with machine work; rather, they are about adding a digital layer to existing manufacturing technologies to enable increased production efficiency, scale, quality and versatility. Firms at the forefront of technology adoption tend to be growing thanks to productivity gains and consequently hiring more people. Early adopters of technology gain a competitive advantage, can produce more with less and price their outputs more competitively. Lower prices – if the price elasticity of demand is reasonably high – then incentivise more demand for the product and result in an overall boost to the industry. These frontrunner firms also tend to retrain most employees whose tasks have been automated and move them to other operations such as sales and distribution or machine operation and maintenance.
However, technology adoption is fundamentally changing the skills profile of manufacturing labour both in Africa and globally. Increasingly automated production lines require fewer manual workers and more engineering and IT graduates. Factories are also hiring more young people familiar with digital technology.
This shift will continue to create a need for new skills while also causing labour-market disruption and adjustment costs. African governments should foster the development of 4IR skills in close collaboration with manufacturers and technology leaders, including through public-private training institutes, technology- and skills-transfer agreements with international firms, and training incentives for local manufacturers. Labour-market disruption, meanwhile, can be managed using measures including job-search assistance, “retrain and retain” incentive schemes to reduce technology-induced lay-offs and reskilling support for laid-off workers. In addition, new forms of social protection may be needed to provide an income cushion for workers as they transition to new employment opportunities.
Finally, effective delivery and coordination mechanisms will be key. From the establishment of a Chief Scientist’s Office that identifies frontier technologies and their application in industrial activities to international partnerships with global technology leaders, new forms of public policy and public–private partnerships with coordinated support from different government agencies are needed to deliver the policies required to embrace and manage automation effectively.
The success of the Asian Tigers in the 20th and early 21st century served as an example of how to rapidly transform an economy, with labour-intensive manufacturing the first rung on the ladder. African leaders – for whom job creation is an existential concern – have kept a keen eye on the Asian Tigers. However, in the era of the 4IR it has become far less obvious whether – and how – the East Asian blueprint can be followed in Africa. A new policy paradigm is needed for nurturing job-rich economic transformation in Africa in the new era. This research has produced key takeaways for the African political leaders forging this new paradigm.
First, there is a window of opportunity to build labour-intensive industrial sectors – something African governments should proactively foster. Second, economies need a long-term 4IR vision, but thriving in the 4IR economy requires a strong industrial base. Building competitive manufacturing sectors should continue to be at the core of most countries’ economic-transformation strategies; leapfrogging into the digital economy will not create the broad-based growth that is needed. Third, integrating 4IR technologies will create labour-market disruptions that need to be actively managed through new forms of social security and reskilling. Acting on these three imperatives will not be easy, but failing to do so will mean falling ever further behind.
The authors express their gratitude to the Kenya Association of Manufacturers, the Association of Ghana Industries and all companies that generously shared their time, insights and perspectives during this research. The authors would also like to thank Phyllis Wakiaga, Nicole Oloo and colleagues working on technology and digitalisation at the Tony Blair Institute for Global Change for their input, advice and support. Any errors are the authors’ own.