There’s no such thing as a free lunch: Why African economies should be concerned about impending automation

Notwithstanding COVID-19’s sudden and damaging blemish on African Foreign Direct Investment, the continent has been subject to consistently increasing foreign investment in recent history. From US$ 1.1 billion per year in the 1970s to US$ 2.2 billion in the 1980s to more than US$ 35 billion on average during the 2000-2008 period, multinationals are looking at Africa as a viable geography for investment^[1].

Apart from boosting the manufacturing sector and exchange rate stability, increased investment also brings about an influx of human capital and new technology. This has reaped many benefits for African economies. Through the provision of social welfare policies for the poor, investments and capital accumulation – there has been significant poverty reduction (based on the Poverty Headcount Index) in the continent^[2]. Even though the absorptive capacity of African nations for new technology is low^[3], institutions are being set up to facilitate the influx of new ideas to reduce the technology gap. However, the benefits from these investments come at a future cost that must be accounted for.

Increased FDI is also indicative of the adoption of automation in places of foreign outposts. For companies automation makes plain sense, the most geriatric neoclassical theories on firms state that they exist for the sole purpose of increasing profits—adopting robots to make tasks efficient to increase productivity does exactly that. This is empirically supported by SelectUSA’s study on the impact of industrial robots on productivity growth, which posited that among all industries, a 1% increase in robot density correlated with an increase in productivity of 0.8%^[4]. Also, it is logical to assume that COVID-19 has increased this pace of adoption, with the physical economy facing transmission risks during the last 2 years^[5].

This trend is apparent in companies with significant investments in Africa. Take General Electric as an example. With their Africa segment of business’s generating revenues of about 3.7 billion dollars (2017) coupled with a presence in 25 African countries, a shift from humans to robots for physical labour would have harsh consequences for the local workforce. This shift to automation is not just assumed in this case, it has been evidenced by the launch of G.E’s own Automation & Controls Solution Platform.

Furthermore, even Vodaphone South Africa, one of Sub-Saharan Africa’s biggest foreign investors partnered with the Indian IT giant Tech Mahindra to completely automate its Customer Ops department^[6]. Now these recent developments, on the surface at least, don’t raise any apparent economic alarms. What could go wrong with lower operation costs, reduced dependency on human factors or increased production output?

However, this shift towards automation is profoundly harmful to the African economy for two fundamental reasons:

1. Skewed Labour distribution: According to the World Economic Forum’s 2016 Human Capital Report^[7], only 6% of Africa can be considered high-skilled, four times less than the world average at 24%. With medium and low skilled jobs in key sectors like agriculture and manufacturing being the immediate target of “4th Industrial revolution”, nations face a prominent challenge to change the composition of their working population.
2. Low internet penetration: With upskilling a necessary solution to rampant automation, the Internet serves as an open-access platform for modern skill acquisition. This poses a problem as Africa’s Internet Penetration Rate was measured to be a measly 28% as of early 2021 according to the IMF^[8]. With medium to low skilled work being replaced by jobs requiring ICT skills, internet penetration has to be improved through policies focusing on both infrastructural development and education.

These attributes amalgamate into a rather sour aftertaste: Mass job displacement. In the same vein, the World Economic Forum’s analysis in a 2017 Executive briefing also outlined the drastic need to reduce skill gaps to prevent exposure to abundant unemployment, leaving little room for any policy “complacency”^[9].

            From a policy perspective, Jerry Kaplan of Stanford University in his book “Humans Need Not Apply” suggests the need of job mortgages to protect the unemployed poor in the short term – so that people can attain modern skills by borrowing against their future earning capacity. As far as internet penetration is concerned, promoting content creation in vernacular scripts would incentivise users to adapt to the internet, making the process of re-skilling easier. Of course, all of this should be effectively tied up with comprehensive education policies with a special focus on 21st-century skills to steer away from dependence on physical, replaceable labour for employment to other creative outlets that can’t be automated.

  All in all, whilst the proverbial “food” of foreign investment and its benefits is being provided to Africa, it is requisite for nations to make profound policy alterations to eat it responsibly.

Bibliography

1. Loots, Elsabe, and Alain Kabundi. 2012. “Foreign Direct Investment to Africa: Trends, Dynamics and Challenges.” South African Journal of Economic and Management Sciences 15 (2): 128–41. https://doi.org/10.4102/sajems.v15i2.148.
2. Anetor, Friday Osemenshan, Ebes Esho, and Grietjie Verhoef. 2020. “The Impact of Foreign Direct Investment, Foreign Aid and Trade on Poverty Reduction: Evidence from Sub-Saharan African Countries.” Edited by Christian Nsiah. Cogent Economics & Finance 8 (1). https://doi.org/10.1080/23322039.2020.1737347.
3. ‌Malikane, Christopher, and Prosper Chitambara. 2017. “Foreign Direct Investment, Productivity and the Technology Gap in African Economies.” Journal of African Trade 4 (1-2): 61–74. https://doi.org/10.1016/j.joat.2017.11.001.
4. ‌“Robots and the Economy: The Role of Automation in Productivity Growth.” 2020. Tradeology, the ITA Blog. December 22, 2020. https://blog.trade.gov/2020/12/22/robots-and-the-economy-the-role-of-automation-in-productivity-growth/.
5. Intelligence. n.d. “Robots Are Immune to Covid-19.” Fdi-Article.herokuapp.com. https://www.fdiintelligence.com/article/77568.
6. Agnew, Richard, and Vodafonewatch2020-05-29T07:44:00+01:00. n.d. “Vodacom Brings in TechM to Push Automation.” TelcoTitans.com. Accessed February 3, 2022. https://www.telcotitans.com/vodafonewatch/vodacom-brings-in-techm-to-push-automation/1696.article.
7. “The Future of Jobs and Skills in Africa Preparing the Region for the Fourth Industrial Revolution Executive Briefing.” 2017. https://www3.weforum.org/docs/WEF_EGW_FOJ_Africa.pdf.
8. “Africa Goes Digital – IMF F&D.” n.d. Www.imf.org. https://www.imf.org/external/pubs/ft/fandd/2021/03/africas-digital-future-after-COVID19-duarte.htm#:~:text=Only%2028%20percent%20of%20Africans.
9. “The Human Capital Report 2016 Insight Report.” n.d. https://www3.weforum.org/docs/HCR2016_Main_Report.pdf.
10. Chui, Michael, James Manyika, and Mehdi Miremadi. 2016. “Where Machines Could Replace Humans–and Where They Can’t (Yet).” McKinsey & Company. 2016. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/where-machines-could-replace-humans-and-where-they-cant-yet.
11. IMFBlog. n.d. “Low Internet Access Driving Inequality.” IMF Blog. https://blogs.imf.org/2020/06/29/low-internet-access-driving-inequality/.
12. ‌Belloc, Filippo, Gabriel Burdin, Luca Cattani, William Ellis, and Fabio Landini. 2022. “Coevolution of Job Automation Risk and Workplace Governance.” Research Policy 51 (3): 104441. https://doi.org/10.1016/j.respol.2021.104441.
13. ‌Vernon, David. 2019. “Robotics and Artificial Intelligence in Africa [Regional].” IEEE Robotics & Automation Magazine 26 (4): 131–35. https://doi.org/10.1109/mra.2019.2946107.

^[1]Loots, Elsabe, and Alain Kabundi. 2012. “Foreign Direct Investment to Africa: Trends, Dynamics and Challenges.”

^[2]Anetor, Friday Osemenshan, Ebes Esho, and Grietjie Verhoef. 2020. “The Impact of Foreign Direct Investment, Foreign Aid and Trade on Poverty Reduction.”

^[3] Malikane, Christopher, and Prosper Chitambara. 2017. “Foreign Direct Investment, Productivity and the Technology Gap in African Economies.”

^[4] Tradeology, the ITA Blog. 2020. “Robots and the Economy: The Role of Automation in Productivity Growth.”

^[5] Intelligence. n.d. “Robots Are Immune to Covid-19.”

^[6] Agnew, Richard, and Vodafonewatch2020-05-29T07:44:00+01:00. n.d. “Vodacom Brings in TechM to Push Automation.”

^[7] “The Human Capital Report 2016 Insight Report.” n.d.

^[8] “Africa Goes Digital – IMF F&D.” n.d. Www.imf.org.

^[9] “The Future of Jobs and Skills in Africa Preparing the Region for the Fourth Industrial Revolution          Executive Briefing.” 2017.