This background note was presented at the High Level Panel on "G7 & Africa" held at the Ministry of Foreign Affairs, Rome, 5 May 2017.
What does innovation mean for Africa today?
There has been much talk about the Fourth Industrial Revolution (FIR) and its impact on the global economy. The basic idea is that the new wave of technological innovation would not only shift the production possibility frontier through substantial gains in total factor productivity, but would also radically alter consumption, communication, and social organization patterns.
The issue for the continent is how to exploit this new wave of technological innovation to address its still enormous challenges. There is scope for optimism. Africa can build a growth path that does not mirror that experienced by Europe, the US, or even South East Asia, with its reliance on heavy manufacturing and hydrocarbons. The main question is how innovation can help Africa to sustain its current structural change pattern, based on a growing share of services rather than industry, and skip the industrialled stage of the development process (i.e. leap-frogging). In concrete terms, this would require that the benefits of innovation accrue directly to the informal sector and services - including agriculture - that absorb the bulk of the continent’s work force.
What are the key issues at stake and the actors involved?
Africa faces major opportunities from innovation. To seize them, it should not focus on generating path-breaking technologies, but instead on how to implement technological change in its peculiar environment. This is far from a passive role. In fact, one of the FIR’s key features lies not in its high technological content, but in the crucially important generation of implementing solutions that would make it relevant for both production and consumption.
Innovation is much less likely to generate resistance in Africa than in the industrial world, because of the small proportion of population employed in the formal sector. Nevertheless, technological change has already affected vested interests in Africa. For instance, the mobile revolution has greatly reduced the scope of intermediaries by providing real-time price information to agricultural producers. Are these resistances likely to strengthen and to become an insurmountable obstacle to the application of innovation? Smart technologies in mining can greatly reduce the labour needed for extractive industries. In places like South Africa, this may become a major issue, because of the particular role unions play in the country’s political landscape.
The features of the FIR require that the private sector plays the lead role in its diffusion. Nevertheless, the sharing of experiences and knowledge remain essential to level the playing field and ensure equal access to opportunities. International platforms would be useful for this purpose. Regulation will become an issue, because the existing frameworks developed during the Second Industrial Revolution, when the pace of change was much slower. Thus, international organizations could help regulators to deal with the faster pace of technological change, without stifling the process. Governments could also limit the push back that may come from existing monopolies whose position could come under threat from innovation (e.g. national power companies vis-à-vis smart micro grids).
What kind of interventions have proved to work/not to work?
Africa – like, for that matter, the rest of the world – has seen little success in policy actions to directly promote innovation and its use. This does not mean that policies do not matter, quite the contrary! Too often excessive regulations have hampered innovation diffusion. Take the case of mobile banking. Many Central Banks around the continent have reacted negatively to it, because they feared that it could jeopardize financial stability or to protect the existing banking industry. Policies that are too active and try to identify “winning ideas” can be easily captured by vested interests and may actually produce adverse effects. Moreover, policies can pose significant obstacles to innovation when they try to protect the interests of those who stand to lose from its spreading (e.g., cab drivers vis-à-vis car sharing services).
Thus, devising policies that can effectively help innovation becomes a challenging task. However, a basic principle seems to have been established. Governments should follow enabling policies, rather than directly promoting particular innovations. For instance, education systems that provide people with the skills required to participate in the digital economy are paramount. Similarly providing affordable and fast internet access is essential, as the “Silicon Savannah” experience in Kenya has shown. Moreover, placing as much policy and service-related information on the web as possible goes a long way toward empowering citizens. Governments could provide traditional services through cloud-based delivery. The example here is the e-notary service in Morocco that has the potential to facilitate the on-line provision of credit by allowing block-chain technology to provide for collateral safely.
How is the future scenario of innovation in Africa most likely to evolve?
Africa has done well since the beginning of the century. It has experienced a period of strong growth that has translated into higher per-capita income and improved development indicators. While high international raw-material prices -- which have prevailed until 2014 -- certainly helped this favourable performance, improved economic fundamentals and policies remain crucial factors. Nevertheless, Africa needs to address significant challenges in order to reduce poverty by transforming its economy. Innovation, as exemplified by the FIR, has the potential to transform those challenges into opportunities to enhance living conditions across the continent. Which are the challenges/opportunities?
First of all, the demographic dividend. Africa has an increasingly very young population. The new wave of technological innovation can provide major entrepreneurial opportunities that could boost productivity and defuse the threat of radicalization from growing youth unemployment.
Second, the financial sector. Banking coverage has definitely increased, particularly in countries that have benefitted from the mobile-banking revolution, but it remains inadequate. The internet of intelligent things, matched with the development of secure block chain technology and mobile banking, can greatly reduce information asymmetries that hamper access to credit for small and medium enterprises.
Third, agriculture. Africa has the largest acreage of not-exploited arable land in the world. Moreover, agricultural productivity in the continent is remarkably lower than in other regions – one of the key reasons for high poverty. The scope for improvement is substantial. Innovation could be key to closing the gap. There are already digital platforms that provide farmers with customized advice on seed choice or planting timing and patterns.
Fourth, the lack of infrastructure has held back Africa’s economic potential for too long. Without adequate energy supply and transport, infrastructure economic activity cannot take off in the region. Renewable energy constitutes a major opportunity to get things right from the beginning. Smart grids can now integrate renewable energy sources with the grid, while creating instant markets where surplus producers/consumers can trade with deficit ones. Smart vehicles and drone technology could make moving goods around the continent much easier and safer.
Fifth, Africa’s markets are poorly integrated and, although on the rise, interregional trade is still low. Innovation can play a crucial role in building and integrating the regional market which has the potential to become the true engine of growth for the continent thanks to demographic trends and rapid urbanization.
By adopting cutting-edge technologies, Africa can bypass the industrial phase in which developed countries invested in now cumbersome technologies. Innovation can not only help Africa grow, but also improve living conditions by facilitating access to water, food, energy, health care, and education.
How should the International Community and Africa engage in a shared dialogue on innovation?
Despite repeated failures in attempts to conduct industrial policies, Governments seem to be struggling with the idea that services and agriculture may drive growth in the continent and often waste scarce resources in support of traditional industries. Some observers (e.g., Dani Rodrik) believe that development cannot take place without traditional industrialization. Opening the discussion on the impact that innovation could have on productivity in agriculture and services could help dissuade African governments from chasing old industrial dreams. Sharing international experiences on how to create an environment that allows entrepreneurship and innovation to blossom would be important. In addition, platforms like the AfDB-sponsored “InnoLab” that allow sharing of knowledge and entrepreneurship experiences across the continent could help innovation diffusion.
Domenico Fanizza, Executive Director, ADB-African Development Bank