South Africa’s SMEs should be first in line for a digital upgrade

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum. Author: Lwazi Bam, Chief Executive Officer, Deloitte

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We are facing one of the greatest leadership crises of our era. Business leaders, labour and policy-makers are routinely presented with narrow-minded views that technology, digitalization and automation are detrimental to jobs and job creation. This dystopian perspective creates fear and paralysis, inhibiting strategies and policies that encourage and incentivise the “digitalization” of economies.

Decision-makers fear criticism, civil backlash and the unknown implications of their choices. The failure to embrace and progress towards the digitalization of economies will however have far greater unintended consequences and a negative impact on jobs and economic prosperity.

Without the emblematic Fourth Industrial Revolution (4IR) shift, businesses will progressively become less competitive against their global peers, eroding their economic relevance and the jobs they sustain. Ironically, the exact efforts to protect jobs from technology may perhaps be the biggest cause of job losses in the future.

We therefore have to embrace the paradox that while jobs might be destroyed by technology, only technology will be able to create new ones.

Digitalization, though, is a very broad term. In the context of this article, “digital” is the collective leveraging of exponential technologies, disruptive business models and thinking, in the pursuit of efficiencies, higher productivity, and new product and service-enabling innovation. It eliminates the diminishing returns of labour, physical infrastructure, balance sheets, proximity to markets, industry expertise and tenure; traits defined as strategic barriers to entry. This has created a fertile medium for the development and growth of the digitally enabled entrepreneur – a much-needed catalyst for economic activity, GDP growth and job creation.

According to the Organisation for Economic Cooperation and Development (OECD), small- and medium-sized enterprises (SMEs) form the backbone of many developed economies, accounting for 99% of all businesses in its member countries. These businesses, in turn, contribute to about 70% of all jobs and in excess of 50% of value creation.

Although most sectors of South Africa’s economy are characterized by a high concentration of large corporations, accounting for the bulk of economic output and exports, small businesses and entrepreneurs play an important role. According to the Banking Association of South Africa, SMEs make up 91% of formalized businesses, provide employment to about 60% of the labour force, and account for roughly 34% of GDP in South Africa. As we debate the “jobs” theme in South Africa, emphasis needs to be placed on supporting small businesses and entrepreneurs, enabling collective and inclusive growth.

Undoubtedly, the 4IR context of automation and cognitive technologies will eliminate jobs; mostly in search of improved efficiencies and productivity, and to some extent to reduce reliance on expensive, rare and specialized skills. It is futile and economically reckless to think otherwise.

The same technologies will, however, create demand for new skills and new jobs. The World Economic Forum (WEF) conducted an extensive study, leveraging insights from business leaders cumulatively responsible for 15 million people across a variety of sectors, skills and seniority levels globally. The study concluded that for every job that is lost to 4IR popularised technologies, 1.74 jobs will be created. This is a net gain in employment!

The consequent economic knock-on effects of these new jobs, although not quantified, would undoubtedly be significant and further contribute to net employment. Unfortunately, the net new jobs will mostly remain in the domain of the educated and available to those with the means to access and afford the cost of sourcing new 4IR-related skills.

There are, however, green shoots of positive developments, led by a new breed of digitally literate micro-entrepreneurs. These entrepreneurs have not “invented” the technology, but instead leverage technology platforms to create self-employment and economic sustainability. These digitally literate micro-entrepreneurs are creating employment and economic activity in lower income level segments in the following key areas:

Distributed value chains involve a category of people who are generally unemployed or under-employed, and are able to fulfil a last-mile service gap by trading in their skills or available time. These platforms link people with capacity and/or skills constraints to people with the time and skills needed. This is done in a way that is dignified, safe, peer-reviewed for quality of service, and enables higher wages compared to traditional constructs. These platforms have been effective at creating jobs in developed, low-unemployment economies. Their contribution to employment is proven, significant and immediately tangible.

It is often impossible for small organizations or individuals to justify the ownership of an asset because of affordability, or the ability to use the full capacity of the asset. The converse applies in which access to the asset through a sharing mechanism enables the same benefit as asset ownership. For example, digital platforms, such as Nigerian start-up Hello Tractor, that provide access to key equipment on a pay-per-use basis allow companies and individuals to reap economic benefits from utilizing technology without the associated costs of owning the equipment. This in turn enhances efficiencies and competitiveness of small organizations and levels the playing field for them in relation to large ones. Collaborative consumption has many forms and different levels of sophistication. At the extremes of technology, companies like 3D Hubs enable the collaborative consumption of 3D printers, allowing the 3D printer to become a shareable asset within its community.

Digital platforms increase levels of transparency, which combined with the network effect of connecting communities and frictionless transaction flow, is reviving sectors that have lost their appeal due to a lack of transparency, reduced levels of trust and relevance to specific demographic groups, and tedious or complex manual processes. These sectors are being revived by digital platforms that economically empower micro-entrepreneurs – or allow them to further empower other micro-entrepreneurs. Stokfella and Live Stock Invest are good examples of platforms that have shaken up entrenched concepts.

Digital technologies present both risks and potential. The way forward is not fixed nor will it be easy, but with the right leaders, and a mindset of urgency, curiosity and a preparedness to challenge existing paradigms, we have a good chance of achieving an abundant future. We also need citizens and entrepreneurs that see opportunity in this new era open to doing things that have never been done before – in ways not previously considered, leveraging technology never before available.

Collectively, we will need to encourage digital and technological disruption to drive innovation and productivity.