Improving employment opportunities in Africa is already a major development policy issue, and given the number of young Africans expected to enter the job market over the next two decades, it will undoubtedly remain a concern. Academic research and think tank reports tend to herald the technologies emerging in the Fourth Industrial Revolution (4IR; Schwab 2016) as game changers that can accelerate the economic transformation of developing countries, leading to the creation of wage jobs in expanding, higher-productivity sectors. African governments are being advised to organize and invest for this revolution by building labor force skills. Yet how realistic are these predictions for Africa? And what might be the consequences for inclusive development if Africans follow this advice?
Moreover, one central question has so far been ignored in the literature: Just how likely are African producers to adopt the new technology? Although economic theory has long argued that if they adopt the technology of developed countries, less developed countries can grow faster and expedite income convergence across countries. Yet in Africa adoption of productive technology has been slow, because the costs can be high and because many technologies do not sufficiently address the current barriers to increasing productivity and profitability that confront African producers. This is especially true in the informal sector (household farms and firms), where the majority of Africans work today, and are likely to continue to do so.
Using new data on trends in output and employment in Africa, we review the main productivity issues that are preventing transformation in the agricultural, industrial, and service sectors, and ask how 4IR technologies might address them. We then ask whether in these sectors 4IR technology might also unlock better job opportunities for African workers.
Our review finds that 4IR technology creates opportunities for businesses to reduce production costs, improve productivity and earnings, and introduce new business lines. Deployment of 4IR technology could lead to creation of new wage jobs, mostly formal, for skilled labor, especially in services, where rather than being labor-saving (as in manufacturing), technology complements labor. Use of digital and 4IR technology could also improve earnings in the informal sector, reducing the potential for worsening earning inequality that is associated with skill premiums in the formal sector.
But the analysis also found that many of the longstanding obstacles to upgrading production in Africa will also deter adoption of 4IR technology; prominent among those obstacles are infrastructure and logistics bottlenecks, insecure land rights, difficulties in importing inputs and exporting output, and bureaucratic red tape. This is especially a problem in agriculture and urban informal services, where technology adoption has so far been slow. If future public investments give priority to the needs of high-tech firms, such as building post-secondary STEM skills, rather than on the productivity issues of the vast informal sector, such as improved access to, and the quality of, primary and lower secondary education, improving rural-urban connectivity, and access to low-cost mobile Internet, earnings inequality will widen and economic development will not be inclusive. African governments should act promptly to meet the dual challenge, which is how to encourage innovation and productivity gains without compromising inclusion.
Report Produced by Africa Growth Initiative