Christoph Nieuwoudt The fourth industrial revolution is making us richer — and poorer
Fourth industrial revolution making us richer — and poorer
There is enough evidence to suggest that SA, like its global counterparts, is already firmly transforming into a post-fourth industrial revolution (4IR) economy. Some of its prominent industry players have been investing billions in technological innovations and the digital delivery of services to benefit from data analytical capabilities which typically define the 4IR. The question arises how or even whether this affects the wider South African population.
The implications of this revolution are significant. They affect the nature and location of economic growth and employment, but also potentially worsen inequality and trigger policy responses, which goes to the heart of what SA needs to be globally competitive.
The first obvious implication is that the 4IR has had a profound impact on the creation and concentration of wealth. Look at the stock market to evaluate this. The real return over the past five years on the S&P 500 was 13% a year. However, if you exclude the big tech firms (FAANGs, or Facebook, Apple, Amazon, Netflix and Google) it drops to 6%, in line with the past 100 years of returns for the US market. Cumulatively, the big techs provided general stock market investors with almost 50% of additional real return over the past five years.
The picture for SA is similar, but with a much lower base return. For the JSE Alsi the real return of 4% a year over the past five years (to end-September) drops to -2% excluding just Naspers. The return of 4% is far below the 100-year yield of 7%, but the overall negative yield, excluding the largest stock, shows how difficult a period it was in our resource-dependent economy. Including the largest financial services and telecoms stocks, the contribution of 4IR-affected stocks is even larger.
A second implication of the 4IR, with extreme social consequences, is the shift of income growth from lowerskilled to more highly educated and skilled employees. Employment in primary sectors of the global economy has been in long-term structural decline. In SA this is evident when considering mining employment fell from 730,000 in 1991 to 450,000 today.
For agriculture, employment has stayed relatively static at 840,000 over the past decade, in the context of a significant growth in production. Given international norms, this may be expected to continue as the drivers are structural in nature at a global level, with mechanisation constantly increasing productivity.
A similar trend is evident in factories, where due to robotics, fewer highly trained employees produce increasing amounts of higher-quality goods at lower cost. In tertiary sectors the implications are similar. In financial services, many roles are in decline as customers migrate to self-help or digital channels.
The implications for jobs are severe, with only 43% of SA’s working-age population being employed, according to Stats SA. Conversely, unemployment is officially at 27% (37% including those who have stopped looking for work). Unemployment is high at 54% for youth (15- to 24-year-olds) and those with matric (28%) or less education (32%). The post-4IR labour market is not creating the number of entry-level positions needed for fuller employment.
A positive is that unemployment is far lower for older age groups (at 21% for 35- to 44-year-olds, reducing to 10% for 55- to 64year-olds) as older employees have acquired skills over time, or have the experience and resources to become self-employed and run their own businesses. Similarly, unemployment is much lower at 7% for graduates, who in the main have skills sets that at least match many entry-level work requirements.
This shift towards more complex, higherpaid roles is illustrated by disparate growth across different income brackets. Our market research across SA indicates that the highest growth has been achieved in the upper-income segment — growing at 9.5% compound annual growth rate (CAGR) for R750,000-R1.5m-a-year income — with almost as high growth in R300,000R750,000 (8.5% CAGR). But this reduces to 5% CAGR for those earning between R84,000 and R300,000, and those earning below R84,000 have seen a decrease (-2.5% CAGR). This matches what employment statistics are telling us — that the 4IR is creating more rapid growth in specialised, higher-income positions.
Given high growth rates at higher income levels, the question arises whether these are formal jobs, or driven by entrepreneurial self-employment. An analysis of our client base reveals that while a minority of lowerto middle-income customers are selfemployed, this increases with income levels, to a point where the majority of highincome persons work for themselves.
This is an important structural element of our economy — the relatively large and growing base of higher-income entrepreneurs operating their own businesses. Ironically, at low and very low income, below that of the formal employment market, we know from much research that the majority of the working population are also self-employed, as analysis of employment patterns in, for example, urban townships, illustrates.
Our measurement of this sector and how it is growing is made difficult by the predominance of cash transacting in this market. As our efforts to drive financial inclusion, in particular better electronic payments into this market, grow, we are developing a better understanding of just how irregular the income of many in SA is.
A third consequence is the urbanisation of our population and the concentration of income and property values. From a GDP perspective, Gauteng has been growing the fastest, followed by the Western Cape and KwaZulu-Natal. In these provinces, the metros, where the types of firms that benefit from the 4IR are found, are growing rapidly.
Using banking as an example, the size of branches across the country is decreasing — in the case of FNB the square meterage is decreasing by 10% a year, while the number of branches remains relatively constant.
The changes we described are not sudden, but gradual. In SA, these changes and their consequences are in many ways amplified due to our significant past inequality on racial lines, but also structurally due to our historical dependence on a resource-driven economy for employment and also by the poor state of our education system.
If one accepts the validity of the structural problems and opportunities our country faces in a post-4IR world economy, it is perhaps easier to agree on the steps needed to take our country forward. Clearly for formal employment, a higher level of skill and education is required for companies to compete in what has become a global economy with fewer barriers protecting domestic firms.
In SA in particular, though, a critical aspect is the role that entrepreneurship can and needs to play across low income up to high income to create job opportunities.
4IR is creating more rapid growth in specialised, higher-income positions