As a key element of the Economic Reconstruction and Recovery Plan (ERRP), public infrastructure investments featured strongly in the Presidential State of the Nation Address (SONA) this year. Infrastructure investments are fundamental to resolving some of the country’s structural economic challenges and improving the capacity of the government to deliver essential services.
With intensifying digitalisation and datafication of the economy, adequate broadband infrastructure and efficiency of information and communication technology (ICT) services have become essential inputs for broader economic activity.
As shown in Figure 1, the ICT sector is a core component of the digital economy. Improving ICT infrastructure is also fundamental to overall economic activity as it generates value when used as inputs into a wide range of productive processes. They can create multiplier effects, which address many structural economic challenges: restoring economic growth, creating new jobs and protecting livelihoods, reducing multidimensional inequality, and improving service delivery.
Figure 1: Defining the digital economy | Source: Buhkt & Heeks, 2017
Even prior to the rise of the digital economy and digitalised economic activity, empirical evidence revealed that infrastructure investments in effectively regulated network industries can amplify network effects (globalised real-time networks) and yield much greater societal returns on investment that are causally related to the nation’s total factor productivity.
Yet, despite the massive infrastructure investments in the past decade, South Africa has not witnessed the kind of contributions to gross domestic product (GDP) growth, job creation, and reductions in inequality anticipated by the policy literature. In his speech, the President attributed this to longstanding inefficiencies in the ICT sector, which presented a significant barrier to economic reform strategies, inhibited technological development of the economy, lowered investor confidence, and stifled economic growth.
Addressing these challenges, he introduced the auctioning of high-frequency communications spectrum to individual Electronic Communication Services (iECNS) by the Independent Communications Authority of South Africa (ICASA). According to the President:
“These reforms will revolutionise the country’s technological development, making faster broadband accessible to more people and reducing the costs of digital communications.“
But even if these supply-side measures had been effectively implemented to ensure significant investments in digital infrastructure in low-income communities such as townships, rural areas, and underserved communities, issues of digital inequality are unlikely to have been addressed. RIA’s After Access surveys show that demand-side challenges – lack of education, digital skills, and employment – are the primary barriers to being able to purchase smart devices and data. Shifting citizens from passive consumers to active users able to access information (and even to producers able to contribute to the prosperity of the nation) will require a transversal digital strategy focused on a more equitable transition towards a digital economy and a more resilient and equitable social and economic reconstruction.
What Other Key Aspects of SONA 2022 Relate to the Digital Economy?
In the context of an already fragile South African economy and limited fiscal space, reforms that require little budgetary support – such as regulatory reforms that enhance competition in network industries (energy, roads, and communications) – produce multiplier effects that can improve the service delivery of utilities that underpin the growth, productivity, and competitiveness of an economy. Ramaphosa also highlighted economic reforms in the tertiary sector, particularly in energy and electricity, transport and logistics, and water and sanitation , as well as the following digital economy enablers:
Strengthening energy security and electricity generation in the short-term
Energy security is the most important prerequisite for the recovery agenda and has the potential to drive economic growth in the aftermath of the COVID-19 pandemic and the digitalisation of socio-economic activity. In his speech, Ramaphosa highlighted fundamental changes to the structure of the electricity sector and energy generation capacity through massive infrastructure rollouts:
“In addition to closing the energy supply shortfall, we are implementing fundamental changes to the structure of the electricity sector“
The President mentioned specific interventions, such as the amendment of Schedule 2 of the Electricity Regulation Act (2006), establishment of a separate transmission subsidiary, finalisation of Eskom’s unbundling by December 2022, an intensive maintenance programme, and ensuring energy interventions are grounded in sustainable practices to ensure a green and just transition. This must include concerted efforts to facilitate household energy access and reduce energy poverty, as well as leveraging the potential of advanced technologies to spur renewable energy efforts across South Africa.
Addressing human capital challenges through updating the critical skills list and potential new visa categories
Lessons from the global race for artificial intelligence (AI) dominance indicate that an extremely well-developed and highly-skilled labour pool are essential to create innovations, digital entrepreneurs, and start-up ecosystems that unlock potential of advanced technologies. Leveraging AI-focused technology for the fulfilment of public interests requires a myriad of details and is dependent on each country’s existing data economy endowments. These include: ICT infrastructure, public and private investments, the number of AI-related patents and conference papers produced, the depth of participation in the global semi-conductor industry, and the number of technology-savvy science, technology, engineering, and mathematics (STEM) graduates within the country.
“The world over, the ability to attract skilled immigrants is the hallmark of a modern, thriving economy.”
Ramaphosa emphasised reforms to address the need for a skilled labour force to ensure that the country’s immigration policy matches the demands of the economy. These include the updated and recently published Critical Skills Visa List, including chief information officer, ICT system analyst, software developer, systems engineer, economist, multimedia designer, and data scientist. The President also announced the exploration of start-up and remote working visas, which could increase economic growth.
Migration reforms should complement reforms in the public education system to ensure the majority of South Africans are also equipped with digital capabilities to access economic opportunities. There should also be interventions which guarantee that enhancing digital capabilities, data ecosystems, and digital economy competitiveness for workplaces and jobs of the future is balanced with the potential risks associated with advanced technologies.
There is often a daunting gap between an address, plan, or policy and the actual implementation of equitable and sustainable state interventions. In his speech Ramaphosa emphasises:
“A new consensus which recognises that the state must create an environment in which the private sector can invest and unleash the dynamism of the economy.”
To achieve the “new consensus”, there needs to be deliberate actions that can be implemented to a broad range of structural reforms that inspire both investor and citizen confidence, and that also create an enabling environment for accelerating and sustaining economic growth. Several cross-cutting interventions, as well as regulatory and policy convergence, are needed to address historical and systemic issues that have created concentrated and inequitable markets.
While the SONA is just a televised address delivered annually by the President, it is linked inextricably to the state of our economy and can often be a useful guide to understand some government priorities. South Africa needs coordinated institutional reform across all levels of government and ancillary institutions to address the lack of organisation and reduced confidence in the state due to corruption, inefficient and monopolistic state-owned enterprises (SOEs), and questionable investments. The current regulatory and policy framework in these industries should also be adapted to consider challenges that emerge from new business models created by advanced technologies, such as state capacity to regulate complex data governance issues across industries, multifaceted challenges of taxing digital enabled services, and the labour market disruptions brought by the on-demand economy. This will only emerge from a transversal digital strategy based on policy and regulatory coherence across the public sector and concerted efforts to coordinate public and private sector efforts towards national objectives.
An inclusive post-COVID-19 social compact requires redressing fundamental human development challenges of poverty and inequality that constrain people’s participation in the digital economy and society, whether as consumers, producers, citizens or public servants. An evidence base is crucial to ensure that the trade-offs made between economic reforms that improve investor confidence and competitiveness do not sacrifice addressing long-standing socio-economic challenges. Instead, economic reforms should ultimately contribute towards the realisation of the competitive, low-carbon, climate-resilient, inclusive and equitable economy, and modern society — as envisaged by the South African government’s National Development Plan.