All sectors need to embrace digital economy to spur economic growth
Policy clarity, investments and reducing data prices so everyone can afford to be online will assist SA in the fourth industrial revolution
As we moved to President Cyril Ramaphosa’s investment summit on the back of the jobs summit held last month, the department of telecommunications & postal services has been soliciting the views of information and communications technology (ICT) sector stakeholders on how the sector can contribute to a more positive investment environment, thereby stimulating much-needed economic growth and job creation in the context of the fourth industrial revolution.
My first response to this challenge is that while there are sector-specific issues that affect national investment – and which I will flag below – if SA is to make any progress towards future-proofing the economy and its citizens, it has to move beyond understanding digitalisation as only a sectoral issue.
The major demand-side challenge to getting everyone online and expanding the market equitably is affordability — of devices and data
Rather, it should be seen as a policy challenge to all sectors: education, health, trade, finance, commerce, energy, transport — public and private — requiring high levels of state co-ordination to create an enabling environment for investment and human development. Without these we will not achieve the economic growth, creation of jobs and innovation a digital economy promises.
The second is that stimulating digital investment, and particularly investment in the context of economic transformation, needs to be assessed with far greater granularity than we have over the past 20 years of communications reform. As the sector has moved from a single, state-owned and public-utility model (telecoms and broadcasting) to a regulated competitive market model, and now to a global market of monopoly platforms, e-trade and online work, there is a need to better understand and locate ourselves in global governance structures and global markets.
The internet operates as a global distribution network stimulated by convergence between media, telecommunications and IT. This convergence has been prompted by the provision of (audio-visual) content over converged IP networks, across multiple devices, with layers of governance at the international, regional and national levels. Harnessing this complex-adaptive system for the enormous efficiencies, productivity gains, reduced transaction costs and improved information flows it offers across the entire economy and society, requires forward-looking policy, agile regulation and active engagement in global governance to safeguard national interests.
My third point is that we will need to move beyond supply-side preoccupation with national infrastructure if we are to address the diverse investment requirements and exploit the opportunities in the “digital ecosystem”, as it is now more holistically referred to.
That being said, of course high-speed broadband networks and high-quality data services, which require massive long-term investments like any other infrastructure, are necessary conditions for a digital economy. Unlike other infrastructure, broadband infrastructure requires near-constant fresh investment in next-generation technologies, particularly in the mobile market. The quality and cost of infrastructure and services also determines the selection of countries as an investment destination or for locating national or regional headquarters.
Despite the policy and regulatory uncertainty in the sector, particularly around the establishment and nature of a wireless open-access network and compounded by the failure to assign commercial spectrum for over a decade, investment by the mobile telecoms industry is a remarkable success story. With more than R30bn invested in mobile infrastructure in the past year alone, the industry has innovatively refarmed existing spectrum to provide 4G services. Local operators are providing among the most extensive and highest quality broadband coverage in Africa, albeit at a considerably higher price than in many African countries. Urgently releasing high-demand spectrum is imperative; the costs for the country of not doing so are too high.
Mobile network investments have been exceeded by the extensive investments in international and national fibre networks in the country. Competing undersea cable investments in Seacom, EASSy and WACS have seen international bandwidth prices plummet and dramatically reduce operating costs for internet service providers. Extensive investments in backbone and backhaul network investments on the major intercity routes by the consortium of Liquid Telecom, MTN and Vodacom, as well as complementary investments by Dark Fibre Africa, FibreCo and Convergence Partners, have placed all South Africans within 10km of a point-of-presence (POP).
Increasing fibre-to-the-home (FTTH) penetration has been spurred by the entry of a number of local providers following the entry of Vumatel into the traditionally Telkom-dominated fixed-line market, introducing competition and bringing prices down dramatically.
Inducing these investments as SA has done by opening up these markets is, however, not a sufficient condition for digital take-off. So my fourth point is that policy interventions and investments that stimulate demand, primarily those relating to our human development challenges — where SA is weakest — and the localisation of content, software and apps development are as important to a functional ICT ecosystem. The absorptive capacity of both the populace and the economy of new technologies, not only for consumption but production too, is a critical aspect of investment and thereby job creation and innovation.
But the major demand-side challenge to getting everyone online and expanding the market equitably is affordability — of devices and data. National aggregated measurements, such as gross national income per capita, used for affordability and other indicators, mask SA’s extreme inequality, which is amplified in the digital realm. The primary determinant of access and use of the internet revealed by the modelling of data from a nationally representative survey of ICT access and use in SA (and all the other African countries surveyed by Research ICT Africa in 2017) is education, and the correlated factor of income. In SA, those earning above R7,000 a year are connected. The 50% of the population who earn below that are not connected, and they face the same barriers to getting online as the vast majority of unconnected African people: they cannot afford smartphones, and if they manage to acquire one, they cannot afford the data.
But most significantly, those who are online are passive consumers; very few are producing services or products, or using ICTs to improve their business or work. Of those who are online, only 6% have found employment online at some point, 17% do internet banking and 10% e-commerce. In the informal sector, only 24% of micro-businesses use the internet-social media for their business processes. While a significant number of them have the internet, only a small portion use the internet for productive purposes. Only 8% have a website for their enterprise while 2% advertise online.
Besides the need for investment in the development of relevant local content, content in indigenous languages is also a key demand stimulant for those who remain offline. In this regard, SA has major opportunities in the creative industry, which has been woefully undercapitalised. Together with app development, there is a need for the state at national, provincial and local levels to provide support for different forms of investment.
Finally, it is also important to acknowledge the policy tensions between meeting supply-side (investment and pricing) and demand-side (affordability, local content protection) objectives. This requires capacitated institutions and agile regulation that provides sufficient certainty and incentives to sustain the high levels of foreign and particularly domestic investment we have seen in the sector. Undertaking the critical regulation of, for example, dominance in the wholesale market is essential to inducing the service-based competition necessary for reducing retail prices and lowering input costs to other sectors.
These demands on institutional capacity to deal with rapidly changing traditional markets come at a time when we need to build additional governance frameworks to create a more trusted and secure environment for electronic engagement that safeguards the rights of citizens while integrating the country into the global digital economy.
Gillwald is executive director at Research ICT Africa and adjunct professor at the University of Cape Town's Nelson Mandela School of Public Governance.