DAAN STEENKAMP: SA must modernise its data ecosystem

Intangible assets are playing an increasingly important role in the global economy. Intangible assets are non-physical assets that create value for firms, such as software, data, intellectual property (IP) or their brand. 

Over recent decades intangible assets have been a key driver of growth in high productivity growth economies. In the US and other advanced economies the share of intangible assets in the total capital stock has risen relative to physical assets such as plant and equipment, boosting productivity growth.

In SA the share of intangible capital remains at the same level it was in 2005. Why are SA firms not accumulating IP and investing in data assets to the same extent as in major economies? 

An important reason is that our regulatory and policy environment discourages investment and innovation. Anyone who works in a small company knows first-hand how expensive it is to comply with government red tape. Surveys show that SA stands out among major economies for the difficulty of running a business. This bears out in the country’s low global ranking for entrepreneurship.

SA’s preferential procurement rules and regulatory environment make it particularly difficult for tech start-ups. Take the digital services industry. The Organisation for Economic Co-operation & Development (OECD) estimates that the average level of regulatory restrictions in SA is more than two and a half times higher than the median in the OECD. The World Bank has assessed SA to be far off regulatory best practices that create an enabling environment promoting e-commerce and the use and sharing of data.

SA’s exchange controls are also undermining growth in local start-ups by constraining their ability to raise foreign capital. While companies may seek approval for primary listings offshore from the Reserve Bank, this is subject to range of conditions, including that that they must remain controlled and managed in SA and remain tax resident here, as well as that IP must remain registered in SA.

A case study by the SA Startup Act Movement argues that approval requirements for taking SA IP offshore is scaring off prospective investors, noting that this is causing many SA start-ups to shift their entire operations offshore, given the uncertainty over whether there may be future claims on that IP by our tax authority.

By constraining start-ups from accessing foreign capital for growth, the report argues that exchange controls are reducing SA’s tax base and the positive spillovers start-ups produce for the domestic economy. Our stock exchange is also negatively affected, with the number of listed companies in SA declining by two thirds since 1990, while it has been rising countries such as China and India. 

Given how badly SA needs more job creation, our society needs to valorise entrepreneurship more. The government must also make it easier for businesses to start up and grow. SA needs to develop its technology sector to join the fourth industrial revolution. Despite the hype about automation and big data, most SA institutions do not have the necessary systems in place to take advantage of the opportunities that big data and advances in technology present.

As we have argued previously in this newspaper, SA’s data ecosystem is also underdeveloped, making it difficult for the domestic fintech industry to mature and SA companies to remain competitive internationally (“Laudable national data and cloud policy will enhance landscape”, July 15).  

The public sector has an important role to play for SA to harness the potential the data revolution offers for companies, policymakers and society. Official statistics are the bedrock of evidence-based policy and informed private sector decision-making. The Statistics Amendment Bill of 2023 sought to strengthen collaboration among data producers and data users by supporting the creation of an enabling environment for data production and use.

Government departments and state-owned entities must start living up to their data sharing mandates. The producers of official statistics need to be appropriately resourced, their capacity developed and open data rules enforced. To modernise the government’s data ecosystem there needs to be a national data strategy and a centralised co-ordinating body tasked with its implementation. 

But we cannot rely on the public sector to modernise the data landscape alone. We need a framework for private-public partnerships for data, just as we have for other public infrastructure in SA. The government will need the private sector’s help to mature its data management infrastructure and practices and achieve the data-led future the newly published National Policy on Data & Cloud imagines.

SA needs to establish a data commons that provides open access to data and research. Mechanisms are needed that balance the protection of data citizens and the rights of IP holders with the need to create an enabling environment for data use and sharing for public policy and commercial purposes. Data commons create opportunities for the public and private sectors to collaborate on infrastructure development, maintenance and data-asset creation.

Keeping the data ecosystem healthy requires that a community of data practitioners oversees the evolution of standards and protocols for data management, use and accessibility within and between organisations. SA needs to develop stakeholder forums that promote co-ordination and collaboration between data producers and users and data sharing.

The Statistics Amendment Bill expects that private participants will contribute to the development of official statistics, but this cannot take place without agreed procedures for things such as quality control, rights protection, data interoperability or processes for stewarding trust between stakeholders. 

An environment supportive of a domestic tech industry also requires the development of domestic marketplaces for entities to monetise their data and produce data products that create value for consumers and corporate clients alike. Common technical standards not only enable data sharing but also enhance efficiency and drive down costs.

Successful projects that highlight the value of data-driven investments should be published to showcase how data sharing can be conducted responsibly, while demonstrating the potential for significant returns and fostering greater confidence in similar initiatives. 

The public and private sectors need to work together to democratise data and modernise SA’s data ecosystem. If we fail to do so, the fourth industrial revolution will leave us behind, like the previous one did.

• Steenkamp is CEO of Codera Analytics and a research fellow with the economics department at Stellenbosch University.