16 October 2017: The World Bank, in the latest evaluation of South Africa’s economy published last month, sees enhanced innovation as the lever to break from a vicious cycle of low growth, diminishing productivity and investment, and rising unemployment and poverty. The report emphasises the potential of cities and the vital importance of digital communication. Knowledge transfer is the primary conduit in any innovation system; professional education will be the core process that opens the escape hatch to economic transformation.
The Bank’s economic diagnosis is grim. South Africa’s per capita growth was negative in 2015 and 2016 and average individual incomes have barely grown since 2011. Over the past five years the number of people living on less than R1200 per month has grown by 10% to about 33 million:
“between 2008 and 2015, almost 80 percent of South Africa’s population experienced poverty, about half permanently and the other half intermittently’.
Low growth results in excess capacity, low productivity and poor returns on investment. The Bank’s analysis shows that South Africa’s current productivity levels are significantly lower than before the 2007 financial crash. The underutilisation of our overall manufacturing capacity has increased from 14.5% in 2006 to 18.1% today. Year-on-year levels of fixed investment fell through 2015 and 2015, and fell again in the first half of 2017.
These circumstances result in rising levels of unemployment. Over the last decade an additional 3.5 million people have entered the workforce but only 1.6 million new jobs have been created. Today, close to 6.2 million people are unemployed, half of whom have had no work for the past five years; a further 3 million have stopped looking for work. When the proportions of those still hoping for work and those who have given up are combined, South Africa’s unemployment rate is 36.6%.
Versions of this scenario will be all too familiar; news about South Africa is often negative. But there’s a paradox here; the creativity that is frequently encountered across wide fields of practice. In my own work with the UCT Graduate School of Business’s Solution Space, I’ve often seen examples of enterprise and entrepreneurship that are contrary to the dominant narrative of decline. Many people have had similar experiences. How can resilient optimism be squared with evidence of chronic and sustained decline?
Innovation. The World Bank defines innovation as “the introduction of new-to-the-world and new-to-the-firm goods, services, business practices, and organizational methods”. In the Bank’s view, innovation in South Africa has the potential to boost productivity in existing industries as well as promoting diversification in new manufacturing and service sectors, accelerating the creation of new jobs and conferring competitive advantages.
Enhancing innovation should be a priory for government policy making and also for established manufacturing and service sectors, which currently invest an unusually low proportion of their turnover on research and development. But given the high proportion of South Africa’s population who are unemployed and economically marginalised, what is more interest is the evidence for nascent innovation in low income communities. The World Bank’s report gives several examples. Here are two of my own, stemming from the Solution Space at our campus in Philippi, one of Cape Town’s townships.
Sibusiso Nyamakazi’s passion is music, and he’s set up a recording studio in Philippi, one of the poorest parts of the city. He knows the originality and energy that has long driven South Africa’s music industry and his ambition for his project knows no national boundaries. Here he talks about his work and ambitions:
Talk to Sibusiso, and he’s passionate about his music and the music industry. But he’s equally passionate about keeping kids off the street and working with his community organisations in tackling violence against women. This is no Topshop entrepreneur, set on asset stripping or raiding the pension fund. Multiply Sibusiso by a thousand and Cape Town would be a very different city.
Ayanda Cuba and Buntu Matole met at school and are driven by sport. After working with schools in Khayelitsha, they were approached by Airbnb to provide township visits for tourists. Learning from this, Ayanda and Buntu have launched two companies of their own, ABCD Concepts and WhyTravel, and have developed a distinctive programme that offers a very different perspective on Khayelitsha. Here’s a short film I made about them, so let them speak for themselves.
Sibusiso, Ayanda, Buntu and many more like them are natural innovators, learning from things that work elsewhere (Airbnb, music recording), adapting, learning from experience and applying a refined level of knowledge to develop original and promising enterprises. This is the World Bank’s point in highlighting the importance of innovation. Seen on the larger campus, the International Labour Organisation has estimated that almost half a million new jobs could be created in South Africa over the next ten years from the green economy alone.
What, in turn, drives innovation? Building and introducing new goods, services and processes depends on knowledge: sometimes pure inspiration; far more often by copying, adapting and evolving. More often than not, creative information comes from bringing people together for the first time, either physically or through the new and extraordinary capabilities of digital communication. Ayanda and Buntu got together with Airbnb and have gone on to add their own special insights to bring new business to Khayelitsha. Sibusiso is making significant connections by engaging with international business school students when they visit the university’s Philippi campus. At the other end of the spectrum, Steve Jobs was inspired to make his first mouse by seeing a similar device used for a different purpose in Xerox’s PARC lab, and was inspired to create Apple’s distinctive style from his love of calligraphy.
Professional education has long had a central role in providing the conduit for such transfers of knowledge. The years before the financial crash of 2007 were the golden era of the MBA. In a celebrated cycle, mid-career professionals would invest in an MBA at a prestigious university during an economic recession, building up strong links with fellow students that they would realise when the next upturn came. These days are now gone. The last ten years have been a combination of economic uncertainly and rapid, disruptive change across many dimensions. The conduit for knowledge transfer is now shorter, more flexible and more intense – the era of the short, online module and the digital exchange of information.
The short professional programmes that we at GetSmarter offer in partnership with leading universities are at the top end of knowledge exchange. Their value in the marketplace of ideas is proven by their price points; certificates from leading universities are a new currency in the labour market. But the same model will come to apply across the full spectrum of in-work education and training. This is evidenced for the new enthusiasm of apprenticeships in developed economies, building on their strong tradition in Germany. Innovation requires a full ecosystem of knowledge transfer. Information technology systems, for example, need skilled technicians to lay and connect fibre as much as highly qualified electrical engineers.
The World Bank report singles out Cape Town for special mention. The city has the highest number of IT-based companies in Africa, with over 1000 known start-ups. There are significant markers of success, such as Snapscan, Yoko and, of course, GetSmarter’s acquisition by 2U for R1.4 billion. At present, the IT industry in South Africa contributes less than 3% to GDP and under 20% of service exports, in comparison with the Brazilian IT sector, which accounts for more than 50% of service exports. With the right emphasis on innovation and knowledge transfer, this is set to change.
World Bank, 2017. “South Africa Economic Update. Innovation for Productivity and Inclusiveness”. World Bank, 2017.
them speak for themselves.