Rail sector in Africa

Infrastructure: the foundation for Africa’s adaption to 4th Industrial Revolution

The 4th industrial revolution ushers in the era of data & analytics (D&A), the Internet of Things (IoT), machine learning, cognitive computing and artificial intelligence. It is said that the speed of change will be, quite literally, inhuman, as the advance of D&A and cognitive and machine learning drive forward change more quickly than humans alone could ever achieve.

While adoption of these trends certainly holds significant potential for African economies to leapfrog, currently there are only a few nodes on the continent that are poised to take advantage of this next revolution – these include major hubs or cities in countries like Nigeria, Kenya, Rwanda and South Africa that have developed and/or already begun to implement smart cities strategies.

Possibly the biggest obstacle for the continent to adapt to this next revolution is the lack of sufficient infrastructure. It is well known that there is a direct correlation between infrastructure and; building or accessing markets, workforce productivity and – generally – economic growth and social development. However, the reality in Africa is that it is a very large continent – one where its major economic hubs or nodes are geographically dispersed and there are 1000 of miles of still very rural land in-between them.

Although infrastructure development remains a key focus across the continent, up until now it has been climbing up the local agenda. Most countries have been focused on what they need to do in-country to improve infrastructure networks – be it in power and water for basic services, transport networks, telecommunications, healthcare, etc. – and there has been little focus on collaborative strategies, planning or development of cross-border infrastructure projects. At least until more recently.

Part of the challenge in Africa is that many countries have limited funds available to fund long-term development infrastructure projects. Government budgets are under strain because they need to balance funding infrastructure with payment government employee strategies and capital projects – where many times some countries can’t afford to do all three of these things at the same time, and in the same quantum. Also, even when governments do fund infrastructure development, their ability to maintain that infrastructure at the same level of investment is also challenging – as this maintenance requires a steady flow of funding and skilled human resources to carry out the maintenance.

Whereas many countries are able to source funding for many of their major and long-term infrastructure development projects through development funding, loans, or private sector funding; this adds another layer of complexity for these economies to be able to pay in foreign currency – as often these are low currency economies – and this can lead to a currency mismatch. The other challenge to African economies pursuing the foreign funding route is the affordability of infrastructure; because when infrastructure if funded by the private sector, the financier experts a return on their investment. Which means there needs to be a local market economy that can afford to pay market rates for the infrastructure.

Added to these difficulties, there is also a significant financing gap. This gap is not due to a lack of supply of finance – domestic or foreign – but rather related risks and perpetuating bottlenecks that make these projects less attractive to investors. Governments need to act to unclog the pipeline, address political and regulatory risks, market reform and deregulation; to accelerate infrastructure financing and development. The reality is that unless these risks and bottlenecks can be addressed and alleviated – and increased focus be placed on making these projects more bankable – then infrastructure finance and investment will lag, and this will place a significant draw on economic growth potential in a number of African states.

Turning our attentions to the 4th industrial revolution

Africa’s telecoms sectors continue to undergo huge transformation. Over the last decade this has largely been fuelled by a series of deregulation, convergence and massive investments in undersea cabling and inland fixed and mobile infrastructure – where the next wave of transformation across Africa is expected to be driven by digitalisation.

Digital transformation bodes immense opportunities to further bridge the digital divide between emerging and developed markets, as it will have an impact across all business markets and sectors. For instance, we can already see the influence of disruptive technology trends like large scale connectivity, mobile, cloud, D&A and IoT in pockets across the West, East and South Africa key regional hubs, including Nigeria, Kenya and South Africa.

These technologies also provide great opportunity to support and advance the millennial generation as well as entrepreneurs in Africa – the future business owners and leaders – and enables them to transcend all the previous revolutions. Adapting to the 4th industrial revolution therefore is a strategy that can be more far more inclusive, as it will empower African states to harness the technology and the skills available to them, as well as enable these states to continue to form part of the connected, global economy.

However, for African states to truly adapt to the next revolution – and to actively mould how this next revolution can beneficially reindustrialise the continent, governments and private sector, alike, need to start strategising around and investing in research & development (R&D) and the people of Africa.

Firstly, there has already been considerable spending on R&D towards this adaptation in other regions, including Asia and Europe, for instance. For Africa to experience an equivalent revolution governments will need to make significant fiscal investments into R&D, and/or find ways to attract investment into innovation and R&D – possibly through preferential tax structures, for example. This is the only way that African states will be able to accelerate in-country developments and keep pace with the rest of the world.

Secondly, with a population of over 1.2 billion – and that is expected to nearly double by 2050* – one of Africa’s biggest assets is its people. Governments and private sector, alike, must realise that this resource is also extremely powerful and – to harness on this power – there needs to be a realignment of education priorities towards creating feeder talent pools for the critical industries and sectors that will continue to drive economic growth during and post adaptation to the next revolution.

A multi-disciplinary approach to educating the youth is needed. Part of this approach should include building more schools and universities, as well as attracting Ivy League universities and top high schools to the continent, to create more opportunities for people to gain higher qualifications. Also as part of growing investment into formal education in Africa, there needs to be a realignment of curriculums at schools and universities to centre more on technology and its various applications that are key for growing industries in the new connected economy.

Additionally, apart from the formal education that can be gained through high school and university, there also needs to be a few other tracks post high school, such as more specialised colleagues and centres where the youth can obtain vocational skills, training and exposure. These may be linked to the industrial community, which will also assist in closing the skills mismatch gap on the continent through developing skills that will support growing industries and economies.

Africa is a massive continent and while not all states will be able to adapt to the 4th industrial revolution at the same pace, we can already identify key nodes that will lead the way on the continent. More governments therefore need to start thinking smartly around their urban areas, planned infrastructure projects and the power of connectivity and digital transformation – as this can significantly reform their strategies; towards investment and development that will underpin their adaptation to the 4th industrial revolution, and will empower and enable their nations to leapfrog. In many ways, the infrastructure projects that are planned today will play a significant role in shaping the Africa of future generations.

elebute

Kunle Elebute
National Senior Partner,
KPMG in Nigeria
Chairman, KPMG West Africa
Kunle.Elebute@ng.kpmg.com

 

 

 

* http://worldpopulationreview.com/continents/africa-population/

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About Femi Oke

Relentless passion for creativity and digital acumen to help a professional services firm thrive in the digital space. Femi is an individual with a rich experience on regional African knowledge, its diverse business culture and he understands the continent’s economic drive. He thrives on selfless service and lasting mutually beneficial relationships with colleagues and especially clients encountered in the course of his duties. He is creative, practical and self-motivated with business judgement in corporate, brand and strategic communications, social, digital & traditional media and executive profiling. Roles in the firm include New Media, Digital Communication, Corporate Communication, executive profiling and Brand Management execution. Working on the multi-million dollar Africa high growth market project stands out for femi; besides this, managing all KPMG’s digital communication for the World Economic Forum on Africa is another project that gives him great delight. Femi holds a Masters Degree in Global Marketing from the University of Liverpool.

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