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BRICS New Industrial Development path for the Digital Economy: Options and Possibilities for Developing South and Africa

bricsflagsIntroduction

The BRICS group of nations was formed in 2010 with a view to promote closer economic, political, developmental and peace and security objectives in a multi-polar world, having annual summits at various levels.  Overall, it is aligned to the United Nations Sustainable Development Goals (SDGs), officially known as Transforming our World: the 2030 Agenda for Sustainable Development, which sets out a clear agenda for global sustainability.  Spearheaded by the United Nations through a deliberative process involving its 193 Member States, as well as global civil society, the goals are almost a blueprint of the ‘Future We Want’ by the UN member nations.

In this context the BRICS Academic Forum held in Brazil in 2019 and the Wangshou Forum co- hosted by Fudan University and University of Sao Paulo (UNESP) was timely and relevant. In a Covid-19 crisis era world, when the model of neoliberal capitalism is increasingly being called to question, alternatives such as the developmental state model of some BRICS nations,  with the success of the new digital industrial development path is gaining rapid traction in terms of addressing fundamental development and economic challenges facing the developing South.

Economic and industrialisation pathways in Sub Saharan Africa

With the advent of the 4th Industrial Revolution (4IR) discourse going mainstream via the World Economy Forum (WEF), many nation states are engaging in multitudes of dialogues and policy frameworks.  So too are the major global policy forums such as: a) World Economy Forum (WEF)   b) G20’s  Digital economy task team;  c) BRICS New Industrial development initiatives c) African Union’s African Continental Free Trade Agreement (AFCFTA) digital trade ; e)  EU’s  General Data Protection Regulation (GDPR) and Digital Competition and innovation programs.

Each global region and platform has a different variation and prioritisation on the application of ICT’s, Big Data and the Data economy for national development, with each having major implications for the big nation tech exporters, as well as for the billions of consumers in the developing South. Against the backdrop of the Trump induced US- China trade wars, the tech war is where the heated contest is playing itself out, to the detriment of global consumers and workers.  In many ways this  ‘new digital cold war  contestation’  is  pitting the US ‘ free market neoliberal model vs China’s ‘ developmental state led’ model;  and the EU’s  consumer social market model. How are these various regimes and frameworks affecting the global economy? More importantly, what are the implications for the Developing South in the new era of the 4IR digital economy?

This adage rings true for instance in the current robust negotiations at the WTO‘s E-Commerce treaty negotiations.[i] The treaty is one of the most contested since the Doha Development round at the turn of the century. What’s at stake is the very structure of national, regional and local economies. For E-commerce is not merely about web based online commerce. It affects   the very structure of national economies such as taxation, trade, labour, agriculture, innovation, data ownership, local value chains and the potential negative impact on millions of small and medium enterprises.

Let us take a look at the varying perspectives:

The USA’s neoliberal cowboy capitalist model

 The US neoliberal model of ‘free markets’ and unfettered, borderless trade has been their historical and current position, not surprisingly given tech giant Amazon is the leading e-commerce global value chain and its ownership of hundreds of millions of global customer datasets, all valuable for its business model.  Microsoft, Apple, Google, Facebook, Netflix – all made hyper super profits during COVID19 crisis,  and Uber moulded in Silicon  Valley’s venture capitalism business model is built on the monetization of personal data ‘ad tech’ of global customers, and hence  borderless trade  - and fundamentally unregulated data markets. Boosted by President Donald Trump’s 2017  federal  tax breaks, the largest  in US corporate history,  these firms are scouring the planet for more markets, more datasets, and of course  minimal taxation.

China’s state led data developmental industrial policy model

China’s entry into the WTO in 1996 was a key milestone. Its  state led development planning economic model has reaped the most remarkable massive  benefits in international trade in the past two decades,  being the ‘ factory  of the world’,   earning trillions in trade surplus, pushing  its national GDP on par with the US and EU.  By achieving its UN Millennium Development Goals (MDG’s), it is now concentrating on investing in innovation systems and successful national  industrial policy models,  and support for a unique  ‘national digital ecosystem’, propelling   national  tech champions ( Alibaba, Tencent, Huawei)  who are now global Multinational Corporations (MNCs). China is on track for industrialized nation status, and it is creatively leveraging this state led model as an example of success, presenting both opportunities and challenges for the Global South.

The EU’s social democratic citizen trust model

The EU’s model is essentially a social market approach with strong consumer trust legislation. This is borne out of the EU wide citizen consumer protection centric GDPR data policy of 2018, and its experience with strong competition regulation. The EU Competition Commission has become world renowned for many cases and rulings/fines against US tech giants in the EU jurisdiction[ii].  Its approach generally  embraces the power of the market and big business – in line  with European Commission support for strong innovation frameworks/champions, but also preserving cultural heritage for audio-visual,  fair competition in jurisdictions, modest data localisation, IPR protection,  and e- signatures within a solid strong consumer data protection framework  and aligned to the social clauses of the EU Charter. It seemingly is endorsing a hybrid model of updated Special and Differential Treatment (SDT) within the General Agreement on Trade in Services (GATS), and more intensive capacity support for Technical Facilitation Agreements (TFA’s) for Least Developed Countries  (LDC’s) in an effort to preserve some semblance of ‘developmental aid support’.

Key challenges facing the Developing South: Disruptions led by the 4IR and Digital economy

The Developing South members – many of whom are part of the original G-77 group that successfully negotiated at the WTO on special and differential treatment, are concerned at the pace and even relevance of the E-Commerce negotiations. Led by India and other nations, the position is one of caution – and deep concern at key elements especially data localization vis a vis national industries, ‘high tech e-commerce  standards’ as trade barriers,  need for protection of millions of local  SMME’s, small scale farmers, national tech champions, and agriculture value chains, so vital for large  markets. Their approach is couched in broader Global South discourse with echoes of the G77 alliance that had success at the WTO Seattle Round in 1999. However, with a rapidly globalized digital economy, and varying interests even within the Global South, coupled with the soft power of ‘development aid’ that many LDC nations face, this position, while morally strong, is under pressure.

The current neoliberal led model, its tech-centric economic, social and workplace organization changes and disruptions is thus causing challenges and disruptions for countries in the global South.  The rapid rise of micro-workers (professional workers without formal employment) is morphing into a new ‘precariat class’; and together with the concomitant mass offlays in the manufacturing industry has created a dual vulnerable industrial proletariat and a precariat.  New Schumpeterian modes of technology disruption have again created new waves of opportunity - instability. The rise of Uber aptly symbolizes this new wave of disruptive business models, monetization of new apps, micro-grids and new technological waves. These have major implications for economies, with potential for mega wealth creation but also disrupting standard everyday modes of life and work as we know it (WEF, 2016).

Leading MIT economists Erik Brynjolfsson and Andrew McAfee posit that the 4th industrial   revolution could yield greater inequality, particularly in its potential to disrupt labor markets. As automation substitutes for labor across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labor.

On the other hand, it is also possible that the displacement of workers by technology will, in aggregate terms, result in a net increase in safe jobs. We cannot foresee at this point which scenario is likely to emerge, and history suggests that the outcome is likely to be some combination of the two. It is in this milieu that carefully planned industrial and human resources development (HRD) skills policy should be crafted and calibrated to ensure a just transition into the 4th industrial economy.

Technology is therefore one of the main reasons why incomes have stagnated, or even decreased, for a majority of the population in high-income countries: the demand for highly skilled workers has increased while the demand for workers with less education and lower skills has decreased. The result is a job market with a strong demand at the high and low ends, but a hollowing out of the middle. This helps explain why so many workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate. It also helps explain why middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness.

Leading SOAS industrial policy academic, Prof Andreoni has further explained that ‘as a result of these structural differences, industrial policies in developing countries such as China, Brazil, and South Africa have faced a number of challenges, including the creation of completely new sectors (e.g. sectoral policies), the absorption and development of technologies, and the achievement of certain product quality standards (e.g. technology, trade, and standardization policies). In contrast, industrialized economies have relied on different policy measures in response to the dramatic transformations in the global manufacturing landscape beginning in the mid-1990s and the "manufacturing loss" experienced during the global financial crisis.’   (Andreoni, LSE, 2017)

Economic development results from structural change in the economy that shifts labour from low productivity activities (such as traditional agriculture) towards activities that have higher productivity levels.  This indispensable process, at the heart of economic catch-up, is not as simple as it sounds. 'Successful' structural change involves not only diversifying activities but adopting and adapting existing technologies and climbing the technology ladder by continuously upgrading production structures in key sectors of manufacturing and services, with smart investment in HRD. This is a long and winding path-not simply ‘leapfrogging magically into the 4th industrial revolution.

BRICS Cooperation and enabling a New Industrial development in Africa

The story of Africa is one of de-industrialisation overall, with the share of manufacturing in GDP hovering around 10% for most countries while falling in some (Banga and te Velde, 2018). The contrast with East Asia, which is often cited as a development model for Africa, could not be starker. Manufacturing value added in East Asia and developing Asia is much higher than in Africa. The Chinese New Industrial development model can be modified and enable many African nations to a path of industrialization. In line with Prof Dani Rodrik’s thesis, the rapid transition by developing nations towards services sector – often skipping manufacturing pathways is leading to unbalanced structural transformation. For instance mass usage of mobile communications and apps can create an illusion of tech modernisation, but without a solid manufacturing and industrial base – which is the heartbeat of job creation, it can deepen existing inequalities. Moreover, industrial activities and manufacturing value added in Africa are generally concentrated in the North African region and in South Africa. For the rest of Sub Saharan Africa (SSA), the traditional industries – agriculture and mining- are still trapped in an unequal global trading system and unstable commodity cycles. Many nations would need to add value through beneficiation of minerals and create some semblance of a modern industrial base that can add value to global value chains, and thus create wealth. For instance South Africa’s National System of Innovation (NSI) and R&D strategy is a good example of funding innovation and providing companies with innovation support packages to improve competitiveness and development.[iii]

manufacturingvalueaddedpercapita2017.jpg

Note: Data for Middle East & North Africa and North America are of 2016. The rest are data of 2017. Source: World Development Indicators, World Bank, 2019

The digitalised economy is shaping the landscape for development opportunities around the world. In order to achieve Africa’s 2063 Agenda and the worldwide Sustainable Development Goals (SDGs) on expanding employment, decreasing inequality, and eradicating poverty, millions of new jobs must be created. 

The upcoming   BRICS 2020 summit will rely heavily on the input from the academic community, namely the BRICS Think Tanks. The chapters in Beijing and Moscow have held their first planning meetings in early January 2020. Russia will further promote the activities of the BRICS Network University, expand contacts between academic and scientific centres, research institutions and universities in the five member countries. BRICS academics firmly believe that their work will offer much-needed advice on future progress of the group and help the five leaders be at the forefront of international decision-making.

Mr. Ashraf Patel is a development and public policy analyst and researcher with a focus on digital and ICT policy regulation, knowledge economy and innovation policy. He is currently a Senior Research Associate at the IGD focusing on the digital economy. Mr Patel has over 15 years of experience in Public Policy, development, management advisory, communications, stakeholder management, ICT policy and telecoms regulation, innovation systems development, e-education projects and ICT4D initiatives in various capacities in South Africa & Sub-Saharan Africa. Mr Patel's various roles and responsibilities included ICT Policy research programme manager, Africa ICT/Telecoms analyst as well as innovation programme coordinator. His views do not necessarily reflect those of the IGD.

 

[i] www.wto.int. E Commerce treaty being negotiated in July 2019, WTO.

[ii] The EU Competitions commission fined Google $ 5.2 billion in June 2018 on a landmark case. www.ec.eu

[iii] www.naci.org.za and www.dst.gov.za

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