According to the World Economic Forum Competitiveness Report 2011 – 2012 there are three stages of economic development by which one can classify the world’s economies:
- Factor-driven economies: Compete primarily on the basis of natural resources and unskilled labour
- Efficiency-driven economies: Where the key is to create efficiencies in the production processes
- Innovation-driven economies: Compete on differentiated and sophisticated products and production processes
The most advanced economies tend to be those in the third stage — innovation-driven economies. These are also economies that have placed a premium on knowledge as a key factor for economic growth, they are ‘Knowledge Economies’. In Africa, most nations lag behind as factor-driven economies primarily based on exploitation of natural resources. In many cases, this has not led to sustained and shared economic development because of the so-called ‘resource curse‘. Only a handful of African economies are efficiency-driven.
In order to be significant players in the global economy, Africa has to move to the innovation-driven economic level. Here’s how.
Leveraging Natural Resources to Build Sophisticated Knowledge Economies
Before getting into the framework, it is worth taking a short detour to make a comment about the resource-dependence of many African states.
Much as natural resources such as oil and gas have been exploited to the disadvantage of citizens, leading to a situation where the citizens are not benefiting from these resources, the aim should not be to abandon such endeavors altogether. African states should make every effort to find the best and fairest means by which to benefit from their natural resources.
We live in a world where there is a huge demand for natural resources. China, due to its past economic growth, has risen to become a major consumer of natural resources. China has such a keen interest in Africa because Africa has a lot of what China needs to keep producing and keep growing.
In 2011, the Standard Bank group projected that China’s investment into Africa may rise by 70% to US$50-billion by 2015 from 2009, as the Asian nation seeks to acquire resources. (Dr. Dambisa Moyo’s “Winner Take All” is a good read on this)
The McKinsey Global Institute report on Africa’s economies, “Lions on the move“, distinguishes four broad categorisations of Africa’s economies:
- Diverse Economies: Africa’s growth engines — Egypt, Tunisia, Morocco, South Africa
- Oil Exporters: Economies that are overly dependent on oil export. They have the highest GDPs but the least diversification. Algeria, Angola and Nigeria being the largest of these
- Transition Economies
- Pre-transition Economies
The Diversified, Balanced Economy
(Disclaimer: I’m not an economist. )
It is pretty clear what a ‘diversified’ economy is. A diverse and ‘balanced’ economy is NOT one that places equal importance and equal emphasis to all aspects of a diverse economy. It is, instead:
a) One that places relevant emphasis where it’s due, to the measure that it is due.
Perhaps an example will help: There have been several oil finds in a few African countries that previously were not oil-producing countries, Kenya, being one of them. What sometimes happens is that the government turns to focus on these ‘high-value’ natural resources and exploiting them, ignoring other areas. Some nations over-spend on oil exploration at the expense of other investments such as education, with an attitude that says “If we can only strike oil (or some mineral resource) we’re sorted!”.
To use a metaphor: What is needed is not to place all your eggs in one basket, or too many eggs in one basket and too few in others, or equal number of eggs in bags of different capacities — but the appropriate number of eggs in the appropriate basket based on the capacity and relative importance of that basket.
Natural resources, for example, create a limited number of job opportunities. The benefits are not shared and there can be devastating complications such as when locals feel they’re not benefiting from an oil find in their community. Sole dependence or over-dependence on natural resources is not the way to go. Furthermore, what happens when oil reserves start running out? On the other hand, the economic gains from exploiting natural resources can be applied to growing other areas that can create new opportunities for wealth creation, more opportunities for the people and wider distribution of wealth in a sustainable manner.
In other words, leverage one strength to build other parts of the economy. Exploit the oil, it could result in high returns in the short-term but realize that the key to relevance in the global economy (now and more so in the future) is in innovation-driven, knowledge-based economics. Invest more in the present in what it takes to build such an economy in future e.g. make significant investments in R&D. Instead of looking for a way out at the time oil reserves start running out, make sure significant investments are being made in building the knowledge economy from the get go – in effect, future-proofing the economy
b) One that balances economic development with social development, for example, by making sure there’s equitable distribution of resources.
A Broad Framework for the Development of the Knowledge Economy
In a Knowledge Economy, acquisition, creative transformation, sharing and productive application of knowledge become the key factors for economic development. Let’s look at these specific aspects briefly:
1. Acquisition: The society creates efficient processes and mechanisms for the acquisition of relevant, usually highly specialized, knowledge from different sources. The acquisition of such knowledge is a sustained effort, leading to the emergence of a high level of expertise in some area of knowledge.
2. Creative Transformation: The society not only acquires knowledge (static knowledge) but creates the means for individuals and organizations (academic, state and corporate) to adapt, refine, ‘remix’ indigenous knowledge and knowledge from external sources into new forms of knowledge that can be applied to new processes/problems, or existing processes/problems in a more efficient/better way
3. Sharing: The society allows for the sharing of knowledge so that the processes of acquisition and creative transformation are continuously facilitated while balancing that out with the need for those who create knowledge to benefit (economically) from their efforts (IP). Knowledge is the fuel of the economic engine.
4. Productive Application: This is the key to transforming a Knowledge society to a Knowledge economy. This is the step that results in the creation of innovative goods and services through entrepreneurship and eventually leads to job creation and increments to GDP.
These four broad aspects of a Knowledge Economy can be matched to four broad factors (pillars) that need to be developed to create a solid foundation and facilitate such an economy.
a) Policy Framework
A policy framework for sharing and benefiting from knowledge is crucial in a knowledge-based economy. The policy needs to strike a balance between facilitating free-flow of information and protecting the right to profit from their intellectual property. This can be a dicey affair. Sometimes IP can stifle creativity or distract companies when they have to be fighting one IP lawsuit after another.
In a broader sense, governments also need to create a supporting environment and make relevant investments that support the creation of a Knowledge Economy. A great example here, is South Africa. The Department of Science and Technology of South Africa put forth a 10 year plan (2008 – 2018) that seeks to transform the South African economy into a knowledge-based economy. It would appear that their efforts are bearing some fruits so far, given their ranking relative to other African states according to INSEAD’s Global Innovation Index.
b) Information and Communications Technologies
ICTs provide the means to codify, store, process and transmit knowledge and information in a fast and efficient (digital) manner.
Significant investments have been made in terms of undersea fiber connectivity between the African continent and the rest of the world. Terrestrial distribution, or the last mile connection, has been a challenge in many cases but those problems will be solved in time. More Africans will have access to broadband as internet penetration rates continue to rise.
The Nairobi Innovation Hub (iHub) recently embarked on an initiative to build a supercomputer. Such an instrument would result in a great asset for the fast processing of data, such as running scientific experiments, a great tool for R&D. In the process, it will hopefully, also lead to the acquisition of specialized knowledge it takes to build the supercomputer in the first place.
c) Education & Human Capital Development
Afrinovator recently took a close look at education and its place in the formation of a society in which innovation is the norm; where innovation is baked into the very social fabric of the society. We saw what kinds of considerations need to be factored in to the development of relevant education systems that will support the development of a sustained culture of creativity and innovation; these were:
- Creative Experimentation
- Entrepreneurship focus
- Future focus
- Globalised and localised
Another important aspect as far as education and the creation of knowledge-based economies go is that of lifelong learning. In other words, the culture is not one that emphasizes getting an academic qualification and getting a job — but one that supports continous, evolutionary, learning — evolutionary, meaning the learning creates new knowledge which is then disseminated through the education system for others to learn, and remix, creating new knowledge continously.
d) Entrepreneurial Culture
The entrepreneurial culture is the piece of the puzzle that unlocks productive application of knowledge. Without it, you’re basically left with a really good academic system.
It’s the entrepreneurs who come across some piece of knowledge and create a link to a real world problem, and figure out how to apply that knowledge to the creation of a product or service that solves the problem in a profitable way, and then go out and bring together all the factors – capital, labour, organization — that are needed to do this. The entire framework therefore needs to have in-built mechanisms for easy discovery of relevant knowledge, and rapid transformation of knowledge to productive economic activity — jobs are created, GDP grows.