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Insights into Africa’s infrastructure finance

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Insights into Africa’s infrastructure finance

City buildings and bridge under cloudy sky during day time
[Source: Tembinkosi Sikupela; Unsplash]

  • May 26
  • Tags Africa, infrastructure, finance

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New research explores the causes of private investment in infrastructure development in sub-Saharan Africa

Infrastructure remains a top priority for economic and social development for Africa. The Africa Infrastructure Development Index (AIDI), which tracks the progress of infrastructure development across the continent, shows that sub-Saharan Africa has the lowest stock and poorest quality of infrastructure. Therefore, there is a compelling need to accelerate infrastructure development in this region, says Bahati Sanga, a University of Stellenbosch Business School graduate of the MPhil in Development Finance programme.

“A key constraint to Africa’s infrastructure development is the lack of reliable and sustainable funding.”

“Africa’s poor infrastructure is a hindrance to inclusive growth, poverty alleviation, job creation, industrialisation, intra-regional trade and regional integration. Poor maintenance of existing infrastructure in Africa is also discouraging new investments,” he says. “A key constraint to Africa’s infrastructure development is the lack of reliable and sustainable funding.”

In his research for his Master’s, Sanga explores factors that influence private participation in infrastructure in sub-Saharan Africa, which comprises 48 countries. He says understanding the factors and progress made in the past three decades will help to expand the infrastructure financing ecosystem through crowding in domestic and international private capital to close the infrastructure financing gap and to accelerate infrastructure development which has multiplier effects on these countries economy.

“The financing gap has led to low infrastructure stock and quality in sub-Saharan African countries compared to other regions. Moreover, there is a shortage of infrastructure services to the growing population and rapid urbanisation of these countries.

“Private participation in infrastructure is increasingly becoming one of the ways to accelerate infrastructure development in developing countries by either fully or partly financing infrastructure projects with public partnership,” he says.

“If well-structured, private investments in infrastructure can offer many benefits to these countries.”

“If well-structured, private investments in infrastructure can offer many benefits to these countries: lessen public fiscal deficiencies due to increasing cost and demand of infrastructure development; transfer project risks to the private sector; improve quality, stock and efficiency of infrastructure services; accelerate delivery and innovation, and obtain value for money by offering reliable infrastructure services,” he says.

Sanga adds that multilateral development banks (MDBs) and international financial institutions (IFIs) are now pioneering efforts to mobilise funds from private and institutional investors to accelerate infrastructure developments in developing countries. “The availability of assets under management in Africa and globally has changed the narrative from resource scarcity to finding factors that attract private and institutional investors to channel their savings to infrastructure development in sub-Saharan Africa.”

Policy recommendations

He offers the following five policy recommendations on crowding-in private and institutional investments to accelerate infrastructure development in sub-Saharan Africa:

  1. Sub-Saharan African countries should develop sustainable policies on the provision of government’s support to private and institutional investors in financial and non-financial terms. Government financial support mitigates the infrastructure post-implementation risks, especially on long-term revenue streams. Financial support includes direct finance, guarantees, tax incentives and subsidies.
  2. Sub-Saharan African countries should establish policies that uphold market conditions and competitiveness such as dissemination of information and approving tariffs for infrastructure services at a cost-covering ratio rather than distorting the market with a surge of subsidies.
  3. Sub-Saharan African countries should put in place policies that encourage engagement of MDBs to increase transparency and reassure both the general public and the private sector on the soundness, viability and potential benefits of infrastructure projects.
  4. Sub-Saharan African countries should develop a comprehensive pipeline of bankable and strategic projects to increase the participation of private and institutional investors in infrastructure development.
  5. Policymakers should maintain stable macroeconomic conditions and monitor the volatility of variables such as inflation and exchange rates.

Sanga says the question remains whether the Covid-19 pandemic will disrupt the private participation in infrastructure development similar to the global financial crisis in 2008 and 2009 with a downward trend on infrastructure investments. “The pandemic has further strained sovereign funding, thus crowding-in private capital will complement public finances to continue developing infrastructure and consequently accelerate economic recovery in sub-Saharan Africa.”

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How AI can help government improve service delivery

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How AI can help government improve service delivery

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[Source: Negative Space, Pexel]

  • May 24
  • Tags News, Futures Studies, Foresight

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A new study explores the impact of AI on SA governance by 2030

The adoption of artificial intelligence in all spheres of life is an unfolding and accelerating megatrend that is greatly changing how we live, work, and socially interact. In a new study done by University of Stellenbosch Business School (USB) graduate Jan Hofmeyr, he found that AI can do much more than just improve South African government processes – it can if applied right, improve the reach and quality of services to its citizens.

“In light of rapid advances in the AI field, decision-making is gradually being surrendered to machine learning algorithms. The government will in coming years have to concern themselves with the scope and nature of their mandates to regulate and exploit AI for the greater good of societies as they enter an era that is broadly referred to as the Fourth Industrial Revolution,” he says.

He was recently named the Top Achiever in the MPhil in Futures Studies programme* and also received the award for the Best Research Assignment in any Master’s Degree offered by the business school. The Top Achievers Awards celebrates the top-performing postgraduate students in the various programmes presented by USB.

“The rapid growth in the range and capabilities of AI will in coming years present the government with ever-expanding opportunities to improve the reach and quality of services to South Africans.”

Hofmeyr’s research is posed against the backdrop of massive socio-economic challenges with potential political implications and despite just over 27 years of democratic rule, the South African society is stricken by rising levels of poverty and inequality.

“The rapid growth in the range and capabilities of AI will in coming years present the government with ever-expanding opportunities to improve the reach and quality of services to South Africans. If they leverage it wisely, this could hold particular promise for South Africa, and other developing countries, to leapfrog stubborn, often structural, developmental challenges,” he says.

He cautions that the adoption will have to be considered alongside ethical governance implications. “Given the wide-ranging concerns around issues of transparency, accountability, and the implications for individual liberty, democracies, but particularly those in the developing world, may be torn between the imperatives for accelerated development and values that are core to liberal-democratic governance.”

Four scenarios

Hofmeyr sketches four scenarios depicting where South Africa can be in 2030 when it comes to the adoption of AI:

  1. Everyone’s China: An illiberal democracy with a disjointed approach to its use of an expanding digital ecosystem. It uses AI to expand the services and economic agency of the majority of South Africans, but the ethics that it applies in doing so may fall foul of the constitutional imperatives for transparency and accountability.
  2. Estonia of the South: A democratic state, with digitally literate citizens, which leverages AI strategically in a transparent, ever-expanding digital ecosystem, by increasing access to services, ensuring resource efficiency within the public service, and enabling individual economic agency for the majority of South Africans.
  3. Paradise Islands: A democratic state where the benefits of AI only accrue to large corporates and affluent individuals. In the absence of a long-term strategy to expand the reach of digital infrastructure and the government’s technical capacity to make the state more efficient and accessible, the divide between rich and poor is starker than ever before.
  4. Hola Venezuela: A bankrupt, notionally democratic state, which governs in parallel and sometimes at the order of non-state actors that have filled the governance voids left by its weakness. The internet is censored and AI expenditure prioritises surveillance and predatory technologies, aimed at keeping the desperate masses at bay.

He says the Estonia of the South is the most desirable outcome. “It imagines a situation where values such as individual liberty and transparency and accountability are transferred into the digital sphere. Its focus is to enhance the agency of citizens to reach their potential,” he says.

“The resilience of the country’s democracy in the coming decade will depend on the creation of a wide-reaching digital ecosystem, underpinned by a democratic digital ethos.”

Critical factors

However, reaching the ideal outcome will depend on various aspects that may influence the use of AI as a governance tool in South Africa. “The resilience of the country’s democracy in the coming decade will depend on the creation of a wide-reaching digital ecosystem, underpinned by a democratic digital ethos. This may somewhat be determined by those that govern, but also by how the government navigates the growing polarisation between the West and China in the digital sphere, which some believe could ultimately result in a divided digital global order,” he says.

He proposes that in response to these challenges, the country may have to prioritise the development of a coherent AI governance strategy that considers questions of infrastructure, but also ethics. “To reduce the impact of external influence and, hence dependence, it may serve the country well to invest in research and development that focus on the creation of AI technologies that respond to South Africa’s unique developmental needs. It is of critical importance to develop a digitisation strategy that considers the country’s unique needs and interests, or risk being left behind,” he emphasises.

“South Africa needs to prepare effectively to compete globally, but also function optimally at a domestic level, amid a growing connection between the physical and digital spheres.”

He says liberal democracy in the digital sphere also needs physical access to the infrastructure to enable participation and inclusion of the views of all being governed. “South Africa needs to prepare effectively to compete globally, but also function optimally at a domestic level, amid a growing connection between the physical and digital spheres,” he says. “Underpinning this is imperative for societies to thrive and for individual human beings to live meaningful lives.”

He adds that an AI policy that determines the gathering, processing, and optimisation of digitised data, lies at the heart of this endeavour. “Governance by the government will play a central role in shaping the kind of society where the distinction between the physical and the digital will become increasingly blurred.”

Recommendations

He makes the following recommendations on five areas that the South African government can take to ensure a coherent approach to the use of AI that is responsive to its developmental needs:

  • Strategy: There is great gains to be made in terms of efficiency in cutting government red tape, improved monitoring and evaluation capacity of policy outcomes, better identification and allocation of resources to priority areas, greater transparency in government procurement, and improved delivery of key services such as health, education, and social development.
  • Infrastructure: The Covid-19 pandemic has exposed critical infrastructural vulnerabilities in key areas such as the delivery of health services, education, and the functioning of the country’s social welfare system. A proper audit needs to be conducted of the entire South African digital ecosystem by focussing on its reach, sophistication, and the technologies that are deployed within it. Drawing on the findings, opportunities have to be identified, as well as commercial and regulatory bottlenecks that may detract from their expansion to a broader spectrum of South Africans.
  • Research and development: It will be necessary to nurture national expertise in the development of AI applications that can respond to these challenges. The existence of local expertise would be vital to ensure an overreliance on one of the other systems.
  • AI Ethics: There is currently no globally enforced standard that regulates innovation within the AI field, which is particularly concerning amid a global race for dominance in this field. In the absence of such normative guidance at the global level, the implication for South African context is t need for vigilance to ensure that new technologies in this sphere complies to the spirit of our democratic constitution.
  • Regulation: One of the pivotal points of argument in global debates around the use of AI is the treatment of private data. In South Africa, POPIA (South African Government, 2020), which was promulgated in July 2020, aligns strongly with a citizen-centred approach. Critical, however, will be the extent of enforcement, and the degree of digital literacy required for people to assert their rights.

A programme in Futures Studies will help you to develop innovative and long-range decision-making skills to mitigate risks and identify opportunities. For more information, visit our website at www.usb.ac.za

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Innovation in SA organisations driven by C-level support, new report finds

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Innovation in SA organisations driven by C-level support, new report finds

  • FEB 15 2019
  • Tags Innovation, management, sustainability, growth, report, strategies

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Turf wars, office politics, lack of alignment and budget pressures the dominant innovation obstacles in South Africa.

South African business leaders are putting innovation front and centre in their organisational strategies to help drive sustainable growth. This was one of the key findings in a new pilot study tracking South African public and private sector organisations’ innovation management capabilities.

“Despite the rapidly growing knowledge base, managers in Southern Africa require knowledge, skills and attitudes to deal with our challenges and context.”

The State of Innovation Report 2018 – 2019 was conducted by the Creative Leadership Collective, a consortium of executives and senior managers tasked with driving innovation within South African organisations, and the University of Stellenbosch Business School (USB). Paul Steenkamp, co-founder of the Creative Leadership Collective and co-author of the study, says the current trend toward prioritising innovation comes at a critical time in the country’s history.

“To solve the problems we face as a country and continent, we can’t afford to do the wrong things right from an innovation perspective. We need to think and act differently, and leaders need to create a more empowering culture within their organisation. Encouragingly, South African public and private sector organisations have taken note: management commitment and support for innovation is perceived to be on the up.”

SA businesses prioritising innovation despite lower maturity rates

The State of Innovation Report 2018 – 2019 includes five stages of innovation maturity, ranging from 1 (ad hoc innovation with no formal focus or follow-through) to 5 (optimised innovation that is scalable, driven by empowered employees).

“To solve the problems we face as a country and continent, we can’t afford to do the wrong things right from an innovation perspective. We need to think and act differently, and leaders need to create a more empowering culture within their organisation.”

”Our research found that none of the participating South African organisations were at stage 5, and only 8% were stage 4,” says Steenkamp. “Nearly 80% of South African firms are either at the Emerging or Defined stages of innovation, where there is some awareness and effort, or some degree of formalised strategic programmes linked to customer or business objectives. This is consistent with global trends: in the 2018 Benchmarking Innovation Impact Report, nearly 60% of global respondents placed themselves in the first two categories. Only 4.1% believed they had reached the highest stage of innovation maturity.”

“An organisation’s capacity to manage innovation tends to improve over time, but only when there is clear leadership to manage specific issues limiting innovation at the various stages of maturity,” says Steenkamp.

Measuring innovation

The report uncovered the key metrics that participating South African organisations currently apply to measure the success of their innovation efforts. “Customer-related metrics emerged as the most important measure for South African innovation success. Two-thirds said they measure innovation by the growth in number of new customers buying their product or increasing the number of customers repeatedly using their products or services.

According to a Walker study, customer experience will overtake price and product as the key brand differentiator by 2020. “However, in the public sector, innovation priorities relate more closely to enabling public sector organisations to be better prepared for future challenges around food security, health, and water,” says Steenkamp.

Improved collaboration, skills transfer

The United Nations Conference on Trade and Development (UNCTAD) notes in its Technology and Innovation Report 2018: Harnessing Frontier Technologies for Sustainable Development the importance of skills and education in taking advantage of so-called frontier technologies: artificial intelligence, Internet of Things and other emerging technologies that are driving much of the advances in the digital economy. “Organisations that are open to the learning process outperform those that are not. However, our research found a lack of collaboration between the private sector and institutions of higher learning,” says Steenkamp.

Study co-author Dr Awie Vlok of the USB said most managers would like to improve their innovation performance but lack the knowledge and skills to do this.

“Studies on innovation and leadership are not new but research on the competencies of leaders to bring about innovation is still new. Innovation thought leader, Prof Clayton Christensen from Harvard Business School, only referred to innovation as the new science of success in 2002 and in 2004 the McGraw-Hill group introduced the notion of the Innovation Economy. Scholarly interest has since increased, while popular media feature innovation celebrities and their perspectives.”

Despite the rapidly growing knowledge base, managers in Southern Africa require knowledge, skills and attitudes to deal with our challenges and context. This report conveys important insights into the views of those taking part in the survey, and future surveys will expand on these.”

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