The onset of the Artificial Intelligence (AI) revolution marks a significant turning point for our global economy. Artificial Intelligence stands poised to revolutionise both our society and business sectors, promising enhanced productivity and better decision-making capabilities. Not only that but a promise of a brighter future for particularly developing countries, posing an opportunity to deal with a diverse set of economic issues synonymous with developing states such as sluggish economic growth and development.
AI allows a multitude of tasks to be conducted faster, better, and at lower cost. Kaplan & Haenlein (2019) argued that, in the medium term, this will not only affect simple tasks but also more complex ones; even knowledge-heavy industries like consulting, financial services, and law will see major changes. However, it is essential to recognise not only the potential benefits but also the associated socio-economic risks and negative implications.
In Africa, the absorption rate of AI into daily operational activities by businesses and governments has been somewhat mixed. African countries' contributions towards AI-related projects (Graph 1), according to OECD AI (2024) Kenya, South Africa, and Ghana respectively, are leading the way. Some countries have very minimum to no involvement in initiating projects which involve AI. Howbeit, South Africa’s investments have seen exponential growth (Graph 2) acknowledging the belief that businesses have in AI to transform businesses and the economy (OECD AI 2024). In 2023 more than 55% of data scientists or machine learning experts in South Africa were less than 34 years old. On a concerning note, only about 6% of these professionals were females.
Graph 1
What is characteristic about most African countries' economic situations? Developing countries face several economic challenges that hinder their growth & development. High levels of unemployment, particularly among the youth, contribute to social inequality and poverty. These countries grapple with inadequate education and skills training, leading to a mismatch between the workforce's skills and market demands.
Persistent issues such as corruption and political instability have a detrimental impact on investor confidence, hindering economic growth this is more pronounced in South Africa, Kenya, Zimbabwe and Congo (Makochekanwa. & Mahofa, 2021). Structural issues, like an unequal distribution of wealth and resources, exacerbate social tensions and limit inclusive development. Furthermore, just like South Africa most of these African states contend with energy shortages and unreliable infrastructure, impeding industrialisation and economic diversification. Particularly in South Africa the legacy of apartheid also leaves a lasting impact, with disparities in access to opportunities and resources.
Graph 2
Adoption of AI may help to alleviate some of these issues but caution must be exercised. AI tends to grow the economy however this growth is associated with high unemployment.
Automation and the use of AI technologies do have the potential to replace certain jobs, particularly those involving routine, repetitive tasks (low-skilled jobs). Using South Africa as an example youth (who are less skilled and less experienced) unemployment is very high over 55% and is expected to go beyond 60% by 2025 (Trading Economics 2023). Moreover, in most developing countries agriculture and mining (primary) industries have the greatest percentage of employment.
The law of demand dictates that if the demand for labour is low wages fall, and the low demand for labour due to the use of AI in production will lead to a decline in wages. This situation places additional pressure on households that have already experienced job losses, exacerbating their financial strain. Therefore, the use of AI poses a significant risk to youth and low-skilled workers' employment. However, in the medium term AI also creates job opportunities in areas such as AI development, maintenance, and supervision.
There's a need for a skilled workforce to design, implement, and manage these technologies. Governments, businesses, and educational institutions play a crucial role in ensuring that workers are equipped with the necessary skills for the evolving job market and to minimise structural unemployment. Continuous learning and upskilling programs such as the one launched in South Africa by the Ministry of Communications and Digital Technologies at the University of Johannesburg & Tshwane University of Technology in 2022 can help workers adapt to changing industries (OECD, AI 2023).
Nevertheless, the issue extends beyond the sheer number of jobs lost versus those generated; it hinges on whether those displaced can secure employment in the evolving economy. Even if the overall economic effects remain relatively stable, the creative destruction process can yield noteworthy political repercussions.
Economic disruption has the potential to instigate social and political unrest, especially among a significant populace of formerly employed individuals or groups recently disadvantaged by economic shifts. Such circumstances may prompt discontented workers to voice their grievances, fostering social and political instability, which is detrimental to economic growth.
Cheng –Tek (2020) pointed out that, wealth inequality will be created as the investors of AI will take up the major share of the earnings. The gap between the rich and the poor will be widened. The "M" shape wealth distribution scenario, where a small portion of the population accumulates a significant share of wealth, is a legitimate concern. This wealth gap may be between the developed and developing states or internally in a country between the rich and poor citizens.
Developed states have the capital muscle to invest intensively in AI and strategically position themselves to enjoy the first-mover advantage while poor states will be at the mercy of these developed states. AI is a data-driven approach (Jerry, 2016), yet some African countries' data collection systems are non-functional and the internet which is a huge facilitator of data collection and processing, is very slow in extreme cases non-existent.
Policies promoting fairness and social justice are necessary to address the wealth inequality which may arise due to the use of AI. Within a country, implementing progressive taxation and supporting social programs can help mitigate extreme wealth disparities. However progressive taxation might result in lower than optimum investments, thus a range of policies and strategies which promote inclusivity and higher investment levels in AI may be adopted. Internationally collaborations of countries to initiate AI projects and aid from international bodies may go a long way in reducing the potential wealth gaps.
In the final analysis, while AI can bring about economic challenges, proactive measures and thoughtful policies can help mitigate the negative impacts and create a more inclusive and equitable society. Balancing technological progress with social responsibility is crucial for addressing undesirable concerns. A blithe or take-it-as-we-go approach to embracing AI may not bring the desired outcome to developing countries. If developing states can take an early stance in adopting AI, they may be able to enjoy the first-mover advantage and close the developmental gap that exists with the first-world states. However, numerous challenges will need to be overcome ranging from strengthening data infrastructure and ensuring data availability, quality, and security bundled together with the development of comprehensive national AI policies that encourage research, innovation, and responsible adoption of AI.
References
Cheng-Tek Tai, M. (2020). The impact of artificial Intelligence on human society and bioethics. Tzu-Chi Medical Journal, 32(4), 339 343. https://doi.org/10.4103/tcmj.tcmj_71_20
Kaplan, A. & Haenlein, M., 2019. Siri, Siri, in my hand: Who’s the fairest in the land? On the interpretations, illustrations, and implications of artificial Intelligence. Business horizons, 62(1).
Jerry, K. (2016). Artificial Intelligence – what everyone needs to know. New York: Oxford University Press; 2016.
Makochekanwa. A. & Mahofa. G. (2021). Corruption and Firm Export Performance in Fragile Economies: Evidence from Zimbabwe. AERC Working Paper FW-003 African Economic Research Consortium, Nairobi.
OECD, AI (2023) Launch of the Artificial Intelligence (Ai) Institute of South Africa and AI hubs (University of Johannesburg and Tshwane University of Technology). Available on: https://oecd.ai/en/dashboards/policy-initiatives/http:%2F%2Faipo.oecd.org%2F2021-data-policyInitiatives-27575 . Accessed 26/02/2024
OECD.AI (2024), visualisations powered by JSI using data from Preqin, Available on: www.oecd.ai/, Accessed on 12/28/2024
Trading Economics (2024). Youth unemployment. Available on: https://tradingeconomics.com/south-africa/youth-unemployment-rate. Accessed on 28/02/2024