Africa primed for innovation advantage over rest of the world

Article tags EconomySouth AfricaCorporate Network

By Sam Rolland, Sub-Saharan Africa director

Q2 of 2023 has been tough for Africa, particularly South Africa. The rand is sinking towards R20/$ on continued headwinds around South Africa’s decision to grant immunity to certain heads of state (including Russian president Vladimir Putin) ahead of the upcoming BRICS summit, load shedding continues to disrupt lives and livelihoods and the weak economic outlook is negatively affecting business sentiment.

During this challenging time, it is crucial to examine and expand on long-term thinking around the continent to develop a cohesive strategy while surviving the difficult economic climate. For this I have turned to an interesting article that recently came out in The Economist around population growth. The article highlighted the trend of globally declining populations. As can be seen from the map below, much of the developed world is expected to experience a fertility rate below 2 in 2023 (2 offspring per woman). For reference, a fertility rate of 2.1 represents the replacement rate, the level at which populations remain stable over time. Anything below this and the population will shrink. With a fertility rate of 0.8, the next generation of South Koreans is expected to be half the size of their parents. This trend is now spreading to emerging economies, where Brazil, China and India all have fertility rates below 2.1.

There are a number of interesting economic challenges that arise from this. Firstly, a demographic shift towards an ageing population means that there is higher spending on public pensions and health care, with fewer people of working age to pay the taxes available to fund those in retirement. In Italy and Japan, the median ages are 47 and 49 respectively, which leaves just 11-18 more years of productive working before relying on social security.

Additionally, one of the biggest challenges of an ageing demographic is the effect on innovation. As outlined in the article, it was found that innovation, measured by rates of patenting, peaks in the late 30s and early 40s of life, before declining through the 40s and 50s. And, patents for disruptive innovations are markedly higher among younger inventors. These are the kinds of innovations that will be necessary to adapt and thrive in the age of AI, and are particularly suited to handle some of solve some of Africa’s unique infrastructure and technological challenges.

Ageing populations will see their contribution towards innovation decline over time. Evidence already exists to illustrate this. Take, for example, Japan where inventors led the world in production of patents in thirty-five industries a decade ago. By 2021 this had fallen to just three industries.

However, there is some good news in all of this. Looking at the map again, much of Africa is expected to experience fertility rates above 2.1. This means that in the coming decades, African economies will be in prime positions to lead the world in disruptive innovations. This will, however, ultimately be determined by how much Africa can keep African talent within the continent. As the article notes, ageing populations will require new workers to keep their tax base healthy and able to provide for the older generations. This will push these nations to focus on immigration to compensate for dwindling birth rates, luring Africa’s smartest away to greener or safer pastures. Businesses and governments particularly will be wise to develop a plan to slow the exit, and make sure Africa takes the lead in innovation for years to come.

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Tue, 06th Jun 2023 Article tags EconomySouth AfricaCorporate Network