Knowledge Economy will Enrich Africa

Published on 27th January 2009

The developed world has passed through various revolutions that positively changed the respective countries’ as well as the global economy. The well-known revolutions are:the agricultural revolution; the industrial revolution  and the current information revolution. 

The agricultural revolution has been the result of introduction of modern mechanized farming along with irrigation, crop rotation, use of inputs and supplies such as fertilizer, improved seeds, pesticides and hybridization among others. This mechanization and the use of inputs and supplies boost production. In earlier periods, the boost of agricultural production resulted in an increase in income that was definitely higher than the value of its input.  By then, agriculture was capable of producing surplus value. Rich landlords became wealthier and prosperous. This helped them to do further research to improve agriculture.

The industrial revolution came into being with a series and widespread inventions of new machinery that replaced manual labor. Several developments occurred in the textile and other industries that enhanced efficiency greatly.

The information revolution we are in is the result of the merging of computing with communication and the advent of the World Wide Web. It has created a digital economy where online transactions, online services, electronic learning, tele-medicine, e-businesses and virtual offices (among others) are all possible.

Africa definitely needs the three revolutions to eradicate poverty from its society. Africa needs to improve its agricultural productivity and production to feed its society. It needs to be industrialized to satisfy its needs as well as to export value added products. For Africa to be an active part of the current knowledge economy, it needs a digitized and connected economy. All the three, modern agriculture, industrialization, and digitization need to happen now and they could happen in any order. 

In bringing about these revolutions, Africa may not need to re-invent the wheel. Most of the results of the previous revolutions are already available to it (of course, if it has the economical power to buy and adapt them for itself). Africa’s performance in agriculture and industrialization is very poor as seen earlier.  It doesn’t even seem to me that bringing agricultural and industrial revolution are any easier than bringing the information revolution. In fact, I strongly feel that bringing the information revolution is the easiest of all and most importantly, a crucial element in succeeding in the other revolutions. I will try to show why.

Agriculture is still the major economic sector in most African countries, which has engaged the majority of the population. It is still the major source of hard currency for poor countries. However, its potential to create surplus value and bring about major change in the countries’ economies is very limited. Nearly all countries produce agricultural products. Most poor countries try to generate hard currency through export of agricultural products. As the products do not have any value added or have very little difference in quality, the main criteria for comparison in buying such products is their price. This forces the countries to compete by the price of their products resulting in the continuous decline of the value of the products to a point where the selling value of their products is even less than the value of the input. 

To compensate for this, developed countries have devised various subsidizing mechanisms while developing countries do not have the economical power to introduce any subsidy. On the contrary, they are also advised and even obliged not to put any subsidy in their economy. Therefore, African countries are finding it more and more difficult to cover their import values from export of their agricultural products. An illustrative case regarding the state of agriculture in developing countries can be found in Oxfam’s report that states that “ten years ago, poor countries’ export sales were worth a third of the total coffee market. Today, it is just 10%. Coffee farmers are getting, on average, 24 cents a pound while consumers in rich countries are paying roughly $3.60 a pound – a mark-up of 1500%. Coffee now costs more to grow and pick than it does to sell. Millions of families in four continents who are dependent on coffee are going hungry.

What may be deduced from the price of agricultural commodities against the inputs is that the sector is no more capable of producing surplus value in today’s global economy. Thus, the agriculture sector may not be improved further by its own income and it may not be that easy to bring about agricultural revolution now without heavy subsidy from other sectors.  

Unlike agricultural products, industrial products compete mainly by their quality rather than by their price. The products’ quality is dependent on the sophistication level of the factories that is mainly dependent on the magnitude of investment. Therefore, the major competition factor between various factories is the amount of investment put on to it.  Besides, industries are heavy users of services that are expensive in Africa.  These factors put a great challenge for African industries to effectively compete with those of other developed industries. 

In both agricultural and industrial economy, the role of human capital in improving production is minimal when compared to the role played by financial resource. 

When looking at the knowledge economy, we find a new structure in which the role of the human capital is the major determining factor for success. For countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living - more than land, tools and labour. Today's most technologically advanced economies are truly knowledge-based.

Knowledge industries are of two types: those whose major product is knowledge itself, and those that manage or convey information. “In the first group are included industries such as software, biotechnology, and information technology hardware; and occupations such as engineers, scientists, programmers, and designers, whose major output is research that translates into new products and services. These industries are driven not by machinery, skilled shopfloor workers, or even capital-although these all play a role-but rather by individuals engaged in research, design, and development. While these industries make up less than seven percent of the economy's output, they are in many ways key drivers of the New Economy. Just as capital- and machinery-intensive industries (such as autos, chemicals, steel) drove growth in the 1950s and 1960s, knowledge production firms are the growth engines of the New Economy.

On the other hand, a large share of the economy is now involved in managing, processing, and distributing information. These industries include telecommunications, banking, insurance, advertising, law, medicine, and much of government and education; and occupations such as managers, lawyers, bankers, sales reps, accountants, and teachers. In these industries, effective handling and managing of information, rather than breakthrough knowledge generation, are the keys to success.

The description on the first group of industries clearly shows the great impact that can be brought by individuals such as engineers, scientists, programmers and designers on national economies. Therefore, compared with the Agricultural and the industrial economy, the New Economy avails a unique opportunity where African engineers can make a difference in changing their continent’s economy with minimal financial investment requirement. 

Below are some of the reasons that will give an African software company a comparative advantage over a similar company in the developed world. 

 The information society is under formation. In this new society, the dominance of the global economy by the knowledge economy is going to continue for quite some time.

 Information and communication technology remains the key driver of the knowledge economy.

 Software takes the major share in the information and communication technology as its importance has been growing over the years. This can be seen from the following data. In 1955 the ratio of hardware to software in monetary values was 85:15 per cent. In 1985, this was completely reversed and the ratio of hardware to software became 15:85 per cent.

 Unlike other engineering disciplines, software engineering is a highly human intensive activity. Probably, over 80% of software cost is attributed to human resource cost. 

 There is generally very low cost of living in Africa as compared to the developed countries and thus the cost of software development could be greatly reduced in Africa. The reduction in cost without compromising quality could reach up to 80% or more. For instance, one may compare $100/hr programming cost in U.S. with $20/hr or much less programming cost in Africa.

 As long as there is reliable communication infrastructure, then keeping oneself up to date with the pace of the technology as well as producing and distributing software products will not be hampered by such issues as poor physical infrastructure and un-availability of transportation system. Generally, the sector is not location specific.

 Software engineering is still believed to be among the most complex engineering disciplines and it has not yet fully developed to the extent of other engineering disciplines. Therefore, African engineers could engage themselves with innovative researches and cooperate as well as compete on equal footing with other engineers to further develop the discipline. 

For software engineering companies to be successful, they require to have a critical mass of engineers that Africa should be able to produce. As long as the region is ready to build its human capital that is necessary for the knowledge economy, it is easier for the region to join the information revolution actively with the rest of the world than to bring about the industrial and/or agricultural revolution. The information revolution will then speed up the process of industrialization as well as the improvement of agriculture. 

By Assefa Dagne

Assefa Dagne is a founding member and Managing Director of Cybersoft plc.

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