LUMEC // Informed Economic Solutions // Blog

Lumec recently undertook research for Innovate Durban in order to develop an Innovation Publication for the Province, a first in KZN. The publication included a profile of 5 successful innovators, which provides a very useful resource for innovators and potential innovators. Parallels among the 5 innovators who were profiled were most evident in the following areas:

1. The toughest challenges to overcome;

2. Lessons learnt; and

3. Valuable insights on what they wish they knew at the start of their innovation journey

Challenges

Regardless of the innovators’ stage of development, each faced the same challenge when it came to accessing funding. The argument here is that funding is difficult to access, which increases the amount of time required for your project to move through the innovation pipeline. Therefore, whether you require seed funding, capital to develop your prototype or have a new product ready for commercialisation, having the skills to source funding is crucial. Furthermore, most of the innovators cited the same institutions as a critical source of funding for their innovations, namely Invotech and the Technology Innovation Agency. The majority of innovators profiled used competitions as a means to generate capital. Limited access to funding and limited funding in general suggests that it is important for innovators to diversify their funding options.

Lessons

All the innovators noted that the innovation journey is a long one, as evidenced in the fact that they began the process several years ago. This is why most identified consistency as the key to achieving results. In other words, it is crucial to be consistent in the pursuit of your innovation because it is a journey that comes with many hurdles, detours and slow progress. One innovator mentioned that he was able to achieve what seemed to be impossible by breaking down big tasks into smaller achievable actions. Furthermore, commitment to the journey may also involve going months and even years without a stable source of income.

What innovators wish they knew when they started

The innovators we spoke to are now all business owners. A few of them emphasised that they had to learn new skill sets in order to succeed in business. These were hard skills that improve business acumen and soft skills including knowing how to manage people (within and outside of your immediate team) and their different personalities. Many innovators seek commercialisation as the ultimate goal for innovations, therefore, an important consideration outlined by one of the innovators was to ensure that commercial aspects are incorporated from early on in your product design such as certification and industry standards. Other innovators pointed out that pursuing your innovation is not a task taken in isolation; the process requires collaboration, partnerships and the right team in your business.

You can see the full interviews here.

To read more about the Innovation Publication project, follow the link here.

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In part 1 of this blog, we briefly introduced the fourth industrial revolution within the context of the preceding revolutions, unpacked exactly what the 4IR is and touched on some of the challenges faced by South Africa with regard to the changes that the 4IR will bring. In part 2, we focus specifically on jobs and skills in light of the technological changes we are experiencing. The information in this blog is largely sourced from the Accenture Consulting report titled ‘Creating South Africa’s Future Workforce’.

A common concern raised when one talks about the 4IR is “the machines are going to take our jobs”. And yes, this is true for a number of professions. Accenture Consulting notes that 35% of South African jobs are at risk of total automation as machines can perform 75% of the required activities. As technology progresses through advancements in areas such as artificial intelligence and machine learning, jobs that comprise of more machine-like activities (routine work, transactions and manual work) are at greater risk than those with greater human-like activities (analytical, leadership, social intelligence and creativity). Essentially, the more repetitive and predictable tasks that a job requires, the more the tasks can be replicated by machines. As such, occupations at highest risk of automation are “production, office administration, farming, food preparation, construction, mining, transportation, installation and maintenance”. Jobs that are harder to automate include tasks such as “influencing people, teaching people, programming, real-time discussions, advising people, negotiating and cooperating with co-workers”.

Essentially, we need to reduce the potential threat of jobs being replaced by machines and leverage opportunities that are presented to create new jobs via machine-human collaboration. In order to achieve this, we need to learn new skills to better collaborate with technology in order to enhance their productivity and ingenuity. As Accenture puts it, “we need to learn to run with the machine”. This statement, as futuristic as it sounds, is based on research that shows that artificial intelligence does, in fact, have the potential to boost labour productivity by 40% by 2035. Essentially, we need to focus on a shift towards more human-centred skills and increase the pace at which we embrace digital technologies. However, the same research indicates that South Africa, at our current pace of learning, will transition towards the required skills at a slower pace than the rest of the developing world. Ultimately, we need to double the pace at which we acquire skills or face the imminent threat of losing 5.7 million jobs to automation.

“By embedding AI and making it a factor of production, this research indicates that South Africa could potentially double the size of its economy five years earlier”

So, what can government, industry, organised labour and educational institutions do to ensure that we start to rapidly increase the pace of learning and avoid the massive job losses that are predicated? The role of government is primarily around the creation of a conducive policy and regulatory environment while also providing access to infrastructure, connectivity, skills and incentives. Industry, on the other hand, needs to invest in technology to enhance efficiencies and drive re-skilling initiatives, while industry associations need to continue to drive research and discussions around digital advancements. Educational institutions need to pioneer new systems to allow for learning across the various stakeholders (between industry, government, NGOs, research institutions, etc) while organised labour needs to accept the potential that digital technologies provide and assist prepare the next generation.

So, next time someone says “the machines are going to take our jobs”, we suggest responding by saying “not if we learn to run with the machine”.

These days, you cannot avoid hearing the term ‘fourth industrial revolution (4IR)’. In almost every project we do, we are told to make sure we incorporate the 4th industrial revolution and its impact. We’ve been doing a lot of team training on the 4IR and have become quite familiar with what it is all about, the potential opportunities that are presented, and the major threats, especially in relation to jobs. In this 2-part blog, we briefly unpack what exactly the 4IR is, highlight some examples of how the 4IR has already been embraced globally, and some risks that we face in South Africa.

Before understanding the 4IR, it’s important to provide some context to the preceding industrial revolutions. The First Industrial Revolution occurred in the late-1700s until the mid-1800s and saw a shift from an agrarian to an industrial economy, mainly thanks to the invention of steam power. This introduced industrial mechanisation and steam-engines, which stimulated manufacturing (particularly textiles and steel) and transport via railways and steam-powered ships. At the end of the 19th century, electricity brought about the beginning of the Second Industrial Revolution which saw the introduction of the assembly line and mass production. In the mid-90s, just less than a century after mass production started, the Third Industrial Revolution began, fueled by electronics, computers and automated manufacturing processes. This is often referred to as the ‘digital revolution’. So what then, is the Fourth Industrial Revolution?

The 4IR can be described as a merging of the digital, physical, and biological worlds through the emergence of “extraordinary technological advancements”. Essentially, it includes disruptions caused by advancements in robotics, artificial intelligence (AI), virtual reality (VR), automation, machine learning, 3D printing, big data, and the internet of things (IoT). These technological advancements have and will continue to change the world around us, especially when used in conjunction with each other. Globally, industry has already started to transform processes and adapt to opportunities presented by these advancements. The most evident examples exist within transportation (e.g. automated vehicles), logistics (e.g. warehouses operated by robots), manufacturing (e.g. additive manufacturing/3D printing), and the services sector (e.g. augmented reality to view properties and holiday destinations via estate and travel agents respectively).

Within South Africa, the 4IR presents significantly more challenges than opportunities, particularly in relation to the provision of enabling infrastructure (i.e. broadband and communications technology) and education and skills development. Should we not be able to provide enabling infrastructure and develop a sufficiently skilled workforce, we face the risk of technology-driven employment losses. A recent report by Accenture Consulting titled “Creating South Africa’s Future Workforce” highlights that although digital technologies bring about efficiencies, for countries that are less prepared, such disruptions may cause greater job losses than gains. The report indicates that 35% of all jobs in South Africa (equal to almost 5.7 million jobs) are currently at risk of total automation. This can, however, be reduced to 20% of all jobs (or 3.4 million jobs) should we double the rate at which we currently provide skills to the workforce.

Part 2 of this blog provides an overview of the key findings of the Accenture research, focussing specifically on the professions most at risk, new skills required to unlock the potential advantages presented by the digital economy, and the actions required by government and industry to ensure that the workforce is sufficiently prepared.

In Part One of this tuna inspired blog, we framed the problem of canned tuna:

Not a single can of tuna on Spar’s shelves contained tuna sourced in South Africa, and
Most of this tuna is SASSI red listed.

We also discussed the current methods of catching tuna, namely, hand or pole fishing, netting, fish farming and artificial fish farming. In Part Two we consider whether entering this market is plausible in South Africa.

Tuna is one of the most profitable types of aquaculture. This is especially true of bluefin tuna, which supplies the sushi industry. Therefore, Tuna is one of the most popular and globally traded seafood products. Globally, tuna quotas have been met, in fact, the relevant bodies are currently considering how to lower quotas. This means that supply is likely going to remain flat, while demand continues to increase, especially for bluefin tuna. Which means that there is going to be a significant gap in the market opening up where tuna prices are likely to increase and demand for artificially bred tuna will rise.

If South Africa were to step into this gap, we would need to invest heavily in aquaculture technologies currently being utilised in Japan and the USA. Already, South Africa is home to several freshwater and saltwater fish farms, including aquaponics plants, and is home to some of the leading fisheries scientists in the world. Furthermore, the funding of aquaculture has been prioritised with relevant Development Funding Institutions (DFIs). The first local Aquaculture Finance and Investment Seminar was successfully held in March 2019.

It seems, therefore, that the capacity and funding stores may exist in South Africa but given the niche status of artificial tuna farming, this may not be the most effective use of this capacity, despite the potential returns. We have the additional challenge in South Africa of rough sea waters – harbours would need to be utilised or built for successful farming. Furthermore, the quick win would be in farming tuna for the sushi market where margins are high, not the canned tuna market. Upon writing, the most expensive shredded canned tuna on Spar’s shelf was R18.49 and the cheapest was R15.99. This is the band within which farmed tuna would need to stay if it were to be purchased by the mainstream consumer.

There is evidence that sustainable products are being purchased at a higher growth rate than unsustainable products, especially amongst millennials, but this evidence is from high-income countries. The willingness of low to middle-income consumers to pay a premium for sustainably sourced products is yet to be proven. Interestingly, in South Africa, Woolworths shoppers are paying a premium for sustainable, locally sourced shredded canned tuna – upon writing, this premium was R5.50.

So, to answer the questions we started with,

Why are we unable to compete with Thailand on this product? It seems that we may not want to from a sustainability perspective. Furthermore, quotas are being reduced, which means that there likely isn’t much opportunity for new market entrants.
Would the market be willing to purchase locally sourced canned tuna at a mark-up? Possibly. They already do from Woolworths. However, this would likely be the smaller, higher income bracket.
Is this an industry that has the opportunity to grow our local economy, without any negative impact on our ocean ecology? The percentage of pole and hand fishing licenses that are currently being utilised in South Africa would need to be determined – if they are being underutilised, then there is scope for growth, however, this is capped. There is little scope for growth for large scale commercial fishing and farming due to quotas and high barriers to entry. There is room for growth in the implementation of artificial tuna fish farming, however, this would likely require significant investment and the willingness of major global players to share their intellectual property. Furthermore, this fish farming technique does create waste, so the impact on ocean ecology would still need to be considered.

We would welcome any experts or data that could confirm or refute our conclusions, which are based on high-level, secondary research only.

At the end of the day, if locally sourced, sustainable canned tuna isn’t feasible, we could always consider growing tuna in a lab or tuna that isn’t tuna at all…

Additional reading on the status of South African aquaculture here.

As economists, we are acutely aware of the economic benefits that arise from local manufacturing, which is one of the reasons Lumec employees share a passion for supporting locally produced goods and services. Earlier this year we noticed something surprising - not a single can of tuna on Spar's shelves contained tuna sourced in South Africa. Every brand of tuna stated that its tuna was sourced from Thailand.

The creative economy “refers to economic systems in which value is derived from creative and imaginative qualities instead of traditional sources such as capital, land or labour”.

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In March 2019, eThekwini Municipality’s executive committee approved the establishment of the Glenwood Urban Improvement Precinct (UIP), which is expected to become fully operational in August 2019.

At the end of March, Lumec celebrated 3 years in business at The Charlatan on Durban’s Florida Road. We were lucky enough to share this milestone with some of our clients, partners and friends.

There have been a number of highlights this last financial year including our team expansion, the development of our new company strategy for the next 3 – 5 years which outlines our focus areas and key services (see image below) and being involved in really interesting and innovative projects.

Some of our key areas of interest are:

Biomass Processing in eThekwini – Our growing interest in the circular economy allowed us the opportunity to work on the development of a business case for a biomass application centre in KwaMashu, Durban. The project is a partnership between the Durban Green Corridor and Plantbased Raw Materials (PRM) International, a Dutch-based organisation, which seeks to generate and convert fibres from alien plants and other organic waste into various end-products such as bio-based packaging and bio-composite planks. Since the completion of the business case, we have been working closely with PRM to assist them to manage the implementation of the various value chains in Durban.
Film Industry Research – Our passion for the growth of the creative industries led us to work on two interesting projects with the KZN Film Commission. The first was research into the trends of KZN audiences and how they consume filmed content and was based on the results of 1,200 surveys across the province. The second sought to identify the impact that micro-budget filmmakers are having on the provincial film industry. Both projects allowed us to deepen our understanding of the KZN and South African film industry, which has great potential to create jobs and stimulate the cultural and creative industries in the province.
The Informal Sector – we have recently become partners in a tech start-up, DIVERT, which aims to improve the livelihoods of informal waste pickers in the developing world. The aim of DIVERT is to produce and distribute container-based reverse vending machines that automatically analyse and weigh recyclable paper and plastic, electronically pay waste pickers a fair and transparent price, and digitally connect sellers and buyers of waste. Data is collected throughout the process, allowing all parties, including manufacturers, to increase efficiencies and the percentage of waste recycled.
Data Product Development – Our relationship with Open Data Durban (ODD) has enabled us to support government and other organisations to create data management and analysis solutions in the form of open source data portals. We have assisted ODD in the development of data portals for the South African Cities Network, the Centre for Affordable Housing, and eThekwini Municipality (via the Durban EDGE). Increasing the transparency of public information is important for us and we value the experience we have been afforded in this space.

To get a full view of our past projects, visit our website. You can also keep track of Lumec’s activities and areas of interest on our LinkedIn and Facebook pages.

President Cyril Ramaphosa’s August 2018 address at the National Assembly suggested that future South African (SA) cities will aim to alleviate the burden of apartheid’s spatial design from the poor. This relates to the cost associated with travel to and from work, as well as the time spent in the commute between work and home.[1] Additionally, future SA cities need to be places of wealth generation and productivity. A productive city is one that can offer most of its citizens with the opportunities necessary to have decent livelihoods.

Urbanisation is defined as an “increase in the proportion of a population living in urban areas” and a “process by which a large number of people becomes permanently concentrated in relatively small areas, forming cities”.[2] The World Cities Report 2016[3] suggests that rapid urban growth is a global trend. However, this growth brings greater complexities to problems that already exist in cities; problems such as urban services, housing, rising inequality and exclusion, as well as issues of safety and security. Presently, 55% of the world’s population is living in urban areas.[4] Northern America has the largest share of persons living in urban areas (82%), followed by Latin America and the Caribbean (81%), Europe (74%), Oceania (68%) and Asia which has an urban population of roughly 50%[5]. Africa on the other hand, still remains largely rural with an urban population of 43%.[6] Future trends suggest that since 90% of the world’s population is found in Africa and Asia, the growth in the global urban population will be mostly driven by Africa and Asia. However, delayed urbanisation, coupled with at a lower income rates than other developing countries has put African cities and policy makers under more pressure. While urbanisation in Africa has been delayed, it gives African countries the opportunity to learn from the mistakes and successes of other regions such as that of developing Asia and take full advantage of urbanisation as an engine for growth and development[7]. In addition to urbanisation acting as a catalyst for development, United Nations Habitat urges governments to use urbanisation as a tool to achieve transformation and sustainability[8]. This is of particular importance in the South African context due to distorted economic power and activity.

It is important to note that according to the State of Cities Report 2016[9], urbanisation does not only refer to metropolitans such as the City of Johannesburg, eThekwini and Cape Town, but also refers to places with urban characteristics. For instance, secondary cities such as Rustenburg, George and Polokwane, as well as small towns like Alice and Harrismith. The productivity of a city is heavily reliant on its spatial make up which also includes small towns and their linkages to bigger cities.

What then is the current state of our cities? SA cities account for almost two-thirds of the country’s economy and are responsible for more than half of its employment. The legacy of apartheid’s spatial division based on race, displacement of black people from urban areas and their controlled access into urban areas based on labour demands, and dispossession of ownership to land are fundamental issues that persist in cities[10]. While there has been significant investment made towards transforming cities, the result has been reinforced inequality, exclusion, and poor integration.

Ultimately, the nation’s goal to have ‘compact, coordinated and connected cities’ is both a social and an economic imperative. That is, to increase spatial efficiencies, to bring people closer to employment opportunities, to rebuild families, and to restore dignity by enabling people to have and build homes[11].

[1] The South African. (2018). President Ramaphosa addressed parliament on Wednesday: Five talking points. From: https://www.thesouthafrican.com/president-ramaphosa-parliament-22-august-2018/

[2] OECD. (2003). Glossary of Statistical Terms. From: https://stats.oecd.org/glossary/detail.asp?ID=2819

[3] UN Habitat. (2016). Urbanization and Development: Emerging Futures. World Cities Report. From: http://wcr.unhabitat.org/wp-content/uploads/2017/02/WCR-2016-Full-Report.pdf

[4] United Nations. (2018). World Urbanization Prospects: The 2018 Revision. From: https://population.un.org/wup/Publications/Files/WUP2018-KeyFacts.pdf

[5] United Nations. (2018). World Urbanization Prospects: The 2018 Revision. From: https://population.un.org/wup/Publications/Files/WUP2018-KeyFacts.pdf

[6] United Nations. (2018). World Urbanization Prospects: The 2018 Revision. From: https://population.un.org/wup/Publications/Files/WUP2018-KeyFacts.pdf

[7] Jones, P. (2015). Done right, urbanisation can boost living standards in Africa. From: http://theconversation.com/done-right-urbanisation-can-boost-living-standards-in-africa-41191

[8] UN Habitat. (2016). Urbanization and Development: Emerging Futures. World Cities Report. From: http://wcr.unhabitat.org/wp-content/uploads/2017/02/WCR-2016-Full-Report.pdf

[9] South African Cities Network. (2016). State of South African Cities Report. From: http://www.sacities.net/state-of-cities-reporting/socr-2016

[10] South African Cities Network. (2016). State of South African Cities Report. From: http://www.sacities.net/state-of-cities-reporting/socr-2016

[11] South African Government (2018). President Cyril Ramaphosa: Reply to questions in National Assembly. From: https://www.gov.za/speeches/president-ramaphosa-says-land-reform-key-stability-22-aug-2018-0000

The backdrop for second South African (SA) Urban Conference was the historical Turbine Hall. The theme for the conference was activating an “All-of-Society” approach to implementing the Integrated Urban Development Framework (IUDF). According to the Minister of the Department of Cooperative Governance and Traditional Affairs (COGTA), the first SA Urban Conference was about building knowledge. This year, the conference set out to engage and mobilise implementation to build towards more ‘inclusive, safe, resistant and sustainable’ cities.

There were four major groups represented at the conference, namely, civil society, government agencies, the private sector and academia. Panellists included ministers from the Department of Cooperative Governance and Traditional Affairs, the Minister of the Department of Human Settlements, the President of the South African Local Government Association, Nedbank, Tongaat Hulett Developments, Shack Dwellers International, the Council for Scientific and Industrial Research, the Western Cape Economics Development Partnership and Wits School of Governance, amongst others. The general tone of the IUDF and government agencies was an emphasis to be people-centric and to work in partnership with the private sector, Non-Governmental Organisations (NGOs) and civil society to reduce the spatial inequality that was established during apartheid, to move the poor and working class closer to economic opportunities and to strengthen property rights. From the perspective of government, they want to see compact, connected and coordinated cities.

There were a number of discussion points that stood out during the conference. Amongst others, these included, (1) the role of well-functioning and efficient municipalities to ensure the success of implementing the IUDF, (2) the importance of defining what an urban city is in a South African context (3) the role of the arts in our society, (4) lessons from best practice implementation of the IUDF taking place in various locations within South Africa, and lastly, (5) what does the urban agenda and development mean for food security?

What then, is the role each of these groups in the implementation of the IUDF? Following self-reflective sessions, each player defined for themselves how they could contribute towards the implementation of this framework. For academia, building relationships between government and academia is critical to have the kind of impact that brings about real change. This means moving beyond transactional relationships of tendering for research and instead, developing meaningful partnerships with government agencies and communities. Furthermore, it is important to bridge the divide between scholarship and practice, to simplify academic jargon and to build knowledgeable communities by sharing knowledge that is generated by research institutions and universities. An important question for academia is, ‘How do we create evidence for future cities and communities, stead of just tracking for monitoring purposes?’.

On the other hand, government agencies recognise that they need to consult and honour their commitments to communities, they need to be flexible and adaptive in their policies and by-laws to effectively respond to communities. Frameworks need to be tested, therefore, municipalities are seen as vital agents in the experimentation and testing of the IUDF. To see the implementation of the IUDF, government may need to incentivise civil society, municipalities, researchers and the finance and business sectors. Lastly, government recognises the need to improve internal communication and to properly embed the IUDF in local governments. But how can this be achieved? What skills are required to implement the IUDF? Are there tools to guide implementation? And how do you deal with transversal issues?

There are several ways in which the private sector saw itself playing an active role in the implementation of the IUDF. While the current economic environment puts more pressure on business profit, and shareholders’ demands can be in conflict with government plans, the private sector must prioritise and commit to being part of this journey. The private sector can play a lobbying role within their firms to adopt a social focus in their business practices and to partner with government. The private sector points out that there is a disconnect within government at different levels and that regulatory hurdles and capacity challenges make it difficult to work with government. However, where there are capacity issues, the private sector can help to bring in the necessary skills or improve capacity of government.

From the perspective of civil society, government needs to be more responsive, transparent, and engage more in meaningful participation, not consultation. There needs to be regular feedback to communities and short feedback loops. The stance from civil society was clear; they are disillusioned, and based on previous experiences, are extremely cautious of new government policies, frameworks and plans. However, there is still room for change. If civil society is to play a real role in the delivery of the IUDF then they need to be seen as partners as opposed to simply beneficiaries. Civil society can be agents in monitoring and evaluation, as well as in research and improving participation methodologies. Moreover, participation is key to bridging the gap between government and civil society. If the IUDF is indeed people-centric, then implementation needs to be people and community driven, which means that implementation cannot be prescriptive.

In as much as the conference left us with a sense of hope for the future we envisage, it has perhaps brought about more questions than answers, and a need to reflect further about the type of cities we want for South Africa. Over the next few weeks we will delve deeper into the main discussion points that stood out during the conference.

Newer Posts

Older Posts

Innovation: Key Insights from KwaZulu-Natal Innovators

The Fourth Industrial Revolution – Part Two (Jobs)

The Fourth Industrial Revolution – Part One (Defining 4IR)

Buying local and sustainable: The case of canned tuna – Part Two

Buying local and sustainable: The case of canned tuna – Part One

The Economic Importance of Cultural and Creative Industries

Understanding the Glenwood Urban Improvement Precinct (UIP)

Lumec turns 3!

Defining urban cities in South Africa: What does urbanisation mean to us?

South African Urban Conference 2018