Building a strong knowledge economy in SA

Date: 14 March 2005	Issue: 14 March (Computing S.A.)
Category: Analysis	Gordon Frazer, MD at Microsoft SA

Our global economy is seen as one in transition to a ‘knowledge economy’, or an ‘information society’. Knowledge and the ability to create, access and use it effectively is a vital tool in promoting innovation, competition and economic success, as well as a key driver of economic and social development.
The rules and practices that determined success in the industrial economy of the 20th century need rewriting in an interconnected world, where resources such as know-how are more critical than other economic resources. Simply put, a knowledge economy is one where knowledge is used to produce economic benefits. Picture a world where knowledge and education can be treated as business products, and where education and innovative intellectual products and services are key economic advantages.
According to New Growth Economics, a country’s capacity to take advantage of the knowledge economy depends on how quickly it can become a ‘learning economy’. Learning means not only using new technologies to access global knowledge, but also communicating with other people about innovation. In the ‘learning economy’ individuals, firms, and countries are able to create wealth in proportion to their capacity to learn and share innovation. Formal education needs to become less about passing on information, and more about teaching people how to learn.
Creating globally competitive knowledge-based economies requires a coherent, proactive strategy, which reaches across many different sectors, encompassing areas as diverse as information infrastructure, research and innovation systems, education and life-long learning, government policy and regulatory frameworks.
History has revealed four essential parts of building a strong knowledge economy:
* Creating an enabling environment that encourages the widespread and efficient use of local and global knowledge in all sectors, which will also foster entrepreneurship.
* Creating a society of skilled, flexible and creative people with opportunities for quality education and life-long learning available to all.
* Building a dynamic and innovative information infrastructure.
* Creating an efficient innovation system, consisting of firms, science and research centres, universities, think tanks and other organisations, that can tap into and contribute to the growing stock of global knowledge, adapt it to local needs, and use it to create new products, services and ways of doing business.

The technology part of the equation
Knowledge economies consider technology as an enabling tool for releasing the creative potential and knowledge embodied in people. Wealth generation is becoming more closely tied to the capacity to add value, using technology-based products and services.
Information technology (IT) has come a long way in the past two decades, and the next ten years will bring even more impressive advances. Many of these will free us to focus less on technology and more on what it helps us to achieve. Millions of people are now using computers for communication, increased productivity, learning and entertainment.

An engine of growth and opportunity
The global market for IT products and services was close to $1 trillion in 2003, and is projected to exceed $1,2 trillion by 2008. The rapid growth of the industry has generated millions of highly skilled, high-wage jobs, and tens of billions in annual tax revenues. At the same time, businesses across the economy are using IT to become more productive and competitive, thereby promoting economic growth and rising standards of living. The packaged software industry alone generated $186bn in global annual tax revenues during 2003 - with more than half earned outside of the USA.
The IT industry also spurs growth in ways not so easily captured by statistics. Investments in IT help organisations to become more efficient, and their workers more productive. This, in turn, allows firms to expand output and increase wages without raising prices.
The phenomenon of using IT to raise productivity has helped several nations with business investments in IT to achieve higher levels of real, non-inflationary growth, and to increase standards of living. At home, the South African IT industry was expected to grow by 9,7% during last year. Software and IT services form the key drivers of overall sector growth, with IT services accounting for 44% of total IT spend.
The IT industry has also proven that it presents unique opportunities for developing countries. Many experts believe that the emergence of the Internet and similar IT-based innovations may help level the economic playing field for firms in developing countries, and even enable these countries - in the words of a WTO conference - to ‘leapfrog’ stages of development.

Shared success through partnerships
Technology performs as an engine for growth through the partnership of technology players. The synergy of these partners and their ability to design, implement, and support solutions for customers are all critical parts of the growth engine and form important parts of the IT ecosystem worldwide.
No one company can deliver on the complexity and requirements of all customers. It is essential that partnerships with local and global companies be built to ensure that the needs of the economy are met. For example, in SA, Microsoft partners with more than 5 000 firms. Their affiliation with the company is intended to help these firms increase revenues, lower costs, bring new products to market faster, and improve market recognition by linking their own products with the Microsoft brand.
In SA, over 11 000 IT companies service almost 430 000 economically active companies. In people terms, the industry employs approximately 62 100 people. Currently SA employees represent a relatively small base of knowledge workers - 250 000 (those defined as using IT on a daily basis) providing increased opportunity as technology becomes more pervasive and an inextricable part of conducting business.

Fostering a healthy IT sector
The benefits of a successful IT industry are well documented, as the industry has assumed a prominent position on the world economic stage. The success of a nation’s IT industry may depend on whether its policymakers create a regulatory environment that stimulates IT usage and IT industry growth.

* Strong intellectual property laws - technological innovation constitutes the lifeblood of the industry. Intellectual property protection provides critical incentives for innovation by helping IT firms capture the economic value of their innovations in the marketplace. Strong intellectual property laws benefit not only the creators of new technologies, but also consumers - in the form of new and better products, governments - through increased job opportunities and tax revenues, and the economy as a whole - through gains in productivity and increased standards of living.
Intellectual property protection is particularly vital in the emerging digital world. Digitisation and the Internet have made it easy to make exact copies of protected works, and to distribute these copies to an online audience of millions around the world.
The economic losses suffered by authors and other creators, as a result of online piracy, are staggering. Piracy hinders IT industry growth, prevents the creation of new jobs, diminishes tax revenues, and deceives consumers into buying illegal products.
* IT training and education - For much of the past decade, the global demand for skilled IT workers has outpaced supply. In 2003 the ISETT Seta estimated that over 5 700 ICT jobs in SA remained unfilled due to a shortage of appropriately skilled workers. Failure to address the IT skills gap could have serious consequences, such as the loss of potential jobs. If left unresolved the skills gap could make organisations reluctant to invest in IT products and services, leaving them at a disadvantage to their more tech-savvy competitors. The IT skills gap is likely to hit small and medium-sized businesses particularly hard, as they are unlikely to be able to match the employment incentives offered by their larger competitors.
Despite real improvements in access to and use of IT, there is a wealth of evidence to suggest that the digital divide between, and within, countries is growing. Many regions lack basic access to technology and training, widening the gap across communities in quality of life, competitiveness and economic development. Nowhere is the gap more evident than in education. Students often lack access to computers and software, and educators do not always receive training and development on how computers can make learning more powerful and meaningful. Administrators need development and support to use technology to transform education, and information on how they can use technology to support data-driven decision-making and appropriately intervene to support student achievement.
In SA, it is recognised that fundamental change takes both time and a consistent application of resources. Government has identified two key issues which need to be addressed to eliminate the skills gap; access and education. Government’s aim is to create sustainable long-term models for educational change that can serve as blueprints for success and can be leveraged moving forward. Education changes lives, families, communities, and, ultimately, nations.
Microsoft is convinced of the power of technology as one of the greatest enablers in developing social and economic well-being. For this reason, the company hopes that by providing the technology tools, and supporting these with the right training and education, it can make a real difference to people’s lives and empower South Africans to build their own future.
* Fostering innovation - a solid commitment to support local developers, independent software vendors (ISVs) and technology incubation projects around SA is vital. Microsoft SA’s work with Godisa, Bodibeng Technology Incubator, the Innovation Hub, Brainshare and the Innovation Company, for example, aims to foster the kind of innovation that local developers and ISVs need to deliver world-class software solutions that can compete successfully on the global stage.

* Telecommunication markets - Over the past decade, as the Internet has emerged as the engine of e-commerce and a focal point of IT innovation, Internet usage has skyrocketed. Industry will only be able to satisfy the growing demand for high-bandwidth Internet applications if users have access to reasonably priced, sophisticated telecommunication services.
Countries that open their telecommunications markets to competition often experience greater connectivity and lower prices. In many African countries, mobile telephone markets are far more open to competition than the traditional fixed-wire telecommunications networks. As a result, the number of mobile telephone subscribers in Africa now exceeds the number of fixed-line subscribers, and is projected to exceed 100m by 2005. The past ten years have already seen steady improvements in the access to, cost of, and reliability of basic telecommunications technologies.

* International trade - Barriers to international trade can significantly slow the emergence of a local IT industry. Government procurement policies that extend preferences to domestic firms over their foreign competitors likewise distort international trade. The global nature of today’s IT industry makes open international trade a high priority.

And in the year 2014...
By the end of the decade, the technology industry should surpass $2,4 trillion in spending on hardware, software and services. By assumption the future for the local ICT industry looks bright. Year-on-year it has outperformed worldwide averages and looks set to continue over the next decade. As the industry continues to grow, and permeates all industries, its contribution to the economy will increase, creating more employment and more software and skills export opportunities. To ensure that SA is ready to embrace these opportunities, government and local companies need to ensure that human resource development plans are fast-tracked.
We are unceasingly optimistic about the future of technology and the positive things it can do for people in realising their potential and we are excited about the opportunities that lie ahead.