• Anne Cabot-Alletzhauser

South Africa’s response to the Fourth Industrial Revolution – we need private sector input

This year, the meeting of the World Economic Forum (WEF) in Davos is giving emerging economies a much more visible platform. A question arising is whether the path to achieve economic growth and stimulus today should follow the same trajectory as it did historically for more developed economies.

Consider South Africa. Cyril Ramaphosa, will be mounting a very specific campaign at WEF 2018 to rekindle foreign investor confidence in the country. South Africa’s reality is that, politics aside, its future success will be intertwined with the success of its private sector. Addressing issues such as unemployment and economic growth means South African companies must hold their own in a rapidly changing global workplace – and at a time when social cohesion and social mobility are being challenged.

According to the 2018 WEF Inclusive Development Index, South Africa has sunk to 69th among the emerging economies globally, primarily because of its increasing contributions to this rating from unemployment, wealth and income inequality, life expectancy and carbon footprint. A five-year trend analysis suggests South Africa’s healthcare and carbon intensity levels are improving, however per capita growth and labour productivity are still on a downtrend.

In addition, the South African workplace will be influenced by the disruptions from the Fourth Industrial Revolution. This is the next phase of technological development that is introducing automation, robotics, artificial intelligence, machine learning, and biotechnological advances to increase the longevity of our working lives.

Africa’s capacity to adapt and exposure to the future of jobs

Source: World Economic Forum

As the graph above highlights, South Africa is in an unenviable position compared to other African nations. According to the WEF, South Africa is highly exposed to the global technological trends, but possesses a low capacity to deal with such tectonic shifts. Due to its second-to-last position on the continent in terms of the quality of education and high unemployment, South Africa is poorly positioned to meet these global challenges. The WEF has estimated, for example, that as many as 77% of our current jobs stand to be impacted by these changes. How ready will our workplaces be for such destabilising influences?

We need to consider solutions to address social challenges and not just economic challenges. Concepts such as the gig economy (where employees elect to hold multiple jobs or jump from one job to the next), the sharing/collaborative economy (where the whole value chain of production is likely to be disrupted), and the reality that workers are still productive long after reaching their mandated retirement dates, all point to a world where “retirement benefits” and “employer/employee relations” need to be reconceptualised.

A changing model of employee benefits may fill a critical gap

Tax and pension reform, combined with a strong aversion to the “paternalism” historically present in many corporations, have led to most employers reducing their benefits to the bare minimum: retirement funding, risk coverage for income loss and, for some but not all employers, medical benefits. Employees are progressively disengaging from these protections. Employee concerns are more immediate, and as such, when crisis hits, these benefits are the first to be dispensed with.

Here is the crux of the problem: Prioritising retirement savings presupposes that over the course of an individual’s working life, they have redeployed their income to provide basic needs, such as housing, education, health, asset accumulation and risk protection. As such, retirement savings simply solves the last phase of funding for needs above and beyond that. For historical reasons, this has not been possible for the bulk of South Africans. For multiple generations, asset ownership and accumulation has been precluded. When talented young South African professionals enter the job market, the more likely redeployment of their income is to provide for a much wider “lens of multi-generational responsibility” – the so-called “black tax”. Access to income has also meant access to credit, and South African earners have bridged the asset accumulation chasm by over-borrowing their way to social mobility.

With this in mind, we should be asking critical questions about how compulsory savings and employee benefits could be reconceptualised to better address these issues. We need to create a win-win – where providing what employees need and want translates into a South African corporate world that is more productive and profitable, and thus more globally competitive.

Ask South African employees what they want most from their employee benefits and the answer is unequivocal:

  • Job security from knowing they can develop the skills relevant for the workplace of the future.

  • Financial security from knowing how best to redeploy that income to navigate their lifelong funding and aspirational challenges.

  • Wellbeing security that ensures that should health, financial or emotional challenges emerge for themselves and their families, they will be safeguarded.

Getting this right means addressing the factors South African businesses and policymakers need to meet the challenges of a rapidly changing workplace globally:

  • Skills development and promotion would need to become an integral part of the “employee benefit”. Employers who play a more active role in using the workplace to reconceptualise education and skills development would be ideally placed to address their future resourcing issues. In turn, South Africa could use this route to redress the significant shortfall of education and skills development policies. But policymakers need to be more responsive in making these initiatives economically viable to employers.

  • Employee benefits programmes that ensure financial wellbeing and security for employees and their families can shift the culture to one that promotes fiscal responsibility and self-sufficiency. By addressing an employee’s day-to-day financial needs, employers should see a reduction in absenteeism and payroll wastage – the latter estimated by our research to be as high as 35% in South Africa.

  • The current strain on the South African fiscus suggests that a comprehensive policy of social security is still far beyond our reach. For the meantime, employers could help South Africa close this gap, but this will only work if the debate is framed differently and expanded dramatically.

The demographic reality for South Africa – why it’s not about retirement

One final point deserves mention. As the United Nations data in the graph below highlights, the demographic challenge for South Africa (and much of Africa) is less about providing protections for the elderly and more about solving youth unemployment. In the African cultural context, caring for the elderly is still understood to be a family affair and responsibility.

What will that picture look life in 30 years’ time? The demographic that really needs watching is not the elderly, but rather the working-age population. The bulge here should be alarming. If we fail to find financial stability and viability within that demographic group, then social unrest will follow. Securing financial stability and job security over an individual’s working lifetime could underpin the long-term care of the elderly.

* Only countries of the region sub-Saharan Africa with more than one million inhabitants have been included.

Source: Alexander Forbes and United Nations

In this dramatically changing world of work, there is much more that can be done under an expanded vision of “employee benefits” that speaks to what matters most to both employees and employers. What’s needed is a framework addressing effective financial decision-making - not just in retirement, but throughout an individual’s lifetime financial journey. By helping members provide for that journey, issues around retirement, income protection and health are also resolved.

The South African world of work needs to ready itself for the challenges posed by the Fourth Industrial Revolution. We can do that - and so much more - if employers, unions, policymakers, and employees collectively re-optimise and re-organise what we have to create a win/win/win situation.

This is the powerful message we can provide to our leaders at Davos.

Anne Cabot-Alletzhauser, Head of Alexander Forbes Research Institute

Lesiba Mothata, Executive Chief Economist, Alexander Forbes Investments

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