In today’s blog post, I repost my Business Day article in which I discuss what democratising data within and between organisations requires and what we need to do in South Africa to modernise the data ecosystem.
DAAN STEENKAMP: SA must modernise its data ecosystem
Intangible assets are playing an increasingly important role in the global economy. Intangible assets are non-physical assets which create value for firms, such as software, data, intellectual property, or their brand. Over recent decades, intangible assets have been a key driver of growth in high productivity growth economies. In the United States and other advanced economies, the share of intangible assets in the total capital stock has risen relative to physical assets such as plants and equipment, boosting productivity growth. In South Africa, the share of intangible capital remains at the same level it was in 2005. Why are South African firms not accumulating intellectual property and investing in data assets to the same extent as in major economies?
An important reason is that our regulatory and policy environment discourages investment and innovation. Anyone that works in a small company knows first-hand how expensive it is to comply with government red tape. Surveys show that South Africa stands out among major economies for the difficulty of running a business. This bears out in South Africa’s low global rank for entrepreneurship.
South Africa’ preferential procurement rules and regulatory environment make it particularly difficult for tech start-ups. Take the digital services industry. The OECD estimates that the average level of regulatory restrictions in South Africa is more than 2 and a half times higher than the median in the OECD. The World Bank has assessed South Africa to be far off regulatory best practices that create an enabling environment promoting e-commerce and the use and sharing of data.
South Africa’s exchange controls are also undermining growth in South African start-ups by constraining their ability to raise foreign capital. While companies may seek approval for primary listings offshore from the Reserve Bank, this is subject to range of conditions, including that that they must remain controlled and managed in South Africa and remain tax resident here, as well as that intellectual property must remain registered in South Africa. A case study by the South Africa Startup Act Movement argues that approval requirements for taking South African intellectual property offshore is scaring off prospective investors, noting that this is causing many South African start-ups to shift their entire operations offshore given uncertainty over whether there may be future claims on that intellectual property by our tax authority. By constraining South African start-ups from accessing foreign capital for growth, the report argues that exchange controls are reducing South Africa’s tax base and the positive spillovers start-ups produce for the domestic economy. One sees the impacts on our stock exchange, with the number of listed companies in South Africa declining by two thirds since 1990, when it has been rising countries like China and India.
Given how badly South Africa needs more job creation, our society needs to valorise entrepreneurship more. Government must also make it easier for businesses to start-up and grow.
South Africa needs to develop its technology sector to join the fourth industrial revolution. Despite the hype about automation and big data, most South African institutions do not have the necessary systems in place to take advantage of the opportunities that big data and advances in technology present. As we have argued previously in this newspaper, South Africa’s data ecosystem is also underdeveloped, making it difficult for South Africa’s fintech industry to mature and South African companies to remain competitive internationally.
The public sector has an important role to play for South Africa to harness the potential that the data revolution offers for companies, policymakers, and society. Official statistics are the bedrock of evidence-based policy and informed private sector decision-making. The Statistics Amendment bill of 2023 sought to strengthen collaboration amongst data producers and data users by supporting the creation of an enabling environment for data production and use. Many government departments and state-owned entities must start living up to their data sharing mandates. The producers of official statistics need to be appropriately resourced, their capacity developed, and open data rules need to be enforced. To modernise the government’s data ecosystem, there needs to be a national data strategy and a centralised coordinating body tasked with its implementation.
But we cannot rely on the public sector to modernise the data landscape alone. We need a framework for private-public partnerships for data, just as we have for other public infrastructure in South Africa. The government will need the private sector’s help to mature its data management infrastructure and practices and achieve the data-led future the newly published National Policy on Data and Cloud imagines.
South Africa needs the establishment of data commons providing open access to data and research. Mechanisms are needed that balance the protection of data citizens and the rights of intellectual property holders with the need to create an enabling environment for data use and sharing for public policy and commercial purposes. Data commons create opportunities for the public and private sectors to collaborate on infrastructure development, maintenance, and data asset creation.
Keeping the data ecosystem healthy requires that the community of data practitioners oversee the evolution of standards and protocols for data management, use and accessibility within and between organisations. South Africa needs to develop stakeholder fora that promote coordination and collaboration between data producers and users and data sharing. The Statistics Amendment bill expects that private participants contribute to the development of official statistics, but this cannot be operationalised without agreed procedures for things like quality control, rights protection, data interoperability, or processes for stewarding trust between stakeholders.
An environment supportive of a domestic tech industry also requires development of domestic marketplaces for entities to monetise their data and produce data products that create value for consumers and corporate clients alike. Common technical standards not only enable data sharing but also enhance efficiency and drive down costs. Successful projects that highlight the value of data-driven investments should be published to showcase how data sharing can be conducted responsibly, while demonstrating the potential for significant returns and fostering greater confidence in similar initiatives.
The public and private sector need to work together to democratise data and modernise South Africa’s data ecosystem. If we do not, the fourth industrial revolution will leave us behind, like the previous one did.
Dr Steenkamp is CEO of Codera Analytics and a research fellow with the economics department at Stellenbosch University.
