We need a drastic review of how we do business if we hope to recover from the devastating economic fallout of the Covid-19 lockdown, writes Nïel Malan, managing partner at Tangent Solutions.
With unemployment hitting record highs, small businesses closing on an unprecedented scale, and the economy in tatters, business as usual will eventually mean no business at all.
South Africa’s long-term sustainability and economic prosperity depends on our ability to meaningfully participate in the digital skills economy. Technology and software are embedding themselves in every aspect of our lives and business, and our ability to participate in the opportunities created by this global shift is essential to our future prosperity.
This article focuses on the negative impact of the practice of offshoring. Many companies are hiring overseas suppliers to carry out large portions of their hi-tech work, depriving local people of jobs and salaries. Calling for companies to repatriate their jobs may be controversial in an increasingly interconnected world, but there are three arguments in favour of keeping our tech sector local.
First is the circular flow of income, where local employees use their wages to support their families, pay their domestic workers, and buy goods and services made by the same local companies that employ them. This is known as the local multiplier effect: the additional economic benefit accrued to an area from money spent locally is greater than the initial amount spent.
Job creation
Economist Enrico Moretti argued in his paper on Local Multipliers that every time a local economy generates a new job, additional jobs are created through increased demand for local goods and services. Highly skilled sectors such as technology have the highest multiplier effect, with each technology job supporting up to five additional non-tradable – those that can realistically only be performed by a domestic workforce – jobs.
That effect is destroyed when procurement spending and wages are haemorrhaging offshore instead. Moving software development offshore also shifts the intellectual property offshore, leeching the revenue and profits out of South Africa.
Software developers in the Far East or Eastern Europe may look cheaper on the surface than local skills, so procurement officers may argue that they are simply following sound policies by hiring the cheapest. That makes financial sense – in the short term.
But CEOs of our large corporates should see the bigger picture and consider that the 10% they are looking to save is making our economy poorer by 80% to 100% of the contract value. Resulting in less and less people that have the money to buy what their company or their customers’ companies produce, diminishing the customer base.
Specialised skills
The second argument for repatriating hi-tech jobs is to encourage local skills development. Offshoring those jobs removes the need and incentive to upskill existing employees or train our millions of unemployed people, depriving the younger generation of the training they need to compete in the digital economy.
Specialised skills such as coding, data analytics, cloud and cyber security are already limited in South Africa and will become increasingly necessary in the digital future. If we don’t train our youngsters now to get a foothold – because we abdicate responsibility by finding the skills overseas – our youngsters will stagnate and be forced to watch other countries prosper while we stay behind.
In terms of digital skills, we already lag many countries that are in other ways far less developed. We have squandered the advantages our first-world environment and widespread internet connectivity gave us, and our position will deteriorate if we don’t actively upskill.
Some companies argue that these skills are not available locally, but it simply isn’t true. If you offered many of the local technology companies the same contracts, there would be very few cases where the local suppliers would not be able to rise to the challenge.
By offshoring the jobs, it removes the requirement from the local market and by extension the requirement to upskill someone locally. Without that imperative, companies will continue to fail to upskill their workers. We should be striving to fill the skills vacuum ourselves for the good of our population, not letting the resources blow in from overseas.
I also don’t believe the answer to our training needs lies within universities. The hi-tech sector evolves too rapidly for universities to keep pace. Solutions are coming from organisations like We Think Code, or technology services companies that rapidly upskill people with the skills the market needs.
Its candidates go through intensive software development or cloud skills programmes and emerge with impressive market-ready skills. All that is needed for this model to scale and accelerate is the guaranteed demand from larger corporate South Africa.
The power of large tech firms
The power of the large tech companies like IBM, Amazon, Microsoft and Google that have training and certification programmes are also negating the need for university degrees in tech. Resourceful youngsters can train themselves if they have a computer and stable internet connection. A mentor is also beneficial, so a government-led campaign to support students enrolling for this training would see many more people equipped to work at a fraction of the cost of a university degree.
While supporting the economy and driving skills development are two very persuasive arguments for shunning offshoring, a third, more sinister factor, is at play. Offshoring has encouraged an insidious form of local empowerment. Several international companies have established local offices adequately owned by black directors to gain the crucial BEE points for ownership, allowing them to compete against companies that employ 100% local resources.
When the local company wins a contract, perhaps 12-15% of the fee stays in South Africa, and the rest is shipped to an army of workers offshore. Sometimes those workers are flown in to handle the contract from here. The local owners are usually a handful of well-connected people who benefit handsomely, meaning this has nothing to do with broad-based empowerment.
The practice would easily be stamped out if government revised its BEE regulations to attach 1:1 local upskilling requirements to every offshore job, thus requiring companies to prove they are actively training locals to fill the exact position being filled offshore. Then, if a skill is genuinely not available in South Africa, somebody would be trained to meet that need.
The act of offshoring is not sustainable if the procuring companies want to continue selling their goods to employed South Africans. In a world that’s increasingly reliant on technology, it’s time to take a stand and call for companies to bring our high-tech jobs back home so that our own country can participate in the careers of the future.
You may agree with this opinion, or you may feel this approach is ill-suited to a globally connected world. Either way, let’s begin the debate. These unprecedented times demand a response that is out of the ordinary and limiting offshoring is a relatively low-cost way of having a massive positive impact. The long-term benefit will be a stronger economy, where people have the money to buy what you are selling