AI Readiness

The world is undergoing rapid technological change, and Artificial Intelligence (AI) is emerging as a key catalyst for reshaping industry and manufacturing. But where do emerging economy industries stand regarding AI? There are policy actions that can help developing countries share in the immense benefits of AI advancement and participate meaningfully in the global supply chain.

What AI can do for – and to – developing countries

AI presents the world with some unprecedented opportunities. It can be applied in various industries and at every step of the value chain, from research and development to production, distribution, repair and recycling. Targeted use of AI in specific sectors can help developing countries boost productivity sustainably while bypassing intractable structural problems in development, such as unaffordable infrastructure and lack of human resources.

AI can help attain the Sustainable Development Goals (SDGs), which are of particular importance to developing countries (ITU 2020). It could make a positive contribution to 134 targets under the 17 SDGs, according to the KTH Royal Institute of Technology (2020). For example, even though it is not yet a reality in most developing countries, AI-powered solutions could automate harvesting and optimize irrigation to increase food production, thereby helping to eliminate hunger.

AI can also create new jobs. Many studies have forecast a net positive effect in terms of job creation. For example, PWC (2024) estimates that technology change will see net job creation in China of around 90 million by 2038. In South Africa, McKinsey (2024) notes that 4.5 million new jobs can be created through productivity improvements and the emergence of new growth drivers.

However, AI must also be considered a potential job killer. Using the case of South Africa, the 4.5 million newly created jobs could be accompanied by the displacement of 3.3 million existing jobs. Despite this net gain in numerical terms, the new jobs will seldom be in the same fields as the job losses. In this example, those at greatest risk will likely be in retail and manufacturing industries, while job gains will be concentrated in the technology sector. Therefore, evaluating the impact of AI on the labour market and societal welfare must go beyond headline figures of net gains or losses.

Interestingly, the structure of job markets in many developing countries may shield them from the worst impacts of AI – at least in the short term. The International Labour Organization (ILO, 2023) estimates that only 0.4% of jobs will be replaced by AI in low-income countries which is partly down to the large share of physically demanding jobs; this number is notably higher in middle-income and high-income countries. In certain jobs, the use of AI could potentially improve pay and working conditions, as AI automation replaces drudgery. Notably, the potential for AI to improve workers’ welfare is roughly the same for across countries, regardless of income level. This suggests that the benefits of AI can be widely shared if the right conditions and policies are in place.

The AI divide

AI has some inherent risks (such as cybersecurity), but there is an additional risk that large parts of the world may miss out on the benefits of AI. The United Nations High-Level Advisory Panel on AI notes that data, computing power and talent are currently concentrated among a small number of private sector actors in an even smaller number of states (UN 2024).

Figures I and II respectively show that a country’s capacity to harness AI is highly correlated with its underlying economic indicators and level of industrial development; economies with a higher AI readiness score are also the ones with a higher manufacturing value added (MVA) per capita. This, however, obscures the significant variance among developing countries themselves, with some already matching the AI readiness of their wealthier counterparts. This suggests that government policies can make a difference and enable developing countries to punch above their weight.

If developing countries fail to keep pace with advances in AI, they risk remaining importers of advanced technology. This will increase their dependence on developed economies, exacerbating existing economic inequalities.

However, there is an opportunity for developing countries to take advantage of readily available solutions. The IFC (2021) has reported such leapfrogging cases. For example, a credit company in Kenya has used AI to facilitate online applications, which are then vetted using big data to calculate the risk of default. By 2017, it had issued microloans to 21 million people, including those from hard-to-reach communities.

Fostering AI readiness in developing countries

Technology infrastructure – such as reliable high-speed Internet, IT skills and educational opportunities – is a prerequisite for harnessing AI opportunities (UNCTAD 2023). But the prohibitive upfront costs required for sophisticated equipment and software work against the incorporation of AI in developing countries with scarce capital resources, particularly against the backdrop of a large and low-cost labour force (WEF 2023). In view of these key challenges, and the broader context of the Fourth Industrial Revolution, what can developing countries do to prepare themselves for the AI revolution?

1. Formulate regulatory frameworks for AI application: Promote its ethical use while ensuring data protection and fairness (European Commission 2024), drawing on international best practices and expertise.
2. Craft AI strategies: For most developing countries, such strategies should focus on defining niches where there are realistic opportunities for AI application (WEF 2022), and linking them to other socioeconomic, industrial and environmental development.
3. Build AI-related infrastructure: Science and technology institutes, universities, incubators and corporate R&D are often the nexus for start-ups working on AI. Creating and funding such infrastructure, jointly with international institutions where possible, is one way to make local industry AI-ready (IMF 2024).
4. Develop AI programmes for local industry development: Local industries can be developed by supporting joint ventures of local AI-ready industries with advanced AI-applying companies abroad. These programmes should include start-ups and small and medium-sized enterprises (SMEs) (World Bank 2022).
5. Foster technology transfer agreements: Agreements with global industry and science centres of excellence can give developing countries access to the AI knowledge frontier and develop local best-fit solutions (UNIDO 2021).
6. Develop AI literacy and skills: Training programmes aimed at enhancing digital literacy and AI competencies can help reduce the skills gap (World Bank 2024). These programmes should target different levels of the workforce, from basic digital skills to advanced AI training for specialists.
7. Integrate AI into public services: By sourcing AI solutions from technology leaders in joint ventures with local firms, governments can ensure that public services start using AI solutions (DESA 2024) while fostering local AI literacy and development.
8. Promote partnerships: Collaboration between governments, industry and academia are crucial for knowledge-sharing, resource mapping, and best practices in AI research and application (UNDP 2024).
9. Engage in the global dialogue on AI: Developing countries can learn from international best practices, engage in partnerships with industries worldwide, and calibrate the potential of AI for the development of local industries (OECD 2024).

Conclusions

While the end game is uncertain, the advancement of AI is inevitable. AI can be a key tool for reducing hunger and creating good jobs, partly via a strengthened manufacturing industry, but the task is formidable. In addition to building local capabilities, developing countries will also need to grapple with the same quandaries as advanced economies in terms of AI ethics and regulation, data protection, sustainability and social equity. Engaging developing countries in the global dialogue will be crucial for ensuring they play a meaningful role in global supply chains of the future.