AI may help China while hurting other BRICS nations

AI adoption could benefit some nations while proving detrimental to others.

As the world becomes increasingly digitized, the impact of artificial intelligence on emerging market economies, such as the BRICS, is a subject of intense interest and debate. While some experts believe that AI could reduce poverty and create new forms of employment in these countries, others fear AI will exacerbate existing inequalities and lead to high levels of unemployment.

At the recently concluded BRICS summit in Johannesburg, Chinese President Xi Jinping announced plans to form a BRICS artificial intelligence study group. Xi emphasised the importance of developing governance frameworks to make the technology “more secure, reliable, controllable and equitable.” These discussions could have profound implications. While AI may prove crucial to Chinese efforts to offset the negative economic effects of China’s demographic decline, the benefits of AI for other BRICS nations is far less certain. 

One of the main advantages of AI is its ability to automate repetitive tasks and improve productivity, which could theoretically boost economic growth and create new job opportunities. AI may also help democratise healthcare, education, and finance, by making cheaper digital services available to more people, alleviating poverty. But AI could also replace unskilled workers in countries with an excess of unskilled labour, worsening unemployment, poverty, and inequality. Although AI boosts productivity growth on the supply side of the economy, replacing wage earners with bots could also lead to lower aggregate demand.   

Benefits of AI for China

For China, the benefits of AI are obvious. A shrinking population poses a major demographic challenge that could have significant economic, social, and political implications. The country's gradually greying population and relatively low birth rates compared with other developing economies are factors forecast to reduce the size of the country’s labour force and consumer base over time. This could hamper China’s economic growth and development without intervention.

Artificial intelligence could provide some solutions to China’s demographic challenges. AI could help alleviate labour shortages in major Chinese industries such as manufacturing and agriculture. China is already the world leader in annual robot installations, installing more new capacity each year than any other country. Increased use of artificial intelligence and robotics could offset declines in China’s working-age population and the reduced labour costs would benefit Chinese industry and help China remain competitive.

AI-powered healthcare may also address the challenges posed by an aging population by providing personalized and efficient medical care. Similarly, AI-powered education could help improve access to education and skills development in rural areas, which could increase labour market participation. AI could also lead to the development of new products and services, such as virtual assistants and personalized shopping experiences. This could help boost domestic consumption which this year overtook manufacturing as a share of China’s GDP for the first time.

As young Chinese citizens receive higher levels of education yet face higher levels of unemployment, the development of artificial intelligence, amongst other new cutting edge technologies, could help employ these graduates and help China avoid the middle income trap. As such, China could become the major beneficiary of further developments in artificial intelligence.

Problems for other nations

The impacts of AI on job creation in the other BRICS countries is far less certain. While AI may create more employment opportunities in China’s well developed technology sector, it could also displace millions of workers. In India, which still has a growing population, AI-powered automation could lead to the replacement of workers in low-skilled manufacturing jobs, which could have significant social and economic consequences on a country with a fast growing manufacturing sector.

Considering the large and growing population of India and many African countries, job replacement risks curtailing the anticipated growth rates of these emerging market economies. China was able to rise to become a global superpower by employing hundreds of millions of people who then became consumers and boosted the Chinese economy further. If other emerging markets cannot replicate this model they may struggle to rise in prominence to the extent China has.

This may be the single biggest risk the global economy faces from artificial intelligence. Although the technology can productively replace workers on farms and in factories, AI cannot consume goods and services, the demand for which is crucial to sustained economic growth. The only major increase in demand artificial intelligence is expected to deliver is for electricity which may just make electricity insecure regions like Africa even more vulnerable to energy poverty.    

Naturally, the impact of AI on employment is likely to vary across different regions and demographic groups, depending on factors such as education and skill level, gender, and age. This is a concern for Africa in particular, as the youngest and least skilled continent in the world. In Africa, workers will be most easily replaced, perhaps by the hundreds of million, before they even enter the workforce.

As such, it is crucial that governments respond to this challenge by utilizing AI to improve educational outcomes and upskill their workers, otherwise businesses could end up replacing unskilled workers faster than the population can adapt and the negative effects from AI adoption could outweigh the positive ones. The BRICS may be alert to these issues, although for SA it could already be too late.

China and India have made significant investments in technological education and skill development, which could position them well to take advantage of the opportunities presented by AI. On the other hand, South Africa has less technology based education and skills development, which could make it more difficult for its workforce to transition to new jobs in the digital economy.

Although President Ramaphosa has championed the Fourth Industrial Revolution (and computing and robotics classes have been added to the school curriculum), without a reliable electricity supply South Africa cannot be expected to compete in an increasingly digitized global economy.  

Ultimately, the impact of AI is likely to vary across different countries and provinces depending on government policy and education levels. AI could be harnessed to provide better public services for the rural poor, but it could also be used to replace workers, worsening inequality, and the negative effects of the digital divide. As such, policymakers in the BRICS countries must carefully consider the potential impacts of this new technology on their economies and take immediate steps to address any challenges that may arise.