CXO Leadership

COVID-19 Demonstrates that the Emerging Tech-Driven Fourth Sector is More Necessary than Ever

COVID-19 Demonstrates that the Emerging Tech-Driven Fourth Sector is More Necessary than Ever

The current global health crisis is a stark reminder that in order to navigate the challenges of a post-pandemic economy, a hybrid of the public, private, and social sectors needs to emerge.

The advent of COVID-19 has forced businesses to reassess how their employees work. While the current income recovery trend is encouraging, we are aware that consumers continue to face difficulties as COVID-19 is still part of our everyday reality. As a result, we continue to avail our resources and platforms to help customers with their money management.

For many enterprises, keeping their doors open after the virus has been contained is a big enough challenge. But others are looking ahead, not just to the end of this pandemic, but beyond. They’re asking themselves not only how they can survive COVID-19, but how they can position themselves to thrive after it, and through future crises.

These businesses are realizing that neither the public sector nor private enterprises alone have the resources necessary to reimagine the desirable future post the coronavirus. COVID-19 has taught them that a tech-driven fourth sector that mixes elements of the public, social, and private sectors and works to solve the world’s challenges is the most likely model to succeed.

Creating that fourth sector means harnessing the best of the other three while also considering the social development goals that must be reached if businesses, and the broader economies in which they operate, are to succeed.

Unprecedented effects, direct and indirect

The rapid spread of the coronavirus combined with lockdown measures means almost 90 percent of companies are expecting revenue to fall substantially this year, with a third of businesses expecting a decline of at least 15 percent. Furthermore, 90 percent of businesses report lower turnover than expected, and 36 percent have laid off staff for the short or long term in response to the contraction in revenue they’ve experienced or now anticipate.

But it’s not just financial contractions companies have to contend with. Many are having to navigate the complexities of the coronavirus’ effects on global supply chains, customer safety, and how to apply for government support programs where they exist. Key sectors that have been affected include transportation and freight, the automotive industry, food retail and the fast-moving consumer goods sectors, healthcare, education, and investment.

Both China and the U.S.- two of the world’s largest economies- remain affected by the virus, and it’s unclear when they’ll return to full operating capacity or reopen their borders to trade and visitors. At the same time, demand for commodities has fallen, sending prices for them tumbling alongside it, and the effect on global GDP may only be felt at the end of this year. The shockwaves, however, may be felt for years to come.

Responding together

COVID-19 has forced different sectors to work together. The private sector has invested in research to try to find treatments and vaccines in partnership with academia and public healthcare services. Similarly, education drives from the government have been combined with social outreach and the distribution of personal protective equipment by the medical industry.

Nelson Mandela Metropolitan University, for instance, in addition to providing its faculty and students with information about the virus, has supplied public health information and tips for mask making along with a free-to-download mask pattern, and may eventually assist the private sector’s research efforts.

The effort has, necessarily, been a collective one. Because the obstacles from the pandemic are too far-reaching to tackle in isolation, and the outcome if the response is inadequate risks devastating every sector.

The efforts to contain the virus have seen cities around the world shut down, further highlighting the interconnectedness of all sectors. The hospitality and travel industries have all but ground to a halt, affecting not only airlines and cruise ship operators, but the myriad adjacent businesses for which tourism is the lifeblood.

With schools partially closed, many parents have found themselves having to juggle the dual responsibilities of remote work and childcare. At the same time, educators, domestic workers, taxi drivers, and myriad other industries have had to adapt to a new normal that is anything but.

Layoffs, restrictions to movement, and limitations on what consumers can buy, along with unprecedented economic uncertainty, have resulted in consumers cutting unnecessary spending. That has had enormous domino effects, from mom-and-pop corner stores that can’t open and may be struggling to meet overhead or pay staff, to investors who’ve seen portfolios shrink as customers become more risk-averse, draw down on their investments to cover their bills, and take a generally more conservative outlook.

At a global level, the contraction of China’s GDP and restrictions on manufacturing- many of which have now begun to lift- has cascaded across the world and affected markets from the sub-continent to the Americas. Globalization is great when you want to buy strawberries out of season, but also a potent force for spreading disease and ensuring that a disaster in the world’s manufacturing epicenter ripples out like a pebble dropped in a pond.

The banking sector’s response

Beyond the comprehensive debt-relief measures South African banks have implemented to assist affected customers, financial institutions have reduced the fees they charge grant beneficiaries, made it easier for those who rely on them to collect them, and collectively sought to prop up small and medium-sized enterprises.

Those customers who have to date been model customers have been encouraged to apply for relief measures through the banks’ communication channels, including call centers and smartphone applications. Because the banking sector realizes that the impact on small businesses isn’t only detrimental to the owners of those businesses, but to the communities in which those businesses operate, the people they employ, and those people’s dependents in turn.

Rethinking health as a social issue

This pandemic has proven itself to be a global social issue. And that means we need to rethink how we operate going forward. We need to build solutions that affect society for the better, and that takes a global outlook on problems rather than a purely local one. A crisis tends to expose a society’s cracks, and worsen the plight of those who were already slipping through those cracks before it.

In South Africa, COVID-19 is being most adversely felt by those who were already on the losing end of the high levels of inequality from which the country suffers. But even those who were gainfully employed before the crisis may find they’re forced to take multiple jobs after it, and that their once-regular income from a single source is replaced by irregular income from multiple ones.

That’s going to change how financial institutions work, too. While the crisis may actually encourage saving and financial caution from consumers, it’s also going to require enhancements  to the models needed to meaningfully and accurately assess risk. Realistically, it’s a reminder of how little resilience even many middle-class South Africans have when it comes to unexpected economic turmoil.

To create a society better equipped to deal with the next upheaval is going to take something new that can straddle multiple sectors. It’s not good enough for those businesses that can afford to weather the storm to merely wait it out before returning to business as usual.

Creating shared value

“There’s growing awareness that doing more of the same is not good enough,” Heerad Sabeti, CEO of the Fourth Sector Group, said in an interview with Devex last year. Sabeti says the private sector can’t pick the occasional project that might have benefits beyond boosting their bottom line. Instead, companies need to find a balance between generating revenue and value for shareholders, and creating societal value.

Successful businesses will increasingly be those that can deliver not just returns for shareholders, but that can thrive while simultaneously benefiting all stakeholders, internal and adjacent. Similarly, companies that can attract investment from socially aware investors will be those that demonstrate an appetite for value creation beyond the confines of bolstering their bottom line.

Shared value may include fostering entrepreneurial activities, solving inequality challenges, providing access to education, or addressing environmental challenges. And they’ll likely involve collaboration across multiple sectors that have often been considered adjacent, but separate. That collaboration that encompasses the private, public, and social sectors as illustrated by figure 1 is the “fourth sector.”

Figure 1: Convergence of Organizations Toward a Fourth Sector (Source: https://www.fourthsector.net/)

The emerging fourth sector and resulting business opportunities

For the post-pandemic economy to thrive, social entrepreneurship needs to be fiercely promoted. Not just philanthropic endeavors, but those business creators whose initiatives can lead to the realization of the world’s sustainable development goals (SDGs), which collectively- according to a report from the Business & Sustainable Development Commission- represent $12 trillion in opportunities and encompass a huge range of goals, including climate solutions like renewable energy, extinctions, obesity-induced non-communicable diseases, and basic human needs like access to clean water. As illustrated by figure 2, the other SDGs also present business opportunities that can be explored using the fourth sector model.

Figure 2:  Economic Business Opportunities from Selected SDGs (source: Frost & Sullivan and GlobeScan, 2017)

Meeting and solving SDGs has the dual benefit of being potentially massively profitable while also helping the public sector realize its aims. For instance, a key SDG is job creation, and with the right initiatives, socially minded entrepreneurs stand to create 380 million potential jobs by 2030, of which an estimated 85 million would be created in Africa.

Regardless of the SDG being targeted, though, one common thread unifies each of them: to meet them, businesses must be driven by technology. Those businesses that are, and that can bridge the divides between the traditional trifecta of public, private, and social sectors to create a new, fourth one, will be uniquely positioned to respond to- and profit from- the unique challenges we are all facing today.

What do these fourth sector enterprises encompass? They include blended value organizations, like so-called “for-benefit enterprises” that are able to harness the best parts of non-profits and those of conventional, for-profit bodies. They may include cross-sectoral partnerships and cooperatives, such as community interest companies, sustainable enterprises, civic enterprises, or hybrid organizations.

The fourth sector is ideally suited to solving the energy crisis

South Africa’s energy crisis is an excellent example of the sort of challenge that the fourth sector can tackle because it’s a crisis which- like COVID-19- affects every conventional sector. Furthermore, not solving the energy crisis will have long-term deleterious effects on the nation’s already languid economy, and everything from transportation, infrastructure, and mining, to retail, investment, and tourism.

Eskom, the nation’s electricity utility, has said it is cutting 6 000 megawatts (MW) of power from the grid due to adverse weather’s effect on its infrastructure, and that it may have to institute load shedding to contend with demand. In the midst of winter and a pandemic, that’s bad news from consumers who are already contending with the many other challenges COVID-19 has created.

The mining sector- which accounts for roughly 7 percent of gross GDP- is one that suffers the most when there are problems with the grid because it has to halt production. Furthermore, production can’t always be ramped up or down at short notice, meaning downtime may continue beyond the end of a power outage.

Another problem facing Eskom is debt collection and helping consumers harness alternate energy solutions. It’s here that the banks can help by providing payment platforms that assist the utility with collections. Banks can also help consumers via partnerships with off-grid energy companies and pay-as-you-go solutions for them, and through financial solutions for those looking to invest in solar panels or other renewable energy alternatives.

In East Africa alone, banks have provided over $80 million in support to pay-as-you-go alternative energy companies, upending the conventional financing model for renewable off-grid solutions. In Kenya, specifically, mobile payments solution M-Pesa has been used to enable companies to secure solar infrastructure on a rent-to-own basis, disrupting conventional financing and energy sector solutions in the process.

Predictive analytics on top of these solutions also make it possible to design complex customer intelligence systems that can assess demand in a region, understand users’ consumption and payment patterns, and allow banks and partners to design and supply solutions accordingly while offering renewable energy solutions where they’re needed most.

Reducing conventional energy usage, creating off-grid alternatives, and offering environmentally sound solutions are all essential for a sustainable economic future. With 1.2 billion people globally still lacking access to regular electricity, this is also an opportunity to leapfrog existing solutions while providing them with the power they need and cutting reliance on fossil fuels. This also means the possibility to create more customer-centric, intelligent energy solutions, not only from the perspective of assessing their needs and responding to them, but right down to the payment collection for them. The whole energy value chain needs to work together to provide communities with dependable, affordable, and clean energy.

The fourth sector needs to be technology-driven

As for the technologies they embrace to achieve not just profitability, but social betterment, some of those are still being created, but some are already well-established, like blockchain technology, artificial intelligence (AI), 3D printing, big data, drone technology, virtual and augmented reality, and renewable energy solutions.

These solutions not only can solve existing problems — like using AI to build and manage smarter cities or diagnose health problems based on giant datasets — but can drive economic growth and unlock new growth sectors while increasing productivity and creating jobs in existing enterprises. Similarly, fintech innovations can help improve financial inclusion, while drones can be used to combat climate change or deliver medication to the elderly without exposing them to possible health risks posed by interactions with others.

Each of these technology-driven activities has the possibility to be both socially beneficial and profitable. What’s required is the vision to see what they enable and to recognize that the global economy is currently being upended and reorganized with a ferocity and speed that’s never previously been witnessed.

Thinking the old solutions will work in what is destined to be a very different world isn’t only foolishly optimistic, it means risking missing the opportunity to reshape it to better meet humanity’s needs. We can’t go back to the world we knew, but together we can create one that’s better than what’s been left behind. Whether they know it or not, those companies working to influence thinking across conventional sectors are creating the fourth sector. And with the help of technology, it’s that emerging sector that stands the best chance of addressing not just today’s crises, but tomorrow’s.

Today’s medical crisis may eventually be solved by vaccines, but energy and environmental crises can’t be solved that way. No single solution can help society overcome them while also offering economic growth. Nonetheless, those challenges stand the chance of being as devastating as pandemics. Thus, the fourth sector, and its unique ability to solve unprecedented problems is more relevant than ever.

Contributors

Dr.Mark Nasila

Dr.Mark Nasila, Chief Analytics Officer, FNB

Dr Mark Nasila is the Chief Analytics Officer of FNB Risk. As an experienced data science and analytics expert, he has ensured that the techniques and methodologies that he has introduced into FNB are at the forefront of where banking is he... More   View all posts

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