South Africa must urgently introduce and codify governance guardrails for investment in artificial intelligence (AI) to mitigate the impact of a potential bubble burst.
This is according to Thato Ntseare, investment manager at E-Squared Investments. He told Business Times that investors have noted that an AI bubble is beginning to take shape, and that this causes a conservative view of investment into the technology when it comes to businesses marketing themselves as AI-powered solutions.
“One of the things that has really been big talk is that … investment into AI solutions is mimicking a bit of a bubble, where there is a lot of hype around these businesses, and as long as a business says ‘we use AI’ in its pitch, then it immediately attracts billions of dollars in valuations.
“Then you see that valuation going through the roof. But what we are seeing is that the majority of solutions are not, at their core, native AI solutions. They are just AI wrapped with existing solutions … So basically people are taking those and wrapping them in underlying actions … but they are using someone else’s technology.”
Ntseare’s remarks come as South Africa continues to expand its investment into AI and similar technologies, with science, technology & innovation minister Blade Nzimande telling Parliament recently that R484m has been invested over the past four years.
Ntseare said AI and all of its related tools are “here to stay”, and that many of these will be used over the year ahead. This means that opportunities and deals in the AI space will continue, as fintech remains a mainstay in the South African and regional markets.
“The primary thing to look out for, particularly in the South African landscape, is that ... AI and the focus on AI will remain a steadfast trend. If you look at last year, one of the signals around how big AI’s potential is would be the fact that Microsoft took a concerted decision to retrench about 15,000 employees because they were looking to aggressively implement AI across all their systems to drive efficiencies.”
Ntseare said he believes there is an increased risk of an AI bubble bursting because more uncertainty is crowding the market, and pressures are increasing in various markets from all directions.
Justin Floor, head of equities at PSG Asset Management, said the group does rigorous assessments around any opportunity and the risks that surround it, and “policy and regulatory risks are top of the list” in this regard.
Floor said AI is “a genuine technological advancement. It’s going to benefit the human race. It’s very difficult to predict how and over what time period. The market impact, so far, has been isolated to people building the infrastructure for AI ... the data centres and the chips that go into data centres.
“And that’s driven those sectors of the market to very expensive valuations. So we are more cautious in some of those areas, but we are looking around the world for opportunities. We think one of our top holdings is Discovery in South Africa.”
He said Discovery is a world leader in applying AI technology to the health and insurance space, adding that companies that can benefit from technological advancements in AI offer very exciting propositions.
“We can’t confidently say for sure [if a bubble will burst]. We’d say risks are high, higher than usual. But the good thing is everyone is talking about it. So it probably means there is no issue in the short term. Stuff you have to worry about is when nobody is talking about it.”
Speaking at the Innovative Building Technologies Summit in Johannesburg this week, President Cyril Ramaphosa said technological innovation should be at the centre of South Africa’s development solutions, as water scarcity, rising energy costs, climate risk and the urgency of scale demand that the country modernise how it builds.
“Innovative building technologies offer us a strategic opportunity,” he said. “When appropriately regulated, financed, socially accepted and locally embedded, innovative building technologies allow us to build faster and at scale. They enable us to reduce carbon emissions and water use, improve energy efficiency, and enhance durability and quality.”
Linda Rottenberg, the CEO of Endeavor, told Business Times recently that AI offers an abundance of business-to-business solutions that could be revolutionary.
She said that while an AI bubble is likely to form and burst, investors are of the view it will be a burst similar to that of the dot-com bubble, which followed the internet revolution in business and commerce. This would be in contrast to the mortgage bubble of 2008.
Strive Masiyiwa, the Zimbabwean billionaire and founder of Cassava Technologies, announced last November that the company was set to start building an AI factory in Cape Town, powered by 12,000 graphics processing units (GPUs) acquired from Nvidia.
Solly Malatsi, minister of communications & digital technologies, said his department plans to submit a paper to the cabinet charting the government’s plan to attract AI investments into the country. The AI investment white paper is expected to be released soon.
Malatsi said risks of misinformation in generative AI will peak as South Africa approaches the local government elections later this year, and that AI policy should guard against these risks as it plans the approach to harnessing the power of the technology for social benefits.
Business Times
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