South Africa has a great deal to do to address low economic growth, increased skills development, modernisation of infrastructure, and the creation of new business enterprises.
In addition to these objectives we need to change the structure of our economy to enhance competitiveness and create new products and services. The National Development Plan (NPP) addresses these challenges in its affirmation of research, development and innovation as key contributors to creating new knowledge, applying knowledge in production processes and disseminating knowledge through teaching and research collaboration.
Our meeting it aimed at discussing how the key actors for these tasks - universities, science councils, departments, NGOs and the private sector - can collaborate to place South Africa on a new trajectory of growth and development.
South Africa is fortunate to have a fairly robust and able science and technology sector, research-competent institutions and increasing numbers of emerging researchers.
We also have well designed R&D strategies, mechanisms and policy aimed at incentivising R&D, and priority areas of focus that have a major contribution to make to our intentions to modernise and diversify our economy.
Our implementation of our ten year innovation strategy and the focus on hydrogen fuel cells, minerals beneficiation, additive manufacturing, nanotechnology and the bio-economy have put us in a firm position to offer attractive partnerships in innovation to the business sector. We think we are in a position to focus on inclusive growth.
Last Thursday in Parliament Finance Minister Gordhan addressed the three key areas South Africa is focussing on to achieve inclusive growth.
- Restoring confidence and boosting investment by local and international investors.
- Unblocking obstacles to faster employment growth in key sectors.
- Identifying fiscal and regulatory reforms and strengthening state-owned companies.
The concerted focus of business, labour, and government can be a catalyst for our inclusive-growth strategy.
As part of this inclusive-growth strategy, we are here today to discuss the role of business in r&d investment.
There has been a decline of business investment since 2009.
Business confidence and business investment in R&D go hand in hand.
I hope the DST will be able to create new opportunities for business R&D investment.
Government has identified nine strategic areas for growth. We are supporting R&D in several of them and I hope you will consider some that are likely partnerships.
Our real investment (adjusted for inflation) in R&D was R14.7 billion in 2013, and that was similar to the sum invested in 2004 with only a slight increase in the years in between.
Real investment in business R&D was R6.5 billion in 2013, having fallen all the way back to the sum invested in 2004.
It was only in higher education R&D that the real investment in R&D has continued to grow. It was R2.6 billion in 2004 and it's R4.5 billion in 2013.
Innovation expenditure and activities undertaken by the business sector have a more direct and immediate impact on GDP growth, exports and employment than do innovation expenditures and activities in other sectors – government, tertiary and NGO.
Accordingly, from a developmental and growth perspective, declines in the share of BERD are a major concern.
The latest survey (2014) shows some improvement in business R&D.
The policy implications of low growth are the following:
- Government may need to revise its target for gross expenditure on R&D;
- Government may need to look at new support instruments for technology start-ups;
- Government will need to find new ways of leveraging and encouraging business sector support for R&D;
- Government will have to introduce some specialisation into its policies including a focus on new growth sectors such as the services.
The Department of Science and Technology (DST) is focussing on the following policies.
First we focus on areas in which government has direct control.
That means that we will maintain and hopefully increase the levels of R&D investment in the government, higher education and science council sectors.
Science councils depend on additional revenue from contract R&D, and they are affected by a reduction in BERD. We are in discussions over how their funding levels can be supplemented during the current period of low business confidence.
Second we will maintain policy stability on government assistance for R&D for the business sector.
There will be continuity and certainty on the R&D tax incentives and other direct R&D incentives in order to encourage both local and foreign investment in R&D performed by business.
In addition to our incentives there is the Department of Trade and Industry Technology for Human Resources in Industry Programme (THRIP).
THRIP will continue to support hundreds of research projects at universities and science councils.
The THRIP model is based on the principles of a public-private partnership, with funding for each project being provided by both the industry partner and the DTI, the latter to the amount of about R180 million per year.
In the 2014/15 financial year, it supported 296 projects and 1,548 researchers, and produced 45 patents, 294 products and prototypes and 1,311 publications.
Third, we fund innovation for the small, micro and medium enterprises particularly in biomanufacturing and nanotechnology at the Council for Scientific and Industrial Research (CSIR).
However, there is a need for a venture capital fund for high-technology Small, Medium and Micro-sized Enterprises (SMMEs) as well as startups.
We should actively engage South African venture capital to encourage and facilitate joint investments in commercial science, technology and public-benefit projects as well as to assist with developing a new generation of venture capital companies through mechanisms such as Treasury’s Venture Capital Company Tax Incentive scheme.
Similarly, we should make special efforts to offer Technology Innovation Fund opportunities to international venture capital companies that command large resources. Such a move would improve South Africa’s access to second-stage financing, and local innovation would benefit from these companies’ experience and expertise.
Minister Gordhan announced last week that a Small and Medium Enterprise Fund is being established, with over R1 billion already committed and complemented by mentoring by seasoned business leaders for start-ups.
In closing, there is an option for encouraging global business R&D to South Africa that I would like you to consider. The Chilean option. It's based on a centres of excellence model. The world bank uses it to support science and technology in Africa. The Bill and Melinda Gates Foundation uses it to fund health research in Africa. The AU uses it to further science and technology in Africa.
The difference in the Chilean model is that it encourages international laboratories and units of universities to locate to Chile.
Critics of the Chilean program say that the right approach is to pour money into Chilean universities.
They also say that international centres of excellence encourage “techno-colonialism,” and that foreign centres focus on commercialising in Chile technologies they had already developed in their home countries.
I'm sure there is some truth to these criticisms. But it's worth exploring if we are to see a step-change in global R&D in South Africa. Fifteen years ago China hosted 200 foreign-run R&D centres. Today, China hosts more than 1500 international innovation facilities throughout the country.
I hope that our deliberations will result in similar positive outcomes in the next five years.