By Ayabonga Cawe


 Innovation and Economic Change

One of the most central ideas that have emerged in economic thinking in the last few decades has been the recognition of the role of ‘innovation’ in the long run technical change that is a feature of all economies. The cyclical nature of such change and its impact on an economy’s ‘boom bust’ cycles formed the basis of much of the work of economist Joseph Schumpeter. Schumpeter argued that innovation not only gave firms cost, quality and price advantages that made them more profitable, but also expanded the productive potential and possibilities of society as a whole.

To apply Schumpeter’s intellectual advance to the context of 21st century South Africa, is to recognize that many of the ‘structural constraints’ to prosperity (however this is defined), have to do in the contemporary era, with differential access to knowledge, information, technology and capital. This makes the task of not only responding to technical change important, but also crucial to the prospects of expanding the productive potential and possibilities of the society in an inclusive manner.

Achieving such an ‘inclusive advance’ of society, in the knowledge era, is about understanding how the interactions between different levers within the control of the state, can ensure that South Africa is not only ‘resilient’ but also adaptive to changes happening across different sectors. I want to consider two related concerns in this regard. The first is the South African National System of Innovation, and its ability to not only assist South Africa in responding to technological and structural change, but its role in positioning the nation as a pathfinder in technological and social innovation.

The second, relates to the role of research and development expenditure (R&D), the sectoral profile of such expenditure and its interface with the objectives of broadening employment, reducing poverty and inequality. I will conclude my discussion with some areas for potential policy reflection and action.

The National System of Innovation  

The idea of a ‘national system of innovation’ extends the Schumpetarian formulation beyond just a firm or an individual enterprise, but to the multiple institutions and actors that contribute to the capacity and capability of a nation, region, sector or locality to ‘innovate’.

In this regard, the National Development Plan recognizes the need to ‘create a common overarching framework to address the pressing challenges in the national system of innovation’. The Plan recognizes that such a framework has to consider the interaction between the higher and further education system, state owned enterprises and private industry.(NDP, 2012: 326). This view complements the assertion that innovation as a ‘social process’, is an outcome of ‘cumulative historical trajectories’ built around specialization and institutional patterns unique and specific to a particular nation (Scerri and Lastres, 2013: 31).

The institutional and specialization patterns and features, inherited from our history and informed by our present, give us clues on the kind of innovations that would be viable and relevant in the South African context.

One of these ‘features’ is the nature of the accumulation path that South Africa has pursued, its mineral endowment and the interface this has had with social, economic and geopolitical shifts. Fine and Rustomjee (1997) define this path as the ‘minerals energy complex’(MEC). The MEC has informed and continues to inform much of the industrial spend on knowledge and intellectual property and the innovation that has emerged in South Africa.

If we are to use the example of South Africa’s considerable deposits of platinum group metals (PGMs); any innovations focused on this mineral cluster must consider the price outlook, future applications for the mineral and the role they can play in new technologies (i.e. energy storage) in a carbon-sensitive manner. Furthermore, if we accept that innovation is also about ‘localized’ experiences of collaboration between different actors in the innovation ecosystem; then innovation must also consider the role of local government.

Figure 1 Provincial R&D Expenditure Trends (2016/17)

Source : South African Science, Technology and Innovation Indicators, 2019

In the case of the platinum value chain for instance, the North West has an abundance of platinum deposits and mining activity, however it has a considerably low investment in R&D, because many mining companies conduct their R&D activities in Gauteng (DST, 2017: 72).

What this suggests is that there is a disconnect between where the minerals are found, and where innovation-related activities and institutions are located. Similarly, much ought to be made about auto-sector focused R&D by OEMs and local component suppliers, in the Eastern Cape for example, which lags behind on R&D spend.

The task of South Africa’s response therefore, to the Fourth Industrial Revolution, ought to also be to diversify the geographical location of innovation-related activities, in a manner that aligns with provincial, sector and firm-level strategies.

Sector-Level Research and Development Expenditure

The National Development Plan commits to the intensification of R&D spending, emphasizing opportunities linked to existing industries). The Plan goes further and argues in the context of ‘structural change arising from technological redundancy’, there is a role to play for the state in funding R&D and at times guiding the type of research and development undertaken in both the public and the private sector (NDP, 2012:110). The Plan further recommends that public policy ought to consider R&D in areas of existing comparative advantage, such as high value agriculture, mining inputs, low carbon technologies and downstream processing.

South Africa has experienced a decline in business investment in R&D activities. The illustration below in Figure 2 from the National Survey of Research and Experimental Development shows a steady decline since the 2007-8 crisis;

Moreover, if we consider government funding of R&D activities, by the sector charged with spending the money, we have seen since 2010, a ‘dramatic’ reduction by half of funding allocated to the business sector (DST, 2010:36), with a near three fold rise in the funding of higher education, and a steady rise in the funding of science councils and non-profit organizations.

Figure 2 Trends in Business Sector R&D Expenditure

Source : South African Science, Technology and Innovation Indicators, 2019

The 4IR Commission must consider these trends and engage whether or not these have led to a sizeable rise in the knowledge generation and innovations emerging from the sectors that have experienced a rise in public R&D spend.

Areas for Policy Reflection and Action

Globally, the government’s role in the innovation ecosystem, historically has been central rather than tangential to the development of innovative capability. GPS and internet technologies are examples of how state intervention can underpin and effectively crowd in innovative private enterprise activity. Many of the processes and technologies used in mining jurisdictions across the world, have their roots here in South Africa. However, for South Africa to innovate beyond its mineral endowment, there is a need to align knowledge and technology to our context;

  • Innovations in labour absorbing sectors : South Africa has a massive challenge of semi and unskilled labour that is marginalized from formal employment. Policy must encourage R&D and knowledge spend in sectors that have a proven capability to employ those with limited skill (agriculture, tourism, construction, the social economy and the creative sector), to expand labour demand in these sectors to benefit from output and employment multipliers.
  • Public Sector Innovation : Much of the service processes in the public services remain paper-based, and the digitization of these processes presents market and employment opportunities. Moreover, public procurement spend is uniquely located to give local inventors and innovators the scale that comes with government touchpoints. For example, why does the Post Office not become a key asset in the e-commerce ecosystem that many young entrepreneurs are starting to develop in South Africa.
  • Localized Innovation: Innovation must be encouraged at a local level, with the necessary resources, investment and capability extended to areas with great need and innovative potential. This has the potential to diversify the sources of growth in South Africa.

The next phase then, requires the nation to not only entrench its position sectors of historic advantage, but also pursue latent comparative advantage in new product and service segments that are aligned to the particularities of our context.