Get real about innovation to grow the economy‚ SA is told

Investment in innovation within new industries such as ICT‚ biotechnologies and clean technologies is central to a turnaround‚ offering great opportunities for growth‚ but with a few exceptions‚ South Africa is lagging far behind in these fields‚ the bank notes in its latest economic update on SA.

“In South Africa’s low growth environment‚ innovation can play a critical role to create jobs through increased productivity‚ and improve the lives of the poor through providing better products and services‚” said Paul Noumba Um‚ World Bank Country Director for South Africa.

The South Africa Economic Update‚ focusing on Innovation for Productivity and Inclusiveness‚ proposes five key interventions:

1. Foster a business climate conducive to innovation

Cutting red tape for innovative companies should be rolled out by wider adoption of the nine largest metros’ best practices in obtaining construction permits‚ getting electricity connections‚ and enforcing contracts‚ it states.

Policy uncertainty also needs to be limited. “In the case of innovation‚ delays and uncertainties surrounding the reform of the intellectual property rights regime have been a longstanding concern‚ and limit the usefulness of patents granted in the country.”

Commending the government for working with banks improve access to finance for start-ups‚ the report states: “It is important to scale up these programmes”‚ particularly in funding for new-to-the-world technology intended for global markets.

Port costs were 88 percent higher than the global average in 2016/17‚ the report said‚ affecting potential exports by SA innovators as well as the import of capital goods in the field of advanced technology.

2. Nurture innovation ecosystems in cities

South African metros could cluster their existing network of innovation programmes into districts and foster partnerships with academic institutions and private companies of different sizes‚ to leverage research capacity‚ the World Bank suggests.

Programmes could range from open data initiatives that use information collected by cities to develop commercial applications and improve service delivery‚ to projects providing start-ups and small‚ medium‚ and micro enterprises (SMMEs) with better access to equipment and experts in the public research and education system‚ or encouraging collaborative research programmes between companies and research institutions.

“From a national perspective‚ consideration needs to be given to building on existing resources‚ networks‚ and partnerships in the largest metros when allocating resources to spur innovation.”

3. Build the skills base

Labour shortages in high-skilled sectors‚ such as ICT‚ are severely limiting innovation‚ the report states. Citing LinkedIn data‚ it said South Africa is losing more professionals than it is gaining. This is mostly driven by emigration to the US‚ Europe and Australia.

While formal education should be improved‚ it would take time‚ the bank said.

A complementary way to improve the skills supply would be to encourage highly skilled professionals to work in South Africa‚ it proposed. “Recommendations in the government’s current migration white paper could have significant implications for filling high-skills gaps in the labour market.”

4. Improve ICT infrastructure

“A knowledge economy requires fast and cheap broadband to connect businesses with domestic and international consumers‚ and to enable the efficient delivery of public services. But South African consumers are paying more for broadband services of lower speeds than many other emerging economies.

“Urgent reforms are needed to increase investment in mobile and fixed broadband infrastructure‚ strengthen competition‚ and improve the quality and reduce the price of ICT services. It should be a priority to ensure the policy independence of the regulator and confirm its field of action‚ so that stalled processes such as 4G licensing can be expedited. Ultimately‚ the importance of ICT lies in its role in facilitating innovation in the economy as a whole.”

5. Enhance the effectiveness of public programmes and incentives for innovation

“Government support programmes are a formidable strength of South Africa’s innovation ecosystem‚” The World Bank notes.

But‚ it says the multiplicity of programmes‚ along with limited budgets‚ “may be fragmenting and reducing the impact of public funding for private sector development”.

“It is important to evaluate the effectiveness of these initiatives … and consolidate and scale up the best performing programmes.

“It is also important to ensure predictable funding and adequate staffing of the agencies implementing innovation and entrepreneurship support programmes.”

Simplifying and extending a research and development (R&D) tax incentive process‚ “allowing firms that are not yet profitable to benefit‚” could help boost the growth of young firms in South Africa‚ it notes.

The necessity of finding ways to stimulate the economy was spelled out in the report.

Between 2011 and 2016‚ per capita incomes barely increased and more than 3 million people joined the 30.4 million poor South Africans now living on less than R1‚131 per month‚ the World Bank noted.

It forecasts only a timid recovery in the next three years‚ with the economy anticipated to grow barely faster than the country’s population‚ with real gross domestic product (GDP) growth projected at 0.6% in 2017‚ 1.1% in 2018 and 1.7% in 2019.

The report warns of considerable downside risks and argues that declining Research and Development (R&D) is an important factor behind the country’s weak economic performance and its divergence from its peers in terms of growth in technology.

The report asserts that this is to the detriment of the poor because innovation strongly influences the welfare of low-income households by reducing their cost of living within sectors that have an impact on their daily lives‚ such as public transportation‚ food and beverages.

With some exceptions‚ South Africa’s academic excellence and strong urban networks of entrepreneurs are stifled by an unconducive business environment‚ expensive trading costs‚ and low skills base - all of which are impeding the emergence and growth of start-ups‚ it states.

South Africa has the lowest share of young firms among emerging economies globally‚ where elsewhere‚ young‚ high-growth firms known as “gazelles” are playing a leading role in innovation. “Given the transformative role of gazelles around the world in creating jobs‚ South Africa’s small and diminishing share of young firms is a concern‚” said World Bank Lead Economist for Trade and Competitiveness‚ Gabriel Goddard. “Improving factors that either stifle the emergence of young firms or reduce their growth potential‚ could boost South Africa’s innovation capabilities and overall impact”.

See the full report here:.