strategy for increasing rd investment in sa consultation draft 28 june 2011

8/6/2019 Strategy for Increasing RD Investment in SA Consultation Draft 28 June 2011

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Draft 1.0

Enhancing the National System of Innovation to supportgrowth and development:

A strategy to increase R&D investment in South Africa

28 June 2011


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Contents

Foreword .........................................................................................................................................1

Executive summary........................................................................................................................2

The role of R&D in a growing economy .......................................................................................5

Trends of R&D expenditure in South Africa ..............................................................................10

Building and strengthening the national system of innovation: .............................................14

Key issues .....................................................................................................................................14

Human capital development.......................................................................................................17

Scientific and technological infrastructure capacity ...................................................................19

Capacity and rate of knowledge generation and exploitation ....................................................20

Integration into global R&D value chains ...................................................................................22

Eliciting higher private-sector effort............................................................................................25

Strategy implementation..............................................................................................................27

Scaling-up public funding for science and R&D.........................................................................27Boosting the capacity for basic research and knowledge generation ...................................34New opportunities for enhancing system capacity and effectiveness ...................................35Development of high-level human capital for the NSI ...........................................................37Funding critical research and innovation equipment and infrastructure................................39

Improving incentives to elicit higher private sector R&D investment .........................................41

Attracting international R&D and integrating South Africa into global R&D value chains..........43

Monitoring the trends in GERD and public funding for science and research ...........................43The national R&D survey.......................................................................................................44Domestic and foreign flows of R&D investment.....................................................................44Forward-looking approach to public R&D funding and planning ...........................................45

Evaluation of the national scientific and technological capabilities and technical change.........45


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Figures

Figure 1: Key dimensions for a knowledge-based economy............................................................6

Figure 2: Performance of R&D in South Africa (National R&D surveys 1991-2008) .....................10

Figure 3: R&D intensity in various regions of the world..................................................................11

Figure 4: Sources of R&D funding (historical trends) .....................................................................12

Figure 5: Major components of the National System of Innovation................................................14

Figure 6: Pillars for public investment in science and research .....................................................27

Figure 7: Projected amounts of required public R&D investment 2011-2014 ................................30

Figure 8: Projected sources and percentages of R&D funding 2014-2016...................................31

Figure 9: Current model of government funding for science and R&D ..........................................33

Figure 10: Funding flows for government sector R&D and performance.......................................33

TablesTable 1: Indicators for a knowledge-based economy.......................................................................7

Table 2: Gross national income/capita and GERD/GDP ratios of selected countries......................8

Table 3: Selected data on trends in R&D expenditure ...................................................................10

Table 4: South Africas strengths, weaknesses, opportunities and threats (OECD)......................16

Table 5: Key activities for deployment of additional public investment in R&D..............................29

Table 6: Priority areas from NRDS and the Ten-Year Innovation Plan..........................................34

Table 7: Budget appropriations of government departments for scientific, technological and R&D

activities ..........................................................................................................................................47

Table 8: Budget appropriations for science research councils and other public research

institutions.......................................................................................................................................48

Table 9: Government funding for R&D and innovation support programmes and incentives........49

Table 10: Categories of socio-economic objectives for analysing funding for S&T activities ........49


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Acronyms

DST : Department of Science and Technology

EU : European Union

FDI : Foreign direct investment

GDP : Gross domestic product

GERD : Gross expenditure on research and development

ICT : Information and communication technology

NRDS : National Research and Development Strategy

NRF : National Research Foundation

NSI : National System of Innovation

OECD : Organisation for Economic Cooperation and Development

R&D : Research and development

SMEs : Small and medium enterprises

UN : United Nations

USA : United States of America


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Document control

DOCUMENT CONTROL PAGE

Document Title Enhancing the National System of Innovation to support growth and development: A

strategy to increase R&D investment in South Africa

Creation Date November 2010

Effective Date Date for MMM

Digital Name #309016 Strategy for increasing R&D investment (Consultation Draft)

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Protected

Indicate with an X Yes No X

Status Indicate with an X Draft X Final

Version 1.0

Author title,

name and

contact details

Godfrey Mashamba, Chief Director Science and Technology Investment,

[email protected]

012 843 6425/6

Contributors Godfrey Mashamba, Nkuli Shinga, Tshidi Mamogobo, Dimakatso Mokone, Rose Msiza,Kgomotso Mapatleng, Imraan Patel, Andrew Matjeke, Fhumulani Maanda, Thandokazi

Teti

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Restricted X Confidential Secret Top

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Applicable

Distribution Internal: Minister, Deputy Minister, Ministers Advisers, DST staff & NACI

External: Science Councils, Dept. of Trade and Industry, Higher Education and

Training, Economic Development and the National Treasury

Version Date Details

0.0 21 Feb

2011

#200788 Version endorsed 21 February 2011 for external

stakeholder consultations

1.0 28 Jun

2011

Version incorporating comments from the Forum of CEOs of

Science councils of 07 Apr 2011, NACI and other DST

inputs

Revision:

2.0 20 Jul

2011

Version incorporating comments from consultations with:

DTI, DHET, EDD, NT, and other science mandated

departments and external stakeholders

Revision

Frequency

Process-driven. Final version to be approved by EXCO and Minister not to be revised.

Revisions required by Cabinet will start a new document process.

APPROVALName Dr. Phil Mjwara

Job Title Director-General

Signature

Date


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Foreword

Minister of Science and Technology


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Executive summaryAccelerating sustainable economic growth is a priority for the South African government.

From 1994 to 2008, South Africa enjoyed a period of consistent GDP growth, which

reached an average of 5 percent between 2005 and 2007. These growth rates have,

however, been lower than those of some comparable emerging economies, and were

primarily driven by consumption expenditure, with inadequate expansion in the

productive capacity of the economy. Increasing the rate of job creation is the central

challenge over the period ahead.

International experience has highlighted the crucial link between the level of investment

in R&D, innovation and economic growth and development. Advanced economies have

relied on sustained investments in these areas to maintain their long-term growth and

development, and more recently, many have prioritised R&D and innovation as part of

their recovery plans from the 2008-2009 global economic crisis. Similarly, the strong

emerging economies such as China, India and Brazil are reaping the benefits of

innovation driven policies and investments they promoted over the past decade.

South Africa has maintained a steady growth in R&D expenditure over the past decade,

with gross expenditure on research and development (GERD) growing fivefold from

R4 billion in 1997/98 to R21 billion in 2008/09. The ratio of GERD as a percentage of

GDP has also expanded over this period, from 0.69 percent to 0.92 percent, indicating a

growing role of R&D within the economy.

Some of the key observations made in preparation of this strategy are the following:

Overall R&D intensity in South Africa is low in relation to the national policy

targets and global benchmarks.

Effective utilisation of research results in technology development and

commercial means can unlock the countrys economic potential and help in

attaining a range of developmental outcomes, including industrial development,

employment creation and improved living standards.

Significant advances in science and technology require increases in high-level

skilled human capital, as well as good quality research infrastructure and

equipment to achieve the priority research objectives of South Africa.


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South Africa has a well-developed base and network of public science research

institutions that focus on priority areas, which need to be maintained and

strengthened in building long-term scientific and technological capabilities.

The relationship between R&D and economic development is strengthened by other key

drivers of growth, namely savings and industrial investment, technical progress, human

capital accumulation, productivity, and industrial and technological competitiveness.

Since the adoption of the 1996 White Paper on Science and Technology and the

National Research and Development Strategy (NRDS) in 2002, South Africa has made

significant progress in science, technology and innovation.1 Amongst the achievements

are the scientific discoveries and technological developments in the areas of nuclear

research, biotechnology, advanced materials, defence technologies, aerospace and

information and communication technology (ICT), which have opened up new avenues

for innovation, industrial development and productivity. Advances in biotechnology are

speeding up the development of new drugs, prevention and treatment of Tuberculosis,

HIV/AIDS and other sexually transmitted diseases. These achievements, among others,

have improved South Africas scientific reputation globally in the key areas of health,

space industry and environmental sustenance.

To consolidate these gains, South Africa needs to increase its R&D expenditure as a

proportion of GDP. Progressive targets have been set that require substantial investment

and well-functioning policies and institutions. The future such increases must support the

achievement of priority growth and development objectives of the country in line with the

New Growth Path and the Medium Term Strategic Framework 2010-2014.

A comprehensive package of legislative and policy measures has been introduced to

address weaknesses in the National System of Innovation (NSI), by removing obstacles

to growing science, technology and innovation capacity in South Africa. The introductionof the Ten-Year Innovation Plan in 2007, which complements the NRDS, is a key

building block in strengthening the NSI. It seeks to help drive South Africas

transformation towards a knowledge-based economy, in which economic growth is led

1A more detailed account of progress presented in, among others: The Academy of Science of South Africas publication

on the State of Science in South Africa (2009); The South African Engineering Associations publication, The Hidden Edge Quest for Innovation in South Africa 1900 2000; DSTs publication on Fruits of Freedom South Africasachievements in science and technology during the first decade of democracy (2004).


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by the production and dissemination of knowledge to enrich all fields of human

endeavour. Growing R&D is a long-term goal that is dependent on a broad range of

policy interventions and various government departments and their agencies.

This document outlines how the NSI, including government, the higher education sector,

the private sector and international partners, can be mobilised and steered towards

achieving a higher level of research and innovation in South Africa. This strategy

presents key action plans to be implemented over the next three to five years to set the

path for increased investments in R&D and measures to sustain it in the long term (10-

20 years). In summary:

The funding for science and research by government should be effectively

targeted to further develop and strengthen the NSI, specifically through

expansion of the human capital skills base, scientific research infrastructure

capacity, knowledge generation, and to encourage new opportunities that

enhance South Africas global competitiveness.

The local private sector and international companies have an important role to

play in funding R&D, and incentives must be improved to encourage these

investment sources and leverage private sector opportunities. Some of the

existing incentives and instruments are being reviewed to stimulate new areas of

R&D and innovation investment.

South Africa must become a global R&D destination, attracting international

opportunities through a comprehensive foreign direct investment (FDI)

programme. To absorb these opportunities, our human and infrastructure

capacity must be expanded to handle international projects.

Coordination needs to be strengthened by establishing a high-level government

structure to oversee the system-wide priorities and long-range planning for

science and research, which will be supported by up-to-date R&D data, good-

quality monitoring information and strong evaluation and science advisory

capacity.

A national consensus on the short- and long-term needs of the country, and South

Africas intended role in the global environment must inform and strengthen policy to

encourage innovation-driven economic growth.


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The role of R&D in a growing economy

Increased, sustainable economic growth is a primary goal of government policy. The

economy grew at an average of 3.1 percent during the period 1994-2004, increasing to

5 percent between 2004 and 2008, with relatively high growth rates between 2005 and2007.2 Much of the growth is attributed to the commodity boom, and according to the

2009 Industrial Policy Action Plan, the growth rates have been lower than those of

comparable emerging economies such as India, Brazil and Russia, and were primarily

driven by consumption expenditure with inadequate expansion in the productive capacity

of the economy.

The Medium Term Strategic Framework aims to minimise the impact of the economic

downturn and identify new opportunities to speed up economic growth and create jobs. Itemphasises a need to keep up with global technological trends, recognising that

scientific and technological innovation and development are important sources of

competitiveness and sustained growth.

Latest official statistical releases show that the economy is well on its way to recovery.

An even higher GDP growth is needed to counter the persistent high unemployment rate

and help address a myriad of economic and social challenges facing the country.

The National Industrial Policy Framework envisages a competitive, faster growing

economy that is diversified and that creates large-scale employment. The Industrial

Policy Action Plan highlights specific industries and interventions that need scientific and

R&D inputs. The South African economy still needs to diversify further and broaden its

base of exports and trade as a share of world trade.

At 24 percent, South Africa has one of the highest unemployment rates in the world.

Despite the economic growth over the past decade, unemployment remains high, alongwith the associated challenges of poverty and underdevelopment.

Based on the link between R&D intensity and economic competitiveness, the President

has provided the Minister of Science and Technology with defined goals, including the

2 Source: Statistics South Africa, http://www.statssa.gov.za/publications/statsdownload.asp?PPN=P0441&SCH=4720.


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development of realistic targets for raising the level of R&D as a percentage of GDP to

about 1.5 percent by 2014. Increased R&D investment should have a positive impact on

many of the prioritised outcomes of government.

Increasing R&D in possible in an environment of an expanding capacity for science,

technology and innovation. In terms of the New Growth Path, an integrated approach

with targeted policy programmes is required to support increased competitiveness and

strengthen and sustain macroeconomic gains3. The science, technology and innovation

capacity must be expanded to make a meaningful impact on the economy. South Africa

should close the gap and move closer to a series of indicators for innovation,

competitiveness and development of more advanced economies. The vision for a

knowledge-based economy articulated in the Ten-Year Innovation Plan and the National

Industrial Policy Framework is therefore highly relevant, and a set of high-level indicators

for this vision are proposed in Figure 1 and Table 1.

Figure 1: Key dimensions for a knowledge-based economy

FOSTERING A

KNOWLEDGE-

BASED ECONOMY

Framework conditionsfor innovation and

productivity

Degree ofinternationalisation

and place in the globalareana

Shifting composition ofindustrial investment;

trade and industryvalue added

Broad-based education,employment and skilled

workforce

Knowledge generation,accumulation andnetworks

3 The New Growth Path: The Framework (November 2010). Economic Development Department, South Africa


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Table 1: Indicators for a knowledge-based economy

Key dimensions Immediate outcomes Areas of indicators for the knowledge-based economy

Education,

employment andskilled workforce

Increased rate of employment

creation Increased economys demand for

(highly) skilled workforce

Increased concentration of skilled and

high-wage jobs within the employedpopulation

High proportions of workforce employedin knowledge-based jobs

Workforce and skills mobilityKnowledgegeneration,accumulation andknowledgenetworks

Increased productivity of theavailable pool of researchers

Increased knowledge generationcapacity (including human capitalfor research and innovation)

Increased production and transmissionof knowledge, technical expertise ortechnology in the form of patents,licenses and know-how

High share of global knowledge outputs(research outputs, patents)

Frameworkconditions for

innovation andinnovationoutputs

High levels of R&D in the economy Entrenched usage of ICT

(knowledge accumulation, diffusion,application)

Innovation investment andproductivity

Capacity for absorbing newinnovations

Increased levels of productivity drivingeconomic growth

An economy with world-class economicand research infrastructure

Technological change

Shiftingcomposition ofindustrialinvestment; tradeand industryvalue added

High rate of new enterprise creation High proportion of firms using

technology to innovate Innovation-driven, firm-level activity

(increased revenues from newproducts and services)

Creation of new industries

A diversified economy lesser dependenton trade in primary resources; high ontradable knowledge intensive goodsand services

Increased national income derived fromknowledge-based industries

Intensity of medium-to-high technology

industries and exportsDegree ofinternationalisation and position inthe global arena

Degree of internationalisation ofR&D and innovation activities

Intensity of trade in medium to hightechnology goods and services

Place in global R&D and innovationvalue chains

Improved technology balance ofpayments

Global leadership in scientific domains,addressing national, regional and globalpriorities

International experience has highlighted the crucial link between the levels of investment

in R&D, innovation and economic growth and development. For example, in the 1970s,

R&D played an important role in the industrial output growth in the United States of

America (USA) and Japan, and later advances in Germany, Sweden, Finland and other

Scandinavian countries. Over the past two decades, the economic success of newly

industrialised economies such as China, Singapore, South Korea, Ireland and Tunisia is

partly attributed to their rapid improvements in R&D, education, skills development and


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innovation. For these countries, economic reforms, including openness to international

trade, investment, skills mobility and development, and advances in education have

made their increased R&D activity help grow their economies and improve their standard

of living, making major strides in international competitiveness.

The data from selected countries depicted in Table 2 suggests that economies that have

relatively higher living standards, reflected by the higher GDP per capita or faster growth

in the recent past, also have relatively higher rates of new knowledge production and

R&D intensity.4

Table 2: Gross national income/capita and GERD/GDP ratios of selected countries

Gross national income per capita

(Data in Current $US)6

CountryGERD as apercentage of GDP5

2008 2009China 1.49 (2007) 3,050 3,650India 0.80 (2007) 1,080 1,180Ireland 1.45 (2008) 49,810 44,280Brazil 1.00 (2007) 7,440 8,040South Africa 0.93 (2008) 5,870 5,760South Korea 3.50 (2007) 21,570 19,830Finland 3.46 (2008) 48,100 45,940Australia 2.01 (2006) 41,890 43,770Germany 2.54 (2007) 42,670 42,450Sweden 3.60 (2007) 52,440 48,840Japan 3.44 (2007) 38,000 38,080

France 2.08 (2007) 42,080 42,620USA 2.68 (2007) 47,580 46,360Singapore 2.61 (2007) 37,650 37,220Argentina 0.51 (2007) 7,160 7,550Tunisia 1.07 (2006) 3,540 3,720

A national consensus on the short- and long-term needs of South Africa, and the

countrys role in the global arena, should shape the ongoing review of policies,

regulations, programmes and instruments to strengthen the policy environment for

innovation-driven economic growth.

Private sector/business expenditure on R&D has a more direct, and immediate impact

on economic growth than public R&D, which is largely concentrated on early-stage

4 Authoritative work in this area is reported by King, D. A. (2004) in Nature, which profiled the correlation betweeneconomic wealth of nations, represented by GDP per capita, and their citation intensity, represented by citation per unitusing 31 countries.5

Source: Organisation for Economic Cooperation and Development (2010) Main Science and Technology Indicators.6 Source: The World Bank http://data.worldbank.org/indicator/NY.GNP.PCAP.CD/countries?display=default. Data incurrent $US using the World Bank Atlas method.


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research. The Organisation for Economic Cooperation and Development (OECD), for

example, estimates that a one percentage point increase in the share of business R&D

expenditures in GDP may increase GDP per capita by around 0.1 percent in the long

run. This impact becomes even higher when the internal growth effects (i.e.

enhancements in human capital, profit-oriented investments and increased productivity)

are considered.7

Furthermore, the Medium Term Strategic Framework identifies priority areas for

government service delivery, in which specific targets have been determined within the

outcomes framework of government, including health, crime prevention, agrarian reform

and food security, education and skills, infrastructure, sustainable resource management

and rural development. Higher R&D investment will help achieve government outcomes

through technological innovation.

Overall, the issues raised above prompt new questions regarding the adequacy of policy

conditions to stimulate higher levels of R&D investment from within, and how current

levels of investment are translating into socio-economic outcomes. The key levers for

R&D investment need to be revived in South Africa.

7 OECD (2010) Going for Growth: Economic policy reforms (page 41).


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Trends of R&D expenditure in South AfricaThe national R&D survey indicates that South Africa has maintained a steady growth in

R&D expenditure over the past decade, with GERD growing from about R4 billion in

1997/98, to about R21 billion in 2008/09.8 The ratio of GERD as a percentage of GDP

has also expanded over this period, indicating the growing role of R&D within the

economy. However, from 2007/08 there was a decline in GERD as a percentage of GDP

for the second year in succession, from 0.93 percent in 2007/08 to 0.92 percent in

2008/09 as illustrated in Figure 2 and Table 3.

Figure 2: Performance of R&D in South Africa (National R&D surveys 1991-2008)

1.04%

0.92%

0.93%0.95%0.92%

0.87%0.81%0.76%

0.69%0.75%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1991/92 1993/94 1997/98 2001/02 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

%

ofGDP

-

5,000

10,000

15,000

20,000

25,000

R'million

Government Science Councils Higher Education Not-for-profit Business Enterprise GERD % of GDP

Table 3: Selected data on trends in R&D expenditure

Sector 1997/98 2001/02 2005/06 2006/07 2007/08 2008/09

Business enterprise 2,216,000 4,023,576 8,243,776 9,243,165 10,738,456 12,332,012

Government 1,380,000 203,110 844,640 1,021,355 1,154,399 1,139,676

Higher education 496,000 1,896,156 2,732,215 3,298,808 3,621,862 4,191,366

Not-for-profit 11,000 70,778 226,514 212,538 223,202 240,649

Science councils - 1,294,454 2,102,094 2,744,718 2,886,094 3,137,343Gross Expenditureon R&D 4,103,000 7,488,074 14,149,239 16,520,584 18,624,013 21,041,046

% of GDP 0.69% 0.76% 0.92% 0.95% 0.93% 0.92%

8The National Survey on Research and Experimental Development (R&D survey) is undertaken annually by the Human

Sciences Research Councils Centre for Science Technology and Innovation Indicators on behalf of DST to, among otheruses, inform policy and strategy formulation and monitoring of progress against targets.


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The decline in GERD as a percentage of GDP is an indication that R&D investments

have grown at a lower rate than growth in GDP. Starting in 2007/08, the nominal

increases in GERD have been slower than the increases in nominal GDP. Events

leading to the economic crisis may have played a role in influencing R&D investment

decisions within the private sector. Globally, some companies were scaling down,

postponing or cancelling their R&D and innovation investments due to shrinking cash

flows.9

The target of 1.5 percent GERD/GDP, although significant for South Africa, is rather

modest considering the R&D intensity already achieved in other regions, as illustrated in

Figure 3. South Africas R&D intensity is below that of the OECD and European Union

(EU) averages, although it is above Africas average and that of the Latin American

counties.

Figure 3: R&D intensity in various regions of the world10

(2007 or latest available data)

1.7% 1.6% 1.6%

2.1%1.9%

0.4%

1.8%

2.3%

0.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

World

Europe As

ia

Americas

Ocea

niaAfrica

Expand

edEU

OECD

Latin

Ame

rican

Cou

ntries

GERDas

%o

fGDP

9 UN Conference on Trade and Development World Investment Prospects 2009-2011 (2009)10 Source: United Nations Educational, Scientific and Cultural Organisation Institute of Statistics (UIS, 2010).


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South Africa contributed 0.4 percent to the global R&D effort in 2006, growing from

0.3 percent in 1996. This is significant even though South Africas share has been

growing from a relatively low base.

South Africa will need to double-up on its 2008 levels of GERD (of R21 billion) to

between R41 billion and R46 billion by 2014 if it is to reach the 1.5 percent GERD/GDP

target. Ideally, GERD should grow between 16 and 20 percent annually for the next

three years. Given the prospects for higher medium-term GDP growth, the requirement

for GERD growth can be even higher.

If projections for future R&D investment are made from the current profile (averages from

2003/04 to 2008/09), the private sector will be funding about 45 percent of the GERD,

government would fund about 38 percent, and the remaining 15 percent will be divided

between foreign and other local sources. The business expenditure on R&D would make

up the bulk of the GERD at about 58 percent, and government, science councils and the

public higher education sector would be collectively responsible for 42 percent.

The aim of the NRDS to double government investment in science and technology has

been realised. Between 2004/05 and 2008/09, government funding for R&D has grown

by 146 percent, while private sector funding grew by 64 percent. Government funding for

R&D was higher than business-sector funding for 2007/08 and 2008/09.

Figure 4: Sources of R&D funding (historical trends)

11.4% 11.9%

0.8%4.4%

45.1%

38.4%

45.3%42.6%

0.0%

5.0%

10.0%

15.0%20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

2008/09 Average (2003 - 2008)

%o

ffun

dingofGERD

Foreign

Other SA

Government

Business

Governments increased focus on R&D needs to be supported by effective structures to

encourage more investment from the private sector and international funding sources. It


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is therefore expected that increased government investment will encourage increased

private sector R&D efforts in a manner that will shift the overall composition of the future

mix of R&D funding sources in South Africa. The expansion of the private

sector/business expenditure on R&D has a more direct, and immediate impact on

economic growth because the private sector is more likely to embrace related

commercial opportunities in the form of new technologies, processes and products.

The recent successes of some of the developing countries has been partly driven by

increased capabilities for technological development, new product development, the

creation of new markets and expansion of the industrial base and exports. Similarly,

South Africa should continue to expand its pockets of excellence and become a key

player globally in areas that will drive future competitiveness.

In order to attract private sector investment, policies and programmes must be improved

in the following areas: development of markets; ease of introducing innovations;

improving market competition; ownership and appropriation of innovation benefits;

ease of and availability of financing and other support affecting the private cost of R&D.

The pool of input resources, including human capital and infrastructure, also needs to be

widened. These areas are highly dependent on a range of policy actions by various

components of government.


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Building and strengthening the national system ofinnovation:

Key issues

This strategy recognises that a process of increasing R&D intensity in the economy

requires some long-term commitment. It is highly dependent on a broad range of policy

interventions and capacities of various role players.

South Africa has a well-developed base and network of public science research

institutions that focus on priority areas, which need to be maintained and strengthened in

building long-term scientific and technological capabilities. Key requirements for

expanding and strengthening the scientific and technological base include: humancapital development; science and technology infrastructure capacity and coordination of

other input resources; capacity and rate of knowledge generation and exploitation;

integration into the global R&D value chains; and eliciting higher private sector R&D

effort. Components of the National System of Innovation are presented in Figure 5.

Figure 5: Major components of the National System of Innovation

Large companies

SMEs

MarketsProducers (intermediate demand), exports and

final demand by consumers

Framework ConditionsRegulatory and fiscal environment;Financial environment;

entrepreneurship and technical culture

New, technology -

Based firms

IntermediariesResearchinstitutes;Networks andcollaborations;NGOs;Developmentfunding agencies;

Other brokers

IndustrialSystem

Scientific andResearch base

Human resourcesand training

Higher educationand research

Public sector

research andother institutions

Government

Policies promotinginnovation

Governance andresourcing

PoliticalSystem

Financing sector &venture capital

IPR andinformation

Standards andnorms

Infrastructure

State Owned Entities


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South Africa needs a strategic and integrated approach to research and innovation

performance if it is to make a required step change and reap greater benefits from its

science system.

This requires a better articulation and closer links of these elements with the countrys

policy objectives. In summary, the strategy proposes the following key pillars towards

building and strengthening the national system of innovation to drive increased R&D

investment that effectively contributes to growth and development:

The funding for science and research by government should be effectively

targeted to further develop and strengthen the NSI, specifically through

expansion of the human capital skills base, scientific research infrastructure

capacity, knowledge generation, and to encourage new opportunities that

enhance South Africas global competitiveness.

The local private sector and international companies have an important role to

play in funding R&D, and incentives must be improved to encourage these

investment sources and leverage private sector opportunities. Some of the

existing incentives and instruments are being reviewed to stimulate new areas of

R&D and innovation investment.

South Africa must become a global R&D destination, attracting international

opportunities through a comprehensive foreign direct investment (FDI)

programme. To absorb these opportunities, our human and infrastructure

capacity must be expanded to handle international projects.

Specific measures to strengthen the policy environment for innovation through

the review of known regulatory and/or administrative impediments and policy

refinements.

Coordination needs to be strengthened by establishing a high-level government

structure to oversee the system-wide priorities and long-range planning for

science and research, which will be supported by up-to-date R&D data, good-

quality monitoring information and strong evaluation and science advisory

capacity.

Specific measures and key actions relating to the abovementioned strategy pillars are

outlined in a later section. Firstly, the next section presents a selection of challenges


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and problem statements, which have are used to evaluate the opportunities for the

required growth. Some of these factors have been identified in the 2007 OECD review of

the South African innovation system and are presented in Table 4 below.

Table 4: South Africas strengths, weaknesses, opportunities and threats (OECD)

Opportunities Strengths

Raise economic performance by building on existing

innovation system strengths in industry including large

firms and the knowledge infrastructure

Investment boom provides window of opportunity for

technology development, acquisition and learning and

increasing capacity

Attract FDI to establish durable South African capacities

Exploit latent talents of the majority

Build on industry-research sector interactions as focusingdevices for developing the knowledge infrastructure

Revise mental models of how the innovation system

operates to put producers in the centre

Further modernise the governments role in the innovation

system by using public agencies and other institutions to

implement key projects

Resource-based industries and related

knowledge-intensive business services

Knowledge infrastructure, albeit small in relation

to the size of the overall population

High proportion of business enterprise

expenditure on R&D in GERD

Links between major industries and the

knowledge infrastructure

International industrial and academic networks

Political awareness of the importance of

science, technology and innovation for

sustainable growth

Open, participative governance with

mechanisms in place for cross-departmental

coordination

Weaknesses Threats

Poor quality schooling for many citizens

Human resource shortages at all levels in mathematics,

science and technology

Lack of design, engineering, entrepreneurial and

management actors and R&D capacity leading to an

engineering gap

Ageing, white, male dominance of industrial and academic

R&D

Mental models of how the innovation system operates overly

focused on the role of government

Governance of the State components of the innovation

system insufficiently holistic

Strategy implementation capacity in governments part of the

innovation system

Use of level playing field idea in funding higher education

impedes the development of new institutions

Large second economy with insufficient entrepreneurial and

technological skills

Inconsistencies between immigration policies and the human

resource needs of the innovation system

HIV/AIDS

Social unrest, if the pace of development

falters

Demographic pressures on education,

research and innovation systems caused by a

large increase in the number of people born in

the 1990s


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Human capital developmentThere is broad consensus that South Africa has a weak skills system that does not

adequately respond to the needs of productive sectors in its economy. Significant

increases in research, development and innovation is unlikely to be achieved without

strengthening the overall skills and human capital base. Overall, the number of

researchers, technicians and skilled R&D personnel is low and this remains a key

challenge. These categories of skills form the core of the knowledge-based workforce

and are needed to drive the creation, assimilation and diffusion of new knowledge and

technologies.

The World Bank ranks South Africa at the bottom 30 percent in terms of its R&D

workforce. The National R&D Survey indicates that the number of researchers per 1 000

total employment has remained at around 1.5 for several years.11 In 2008/09 there was a

decline to 1.4 researchers per 1 000 total employment, which compares poorly with

countries such as Argentina (2.9), the Russian Federation (6.4) and China (1.9). South

Africa also has too few researchers for its level of GERD.

Interventions are under way to address the weak human resource base and frozen

demographics, but their effect is still minimal, as some of these interventions take time to

make significant impact. South Africa is ranked as one of the countries with the highest

proportion of public expenditure on education, yet it still has a notably poor schoolingsystem and low education attainment rates.12 The large investments in the education

system (mainly through the Departments of Basic Education and Higher Education and

Training) will greatly expand the skilled workforce in the future.

The DSTs 2010 analysis of resource requirements for high-level human capital for the

NSI presents a set of interrelated factors that influence the growth of human capital, and

specifically R&D:

The higher-education participation rate (measured as the total enrolment headcountof students in public higher education as a proportion of population aged 20 to 24)

has improved from 15 percent in 2001 to about 17.5 percent in 2008. This ratio is yet

11The growth in R&D personnel has been slower than the rate of employment growth in the economy. According to the

SA Reserve Bank Quarterly Bulletin, the expansion phase in the formal non-agricultural employment that commenced in2003 peaked in the third quarter of 2008, but declined since then until the third quarter of 2009.12 The 2009 International Monetary Fund Africa Competitiveness Report.


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to reach 20 percent the 2015 target set in the National Plan for Higher Education,

and the norm for middle-income countries.

Challenges in the education sector are a key constraint to further growth of high-level

skills. For example, 85 percent of senior certificate holders could not meet the

minimum requirements for enrolment into undergraduate programmes in 2007.13

The ratio of graduation to enrolment in the higher education system needs

improvement. Although masters and doctoral enrolments increased rapidly between

1996 and 2008, the graduation rates have unfortunately not grown at the same pace.

Masters enrolments increased from 23 000 (1996) to 41 700 (2008), while doctoral

enrolment almost doubled from 5 100 to 10 000. Over the same period, masters

graduates increased from 4 100 (1996) to 7 500 (2008), and doctorates increased

from 700 to 1 182.

About 5 percent of all enrolled students are supported by the National Research

Foundation (NRF), the government agency with a primary mandate to support and

fund research and researchers. This ratio is far too low to make significant changes

across the system.

The South African research system is relatively small, but productive and efficient in

specific niche areas, when compared with India and Brazil.

The public higher education system is already operating at maximum capacity and is

unlikely to grow significantly in the short to medium term. This places limitations on

postgraduate students due to the shortage of qualified supervisors.

The skills deficit issue requires a holistic approach, as this challenge goes far beyond the

scientific workforce. Access to, and quality of, basic education is still not distributed

equitably across society and has lasting implications for societal transformation. The

ongoing reforms to the educational landscape over the past decade aim to encourage

transformation. The Departments of Labour and Home Affairs need to address

regulatory constraints regarding migrant skills. Some of the programmes need specific

refinements to make them more effective in expanding the number of researchers and

science, engineering and technology skills and address the racial imbalances in this

area.

13 Academy of Science of South Africa (2010), The PHD study.


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The 2018 targets proposed in the Ten-Year Innovation Plan include the establishment of

500 research chairs at universities and research institutions across the country (moving

from 82 that have been established by 2010. This should effectively support the growth

in the production of PhDs to about 6 000 per year, of which 3 000 will be in science,

engineering and technology fields. This is ambitious considering the baseline of 1 380

PhDs achieved in 2009, of which 704 were in science, engineering and technology

fields).14 Closely connected to this is a target to increase South Africas global share of

research publications to 1.5 percent by 2018 (2006: 0.5 percent, 2009: 0.61 percent) 15

and other knowledge outputs in the form of patents, licenses and know how.

Scientific and technological infrastructure capacityExpanding the human capital base, particularly researchers and science, engineering

and technology skills, requires an investment in high-quality research equipment and

infrastructure to establish new capacity, and maintain and increase capacity in specific

areas.

Existing programmes have contributed to increasing the capacity of research

infrastructure and equipment, but more is required to meet the need for basic applied

and strategic research. Most of these initiatives to expand capacity are run by the DST

and its agencies, and include the National Equipment Programme, the National

Nanotechnology Equipment Programme, National Facilities Funding, National Strategic

Infrastructure Programme, the South African National Research Network and the Centre

for High Performance Computing, Nanotechnology Innovation Centres, centres of

excellence, Research Chairs Initiative and centres of competence.

The 2006 National Advisory Council on Innovation infrastructure and equipment audit

revealed the following weaknesses:

Old and outdated research infrastructure

The effect this old infrastructure has on international competitiveness

Ad-hoc funding due to high demand and inadequate resources.

The audit estimated the replacement value of outdated and ageing infrastructure to be

R5.6 billion at the time.

14 Department of Higher Education and Trainings Higher Education Management Information System.15 National Science Indicators Database, Institute for Scientific Information (ISI), Philadelphia.


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The DST has identified specific priority infrastructure and equipment required to make

South African research globally competitive in the categories of research equipment,

cyber infrastructure, specialised laboratories, large high-end infrastructure and global

infrastructure. Research infrastructure is fundamental to progress in each element of the

knowledge triangle (education and training, research and innovation). Scientific

equipment and specialised laboratories are prerequisites for high-quality teaching and

training and R&D-led research and innovation. The establishment of new institutions will

increase system capacity and enhance innovation.

The ageing public technology and intensive services infrastructure in essential service

delivery domains, e.g. National Health Laboratory Services, the Agricultural National

Public Goods Assets at the Agricultural Research Council, the Council for Geoscience,

as the most in need of investment and upgrading. Plans for these investments are made

by the responsible departments. In the areas mentioned above, the Department of

Health and the Department of Agriculture, Forestry and Fisheries would be involved.

Capacity and rate of knowledge generation and exploitation

Some of the Ten-Year Innovation Plan targets include:

Become one of the top three emerging economies in the pharmaceutical industry.

Increase FDI in the countrys health-related R&D.

Expand technology platforms and R&D infrastructure to facilitate diagnostic and

medical solutions.

Become the preferred destination for major international astronomy projects and

investment.

Increase the energy supply with more than 50 percent of new capacity coming

from clean-coal and nuclear technologies.

Achieve a 25 percent share of the global hydrogen and fuel cell market with novel

platinum group metal catalysts.

Introduce climate change adaptation and measures, based on robust regional

scenarios for climate change rate and impact.

Use science and technology to achieve the millennium development goals on

livelihoods and affordable access to services.


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Reaching these targets and improving the technological aspects of the national industrial

policy is highly dependent on knowledge creation, and new applications based on this

knowledge. An expanded base of scientists, including people with research degrees who

will expand the existing knowledge stock, will make the industry more competitive.

Cutting-edge industries and viable markets for new products and innovations need to be

established. Key issues in this area include:

Overall, South Africas global share of scientific publications in International

Statistical Institute (ISI) journals has increased by 2.4 percent in the last two

decades, but has not been keeping up with the global rate, which has increased

by 3.5 percent.16

Patent activity has increased, although the number of South African patents

accepted at the United States Patent Office (USPTO) has declined from 111

between 2001 and 2004 to about 92 between 2005 and 2008.17

South Africas intellectual property rights regime is considered on par with

advanced economies, but our use of intellectual property rights instruments is

low.

Many innovative South African firms still consider the science councils and

universities as the least important source of information about innovation. The

many examples of completed R&D work that is not taken forward are a clear

indication of a weak link between researchers and business.This situation of

high R&D collaboration but low innovation is not unique to South Africa, and is

probably due to business secrecy/strategy.

Current levels of R&D and technical infrastructure need to be enhanced for South

Africa to compete effectively for global researchers and other resources.

Considering that multinational companies dominate international R&D

investment, conditions that are aligned with their R&D decisions need to be

created.

Higher education research posts tend to be on contract and do not promote

sustainability. More postgraduates should be encouraged to become lecturers

and research supervisors by providing better salaries and long-term research

16 Pouris (2008).17 NACI (2009).


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careers for academics. Science councils should have closer links to universities

and provide practical experience for postgraduate students, and boost masters

and doctoral numbers.

Science councils have to self-fund through contract research, which creates a

tendency to direct effort towards income-raising activities through harvesting

existing knowledge at the expense of developing new knowledge. It invites

creeping mandates and competition between science councils and with the

private sector, which weakens the potential for collaboration. This also increases

the likelihood of poor financial sustainability during periods of recession.

Integration into global R&D value chainsScientific progress and technological developments have contributed substantially to

globalisation, and South Africa has to find its place in this global arena. The followingpoints put South Africas international R&D environment in context:

The South African economy has opened up to the global economy in the last two

decades. Its FDI has grown from a low base in the early 1990s, with FDI as a

percentage of GDP increasing from about 1 percent in 2003 to about 4 percent in

2009.18 Trade with other countries has expanded significantly, even though exports

of manufactured goods and high-technology goods have grown only marginally. A

large part of FDI is made up of purchases of equity and share portfolio investmentsrather than fixed productive investment. FDI also includes commercial exchanges

involving transfer of technology and management skills, particularly through mergers

and acquisitions.

With an increasing presence of multinational and foreign-owned enterprises

alongside expanding locally owned companies, South Africa has an opportunity for a

variety of R&D involving local and foreign institutions, which is evident in the

increasing level of collaboration research involving international partners. These

partnerships offer opportunities for technology transfer, develop local expertise andstrengthen research and technology infrastructure.

The negative balance of trade in manufacturing, particularly technology

manufacturing, indicates that South Africa mainly imports these items. The OECD

data suggests a widening deficit for South Africas technology balance of payment

18 South African Reserve Bank Quarterly Bulletin, March 2010.


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over the years, indicating that the country uses about six times more of intangibles or

disembodied technologies (which includes patents, licenses, know-how, trademarks,

patterns, designs, technical services and for industrial R&D carried out abroad) than

it sells to the rest of the world. While it is good that the economy is increasingly able

to assimilate foreign technologies, opportunities for meeting this growing demand

through local knowledge and technology outputs must be identified. Further analysis

is also needed to determine if these ready-to-use technologies are consumption or

production oriented.

Foreign funding for R&D in South Africa averaged around 12 percent from 2003 to

2008, a rate that is still lower than the Ten-Year Innovation Plans target of

15 percent. Our global share of R&D has grown at a much slower rate than in other

emerging economies.

South Africa is encouraging progress in science and technology both internally and

with other countries in Africa. South Africa has strengthened its effort in supporting

several flagship science and technology institutions in Africa, including the African

Institute for Mathematical Sciences, the Southern African Biotechnology Network and

the International Centre for Genetic Engineering and Biotechnology.

Developing economies provide a wealth of opportunities for global R&D. Although

developed, wealthy economies still spend higher percentages of their GDP on R&D,

global R&D investment is shifting in favour of developing economies. Multinational

companies are increasingly favouring off-shoring their R&D functions to optimise their

global operation.19 Over the past decade, the collective global R&D investment share of

the United States of America (USA), the EU and Japan has declined from about

80 percent in 1996 to about 72 percent in 2006.20 The EU and USA multinationals, in

particular, are making huge R&D investment in Asia.21

South Africas international science and technology engagements with developed

countries provide an important source of resources for South Africa, including human

capital, research infrastructure and research finance. A key challenge for South Africa is

the lack of local capacity to take full advantage of the opportunities that accompany

19UN Conference on Trade and Development World Investment Prospects 2009-2011.

20 OECD Science, Technology and Industry Scoreboard 2009.21 The 2009 European Union Industrial R&D Investment Scoreboard.


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these international partnerships. Going forward, we need to build capacity to fully

integrate the NSI into global R&D and innovation value chains.

Technology and R&D make up a significant portion of FDI in China, India and Germany.

Hong-Kong and Ireland are particularly successful in attracting company headquarters

and investment in R&D operations by offering generous incentives that specifically target

these functions.22

South Africa has been able to attain a leverage factor of two (international partners

investing twice the South African investment) in its recent international engagements.

This provides a necessary baseline for future engagements.

South Africa faces a number of challenges in the area of international R&D:

Local capacity must be boosted to handle opportunities arising from international

engagements. Emerging researchers also need opportunities for active roles in

international R&D projects and centres of excellence.

Greater levels of information exchange are needed, not only for researchers, but

also for science, engineering and technology graduates who could gain from the

exposure to international R&D projects and related skills training. South Africa

must build networks with others in the global brain pool.

FDI promotion of the Department of Trade and Industry and international

engagements on science and technology should be aligned.

Technical capacity must be expanded to evaluate new and emerging

technologies and their applications to address developmental challenges. By

using available technology, pressing service-delivery issues can be effectively

addressed.

Science and technology objectives should be integrated into public procurement

efforts and further expansion of the technology localisation programme to fully

take advantage of increasing procurement activities by state-owned entities.

22 AT Kearny 2010: Investing in a rebound The 2010 AT Kearny FDI Confidence Index.


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Eliciting higher private-sector effortThe private sector is an important source of finance for R&D and is a strategic partner for

the government to engage with in promoting investment in this area. This sector

performs the bulk of R&D in South Africa. It consists of local businesses, including small,

medium and large enterprises, foreign-owned companies in South Africa and other

foreign R&D-intensive companies that could consider investing in South Africa.

Business expenditure on R&D is concentrated within larger sized enterprises.

About 80 percent of business expenditure on R&D is performed by 20 percent of

large enterprises. In contrast, innovation activity occurs in a much wider

community than just R&D intensive, larger enterprises. The profile of R&D-

performing companies indicates that R&D and innovation activities of small and

medium enterprises (SMEs) are also not fully exploited.

Just more than 80 percent of total R&D expenditure is concentrated in the

industrial regions of Gauteng, Western Cape, and KwaZulu Natal. These

concentrations provide specific advantages to private sector companies in these

areas in terms of access to specific resources, the operating environment and

markets for innovation. The government aims to stimulate industrial and R&D

activities in all regions.

Business-funded R&D in the government sector (including higher education

institutions) in South Africa has almost halved from 19 percent in 1997 to about

10 percent in 2007, in contrast to trends in a number of comparable economies.23

Corporate social investment by local businesses and foreign and local venture

capital investments is a potential new source of R&D funding and can generate a

significant portion of the much-needed additional investment. These sources are

currently not being fully exploited to boost R&D investment in South Africa, and

can collectively contribute to public research infrastructure and commercial

R&D.24

The current design of the R&D tax incentive specifically encourages medium and

large enterprises that are research intensive, but does not seem to resolve the

cash-flow constraints and funding gap for many SMEs involved in R&D projects.

These companies experience specific challenges in claiming the deductions long

after incurring the full costs of their R&D, and struggle to generate sufficient cash

23 OECD Science, Technology and Industry Scoreboard 2009, http://dx.doi.org/10.1787/744214163561.24 National Advisory Council on Innovation (NACI), 2010.


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flows to reinvest in R&D or source external finance and venture capital. Their

uptake of available government programmes is rather low, although there is a

clear need for financing.

Cross-sectoral funding for R&D and collaborations is an area that presents easy

entry for new enterprises and new R&D performers. Current programmes, such

as the Technology and Human Resources for Industrial Programmes and the

Innovation Fund, have been successful, and the demand for innovation and

culture within the business sector should improve.

A programme similar to the European Unions 7 th Framework Programme for

Research and Technological Development is needed in South Africa,25 to provide

packaged support that addresses R&D, but also brings together projects for

improving economic and scientific infrastructure, creates networks and

partnerships, develops markets and linkages, and offers direct funding for

business innovation activities. All these components are currently delivered

through various programmes in South Africa, but in a fragmented manner.

25The EU is making huge progress with its 7th Framework Programme for Research and Technological Development

(20072013), which EU member countries use to stimulate R&D and innovation of SMEs and specific regions. Somegrant schemes under the framework programme provide SMEs with grants as high as 50 percent to 80 percent of theirR&D costs.


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Strategy implementation

Scaling-up public funding for science and R&DThe funding for science and research by government should be effectively targeted to

key areas that will further develop and strengthen the performance of the NSI. Anintegrated approach to priority setting is critical, considering that various government

departments have mandates that include significant responsibility for scientific and

technological activities. They fund and perform science and technology- and R&D-

related activities, either directly, through agencies, or working with business and/or

international partners. These departments, including the DST, implement a variety of

policies, legislation and programmes to achieve specific outcomes in line with

government objectives.

Figure 6: Pillars for public investment in science and research

PUBLIC

INVESTMENT IN

R&D

Basic research andknowledge generation

Development of High-level Human Capital

Leverageinternational

R&D investmentSupport commercialisation,

technology development and

transfer

Critical researchequipment andinfrastructure

The rationale for public funding for R&D is very clear in the case of South Africa. The

following (presented in Figure 6 above) areas are proposed, through this strategy, as

key areas to which additional public investment will be applied.

Basic research and knowledge generation;

Development of high-level human capital;

Expanding the capacity for critical research equipment and infrastructure;


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Support for commercialisation, technology development and transfer;

Leveraging international R&D investment.

The brief reflection on the challenges and opportunities indicates that good progress is

being made in some of these areas, while in others the level of current effort seem

inadequate to make a required step change.

Using the National Treasury forecasts for the GDP,26 GERD must increase by between

R41 billion and R46 billion to achieve the target of 1.5 percent of GDP by 2014/15. This

suggests that GERD should double-up from the 2008/09 baseline of R21 billion. To

achieve this, GERD should increase at a rate of about 16 percent to 20 percent for the

next three years. This is higher than the increases of between 12 percent and 17 percent

experienced between 2006 and 2008, and should also be higher than the nominal

increases in GDP. Using the New Growth Path target range of 4 percent to 7 percent

real GDP growth as a basis, the required level of GERD should be three times the

2008/09 baselines by 2014.

All the main funding sources for R&D (government, the business sector, international

and other sources) should contribute to the required investment. The role of government

funding for science and research is a strategic one, both in leading and leveraging

investment from the other sectors in working towards a target of 1.5 percent

GERD/GDP.

Investment in these areas is critical to enable the government to scale up the capacity of

the NSI. Institutions readiness to absorb the additional investment must be determined,

including an analysis of existing and potential new areas of research and technology

development that are under funded, as well as the capacity needs to implement the key

elements of the strategy. Table 5 summarises the key elements to be targeted with the

additional public funding for science and research.

26Projections for GDP growth announced in the Budget Speech by the Minister of Finance, Mr Pravin Gordhan on

23 February 2011 are as follows: 3.4 percent (2011); 4.1 percent in 2012; 4.4 percent (2013). GDP grew at 2.8 percent in2010.


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Table 5: Key activities for deployment of additional public investment in R&D

Thrust and objectives Summary of key investment activitiesBasic research andknowledge generation

Recapitalisation of science councils: Increase the ratio of government funding to support budget of

science councils versus other sources of income Agricultural Research Council; MINTEK; Council for

Geoscience; Council for Scientific and Industrial Research;Human Sciences Research Council; Medical ResearchCouncil; Southern African Biotechnology Network

Incentives to boost research capacity in universities: Improve qualification profile of academics and research staff Expand and establish new research chairs Centres of excellence programme.

Development of high-level human capital

General national skills requirements: Improvements to mathematics and science teaching Promotion of careers in science, engineering and technology

fields and science in societyBursaries and support for higher qualifications in science andresearch:

Expansion of honours bursaries

Expansion of postdoctoral fellowship

Extension of bursary support to increase masters and doctoral

graduation rates

Transformation of the science workforce: Activities to drive transformation within the science workforce

and in human capital development

Dedicated research support for women and young researchers

Critical researchequipment andinfrastructure capacity

Critical infrastructure to enhance research performance: Scientific research equipment (national equipment

programmes; national research facilities) Specialised laboratory facilities (development of a Cape health

technology park; national preclinical drug developmentplatform; upgrade of Houwteg)

Cyber infrastructure (expansion of South African NationalResearch Network)

Large high-end infrastructure and global infrastructure(titanium test plant and related laboratory equipment).

Technological infrastructure in specific service delivery domains: National Health Laboratory Services

South African Weather Services National Agricultural Public Assets at Agricultural Research

Council National biodiversity facilities at the Southern African

Biotechnology Network.Supportcommercialisation,technology developmentand transfer

Enhancing support and incentive for private sector R&D Technology Innovation Agency fully operational Increase uptake and effectiveness of the current R&D and

innovation incentives Increase incentives to promote cross-sectoral funding for R&D


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Measures to improve efficiency for utilisation of research results: Leverage procurement by state-owned enterprises. Effective Intellectual Property regulation New institutional structures

Leverage internationalR&D investment

Promote SA as R&D location within the FDI promotion framework: Actively target technological based investment projects for FDI

Engage foreign venture capital, the international philanthropicorganisations, and the local corporate social responsibilitymarket

Boost local capacity to absorb international R&D opportunities: Introduce dedicated programme for international training for

high-level human capital and collaborative research Mega science projects and international partnerships.

The component of R&D performed through government departments, the science

research councils and the public higher education sector, received funding from several

other sources other than government itself. This direct flow of funding between

government and the private sector is important, and financing the key investment

activities mentioned above should include engagements with the private sector and

foreign sources of R&D funding.

An additional government investment of R5.7 billion from 2011-2014 is therefore

proposed, shown in Figure 7.

Figure 7: Projected amounts of required public R&D investment 2011-2014

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2011 (R854 mil) 2012 (R1.4 bil) 2013 (R1.5 bil) 2014 (R1.8 bil)

Millions

Successful implementation of the strategy should leverage a combined additional

investment of R14 billion to R18 billion from the private sector and international sources


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from 2011-2014. The catalytic role of public R&D funding should be used effectively,

alongside key policies and programmes to leverage other sources of investment.

This should shift the composition of the future mix of R&D funding sources by raising the

business-financed and foreign-financed R&D to 45 percent and 17 percent, respectively.

Historical trends and projections on future R&D funding sources are shown in Figure 8.

Historical trends show that government funding for R&D has increased relatively faster

than other sources since the introduction of the NRDS in 2002. Government funded

about 45 percent of the GERD in 2008/09, compared to an average of 38 percent from

2003 to 2008. Increasing government investment in R&D should go hand-in-hand with

leveraging investment from other sources. This will require an optimal mix of policy

instruments and other engagements.

Figure 8: Projected sources and percentages of R&D funding 2014-2016

Other SA

1.0%

Government

36.5%

Business

45.3%

Foreign

17.3%

Engagements with the private sector are important to establish the necessary

cooperation and support. This will assist in mobilising potential new R&D funding

sources from the private sector. The following stakeholder groups need to be engaged in

the process: Large private-sector R&D performers within the private sector;

Representatives of SMEs and industry associations; State-owned enterprises; Foreign-

based companies (FDI pipeline), including foreign venture capital funds; Development

finance institutions; Philanthropic organisations.


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The current model or flows of government funding in Figure 9 and Figure 10, show the

key components that can serve as an organising framework for aggregating the funding

activities of various government departments as follows:

Project-based funding directly by government departments (either intra-mural or

outsourced);

Transfers made by departments to science research councils;

Funding toward R&D activities of higher education institutions;

Funding appropriated for the support of private sector R&D and innovation

activities.

Estimates of the extent of public funding available for scientific and technological

activities indicate that about 25 national government departments spent about

R14.8 billion on scientific and technological activities in 2009/10. This amount

constituted about 1.98 percent of the total national government budget for that year.

Data on funding appropriations indicate that some of the departments that have

significant science and technology mandates have allocated very low proportions of their

departmental budgets to activities in this area. Trends shown by the National Survey of

Research and Experimental Development (R&D Survey) indicate a slowing rate of

increases in R&D expenditure in the fields of medical and health sciences, agricultural

sciences and ICT.


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Figure 9: Current model of government funding for science and R&D

- Technology for HumanResources in Industry

Programmes- Support Programme

for Industrial Innovation-Small Enterprise

Development Agency

technologyprogramme

- R&D tax incentive

Technology Innovation

Agency programmes:

- Innovation Fund

- Advanced manufacturingtechnologies

- Biotechnology Regional- Innovation Centres

Tshumisano

General university

funds

Special bursariesand scholarships

Mission-directed

researchand grand challenges

Commissionedresearch

Projects

Human capital

development and

infrastructureprogrammes

Service delivery

domains:(e.g. National HealthLaboratory Services)

Project-based

funding for majorscience programmes

Transfers to science

research councils

Support for

private sector R&Dand innovation

Funding for R&D in

higher

education institutions

Government fundingfor science and R&D

- Human Sciences ResearchCouncils

- Council for Scientific andIndustrial Research

- Africa institute of South Africa

- National Research

Foundation- Agricultural Research Council

- Council for Geosciences

- Nuclear Energy Corporationof South Africa

- South African NationalEnergy Development Institute

- Medical Research Council

- National Health Laboratory

Services- Marine and Coastal

Management

- South African National

Biodiversity Institute

Figure 10: Funding flows for government sector R&D and performance

Government funding

for science and R&DR14.8 billion(2009/10 scientific and

technological activities report)

Financing of

government sectorR&D by other sources

R8.4 billion

Transfers and subsidiesto science research

institutionsR10.9 billion

(2009/10 scientific andtechnological activities report)

Government financingof GERDR9.4 billion(2008/09 R&D survey)

R&D performingsector

Government-fundedcomponent(2008/09) Rmil %

Government 325 3%

Science councils 3 345 35%

Higher Educationsector 3 227 34%

Business sector 2 567 27%

Not-for-profitsector 33 0%

Total 9 497 100%

Sources offunding(2008/09)Rmil

Govt.includingsciencecouncils

PublicHigherEducationInst. Totals

Government 3 671 3 227 6 898Business 153 454 607

Foreignsources 445 410 855

Othersources 7 100 107

Total4 276 4 191 8 467


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This current practice for funding appropriation across government presents major

challenges in channelling the limited funding resources to national and sectoral priorities.

The mechanisms for coordination and priority setting for public R&D funding need to be

strengthened through the establishment of a high-level government structure to oversee

the system-wide priorities and long-range planning for science and research. The

rationale for such a structure is that a sustained political commitment is crucial in further

strengthening the national capabilities that South Africa has already established.

To do this, a Ministerial Committee will be established with the principal role to foster

coordination and integration of the science, technology and innovation promotion

policies, and setting up plans to expand investment in this area in order to address

national imperatives. Of immediate concern would be to review of the current public

funding models for science and research.

Boosting the capacity for basic research and knowledge generation

The Ten-Year Innovation Plan, together with the NRDS, identifies key strategic areas for

priority research, development and innovation for South Africa (see Table 6).

Table 6: Priority areas from NRDS and the Ten-Year Innovation PlanResearch and Development Strategy Ten-Year Innovation Plan

Science and technology for poverty alleviation Advanced manufacturing Technologies for resource-based industries ICT Nanotechnology

Bio-economy Space science Energy security Science and technology for global change Human and social dynamics for development

Detailed implementation strategies in the Ten-Year Innovation Plan have been

developed and baseline funding allocations have been made through to 2013/14. These

plans focus on the roles of various government departments and their agencies, as well

as the higher education sector. Local and international partnerships are being

established to provide the necessary support.

Of the total DST allocation, 44,3 percent, from 2008/09 to 2010/11, has been used to

address the grand challenges and the NRDS science and technology goals.

Successfully addressing the five grand challenges mentioned above is dependent on


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governments ability to simultaneously mobilise technology development and innovation,

human capital and knowledge infrastructure, and strategic international collaboration and

partnerships.

Some of the key projects to achieve these outcomes are not yet fully funded, and the

government needs to signal its commitment by playing a leading role in these science

projects, especially in the start-up phase. Although there are plenty of opportunities for

private-sector involvement in the early stages, catalytic government funding is essential

to get these initiatives off the ground. Basic research is needed to develop new

technologies, processes and products.

There is a compelling case for recapitalisation of most of the science councils to enable

them to effectively respond to their expanding mandates. On a case by case basis, the

ratio of government funding to support budget of science councils versus other sources

of income should be reviewed.

Incentives to boost research capacity in universities, and the collaboration between

universities and science councils and with the business sector are important. Some of

the current initiatives include expansion and establishment of new Research Chairs and

the Centres of Excellence programme and the one of improving qualification profile of

academics and research staff.

New opportunities for enhancing system capacity and effectiveness

Besides funding to boost the capacity for basic research and knowledge generation,

there need to be measures to help consolidate the gains by enhancing the capacity of

the system and improving its effectiveness. A number of areas are identified here

including the following:

efficiency in disseminating research results;

efficient exploitation of new knowledge and technology transfer;

leveraging the role of state-owned entities;

effective application of Intellectual Property Rights (IPR);

broadening participation in programmes and simplification of procedures;

efficiency of funding allocations and spending at public science institutions.


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This interrelated set of elements is important in ensuring that the system is ready to

absorb additional investment, and to effectively cultivate the results of research into

commercial outcomes and its utilisation in meeting national development requirements

and supporting South Africas competitiveness in the global enviro

strategy for increasing rd investment in sa consultation draft 28 june 2011

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