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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
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Document Title Enhancing the National System of Innovation to support growth and development: A
strategy to increase R&D investment in South Africa
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Contributors Godfrey Mashamba, Nkuli Shinga, Tshidi Mamogobo, Dimakatso Mokone, Rose Msiza,Kgomotso Mapatleng, Imraan Patel, Andrew Matjeke, Fhumulani Maanda, Thandokazi
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DTI, DHET, EDD, NT, and other science mandated
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Revisions required by Cabinet will start a new document process.
APPROVALName Dr. Phil Mjwara
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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