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13 June 2024

Incentives for growing private sector R&D and innovation investment: Insights from industry leaders

Human Sciences Research Council (HSRC)

In March 2024, the HSRC, in collaboration with Business Unity South Africa and the Department of Science and Innovation, hosted a high-level forum to deepen private sector engagement with South Africa’s innovation policy goals, incentive instruments and data. The forum discussions, which were frank and collegial, highlighted some ground-level barriers to research, development and innovation spending, as well as current partnerships and initiatives. By Theodore Sass, Katharine McKenzie and Gerard Ralphs

Image generated by AI, Freepik

One of the key targets of South Africa’s National Development Plan is to grow investment in research and experimental development (R&D) to 1.5% of gross domestic product (GDP) by 2030. However, the latest national R&D Survey, covering the 2021/2022 financial year, shows that gross domestic expenditure on R&D as a percentage of GDP is 0.62%.

This represents a significant gap that needs to be addressed, but no single sector can accomplish this task alone. Analysts and policymakers generally concur that meeting the National Development Plan’s ambitious research intensity target will require far greater expenditure across the board. The government was the largest funder of R&D, said Dr Glenda Kruss,executive head of the HSRC Centre for Science, Technology and Innovation Indicators (CeSTII), which conducts longitudinal studies on R&D and innovation.

However, Kruss cautioned there were indications that this funding “might be coming to its ceiling” and that the imperative was “growing the business part of the pie in investing in R&D in order to be able grow the system as a whole”.

Kruss was speaking at a recent high-level forum hosted by Business Unity South Africa (BUSA) and the Department of Science and Innovation (DSI).

In the context of the global competition for innovation talent, resources and markets, it is vital that South Africa has its own strategies, argued Daan du Toit, the DSI’s acting director-general. Some large economies, such as India and the US, use tax incentives to stimulate business R&D and innovation. “The first priority is incentives to increase private sector investment by the Indian private sector, because right now in India R&D spending is about 70% coming from the Indian Government,” he explained. In the US, private sector investment has seen a significant boost following the introduction of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act in August 2022. This Act allocates $280 billion in subsidies through tax incentives for manufacturers of memory chips and semiconductors.

Barriers for business

James Mackay, CEO of the Energy Council of South Africa, argued business confidence was the primary obstacle to investment in the country. He attributed this lack of confidence to factors such as loadshedding, the energy crisis, the collapse in supply chains and transport and Transnet specifically, and “the hollowing out” of skills capacity and capability in key government institutions.

Mackay added, “Business is not in bad shape financially: they’re sitting on cash, but the confidence index is so low, the money is just not being deployed. But if we see a turnaround in the confidence and the ability to deploy money, there are reserves in the South African economy that can be moved quite quickly.”

The forum discussed ongoing efforts to incentivise and stimulate business R&D and innovation activity, but there was some reluctance among business representatives regarding these initiatives.

BUSA CEO, Cas Coovadia, pointed out that although there are good incentives available, the processes to access them are such that people eventually decide it’s not worth their while.

The Technology and Human Resources for Industry Programme (THRIP), which supports R&D and scientific talent in the national interest, was cited as an example. While acknowledging its past successes, both Professor Reza Daniels, Director of the Southern Africa Labour and Development Research Unit, and Dr Ronald Heath of Forestry South Africa proposed that the DSI and the Department of Trade, Industry and Competition revisit THRIP’s current implementation model.

Heath remarked, “It was an amazing model, our industry benefitted tremendously from it. Then they changed the model completely and when it changed, we were quite excited initially, working with industry. But that whole initiative has now been implemented in such a way that nobody can actually work with it. It’s not a feasible programme anymore.”

Ketso Gordhan, CEO of the SA SME Fund, alongside panellists (from right to left) Phethiwe Matutu (Universities South Africa), Shameela Soobramoney (National Business Initiative), Imraan Patel (Department of Science and Innovation), Dr Crispian Olver (Presidential Climate Commission), and Prof. Erika Kraemer-Mbula (University of Johannesburg). Photo: Antonio Erasmus, HSRC

Green shoots

Forum speakers also looked to current areas of competence as a basis on which to build new strategies.

Dr Crispian Olver, executive director of the Presidential Climate Commission, noted South Africa’s strong climate capacity in the atmospheric sciences as an asset to build on.

“We do need to be broadening the base in terms of our R&D activities, particularly in the universities,” Olver said. “We want to see a much wider spectrum of universities playing a significant role in this [energy] transition, but our big problem is converting the R&D into innovation and commercially viable initiatives.”

Olver pointed to the potential of net-zero technology centres as sites of collaboration between government, business and universities in the transition to achieving net-zero carbon emissions. “The core to these successful net-zero technology centres, is [to bring] the academic community into dialogue with the business community [and] government regulators,” Olver added.

Ketso Gordhan, CEO of the SA SME Fund, emphasised the Fund’s work on small-business investments within the township economy. He also expressed concern about the limited outcomes from university-owned intellectual property and noted that the Fund is working in this space. “The thing that we are the proudest of is something called the university-technology fund,” Gordhan said. “We commercialise IP coming out of universities. They believe that what we are doing as a private sector organisation to leverage public IP is beginning to work.”

Reflecting on current work in progress, CEO of the National Business Initiative, Shameela Soobramoney, introduced a collaboration between the dtic, Cape Town municipality, the private sector and local contractors in the Western Cape’s Atlantis special economic zone. “We can definitely scale private sector RDI through sectoral agreements between business and government,” she said. “One of our models is installation, repair, maintenance, where we are looking at technical skills and busy working and localising the renewable energy value chain.” Soobramoney highlighted the need for new skill sets to support the just energy transition and suggested that these should align with an overarching strategy. Skills that empower individuals to engage with net-zero technologies are essential to remain globally competitive as trading partners factor carbon emissions into the market as potential barriers, she explained.

Dr Phethiwe Matutu, CEO of Universities SA, which represents South Africa’s 26 public universities, indicated there were numerous international collaborations among universities with a focus on work-integrated learning and existing links between industry and universities. “We understand that the human capacity is at universities,” Matutu said. But Matutu also emphasised growing the R&D infrastructure ‘commons’. “It is important that the industry invests in infrastructure and that it gets shared among universities. Without that investment by industry, we rely on government, and we are aware of the shrinking resources of government.”

Fit to purpose

Through its White Paper and Decadal Plan, the DSI has adopted a national system of innovation approach to managing and governing innovation policy. This approach requires coordinated efforts from all actors in the system, and strategic guidance to align the system direction with policy goals.

“We need to be working in a much more integrated and intentional way, and we need a mix of policy instruments of incentives, and we need these in all spheres of the national system of innovation,” Kruss argued.

Du Toit shared this sentiment: “We live in a world which comes together through science because ultimately we are on this planet together, and despite competition we need to work together.”

But the national system of innovation also needs tailored approaches to meet the needs of different role-players. “To build the innovation system, it’s not going to be one-size-fits-all,” said Imraan Patel, DSI’s deputy director-general responsible for research, development and support. “What’s going to be good for the mining sector is going to be very different from the forestry sector.”


Theodore Sass (senior researcher) and Gerard Ralphs (policy analyst) in the HSRC Centre for Science, Technology and Innovation Indicators, and Katharine McKenzie (writer)

Human Sciences Research Council (HSRC)

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