The Changing Face of Innovation in South Africa

Prof. Michael Kahn Research and Innovation Associates

and IERI, Tshwane University of Technology Innovation Festival 2010 Spier Estate, Lynedoch, Cape

8 March, 2010

The Big Picture

1989: The fall of the Wall: ICT revolution opens the world 1990s … innovation the key driver of economic growth 2008: The fall of Wall Street Linked crises : econo-technic and enviro-technic How to link innovation and development?

o UN Millennium Project (2005)o Paris Statement on Innovation for Development (2007)o OECD Innovation Strategy (2010)o Sussex Manifesto 2 (gestating)

The rise of the BRICs or BRICSA? Scramble for Africa II

Technological innovation is critical to long-term economic growth. Most technological innovation consists of incremental change in existing industries. …. Sustained growth can occur only with the continuous introduction of truly new goods and services—radical technological innovations that disrupt markets and create new industries. The capacity to turn science-based inventions into commercially viable innovations is critical to radical technological innovation.’

(Branscomb and Auerswald, 2002)

The quest ….

Source: KDI and K4D

The evidence?

Industries must be helped to manage scarce resources more efficiently and to reduce greenhouse gas emissions through appropriate pricing of energy …Green economy initiatives will create new opportunities for enterprise development, job creation and the renewal of commercial and residential environments. Innovation and enterprise development are rightly the key focus areas of the work of the economic and employment cluster, led by Ministers Nkwinti and Pandor ... the cluster will oversee the development of sectoral strategies and actions to raise output, employment, productivity and exports. Budget Speech Minister P Gordhan 17 February 2010

To budget is to plan …….

Pre 1948• Civil War I (1889-1902) and European War I & II;

agriculture mining vertical integration horizontal diversification industrialisation

• Minerals-Energy Complex1948 to 1994

• Civil War II• Military-industrial complex • Constructed Crisis I: APARTHEID

1994 - 2007• Constructed Crisis II: INCLUSION• Globalization; Commodities boom • Rise of Services

2007 –• Constructed Crisis III: SHOCK DOCTRINE

Our Picture

The deviation from modernity

SOCIAL INNOVATION

GONE

WRONG

• Open economy with convertible currency • Limited inward FDI• Legislation for Human Rights & Dignity• Rudiments of a Welfare State• Rising intra-group inequality• Inadequate and ageing infrastructure • Persistently high unemployment• High burden of infectious disease• High levels of contact crime• Dysfunctional schooling• Overburdened higher education• High level skills deficit • Ongoing intermediate and capital goods gap

It’s a long walk to freedom

•African middle class emerged under apartheid; technical and entrepreneurial class throttled • High levels of industrial concentration

• Conglomerates do what makes sense to them• Adjust to the realities of the labour and consumer market• Mineral exports underwrite import of intermediates in boom times; symptoms of Dutch Disease

• The power of organized labour• Hiring and firing; Wage levels

• A welfare state subscribing to fiscal discipline?• Industrial policy or interest group policy?

Paradoxes and contradictions

Where is our innovation space?

Constitutional democracy

State of siege

Interventionist/Closed economy Open economy

STRATEGIC MISSIONS

SOCIAL MISSIONS

TNCs under WTO rules

MODERNIZING FIRMS

Inclusion: new constructed crisis

Apartheid: the old constructed crisis

Globalisation

Autarky

The future ain’t what it used to be

• Innovation is the dissemination of a new good or service in an organization or market. New to the firm (or org), new to the market, new to the world. A new firm is an innovation.

• Innovation comprises many activities– Knowledge generation – Knowledge transfer – codified and tacit– Knowledge measurement– R&D important but not necessary … comprises creative work

undertaken on a systematic basis in order to increase the stock and use of knowledge; “Business” main performer

– High level skills are necessary to innovate and conduct R&D and speak to the ability to absorb and generate new knowledge

• Engineers and technicians• Designers and creative thinkers• Entrepreneurs, both economic and social

• Framework conditions must support innovation– Investment conditions– Contract and intellectual property law

Lack of internal funds16% of innovating size class 1 firms 28% of innovating size class 2/3/4 firms

Lack of external funds14.6% of innovating class 1 firms 18.9% of innovating class 2/3/4 firms

High cost of innovation16% of innovating class 1firms 23% of innovating class 2/3/4 firms

Firms identify the most important barriers to innovation as ...

Source: Blankley and Moses, 2009. Author

Own funds – principal source Backing ‘winners’ – PBMR (SASOL; ARMSCOR ....) Bank finance – to established companies Venture finance e.g. Venfin; Bioventures; HBD VC R&D tax incentive Close Corporation small business incentives IDC SBVCU FDI: mostly aquisitions –technology transfer (auto); little greenfield Grants: NRF Blue Sky; Studentships; SARChI; Mobility (DST-EU); publications) Innovation Fund/BRICS/TIAThumisamo DTI – THRIP, SPII, EIP, CIP, SSAS, BPO, CIS Core funding to Science Councils and research institutes – incremental budgeting

Financing innovation

Source: Annual Reports, 2007 (Author)

ARC 30

CSIR 52

HSRC 63

MRC 55

NRF 61

People matter most!

Source: DNE (1993),DST (2007), Author

Full-time equivalent Researchers, 1992 & 2006

% Black Professionals and Researchers, 2008

Given the scale of the total investment involved (in infrastructure projects), even quite a small constraint on its implementation is likely to have a large negative impact on the rate of innovation – perhaps creating a ‘chasm’ between engineering and implemented innovation that has much greater economic and social significance than the more frequently discussed ‘chasm’ between R&D and implemented innovation (OECD, 2008: 173)

From the OECD Review

Agents and linkages, local & global

UNIVERSITIES

9 SCIENCE

COUNCILS

BUSINESS

100s NGOs

55 GOVT. DEPTS INSTITUTES &

MUSEUMS

POLITICAL

LEGAL

ENVI

RO

NM

ENTA

L

CULTURAL

STANDARDS

ASSO

CIA

TON

S

LINKAGES

I.P. RIGHTS

S&T SERVICES

UTILITIES

INFORMAL

SECTOR

The national system of innovation (NSI) must be prepared to meet the requirements of innovation:

1. Intervention of the State through public policy; 2. Understand how enterprises design their

strategies of research and development (R&D);3. Impact of education on the formation of human

resources and training of technicians, researchers and other workers, and the social innovations related to such formation of human resources;

4. Role of industrial structureFreeman (1987)

Pilot the system of innovation?

Biotech Strategy, R&D Strategy, TYIP, TIA, IP Act ….

Emalahleni Water Recycling

http://www.angloamerican.co.za/aa/development/

Maponya Mall, Soweto

Denel

Right-hand (!) drive Hummer

Altech Netstar pioneered the stolen vehicle tracking and recovery industry in SA in 1994, and is the market leader in terms of size, product range, and an unsurpassed private recovery infrastructure … employs over 500 people … 10,000 Altech Netstar tracking systems installed per month … operations in Zambia, Namibia, Swaziland, Botswana and Malaysia.

Altech Netstar is able to recover vehicles in an average time of less than an hour. Accepted by insurers and motor manufacturers alike … locally designed and manufactured systems … include the Early Warning System with panic button, Vigil with full GPS/GPRS functionality, Cyber-Sleuth, the ever popular Sleuth, and Guardian.http://www.netstar.co.za/Content/About/background.aspx

See you at the World Cup

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Scientific production: SA top 25

Overall growth factor 1.5

1990-94 2004-08    Rank N Rank N Subject Area Change

1 4477 1 6283 ENVIRONMENTAL SCIENCES & ECOLOGY 1.42 4097 2 5360 BIOCHEMISTRY & MOLECULAR BIOLOGY 1.3

18 1530 3 4529 INFECTIOUS DISEASES 3.03 3548 4 4411 PLANT SCIENCES 1.25 2355 5 4250 PHARMACOLOGY & PHARMACY 1.86 2328 6 3953 ZOOLOGY 1.78 2185 7 3943 GENETICS & HEREDITY 1.8

12 1821 8 3874 AGRICULTURE 2.17 2244 9 3632 CHEMISTRY 1.6

15 1576 10 3569 MATHEMATICS 2.317 1538 11 3532 ENGINEERING 2.327 1257 12 3387 PSYCHOLOGY 2.714 1604 13 3372 IMMUNOLOGY 2.110 1953 14 3334 BEHAVIORAL SCIENCES 1.726 1260 15 2747 PEDIATRICS 2.241 860 16 2497 PUBLIC, ENVIRONMENTAL & OCCUPATIONAL HEALTH 2.932 1072 17 2417 BUSINESS & ECONOMICS 2.336 942 18 2405 MICROBIOLOGY 2.613 1715 19 2378 PHYSICS 1.428 1187 20 2270 COMPUTER SCIENCE 1.937 911 21 2161 HEALTH CARE SCIENCES & SERVICES 2.422 1434 22 2023 BIODIVERSITY & CONSERVATION 1.44 2723 23 2012 PHYSIOLOGY 0.7

20 1478 24 2005 REPRODUCTIVE BIOLOGY 1.416 1566 25 1853 LIFE SCIENCES & BIOMEDICINE - OTHER TOPICS 1.2

27

CPUT75

UCT1562

UWC240

US1030

MRC

ARC

CSIR

GrooteSchuur

Tyger-berg

8

24

5

1

21

108

43

83

41

34

300800

100

150

300400

48

29

10

13

7

FORLOC

… technologies in some industries are close to science, while in others there is little in the way of scientific foundations. In some connections with universities are important, while in others there is little interaction. Patents are important in some industries but not in others. To be effective policies aimed to help industries develop must understand and respect these differences.(Rosenberg, 2009)

Directions for policy?

(The linear) model implies that there should be a link between HERD and BERD (but) there is no credible evidence for this. On the contrary, as in the South African innovation survey, countless surveys of OECD firms show that their main sources of technology are internal knowledge and other firms. Public sector research in general, and higher education research in particular, accounts for a small share of their total knowledge inputs to innovation (OECD, 2008: 186)

<2006 reliable and very cheap electricity for industry. Massive environmental cost “The perfect storm” : ageing infrastructure, loss of skills , inadequate coal supply, ‘unexpected’ demand, and bad luck brownouts and blackouts. GEAR was a ‘third way,’ the electricity catastrophe is Naomi Klein’s ‘shock doctrine.’ Import-parity-pricing eliminates comparative advantage of commodities inc coal. Electricity costs set to double (triple) – mineral export pricing set externally; higher electricity input costs reduceds profit, not volumes? A spur to innovation driven by (unintended consequences of) structural adjustment. Private gain vs socialized risk

Energy Constructed Crisis

How many does it take to

change ?

Innovation is about meeting demand