TOWARDS A KNOWLEDGE-BASED

ECONOMY: CHALLENGES AND

OPPORTUNITIES FOR NIGERIA

OLUWADARE Adekemi Jessica National Centre for Technology Management,

Obafemi Awolowo University, Ile-Ife, Nigeria.

Presented at Covenant University International Conference on African

Development Issues (CU-ICADI), Ota, Nigeria.

May 11th – 13th 2015.

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Knowledge is our most powerful engine of production. Alfred Marshall, 1890 Knowledge has always been an essential force in economic development. ...in today’s increasingly knowledge-based world, more and more countries are embracing knowledge and innovation-related policies to spur growth and competitiveness. F. A. Léautier, 2007

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What is the Knowledge Economy? “Economies which are directly based on the production, distribution and use of

knowledge and information” (OECD, 1996)

“One where organizations and people acquire, create, disseminate and use

knowledge more effectively for greater economic and social development” (World

Bank Institute, 2004)

• The term “knowledge-based economy” (KBE) is the result of an emphasis on

building economies around knowledge and technology.

• Studies on the KBE became prominent in the 1990s, with the observed increase in

the contribution of knowledge-intensive industries, to GDP and employment

(OECD, 1996).

• Economic activities based on new knowledge stimulate economic growth, provide

higher wages and greater employment opportunities, as well as enhance a

country‟s competitiveness within the global environment (Blankley and Booyens,

2010).

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Indicators of the KBE

Full recognition of the role of knowledge and technology in economic growth.

Increased contribution of knowledge-intensive sectors and the service sector to GDP.

Investments are directed towards high-technology goods and services (particularly information and communications technologies), R&D and human capital development (education and training).

Highly-skilled labour is in highest demand.

Strong University-Industry collaborations (Efficient NIS)

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The Problem?

• Global pattern of economic growth:

• Knowledge exploitation and the use of technology

• Africa’s pattern of economic growth:

• Exploitation of natural resources, leading to low level of competitiveness [more than half of the 20 lowest ranked countries in the 2014 Global

Competitiveness Index (GCI), and 15 nations ranked among the least 20 nations

based on the 2012 Knowledge Economy ranking]

• Nigeria:

• Still driven by factor endowments, primarily crude oil and unskilled labour.

• Global Competitiveness ranking is 127th out of 144 economies in 2014

(WEF) and Knowledge Economy ranking is 119th position out of 145

economies in 2012 (World Bank).

• Yet to make significant progress in terms of the knowledge economy

(Radwan and Pellegrini, 2010).

• What are the immediate challenges and opportunities faced in transiting

towards a knowledge-based economy?

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Study Approach

• Descriptive analysis and evaluation of the four pillars of the

knowledge economy as identified by the World Bank.

• Economic Incentives and Institutional Regime

• System of Innovation

• Education and Training

• ICT

• These pillars help to identify the challenges and opportunities that a

country or region faces in transiting to a knowledge economy, and where it

may need to focus policy attention or future investments.

• Some selected countries for comparison

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System of Innovation

Economic Incentives and

Institutional Regime (EIR)

Education and Training

ICT Infrastructure

Knowledge Economy

• Telephone subscriber base

• Access to Computers • Internet Users

• Access to Basic Education

• Average years of schooling

• Tertiary Enrolment

• Patent Count • Journal Articles • University/Industry

Relations

Adapted from World Bank 2012

• Tariff and Nontariff

Barriers • Ease of doing

business • Rule of Law

Pillars of the Knowledge Economy

• Economic and Institutional Regime (EIR)

This comprises incentives that stimulate and promote enterprise

development via knowledge creation, dissemination and use.

• An educated and skilled population

A highly-skilled and flexible human capital is essential to compete

effectively in today‟s world and is a key building block of a knowledge-

based economy

• A dynamic information infrastructure

Access to ICT infrastructure facilitates the effective communication,

dissemination, and processing of information. Many features of the KBE

are actually based on the increasing use of ICT.

• An effective innovation system

This allows for close relations among knowledge institutions (research

centres, universities) and firms with which they can tap into the growing

stock of global knowledge, adapt it to local needs, and create new

technological solutions.

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SOME COUNTRY CASES • SWEDEN

• SINGAPORE

• SOUTH AFRICA

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SWEDEN • Most advanced knowledge economy (KEI of 9.43) and the

10th most competitive economy in the world.

• Strong, transparent and efficient institutions

• Excellent infrastructure, and healthy macroeconomic conditions

• Right set of conditions for innovation, high royalty payments and receipts, science and engineering journal articles, and patents.

• Companies compete by producing new and different goods using the most sophisticated production processes and by innovating new ones. ICT adoption is among the highest in the world

• Like other Nordic countries, Sweden is doing very well with regard to its economic and institutional regime, having recorded success in the implementation of policy reforms.

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SINGAPORE

• 2nd most competitive country in the world, consistently occupying the

position of the highest-ranked country from Asia in the past decade

• Knowledge Economy Index of 8.26 places the country in the 23rd

position in the world.

• Good governance, strong commitment towards development and

good institutional frameworks. Economic Incentives and Institutional

Regime (EIR) is 1st in the world.

• The Singaporean workforce is highly educated, highly motivated,

highly skilled and highly productive.

• Successfully grown R&D base, drawn top scientific and creative talent

and nurtured R&D collaborations between the public sector and

private enterprise. Innovation Index is ranked 4th.

• The ICT infrastructure in the country is comprehensively developed

and Singapore now produces a diversity of goods, ranging from

electronic goods to transportation equipment and machinery, all of

which are knowledge-intensive.

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SOUTH AFRICA

• KEI (5.21) is placed in the 67th position

• Efficiency-driven, high quality institutions, intellectual property protection, efficiency of legal framework, accountability of private institutions, and strong financial market development.

• The innovation system features good scientific research institutions and strong collaboration between universities and the business sector in innovation

• Building a Knowledge-based Economy is important to the South African government. An important component of the South African drive towards a knowledge economy is the Ten-Year (2008-2018) Innovation Plan which is proposed “to help lead economic growth by the production and dissemination of knowledge for the enrichment of all fields of human endeavour”

• Knowledge economy vision: To create a society that uses its knowledge systems and human capital to solve problems, while exploiting economic opportunity in a sustainable way.

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Country Knowledge

Economy Rank

(of 145)

Knowledge

Economy

Index (of 10)

Global

Competitiveness

Rank (of 144)

Global

Competitive

ness Index

(of 7.0)

Singapore 23 8.26 2 5.65

South Korea 29 7.97 26 4.96

Malaysia 48 6.1 20 5.16

South Africa 67 5.21 56 4.35

Nigeria 119 2.2 127 3.44

World Bank (2012) WEF (2014)

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Innovation

Index 2014

(/100)

Human Development 2013 Networked

Readiness 2014

Ease of

Doing

Business

Rank 2014

(of 189) Index Ranking

(of 187)

Expected

years of

schooling

Life

Expectancy

at birth

Index

(of 7.0)

Rank

(of 148)

27.8 *0.504 152 9.0 52.5 3.31 112 170

NIGERIA Sources: World Bank, UNDP

*Low Human Development

Networked Readiness measures the performance of economies in leveraging information and communications

technologies to boost competitiveness and well-being.

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EIR in Nigeria

• The economic incentives and regulations required for a

dynamically functioning business environment in Nigeria are quite

inadequate.

• Low regulatory quality of the business climate.

• High tariffs

• Non-transparent valuation procedures

• Frequent policy changes

• High costs of doing business

• Inadequate electricity supply

• Difficulty in accessing, and high cost of credit

• Poor transportation system

• Poor legal provisions to ensure transparency and accountability in

the business environment

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Regulations affecting Businesses (SMEs) in Nigeria 2014 2013

Starting a business 129 122

Dealing with construction permits 171 151

Getting electricity 187 185

Registering property 185 185

Getting credit 52 13

Protecting Investors 62 68

Paying Taxes 179 170

Trading across borders 159 158

Enforcing Contracts 140 136

Resolving Insolvency 131 107

World Bank Doing Business 2014. Rank (of 189 economies)

Education and Training in Nigeria

• Large number of out-of-school children and young adults with limited literacy skills. [Efforts on the implementation of the UBE

programme still needs to be enhanced].

• Brain drain

• Academic staff shortages in tertiary education [esp. S&T]

• Low capacity of universities to accommodate the burgeoning student

• High emphasis on paper qualification

• Priority of theory over practice [inadequate for equipping learners with the skills needed for active participation in the global knowledge economy (Oseghale and Adeyomoye, 2011)]

• Deteriorating quality and insufficient investment. • (From 2000 to 2006, the number of Nigerian students abroad became more than doubled,

from 10,000 to 22,000. In the US, Nigeria was the 17th and 19th largest source of international undergraduates and graduate students, respectively in 2009/2010, and the largest source of students from SSA - Education Fact Sheet, 2012).

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System of Innovation in Nigeria • Companies in Nigeria are yet to compete by producing new and different

goods using the most sophisticated production processes and by innovating

new ones (WEF, 2014).

• Weak firm-level capacity to absorb technology

• Lack of institutional capacity to address IPR issues

• Knowledge-generation capacity of universities is weakened by

insufficient funding, institutional rigidity and bureaucracies, brain drain, a

„publish-or-perish‟ approach to research, and frequent industrial actions

by academic and non-academic staff (Bamiro, 2012)

• Weak University-Industry collaborations (Oyewale, 2005; Adeoti et al., 2008;

Oyelaran-Oyeyinka and Adebowale, 2012). Universities function, for the most part,

independent of industry; and industry depends on foreign sources of

knowledge to sustain production and possibly meet competitive challenges

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Nigeria Innovation Indices Value* Rank (/144)

Capacity for innovation 3.7 73

Quality of scientific research institutions 2.8 120

Company spending on R&D 2.8 106

University-industry collaboration in R&D 2.8 123

Gov’t procurement of advanced tech products 3.0 109

Availability of scientists and engineers 3.8 89

PCT patents, applications/million pop 0.0 117

World Economic Forum, 2014. *values are on a scale of 1 (lowest) to 7 (highest)

ICT in Nigeria • Vibrant, dynamic and rapidly expanding telecom industry

• Nigeria is currently ranked as the leading telecommunications country in Africa ahead of South Africa in terms of subscriber base (Pyramid Research, 2014).

• 139 million active telephone connections as at December 2014 (NCC, 2015) (400,000 pre-liberalization)

• 99.32 teledensity (0.4 pre-liberalization)

• Increase in adoption of 3G technologies (15.9% of the mobile subscription base in 2014)

• Increase in online shopping

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ICT in Nigeria

Growth in ICT in Nigeria has translated into:

• Significant increase in access to basic telephony services

• Reduction in acquisition costs of telephone lines

• Innovation and technological development as a result of competition

• Reduction in call charges

• Growth in Teledensity

• Employment Generation

• Skills acquisition and technology transfer

• Inflow of foreign capital

However,

• High cost of owning personal computers

• Use of computer, access to internet and other tools of ICT are limited

greatly to the urban areas and there is low penetration in the rural areas.

• Internet market is still plagued by poor network quality and sluggish

rollout. Mobile internet access is increasingly becoming the service of

choice for most business and residential customers, but prices are still

high.

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In transiting to a knowledge-based economy, Nigeria appears to

have a long distance to cover:

• Absence of a national drive towards the knowledge economy

• No distinct policies and programmes towards building a knowledge

economy

• Dependence on crude-oil makes the country is highly sensitive to world

economic cycles, commodity price trends and exchange rate

fluctuations.

• Poor infrastructural development

• Government involvement in key areas of the economy not restricted to

policy making and regulatory activities

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Key KBE Strategies for Nigeria Business Environment

• Diversification of the economy

• MSMEs sector contributes significantly to GDP and should be well developed via the creation of a conducive environment

• Ensuring continuity in economic and industrial policies and making the business environment secure enough to increase private sector participation and attract foreign direct investments

Innovation

• Building capabilities for technological adoption

• Exploiting reverse engineering techniques

• Fostering a culture of respect for Intellectual Property Rights

• Committed implementation of the National STI policy

• Designing public research and development activities to be directly responsive to market needs

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Key KBE Strategies for Nigeria

Education and Training

• Optimizing the strength of and training the youth population and

their entrepreneurial spirit

• Active engagement of the private sector to provide education at

all levels

• Attracting Nigerian professionals in diaspora (returning post-

graduates and post-doctorates from overseas universities)

ICT Pillar:

• ICT spread to rural communities

• Exploiting mobile telephony services (lessons from Kenya‟s M-Pesa)

• The wide acceptance and use of information technology in the

country could be employed to strengthen the performance of the

other pillars

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Concluding Remarks

• Closing the knowledge gap between developed and

developing countries appears a difficult task. Developing

countries are actually pursuing a moving target, because the

developed world is constantly pushing forward the knowledge

frontiers.

• Efforts should be directed towards acquiring existing

knowledge and technology and building capacity to

effectively adapt it to local situations.

• To become successful knowledge economies, African nations

need to rethink and act simultaneously on their education

base, innovation system, ICT infrastructure, economic and

institutional regime.

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THANK YOU

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