COVID fuels R&D spike

The COVID-19 crisis is turbocharging innovation and fueling a spike in research and development both globally and on the continent,  as organisations race to find a cure for the virus, as well as seek solutions to rapidly changing customer behaviour and needs across all industries. 

Globally, a number of countries around the world including the UK, Singapore and New Zealand have announced significant investments in R&D and innovation-focused policies to keep economies going.

In Africa, Matshidiso Moeti, director of the WHO’s African Region, says there’s been a significant increase in R&D innovation and international collaboration on the continent as a result of the outbreak. 

“In this pandemic, the pace of R&D and international collaboration is unlike anything we have seen previously in Africa.”

Dov Paluch, Managing Director at Catalyst Solutions, echoes these sentiments, saying the next few years will be a boom period for R&D as organisations seek solutions to brand new problems and challenges. 

“Innovation will be vital to the continent’s economic recovery. While the COVID-19 pandemic has created one of the most challenging business landscapes in living memory, it has also forced businesses to think more innovatively.”

He says interestingly, African executives are starting to prioritize R&D more than their global peers. 

“A recent PWC survey of CFOs in Africa  found only 9% of CFOs on the continent were considering cancelling their R&D investments in comparison with 18% globally.”

R&D on the frontlines in the fight against COVID

Research from the 2008 financial crisis showed countries with more knowledge-intensive economies and more developed innovation systems suffered less. While countries that entered the crisis with  weaker innovation systems showed less macroeconomic resilience.  

As such, the United Nations Conference on Trade and Development recently highlighted the importance of protecting Science, Technology and Innovation funding during and after the COVID-19 crisis, particularly in emerging economies. 

“During and after the COVID-19 crisis, countries – particularly in the developing world where innovation systems remain fragile – should protect science, technology and innovation resources from austerity drives,” said Shamika N. Sirimanne, UNCTAD’s Director of Technology and Logistics.

Waking up to the tax benefits of R&D

Dov says with this anticipated boost in R&D, businesses need to be aware of the tax benefits available to them. 

“With so many businesses facing a dramatic drop in revenue, many will likely abandon R&D activities which might be viewed as too risky to commit to in a downturn. What many do not realise is that R&D could actually be pivotal in laying a framework for financial recovery.”

He says the Section 11D Research and Development Incentive  can be highly beneficial to those businesses pivoting their operations and introducing new products and services in a bid to ensure their ongoing viability. 

“Outside of government assistance available in response to the impact of COVID-19, tax incentives like the Section 11D incentive are another key lever to pull when looking to improve cash flow.

This is highly relevant for companies exploring ways to support solutions to medical issues, develop new products, and repurpose manufacturing capabilities. The incentive allows for a supercharged tax deduction of 150% on qualifying R&D expenditure, which results in a cash(tax saving) benefit of 14% on qualifying expenditure. This is hugely beneficial during these unprecedented times where cash flow is king.”

Dov says surprisingly, the incentive continues to be highly underutilised by qualifying businesses due to many organisations not even realising that their R&D activities actually qualify. 

“It is worthwhile for companies to evaluate whether they can benefit from this generous tax incentive, especially at a time when they will most likely need additional funds.”

Companies who don’t adapt will fall behind

A recent report by Accenture said companies that don’t reinvent their R&D function will find themselves unable to adapt to dramatic shifts in consumer preferences and demand for both existing and new products. 

“Those that do make substantive changes in what R&D does will be able to flex, adapt, and respond quickly to rapid and unforeseen changes in demand and supply. They’ll also be able to leverage the right infrastructure, technology, and resources to ramp up production as needed in concert with changing market conditions,” the report said. 

Dov agrees, saying the recovery of South Africa’s economy will be largely dependent on an adaptable and agile innovation ecosystem.

“Exploring new ways of doing business is no longer a nice to have for an organisation, but an essential. Those that focus on R&D will accelerate out of the recovery period with a far stronger market position, ” he concludes.  

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