SA needs to ride global wave of R&D investment

Countries across the world are placing greater emphasis on R&D, with the COVID-19 pandemic highlighting the need for increased investment in innovation.

The pandemic has seen governments around the world take action to support businesses of all sizes and protect their economies. R&D and innovation has been identified as a critical lever for growth and recovery.

Dov Paluch, Managing Director at Global Incentive Specialists Catalyst Solutions, says countries across the world are waking up to the importance of R&D incentives, and their critical role in driving  post-COVID-19 economic growth.

“A recent Harvard Business School publication said the one good thing caused by COVID-19 is that it has catalysed innovation. Governments worldwide are realising that R&D and innovation is key to economic prosperity in our ‘next normal’. This has spurred a global trend leading to countries including Germany, France, Holland, Ireland and Australia, bolstering their R&D incentives.”

The importance of R&D to the SA economy

In contrast, South Africa’s  Department of Science and Innovation (DSI) recently announced that its main R&D funding incentive, the New Innovation Fund, had been scaled back citing a strain on  government finances due to COVID-19.

Current R&D expenditure in South Africa is sitting at 0.83%. Government aims to up this figure to 1.1% by 2024 and 1.5% by 2024. At the same time, the South African government spent approximately R50 billion on supported applications between 2006 and 201.

Dov says increased investment in innovation is crucial if South Africa wants to remain competitive on a global stage.

“Like the rest of the world, R&D incentive changes are key to driving post COVID-19 economic growth in South Africa. A greater focus on innovation will also be central to ensuring South Africa attracts more foreign investment.”

SA’s innovation landscape

South Africa was recently ranked 60th in The Global Innovation Index, placing it as a leader in Sub-Saharan African innovation behind Mauritius.

According to the recently released national business innovation survey,  two-thirds (69,9%) of South African businesses are innovation-active across all sectors, particularly in engineering and technology, manufacturing and trade. According to the survey, innovative South African businesses engaged in four types of innovation: 48% carried out product innovation activities, 42% organisational innovation, 41,7% marketing innovation, and 34,6% process innovation.

The survey found major obstacles to innovation mainly included a lack of funds within the business or business group (31,5%) or from external sources (25,0%), the high cost of innovation (22,5%), lack of credit or private equity (24,8%), difficulty in accessing government grants (21,5%), uncertainty about demand for innovations (19,3), market competition (16,4%), and lack of customer demand (8,6%).

But Dov says, the country still has a long way to go in order to catch up to its global peers. For example, 80% of innovation funding in South Africa comes from within firms themselves. Whilst globally, less than half of all funding comes from external channels.

Driving an innovation-led economy in SA

There’s no question that COVID-19 has had a significant impact on the R&D landscape globally, providing both major challenges, but also accelerating positive change.

A recent McKinsey report stressed that prioritizing innovation today is the key to unlocking post-crisis growth.

Dov says the South African government needs to follow in the footsteps of its global peers and place far greater emphasis on building a R&D  infrastructure and culture that drives an innovation-led economy.

“Instead of decelerating their commitment to innovation, it has never been more important to support innovation-led growth to fuel business resilience and economic recovery. Failure to do so could have lasting consequences on South Africa’s long-term growth.”



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