South Africa ranks 47 in the world in terms of innovation, according to the latest Bloomberg Innovation Index. South Korea took first place, followed by Singapore, Switzerland and Germany.
Research, development and innovation is globally recognised as a key economic differentiator, enhancing skills, jobs and economic growth.
While slowly improving year on year (South Africa ranked 51 in 2019 and 50 in 2020), and the only African country to be featured in the top 60, a lot more needs to be done to compete with bigger economies.
The innovation index measures countries based on seven criteria: Research and development intensity, productivity, patent activity, concentration of researchers and tertiary efficiency, hi-tech density, and value-added manufacturing.
The index found that South Africa has a relatively high rate of patent activity (Annual patent filings, patent grants and patent in-force per population), ranking 28th in the world. It also performed ahead of the likes of Spain, the UAE, Argentina, and India for high-tech density (the number of domestically domiciled technology oriented public companies), ranking 34th.
South Africa significantly lags in terms of researcher concentration (Professionals including post graduate PHD students involved in R&D per population and tertiary efficiency), ranking 57. It also almost came last in its tertiary efficiency (Total enrolment in tertiary education), ranking 58.
Greater awareness needed
Dov Paluch, Managing Director at Catalyst Solutions, says improving South Africa’s innovation ranking boils down to more clarity on R&D incentives. There are only about 8 approved R&D applications a month in the entire country according to the DSI.
“At the heart of these issues is a lack of understanding on what constitutes innovation. The definition of innovation is not confined to laboratories, ground-breaking inventions, and miracle cures. Better awareness and understanding of R&D incentives, not only tax incentives but more direct cash incentives, is therefore needed to encourage further R&D activity.”
He says government can do a lot more to incentivise the loss-making SME market to do more R&D.
“ In many other countries like Australia and the UK, loss making companies can ‘surrender’ their tax deduction for a cash payment. This could go a long way to stimulating smaller companies to do more R&D in South Africa.”
Innovation vital to SA’s economic recovery
Dov says the COVID-19 pandemic has further stressed the vital role innovation and research and development plays in creating a resilient and productive economy .
“In the rapidly changing business environment caused by COVID-19, companies across South Africa are asking themselves what they need to do to gain an advantage in the marketplace in order to compete and win new business. With this in mind, companies are seeking to innovate now more than ever.”
He says raising awareness on the R&D tax incentives available to business in the current environment has never been more important.
“R&D tax relief can be a highly valuable missed opportunity for businesses who often undertake an innovative scientific or technological project advancing their business, without realising the activity could actually qualify for relief. Government and stakeholders therefore need to urgently step up their focus on raising awareness of the R&D tax credit with a particular focus on the aspects which seem to be confusing or poorly understood. In doing so, they could help set South Africa on a critical and much-needed path to economic recovery.”
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