Why you as a South African Business Owner need to invest in R&D

Research and development will play an instrumental role in helping South Africa recover from the impact of the COVID-19 pandemic.

Brandon Katz, Head of Business Development at Catalyst Solutions, says investment in R&D will be vital in helping to fast-track economic recovery. 

R&D constitutes the essential basis for innovations and consequently, the development of new products, services and technology. This indirectly promotes continued economic growth, which is why R&D will play a central role in helping the economy not only adapt to rapidly changing circumstances, but innovate out of the pandemic-induced recession.”

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

But, Brandon says this is not enough, especially given the potential for R&D innovation to boost productivity, jobs and growth potential. 

“At a time when South Africa needs to turbocharge its innovation, it is falling behind its global peers. Therefore, as solutions are sought across industries in a bid to recover from the shocks of the COVID-19 pandemic, it is imperative that R&D initiatives are accelerated not just in South Africa, but across the continent.”

Stepping up the continent’s R&D

Prioritising innovation is the key to unlocking post-crisis growth across the continent. There are already several innovations that have emerged from the crisis. From an immune-based diagnostic test for COVID-19 available for only $1, to a  multifunctional medical robot to lessen the load on health care workers, the pandemic is pushing the boundaries of the African innovation landscape.

A recent report by the World Economic Forum (WEF)  underscored the importance of the continent investing in home-grown science

Similarly,  Dr Matshidiso Moeti, the WHO Regional Director for Africa recently said: “Innovation propels human advancement. In times like these when we are confronted with a major public health emergency such as the COVID-19 pandemic, we know that our hope for a better tomorrow lies in finding creative, ground-breaking or avant-garde solutions.” 

But, R&D across the continent has historically suffered from chronic underinvestment and poor implementation. 

While the continent is home to 15% of the world’s population, it produces just 2% of the world’s research output. Additionally, only 1.3 percent of the money spent globally on R&D is spent in Africa. Moreover, there are only 198 researchers per million on the continent, compared to 4,500 per million in the UK and the US. 

And while African leaders have publicly recognized the vital importance of investing in research and development, progress towards these targets has been slow, according to the 2019 African Innovation Outlook.

When considering R&D expenditure, the overall target has historically been to achieve 1.5% of gross domestic product (GDP) – the international benchmark in the field. In 2016, R&D expenditure only reached 0.8% of GDP in South Africa.

Tax incentives key in encouraging R&D

Tax rebates can be a key lever in encouraging the private sector to invest in science, according to the WEF. 

“This reduces countries’ reliance on international funding for research and development, especially now when inward-looking policies in donor countries and cuts in foreign aid threaten to reduce funding for Africa.”

Brandon echoes these sentiments, saying incentives like the Section 11D Research and Development Incentive offer businesses the ideal opportunity to invest in scientific and technological research and development activities, while at the same time receive significant cost-saving benefits.

“The Section 11D tax incentive is ideally positioned to fuel much-need R&D and innovation in various sectors across the South African economy. This will have a domino effect, contributing towards job creation, robust growth and economic stimulation.” 

The objective of the Section 11D incentive is to help companies build capabilities to create new products, processes, devices and techniques, and/or significantly improve existing ones.  It 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. On a simple level,  for every R100k you spend, you will save R14k in tax.

Looking forward

It’s clear that looking forward, R&D and innovation will be integral in creating more economic and social opportunities across South Africa and the rest of Africa.

“A focus on R&D will improve the nation’s competitiveness in relation to the global environment.  And with global growth expected to remain sluggish until at least 2021,  R&D will be a critical lever to help ensure a sustainable and inclusive recovery. 

COVID-19  has acted as a spur for innovation for many businesses,  prompting them to rethink their business models and come up with solutions to new problems. 

“Those organisations that focus on R&D are expected to emerge into the ‘next normal’ far stronger than their peers.In fact, the WEF found to ignore investment in R&D is to ignore investment in Africa’s future,” he concludes. 



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