SA must emphasise innovation to attract global investment
SA seems stuck in a classic middleincome trap. Weak levels of economic growth, low productivity, rising unemployment and fiscal deficits will make it near impossible to graduate to high-income status.
The inertia will remain as long as the economy is skewed towards natural resources and basic manufacturing. These sectors generate little economic value and few high-quality jobs. Large numbers of low-skilled jobs face automation from the onset of robotics and artificial intelligence. They are deadend sectors for SA.
Economists generally agree that sustainable economic growth depends on diversifying away from these sectors to focus on highervalue services, manufacturing and research and development (R&D). In the US, 85% of the value of companies in the S&P 500 index comes from “intangible assets”: ideas, concepts, brands and innovative products and processes.
Forty years ago, manufacturing and agriculture dominated, but knowledge-intensive goods and services from biotech, chemicals, entertainment, pharmaceuticals and more now make up more than half of all US exports. Mexico and Malaysia are following suit. They are on the brink of highincome status by moving up the global manufacturing value chain and attracting foreign investment, technology and knowledge.
Further down this road are the advanced Asian economies of Japan, South Korea, Singapore and Taiwan after similar moves up the value chain. Knowledge-rich Singapore is now considerably richer per person than the US.
The World Bank recognises that boosting its knowledge economy is vital for SA. “SA’s productivity growth is diverging from global growth, and the country risks falling further behind its peers,” says Paul Noumba Um, World Bank country director. “This would be to the detriment of the poor for whom a growing economy is necessary for jobs and a sustainable system of social grants. In such an environment, SA can turn to encouraging private innovation as one of several ways in which to improve people’s lives.”
To succeed in this, SA must become a meaningful player in globalised innovation networks. Thriving knowledge-based industries rarely emerge purely from domestic resources. Scientific knowledge, technological know-how and the required R&D capital are dispersed globally. Gone are the days when one commercial giant, such as General Electric, created products in-house from start to finish. Today, multinationals collaborate with small companies, academia and the public sector throughout the R&D cycle, often across borders.
SA’s challenge is to compete in this new world of networked innovation. Multinational companies must move here, bringing the capital, skills and technological know-how that SA may be missing. Local innovators will benefit too.
What foreign investors and local innovators need most is certainty over their intellectual property (IP) rights, including clearly defined and readily enforceable patent rights. Weak protection will deter companies from investing or entering local partnerships.
As a World Trade Organisation member, SA has the basics in place. But it lags its peers in IP protection. Ranked 33 out of 45 countries in the US Chamber of Commerce 2017 international IP index, it trails Kenya, Peru and Ukraine.
The Global Innovation Index compiled by the World Intellectual Property Organisation places SA 57 out of 127 countries, suggesting the country has major innovation weaknesses.
Investors worry further about their future welcome in SA. The draft IP policy under consideration by the Cabinet aims to better co-ordinate SA’s fragmented IP laws. Its focus is not on creating new, economically valuable IP in SA but more on how to increase access to existing knowledge assets, particularly medicines.
IN THE US, 85% OF THE VALUE OF COMPANIES IN THE S&P 500 INDEX COMES FROM ‘INTANGIBLE ASSETS’: IDEAS, CONCEPTS, BRANDS
It proposes, for instance, making it more difficult for medicines to obtain patents in SA, but also easier to override them via “compulsory licences”.
The government may achieve some short-term political popularity, but such moves work against the country’s long-term economic interests. Few knowledge-based companies will want to invest.
Without a more hospitable environment for innovative companies, SA will stay marooned in its middleincome status.
Future generations will inherit an economy characterised by low-skilled, low-paying jobs.
Legislators should therefore view the draft IP policy as an opportunity to turn the ship around.
Stevens is director of the Geneva Network, a UK research organisation focusing on trade and innovation policy.