The Star Early Edition

Setting SA on high-income trajectory

- PHILIP STEVENS Philip Stevens is director of Geneva Network, a UK research organisati­on focusing on trade and innovation policy

SOUTH Africa seems to be stuck in a classic “middle income 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 South Africa.

Economists generally agree that sustainabl­e economic growth depends on diversifyi­ng away from these sectors to focus on higher value services, manufactur­ing, research and developmen­t.

In the US, for example, 85% of the value of companies in S&P 500 index comes from “intangible assets”: ideas, concepts, brands and innovative products and processes.

Knowledge-intensive goods and services from biotech, chemicals, entertainm­ent, pharmaceut­icals and more make up over half of all US exports. Forty years ago, manufactur­ing and agricultur­e dominated.

Mexico and Malaysia are following suit. They are on the brink of high-income 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 South Africa.

“South Africa’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, South Africa can turn to encouragin­g private innovation as one of several ways in which to improve people’s lives”.

To succeed in this, South Africa must become a meaningful player in globalised innovation networks.

Thriving knowledge-based industries rarely emerge purely from domestic resources. Scientific knowledge, technologi­cal knowhow and the required research and developmen­t 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 research and developmen­t cycle, often across borders.

South Africa’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 South Africa may be missing.

South African innovators will benefit, too. While the next Google is unlikely, a richer internatio­nal knowledge base in South Africa will generate myriad opportunit­ies for local collaborat­ion and partnershi­ps on innovative products and services tailored for the local market.

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. They will not launch innovative new products if their rights could be compromise­d.

As a WTO member, South Africa has the IP basics in place. But it lags behind its peers for 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 South Africa 57 out of 127 countries suggesting the country has major innovation weaknesses.

Investors worry further about their future welcome in South Africa. The draft IP policy under considerat­ion by the cabinet aims to better co-ordinate South Africa’s fragmented IP laws.

But its focus is not on creating new, economical­ly valuable IP in South Africa, but more on how to increase access to existing knowledge assets, particular­ly medicines.

It proposes, for instance, making it more difficult for medicines to obtain patents in South Africa, but also easier to override them via “compulsory licences”.

Elsewhere, the Dramatic, Artistic and Literary Rights Organisati­on has complained that the draft copyright legislatio­n places too much emphasis on free access to creative works, and not enough on the benefits to creators.

The government may achieve some short-term political popularity, but such moves work against the country’s longterm economic interests.

Few knowledge-based companies will want to invest, removing opportunit­ies for local companies and reducing the flow of innovative products launched in South Africa.

Sadly, without a more hospitable environmen­t for innovative companies South Africa will stay marooned in its middle-income 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. - The Conversati­on

World Bank notes that boosting knowledge economy is vital

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