Set­ting SA on high-in­come tra­jec­tory

The Star Early Edition - - INSIDE - 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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