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NSTF/NACI Study on Growth & Innovation
in the South African Economy
DACST/NSTF Review of the National
System of Innovation - key findings
Key Findings and Recommendations
Overview of
the NSTF
Growth and Innovation in South Africa.
The relationship between economic growth,
employment, human development and
science and technology
Scope of the Study
 Examine the impact of science & technology on
economic development in a variety of countries
– Examination of international evidence
– Examination of South African evidence
 Identification of key science and technology
drivers for the South African economy
 Identification of policy options for South Africa
Undertaken by:Prof JW Fedderke
Econometric Research
Southern Africa (ERSA)
Wits University
Reviewed by:M Molewa
Ikemeleng Molewa
Consolidated
Investments (Pty) Ltd
Why does South Africa need growth?
 Growth, Employment and Redistribution (GEAR)
Macroeconomic strategy mandates growth for
development
 Competitive, fast growing economy which creates jobs
 Redistribution of income and opportunities
 Sound health, education and other services for all
 Secure homes and places of work
Why does South Africa need growth?
 Growth, Employment and Redistribution (GEAR)
Macroeconomic strategy mandates growth for
development
 Competitive, fast growing economy which creates jobs
 Redistribution of income and opportunities
 Sound health, education and other services for all
 Secure homes and places of work
 African Renaissance
THE AFRICAN RENAISSANCE
 Rediscovery and new understanding of our pre-colonial,
colonial and postcolonial heritage and an appreciation
of the value of age-old indigenous knowledge
 The exercising of the right to define what it means to be
African, and to find unique African solutions for African
problems, whilst developing a pride of all things African
For Africa to realise this potential
and take our rightful role in the
world economy, we must grow
our economies and develop our
societies
Why does South Africa need growth?
 Growth, Employment and Redistribution (GEAR)
Macroeconomic strategy mandates growth for
development
 Competitive, fast growing economy which creates jobs
 Redistribution of income and opportunities
 Sound health, education and other services for all
 Secure homes and places of work
 African Renaissance
 There exists a long term structural decline in South
Africa’s growth performance
SA Growth History
Why does South Africa need growth?
 Growth, Employment and Redistribution (GEAR)
Macroeconomic strategy mandates growth for
development
 Competitive, fast growing economy which creates jobs
 Redistribution of income and opportunities
 Sound health, education and other services for all
 Secure homes and places of work
 African Renaissance
 There exists a long term structural decline in South
Africa’s growth performance
 There exists a long term structural decline in South
Africa’s employment creating potential
Employment
Total Formal Sector Employment
8500000
8000000
7500000
7000000
6500000
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
Year
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
6000000
Why does South Africa need growth?
 Growth, Employment and Redistribution (GEAR)
Macroeconomic strategy mandates growth for
development
 Competitive, fast growing economy which creates jobs
 Redistribution of income and opportunities
 Sound health, education and other services for all
 Secure homes and places of work
 African Renaissance
 There exists a long term structural decline in South
Africa’s growth performance
 There exists a long term structural decline in South
Africa’s employment creating potential
 We have insufficient capacity to improve quality of
life in South Africa
Quality of Life
Child Mortality below 5, per 1000 population: South Africa and related
countries
1980
1997
South Africa
Morocco
Turkey
Peru
Indonesia
El Salvador
Honduras
Ecuador
Philippines
Mexico
Dominican Republic
Paraguay
Colombia
Thailand
Sri Lanka
Malaysia
Uruguay
Venezuela
Jamaica
Argentina
Panama
Romania
Chile
91
152
133
126
125
120
103
101
81
74
92
61
58
58
48
42
42
42
39
38
36
36
35
Source: World Development Report 2000
65
67
50
52
60
39
48
39
41
38
47
28
30
38
19
14
20
25
14
24
26
26
13
RSA
The Intimate Link between Real per Capita GDP & Quality of Life
The Intimate Link between Real per Capita GDP & Quality of Life
RSA
Growth in Real GDP is a precondition of improved quality of life
South Africa needs to grow : how do
we achieve this?
 Globally, economic growth is
essentially due to three distinct
sources: – Growth in physical capital inputs into
production - investment, whether local
or foreign.
– Growth in labour inputs to production more workers producing more.
– Improvements in technology - improved
efficiency and new products into new
markets - innovation
Has Technology Played a Role in the
Economic Development of OECD Nations?
Growth in
Real Per
Capita GDP
Japan
6.45
Italy
5.36
Germany
5.15
France
4.80
Netherlands
3.65
Norway
3.27
Belgium
2.64
Denmark
2.56
United States
2.15
United Kingdom
1.63
Source: Fagerberg (1994)
Labour
Contribution by:
Capital
Technology
0.77
0.54
-0.12
0.37
0.09
0.02
0.36
-0.11
0.22
0.10
1.17
0.57
0.93
0.76
0.78
0.85
0.28
0.77
0.60
0.37
4.57
4.29
4.43
3.67
2.79
2.41
2.02
1.94
1.36
1.18
Relative contributions - developed
countries versus developing countries
100%
80%
60%
Technology
Labour
40%
Capital
20%
USA
UK
Japan
Germany
France
S Asia
S America
E Asia
-20%
Africa
0%
The South African Situation
100%
80%
60%
Technology
Labour
40%
Capital
20%
0%
1990's
1980's
-40%
1970's
-20%
Some conclusions on growth
 Technological innovation is key to
the achievement of economic
growth - in South Africa and globally
 In line with global developmental
paths, South Africa has had an
increasing proportion of growth
explained by technological progress
 South Africa is moving from an
extraordinary to a standard pattern
of development
The question is, “how does one
leverage innovation so as to
achieve this growth?”
The Relationship Between Innovation
and Economic Growth
 Direct influence through new business
 Knowledge spill-overs - technology
transfer
 Intentional R & D investment
 Creation of an enabling environment
 Development of the right sort of
human capital
Three Key Ingredients for leveraging
Science, Engineering and Technology
to Achieve Economic Growth
1. R&D Investment
Evidence that R&D contributes to
economic growth
 Internationally well established that technology’s




contribution to economic growth is strongly reliant
on the extent and scope of national R&D
programmes
Internationally there is a direct and positive
correlation between R&D and output growth
Spill over effects can be even more than the growth
benefits (social returns exceed private rates of
return)
The USA case study
Mirrored in SA
– Eskom results average 5:1 returns
– Agricultural research results >1.2:1 returns
Case Study Why the USA succeeded
 Technological innovation through massive R&D investment
 Natural resource base, and the scale of its markets
 Encouraging immigration from technologically more advanced




countries
Implementing a system of training institutions with a wide
diversity of focus areas early on in its process of
industrialisation
The development of a national technology ethic & national
leadership in science-based fields
Technology is advanced through community, rather than
individual isolated effort.
Developed the necessary R&D infrastructure:– absorption of a vast stock of technology into existing production
facilities able to take advantage of economies of scale
– by the end of the 19th century the USA had a nation-wide university
system,
– US industry has set up independent research centres
0
Germany
USA
UK
South
Africa
India
Singapore
Malaysia
Taiwan
Hong
Kong
Gross Expenditure on R&D/GDP
3
2.5
2
1.5
1
0.5
SA’s Research & Technology
Competitiveness
Factor of Research & Technology out of 46
countries
1994
27
29
31
33
35
37
39
1995
1996
1997
1998
2. Investment in
Human Capital
Average Growth Rate in Real Per Capita GDP
vs Primary School Enrolment Rate
Output vs Mathematics, Engineering and
Science degrees - SA Data
Proportion of SA degrees in
Mathematics and Natural Sciences
Proportion of Matriculants with
Mathematics
The Answer is not money;
but efficiency
Public Expenditure on Education: % of GNP
1997
Argentina
3.5
Botswana
8.6
Brazil
5.1
Chile
3.6
Hong Kong
2.9
India
3.2
Korea
3.7
Malaysia
4.9
Mexico
4.9
Singapore
3.0
South Africa
7.9
Thailand
4.8
Turkey
2.2
Uruguay
3.3
Opportunities for SA to catch up
 Declining transport costs and falling trade barriers - increased flow





of world trade, therefore domestic markets are less important
Technology has become increasingly accessible to those with the
correct skills and training
Development of multinational firms - production tends to be globally
rather than nationally located
Technologies have begun to resemble pure science - increased
citation of scientific literature in patents, especially in chemical
products, electronics, and bio technology. Anybody with the skills to
interpret the scientific literature, is in a position to gain access to the
technology.
Proven impact of a workforce trained in science and engineering,
and an increased proportion of GDP allocated to R&D,
Proven impact of governments support for technological innovation
“a well-educated labour force, with a strong cadre of university
trained engineers and scientists at the top, is now a requirement
for membership in the “convergence club”. This is not to
denigrate the continued importance of hands-on learning by
doing and using, but in modern technologies this is not
sufficient. It is no accident that countries like Korea and Taiwan,
which have been gaining so rapidly on the world leaders, now
have populations where secondary education is close to universal
for new entrants to the work force, and where a significant
fraction of the secondary school graduates go on to university
training” (Nelson and Wright).
2. Investment in
Physical Capital Stock
Investment in Physical Capital Stock is
still important...
 Investment in physical capital stock - whether
from local or foreign sources, is essential to
ensure the transformation of innovative R&D
outputs into final products as well as to provide
the opportunities for human capital to deliver
 This requires a well defined and stable policy
environment and should focus in efficient and
innovative production technologies
The Role of Small Business
in this equation
The International Picture
Country
S.A. [Informal Sector]
S.A. [Small Business]
Netherlands [Small Business]
Europe-19
(EEA)
[Small
Business]
Japan Regional [Small Business]
Japan Metro [Small Business]
Contribution to:
GDP (%)
Employment (%)
Source
Unknown
34.8%
60.0%
47.0%
26.0%
55.0%
50.0%
66.5%
Ntsika (2000)
Ntsika (2000)
EIM (1996)
EIM (1996)
25.0% proxy
25.0% proxy
83.2%
75.6%
JSBRI (1998)
JSBRI (1998)
Employment Creation
Average Employment Growth Rates in S.A. over
the Past 20 years
Agriculture
Mining
Manufacturing
Construction
Trade
Transport
Business Services
Other Services
Average Growth
Micro
-3.42%
0.14%
3.83%
1.47%
4.28%
-4.62%
4.46%
12.91%
3.42%
Small
Medium
Large Average
-2.28%
5.25%
5.32%
2.97%
2.70%
1.02% -1.04%
0.91%
2.35%
1.05%
1.47%
0.99%
-0.56%
-0.78% -3.88%
-2.38%
1.65%
0.56%
6.00%
3.40%
-1.19%
-0.51%
3.11%
-0.19%
11.24%
22.97%
5.70%
6.75%
19.97% -21.82% N/A
2.33%
1.22%
0.96%
0.93%
1.33%
Source: Ntsika (2000)
Income Improvement
Average Salary Growth Rates in S.A. over the
Past 20 years
Agriculture
Mining
Manufacturing
Construction
Trade
Transport
Average Growth
Micro
1.28%
3.78%
3.42%
0.64%
9.07%
-1.40%
6.14%
Small
Medium
Large Average
-0.58%
9.39%
7.73%
6.89%
2.66%
2.95%
2.05%
2.51%
2.97%
2.48%
2.50%
4.26%
-0.56%
-1.00% -2.69%
-2.39%
4 .45%
5.43%
3.97%
6 .99%
0.49%
1.23%
3.65%
2.24%
2.94%
3.60%
2.35%
3.90%
Source: Ntsika (2000)
Key conclusions
 South Africa’s economy needs an injection of innovation
 Technology plays a substantial role in successful





economies
Technology has come to underpin growth in South Africa
Investment in R&D boosts economic growth
Investment in human capital boosts economic growth
Investment in physical capital stock is still essential
Small business can be a key enabler in maximising the
contribution of SET to the South African economy
Key Findings and
Recommendations
Key Issues for technological advancement in SA
1. Technology and innovation matter for long-term growth
internationally and have become increasingly important for the
SA economy
2. Technological advancement and innovation depend on the
existence of appropriate enabling environments and policies
3. The appropriate enabling environment for technological
advancement and innovation depends on sufficient resources
being devoted to R&D
4. A crucial resource for research and development is human
capital
5. Maths and science are core to developing human capital for
technological innovation and economic growth
Key Issues for technological advancement in SA
6. Given the declining trends in both school and university training in
maths and science in South Africa, identifying the means of
attracting and retaining good teachers to these subjects is vital.
Attracting good students to them follows as a close second.
7. The answers do not lie with more expenditure on education - but
with better allocation of expenditure on education.
8. Public-private partnerships should be explored as a means of
generating the sort of investment in innovation and human capital
that South Africa needs.
9. Mechanisms to promote increased levels of investment in
innovation, human capital and physical capital stock are essential
for economic growth in South Africa - especially those mechanisms
involving SMMEs. (See NSTF/DACST review of the NSI)
NSTF/DACST Review of the
National System of
Innovation (NSI)
DACST/NSTF Review of the NSI
 White Paper was a major step forward
 Major progress in implementation - PUSET, Foresight,
Audit, Public Science System reviews, Innovation fund
 NSTF discussion with Minister of Arts, Culture, Science
and Technology - mid 2000
“We have achieved enormous progress in delivering on the
White Paper, but what do we need to do now to move into a
new era of innovation for South Africa”
 NSTF Plenary - Sept 2000
– Input from various Government Departments
– Caucus discussions
– Plenary debate - major actions identified
 Synthesis document compiled and submitted to DACST
 Debated and actions developed with DACST
Actions to Progress the
National System of Innovation
 PUSH FOR THE NSI AS A NATIONAL IMPERATIVE
– Develop a strategy to ensure adoption of the NSI as a key national
imperative in all sectors
– Ensure all relevant government departments are involved
– Establish government body to co-ordinate and rationalise
– Consider establishing a cabinet committee to enhance the profile of
SET at the highest levels (A Cabinet memo should be submitted in
this regard)
– Use of relevant web sites to facilitate awareness
– Establish consolidated picture of the total SET investment in order
to focus attention on the issue and to optimise expenditure and
returns
– Use NSTF/NACI study on Growth and Innovation(amongst others)
to sell the concept to key government and business stakeholders
– Showcase South African Technology at the World Summit on
Sustainable Development (WSSD) scheduled for September 2002
Actions to Progress the
National System of Innovation
 PUSH FOR THE NSI AS A NATIONAL IMPERATIVE
– Improve information availability and flow across sectors
– Enhance SET related communications through the use of the
programme for Public Understanding of Science Engineering
and Technology (PUSET) plus the DACST project to develop
science journalists
– Establish a low number of specific Key Performance Indicators
for the South African NSI to set targets and monitor
performance (NSTF study currently underway to define
indicators)
– Review the effectiveness of the NSI annually against these
defined Key Performance Indicators (KPIs)
– Declared the statistical data required to develop and monitor
these indicators to be official data to be accessed via Statistics
SA
Actions to Progress the
National System of Innovation
 SKILLS
–
–
–
–
–
–
–
–
–
Quantify the extent and impact of the “brain drain”
More flexibility wrt, and look after existing skills base
Introduce flexibility wrt imported skills and change current policy
Target key industries to input external skills and link these to a
national Human Resource Development programme for
development and sustainability of local capacity
Implement differentiated pay packages for specialist educators
and researchers
Include a skills measure in the KPIs for the NSI
More emphasis on primary school teachers by prioritising the
STEAME recommendations
More researchers required - HES, public and private sector
Increase numbers of black South African postgraduates
• Reverse “brain drain” and retain existing critical skills
• Improve staffing ratios at universities
• Encourage post doctoral researchers
Actions to Progress the
National System of Innovation
 RESEARCH FUNDING IN THE HES
– Develop innovative funding formula to encourage innovation and
more students in the HES
– Develop the infrastructure in the HES - especially technikons
– Focus and balance the allocation of funds - advised by focused
technology roadmaps and generic priorities for other S&T areas
– Post doc programmes must be put in place to a much greater
extent
– More support for research staff
– Incentive structures should be reviewed to align with national
and industrial priorities
– HES to commercialise IPR which is developed with government
funds
– Expand the role of NACI to advise DoE on R&D in the HES inform via technology roadmaps
– NSTF and NACI develop a strategy to assist DoE in resource
allocation
– Enable HES to do more contract research
Actions to Progress the
National System of Innovation
 SET FUNDING LEVELS
– Regularly quantify full extent of SET spend in South Africa (Historical studies indicate level of national funding is too low)
– Look at a fully consolidated science vote with macro allocation via
the recommended Cabinet committee
– Establish government R&D and technology (innovation) funding
mechanisms/taxation regime to encourage greater levels of private
sector funding
• Taxation benefits (preferred by industry)
• Direct funding from the fiscus
– Partnerships - look at more use of Innovation Fund for access by
Science Councils for partnerships in foresight aligned areas
– Develop strategies to avoid negative impacts of restructuring of
state assets on R&D levels and skills
– Resolve contract/state funding confusion in science councils
– Innovation fund
• align to national policies
• Report on added value and efficacy
– Provide guidelines on IPR related matters
– Benchmark funding as part of SET KPIs
Actions to Progress the
National System of Innovation
 FORESIGHT
– Roll out NSTF action plan to define priorities
• Biotechnology
• Digital economy
• Advanced materials
– DACST roadshows to look at cross pollination
across sectors
– Innovation strategy - concept to commercial product
with mentorship to develop capacity
– Incentives for beneficiation of raw materials and
minerals
– Edited version to be promoted in the public domain
CONCLUSION
 Where to now??
– Use this information to promote
support for SET in South Africa
• Policy makers
• Business
• etc
– Work with Minister Ngubane and
DACST in implementing review
recommendations
– Implementation of STEAME strategy
with DoE
– Continue activities of NSTF
THANK YOU