Delegates
Good morning and thank you for inviting me.
Our aim in government is to double current investment in Research and Development (R&D) from 0.76% to 1.5% of Gross Domestic Product (GDP). That means doubling the current investment of R24 billion to R48 billion a year.
The latest R&D survey (2012/2013) shows an improving outlook for R&D investment. GERD was R24 billion, a substantial increase over the previous year. There are a number of trends to observe. First, the higher education sector is the biggest contributor to the increase. Second, spending on experimental development declines, a trend that goes back to 2008.
Third, R&D spending on medical and health sciences has overtaken the spending on engineering sciences. Fourth, the R&D business expenditure in the financial intermediation, real estate and business services sector is higher than in the manufacturing sector.
Fifth, Government remains the largest funder of R&D in the country, while the business sector remains the largest performer of R&D - business used to fund and perform the majority of R&D. Over the last decade business investment has been the engine of R&D and it is a worry when the engine begins to slow down.
We introduced the Research and development tax incentives in 2006 to encourage the private sector to invest in R&D. The initial uptake of this incentive was less than we had hoped. So the incentive was modified by the Taxation Laws Amendment Act in October 2012. The subsequent increase in applications caught the department by surprise and additional resources have had to be secured to deal with the increase and the backlog that has resulted.
Even so there has been a recent decline of business investment in R&D. It's a concern. The expansion of the business expenditure in R&D has a direct and immediate impact on economic growth because the private sector is more likely to embrace related commercial opportunities by creating new and improving existing products, services and production technologies. These activities can impact directly on the creation of new enterprises, new industries, and new jobs.
The private sector innovation activities are dominated by activities that are not necessarily new. The bulk of the private sector innovation-related expenditure is on the acquisition of new machinery, equipment and software, as opposed to introduction of new products and processes. A limited portion of turnover of innovative companies is generated from products that are new to the firm and/or new to the market.
Business expenditure on R&D is concentrated within larger-sized enterprises, with about 80% performed by 20% of large enterprises. State-owned enterprises (SOEs) are counted in the business category for R&D purposes and they are a key driver of major public-procurement programmes. They form the core of the network industries, which play a central role in addressing developmental objectives (economic infrastructure for energy, ICT, transport, water, mining, defense technology, and so on).
SOEs have the necessary bargaining position to mobilise international R&D. Major international procurement supply contracts that are provided by these entities hold good opportunities for technology transfer, strengthening the local research and technology infrastructure and developing local expertise.
We are working to attract international R&D and to take better advantage of our integration into global R&D value chains. One mechanism that is popular is an 'equity-equivalent arrangement' whereby multinational companies that do business with government are required to earn BEE points through a once-off equity equivalent funding contribution.
A company can earn points for making investments towards skills and training support, enterprise development, and R&D. I think of the recent substantial ten-year investments made by GE and IBM.
There are many more smaller than larger enterprises. Innovation activity occurs in a much wider community than just R&D intensive, larger enterprises. We are encouraging the level of activity of SMEs in R&D. In fact our Technology Innovation Agency has now been repositioned as an agency whose funding instruments will better enable innovators, entrepreneurs and small and medium enterprises to commercialise their technology innovations.
Since 2010 TIA has supported more than 8,130 small and medium enterprises in accelerating technical innovation through technology development. The impact of the support to SMEs has resulted in significant improvement in technical skills, product quality, productivity, cost-savings, energy efficiency, waste management and most important of all employment creation.
In this regard, the current design of the R&D tax incentive is effective for encouraging medium to large enterprises, and specifically the research intensive companies, but does not seem to resolve the cash flow constraints and funding gap for R&D projects of many Small and Medium Enterprises (SMEs). They experience specific challenges in claiming the deductions long after incurring the full costs of their R&D. Many SMEs cannot manage to generate sufficient cash flows to reinvest in R&D or source external finance and venture capital to support their R&D activities. Their uptake of available government programmes is low, although there is a clear need for financing.
In regard to agricultural R&D, our Bio-economy Strategy, launched last year, focuses on the development of biotechnologies in three key sectors - agriculture, health and industry - and prioritises specific fields that should be developed in each of these.
One of South Africa's greatest assets is the combination of its rich biological diversity and its wealth of indigenous knowledge. Our country is the world's third most biologically diverse country and is home to almost 10% of the world's known plant species and 15% of all known coastal marine species. This capital can be used to the country's advantage in the current economy through multidisciplinary approaches, including providing raw materials for the natural product sector; bio-prospecting with the aim of developing pharmaceutical, cosmeceutical and industrial applications; and using indigenous plants and animals as food sources.
With such rich biodiversity, South Africa has a scientific competitive advantage in the sphere of IKS. About 24,000 plant species exist in the country of which 4,000 are used to manufacture medicines. About 20,000 tons of medicinal plants are exported from South Africa each year. Current initiatives for harvesting indigenous knowledge promise major benefits for economic development, medicine and exports.
I should not forget to mention our initiative with the deciduous fruit industry. It stands out as a best case of industry, government, academia and science councils collaborating to enhance the competiveness of our fruit exports. The Post-Harvest Innovation Programme was first launched in 2007 and was renewed in 2011. It has funded 54 research projects in the fresh fruit sector to address post-harvest issues such as product control during transit, packaging, non-invasive fruit quality assessment, and post-harvest disease control.
Finally, the Sector Innovation Fund programme is a public-private partnership where industry can steer research, development, and innovation efforts within universities, science councils, and other research agencies to meet pressing industry competitiveness challenges. This public-private partnership with industry has resulted in the creation of nine Sector Innovation Funds.
The priority sectors are aligned to sectors in the National Development Plan and include citrus, sugar, post-harvest, forestry, boat-building, aquaculture, wine, minerals processing and paper manufacturing. We provided seed funding of R16 million in 2014/15. A further R51.6 million is for innovation projects within the nine sectors this year.
This will enable an additional R96.7 million of matching funding to be leveraged from industry and lead to the development of industry relevant Masters and PhD researchers and new technologies that can be adopted by companies.
Thank you.
