4. NATIONAL INNOVATION SYSTEM
4.7 COMPONENTS OF NATIONAL SYSTEM OF INNOVATION AND THEORIES This section reviews literature on the identified components of the NSI and related theories within This section reviews literature on the identified components of the NSI and related theories within
4.7.1 The NSI Framework Conditions (Items I, II, III & V)
The NSI Framework Conditions (items i, ii, iv, v & vi) include two broad categories. The first is the NSI the financial practices (national pattern of funding). The second is the regulatory systems established by government that operate within and across key NSI actors. The existence of favourable framework conditions is a major factor in enabling and facilitating SD through research in the NSI. Typically, the literature shows that SD and environmental policies have few resources for action, while S&T policies control the state budget for R&D allocations.
The overall purpose of the NSI framework is to pursue innovation processes, that is, developing and diffusing innovation (Edquist et al., 2009:13-14). Table 4.7.1-1 outlines ten key activities that take place in the NSI, which are the determinants of the development and diffusion of innovations, those factors that influence innovation processes (Edquist et al., 2009:13-14).
111
Table 4.7.1-1: Key activities found in systems of innovation
KEY ACTIVITIES IN SYSTEMS OF INNOVATION
I. Provision of knowledge inputs to the innovation process
1. Provision of R&D and, thus, creation of new knowledge, primarily in engineering, medicine and natural sciences.
2. Competence building, for example through individual learning (educating and training the labour force for innovation and R&D activities) and organisational learning.
II. Demand-side activities
3. Formation of new product markets.
4. Articulation of quality requirements emanating from the demand side with regard to new products.
III. Provision of constituents of SIs
5. Creating and changing organisations needed for developing new fields of innovation. Examples include enhancing entrepreneurship to create new firms and intrapreneurship to diversify existing firms; and creating new research organisations, policy agencies among others 6. Networking through markets and other mechanisms, including inter-active learning among
different organisations (potentially) involved in the innovation processes, which implies integrating new knowledge elements developed in different spheres of the SI and coming from outside with elements already available in the innovating firms.
7. Creating and changing institutions – for example, patent laws, tax laws, environment and safety regulations, R&D investment routines, cultural norms, etc. – that influence innovating
organisations and innovation processes by providing incentives for and removing obstacles to innovation.
IV. Support services for innovating firms
8. Incubation activities such as providing access to facilities and administrative support for innovating efforts.
9. Financing of innovation processes and other activities that may facilitate commercialisation of knowledge and its adoption.
10. Provision of consultancy services relevant for innovation processes, for example, technology transfer, commercial information, and legal advice.
Source: Edquist (2006:188)
From a policy point of view, the list of activities in the checklist (Table 4.7.1-1) can be used to explain (low) performance: identifying the deficiencies in the system and for the design of innovation policy (Edquist et al., 2009:18). The South African government has taken a number of measures to establish institutions, governance systems, resourcing initiatives and general framework conditions intended to create a supportive environment for innovation to take place.
The measures includes the White Paper on S&T (1996), the NRTF Study (1997-1999), the NRDS (2002) and the NSMM South Africa's S&T system (2004), which are accompanied by the policy on Governance Standards for SETIs and framework for the development of a NST Expenditure Plan. However, the difficult issues of selecting and setting priorities for resource allocation among
112
different areas of STI activities has led to the spreading of available resources too thinly across projects, programmes and institutions.
The South African government is the major funder of research among the NSI actors (DST, 2011:14) through, for example, the DTI, which is a significant funder of technology and research, via other agents. The programmes contained within DTI’s Innovation and Technology mission includes the THRIP, which operates the programme on the DTI’s behalf and the Support Programme for Industrial Innovation (SPII). The National Technology Transfer Centre (recently transferred from CSRI to the Small Enterprise Development Agency –SEDA), while the National Fibre, Textile and Clothing Centre (NFTCC) and the Godisa Trust, co-funded by the European Union (now merged with SEDA) fall under the DTI’s programme. A small collection of incubators and training centres and the Mpumalanga Stainless Initiative, which teaches basic business skills to groups of 16 entrepreneurs in stainless programme steel sheet fabrication, receives the DTI’s funding. Other programmes that fall under the DTI include the Down Stream Aluminium Centre for Technology, which operates similarly in aluminium casting with funding from KwaZulu-Natal, the European Union and the Furntech, a Swedish-funded training centre for furniture-making and entrepreneurial skills and the Venture Fund.
In South Africa, resource allocation across large-scale national programmes, such as the ‘big science’ projects and ‘big technology’ initiatives at the level of the NRF and the DST (OECD, 2007b:212), have obscured other types of innovation critical for SD within the NSI. In order to achieve socially optimal R&D investment levels and evade market failure, governments should finance research activities at public research organisations (Allman, Edler, Georghiou & Miles, 2011).
South Africa is 13th in the world (2.6% of the total) for the registration of plant varieties, an achievement involving the private sector, universities and the ARC. Considerable attention is often given to the ratio of R&D to GDP as a key indicator of the development of a country’s innovation system, and a target of 1% seems to hold a particular fascination for many middle-income countries, including South Africa (OECD, 2007b:154). The 1% target has remained elusive.
However, South African publications are among the top 1% of internationally cited publications.
The level of GERD, at current prices, amounted to R20.955 billion during 2009/10, compared to R21.041 billion during 2008/09. In current rand value, GERD decreased by R86 million to R20.955 billion during 2009/10 in contrast to the steady growth seen in previous years. GERD as
113
percentage of GDP stood at 0.87% in 2009/10, a decrease of 0.05 percentage points from 0.92%
recorded in the 2008/09 survey. A decline of 9.7% in business sector R&D expenditure, a significant contributor to R&D investment, is the primary driver of the trend. Other sectors that reported negative growth in R&D expenditure were the government and not-for-profit sectors, decreasing by 6.4% and 21.4% respectively. The positive growth of 21.7% in higher education sector and of 10.2% in science councils sector appeared inadequate to offset the larger decreases in the aforementioned sectors. The sources of funding for R&D remained largely “own funding”, and the proportion of foreign funding of R&D has, as in the previous reference year (2008/09), shown a small but steady increase (DST/HSRC, 2013:9).
The latest available National S&T Expenditure Report of 2007 by the DST, reported a total spend of over R12 billion, just under 2% of the national budget, of which the lion's share was spent by the departments of DST (29%), Health (20%), Public Enterprises (19%), Environmental Affairs (6%) and Minerals and Energy (6%). The 2007 DST report has not provided accurate and reliable reports needed for the full and appropriate analysis of policy-making in the public sector. For instance, the inclusion of large expenditures on health services is inappropriate, while the omission of critically important transfers to research performers in HEIs by the relevant department is an unacceptable shortcoming, notes the SA DST Ministerial Review Committee (2012:90).
The proportion of R&D performed in South Africa, which was foreign funded was 12.1% in 2009/10, an increase from 10.7% in 2007/08 and 11.4% in 2008/09 (DST/HSRC, 2013:27). The science councils and business enterprises consistently attracted foreign funding of over 10%. In 2009/10, both the 8.7% of higher education R&D expenditure and the 5.1% of government R&D expenditure were funded by foreign sources (DST/HSRC, 2013:27). It is prudent to suggest that the distribution of expenditure on R&D among the major science councils should be revised to match the new R&D council mandates and continuous functions and services.
The CIS 2009/10 survey data shows that the private sector/industry is the largest contributor to GERD in South Africa in terms of being a source of finance for, and performer of R&D, and a key strategic partner for government that engages in promoting R&D investment in South Africa (DST/HSRC, 2013:34). Most of business R&D expenditure in South Africa is performed by large enterprises, with the top 100 R&D business performers accounting for almost 80% of BERD (DST/HSRC, 2013:34).
114
A study conducted by Botha and Von Gruenewaldt (2006) concluded that the public research system was seriously under-capitalised and inputs of around R700 million would be needed annually over six to seven years for its renewal compared to the present level of around R350 million a year. The autonomy enjoyed by university councils and executive management under the Higher Education Act (Act No. 101 of 1997) means that the ways in which the complex and highly interdependent functions of teaching, research and extension/outreach are set up and sustained are generally at the discretion of the HEIs.
The DHET, created in 2009, handles both schools and the higher education sector, which according to the OECD (2007b:128), “has introduced a new funding formula for universities which provides some (weak) incentives to encourage good research performance”. In the NSI context, the OECD (2007b:24) states that “the formula underpinning the DoE funding stream should be reassessed with a view to providing stronger incentives for, and greater selectivity in resource allocation to, work of high quality”, while arguing that measures for "ring-fenced funding are needed to foster the emergence of newcomers to the competition" (OECD, 2007b:24).
4.7.2 NSI Human Resources and Human Capital Development (Items VI & Viii)