4. NATIONAL INNOVATION SYSTEM
4.8 TRIPLE HELIX MODEL
4.8.9 The Private Sector
This section presents a literature review on South Africa’s private sector in terms of the provision of an enabling environment for innovation in the private sector and social spheres, through appropriate policy and regulations and the promotion of knowledge transfer and exchange. The section discusses South Africa’s private sector performance in terms of research, SD and innovation-related activities. Collaboration of the HEIs with industry is regarded as highly desirable for research commercialisation. It is observed that there is a gap in South African research commercialisation. The SA DST Ministerial Review Committee (2012:83) observes that
It is clear, however, that the way in which knowledge spill-overs have operated historically, and how they operate now, are unknown. Although government wishes to see the commercialisation of publicly funded R&D through its transfer to companies, mechanisms to this end, that are contextually sensitive, do not exist in South Africa. In less formal ways, however, there is a steady flow of ideas and people
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out of large firms, who then create start-ups at localities such as the Innovation Hub. Much more information is needed to understand the trajectory of such entrepreneurs.
The private sector is made up of local businesses, including SMEs and large enterprises, foreign- owned and foreign R&D-intensive companies in South Africa. A clear focus in public policy on business as the largest NSI actor is still absent nearly five years after the OECD review. The SA DST Ministerial Review Committee, (2012:82) notes that:
“… Is probably the biggest ‘silence’ in South Africa's policy and institutional architecture: the nexus between the key knowledge-intensive social actors, one of the most powerful being the private sector.
The role of the private sector, and its relationships with other sectors (especially government, higher education and civil society), will be fundamental to the strength of the NSI in the future” (SA DST Ministerial Review Committee, 2012:82).
South Africa has experienced a paradox of a strong track record in industrial innovation and a relatively stagnant economic performance. The paradox according to the NSI Country Review report by the OECD (2007b) has been neglected and should be confronted in achieving South Africa's future NSI objectives. The OECD (2007b:11) states that “mental models of how the innovation system operates overly focused on the role of the state”. The OECD (2007b:11) recommended a revised NSI mental model that places the private sector at the centre/heart of the NSI (OECD 2007b:11; Kokko, 2010:126). The private sector should be located within the centre of the NSI because the sector is affected, directly or indirectly, by the enabling or framework conditions that prevail in the broader environment (SA DST Ministerial Review Committee, 2012:110). However, despite contrary evidence from the three South Africa's National R&D Surveys undertaken every four years since 2002, the DST steadfastly maintains that the private sector is failing to join government in supporting national objectives and thereby justifying its own activist approach. Kahn (2011) also notes that the business appears to have an equal misunderstanding, if not mistrust, of the government’s role.
Another paradox of the South African companies is that of ‘innovating’ but no patenting and not translating into new jobs (SA DST Ministerial Review Committee, 2012:125). The paradox can be attributed to the types of innovations that were introduced during the CIS 2009/10 survey, which were mainly incremental and adaptive. Segal (2011) provides a case study on the generation of IP by examining ‘dry cooling’ power station technology in which Eskom is a world leader, but did not patent to protect the IP. Segal (2011:9) notes that “it is not in the culture of the electricity supply industry, perhaps particularly in the power utilities themselves, to think proactively and
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certainly protectively about management of its IP. This attitude is inevitably reinforced by the fact of so many utilities internationally being publicly owned monopolies that typically do not compete with one another”.
The business sector is a major performer and funder of R&D in South Africa (OECD, 2008:152).
In particular, the services sector has been the main engine of growth in the most recent period with a strong record of success in innovation, especially in areas of information technology (IT) applications, and strong R&D performance (OECD, 2007b:12). South Africa strong in pharmaceuticals companies such as Aspen, Adcock-Ingram and Cipla, but is currently not involved in drug discovery. The South African private sector has also undertaken considerable learning, in terms of absorptive capacity. The inclusion of the Universities of Cape Town, the Witwatersrand and KwaZulu-Natal in the international league tables is due to the local and global private sector high regard for the leading research universities. Excluding foreign funding, the South African private sector funding of local research in the universities was among the highest in the world at 10.8% in 2012, an amount of R454 millions. In this research context, the presence of strong connections between the public research sector and local industry is critical for research commercialisation. For that reason, private sector research absorptive capacity is important for strengthening South African NSI. Notably, List (1841/1959/1904:162) cited in Freeman (2002:193) recognises that industry (business sector) should be linked to the formal institutions of science and education.
The South African government policy is concerned with developing the NSI, which is strongly focused on domestic R&D activities and domestic sources of innovation. The domestic focused approaches to supporting the NSI development leaves a large gap in terms of exploiting imported technology inward FDI. A lot of NSI restructuring is required for South Africa to attract R&D related FDI. The SA DST TYIP (2008:15) intends to “increase foreign investment in South African health-related R&D (excluding clinical trials)…” This statement indicates that the TYIP intends to restrict foreign-funded clinical trials, a critical strength of South Africa’s health sciences that has ethically sound and scientifically robust clinical trials conducted by foreign-funded scientists in South Africa's HEIs. ‘The Farmer to Pharma’ is the first of the SA DST TYIP (2008:12-14) ‘Grand Challenges’, which showcases however the next decade South Africa must work to become a world leader in biotechnology. However, the grand challenge does not make reference to expected contribution of the private sector agribusiness and pharmaceuticals in the value chain. The second of the SA DST TYIP (2008:12-14) ‘Grand Challenges’ is the ‘Space S&T’, which also does not connect both the satellite construction and the development of launch
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capacity with the defence and aerospace industry, especially the telemetry components. The third of DST’s TYIP (2008) Grand Challenges is the ‘Energy security’. The minerals-energy complex relationship in South Africa has generated a large support services industry, which includes equipment manufacturers and providers of scientific and technical services (including design, software, engineering, modelling, hydrological and geological). Although much of the highly- focused funding by government to the business sector has been terminated (such as Eskom, Atomic Energy Corporation and Sasol, defence/Armscor and mining), on-going support for business R&D remains high on the policy agenda, which is supported by a HEIs policy, the White Paper on S&T and NRDS that emphasise the strategic position and encourages cooperation as a link between research and business.
The knowledge transfer that takes place among the NSI actors is vital in shaping the direction and extent of innovation (Arnold & Bell, 2001:285; Bell, 2007:72). In this research context, knowledge and technology transfer is a process by which existing technology is transferred or transformed into useful processes, products and programs to fulfil the user's needs (Hodgkings, 1989; Krull, 1990). It may be viewed that the capacity for novelty, learning and adaptation as resting on the free flow of knowledge within and across organisations and national systems. A common feature of acquisition of technology-importing investment projects foreign technology, is the “Investing in engineering capabilities: Petroquisa’s Copesul project in Brazil” (Sercovitch, 1980), which has required the Brazilian government support for the enterprises (not necessarily funding) to make the necessary investments; government-backed development banks. South Africa does not have such initiatives in place, creating the impression of lack of support by government or by the national development bank (OECD 2007b:177). Hausmann and Klinger (2006:7) argue that for “South Africa to grow, it must export” and conclude that “a lagging process of structural transformation is part of the explanation for stagnant exports per capita. Slow structural transformation is found to be a consequence of the peripheral nature of South Africa's productive capabilities”.
It is important that the role played by the three main sets of government instruments available for supporting business R&D should be examined. The first of the three instruments is the direct support of R&D projects, such as the IF, the THRIP and the BRIC. The second is the funding for technology transfer and similar initiatives such as the Godisa and Tshumisano trusts. The third is the indirect support through tax rebates. However, the SA DST Ministerial Review Committee (2012:14-17) notes that the tax benefit for business R&D activity that meets set criteria is being taken up rather slowly. During data analysis, secondary data on the South African private sector will be utilised, mainly from the latest South African CIS National Survey of Research and
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Experimental Development Main Results of 2009-2010 by the (DST/HSRC, 2013) and the FTSE Top 500 of 2012/2013. To date, six CIS surveys have been carried out, with a sixth conducted in 2009. South Africa has also so far undertaken three national innovation surveys based on the OECD’s 2002 Frascati and 2005 Oslo Manuals. There is no ‘one-size-fits-all’ approach in knowledge and technological learning. As such, the Technopolis Group (2008:2) has developed a schema (Figure 4.8.9-1) that assists in the varying needs and capacities of enterprises according to capability of R&D and technological (Technopolis Group, 2008).
Figure 4.8.9-1: Enterprises characteristics and technological capabilities for R&D Source: Adopted from Technopolis Group (2008:2)
Essentially, Figure 4.8.9-1 illustrates a hierarchy of technological capabilities that shows that enterprises do not operate on a level playing field. For instance, SMEs lack the in-house skills to access incentives. To overcome the challenge facing SMEs in Austria, tax incentives have been made available to start-ups before any profit is even indicated (OECD, 2008). Other countries have adopted technology voucher schemes to provide assistance to small firms that lack in-house technology expertise, which can be adopted in South African NSI. The adoption of hierarchy of technological capabilities and international country strategies implies the need to have in place sufficient well-informed and skilled intermediaries available in public sector agencies to facilitate transitions to more sophisticated levels of capability.
With regard to SD in South Africa, the Trialogue’s CSI Handbook (2010) provides innovation for development survey information which, among other, analyses in the report, confirms the ‘scatter- shot’ effect of the considerable R5.4 billion in South Africa’s CSI expenditure, distributed across
Research Departments Or Equivalent
Able To Take Long Run View Of Technological Capabilities
Multiple Engineers
Some Budgetary Discretion
Able To Participate In Technology Networks
One Engineer
Able To Adopt/Adapt Packaged Solutions
May Need Implementation Help
No Meaningful Technological Capabilities
No Perceived Need For This
May Be No Actual Need
Research performers
Technological components
Minimum Capability Companies
Low Technology SMEs
Hierarchy of Technological Capabilities
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12 development focus areas. The novel notion of a Triple Bottom Line (TBL) (planet, people, profit), which was coined by Elkington (1994), urges organisations to include social and environmental responsibility in the economic endeavours. The TBL responsibility includes sustainable business development (SBD) principles involve Life Cycle Thinking (LCT) and thinking about all of the effects, impacts and consequences of planet, people, profit from “cradle- to-grave” (Rainey, 2006:713). It can therefore be proposed that South Africa’s private enterprises should undertake innovation for development through (i) corporate social investment (CSI); (ii) broad-based black economic empowerment (BBBEE) schemes; (iii) the green economy and more labour-absorptive production methods; (iv) social entrepreneurship as a means of advancing development goals; and (vi) philanthropists and 'philanthrocapitalism'.