Business share of South Africa’s R&D funding falls to 29% - IOL

South Africa’s business-funded share of research and development fell from 41% in 2013/14 to 29% in 2022/23, prompting calls for new incentives to attract private-sector investment.

South African businesses are funding a significantly smaller share of the country's research and development (R&D) than they did a decade ago, with a ministerial working group warning that existing incentives have failed to stimulate sufficient private-sector investment in innovation.

Business sources accounted for 29% of South Africa's gross expenditure on research and development (GERD) in 2022/23, down from 41% in 2013/14, according to the Ministerial Working Group on Science, Technology and Innovation Funding.

The working group was appointed after United States federal funding was withdrawn from key South African research programmes, bringing wider weaknesses in the country's science and innovation funding system into sharper focus.

Between 2013/14 and 2022/23, the share of R&D funding from government sources rose from 43% to 51%, while funding from international sources increased from 13% to 17%.

R&D expenditure carried out by the business sector also declined as a share of total research spending, from 46% to 36%.

The report said stronger domestic investment in R&D would support innovation, industrial development and job creation while reducing South Africa's exposure to sudden shifts in foreign funding, a vulnerability highlighted when US support for major health and biomedical research programmes was withdrawn.

The report questioned whether existing measures intended to encourage companies to undertake research were working.

"Existing instruments such as the R&D tax incentive are administratively burdensome and have proven ineffective with sparse evidence of additionality," the report said.

The working group said South Africa's approach to innovation was also too narrow in some respects.

"A narrow interpretation of innovation as 'scientific discovery' excludes many forms of applied, process-driven innovation relevant to South African firms."

It recommended an overhaul of incentives available to businesses, including reform of the R&D tax incentive, possible tax exemptions and greater use of Special Economic Zones to stimulate investment.

The Department of Science, Technology and Innovation, the Department of Trade, Industry and Competition and National Treasury should also consider co-investment grants, innovation vouchers, pooled challenge funds and concessional loans, according to the report.

The report said long-running efforts by the science and innovation department to encourage multinational companies to establish and invest in research and development capabilities in South Africa had not achieved significant success.

It called for government to remove barriers to multinational R&D investment in South Africa.

It said such investment should create wider opportunities in domestic value chains, particularly for black- and female-owned small and medium enterprises, social enterprises and cooperatives.

Drawing on funding models used in other countries, the report pointed to performance-based co-investment grants in Canada and South Korea, innovation vouchers in Finland and matching funds for collaborative research in Germany.

Procurement preferences, regulatory fast-tracking and public recognition could complement financial incentives, while industry councils and sector organisations should be involved in designing schemes that better reflect how businesses innovate.

South Africa's overall research investment has weakened.

GERD fell from 0.73% of gross domestic product in 2013/14 to 0.61% in 2022/23, remaining well below the country's research-spending ambitions.

The working group recommended that government, organised business and labour negotiate a compact containing clear commitments to progressively increase GERD to 1.5% of GDP by 2035.

It also proposed progressive targets requiring state-owned enterprises to increase their research, development and innovation spending in areas linked to national priorities.

The report argued that increasing research expenditure would need to be accompanied by stronger links between research, industrial policy and the needs of companies if South Africa wanted greater economic benefits from innovation.

It identified health, energy and water security, food security, climate change, artificial intelligence and green technologies among areas where research and innovation could support national development.

The working group said merely increasing the amount spent on R&D would not overcome the structural constraints holding back innovation.

Instead, it called for a combination of industrial and innovation policy that encouraged companies to invest in research, commercialise intellectual property and develop new products, processes and technologies.

It also recommended a dual funding model combining mission-driven grants for long-term national priorities with competitive funding for basic and use-oriented research.