ALANA KRUGER: The impact of declining corporate spend on R&D goes beyond job creation

In the 1960s, when economists tested Nobel laureate Robert Solow’s thesis that research & development (R&D) activity and innovation would yield long-term returns, they found that innovation and technological advances could deliver return on investment of up to 211% while also boosting business and economic resilience. 

While Solow’s lessons are not lost on SA CEOs — six in 10 see the development of new products and solutions as an important driver of medium- to long-term growth — the steep decline in corporate-funded R&D is a flashing red light and points to a need for an alternative approach. 

The initial warning was from the department of science & innovation last December. It reported that gross domestic expenditure on R&D in SA has dropped by an annual average of -9.3% (from R34.3bn in 2017 to R25.9bn in 2020). And just a couple of weeks ago the National Advisory Council on Innovation’s report on Science, Technology & Innovation provided the detail, painting a bleak picture of corporate sector-led retreat. In the 2020-21 financial year R&D spend was almost half of the 2017-18 R14bn peak.

Jobs and growth

Where businesses accounted for 47% of all R&D expenditure in 2010, today it is 30%. The reprioritisation of company budgets and government funds during the pandemic, and SA’s subsequent tepid economic recovery, is mostly to blame. It tells us we need to explore new avenues for R&D, to rejuvenate SA’s industrial, technological and economic competitiveness and restore investor appetite, promote growth, create jobs, and promote social stability and sustainability. Given the difficulties in securing government grants, the path of least resistance is open innovation.   

Open innovation matches large entities with external partners, which typically include start-ups, small businesses, universities and research bodies. These then pool resources and expertise to find fresh perspectives and solutions to needs and challenges without unfeasible, onerous and high-risk investment. At the same time, innovators gain access to larger companies with real-world opportunities to test and refine their products. 

To further derisk innovation partnerships, organisations such as Innovate UK KTN — through its UK Aid funded Global Alliance Africa project — have stepped in to provide corporates with up to £25,000 (R584,430) in seed funding with technical support, expand business-to-business partnerships, accelerate penetration of new innovation markets, and increase supply chain robustness and diversification.

Innovation challenges

Innovate UK KTN, a member of the UK’s Innovation Agency Group, is repeatedly proving the benefits of this approach through its partnerships with various entities, including Rand Water, Unilever, Kenya Airways, Hinckley Recycling, Flamingo Horticulture and Veolia. Over the past year these have seen the launch of a series of open innovation challenges in partnership with the Global Alliance Africa project, enabling those businesses to reach into new sectors and find fresh ideas to bolster business resilience and sustainability. 

Examples include prototyping a digital passport to track plastic packaging and recycling across its value chain with Unilever SA. Meanwhile, through its partnership with Global Alliance Africa, Rand Water has successfully begun a pilot project with an efficient new water processing treatment for its plant near Johannesburg, while Veolia is assessing circular economy solutions to improve its treatment of waste at its Dolphin Coast Landfill Management facility. Similarly, Kenya’s Flamingo Horticulture is piloting a new pest-control app for its farm workers, while Kenya Airways is casting for metaverse innovations to help passengers better navigate the complex logistics of airports. 

While Solow’s 211% return may seem optimistic in the current economic climate, business leaders need to remember that there are alternatives available to them to stimulate and facilitate the urgently needed revival in corporate-driven R&D. Failure to do so will not only affect our ability to create jobs, but will see SA industry become less resilient, less adaptable, and our economy more fragile.

• Kruger is Global Alliance Africa’s knowledge transfer manager for SA, where she leads the organisation’s open innovation activities.