DAAN STEENKAMP: Why is there no correlation between patents and productivity in SA?

Technological advances enable firms to innovate, create new products and raise wages. In this way, technological progress is a key driver of a country’s long-term per capita income. SA’s poor productivity performance is therefore extremely concerning.

Patent filings is a widely used indicator of innovation and technological advancement. According to the World Intellectual Property Organisation (Wipo), there was a dramatic drop-off in patent filings by South Africans in the 1990s. On a per capita basis SA patent filings are down to only a quarter of the level of the mid-1980s. The result has been that the number of patents in force actually fell in 2011-14.

On the other hand, estimates of SA’s productivity growth suggest that the period between democracy and the global financial crisis was characterised by strong productivity growth, but that we have experienced poor productivity growth in the years since. Why do patent filings and productivity not appear to be correlated?

Let us start by looking at the number of patents granted in SA over time. The largest number of patents granted to South Africans have traditionally been in civil engineering, followed by the handling, furniture and transport sectors. The decline in SA patent grants is evident across most technology categories, including computer technology and biomedical patents.

Things have deteriorated further after the pandemic, with annual direct patent grants in 2020-23 down to only 10% of their annual level in the mid-1980s, according to Wipo data. Unfortunately, the Companies & Intellectual Property Commission of SA does not publish statistics on patent grants, so we cannot readily corroborate the Wipo figures.

Available data shows that most new patent applications in SA have been nonresident filings, with firms in countries such as China and the US driving the substantial surge in global patent filings. An important reason has been changes in patent strategies by large tech firms, with companies such as Huawei, Samsung and Apple competing worldwide to protect their innovations.

A possible explanation for the lack of correlation between patents and productivity may therefore be that the number of patents granted is not a good reflection of the extent of innovation in an economy. Patents may also vary in their viability for commercialisation or their “quality”.

In markets such as the US, the disconnect between patents granted and productivity takes a different form to that in SA: patent filings have been rising strongly since the 1980s, but productivity has not followed suit. One possibility that has received attention in the US case is that much of the growth in filing reflected “derivative patents”, with the number of original “creative” patents dropping off sharply since the early 2000s.

But it is not just in patent filings that SA performs poorly relative to countries that are becoming wealthier over time. SA invests less than 1% of our GDP in research & development (R&D) and has a relatively low number of researchers per capita compared with major emerging markets.

Worldwide there is a positive relationship between R&D and long-term productivity growth. However, SA finds itself in the low R&D productivity group globally. This underinvestment limits the economy’s capacity to translate domestic and foreign innovation into patents and commercially viable applications.

Despite the hype about AI and the fourth industrial revolution, SA companies are not accumulating their own intellectual property. Whereas one observes a rise in the share of intangible capital (intellectual property and brand value) in many fast-growing economies such as the US, in SA the share of intangible capital remains at the same level it was in 2005.

Many SA-specific macro- and microeconomic factors affect the innovation ecosystem, constraining not just patent development but the adoption of new technologies more generally. For example, SA’s economy is characterised by concentrated markets, with large firms dominating key sectors. This is a potential reason for a lack of competitive pressure to adopt new technologies.

Even in sectors in which SA has a comparative advantage in terms of resources or economies of scale, such as mining, there is limited evidence that firms are converting their technical know-how into monetisable assets. As technology firms are becoming increasingly important for driving innovation, the slow growth of SA’s tech start-up sector is concerning.

In this respect, regulatory hurdles are important factors that discourage investment and formation of start-ups in SA. My colleagues and I have written several articles published in this newspaper describing how poor regulatory frameworks and concerns about enforcement of intellectual property rights discourage innovation and investment.

Another noteworthy challenge is a shortage of scientists and engineers. Despite the growth in the number of science, engineering and technology degrees conferred in SA, there has been steady outmigration of many skilled professionals to countries that offer better opportunities for innovation.

The result is that South Africans are becoming poorer. Not only has SA’s GDP per capita been falling over the past decade, it is projected by the IMF to continue to fall.

The factors contributing to SA’s anaemic investment rate and poor entrepreneurship rate are in large part a consequence of growing state interventionism, despite collapsing institutional capacity. If the government of national unity is serious about kick-starting growth and creating jobs it must remove impediments to innovation and entrepreneurship in SA.

• Dr Steenkamp is CEO at Codera Analytics and a research associate with the economics department at Stellenbosch University.