More research and development will boost economic growth, says experts

More research and development will boost economic growth, says experts

By 2019, South Africa’s research and development (R&D) spend across all sectors has to increase from the current level of 0.76% of GDP to 1.5%, Minister of Science and Technology, Naledi Pandor said at the Stellenbosch Institute for Advanced Study (STIAS.)

This will require a  two-fold increase in R&D investment in the next five years – from the current R24bn  to R48bn in 2019. “I am working on establishing a joint task team consisting of people from the Department of Science and Technology (DST) and the National Treasury for this,” Minister Pandor said.

She was speaking at a seminar on R&D in the agricultural sector hosted by Stellenbosch University’s (SU) Faculty of AgriSciences, in association with auditing, tax and advisory firm KPMG.

Minister Pandor explained it was often hard to convince her colleagues in government of the value of R&D because researchers tend to “work quietly while they should be writing and talking” about their work.

“We are fortunate to have a good R&D foundation, and we have institutions which are capable of expanding the innovation capabilities of South Africans. I believe all research facilities in South Africa should fall under the DST to ensure they do not become victim to other departments with key objectives that have very little to do with research and development. Other departments can mandate research, but the DST needs to be responsible for the oversight of the funding of research institutions. If we do not invest appropriately in research funding, our research institutes will go into further decline.”

Minister Pandor said the expansion of business expenditure on R&D has a direct and immediate impact on economic growth, and that the state should therefore not bear the burden alone.

“The private sector is more likely to embrace related commercial opportunities by creating new and improving products, services and production technologies. We are keen to see the private sector become a major player in R&D investment.”

According to Minister Pandor, few companies in South Africa prioritise employing people who have master’s and PhD degrees.

“There is a need to alert the private sector about the advantages knowledge workers can bring to companies. These people bring innovation.”

She added that the DST is working very hard to attract international R&D and to take better advantage of South Africa’s integration into global R&D value chains.

Alan Winde, Minister of Economic Opportunities in the Western Cape Provincial Government, said that innovations in agricultural science will be key in determining how South Africa steps up to the challenges of food security on the continent over the next 30 to 50 years. It is therefore imperative to invest in R&D. However, he is concerned about the lack of investment among private companies in the province to take advantage of R&D tax incentives.

According to information provided at the seminar, the Western Cape Government spends R108m of its provincial budget on agricultural research. It runs seven research farms, a feed laboratory, an analytical laboratory (flora, water and soil) and 11 research herds. And it has done extensive research in conservation agriculture.

Mohammed Jada, Head of KPMG’s R&D Tax and Incentives practice in South Africa, presented at the seminar and pointed out that less than 1% of South Africa’s recorded R&D spend goes to the agricultural sector.

“This is surprising because historically the agricultural industry has a 2 – 4 times greater multiplier effect in raising incomes of extremely poor people than growth in other sectors of the economy. Taking into account the role the African continent will have to play in global food production, the goal of increasing agricultural yields is key, both for Africa and the world.”

He advocated greater R&D spend, and noted that the South African government’s R&D tax incentive provides an additional 50% tax reduction on approved research projects to encourage research to be undertaken in South Africa. Companies can claim this additional 50% tax deduction on expenditure for labour, researchers, engineers, overheads, contractors that are directly related to the research.

Jada also noted that there is global competition amongst tax jurisdictions to attract R&D spend, with many countries offering attractive R&D tax regimes, and some even providing cash rebates for R&D spend. “South Africa would do well to consider making the current R&D tax regime more attractive to not only local companies but also to multinational companies.”

He also noted that the current innovation criteria for approving of R&D projects should take into account South Africa’s developmental growth path, instead of being considered in a narrow context where only “blue sky” research is incentivised. “This will significantly increase the uptake of the R&D tax incentive by private companies and foreign companies would also be encouraged to relocate or sub-contract their R&D functions to South Africa, which can only be positive for South Africa.”

Jan Greyling, a PhD student in agricultural economics at Stellenbosch University’s Faculty of AgriSciences, presented a summary of the macro-economic historical data of agricultural trends, and emphasised the importance of equipping agricultural students with combined skills sets.

“Industry demands people who are trained in physical sciences but who also have financial capabilities. I also believe spatial skills (e.g. Geographic Information System, or GIS) and data management are important,” he said. He also noted that the agricultural industry contributed 2.4% to South Africa’s GDP and that research would enable better yields and add to food security in not only South Africa but also the continent.

Referring to agricultural equipment, Greyling said farming equipment will increasingly become “smarter,” which will lead to more exact and focused performance, less wastage and cost reduction.

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