Dear Start-up, Are you based in the correct Hub?
April 13, 2019
COOi Studios at the World Economic Forum on Africa
August 28, 2019
The Entrepreneurial South African State: An analysis of current government action to stimulate innovation and recommendations for future policy and initiatives
Despite considerable effort from the South African government to drive innovation, the investments to date have not reaped the fruits expected by both government and the private sector. We believe that if we are to realise ‘the new dawn’ in economic growth and transformation the state needs to reorganise itself to be an ‘entrepreneurial state’.
When one analyses the current government investments and initiatives to facilitate private sector innovation, it is clear that South Africa has not been short of government action. When South Africa became a democratic country in 1994, the National System of Innovation was already in place and was adopted and further advanced by the post-apartheid government. This system of innovation was primarily characterised by the prioritisation of commercialisation of publicly funded research. However, the new regime had a mandate to reform economic structures to address legacy issues, and therefore legacy programmes such as Support Programme for Industrial Innovation Programme, facilitated by the Department of Trade and Industry (DTI), redirected resources to create a more inclusive National System of Innovation. An innovation fund was created on the back of the White Paper on Science and Technology, from which the Intellectual Property Rights and Publicly Funded Research and Development Act (IPR Act) was born in 2008. The next 10 years of South Africa’s National Systems of Innovation witnessed numerous initiatives namely; maturing of the Innovation Fund, a R&D Strategy for commercialisation of publicly funded research, an IPR framework, and an Innovation plan from Department of Science and Technology (DST). Last year marked the 10th year since the IPR Act and unfortunately the outcomes have been disappointing, with a low
conversion rate of publicly funded research to commercialisation and a decline of private sector R&D spend. It is clear that government action has not been effective in stimulating private sector R&D and innovation.
Our primary recommendation is that South Africa becomes: An ‘entrepreneurial state’
In particular, an unfortunate mindset which has dominated government thinking on innovation is the ideological assumption that the state is merely an ‘enabler’ of innovation or a market fixer, rather than being an engine of innovation itself. This approach results in an arms- length relationship with innovation and the private sector, where the state primarily provides finance. We recommend that the state should become more directly involved in innovation and ‘wear an entrepreneurial hat’ in the matters of innovation investment, developing a close working relationship between the government and private sector, working together to build the economy.
This idea of an ‘entrepreneurial state’ originates with Mariano Mazzucato, and requires the state to embrace a different way of working and mindset, in particular:
1. A greater acceptance of risk and failure: Entrepreneurship is synonymous with uncertainty and therefore risk, therefore failures need to be accepted and learnt from rather than avoided.
2. Cumulative, failures become learnings, the state will need to be patient whilst innovators accumulate new capabilities through failures
3. Collaboration and collection action: The government and private sector can no longer work in silos but both parties need to invest in developing a strong and close working relationship where both are working together towards shared goals, and a sharing of risks and rewards.
4. Fixing our countervailing inefficient or obstructive government action which may have depressed private sectors innovation investment and participation.
In conclusion an entrepreneurial state of mind for the funding of innovation requires the government to fund the most uncertain phases of research that the private sectors perceives as too risky. This can ensure that innovations which are overlooked by private sector investors in an uncertain economic climate are not lost. This ‘mission oriented’ state which invests in high risk firms requires not only a mindset change but also extensive institutional capacity building, and a detailed overhaul of ways of working to become more flexible whilst also changing the evaluation criteria for the types of investment government will consider.
