The share of research and development (R&D) funding provided by businesses in South Africa decreased from 41% in the 2013/14 period to 29% in 2022/23. This trend has prompted calls for the introduction of new incentives to attract private sector investment.
According to data from the Ministry's Working Group on Science, Technology and Innovation, business sources accounted for 29% of Gross Expenditure on R&D (GERD) in 2022/23, compared to 41% in 2013/14. The Working Group was formed after federal funding from the United States was withdrawn from key South African research programs, highlighting broader issues in the country's science and innovation funding system.
During the same period, the share of public R&D funding increased from 43% to 51%, while international funding rose from 13% to 17%. Meanwhile, the share of R&D expenditure conducted by the business sector fell from 46% to 36% of total research spending.
The report questions the effectiveness of existing measures aimed at encouraging companies to engage in research. Specifically, it notes that tools such as the R&D tax incentive create administrative burdens and have proven ineffective due to scarce evidence of additional impact.
The Working Group also believes that South Africa's approach to innovation is too narrow. A narrow interpretation of innovation as 'scientific discovery' excludes many forms of applied and process innovations that are relevant to South African firms.
As recommendations, it proposes a complete reform of available business incentives, including changes to the R&D tax incentive, possible provision of tax breaks, and more active use of Special Economic Zones to stimulate investment.
Furthermore, the report advises the Ministry of Science, Technology and Innovation, the Department of Trade, Industry and Competition, and the National Treasury to consider introducing co-investment grants, innovation vouchers, targeted problem-solving funds, and subsidized loans.
It was noted that prolonged efforts by the Department of Science and Innovation to encourage multinational corporations to establish and invest in research facilities in South Africa have not yielded significant success. The report urges the government to remove obstacles to such investments.
It is emphasized that such investments should create broader opportunities within domestic value chains, especially for small and medium-sized enterprises owned by Black people and women, social enterprises, and cooperatives.
Referencing financing models from other countries, the report provides examples of performance-based co-investment grants in Canada and South Korea, innovation vouchers in Finland, and joint research co-financing in Germany.
Financial incentives can be supplemented through procurement preferences, accelerated regulatory support, and public recognition. Furthermore, industry councils and organizational structures must participate in developing schemes that better reflect business innovation methods.
South Africa's overall investment in research has weakened: GERD fell from 0.73% of GDP in 2013/14 to 0.61% of GDP in 2022/23, remaining significantly below the country's ambitions for research spending.
The Working Group recommended that the government, organized business, and labor unions conclude an agreement containing clear commitments to gradually increase GERD to 1.5% of GDP by 2035. It also proposed introducing progressive targets requiring state-owned enterprises to increase their spending on research, development, and innovation in areas related to national priorities.
The report asserts that increasing research spending must be accompanied by strengthening links between research, industrial policy, and company needs if South Africa wishes to gain greater economic benefit from innovation. Areas where research and innovation can support national development include healthcare, energy and water security, food security, climate change, artificial intelligence, and green technologies.
The Working Group warns that simply increasing the amount spent on R&D will not overcome the structural constraints hindering innovation. Instead, a combination of industrial and innovation policy is required to motivate companies to invest in research, commercialize intellectual property, and develop new products, processes, and technologies.
A dual funding model is also recommended, combining mission-oriented grants for long-term national priorities with competitive funding for fundamental and applied research.