Publications
Partners
Shortly after cutting its 2017 growth forecast for South Africa from 1.1% to 0.6% and warning of a low growth hangover likely to last well into 2019, the World Bank has suggested that SA’s economic silver bullet may emerge from an unlikely source: technological innovation.
According to World Bank programme leader Sebastian Dessus, SA’s recovery prospect will remain fragile unless the country can boost its dwindling total factor productivity (TFP), which measures how efficiently labour and capital are used in the production process.
Dessus says that SA has been lagging its peers in the Brics grouping and other emerging players in terms of TFP growth, largely as a result of increasingly tepid investment in research and development (R&D) and innovation in the country.
Private-sector R&D spend has decreased by about 40% since 2009, the bank outlined in its latest South Africa Economic Update, released this week. This resulted in overall productivity losses of 6% between 2007 and 2016.
“Given South Africa’s untapped potential for absorbing and adapting foreign technologies, private R&D can be turned into a more powerful driver of corporate profitability and economic growth,” Dessus told journalists at the launch of the report.
“Innovation can help improve the lives of the poor through the provision of better and cheaper goods and services; and expand economic opportunities through the introduction of disruptive technologies that can lower barriers to competition.”
The slow growth of small firms, which face difficulties in attracting skills and complying with tax and regulatory obligations, and the exodus of skills out of SA were also found to be important factors that explained productivity losses and the lacklustre innovation investment.
Interestingly, Dessus adds that SA lacks the new companies, or so-called “gazelles”, that translate innovation into job creation. In fact, the share of younger firms in SA is lower than of other emerging economies and is continually declining.
The bank acknowledges, however, that innovation is also perceived as a threat to social progress, given that it often lead to automation, eliminating unskilled or lower-skilled employment.
“The impact of innovation on employment creation varies by sector. Innovation can directly reduce production costs within a company and it can also indirectly reduce the cost of production in sectors using intermediate inputs that benefited from innovation.
“The magnitude of the impact depends on growth and job multipliers, and the response in domestic and international demand to changes in prices.
In turn, poverty and inequality will be affected by the impact that innovation has on creating jobs for the poorest sections of the population and on the price of goods consumed by these households,” the report reads.
In fact, studies by the bank suggest that innovation in any sector creates jobs and raises the consumption of the poorest 40% of households at the aggregate level.
The World Bank has called for the reduction of red tape for small and young firms; the easing of trade regulations; improved competition in the information and communication technologies space; the import of skilled labour; and intensified support for innovation from government as measures that will boost local innovation.
