Boosting Private Sector’s Investment in Innovation Could Help South Africa Create Jobs and Reduce Poverty

Harnessing South Africa’s largely untapped potential for innovation could increase the economy’s productivity, propel job creation, and be of benefit to the country’s growing number of poor,according to a World Bank report released today.

The report finds that South Africa’s 6% dip in overall economic productivity from 2011 to 2016 was due, at least in part, to a sharp drop, estimated by some at 40%, in private research and development (R&D) expenditure since 2009.

South Africa’s productivity growth is diverging from global growth, and the country risks falling further behind its peers,” said Paul Noumba Um, World Bank Country Director. “This would be to the detriment of the poor for whom a growing economy is necessary for jobs and a sustainable system of social grants. In such an environment, South Africa can turn to encouraging private innovation as one of several ways in which to improve people’s lives”.

In its tenth Economic Update for South Africa, the World Bank’s projection for economic growth in 2017 is 0.6%, revised down from 1.1% in January. GDP growth is expected to pick up to a moderate 1.1% and 1.7% for 2018 and 2019 respectively, spurred on by an improvement in commodity prices and a strengthening in the balance sheets of households.

The report’s special focus section analyzes opportunities for innovation to become a more central part of South Africa’s economic model of shared growth. Simulations done for the report suggest that that innovation could propel job creation and would also raise the consumption of the poorest 40 per cent of households from its spillover effect by putting pressure on prices.

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,” said Sebastien Dessus, World Bank Program Leader. “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.”

Brain drain and the slow growth of small firms were also important factors in productivity loss. The report argues that improving the business climate for startups could help South Africa harness its large innovation potential. This could be done by more effective public support for innovation, as well as by encouraging skilled immigration and strengthening competition in new emerging industries, such as Information and Communications Technologies (ICT), and facilitating trade.

Although South Africa emerged from recession in the second quarter of 2017, per capita income had barely increased in the preceding six years, leading to more than 3 million people joining the 30.4 million South Africans (of a population of about 55 million) living on less than US$2.9 a day.

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