DSI on its activities aimed at stimulating/increasing business investment in RDI

Meeting report

Opening 
The Chairperson, Ms N Mkhatshwa (ANC), opened the meeting, noting the absentees with apology. She commented that they had not seen the Director-General (DG) of the Department of Science and Innovation (DSI). She jokingly said she hoped to see the DG sometime this year. She outlined the agenda for the meeting to the Members.

The Chairperson recalled discussing the quarterly report in the previous week, specifically the impact of the budget cuts. She looked forward to hearing the presentation.  

Dr Mmboneni Muofhe, Deputy Director-General (DDG): Socio Economic Innovation Partnerships, DSI, lead the Committee through the presentation.

DSI Briefing on Decline in Business R&D and Impact of R&D Tax Incentive Programme
The Committee was taken through the trends in gross expenditure on Research and Development (R&D), noting gross expenditure on R&D (GERD) in South Africa was estimated at R38.19 billion in 2021/22, according to the latest available data. GERD aggregates the in-house R&D expenditure in five sectors: government, science councils, higher education institutions, business sector, and the not-for-profit sector. In nominal terms, R&D expenditure has expanded over the past two decades but has been in decline over the three years (2018/19 -2020/21). In 2021/22, in constant 2015 Rand terms (real terms), GERD increased for the first time in three years, however over ten years (2011/12 to 2020/21), an average annual growth rate of about -5% is seen. This is very concerning.

Members were taken through graphs noting that in 2003/04, business contributed to R&D funding of about 55%. However, this dropped significantly to 29% in 2021/22. Government has taken up the slack and has moved from a low 34% in R&D funding in 2003/04, to 53% in 2021/22. Funding from all sources increased in 2021/22, government funding the largest proportion, followed by the business sector and foreign funding. R&D funding secured from foreign sources increased by R1.078 billion (24.2%) in 2021/22, from R4.462 billion to R5.539 billion. Consistent with previous years, the higher education sector was the major beneficiary of the foreign funding. The business sectors received an increase of 104.7% (R1.024 billion) of foreign funding from R978 million in 2020/21 to R2.003 billion in 2021/22.

The presentation discussed characteristics of business expenditure on research and development (BERD) - the bulk (more than 90%) of BERD comprises applied research and experimental development, as opposed to higher education institutions which spends more on basic research. These differences point toward the importance of connections between private sector and public sector-driven research. The presentation presented an international picture and limitations on BERD in SA.

The presentation then looked at the R&D tax incentive policy review and suggested actions to increase R&D and the innovation fund.

See attached for full presentation

Discussion:
The Chairperson mentioned that the concern about investment of business in the private sector and research and development (R&D) was not new; it has been discussed on many occasions. She had hoped to see progress in the investment of the private sector. The Decadal Plan, a ten-year plan, was finalised in 2023 and she hoped the plan would be implemented successfully. She recalled the visit to Switzerland, where it was discussed how business investment in the private sector and research development would manifest. She commented that it made sense that business would want to invest in spaces of research development. She believed this was achievable and noted the slides indicating restrictions to achieving such a goal. She asked if it could be an attitude problem; if the DSI were to work on the restrictions listed on slide 19, would the matter be resolved or would there still be a slow pace of business investments? She observed that business was interested in expanding into research development. If business were to find a way to strengthen the technology stations (TS), then this model could expand to the Technical and Vocational Education and Training Colleges (TVET). The TS could harness and strengthen world-class TVET colleges to have advanced level of applied research capability in terms of research development. She recalled an oversight trip to Durban a year ago where the great work done at the Durban University of Technology (DUT) was witnessed and the capacity available to attract the business industry displayed. She welcomed the presentation and asked if there was a decline/regress in investment from business over the years. Or was there greater investment from government?

Ms J Mananiso (ANC) welcomed the presentation. She complimented the DSI for making it easier for the Committee to speak of the developmental state capacity. She appreciated their work. She was mostly covered by the Chairperson’s reflections. She inquired if there was a plan in place on how to unfold engaging the business sector with the private sector? If so, could a written plan be submitted? She noticed a digital programme created by small, medium and micro enterprises (SMMEs) to check interest in innovation. Was there such a platform for the rural areas? Such areas had many connectivity issues, and it would not be fair to leave them out.

Regarding the Innovation Fund highlights, what was the involvement of other innovations? The districts could play a role in ensuring that the services were accessible to small businesses absorbed in the system. Were there any monitoring systems for businesses not absorbed by the system? What was the role they played in terms of patriotism? Regarding the proposals for innovations, were there due dates for the calls for proposals, or was it right through the year? What was the implication behind disclosing the turnover sizes of companies? What was the reason for not disclosing the turnover size of the company? She agreed that R&D incentives would require more incentive programmes. Most people in informal settlements knew about the information, but did not know how to access it. Could the Department ensure they reach all corners of the country in issuing of information, without leaving anyone out? Most people lacked awareness.

The Chairperson was glad that Ms Mananiso raised the publicity interventions. Perhaps the presidential plenary could assist with informing all the embassies of R&D work done in the country. Were the embassies aware of this initiative? This would assist the embassies in articulating the great work done through their engagements, and it would lead to more investments in the country. How were some of the engagements with the embassies so they could know the products within the national system of innovation?

Response
Dr Muofhe introduced a member of his team who arrived late. He was glad to receive the questions and promised to have them all answered by various members of his team.

Regarding business engagement, the DSI has thus far begun engaging with Business for South Africa (B4SA) and embarked on the management of pertinent issues. Dr Muofhe had ongoing engagements with the Council for Scientific and Industrial Research (CSIR) to monitor logistical aspects and progress in innovation. Progress was made in this regard. This increased visibility to business of the work done by the DSI and government. Dr Muofhe recalled a crime and corruption prevention meeting he had attended the previous week. Utilising various technologies, including cyber security, was on the agenda. Several projects are underway in a quest to find solutions. Results of the DSI private sector interaction initiatives should become more visible in the next two to three years.

Regarding the Innovation Bridge and its accessibility, a programme called the Innovation for Inclusive Development (IID), is the driving force behind the creation of innovative spaces. These will be powered by access to the internet and are an extension of the DUT’s TS services. The strategy for the TS is currently being finalised and is central to the growth of the TSs beyond its current state. Various models were looked at, such as technology transfer offices at universities and living laboratories. The TVET colleges are the anchors of some of these programmes.

Regarding the question on embassies, before an ambassador leaves his or her post, the DSI was required to conduct a presentation on the various capabilities of government to create awareness of the technologies being implemented. One embassy complimented a company for wanting to design small satellites for the country. Increased engagements with embassies would contribute to progress of the plan. Dr Muofhe had been working on this initiative for some time now.

Publicity is an important work area of the Department, and this assisted with staying connected to the communities in promoting and growing the DSI programmes.

Dr Muofhe confirmed that the DSI was certainly out-investing the businesses, even with a slow growth rate. There was a need to continue engagements, as there was little trust between the government and the business sector. The DSI did invest in increasing confidence as to grow partnerships.

Ms Kgomotso Matjila, Acting Chief Director: Science and Technology Investment (ACD: STI), DSI, responded that slide nine indicated that the DSI was investing more than businesses and that slide ten depicted the proportions.
 
Results of surveys conducted, such as the Main Innovation Survey, found that 70% of companies took R&D to heart. Successful research requires a conducive environment. The DSI played that role in the public sector. The DSI implemented efficient budget allocations within all levels of government and is assessing if the allocated budget is indeed used for R&D. This initiative is implemented with the Department of Planning, Monitoring and Evaluation (DPME) and National Treasury (NT). The DSI is looking forward to seeing implementation results in the public sector.

There were no implications for companies that did not disclose turnover sizes. However, with the introduction of the new online system, it will be compulsory for companies to disclose their annual turnover to draw this data. This would not be a problem in the future. Ms Matjila acknowledged that the person completing the application may not have knowledge of the turnover. Confidentiality in terms of the Protection of Personal Information Act 4 of 2018 (POPIA) is a stumbling block.
 
Regarding the awareness programmes, some restrictions could be managed, including those that were outside of the control of government. Ms Matjila felt they had more influence with the awareness programmes as they partnered with government departments to raise awareness. Visits to the provinces are conducted. The awareness creation is a priority of the government and unfortunately, these programmes are usually the first to be cut from a budget. There needed to be a balance.

Ms Sunita Kalan, Director: Sector and Local Innovation (D: S&LI), responded to the monitoring system for students in need. The DSI relied on the industry to gather information from universities with which they had partnered to manage the R&D programmes. Often, employment occurred after the R&D project and it was at times challenging to locate students after the programme had ended.

Only students who studied degrees addressing industry needs were supported through the Sector Innovation Fund (SIF). The monitoring was easier in specialised industries such as the wine industry, a niche industry, where recipients could be located easier and monitored. This was a challenge all around but the DSI tries very hard to monitor the students. The POPIA poses additional challenges.

The calls for assistance to the SIF were not open-ended. The proposal process ran for a selected period of time, which was about three to four years. There were currently no open calls due to lack of funding. Continuing with the programme would also rely on funding.

There were initiatives in place within the Department to ensure that an effort was made to reach out to those who were in unreachable areas. The programmes included the Living Labs programme, the Initiative for Developing Innovative Champions and the Regional Innovations Support programme. These tried to build innovation ecosystems in the unreachable areas such as Siyabuswa in Mpumalanga. There are programmes in the DSI that have tried to address this issue.

Dr Muofhe responded on the District Development Model but then stopped halfway through his comment because he got a cellular phone call from the next speaker.

Mr Koni Rashamuse, Chief Director: Innovation Priorities Instrument (CD: IPI), responded to the Innovation Bridge project. The aim was to make the portal zero-rated so as to provide access for all. The wish was to use the higher education associates, such as the TVET Colleges, to host road shows to promote the portal as this would aid in expanding their reach.

Entrepreneurs were at a stage where they could raise capital and were easily approachable. There would be a programme that would feature a certain district. Mr Rashamuse agreed with the Members that this would open more areas thus providing additional opportunities for services such as health and medical device access.

Dr Muofhe continued saying they were mapping out all the projects, and once they were registered, these could have a larger impact. The Living Labs is an extension into the more remote areas and is used as an anchor for a whole range of initiatives. Unreachable districts and areas were noted as to include these on the programme.

 A project monitoring the young people who accessed the system is being pioneered. This would help to assess the impact of the programmes. It meant that over a span of five years, it would be possible to say that in year one, x number of students were assisted, where they all ended up following the assistance, what number were employed, and what number started their own businesses. The system would provide detailed information. With time, the DSI hoped to provide tracking outcomes. The DSI operated a hybrid system. There was a programme of allocated calls received. For instance, someone could make a call for Grassroots Innovation. Once an application was considered and closed, another call would be received. Some departmental programmes run were open-ended, such as the Innovation Fund; these fund managers could be contacted at any time. Programmes were closed if funds were not available.
 
Some initiatives were already actively engaging with the business sector whilst some engaged with B4SA. In closing, Dr Muofhe requested the Committee to correspond with the DSI if any questions were missed.
 
Closing comments:
The Chairperson thanked the DSI for their presentation and said they would certainly write if there were unanswered questions. They would soon discuss the report and would discuss how the DSI may be supported in overcoming obstacles.

She asked that the adoption of the minutes be postponed to the next meeting.

The meeting was adjourned.