Technology Innovation Agency Bill [B 49-2007]: Hearings

Science and Technology

29 January 2008
Chairperson: Mr G Oliphant (ANC)
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Meeting Summary

The Committee received public submissions on the Technology Innovation Agency Bill. Synnovention appreciated the Bill, but proposed that a new approach to innovation should be developed and that performance measures should be put in place. A broader definition of Intellectual Property was needed.

Bioventures agreed with the Bill, however it felt that government should reconsider obtaining equity stakes in entrepreneur businesses. Because government and private investment had differing mandates this could result in adverse effects to the entrepreneurs, and might adversely affect foreign investment. Other methods should be investigated.

The Council for Scientific and Industrial Research briefed the Committee on the situation with the South African Inventions Corporation, and Members asked some questions around the formation, the assets and the financial reporting.

Network Support Services supported the Bill, and noted that if innovation was properly managed and structured then accessing funds should not be a major challenge. Innovations should be taken to market rapidly and given a South African brand. Government could act as venture capitalist, and it was important to have the right people in the right place.

Members asked how South Africa compared to other countries in terms of innovation. They requested what compromise solutions could be suggested. Members suggested that the methods used when developing the Credit Guarantee Bill would be useful pointers that could solve the dilemma facing the entrepreneurs and small business regarding capital. The Committee also suggested that the law advisors assess the clause regarding equity stake for the government.

Meeting report

Technology Innovation Agency Bill: Public Hearings
Synnovention submission

Mr Manuel Jackson, Director: Synnovention, appreciated and valued the Bill. He understood that the Bill would seek to develop and facilitate matters through capacity development. Institutions of higher learning would become more responsive to opportunities. He made several proposals, however, on the Bill. He wanted to find a new approach to innovation while taking cognisance of the unique market typologies. Universities had the ability to translate their facilities into hyper-comparative models. Institutions should not just focus on being technologically-oriented but be able to sense new developments in the environments.

An ideal model and approach towards capacity building innovation should be able to assess the sources leading towards innovation. Many sources came from government research organisations. Innovation processes would focus on what had hampered innovations. The question needed to be asked to what extent did firms or institutions have the ability to commercialise activity, and to what extent were Intellectual Property (IP) agreements formed.

A correlation between the undergraduate and final year research should be found. The effects of innovation included an increase of goods and services as well as increased efficiency and quality. There were a number of activities that could create new mindsets with regard to technological innovation.

Sources of information may differ but could include internal collaboration, other universities and consultants. Innovation cooperation should take place between government, the National Research Foundation and investment. There should be wider and sustainable public and institutional support for innovation, which could take the form of either financial or some other support. Protection of intellectual property should be viewed in a broader sense, and a broader definition of IP should be introduced.

Mr Jackson recommended that innovation could be a collaborative effort with institutions of higher learning to develop an innovation strategy that would use core information from surveys or other sources. He suggested that the method of operation could be to have internal collaborations through the establishment of centres of excellence, interface management, business plans, to facilitate institutions, and for there to be greater advocacy around innovation. He further recommended that an appropriate model include an innovation scorecard that should become the most prolific document that would look at different performance tools to be used to measure the ability of the enterprise. These may not guarantee that an enterprise be a cash cow. Research and Development Centres should be established, and commercialisation of those centres should be considered.

Biotech Ventures submission
Dr Heather Sherwin, Fund Manager: Biotech Ventures, believed that all her concerns were addressed in the Bill. There had been consultation with the venture capital industry and it was deemed that the industry was broadly in agreement with the Bill. Biotech Ventures supported the Department’s vision to amalgamate all innovation agencies and to regulate the current disparate sources of funding, but there were concerns with the Bill in its current form.

A particular issue was that the Technology Innovation Agency (TIA) would be able to hold equity stakes in the companies it would invest in. For a Government agency to hold shares in a private company was not considered to be a good idea and this was already posing a problem in the Biotech sector. There were better ways to promote small to medium enterprises (SMEs) in the biotech industry.

She justified the concerns around the equity stake as including a dilution of entrepreneurs, there would be no value-add, differing mandates, as well as issuing of unrealistic demands. All the agencies that were currently providing funding were project-specific. Government agencies were unable to move quickly and this inhibited the SMEs. Foreign investors were not keen to invest in companies that had the government as a shareholder, as they believed that government shareholders would not allow them to move the company offshore.

In conclusion, the issue of government agencies with stakeholding in private companies was important for Biotech, as for other high-tech companies in South Africa, because there was a heavy dependence on Government funding. They believed there were other ways for government to fund start-up companies and protect their investment without taking equity. They recommended that the TIA rather use soft loans, grants and non-diluting preference shares as investment vehicles. They could be an anchor investor in a Venture Capital Fund and provide guarantees to start-up companies.  

Mr J Blanche (DA) suggested using the method that was used when there was a similar issue with the insurance industry, and when the Credit Guarantee Bill was developed.

Dr Sherwin replied that it was a great way to bring in the private sector. If government could guarantee funding without inhibiting the SMEs then it would be an improvement.

Mr A Ainslie (ANC) wanted to know if Mr Jackson was satisfied with the Bill in its current form.

Mr Jackson replied that Bill would not completely satisfy all its stakeholders. The capacity measurement for innovation was broad and the innovation committee would need to look at the capacity.

Mr Ainslie asked if Mr Jackson was suggesting that when money was given to the universities then performance objectives should be given as well.

Mr Jackson replied that he had not seen any performance measurement or criteria, and perhaps that was the underlying reason that even though there were many innovations taking place, very few people were aware of them.

Mr S Farrow (DA) asked if Mr Jackson had put any thought into how he was going to capture innovation and technology and relay it to people.

Mr Jackson replied that there should be a communication strategy regarding innovation. It was a commercial activity and that there were certain criteria to adhere to.

Mr Farrow asked what other protection was there for government shareholders so that there was no loss of finances.

Dr Sherwin replied that there was purely contractual protection.

Mr Farrow followed up that there was a fear that big offshore companies would buy up South African companies and then take the business offshore.

Dr Sherwin replied that it was an issue that everyone was battling with. However there was the dilemma that by keeping companies here longer than they would normally be here, more and more money would be invested, but by preventing them from selling the companies investment would not even start.

The Chairperson commented that the problem with the private and public interest had to be dealt with. He believed that the Bill was in the public interest.

Ms B Ngcobo (ANC) asked the presenters how did South Africa compare to South Korea in terms of innovation.

Mr Jackson responded that innovation was not regulated in the Eastern bloc countries in the same way as in the western countries. The Bill did not promote a regulatory culture.

Dr Sherwin replied that South Korea could not have reached the level it had without strong government leadership. South Africa was getting close, as the government was pushing innovation as well.

Mr S Dithebe (ANC) asked if there was a compromise or a solution proposed that could accommodate both the biotech industry and the interests of government. 

Dr Sherwin replied that she supported government support and intervention and in fact supported the Bill. The middle ground, however, was difficult to find. She suggested that when the business plan was developed both sectors must sit down and engage with these issues.

Mr Blanche asked the Department about the Credit Guarantee Bill, and would like it to explore this issue.

Dr Phil Mjwara, Director-General: Department of Science and Technology, replied that the Department would look at it.

Mr Farrow noted that the biggest problem was how the Agency was going to be funded, this hinged on the Public Finance Management Act (PFMA). He proposed that those implications be reviewed as they were serious. The TIA would not be able to do anything if any surpluses were accrued. It was crucial that it be dealt with.

Dr Mjwara reminded the Committee that the original intention of the Bill was to bridge the chasm in innovation. Innovations should be viewed in context. The Department would like to add value to the IP. TIA was not a Biotechnology Regional Innovation Centre (BRIC) or an innovation fund.

Council for Scientific and Industrial Research (CSIR) submission on South African Inventions Corporation (SAIDCOR)
Dr Johan Hattingh, Group Manager: Intellectual Property and Technology Transfer, CSIR, noted that most of the issues raised were about the implementation and operation rather than the wording of the Bill. He reminded the Committee of the previous legislation that was almost identical to the TIA Bill.

He provided a brief overview of SAIDCOR. It was formed in 1962. During the period 1984 to 1988, in terms of the original Act, dti was giving money to several other technological agencies, and in line with this, a loan of R22 million was made by dti to SAIDCOR in 1988. It transferred its assets to Technifin. The Industrial Development Corporation (IDC) then became a 50% shareholder in Technifin. The dti converted its loan to SAIDCOR to share capital that was owned by CSIR. CSIR then owned 100% of SAIDCOR, which in turn owned 50% of Technifin.

In 1996 IDC exited its share ownership in Technifin and CSIR effectively became 100% owner of Technifin through SAIDCOR. In 2007 Technifin was transferred to CSIR.

Mr Farrow asked if he was satisfied that there was adequate financial reporting.

Mr Hattingh replied since the time that IDC became involved there had been scrutiny and continuous involvement from government and therefore sufficient opportunity for financial reporting.

The Chairperson wanted to know under what authority did CSIR acquire the assets.

Mr Hattingh replied that the CSIR had start-up capital from the beginning. The CSIR was the single shareholder, then IDC became 50% shareholder, then CSIR was granted funding to buy back the shares.

Mr Farrow commented that the Act does not cover the original accountability of the shareholders. There had to be transition from one Ministry to another.

Mr Hattingh replied that five years ago the entire CSIR was transferred to the Minister of Science and Technology.

The Chairperson asked that the law advisors to look into the matter.
Network Support Services (NSS) submission
Ms Lynda Odendaal, Chief Executive Officer: NSS, was impressed by the Bill and had no issues. She felt that government brought structure, as entrepreneurs were not very good businessmen. From an innovations hub perspective, obtaining capital was a major challenge as there was not enough understanding on how to access these funds. However, if it was properly managed and structured, then access to funds would not be such a challenge. She proposed that proper structures were put in place. Another challenge was that innovation moved quite quickly. These innovations should be taken to market and branded as a South African product. The Bill should not hamper the growth of the patent issues and it should increase the capability of South Africa.
The Chairperson asked what sort of structure should the government provide.

Ms Odendaal replied government should look at itself as venture capitalists. They needed to be able to be part of transformation; however, they needed to have the right people in the right place.

The Chairperson asked she would respond to Biotech Ventures’ view that government should not take an equity stake.

Ms Odendaal replied that although she understood the concerns, government was needed, but transformation was taking time and they needed to have an exit strategy.

Dr Mjwara commented that the Department was privileged to have experienced the public hearings. He noted that the concerns were essentially reduced to one clause. He accepted that the clause was not as elegantly worded as it could be, and that it sounded as if government wanted to take equity on anything. The proposed formulation would be mainly to ensure that the government had a role to play in nurturing innovation and generating a higher IP. There was a need to have an investment policy framework that allowed some of the concerns raised to be addressed and the Department would deal with the operational issues. He added that he would find out more about the Credit Guarantee Bill as a mechanism that could be used.

The issue about Sections 4(a) and (b) was discussed with the National Treasury and there might be a solution by setting up some type of hybrid. The National Treasury stated that if there was to be a Section 4(b) arrangement, it should demonstrate that external profit could be generated.

Mr Farrow added that governance needed to be entrenched in the Act to ensure that the Board worked well.

The Chairperson wanted to check that the investment policy would be referred to in the Public Finance Management Act (PFMA).

The meeting was adjourned.


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