Some good reasons for companies to invest in research and development

It has been reported that South Africa, compared to many other developing countries, has a fairly high expenditure of research and development (R&D), which currently stands at 1% of the gross domestic product.

However, it was reported earlier this year by Minister of Science and Technology Naledi Pandor, that the government had fallen short on R&D expenditure for the fiscal year 2008/2009 as it had the two previous fiscal years, with 2008/2009 having the worst recording.

This raises concerns as to whether the National Research and Development Strategy is providing the necessary results.

The strategy, as described by the sa2010.gov.za website: “emphasises the enhancement of innovation, primarily through technology. The emphasis is on technological innovation, demonstrating technology, incubating new technology-based businesses, and enhancing networks of knowledge workers and organisations in specific areas of technology.

“A second focus is strengthening science, engineering and technology human resources and transformation.

“The R&D strategy also aims at creating an effective government S&T [science and technology] system by, among others, defining the roles and functions of the country’s role-players in S&T and expanding this network to optimise R&D,” it adds.

Pandor and her team at the Department of Science and Technology (DST) have their work cut out for them with regard to investigating reasons the expenditure has fallen short each financial year, particularly as the current administration has a goal of increasing the expenditure to 1.5% by 2014, and 2% by 2018.

Pandor commented on the issue, saying that it was the government’s responsibility to establish what the issues were and why they were falling behind the 1% target.

Pandor, quoted in Business Day, said: “We really believe we must monitor far more closely and look at what we are doing in terms of our investment in our science councils.”

It was with this in mind that earlier this year, Pandor commissioned a review of the country’s innovation system to find solutions.

The National System of Innovation is a grouping of councils that serves in an advisory capacity to the government and has influence in where the money is spent.

In the 2008/2009 fiscal year, the government spent R4.28 billion which, according to the previous fiscal year, is a 5% drop.

One of the major issues that is not unfamiliar is a lack of skills. If there is not enough human capital to conduct research, then the work cannot bring to the table the results required.

The breakdown of expenditure is as follows:

• Private sector: rose 3% (R12.33bn from R10.74bn the previous year);

• Higher education: rose 3.5% (R4.19bn from R3.63bn the previous year); and

• Overseas: It has been recorded that 10% of money spent on research in South Africa fell by 10%.

The private sector has not taken on the tax incentive scheme when it comes to R&D.

It is believed, says Deputy Minister of Science and Technology Derek Hanekom, that evidence shows companies do feel it is worth their while to utilise the scheme and that it is more troublesome to apply for the tax breaks.

Called the Research and Development Tax Incentives Programme, the initiative encourages the private sector to spend more on R&D, which aims to support the government’s expenditure programme.

Having discussed the issues that R&D is facing in South Africa, let us take a look at why it is good for business, regardless of the apparent cumbersome application of tax breaks.

Firstly, conducting the necessary research allows a company to stay ahead of the game, to be more competitive.

It therefore makes sense that any developments that come through solid research will make products and services of a company much better.

Business Link (www.businesslink.gov.uk) is a United Kingdom website that lists the benefits of conducting research.

According to the website, R&D will:

• “boost sales;

• increase your profitability;

• open new markets – both in [one’s country] and overseas;

• enhance your brand and gain a reputation as an innovative business;

• attract the best employees through your enhanced reputation;

• find new business partnerships; and

• attract external finance.”

It further states that: “By looking at the business processes that allow you to manufacture, market and sell your products or services:

• You can reduce costs;

• You can improve the quality of your offer;

• You can get your product to market more quickly; and

• Your research may bring less tangible benefits – perhaps in the shape of knowledge about your market that may be useful to your business in future, but does not have an immediate commercial application.”

An important piece of advice from the website highlights the importance of protecting one’s intellectual property through any designs, research and development that is born from any research done. Not only will this protect the company’s property, it will hold it in good stead to be ahead of the competition, which essentially is the reason R&D is vitally important in today’s business.

Sources:

sa2010.gov.za

Businesslink.gov.uk

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