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  • How Government led innovation can lead to long term growth

    How Government led innovation can lead to long term growth
    Author
  • Farai Mudzingwa
  • Staff Writer
  • posted 7 months ago
  • Whenever we speak about innovation and development government is largely viewed as a stumbling block that disables countries, sometimes even continents (I’m looking Africa) from making strides. With this being the prevailing feeling, I thought I would explore government-led innovation and how it can help/deter economies from growing.

    In this article we will define government-led innovation as the process of public sector actors (i.e government) initiating/facilitating the development and growth of new technologies, products or services that address societal challenges.

    Ways in which government can lead in innovation


    There are 2 clear ways in which government can be the driving catalyst for innovation:
    1. 1. Investment in Research and Development (R&D) and;
    2. 2. Policy moves that incentivise innovation.
    We will look at these two along with some case studies of the impact they have had in other countries (both positive and negative) in order to discover a fairer reflection of government involvement in innovation.

    Investment in Research and Development
    Research and Development includes activities that companies carry out to innovate and introduce new products/services. The activities tend to be separate from the operational activities that the company usually performs. At present companies like Amazon($42.7B), Apple($18.8B), Samsung($18.8B) and Facebook($18.5B) spend the most on research and development - which is why these are considered some of the most innovative companies in the world.

    R&D is not only limited to companies - *governments can get involved in the fun as well. Public sector can i)give out R&D subsidies to companies so as to reduce the companies costs of research or ii)conduct R&D at it’s own institutions and make the results available to companies existing within the country.

    *Zimbabwe has a public sector R&D arm (the Centre for Research and Development). We didn’t explore that organisation as innovation doesn’t seem to be part of it’s current mandate.

    Government giving out R&D subsidies to companies

    • In 2021, the US government gave Apple ($891m), Samsung ($1.2B) and Disney ($570m) subsidies to name a few companies. The justification for these was that the money would go towards building R&D centres, relocation of corporate offices along with new office campuses which will in turn lead to new jobs and opportunities.
    • Last year it was reported that China was working to give out $145B in subsidies to companies operating in it’s semiconductor (chip manufacturing) industry. The justification here is that China is not in the best of relations with the US right now and they have to ensure that their chip manufacturing catches up to the USA’s. That way if the tension escalates, China has less dependency on the US and has less to lose in the event of an outright falling out between the two companies. In the first example it was job creation, here it’s national security or sovereignty.

    Government conducting R&D at its own institutions

    These 4 examples paint a picture of how governments approach incentivising R&D by partnering private sector and sometimes by going it alone as public sector institutions.

    Not all smooth sailing
    As you might be thinking - most of the above examples include government working with companies or directly to develop or test out unproven concepts. This gets especially tricky when you consider that once it is the government funding R&D it is essentially tax payers (regular folks) paying for these sometimes inconclusive projects.
    Government therefore has to find ways to convince taxpayers that the projects being undertaken are worth it. A perfect example of this back and forth that fits the Zimbabwean context has been playing out over the last few years. In 2018, government launched Zimbabwe National Geospatial and Space Agency with the mandate to research on renewable energy and geological mineral mapping along with wildlife surveillance.
    All of these are great sounding ideas in and of themselves but given that Zimbabwe is is an impoverished country citizens felt the government should take care of more pressing issues. In fact when it was announced even other members of parliament laughed the idea off - meaning government itself was split on whether this was a priority. The Minister of Finance had to repeatedly contextualise and defend of the agency and its ambitions:
    The issue of the satellite was just to buttress the point about funding research and development. There is a lot that happens at universities that we are not aware of. We don't even know what these brilliant academics are doing and they aren't able to commercialise the ideas. At least on this occasion those working in the area of space research will see their ideas being realised and supported by government.

    And we're not even talking about a very expensive satellite. When we say satellite people think of space shuttles costing billions of dollars. Forget that. A space satellite could be this tiny [gestures] but the technology and quality of research that goes into is of the highest quality and that's what we're stimulating. That's the idea.

    You want R&D to result in something and we (government) have just selected something in the space R&D sector and its a satellite.

    -Mthuli Ncube (Zimbabwean Minister of Finance)
    Therein lies the biggest problem with R&D efforts led by the government. Bad investments in R&D can be used to sway votes once election season comes around and therefore public sector incentive to take risks in that domain can be limited especially in developing countries where there isn’t much precedence for what R&D can do for the country. In developed countries, governments can point to past gains made as a result of R&D and continue to embark on such projects.

    Let’s talk about another way in which government can drive innovation;

    Policies that incentivise innovation.

    Public policy is another way in which government can drive (or at least attempt to) innovation within a country. In this section of the essay we won’t explore tax incentives for R&D because we’ve talked about that plenty. We will instead explore other ways government can encourage innovation through policy and look examples.
    1. Promotion of free trade;
    2. Encouraging skilled migration;
    3. training workers in certain fields;
    Promotion of free trade

    If you inhabit our beautiful continent you may have heard of the African Continental Free Trade Area (AfCFTA). The trade agreement which was signed by 55 countries aims to “create a single market for the continent” by enabling “free flow of goods/services across the continent”.

    This mandate essentially explains the importance of free trade in a broader sense and why governments should attempt to pursue it. Free trade results in i)bigger markets along with ii)less work for those looking to participate in these bigger markets.
    Whilst the AfCFTA is still in its infancy there are other examples of FTAs being successful.

    Whilst the policies can be put in place it also takes companies investing time and effort in taking advantage of free trade policies. The AfCFTA agreement came into effect in 2021 but it is still spoken of as “having massive potential”. In late 2022 Kenya, Ghana and Rwanda were praised for being a few the first states to make use of the FTA - which means beyond the signing of the agreement not many companies on the continent have started actively making use of the policy.

    Encouraging skilled migration


    Governments can also encourage foreigners with in-demand skills to move into their country as a catalyst for innovation. The logic here is pretty simple - instead of taking years of training people and then equipping those trainees with real-world experience government can offer perks to existing workers in certain fields to ensure they migrate to their country and work in their industry.
    • One of the most prominent of these schemes is the USA’s H1-B Visa - a work visa that allows companies within the US to hire foreign workers with specialised skills to work within the US for a specified period. In 2021, USA approved of 4 million visa applications under this scheme. Countries like Canada, Australia and UK also have similar visa schemes.
    The obvious downside of using this policy to encourage innovation is that it usually applies to countries that are attractive to live in and offer great career opportunities which rules out of many industries in Africa.

    Training workers in certain fields


    This is interesting because with Africa unable to attract skilled immigrants, the alternative approach our governments can take is to actually train the the skilled workers who will then go into these industries within our continent.
    Governments investing in human capital isn’t a new phenomenon. During election season you often hear politicians promise free education as they know that it’s one of the key factors in promoting upward mobility for citizens and a country’s growth.
    These are some of the potential areas of government intervention along with their prominence in the countries most consider to be leading in matters of the economy and innovation. From all this it should be relatively clear that governance plays a huge role in a country’s ability (or lack thereof) to produce innovation.

    The way media coverage seems to portray this relationship currently is that politicians/government are on one side whilst innovators are on another but if you remove a few isolated cases and the need to generate clicks by media - both tend to work hand-in-hand in the best economies.

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