Government and Innovation Policy An Analysis of the South African Experience since 1994

South Africa used to follow a policy of import substitution, necessitated by subscription to apartheid. However, following the democratic elections of 1994, the country abandoned this policy and put in place a whole host of measures to increase its industrial competitiveness. Policy makers gave specific attention to achieving this goal through technological development. The country has shown considerable sophistication in framing the necessary policies and institutions to hasten this process of domestic technology development coupled with a better absorption of imported technologies. However, South Africa has not shown as much sophistication in implementing and evaluating these otherwise laudable policies. For instance, a significant number of research grants have been made available to its innovation system comprising the higher education sector, the science, engineering and technology institutions(SETIs) and the business enterprise sector. But this has not resulted in desirable results, as the R&D intensity and the number of patented innovations continues to be low. An analysis of the real weaknesses of the innovation system shows that the country suffers from a severe shortage of scientists and engineers who can engage in R&D. The reason for this is a near stagnant enrolment in science and engineering subjects and possibly migration abroad. Without addressing this basic lacuna in its innovation system, the country has put in place three sizeable research grants. Given the limited number of researchers, these research grants run the risk of "crowding" themselves out. Thus the South African case once again confirms our hypothesis that countries may not be successful in stimulating R&D in their enterprise sectors by merely fine-tuning financial instruments such as research grants and tax incentives. For financial instruments to be very effective, there has to be a critical mass of research scientists and engineers.