A Harvard Business School study by Hong Luo and Alberto Galasso noted that COVID-19 has spurred innovation globally, a trend evident in South Africa.
Businesses are adopting new technologies, products, and strategies to mitigate pandemic risks, leveraging digital and automated solutions.
A national business innovation survey by the Centre for Science, Technology and Innovation Indicators, the Department of Science and Technology, and Statistics South Africa, covering 2014-2016, provides insights into the state of innovation and its potential to drive sustainable growth.
Pervasive Innovation Across Sectors
The survey revealed that nearly 70% of South African businesses were innovation-active, engaging in scientific, technological, organizational, or commercial advancements, a rate comparable to OECD countries.
Innovation was prominent in engineering, technology, manufacturing, and trade, with distinct patterns:
- Manufacturing led in product (59.8%) and marketing (43.4%) innovation.Logistics excelled in process innovation (61.7%).
- Finance and manufacturing topped organizational innovation (52% and 49.1%, respectively).
- Mining and utilities showed lower innovation levels.
Businesses invested heavily in training and IT capabilities, with machinery and equipment as the largest innovation expense.
Many adopted advanced technologies like computerized design, supply chain systems, business intelligence, and green technologies, laying a foundation for further innovation.
Innovation Outcomes
Innovation had incremental rather than radical impacts, with 80% of turnover from unchanged or slightly modified products. Only 10.8% came from market-new products, 7% from business-new products, and 1.8% from world-first products.
Quality improvement was the top outcome, cited by 38% of product/process innovators and nearly 50% of organizational innovators. Other benefits included increased revenue (31.8%) and improved profit margins (30.9%).
Only 7.5% of innovators reported success in entering or expanding export markets. Innovation-active firms accessed national (58.1%) and global markets more than non-innovative ones (37.7%), which were limited to provincial markets (57.4%).
Barriers to Innovation
The survey identified key barriers:
- Market Factors: Market dominance by established firms, high competition, and uncertain demand were the top hurdles, especially for non-innovation-active businesses citing low demand.
- Cost Factors: High innovation costs and limited funding, with 77% of businesses relying on internal funds and only 1.7% accessing government support.
- Knowledge Factors: Less significant but could benefit from stronger ties to skills development.
- Institutional Factors: Legislation and infrastructure were not major barriers.
Solutions for Growth
To address these barriers, structural economic reforms are needed:
- Stimulate Demand: Regulatory changes to ease business creation and improved transport/communication infrastructure can boost markets, especially amid COVID-19 challenges.
- Enhance Funding: Public initiatives like the proposed Sovereign Innovation Fund and R&D tax incentives, alongside conditions to attract private equity, could drive innovation.
- Skills Development: Strengthening links between innovation and training programs can address knowledge gaps.
Path Forward
South Africa’s robust innovation activity, as evidenced by the 2014-2016 survey, provides a foundation for leveraging digital technologies in 2020.
The pandemic has accelerated adoption, but sustaining this requires targeted policies.
By addressing market and cost barriers and enhancing funding and skills, South Africa can scale innovation across sectors, fostering inclusive and sustainable economic growth in a post-COVID landscape.
