South Africa's business sector is funding a significantly smaller share of the country's research and development (R&D) than it did a decade ago. According to the Ministerial Working Group on Science, Technology and Innovation Funding, business sources accounted for 29% of South Africa's gross expenditure on research and development (GERD) in 2022/23, down from 41% in 2013/14. This decline has prompted calls for new incentives to attract private-sector investment in innovation.
The share of R&D funding from government sources rose from 43% to 51% between 2013/14 and 2022/23, while funding from international sources increased from 13% to 17%. R&D expenditure carried out by the business sector also declined as a share of total research spending, from 46% to 36%. The report highlighted that stronger domestic investment in R&D would support innovation, industrial development, and job creation while reducing South Africa's exposure to sudden shifts in foreign funding.
The Ministerial Working Group was appointed after United States federal funding was withdrawn from key South African research programmes, bringing wider weaknesses in the country's science and innovation funding system into sharper focus. The report questioned whether existing measures intended to encourage companies to undertake research were working, citing that the R&D tax incentive has been administratively burdensome and ineffective.
The working group recommended an overhaul of incentives available to businesses, including reform of the R&D tax incentive, possible tax exemptions, and greater use of Special Economic Zones to stimulate investment. They also suggested that the Department of Science, Technology and Innovation, the Department of Trade, Industry and Competition, and National Treasury consider co-investment grants, innovation vouchers, pooled challenge funds, and concessional loans.
The report identified areas where research and innovation could support national development, including health, energy and water security, food security, climate change, artificial intelligence, and green technologies. It argued that increasing research expenditure would need to be accompanied by stronger links between research, industrial policy, and the needs of companies if South Africa wanted greater economic benefits from innovation.
The working group proposed progressive targets requiring state-owned enterprises to increase their research, development, and innovation spending in areas linked to national priorities. They also recommended a dual funding model combining mission-driven grants for long-term national priorities with competitive funding for basic and use-oriented research.
South Africa's overall research investment has weakened, with GERD falling from 0.73% of gross domestic product in 2013/14 to 0.61% in 2022/23. The working group recommended that government, organised business, and labour negotiate a compact containing clear commitments to progressively increase GERD to 1.5% of GDP by 2035.
Key points
- Business-funded share of South Africa's R&D fell to 29% in 2022/23.
- Government proposes new incentives to attract private-sector investment in innovation.
- South Africa's research investment has weakened, with GERD at 0.61% of GDP in 2022/23.
