In today’s blog post, I repost my Business Day article in which I discuss why there is no correlation between patents and productivity in SA. The post includes detailed links to supporting evidence.
Why is there no correlation between patents and productivity in SA?
SA invests less than 1% of GDP in R&D, which limits the capacity to translate innovation into commercially viable applications
Technological advances enable firms to innovate, create new products and raise wages. In this way, technological progress is a key driver of a country’s long-term per capita income. South Africa’s poor productivity performance is therefore very concerning.
Patent filings is a widely used indicator of innovation and technological advancement. According to the World Intellectual Property Organisation (WIPO), there was a dramatic drop off in patent filings by South Africans in the 1990s. On a per capita basis, South African patent filings are down to only a quarter of its level in the mid-1980s. The result has been that the number of patents in force actually fell between 2011 and 2014.
Estimates of South Africa’s productivity growth, on the other hand, suggests that the period between democracy and the global financial crisis was characterised by strong productivity growth, but that we have experienced poor productivity growth in the years since (see here and here). Why do patent filings and productivity not appear to be correlated?
Let us start by looking at the number of patents granted in South Africa over time. The largest number of patents granted to South Africans have traditionally been in civil engineering, followed by the handling, furniture and transport sectors. The decline in South African patent grants over time is evident across most technology categories, including computer technology and biomedical patents. Things have deteriorated further post-pandemic, with annual direct patent grants between 2020 and 2023 down to only 10% of their annual level in the mid-1980s, according to WIPO data. Unfortunately the Companies and Intellectual Property Commission of South Africa does not publish statistics on patent grants, so we cannot readily corroborate the WIPO figures.
Available data show that the majority of new patent applications in South Africa have been non-resident filings, with firms in countries such as China and the United States driving the substantial surge in global patent filings (see here and here for a global picture and here for relative shares in SA filings). An important reason has been changes in patent strategies by large tech firms, with companies such as Huawei, Samsung and Apple competing worldwide to protect their existing innovations.
A possible explanation for the lack of correlation between patents and productivity may therefore be that the number of patents granted is not a good reflection of the extent of innovation in an economy. Patents may also vary in their viability for commercialisation or their ‘quality’.
In markets such as the United States, the disconnect between patents granted and productivity takes a different form to that in South Africa: patent filings have been rising strongly since the 1980s but productivity has not followed suit. One possibility that has received attention in the US case is that much of the growth in filing reflected ‘derivative patents’, with the number of original ‘creative’ dropping off sharply since the early 2000s.
But its not just in patent filings that South Africa performs poorly relative to countries that are becoming wealthier over time. South Africa invests less than 1% of our GDP in research and development (R&D) and has a relatively low number of researchers per capita compared to major emerging markets. Worldwide, there is a positive relationship between R&D and long-term productivity growth. South Africa however finds itself in the low R&D-low productivity group globally. This under-investment limits the economy’s capacity to translate domestic and foreign innovation into patents and commercially viable applications.
Despite the hype about AI and the fourth industrial revolution, South African companies are not accumulating their own intellectual property. Whereas one observes a rise in the share of intangible capital (intellectual property and brand value) in many fast growing economies such as the US, in South Africa the share of intangible capital remains at the same level it was in 2005.
There is a raft of South Africa-specific macro- and micro-economic factors that affect South Africa’s innovation ecosystem, constraining not just patent development but adoption of new technologies more generally. South Africa’s economy is characterised, for example, by concentrated markets, with large firms dominating key sectors. This is a potential reason for a lack of competitive pressure to adopt new technologies.
Even in sectors where South Africa has a comparative advantage in terms of resources or economies of scale, such as mining, there is limited evidence that South African firms are converting their technical knowhow into monetisable assets. As technology firms are becoming increasingly important for driving innovation, the slow growth of South Africa’s tech start-up sector is of increasing concern.
In this respect, regulatory hurdles are particularly important factors that discourage investment and formation of start-ups in South Africa. We have written several articles in this newspaper describing how poor regulatory frameworks and concerns about enforcement of intellectual property rights discourage innovation and investment in South Africa (see here, here and here).
Another noteworthy challenge is a shortage of scientists and engineers. Despite the growth in the number of science, engineering and technology degrees conferred in South Africa, there has been steady out-migration of many skilled professionals to countries that offer better opportunities for innovation.
The result is that South Africans are becoming poorer. Not only has South Africa’s GDP per capita been falling over the last decade, but it is projected to continue to fall by the IMF.
South Africa’s anaemic investment rate and poor entrepreneurship rate are, in large part, a consequence of growing state interventionism, despite collapsing institutional capacity. If the Government of National Unity is serious about kickstarting growth and creating jobs, it must remove impediments to innovation and entrepreneurship in South Africa.
Footnote
Note that the WIPO data shows a much more dramatic decline in patent grants by technology sector than in the aggregate figures, suggesting that the more disaggregated figures may not be fully representative. Unfortunately, the Companies & Intellectual Property Commission of SA (CIPC) does not publish statistics on patent grants, so we cannot readily corroborate the WIPO figures. The CIPC also did not respond to our data query. We will, however, compare WIPO data to alternative sources, including data which we will compile from individual CIPC records, in upcoming posts.
