There is an outdated notion that the “brain drain” is a zero-sum game, in which one country receives the skills of the (presumably highly qualified) emigrating individuals or households, and the former home country is the losing party.
Issues of labour supply are influenced by factors such as labour mobility policies, research & development (R&D) spend, and skills return to R&D spend, sector growth and comparative advantage.
SA is estimated to have been losing 21,000 individuals to emigration yearly since 1990, according to the UN’s total international migrant stock data set. In terms of emigration rates, Somalia ranks first (worst) globally, and Sweden 176th (best), while SA is 95th. According to Stats SA, more than 400,000 South Africans have repatriated since the global financial crisis.
This, coupled with the foreign skills the country has been able to attract, means that the idea of a skills drainage from the SA economy is more complex than meets the eye, and the net effect on economic growth is just as complex. Labour markets are dynamic, and as a result skills development tends to closely follow labour market opportunities. In fact, some arguments suggest that migration can create opportunities for human capital development.
R&D spend
Economists Frédéric Docquier and Hillel Rapoport found in their paper “Skilled Migration: the Perspective of Developing Countries” that prospects for migration led to higher domestic education enrolment, to improve one’s chances of finding a new host country. In fact, universities have played an increasing role in the national system of innovation as the government has allocated a growing portion of R&D funding towards applied research and a deepening of the knowledge economy.
The relationship between R&D and human capital development is widely researched and understood to be a positive one. The labour supply equation and the sector concentration of that labour therefore becomes materially affected by the level of R&D spend in the economy. The gross expenditure on R&D in SA has been increasing every year for the past seven years, growing 3.1% year on year at 2010 constant prices.
The government is responsible for 46.7% of total expenditure, while business expenditure on R&D contributes 41.5%. As we lose some skills to other economies, new skills are thus being developed, often not just to plug the hole but to satisfy new and growing skills demands in other sectors of the economy. R&D spend has a two-way causal effect on economic growth: higher spend leads to higher growth, and higher growth leads to higher spend.
Not maximising returns
Labour productivity has almost tripled over the past 20 years in SA, despite some of the sectors becoming less competitive over the same period. This is in the context of finance, real estate and business services growing to become the largest contributors to GDP — more than 22% — while manufacturing has continued to dwindle to about 13%.
In their research exploring patterns of investing into business R&D in SA, Neo Molotja, Saahier Parker and Precious Mudavanhu extrapolated data from the HSRC R&D surveys and found that private sector R&D spend has largely been concentrated in finance, real estate and business services, and manufacturing, contributing 39% and 34.6% of total spend, respectively, in 2017.
This suggests that the returns of R&D have been higher in finance, real estate and business services, while R&D in manufacturing needs to continue taking place just to remain competitive. This is while SA has lower comparative levels of brain drain in the academic and professional spaces. The country is not maximising its returns from R&D spend, while business spending on R&D has declined 34% since 2009.
We need to study how smaller economies such as Israel, Ireland and Taiwan have been able to scale innovation-based industries through state-led initiatives.
• Skenjana (@sifiso_skenjana) is founder and financial economist at Afra Consultants. He is completing a PhD in finance for development.
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