The fifth edition of the South African Investment Conference closed with a sense of positivity, with President Cyril Ramaphosa saying R460bn in capital had been invested in building new factories, purchasing equipment, constructing roads, sinking mine shafts and rolling out broadband infrastructure over the preceding five years with a view to attracting another R2-trillion over the next five years.
Missing, however, was a critical emphasis on the pathways for intensified investment in the digital sector and what the opportunity and local economy trickle-down implications of this could be.
In addition, despite noting the government's intention to implement a social compact with the private sector, the detail remains thin on what an effective co-operation model would look like to ensure meaningful crowding in the private sector into our investment aspirations.
The Report of the Presidential Commission on the 4th Industrial Revolution (PC4IR), published in 2020, went a long way to articulating the research and development (R&D) and technological investment and growth pathways for our economy, but little progress has been seen in mainstreaming that in our investment promotion and marketing exercises.
Crowding investment into our digital economy will remain one of the critical levers for the global competitiveness of the South African economy. It opens various investment pathways into infrastructure, digital services and manufacturing as well as supporting production in mining and agriculture.
A view of these pathways is critical in modeling the investment effect for each rand we market for our economy.
At a macro level, the Institute for Economic Justice in its 2020 report "Fiscal Policy in South Africa: Closed Input-Output Income and Employment Multipliers" found that an investment of R1bn would create income of R1.68bn and roughly 6,900 new jobs.
At a sectoral level, the Trade & Industrial Policy Strategies (Tips) found that R1bn invested in agriculture, forestry and fisheries would generate 4,955 jobs, 5,978 in community, social and personal services, 2,397 in business services, 1,343 in mining and quarrying and 1,945 in construction.
However, research shows that hi-tech sectors are not only emerging with the highest employment multipliers but are increasing the multiplier impact levels of other sectors.
Simply, if we double down on our investment in hi-tech sectors, we can expect to see a broad-based lift in the employment and growth outcomes of other sectors in the economy as well.
If we double down on our investment in hi-tech sectors, we can expect to see a broad-based lift in the employment and growth outcomes of other sectors in the economy as well
This point is corroborated by Mahendhiran Nair and others in their 2020 paper "Endogenous Dynamics between R&D, ICT and Economic Growth" for OECD countries. They found that R&D and information and communications technology (ICT) investment was a key driver for broad-based economic growth.
The challenge, however, is that globally some of the large investment-ready global technology firms are faced with complex co-operation models and legislative pressure points in highly converged local ICT sectors.
South Africa is no different with increasing regulatory pressure from the Competition Authority without a clear roadmap on how the government plans to encourage growth, investments and development of local technology and digital solutions.
The critical part in our investment promotion will be government effectively communicating the co-operation model it believes would support growth and investment aspirations at a sectoral level. For example, the co-operation model needed for oil and gas investments would be different to one required for ICT infrastructure.
Some co-operation models worth exploring, particularly for the technology sector, are often referred to as the “triple helix model of innovation”, which crowds in knowledge generators (academic institutions, industry and government) for targeted innovation policy design.
Research by Filip Fidanoski and others in their 2022 paper "The triple helix in developed countries: when knowledge meets innovation?" found that the triple helix model offers lower cost of inputs for higher levels of innovation, and that the model itself has generally been underutilised.
In the US this model has been used to fund R&D that has broad commercial and social benefits but is too risky for one company to take on.
In addition, they note that a triple helix co-operation model has the potential to unlock value because such partnerships are more likely to encourage firms to undertake socially beneficial R&D while ensuring sustainable growth of local, technology-led businesses.
For the sixth iteration of the investment conference we would greatly benefit from a targeted technology-led investment promotion which not only recognises the direct and indirect economic and developmental opportunities but also the institutional co-operation framework that will sustainably unlock the envisaged investment-led growth and development.
* Skenjana is an economist and MD of ESG Analytics
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