National Treasury and Department of Science & Technology Review Of

National Treasury and Department of Science & Technology National Treasury: GTAC 007-2017 (PN730-j RDI) Review of the funding systems, mechanisms, and instruments adopted by government in funding for research, development and innovation including an international bench-mark analysis Report 22 February 2018 Date Client 22 February 2018 National Treasury & Department of Science and technology Disclaimer: All care has been taken in the preparation of this document and the information contained herein has been derived from sources believed to be accurate and reliable. RebelGroup does not assume responsibility for any error, omission or opinion expressed as well as investment or other decisions based on this information. All opinions expressed in this report are the responsibility of RebelGroup and do not necessarily reflect the opinions of the National Treasury, GTAC or the Department of Science and Technology. Acknowledgments: RebelGroup would like to acknowledge the contribution of the many people who contributed information, time and effort in service of this project. A word of thanks to the following; project steering committee members (including officials from the Department of Science and Technology and staff from the National Intellectual Property Management Office) as well as the staff of Centre for Science, Technology and Innovation Indicators (CeSTII) who provided invaluable support in sourcing necessary data for this exercise. We are particularly thankful to: Mr. Godfrey Mashamba Ms. Mavis Anim Mr. Sandisa Siyengo Dr. Kerry Faul Ms. Natalie Vlotman Dr. Glenda Kruss Ms. Natalie Vlotman Mr. Vinod Singh Project team: Mr. Andreas Bertoldi Dr. Chux Daniels Mr. Christian Gable Mr. Rodney Kukubo Dr. Sibusiso Sibisi Prof. David Walwyn Contact: RebelGroup Contract person: Andreas Bertoldi 2nd Floor, West Wing, 158 Jan Smuts Avenue, Rosebank, 2196, Johannesburg, South Africa Tel. +27 010 591 1232; Mobile. +27 83 289 4135 Email. [email protected] ©2018 RebelGroup South Africa ©2018 RebelGroup South Africa National Treasury: GTAC i Review of government funding for research, development and innovation Report Table of Contents 1 Approach and Methodology 6 1.1 General Objectives 6 1.2 Specific Objectives 7 1.3 Focus of the Analysis 8 1.4 Report Structure 8 2 Step 1: Institutional Analysis 9 2.1 Definitions and Theory for Research and Development 9 2.1.1 Definitions for types of Research and Development 11 2.1.2 Definitions of a National Systems of Innovation 12 2.1.3 Definitions of Actor Categories 13 2.2 Rationale for the Public-Funding of R&D 13 2.2.1 Market Failures 15 2.2.2 Knowledge Spill-overs 16 2.2.3 Human Resource Development 16 2.2.4 Support for Public Goods and Services 16 2.2.5 Global Competitiveness and Economic Growth 16 2.3 Barriers to Return on Investment in R&D 17 2.4 Policy Environment and Policy Intent for Public-Funded R&D in South Africa18 2.4.1 White Paper on Science and Technology 18 2.4.2 National Research and Development Strategy 19 2.4.3 Strategic Management Model of 2004 20 2.4.4 Policy Intent of the Programme 21 2.5 Institutional Landscape and Situational Analysis 22 2.5.1 Actor Hierarchy: Institutional Linkages between Actors and Funding Flows23 2.5.2 Understanding the Functional levels within the R&D System 25 2.5.3 Governance and Research Functions within the South African R&D System26 2.5.4 Strategic Intelligence 26 2.5.5 Vertical Steering and Contracting 27 2.5.6 Horizontal Coordination 28 2.5.7 Flow of Funds across the Levels 29 2.6 Comparative Examination of SA R&D Landscape to International Examples 31 2.6.1 Open versus Closed Budget Processes of R&D Funding 31 2.6.2 Benchmarking South Africa with Key Performance Indicators 31 2.6.3 Strategic positioning of the government function on Science and Technology 34 2.6.4 Trends and Structural Changes to R&D Funding Mechanisms 34 2.7 Findings from the Institutional Analysis 39 2.7.1 Funding Coordination and findings for Funding Mechanisms 39 2.7.2 Monitoring and Evaluation for the R&D Landscape 40 3 Step 2 and 3: Logical Framework and Indicators for Public-Funded R&D 41 3.1 Theory of Change 41 3.1.1 Inputs 43 3.1.2 Activities 43 3.1.3 Outputs 43 3.1.4 Immediate Outcomes 44 3.1.5 Intermediate Outcomes 44 ©2018 RebelGroup South Africa National Treasury: GTAC ii Review of government funding for research, development and innovation Report 3.1.6 Long-Term Outcomes and Overall Impact 45 3.2 Indicators 45 3.3 Work Breakdown Structure 46 4 Step 4: Expenditure Analysis of Public-Funded R&D 53 4.1 Purpose of the Expenditure Analysis 53 4.2 Data Analysed 53 4.3 Overall Spending for R&D Programmes 58 4.4 Intramural versus Extramural Expenditure 61 4.5 BAS Data compared to secondary data sources 63 4.6 Performance Expenditure by Socio-Economic Objective 68 4.7 Conclusions 70 5 Step 5 and 6: Costing Model Exercise and Trade-offs 72 5.1 Costing of R&D Outputs 72 5.1.1 Main Cost Components and Relative Costs for R&D Outputs 72 5.1.2 Actual Costs 73 5.2 Methodology for Costing Exercise within the PER 73 5.2.1 Definition of the Key Performance Indicators 74 5.2.2 Publication Equivalents (Scientific Publications) 74 5.2.3 Research Qualifications 75 5.2.4 Patents Granted 75 5.2.5 Intellectual Property Income 75 5.2.6 Technology Packages and Spin Outs 75 5.2.7 Contract Research Income 76 5.2.8 Relative Valuation of the Indicators 76 5.2.9 Model Application 79 6 Conclusions of the PER 81 7 Appendix 1: Glossary 82 8 Appendix 2: References 84 9 Appendix 3: Respondents List (BAS, CeSTII, STA) 87 ©2018 RebelGroup South Africa National Treasury: GTAC iii Review of government funding for research, development and innovation Report List of Figures Figure 1: PER Standardised Methodology 7 Figure 2: Impacts of public funding of R&D 14 Figure 3: Evolution of South Africa's R&D policy environment 18 Figure 4: Strategic framework of the NRDS 20 Figure 5: Actor hierarchy as per the PER 24 Figure 6: Functional Levels within the R&D System 25 Figure 7: Illustration of Funding Flows through National Department 30 Figure 8: Major funding flows for R&D from all sources in South Africa, 2014/15 30 Figure 9: Funding flows for STA and programmes 31 Figure 10: Public funding for PRIs and HEIs (2000 to 2010; constant 2005 $) 35 Figure 11: Changes in Policy Mix for innovation policy 38 Figure 12: Major Funding Instruments in the Policy Mix for Innovation (2014) 39 Figure 13: Theory of Change for South African Public-Funded R&D 42 Figure 14: Theory of Change for South African Public-Funded R&D 47 Figure 15: Funding flows for STA and programmes 54 Figure 16: Data Hierarchy and Relationships 55 Figure 17: Estimated Total Government BAS and R&D Expenditure (2013/14 -2015/16) 58 Figure 18: GDP to Government R&D BAS Expenditure (2013/14 -2015/16) 59 Figure 19: R&D BAS Expenditure Top Ten Departments (2013/14 -2015/16) 59 Figure 20: R&D BAS Expenditure Transfers and Intramural (2013/14 -2015/16) 61 Figure 21: Selected Entities Transfers by Source of Department Funds (R&D BAS Expenditure 2013/14 - 2015/16) 62 Figure 22: Selected National Departments Intramural Expenditure (R&D BAS Expenditure 2013/14 - 2015/16) 63 Figure 23: Departments within BAS but without GBAORD figures (BAS and STA Data) 63 Figure 24: Final BAS Expenditure compared to GBAORD (2013/14-2015/16) 64 Figure 25: Intramural R&D BAS Expenditure compared to CeSTII survey data (2013/14-2015/16) 65 Figure 26: R&D BAS and CeSTII R&D Performance Expenditure by Actor (2013/14-2015/16) 66 Figure 27: R&D BAS and CeSTII R&D Performance Expenditure by Actor per Year (2013/14-2015/16) 67 Figure 28: CeSTII R&D performance amounts by actor (2013/14-2015/16 68 Figure 29: Aggregate 2013/14-2015/16 CeSTII R&D performance amounts by actor (limited to source of fund - public funding) 68 Figure 30: CeSTII R&D performance data on Socio-Economic Objectives by Actor (2013/14-2015/16) 69 Figure 31: CeSTII R&D performance data on Socio-Economic Objective (2013/14 -2015/16) 69 Figure 32 CeSTII R&D performance expenditure data based on type of research produced (2013/14 - 2015/16) 70 Figure 33:FTE costs in South Africa 73 ©2018 RebelGroup South Africa National Treasury: GTAC iv Review of government funding for research, development and innovation Report List of Tables Table 1: Identifying R&D projects through the 5 core criteria 10 Table 2: Differentiating types of R&D according to sector 11 Table 3: R&D Sector Barriers to Return on Investment 17 Table 4: Oversight and Transaction Activity 29 Table 5 Summary of R&D Benchmark Comparisons by Country (2014) 32 Table 6 Allocation of Public R&D Funds in Benchmark Countries (2014) 33 Table 7 Categorisation of funding for South African Public Research Institutes 35 Table 8 Monitoring and Evaluation Activities in the R&D Sector 40 Table 9: Performance indicators as selected for the NRDS 45 Table 10: Indicator Framework for South African Public-Funded R&D 48 Table 11. Work Breakdown for South African Public-Funded R&D 51 Table 12 Approximate values for the standard components of a R&D project 72 Table 13 Indicators for Costing Model and Equivalent Values 78 Table 14 Assumptions in the Costing Model 79 Table 15 Summary Sheet for Costing Model 80 ©2018 RebelGroup South Africa National Treasury: GTAC v Review of government funding for research, development and innovation Report Abbreviations & Acronyms BERD Business Expenditure R&D DST Department of Science and Technology DOE Department of Energy ENE Estimates of National Expenditure GBAORD Government budget appropriations or outlays for R&D GDP Gross Domestic

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