Thursday, 22 May 2008

Funding of innovation: where should the money be spent?

Macharia Waruingi and Jean Njoroge, writing in Business Daily Africa ("Inadequate funding of research work in Africa dampens invention"), make some acute observations:
"The problem is that most of the intellectual property in Africa remains that way: discovery catalogues. Millions of such works that are never commercialised litter the benches of African universities and research centres — to use the familiar parlance, they are gathering dust on the shelves.

Why is commercialisation of the products not taking place or has been taken to the back burner in the continent? According to one African scientist who formerly worked at the renowned Kenya Medical Research Institute (Kemri) for many years, product commercialisation is unfunded. Research bodies in Africa receive funding for experimental and non-experimental research.

The interest of people funding research institutes stops at the research level. All the money is geared towards financing the research agenda, and everyone is happy when the research is done, the products and ideas are identified and catalogued.

For a product of research to become available on the shelves of the supermarket, someone would have to come out of the research institutions and think of ways of manufacturing it in large quantities, package it and then distribute it.

This process is the development aspect of research and development (R&D). Development is a risky affair, and launching such a new product into the market carries significant financial risks. The market may not respond positively to the launched products leading to financial losses to the investors—-at least in the initial phase of growth.

People who finance business perceive development as a big risk, and so it is avoided like the plague. Business financiers such as venture capital funds, private equity funds, banks, and public money markets invest readily in business expansion".
There is more than a grain of truth in this. Innovation, R&D and so on are necessary conditions for progress towards a more competitive and efficient economy -- but they are not a sufficient condition. Businesses that have to account to shareholders and make profits will put their capital where it is most likely to grow at the least risk, but innovation is very often focused on products, services and processes which, being new, offer little clue as to their profitability. But if national governments do not provide a commercial environment in which the taking of business risk is attractive and the prospect of enjoying profit is real, investors will look elsewhere. IP rights are monopoly rights that are designed to operate in a competitive market; it is their exploitation, not their creation, that generates wealth.

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