The digital industrial revolution has the potential to unleash a surge of innovation that could transform industries and improve well-being across the Africa region.
However, for nations to compete in the new globalisation environment, they need to set their sights on knowledge-intensive, innovation-driven fields that can create value well into the future, according to a new article “Igniting innovation-based growth in Africa” from Boston Consulting Group (BCG).
Realising the potential for innovation in Africa in the digital age will require each of its 54 nations to adopt a holistic approach that fits its own circumstances and needs.
Nevertheless, the continent as a whole lags behind the rest of the world in widely deploying cutting-edge knowledge in fields such as artificial intelligence, big data analytics, and advanced robotics – despite impressive progress over the past decade in virtually every metric – from internet penetration to venture capital investment to skilled workforces to ‘ease of doing business’ rankings.
From the ground level, however, the view in parts of Africa is encouraging. Several global growth hot spots are emerging. A case in point is South Africa’s dynamic health technology ecosystem, which includes more than 120 companies and Morocco’s 200-company automotive cluster that is launching R&D initiatives linking manufacturers to universities. Nigerian startups have attracted hundreds of millions of dollars in equity funding, and Kenya has emerged as a hotbed for fintech.
“The challenge for African innovation leaders is to scale up – and to spread the action beyond a handful of countries. This will require a big push from the region’s governments, working in collaboration with the private sector and academia,” says Andrew Bosson, principal at Boston Consulting Group, Johannesburg.
Given the region’s diverse markets, there is no uniform approach to building and nurturing an innovation-driven economy that will work in all of Africa. There are, however, three basic steps that African governments need to follow to activate their national innovation system: build a national innovation strategy, stimulate domestic innovation activity, and enable the new national innovation ecosystem.
Building a national innovation strategy
For nations to compete and prosper in the new globalisation environment, governments can no longer rely on economic development paths championed in the 20th century, such as moving up the ladder of basic industries and export manufacturing.
Governments should begin by defining a national ambition in light of the evolving opportunities in the emerging, digitally connected global economy and set key goals, such as new job creation or boosting exports.
They should also take a targeted approach to prioritise specific innovation sectors, leveraging unique characteristics of the country and population wherever possible.
South Africa’s National Digital Health Strategy, for example, aims to build on its extensive health technology ecosystem to scale up innovative solutions for fighting disease and improving the quality of care.
Stimulate domestic innovation activity
Nations that have successfully launched new innovation clusters have used a number of tools to stimulate innovation activity and attract foreign partners.
African governments should consider measures such as providing operational, technical, and financial support – for example investing in R&D and entrepreneurship in key sectors, providing financial assistance such as tax incentives and grants, supporting companies with guidance on navigating the regulatory environment, and making procurement decisions that favour innovative SMEs and provide baseline demand to fuel their scale up.
They should also encourage collaboration and invite open innovation.
For example platforms can be developed that enable both large and small enterprises to collaborate and widely disseminate new technology. Public-private partnerships with multinational corporations at the technological forefront of their fields can be particularly valuable in strengthening national innovation systems and enhancing connections with global ecosystems of partners.
A supportive and agile regulatory environment, with strong protections for intellectual property, is especially critical given a business landscape in which innovators increasingly collaborate within digital ecosystems and flexible networks of partners – and must move fast to capture opportunities.
“By our analysis, only two nations – South Africa and Kenya – have comprehensive regulations related to innovation. South Africa’s approach to regulation has been key to its success in health technology and fintech,” says Bosson.
For example, the government has established innovation “sandboxes” that enable fintech startups to test new business models, strengthen intellectual property rights, and accelerate procedures for registering and incorporating new companies and approving mergers.
Enabling the new innovation ecosystem
A well-designed policy framework can lay the ground for a thriving innovation economy.
But governments – especially in developing economies such as those in Africa – must also play a lead role in driving the investments that are needed to build innovation capacity. Governments can leverage the success of leading-edge companies to support the development of innovation ecosystems by collaborating with the private sector to build supporting infrastructure.
In addition to physical digital infrastructure, such as fiber-optic cables and 5G wireless broadband networks, governments can facilitate innovation ecosystems by investing in innovation hubs, R&D facilities, and small-business incubators.
For instance, SmartXchange, a public-private incubator in South Africa, connects startups and small and midsize enterprises in the media, information technology, and electronics sectors with foreign research institutes, companies, and investors.
“Currently, there is a mismatch in most countries between the needs of innovation-driven companies and the available skilled domestic workers. Governments and the private sector can also develop the talent pool by expanding STEM education, skills enhancement, and entrepreneurial training, and these training programmes should be coordinated as much as possible with attracting specific clusters of investments to create the jobs that will utilise the skills developed,” says Bosson.
South Africa has established mLab, a youth-focused, technology-enabled skills development programme to promote startups, and has launched a training initiative for digital health workers.
Because private early-stage venture and research funding tends to concentrate in a few hot spots, most African governments need to play an active role in stimulating investment in innovation activity. A government body should be empowered to help coordinate foreign direct investment and grants for research institutions and serve as a foundational investor with venture capital funds in startups.
While there is no single strategy that can work across such a diverse region as Africa, the basic approach of defining national strategies, stimulating innovation activity, and enabling the new innovation system applies.
“As African nations continue to aggressively invest in their innovation capacity – and implement the right blend of strategies and policies – we believe the continent is poised to write a new chapter in its economic history,” concludes Bosson.