Promoting Investment In Science And Technology In Idb Member Countries

Promoting Investment in Science and Technology in IDB Member Countries Jamil Alkhatib∗ July 22, 2007 The Old City, Jerusalem, Palestine Abstract In the rapid changing world, neither the financial capital nor the human power are the only factors to the continuous progress in the economy, the innovation and the knowledge play nowadays major role in the economic growth. This article will discuss the role of science, technology and innovation on the economical development of the IDB member countries. In order to achieve such economical development, the investment in innovation and knowledge based projects should be supported and the industry awareness of the importance of science should be increased. Besides that, the educational and research systems have to focus on the applied researches to improve the quality of investment outcome. Some approaches that could be adopted to increase the awareness of innovation and the investment in technological related ∗

Technology and Innovation Management Consultant

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2 projects will be introduced in this article. The status of the Innovation system in the IDB member countries will be discussed. Finally some recommendations on how to improve the economics based on science, technology and innovation in the IDB member countries will be suggested.

CONTENTS

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Contents 1

Introduction

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Technology, Science and Economy

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The Innovation system in the IDB countries

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Promoting investment in innovations

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Promoting University-Industry linkage

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The role of IDB Programs

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Conclusions and recommendations

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References

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1 INTRODUCTION

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1 Introduction “Diffusion of technical know-how does not simply depend on ability to pay. It owes a great deal to personal contacts and discussion, or to the movement of people” (Freeman and Soete, 2004, p.179) Although sometimes large amount of money are invested in Science and Technology projects, but they have minor effects on the national economy. One of the common problems in such investments is buying the Technology directly instead of developing it. Like in the turn key projects and ICT infrastructure implementation where only the Technology and equipments are transferred without the real knowledge behind them. This article will focus on some approaches in promoting the investment in Technology and Science while supporting the economical progress through Innovation in the Islamic Development Bank (IDB) member countries. In this context it is important to define some terms before proceeding with the discussion. “Science is a system of acquiring knowledge based on the scientific method.” (Wikipedia the free encyclopedia, 2007b) Technology is “the system of knowledge, skills, experience and organization used to produce and utilize goods and services to satisfy human demand.” (UNIDO, 1996, p.21) “Invention is an object, process, or technique which displays an element of novelty.” (Wikipedia the free encyclopedia, 2007a) The Innovation “is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new

5 organisational method in business practices, workplace organisation or external relations. (...) This includes products, processes and methods that firms are the first to develop and those that have been adopted from other firms or organisations.” (OECD, 2005, p.46) Although the literature classifies the Innovations into 4 groups: product innovations, process innovations, organizational innovations and marketing innovations this article will focus only on product and process innovations since they are the most observable category.

2 Technology, Science and Economy “Innovation is of importance not only for increasing the wealth of nations in the narrow sense of increased prosperity, but also in the more fundamental sense of enabling people to do things which have never been done before. It enables the whole quality of life to be changed for better or for worse.” (Freeman and Soete, 2004, p.2) Both Marx and Smith have considered Technology, Science and Inventions as elements in the economical growth. Empirical studies showed that before the industrial revolution, the difference between industrial and developing countries was small and after that the difference has increased dramatically (Freeman and Soete, 2004, p.317). It is important for the developing countries to catch-up with the Technological development to reach the economical growth. The catch-up can be achieved by imitation or innovation. The Technological change and inventions can be drivers for new investments in new machines, new services or even training the staff. Innovations and Inventions can attract not only local investment but also foreign

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2 TECHNOLOGY, SCIENCE AND ECONOMY

direct investment (FDI). The effect of innovation on productivity and competitiveness improvement on the national and countries level is similar to the effect on firms. The entrepreneurs increase and start to invest in the country which in turns opens new jobs specially in Research and Development (R&D). Moreover, since the innovation is considered as creative destruction, it creates new needs and production qualifications in the country which opens new chances for young people to have new jobs. Not only that, but the Innovations improves the foreign trade through selling new competitive products or services. According to (Freeman and Soete, 2004, p.291) the National Innovation system can be defined as the “interactions between various institutions dealing with science and technology as well as with higher education, innovation and technology diffusion (...) whether public or private” institutes. The Innovation system is a complex system and in order to improve it, multiple fields should be considered. Nowadays the scientific and technical progresses are the main drivers for innovations. Moreover the firms can no longer be able to innovate alone, because the “Innovation now often requires more external and more multidisciplinary knowledge, as many technologies have become extremely complex.” (OECD, 2000b, p.4). The firms also are required to save on their internal research and development (R&D) due to the high competition. Further more, the scientific researches are too expensive and tend to be beyond the ability of universities and research institutes. “In addition, the lack of skilled personnel is a key barrier to innovation that needs to be addressed. While a case can be made for greater international mobility of human resources, countries also need to address education, skills up-

7 grading and human resource management at the domestic level.”(OECD, 2000b, p.9) For all these reasons, the demand for cooperation between institute and the establishment of innovation networks become the most common approach to innovate. Links between firms and research institutes and alliances between industrial firms have been established. In order to explore the innovation system in any region it would be important to measure its main indicators and study the interaction among different institutes. The indicators can be classified as Inputs and outputs indicators. The input indicators are: R&D personnel, education and R&D expenditure, while the output indicators are: patents, scientific publications and technology trade (Lederman and Saenz, 2005, pp.4–6); (OECD, 2005);(Nour, 2005, pp.11–13);(ESCWA, 2003, pp.7–65). Moreover the investments incentives and ICT infrastructure are of great importance for innovation promotion which could be measured.

3 The Innovation system in the IDB countries This section will give an outlook at the Innovation system in some of the IDB countries by reviewing the innovation indicators.

Input indicators The expenditure Education in most of the IDB member countries are too far away from the international standards and even in countries in the same region as the IDB countries. Table 1 shows the expenditure of some selected countries. Moreover the expenditure on R&D activities is very low when it is compared to the global average expenditure in 2003 which

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3 THE INNOVATION SYSTEM IN THE IDB COUNTRIES

was 2.4% (Watkins et al., 2005, pp.262–265). The industry plays minor role in the R&D expenditure in the Arab states and the African countries while in the USA 66% comes from the private sector (Watkins et al., 2005, pp.17– 18) . State/Region Egypt Saudi Arabia Syria Tunisia UAE Indonesia Iran Pakistan Turkey Malaysia Senegal Israel India South Korea Germany Canada OECD

Education % of GDP* 1.9** 5.8** 4.0** 6.4 1.6 1.2 4.9 1.8 3.7 8.1 3.6 7.5 4.1 4.2 4.6 5.2 ...

R&D % of GDP 0.2 ... 0.2 0.6 ... ... ... 0.2 0.7 0.7 ... 5.1 0.8 2.5 1.5 1.9 2.5

Table 1: The Expenditure on Education and R&D as percentage of GDP in some selected countries Source (Watkins et al., 2005, pp.284–287,262–265) * In 2002 ** In 1990

According to (MASTIC, 2005, P.7),(Qasem, 2003, P.26) and (Bennani et al., 2003, p.71), the Social Sciences and humanities are more popular than S&T related fields in Malaysia and Arab states, which is very similar to the rest of the IDB countries. This is reflected to the number of researchers as indicated in table 2

9 Country/Region In Thousands Arab States 39.7 Malaysia ... New Industrialized states in Asia 291.1 Israel 9.2 India 117.5 OECD 3414.3

Per million Inhabitants 136 730* 777.2 1395.2 112.1 2984.4

Table 2: Number of researchers in 2002 Source: (Watkins et al., 2005, p.6) * Source: (MASTIC, 2005, P.7)

Output indicators

The weakness in the input indicators is reflected to the outputs. The patents and publications in the IDB countries are too far away from the neighboring countries according to tables 3 and 4.

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3 THE INNOVATION SYSTEM IN THE IDB COUNTRIES Countries Patents Egypt 80 Saudi Arabia 250 Syria 17 UAE 56 Senegal 4 Indonesia 201 Iran 35 Malaysia 776 Pakistan 32 Turkey 179 Israel 14649 Singapore 3565 South Korea 46773 Taiwan 71518 Germany 241584 Canada 71216

Table 3: Registered Patents in USPTO from 1980–2006 of selected countries Source: Adopted from (USPTO, 2006) Countries/Regions Arab States Newly Industrialized countries in Asia Malaysia* Israel India OECD

% of the whole world 0.9 4.1 0.08 1.3 1.9 86.9

Total 5416 24 253 ... 7744 11 620 519 951

Table 4: Scientific publications in 2001 Source: (UNESCO, 2005, P.9) * Source: (MASTIC, 2005, P.10) * In 2002 The High Technology exports is an important indicator for innovation. In 2003 the average High-technology exports was 2% of the total manufac-

11 tured exports in the Arab States. This figure in the most IDB countries is lower than the world average which was 18% except Malaysia (Watkins et al., 2005, pp.274–277). Countries/Region Arab States Indonesia Iran Malaysia Pakistan Senegal Turkey Israel OECD East Asia

Hi-Tech export % 2 14 2 58 1 9 2 18 18 29

Table 5: High Technology Exports in 2003 Source: (Watkins et al., 2005, pp.274–277)

4 Promoting investment in innovations “Intangible investment in new knowledge and its dissemination are the critical elements, rather than tangible investment in bricks and machines” Freeman and Soete (2004, P.3) As it has been noticed in the beginning of the article, direct investment in Science, Technology and Innovation should be considered carefully or it will not generate the accumulation of knowledge or technology transfer to the state. In the IDB countries there is a direct need for investments in the education system improvements specially in the fields of science and technology and to increase the students enrollment in these fields. Moreover, the gradu-

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4 PROMOTING INVESTMENT IN INNOVATIONS

ates from these fields should be able to find jobs in their field of the study otherwise the investment in the students will be lost either due to brain drain problem or because they will be working in fields other than their specialty. In order to minimize such problem, the R&D activities should be promoted in both the public and private sectors. The United Nations Industrial Development Organization (UNIDO, 2007) in its service program for promoting the investment and technology puts several recommendations and activities to focus on. These recommendations will be used as guidelines in this section.

Supporting Foreign Direct investments (FDI) The main factor in promoting the FDI is the proper policies and incentives structure planned by governments. Establishing business alliances and building cooperation and innovation networks will encourage and increase the FDI. Although it is important to have FDI in capital accumulation and introduction of new machinery, the most effective approach for the economy that lead investment in knowledge (know-how) transfer. This would be achieved by more involvement of local researchers and engineers in the development process because the normal storage of the knowledge is the human brain and experience.

Supporting Institutional building Institutions that support training in investment and feasibility studies play great role in investment promotion and its efficiency. Business incubators Technology centers and centers of excellence are some examples of such

13 institutes which aim to implement and improve network of experts. Moreover Small and Medium Enterprises (SMEs) play great role in Innovation and employment while the investments in their activities are relatively small compared to large firms. That is why lot of economies in the world are based on the investments on SMEs.

Supporting Technology and Innovation Management Systems

Similar to financial management, the Technology and Innovation should be managed carefully to optimize the use of the technology and the innovation process. For example the process of creating new ideas and developing them to reach the level of investment, production and marketing fall within the frame work of innovation management. Such management will increase the productivity of the employees and increase the overall competitiveness in the market. On larger scale policies for key technologies diffusion in different fields should be implemented. An example of that is the diffusion of the computers and Internet not only in the industry but also in the educational systems (E-learning) , the governments (E-Government) and even for books (E-Books). This indicates that buying or developing the technology are not the only keys to the success of investment, its diffusion and making use of it in several fields and programs lead to more effective investment. The transfer of ideas and technologies from the science or research institutes to marketable products in the industry is considered a major process to be managed which is known as the Technology Transfer. This will be elaborated later in the next section.

5 PROMOTING UNIVERSITY-INDUSTRY LINKAGE

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Supporting Technology Foresight

Technology foresight and Capacity building in emerging technologies enable the policy makers to better plan for the future in education, science and several fields. The investment in emerging technology leads to long term and continuous progress.

5 Promoting University-Industry linkage “It should be noted that only 60% of university research in the USA is financed with federal funds, the remainder stemming from university partnerships with industry.” (UNESCO, 2005, p.169). The demand on University-Industry cooperation has increased because the technologies are complex nowadays and depend on multidisciplinary knowledge. Through cooperation the R&D and knowledge acquisition costs can be minimized. The “universities seek industry contacts to ensure good job prospects for students, to keep curricula up to date and to obtain research support.”(OECD, 2000b, p.4) while firms are interested to get talented employees and get access to knowledge to improve their position in innovation networks. Technology Transfer is one of the common conventions used in the literature in the context of research and industry relationships. “The conventional conception of technology transfer is that it is a processes through which the results of basic and applied research are put into use by receptors” (Rogers, 2003, p.150). This means the investment in science and new technologies in new products and innovations.

15 The Technology transfer is “recognized to be complex social activities with communication processes at the core of them” (Hodgson, 2002, p.1). Figure 1 shows the complexity of a technology transfer model and the approaches for cooperation.

Figure 1: Technology Transfer Model Source: (OECD, 2000a, p.165)

Cooperation schemes and investment opportunities The last figure shows several methods of cooperation approaches between the industry and universities. Some of the major discussed and implemented approaches are summarized below • Business and Technology Incubators Where the entrepreneurs reach these incubators to be supported, get the consulting form professionals in implementing their ideas in real products and to markets and in some cases they can get seed fund to start their

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5 PROMOTING UNIVERSITY-INDUSTRY LINKAGE

projects. The investment in such institutes promotes and encourages the innovation and in turns increases the demand on new innovations. • Spin-offs from universities Lot of ideas and research results are generated from universities and many of them could lead to better (or new) products in the market. The universities license their research results to start-up companies that are directly linked to the university through its staff that could be shared between the company and the university. Such kind of start-up companies play major role in connecting the local industry to the universities. • Research, Development and Innovation (RDI) Networks or alliances Such alliances or networks are created for large innovative projects where neither companies nor universities can handle them alone. So they cooperate to gather the talents, knowledge and investment. They will be able to produce joint projects or joint publications. • Mobility of scientists “The mobility of scientists between science and industry is also an important channel of interaction” (OECD, 2000b, P.5) because they are the main holders of knowledge. When they move form university to the industry and vise versa they help in the knowledge and technology diffusion. To support such activity it is important to invest and cover the salaries of the scientists besides giving the legal framework for their work. • Open Source Projects They are projects that are developed in cooperation volunteers where the results are made available for free on the Internet. Such kind of projects knows no boundaries and is open for all participants. Through Internet the researchers and engineers with specialty in specific field can cooper-

17 ate together to produce large project no matters where they are. Moreover the open source projects speed up the knowledge transfer between countries and the access to experts from all over the world and from different industries. The investment in such projects will improve the skills of local researchers and increase the spirit of cooperation which in turns could improve the cooperation between the industry and research institutes.

6 The role of IDB Programs The IDB aims to support the development of the Islamic states. Science and Technology are of the key fields that will support the economical development and the IDB focus on them. One of the main programs that support the accumulation of the knowledge is the Science and Technology Scholarship Program. The study scholarships enable the students to learn about new fields of knowledge and get them back to their countries or to their field of work. In order to have such program effective suitable jobs and work chances for the graduated students must be created. Otherwise they will be overqualified in their work field and may either leave the country for better jobs (brain drain problem) or will stay and not be able to benefit the country with their study. The IDB has implemented some programs to support the technology and science. Science Development Network (SDN) is one of the major programs that support the science and knowledge diffusion among the IDB countries. Establish network of scientists and experts that can cooperate to promote scientific progress and the cooperation between research institutes among the IDB countries.

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7 CONCLUSIONS AND RECOMMENDATIONS

7 Conclusions and recommendations The article has discussed the role of Science and Technology for the economical development and the status of IDB countries. In order to promote the science and technology, investment in these fields must be carried on. The key factor to success in investment is not the amount spent on technology import but it is how and where the investment goes and how much knowledge it generates. The IDB plays major role in the investment in technology and science in its member countries. It has several programs in that field. Moreover there should be more focus on supporting studies on the economics of innovation. The IDB should try to invest in non-conventional methods like open source projects. Finally the IDB has to support the establishment of institutes that provides direct support to researchers and investment.

REFERENCES

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