Why innovation matters and the opportunities that exist for Lesotho.

I was pleased to read about the National University of Lesotho's NUL Innovation Fund which has been established to fund "Business, Research and Innovation" activities at the university and in the country in general. In this post I explore why this is great news for Lesotho and what other opportunities exist for the country to truly tap into technology and innovation which was identified as one of four pillars to achieve economic growth in the new Nation Strategic Development Plan II.

What is innovation?

“In economic terms, innovation describes the development and application of ideas and technologies that improve goods and services or make their production more efficient.”

According to the European Central Bank, "In economic terms, innovation describes the development and application of ideas and technologies that improve goods and services or make their production more efficient". This definition is important as it helps us explore the importance innovation plays in increasing production in a nation as a driver of GDP growth. Improving goods and services allows a country to be more competitive globally (resulting in an increase in exports or in local preference of locally-produced goods and services). Efficient production means faster production (producing more goods & services per unit of time) and at a lower cost.

Some of the most notable projects that have gone through the NUL Innovation Hub are: an electric fruit dryer that provides an alternative to drying fruit in the sun, a solar water heater and a smart electricity meter that can be used to monitor electricity consumption remotely. These innovative ideas achieve what we have explored above in that they decrease the time it takes to make a product and also improve consistency in the product (e.g the dried fruit) and they decrease production costs (using solar instead of electricity). If Lesotho can succeed in producing more and more of these type of ideas on a larger scale, then we will see a real economic impact.

What are the factors that contribute to how innovative a country is?

There are a number of indices that are used to measure how innovative countries are and each use different criteria to achieve this. In writing this post I had a look at two different measures.

The first was the Bloomberg Innovation Index which uses the following criteria in coming up with a list of the world's most innovative economies

1. Research & Development (R&D) intensity (Research and development expenditure as a % of GDP)

2. Manufacturing Value Added (MVA as a % of GDP and per capita ($PPP))

3. Tertiary Efficiency (Total enrollment in tertiary education regardless of age, as % of the post-secondary cohort; minimum share of labour force with at least tertiary degrees; annual new science and engineering graduates as % total tertiary graduates as % of total labour force)

4. The concentration of researchers (Professionals, including postgraduate PhD students, engaged in R&D per million population)

5. Patent Activity (Resident patent filings, total patent grants and patent in force per million population; filings per $100 billion GDP and total grants by country as a share of world total)

6. High-tech density (Number of domestically domiciled high-tech public companies – such as aerospace and defense, biotechnology, hardware, software, semiconductors, internet software and services and renewable energy – as a % of domestic public listed companies and as a share of the world’s total public high-tech companies)

7. Productivity (GDP and GNI per employed person age 15+ and 3Y improvement)

The following diagram illustrates the findings of the report, showing a massive underrepresentation by African countries.

The second index, The Global Innovation Index by Cornell University, analyses countries' innovation activities per theme every year. In 2017, the report focused on "Innovation Feeding the World" which explores innovation in agriculture and food systems. The 2018 Report is theme, "Energizing the World with Innovation" which "analyses the energy innovation landscape of the next decade and identifies possible breakthroughs in fields such as energy production, storage, distribution, and consumption".

In reading both these reports, I realised the importance of understanding current and future global challenges and organising a country's innovative initiatives around solving them.

Opportunities for Lesotho

Research and Development

The graph below depicts Lesotho's R&D expenditure as a % of GDP from 2002 and 2015.

If you compare this with R&D spend by companies and countries globally (below charts), one can immediately see that Lesotho has a long way to go in this area.

Spending more in R&D can result in the creation of new industries in Lesotho, the development of existing industries such as mining, textile manufacturing and agriculture.

Countries that led the pack in R&D (Bloomberg Innovation Index) were countries which demonstrated three key attributes; the ability to commercialise R&D (ensuring that there was a return on investment on R&D initiatives), a combination of government support and private enterprise through increase of funding of R&D and the provision of tax incentives to companies who spend on R&D activities.

Lesotho can capitalise on the fact that it already has multinationals operating in the country, which means one of the low-hanging fruit is to incentivise the multinationals to bring some of their Research and Development activities into the country. Furthermore, big corporates in Lesotho are already into Corporate Social Initiatives (CSI), which means the government can find a way to encourage the corporates to allocate their CSI funds towards R&D.

Manufacturing Value Added (MVA)

MVA is calculated by taking into account industries classified in ISIC Division D (15-37) Based on my general knowledge, Lesotho participates in 3 of the 22 industries which are manufacturing of food and beverages and textile manufacturing and publishing, printing and reproduction of recorded media. In fact, Lesotho has been hailed as one of the countries that has benefited from the United States' African Growth Opportunity Act (AGOA) which provides African countries with an opportunity to export goods into the US duty-free. However, Lesotho still has an opportunity to benefit more from these sectors by localising more of the value-chain in existing industries, such as producing the raw material and inputs used in manufacturing alcohol and apparel in the country. Furthermore, there's an opportunity to expand into other industries; South African car manufacturers can be encouraged to move some aspects of their production to Lesotho to take advantage of the stability of labour as compared to South African labour and forestry can be improved to take advantage of wood production.

Tertiary Efficiency and the concentration of researchers

According to an article by Public Eye Online, Lesotho produces 25,000 jobseekers each year into a labour market that can only accommodate 10,000 job seekers. It is also common knowledge that a good number of jobseekers are graduates who are likely to remain unemployed for years after graduation, or who may need to be forced to take on menial jobs to get by. I believe that one of the reasons why the unemployment rate for Basotho graduates is high is due to a lack of responsiveness of the education sector to align its educational programs to the changing world of work globally. There exists an opportunity for Lesotho to increase STEM graduates. Furthermore, the Lesotho government has an opportunity to fund graduates & encourage them to pursue PhDs that can see an increase in R&D activity in the country.

Intellectual Property

According to the World Intellectual Property Organisation, there were more than 3 million patent applications filed in 2016 and China filed the most patents.

The map below illustrates that Africa as a whole still has a long way to go and Lesotho is no exception with little to no IP activity coming out of the country. If we consider the fact that Basotho people are the smartest people I know, this can only be an opportunity to do more in this area, and the legal profession can take a lead here by strengthening the laws pertaining to IP and the implementation thereof.

High-tech Density

There are two aspects to this measure, one is the number of high-tech companies in a country, and the other is public listing of companies.

Even though there was a launch of the Maseru Securities Market, it is not yet functional and therefore Lesotho companies don't have an option of public listing in the country yet. Additionally, I could not find any data of Lesotho companies listed anywhere else in the world. As far as high-tech companies are concerned, I believe that this is an area that requires prioritisation by the Lesotho government and private sector, considering the role that technology plays in helping countries to leapfrog and address challenges such as poor quality of health services, poverty and low human development.

Productivity

The diagram below illustrates how low labour productivity was in Lesotho in 2002. If we entertain the idea that things may not have changed since then, then this is another area that can be improved to achieve higher levels of innovation for the country.

If we consider the fact that Lesotho's labour force can be preferable over South Africa's due to its stability, the low productivity levels of the labour force is a negative factor that can make investors hesitant in setting up in the country. According to a World Bank Report, some of the possible reasons for low productivity in Lesotho are the following: - Low levels of education for workers - Lack of formal training programs for firms - Low capital per worker in Lesotho firms. All of the above are not complex challenges and can be solved in the short-term to increase labour productivity in the country. Conclusion While writing this blog, it became clear that there are many ways in which Lesotho can take advantage of innovation and technology in order to achieve economic growth and development. There are so many things can be prioritised in these short-term that could provide answers to other complex challenges that we are grappling with. All that is needed is the will to come up with the right policies, the courage to implement them and the effort to measure the impact thereof. In the next blog post I will explore global challenges that Lesotho is positioned to address, and how we can innovate to take advantage of them. Likeleli M. Additional Sources: https://www.bloomberg.com/news/articles/2018-01-22/south-korea-tops-global-innovation-ranking-again-as-u-s-falls https://planningtank.com/blog/worlds-most-innovative-economies-2017 https://www.bloomberg.com/graphics/2015-innovative-countries/ https://borgenproject.org/most-innovative-countries-in-africa/ https://www.weforum.org/agenda/2017/05/companies-investing-most-in-research-and-development/