The centrality of innovation to economic growth is recognised by the vast majority of countries. In the African and Arab regions, many countries seek to attract foreign direct investment (FDI) to help foster the innovation process.
Conventional wisdom views the bedrock for innovation — especially if stimulated by FDI — as intellectual property (IP) protection, based on the seminal work by American economist Kenneth Arrow. This is why international IP standards have been ratcheted up over the past decades, including through organisations such as the World Trade Organization (WTO).
Yet, China — which is often cited as a ‘growth miracle’ — has been repeatedly criticised for poor IP protection. Indeed, in most innovation-related indices, almost all of the African countries included are ranked towards the bottom, and almost invariably below China.
So, how do the prevailing view and contrasting case study of China fit together? Is it possible to stimulate innovation without strong IP protection, and if so, what else is needed?
The answer China provides for the Middle East and Africa region is two-fold. First, the role of the state matters. Second, open-innovation or technology transfer matters more than is often assumed.
In China, government-supported collaborative innovation centres and technology parks have been created across the country. These support businesses, research institutes and individual innovations, alongside policy initiatives, regulations and significant research funding.
For context, China’s gross research and development (R&D) spending in 2019 reached $514.8bn, equivalent to 2.23% of gross domestic product, according to the OECD. Only the US spent more on R&D that same year.
Proactive support from local authorities in China, through subsidies and procurement policies, helps offset perceived IP challenges for both foreign and domestic firms. The introduction of a patent system oriented towards promoting technology diffusion helped too. This put an emphasis on rewarding those that got ideas to the market the quickest.
A 2008 study of Chinese firms found that the more open innovation processes bring higher innovation performance. As such, the ability to use and integrate external knowledge became crucial means for Chinese firms — including in joint ventures with foreign brands — to improve their capability and compete with each other.
In both the Arab and African regions, we see evidence of local and central governments trying to direct innovation. From Tel Aviv to Dubai to Pretoria, several innovation parks have been established and more will be created. There is also evidence that open exchange may well be the dominant means of innovation.
The question is whether foreign investors are ready for such an environment? There has been a tendency by foreign investors to continue to advocate for traditional IP protection policies, even if the evidence for their growth impact is limited.
If foreign investors can shift and adapt in Arab and African regions, we will no doubt see investment diversify and foster innovation to solve everyday challenges. Ultimately this will bring development benefits.
Hannah Wanjie Ryder is the CEO of consultancy Development Reimagined and senior associate at the Center for Strategic International Studies Africa Program.
This article first appeared in the June/July 2022 edition of fDi Intelligence. Read the online edition of the magazine here.