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Technology and Innovation Report 2015 (Overview)

Report by UNCTAD, 2015

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This overview of the 2015 Technology and Innovation Report subtitled ‘Fostering Innovation Policies for Industrial Development’ summarizes the key findings presented in the Report. It addresses the urgency of building productive capacities and promoting sustainable industrialization in development. It analyzes the crucial role of technological learning and innovation capacity, and helps to address some of the questions that policymakers face when seeking to forge new paths to secure a prosperous future for their people. The report argues that sustainable industrialization is not solely limited to environmental sustainability, but refers to efforts that are technology-led, productivity enhancing and poverty-reducing. It is based on the understanding that no industrial policy is complete without an accompanying innovation policy.

Fostering Innovation Policies
for Industrial Development


Technology
and InnovaTIon


RepoRT 2015


OVERVIEW


U n i t e d n at i o n s C o n f e r e n C e o n t r a d e a n d d e v e l o p m e n t


EMBARGO
The contents of this Report must not be


quoted or summarized in the print,
broadcast or electronic media before


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Fostering Innovation Policies
for Industrial Development


OVERVIEW


U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T


New York and Geneva, 2015


TECHNOLOGY
AND INNOVATION


REPORT 2015




ii TECHNOLOGY AND INNOVATION REPORT 2015


NOTE


The terms country/economy as used in this report also refer, as appropriate, to territories
or areas; the designations employed and the presentation of the material do not imply
the expression of any opinion whatsoever on the part of the Secretariat of the United
Nations concerning the legal status of any country, territory, city or area or of its authorities,
or concerning the delimitation of its frontiers or boundaries. In addition, the designations
of country groups are intended solely for statistical or analytical convenience and do not
necessarily express a judgment about the stage of development reached by a particular
country or area in the development process. The major country groupings used in this
report follow the classification of the United Nations Statistical Office. Details of the
classification are provided in Annex I of this report.


The boundaries and names shown and designations used on the maps presented in
this publication do not imply official endorsement or acceptance by the United Nations.


Symbols which may have been used in the tables denote the following:
• Two dots (..) indicate that data are not available or are not separately reported.


Rows in tables are omitted in those cases where no data are available for any of
the elements in the row.


• A dash (–) indicates that the item is equal to zero or its value is negligible.
• A blank in a table indicates that the item is not applicable, unless otherwise


indicated.
• A slash (/) between dates representing years (e.g., 1994/95) indicates a financial year.
• Use of a dash (–) between dates representing years (e.g. 1994–1995) signifies the


full period involved, including the beginning and end years.
• Reference to “dollars” ($) means United States dollars, unless otherwise indicated.
• Details and percentages in tables do not necessarily add to totals because of


rounding.


The material contained in this study may be freely quoted with appropriate acknow-
ledgement.


This publication has been edited externally.


© Copyright United Nations 2015
All rights reserved


UNCTAD/TIR/2015 (Overview)




iiiPreface


PREFACE


Building productive capacities and promoting sustainable industrialization have
an important role to play across the spectrum of the integrated 2030 Agenda for
Sustainable Development. The Agenda recognizes that the notion of sustainable
industrialization is multi-faceted: it is not solely limited to environmental sustainability,
but refers to efforts that are technology-led, productivity enhancing and poverty-
reducing. It is based on the understanding that no industrial policy is complete
without an accompanying innovation policy. Both are essential and complementary
to shaping developmental outcomes and creating prosperity for all.


The UNCTAD Technology and Innovation Report of 2015 addresses this urgent
policy priority by analyzing the crucial role of technological learning and innovation
capacity. Promoting industrialization is a challenge throughout the world. This report
helps to address some of the questions that policymakers face when seeking to
forge new paths to secure a prosperous future for their people.


I encourage governments, policymakers and development partners to use this
report as a resource as they seek to formulate the most effective approaches to
achieving the Sustainable Development Goals.


BAN Ki-moon
Secretary General


United Nations




iv TECHNOLOGY AND INNOVATION REPORT 2015


ACKNOWLEDGEMENTS


The Technology and Innovation Report 2015 was prepared by a team comprising
Padmashree Gehl Sampath (team leader and main author), Donatus Ayitey and
Mesut Saygili under the direction of Anne Miroux, Director of Division on Technology
and Logistics, UNCTAD.


This report would not have been possible without the support of national agencies
that helped collect primary data in Nigeria, Tanzania and Ethiopia. In Nigeria, the
collaboration with Femi Olukesusi (Director and Professor, Policy Engagement and
ICT, NISER) and his colleagues at the Nigerian Institute for Social and Economic
Research (NISER) is acknowledged for the questionnaire survey and collection
of data. Similarly, in Tanzania, UNCTAD is grateful to colleagues at the Tanzanian
Commission on Science and Technology who partnered to conduct a national
workshop, administer the questionnaire survey and conduct interviews. Hassan
Mshinda (Director General, Commission for Science and Technology, Tanzania),
Omar Bakari (Coordinator, Commission for Science and Technology’s Cluster
Development Programme, Tanzania), Flora Tibuwana, and Festo Maro’s inputs
are particularly acknowledged. In Ethiopia, UNCTAD is grateful to support of Mr.
Melkamsew Abate and Mr. Dessie Abeje, Ministry of Trade and Industry.


Comments and suggestions provided by the following experts during the Geneva
Peer Review meeting to discuss the outline and methodology are gratefully
acknowledged: Bengt-Åke Lundvall (Professor, University of Alborg Denmark),
Helena Forsman (Professor in Business Management, University of Tampere,
Finland), Mark Nicklas (Deputy Head, European Commission’s Innovation Policy and
Investment Unit), Christian Berggren (Professor, Industrial Management, Linköping
University, Sweden), Biswajit Dhar (Director General, Research and Information
Allied Systems, New Delhi), Conrad Von Igel Grisar (Executive Director, InnovaChile,
Consejo Nacional de Innovación para la Competitividad, Chile), Flávia Kickinger
(Head, Innovation Department , BNDES , Brazil), Ato Eyasu Dessalegne (Director,
S&T Policy Research Directorate, MOST, Ethiopia), Omar Bakari (Coordinator,
Commission for Science and Technology’s Cluster Development Programme,
Tanzania), Pedro Roffe (Senior Associate, ICTSD, Geneva, Switzerland) and
Kanchana Wanichkorn (Director, Policy and Research Management, National
Science Technology and Innovation Policy Office, Thailand). Comments by the
following experts on the first draft of the report during a Peer Review Meeting in




vAcknowledgements


Addis Ababa, Ethiopia are acknowledged: Prof. Judith Sutz (University of Monte
Video), Prof. Susan Cozzens (University of Georgia Tech), Prof. K. J. Joseph (Centre
for Development Studies, Trivandrum), Prof. Keun Lee (Seoul Technical University),
Prof. Joanna Chataway (Rand Corporation), Bitrina Diyamett (Executive Director,
STIPRO, Tanzania).


Country chapters benefited from comments provided by Banji Oyelaran-Oyeyinka
(Director, Monitoring and Research, UN-HABITAT, Nairobi, Kenya), and Femi
Olokesusi (Director, Policy Engagement and ICT, Nigerian Institute of Social and
Economic Research, Nigeria) on the chapter on Nigeria; Hassan Mshinda (Director
General, COSTECH) and Omar Bakari (COSTECH) on the chapter on Tanzania and
Carl Daspect (Head of Trade and Economic Section, EU Delegation to Ethiopia,
Addis Ababa) and Taffere Tesfachew, Richard Kozul Wright and Ermias Tekeste
Biadgleng (UNCTAD) on the chapter on Ethiopia.


Comments from the following colleagues are also acknowledged: Angel Gonzalez-
Sanz (Division on Technology and Logistics), Torbjorn Fredriksson (Division on
Technology and Logistics), Lisa Borgatti (Division for Africa, Least Developed
Countries and Special Programmes), Piergiuseppe Fortunato (Division on
Globalization and Development Strategies), and Axele Giroud and Fiorina Mugione
(Division of Investment and Enterprise). Inputs from Tansug Ok and Arun Jacob to
the Tanzania chapter during the early stages of the preparation of the report are
acknowledged. Research assistance by Guiliano Loungo and secretarial assistance
by Malou Pasinos in organizing the field missions is also gratefully acknowledged.


The report was edited by Mark Bloch and Sophie Combette was responsible for
the layout.




vi TECHNOLOGY AND INNOVATION REPORT 2015


CONTENTS


Overview 1


Innovation and industrial policies have both
regained importance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1


Coordinating their impact is essential
for developmental outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2


Five principles can guide the way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4


Country findings reinforce the importance
of getting the policy interface right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4


What matters in practice:
Findings and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


Notes 22




1Overview


OVERVIEW


I. INNOVATION AND INDUSTRIAL POLICIES
HAVE BOTH REGAINED IMPORTANCE


Industrialization is by no means an easy process. This report is set against the
broader international context, wherein a large number of countries have placed
renewed emphasis on policy frameworks on industrial policies and science,
technology and innovation (STI or innovation policies) to address the challenge of
fostering industrialization and closing the technology gap. This report analyses an
issue that is of high policy relevance, namely: how can synergies between industrial
and innovation policy frameworks be harnessed to help countries to leverage
overall growth and transformation.


In the quest to promote a ‘great transformation’ of sectors and the economy,
industrial development and STI policies overlap on the question of promoting
technological learning and competence building. These overlaps assume added
importance for developing countries as they often lead to a parallel narrative on
technological learning. In practice, this implies that the incentives and instruments
of both policies are often quite similar; furthermore, they tend to lead to duplication
of scarce resource, inter-agency rivalries and less than satisfactory outcomes when
they are not accompanied by well-coordinated policy processes.


A second reason why the overlap matters is that both policies approach
technological learning from different perspectives. For example, while industrial
development strategies set overall economic targets, innovation policies provide the
institutional infrastructure for learning, as well as individual targets and supportive
incentives to firms. While industrial development strategies aim to develop high-
technology sectors, stimulate job growth and eradicate poverty, priority sectors
and the modus operandi for such prioritization is usually set out in STI frameworks.
Similarly, the industrial development strategy of a country may emphasize job
growth, particularly to facilitate recovery from the economic and financial crisis of
2007-2008, but it is the STI framework that determines how this job growth can be
based on technological development, and how high-quality and sustainable jobs
can be created. Despite these overlaps and the complementary nature of both
policy frameworks, neither of them is redundant, and close coordination is crucial
to enforce developmental outcomes.




2 TECHNOLOGY AND INNOVATION REPORT 2015


While there are some good examples of countries within the developing world
that have historically coordinated their industrial development strategies with STI
policy objectives, there have also been an equal number of countries that have not
managed to do so. Friction has long existed between the two sets of policies due
to the fact that consolidation of existing industry (which in many countries is still
traditional, or predominantly composed of SMEs), or the promotion of innovation
and industrial development are seen as two separate issues.


II. COORDINATING THEIR IMPACT IS ESSENTIAL
FOR DEVELOPMENTAL OUTCOMES


Industrial development and innovation are not either/or options. Industrial upgrading,
whether in traditional or new sectors, cannot be achieved without promoting
technological upgrading and innovation capacity. The inability to acknowledge
and foster this relationship has been the undoing of several developing countries,
and has resulted in local industries being unable to enhance productivity despite
repeated industrial policy efforts, mainly because there was no emphasis on
technological change at the firm level.


Coordinated frameworks on industrial development and technology and innovation
capacity need to be emphasized by all countries; a good start in this regard is to
understand the links that exist between the two policies and how they impact key
actors in the industrialization process, namely, the state, the market, the private
and public sectors and domestic and foreign actors. The experiences of East Asian
countries and other emerging economies illustrates that getting the right mix of
interventions to foster the interaction between these actors is critical for successful
industrialization. Crucial questions need to be reframed, and choices refined. For
example, it is not whether to foster public research or not, but rather how much
public research is needed to boost the local private sector. Similarly, the concern is
not whether there should be foreign direct investment (FDI) or not, but rather what
is the right kind of FDI, and how can it enhance technology absorption capacity.


Finding the appropriate balance and the ‘right’ combination of incentives is
contingent on how the two policies interact, not just at the policy definition
level, where policy goals and targets are set, but also on the mix of incentives
contained in these policies, as appropriate to the local context. This rests on how
the policies are coordinated, and more specifically with a focus on getting the
policy processes right. An innovation and industry-friendly climate is therefore not
about just specifying/ granting a broad range of incentives, but has rather more




3Overview


to do with identifying the activities, the beneficiaries that need support (i.e. the
kind of firms and what they should be focusing on), and how such support can be
coordinated through existing agencies. Goal 9 of the 2030 Agenda for Sustainable
Development embodies this imperative for coordinating industrial development
with fostering innovation. Making strides towards industrial development in years to
come will hinge upon identifying and promoting these linkages between innovation
and industrial policies from a practical perspective, to avoid pitfalls and channel
opportunities for local economies.


In practice, therefore, a synergistic environment for innovation-led industrial de-
velopment rests on coordination of policy implementation at the macro-, meso-
and micro-levels. At the macro-level (i.e. at the level of national oversight and
policymaking), policy frameworks on both industrial development and STI policy
should be articulated to provide a lean and cogent conceptualization of common
goals and objectives. The coordinated implementation of these policy frameworks
occurs at meso-levels, i.e. when the policies are translated into implementation
through incentives, programmes and agency mandates. The impact of these
policies on firm-level performance occurs at the grassroots level, and is hence
a micro-issue, which is affected by a range of factors that impact day-to-day
performance. Without coordination at all three levels, it would negatively impact
firm-level performance and vitiate the common goal of promoting technology-led
industrial growth, even if countries have relevant policy frameworks on industrial
development and innovation in place.


In ensuring that the policy regimes are well coordinated at the level of
conceptualization, implementation and practice, the following questions are of
relevance:


(i) How does innovation policy fit into the broader context of industrial
development strategies of countries in practice?


(ii) What are the most critical areas of coordination?
(iii) What lessons can be drawn from the experiences of countries in promoting


policy coordination at the macro-, meso- and micro-levels for improved
firm-level performance, and can they be understood and applied to other
countries?




4 TECHNOLOGY AND INNOVATION REPORT 2015


III. FIVE PRINCIPLES CAN GUIDE THE WAY


This report identifies five broad alignment issues that play a causative role in the
overlaps, namely:


(i) The existing gaps in policy articulation and design;
(ii) A lack of policy coherence and policy competence in the implementation


process;
(iii) The prevalence of competition between ministries, agencies and duplication


of efforts, which result in resource constraints;
(iv) Insufficient capacity to conduct policy evaluation and monitoring; and
(v) A lack of coordination between policymaking, governmental interventions and


business environment.


It proposes five principles as guidelines to countries to find the right balance
between policy processes and policy coordination. These principles are aimed at:


(i) Identifying and eliminating policy redundancies in the policy conceptualization
and policymaking structure;


(ii) Promoting policy coherence and policy competence;
(iii) Using resources carefully;
(iv) Developing capacity for proper policy evaluation and monitoring; and
(v) Coordinating the policymaking processes closely vis-à-vis their impact on


the business and enterprise environment, and promoting private sector
engagement.


IV. COUNTRY FINDINGS REINFORCE THE IMPORTANCE
OF GETTING THE POLICY INTERFACE RIGHT


In the three African countries that are the focus of this report, industrial and STI
policy issues were examined against the following questions:


(i) What are the historical, economic and systemic factors that contribute to the
way STI and industrial development policies evolve in countries over time
(policy conceptualization and policy history)?


(ii) How do these historical, economic and systemic factors impact on the way
policies and institutional support are structured in practice (policy coordination
and implementation)?


(iii) How does this impact firm-level performance in countries (policy impact on
firms and sectors)?




5Overview


The country studies are detailed investigations that show how the institutionalized
patterns of policy conceptualization and policy implementation (in terms of
coordinating the various components of industrial development, and aligning the
instruments and mechanisms to local requirements) are critical to ensure firm-level
performance.


1. Factors for country selection


The country selection was based on three sets of parameters:


(i) The developmental and institutional circumstance represented by the country:
While Nigeria is a commodity-rich developing country; Ethiopia is a least
developed country (LDC) with a resource-concentration in agriculture. This
is juxtaposed with the experience of the United Republic of Tanzania, which
is a mix of resource-based activities and other sectors. As a result, each of
these countries serves to illustrate a developmental challenge in the realm of
coordination of industrial and innovation policies for developmental outcomes.


(ii) The ongoing policy transformation in industrial and innovation policies: All the
three countries discussed in this report have national vision documents, new
industrial development strategies and STI policies that embody the aspiration
of its leaders and policymakers to transform their nation into ‘middle-income’
economies within the next two to three decades.


(iii) Difficulties faced in channeling R&D expenditure and GDP growth rates
towards technological learning: All three countries have experienced relatively
impressive GDP growth rates over the past decade if not longer, and
increased R&D expenditure as a percentage of GDP in the 2000s. Despite
this, they have faced difficulties in focusing these investments into greater
technological learning, particularly at the firm level, as demonstrated by the
lack of greater exports of medium and higher technology products.


2. A summary of country findings: Nigeria


Nigeria aspires to have a mature economy with a diversified industrial base, and to
reduce reliance on oil-based exports, which currently account for over 90 per cent
of its export earnings. Industry, the second largest sector in Nigeria, accounted
for about 26 per cent of GDP in 2013, but most of this was attributable to the
oil sector: out of $100 billion worth of merchandise goods exports in 2013, fuels
accounted for $94 billion. The reliance of the economy on crude oil exports, which
accounted for about 70 per cent of total exports during the past four decades,




6 TECHNOLOGY AND INNOVATION REPORT 2015


led to a shift away from industrial activities of a productive nature, leading to low
structural change, low dynamism and over-dependence on a single commodity.
Key general, sectoral and firm-level findings based on the empirical survey of 200
firms across three sectors (agro-processing, ICTs and health and pharmaceuticals),
field interviews and a historical review of the country’s economic development are
summarized below.


a. Tracing policy conceptualization and policy history
from 1960s until the present day


An in-depth policy analysis shows that the failings of development plans since the
1960s inhibited the adoption of a comprehensive approach integrating technology
acquisition and training to industry. As a result of this, flailing industrial productivity
led to the gradual ineffectiveness of a large number of public sector enterprises
and local firms. The S&T policy adopted in 1986 and which was revised in 1997
and 2003 did not succeed in reversing the shortcomings of the national innovation
system because technology was largely conceived in terms of generic acquisition
of hardware machinery and equipment, rather than as a process of building
technological absorption capacity. To address this, Nigeria enacted the National
Industrial Policy of 1998 and simultaneously embarked upon a system-wide review
of its S&T framework in 2005 to shift the focus to building innovation capacity. As
a result of the review process, a new STI policy framework was launched in 2011
to harness, develop and utilize STI to build a large, strong, diversified, sustainable
and competitive economy that guarantees a high standard of living and quality of
life to its citizens.


Along with the 1998 National Industrial Policy, Nigeria is also guided by the
Nigeria Vision 2020, which is currently being implemented through the National
Implementation Plans. Nigeria Vision 2020 is a long-term strategy aimed at
transforming the Nigerian economy into one of the top 20 economies by expanding
the country’s economy from $173 billion in 2009 to $900 billion by 2020 with a per
capita income of $4,000. The review finds that past efforts in promoting industrial
development in Nigeria failed largely due to a lack of focus on technological learning
at the plant, sectoral and industry level. Current policy efforts seek to address this
and integrate these concerns, which is a very positive development.




7Overview


b. Assessing challenges for policy coordination
and implementation


However, despite the recognition that industrial policy and STI policy are com-
plementary, survey results from the three sectors show that firms continue to
encounter difficulties that affect their ability to perform; these ongoing difficulties
stem from policy coordination and implementation issues.


This can be attributed to two issues. Both the new STI policy and the Nigerian industrial
development strategy and implementation plans are largely being implemented
within an institutional setting in which industrial development and innovation capacity
are considered as two contrasting goals. Furthermore, several older policy directives
aimed at changing underlying policy processes to promote collaboration and com-
munication among the various actors in the institutional support system have yet
to be considered. For example, there is an indication in the new STI policy that the
National Science and Technology Act, CAP 276 of 1977 and the Federal Ministry
of Science and Technology Act No 1, 1980 would be reviewed, but this review had
not been carried out at the time of the survey. The mandate of the National Office for
Technology Acquisition and Promotion, which was created in 1979, also needs to be
reviewed and given a mandate to ensure better coordination and impact.


A second issue is that both policy frameworks, despite their aims, have not yet
addressed basic issues of capacity building and infrastructure. That is, they still
remain largely concerned with articulating objectives rather than addressing grass
roots challenges. A lack of investment into public utility services continues to hinder
the provision of good physical infrastructure for industrial activities. Particularly, the
lack of electricity and transport infrastructure has been a hindrance to industrial
production since the 1970s, when the issue of power supply was not well-integrated
into the construction of large-scale industrial plants.


c. Measuring policy impact at the firm level


The survey results show that despite the efforts to enact the two policy frameworks,
there is not much real impact up until now on the way firms innovate, learn and
compete. The focus of their activities is in marketing and distribution of products
rather than innovative activities that can help create new products and processes.
The survey also shows that Nigerian firms are engaged in incremental learning
activities, and often ranked their products and processes as new to the local
market, and not to the region or the world.




8 TECHNOLOGY AND INNOVATION REPORT 2015


Many of the firms interviewed were often unaware of the national STI policy, or the
incentives contained therein. Companies were also unaware of new agencies that
were recently set up to assist them to compete, such as the National Competitiveness
Council. The survey also showed that there was a low awareness of the kinds
of incentives that were available to promote firm-level innovation, learning and
competitiveness. Firms also reported difficulties in benefitting from these schemes,
where available, due to the extensive bureaucratic processes involved.


3. A summary of country Findings: United Republic of Tanzania


The United Republic of Tanzania has recently emerged as one of the best performing
economies in Africa. This is in marked contrast to the 1970s when the real per capita
GDP growth rate was only 0.5 per cent and which further plummeted into negative
growth rates (-0.7 per cent) in the 1980s. However, in the past two decades, the
country’s economy experienced a steady rise with real per capita GDP growth
rates, which surged from 0.9 per cent in the 1990s to 4 per cent in 2000s and 4.1
percent in 2010-2014.


Despite these trends in overall growth pattern, industry has contributed the least to GDP
growth, lagging behind services and agriculture since the 1980s. By way of contrast, the
services sector accounted for the largest share of GDP in 2013, with a contribution of 47.3
per cent; the agriculture and industry sectors accounted for 31.7 and 21 per cent of GDP,
respectively. The challenge therefore remains one of fostering industrialization through
technological change and innovation. Relevant findings are summarized below based
on a three sector survey (agro-processing, ICTs and health care and pharmaceuticals) of
144 firms, and analysis of the policy regimes on industrial policy and STI since the 1960s.


a. Tracing policy conceptualization and policy history
from 1960s until the present day


The 1967 Arusha Declaration served as a beacon of policy focus in the immediate
post-independence period, with implications for early industrial development
policies focusing primarily on state-led industrialization through local, indigenous
efforts. However, by the end of the 1970s, failures to boost industrial capacity
were attributed to a low focus on technological capacity. This not only led to the
establishment of the Tanzania Commission for Science and Technology in 1986,
but also the national S&T policy that was formulated in 1996.


However, the 1996 S&T policy suffered from certain shortcomings, the most im-
portant of which was insufficient focus on technological learning and innovation.




9Overview


Sectoral objectives and strategies were also not fully translated into policy actions
and investments in knowledge infrastructure were not realized as intended. This led
to a continued disconnect between industrial and innovation policy frameworks in
the country.


Additionally, since the 1980s, the United Republic of Tanzania also underwent a
few re-orientations of its industrial policy. The earlier import substitution policies
were replaced with a market-oriented approach in the late 1980s, along with trade
liberalization of the economy. Trade liberalization resulted in a large-scale exit of local
firms from the Tanzanian market due to a lack of institutional support for industry
and their inability to compete with foreign firms. In an effort to revive the local
industrial sector, the government sought to promote an industrial strategy focusing
on high-technology sectors, as in the East Asian economies. Lacking donor-
support, this plan was replaced with a National Strategy for Growth and Poverty
Reduction (NSGRP 2005-2010), which focused primarily on poverty reduction. An
integrated industrial development strategy was also enacted since 2011, along with
the National Development Vision 2025. Currently, the United Republic of Tanzania is
in the process of implementing its second five-year plan to further these objectives.


In order to achieve the targets set out in the industrial development strategy, a
revised national STI framework was tabled in 2013, and is pending approval of the
Cabinet.


b. Assessing policy coordination and implementation


Despite recent efforts to consolidate industrial performance, there is a lot of policy
incoherence in the design and articulation of policies on the one hand, as well as the
implementation of policy mandates on the other. A lack of connectedness among
the industrial development plans, sectoral strategies and the national S&T policy,
coupled with the absence of a plan to guide the coordination of these policies,
continue to hinder the country’s development. There seems to be an urgent need
to implement the new STI Act, and also to coordinate industrial development with
technological change and technology transfer. This is currently being considered a
priority by the national planning commission for the second five-year plan (set to be
enacted sometime in 2016).


The survey and interviews showed that the coordination shortcoming related to the
roll-out of these plans, strategies and policies are in large part similar to what was
observed in the 1990s between the S&T policy, industrial policy, finance, education,
etc. As a result, although the policy imperative is to boost local production capacity




10 TECHNOLOGY AND INNOVATION REPORT 2015


or expand the industrial base, this is compromised by a lack of institutional
coordination. Meanwhile, despite the new integrated industrial development policy
of 2011, a shortage of emphasis on technological learning, low absorptive capacity
and low emphasis on innovation continue to hinder industrial development,
particularly in the manufacturing sector.


These shortcomings have, to a large extent, negatively impacted industry. At
the sectoral level, manufacturing activities went into a steady decline since the
1990s and accounted for 7.2 per cent of GDP in 2013, with the bulk of industrial
growth being accounted for by non-manufacturing sectors, such as mining and
construction. The manufacturing sector was characterized by the creation of low-
value added products for the domestic market and export-oriented activities with
little or no productivity growth.


c. Measuring policy impact at the firm level


Over 88 per cent of industry is comprised of micro-enterprises with less than five
workers, which contributed a third of the country’s GDP. Overall, most of the industry
is made up of informal, micro- and small-sized firms, with a few medium and large-
sized companies. Further, the majority of the micro- and small-sized medium firms
operate in the services sector, while the rest are in agriculture and manufacturing.


The survey found that at the firm level, few businesses were engaged in innovation
activities. Most of the small-scale firms were engaged in in-house operations relying
on local and often self-sourced financing. Lack of finance, in particular, has prevented
firms from undertaking technological development and innovation. Also, firms focus
on short-term activities on how to survive and sell their products because of the
uncertain innovation and industrial environment in which they operate and lack of
support impedes their ability to innovate.


Survey data showed that a lack of policy coherence on various aspects of industrial
and STI policies, such as levies imposed on imports of raw materials (as opposed
to an exemption of levies on final products) in some sectors served as a disincentive
to innovate or manufacture locally.


In addition, firms reported receiving little in the way of government support to
participate in innovation and finance schemes. Firms also found that regulatory
frameworks were often very hard to navigate, and that this contributed to a large
informal sector characterized by low technological capability and lack of investment
in R&D. Finally, shortcomings in the innovation environment affected firms to a




11Overview


large extent. Currently, firms have little or no interactions with universities, public
and private research institutes and other intermediate organizations. This hinders
technological learning in both the public and in the private sector.


4. A summary of country findings: Ethiopia


Ethiopia has recorded impressive economic growth over the past two and half
decades. The real per capita GDP growth rate rose from -1.4 per cent in the 1980s
to 2.3 per cent in the 1990s, peaking at 6.7 per cent between 2010 and 2014.
Ethiopia’s current challenge remains one of diversifying its economic base, and
strengthening its economic performance. The bulk of the Ethiopia’s GDP value
added has come from the primary sector comprising agriculture, hunting, forestry
and fishing, which jointly accounted for 45.5 per cent of the GDP value added
in 2013. At the sectoral level, the key challenge is one of increasing the share of
GDP value added from industry, which has not only been less than agriculture and
services over time but its share of contribution has also declined in the past four
decades from 16.2 per cent in 1973 to 11.1 per cent in 2013.


General findings, as well as sectoral and firm-level findings, are summarized below
based on a survey of two sectors (agro-processing and pharmaceuticals) and a
historical review of the industrial and innovation policy frameworks.


a. Tracing policy conceptualization and policy history
from 1960s until the present day


Detailed policy analysis shows that Ethiopia’s recent economic success has been
shaped by the country’s developmental plans over the past two decades, the
most relevant of which is the Growth and Transformation Plan (GTP). This five-year
economic master plan was launched in 2010 and aimed at achieving 11-15 per
cent annual GDP growth and large-scale investments in industrial and agricultural
sectors by 2015. A second phase of the GTP, the GTP II, is due to be launched in
2016 to cement and build on current achievements.


Along with the GTP 2010-2015, Ethiopia also sought to revive and resuscitate
Ethiopia’s S&T policy framework. The STI framework was fragmented since its
creation, which despite the formulation of the first national S&T policy of 1993, and
the re-establishment in 1994 of the Ethiopian Science and Technology Commission
as an autonomous public institution was not entirely addressed. A fundamental
weakness of the 1993 S&T policy (which was later amended in 2006 and 2010) was
that it was narrowly focused on S&T without any emphasis on innovation capacity.




12 TECHNOLOGY AND INNOVATION REPORT 2015


Furthermore, the policy envisaged no coordination with industrial development
at the sectoral and plant levels. A revised policy of 2012 now seeks to focus
attention on innovation and technology transfer, in conjunction with the creation of
a centralized innovation fund for R&D activities, which was established with the aim
of committing at least 1.5 per cent of the GDP annually to applied research.


The GTP 2010-2015 and the STI policy are well coordinated in their goals, and
the GTP reinforces the issue of building capacity in the local context by placing
emphasis on the development of universities, research institutes, technical and
vocational education and training institutions. Programmes have been defined
that promote these linkages namely: (a) the development of industrial zones; (b)
capacity building programmes; (c) university-industry linkages; and (d) the creation
of a centralized R&D and innovation fund.


b. Assessing policy coordination and implementation


The share of investment in manufacturing activities has been impressive, wherein
Ethiopia approved 1,211 projects for the manufacturing sector in 2011/12, which
accounted for 31 per cent of the share of total investment capital over this period.
The central challenge now is to ensure policy coherence and coordination between
industrial and innovation policies at the implementation level, which still remains
weak. Particularly, there needs to be a greater emphasis on the provision of a
common STI infrastructure, technology-transfer venues and information sharing
of relevance to promote the industry, especially to engage in high technological
intensity activities.


Policy coordination and implementation is still less than satisfactory because the
institutional apparatus in the country remains weak and fragmented in this regard.
The survey and analysis found that a large number of intermediary agencies such as
those that can help industry acquire and upgrade technologically are missing, or just
being set up. A good case is that of the Food and Beverages and Pharmaceuticals
Industry Development Institute, which has recently been set up to promote such
linkages recently.


c. Measuring policy impact at the firm level


The limitations of policy coordination and implementation are felt at the firm level,
as the survey findings show. The results show that at the firm level, there is a lot
of capacity in Ethiopia’s agro-processing activities beyond coffee production, e.g.
several firms are engaged in leather activities, but these activities are dominated




13Overview


by SMEs. The survey also found that firms face significant difficulties in diversifying
into technology-intensive activities, especially those that can contribute to value-
additions.


The difficulties faced by firms are partly due to a lack of adequate institutional
support to develop technology and innovation capacity as a whole. As a result,
most companies (even those in the agro-processing sector) continue to focus
on domestic market opportunities, and only a few have ventured into markets
beyond Ethiopia. The survey also found that firms rely heavily on not so up-to-date
equipment and machinery, but some are acquiring new knowledge through the
acquisition of new machinery and equipment, even though the lack of technological
absorptive capacity hinders their ability to innovate. Promoting technology transfer,
access to finance, joint ventures for production and value-addition remain really
important to firms.


V. WHAT MATTERS IN PRACTICE:
FINDINGS AND RECOMMENDATIONS


The difficulties in coordinating policy objectives, implementation and impact, as faced
by the three countries in the report, are not isolated issues. A large number of countries
in the developing world are faced by the same kinds of issues. Some general findings
stand out in this regard. Firstly, although there have been laudable efforts in defining
policies, simple infrastructure issues that have impeded industrial development over
a period of decades have not been resolved. This should be the first area of focus.
Secondly, countries continue to face difficulties in coordinating implementation – a
development that can be traced back to the lack of policy coherence. This is not to
say that ministries and agencies have not been well intentioned. In fact, the survey
found that despite their best intentions and efforts, firms were not benefiting from
these efforts due to a lack of policy coordination. This reinforces the need to get
the policy processes right. Other more specific results on the interface of industrial-
innovation policy are presented below, with accompanying recommendations.


1. There are several gaps in the policymaking structure


In all three countries, as is the case with a large number of other African countries
that are also reviewed in the report, national STI policies either evolved much later (at
least two decades after the industrial development policies were enacted), or evolved
in parallel with little or no coordination with established industrial development
frameworks.




14 TECHNOLOGY AND INNOVATION REPORT 2015


The report finds that within countries, a predominant issue is where industrial policy
is placed, and how it is articulated. In the case of a large number of developing
countries, policies for industrial development are not usually articulated as industrial
policies, but rather as industrial development strategies, or as national visions,
or as part of recurring national developmental plans aimed at facilitating overall
development and economic transition.


If countries enact national visions that include industrial policy objectives (which is
the case not only in Ethiopia, Nigeria and the United Republic of Tanzania, but also
true for a large number of other African countries), it needs to be borne in mind that
such national vision statements generally have a broader scope than just promoting
industry, and often tackle issues of poverty, youth, environment, employment and
urbanization. In several countries, industrial development objectives are embedded
in their national development plans, and are often recurrent on a term-by-term
basis.


Therefore, although such visions or strategies encapsulate the main industrial
objectives or goals, there is a need to have clear roadmaps to achieve these visions,
with accompanying targets, so that these can be linked to a policy implementation
mechanism on the one hand, and to STI and other policies (covering areas such as
trade, investment, and development) on the other.


Another reason for the gaps in policymaking is that a large number of industrial
development strategies are one-dimensional: they target overall industrial
development and an increase in per capita GDP growth rates, or a rise of specific
sectors. The focus should instead be on closing the productivity gap, i.e. how to
ensure greater returns from productive activities. This leads to gaps in policymaking,
including a neglect of:


• Technological and technical support systems required for the growth of
sectors;


• Links between the human skills requirements of the various sectors with
enhanced performance projections;


• A clear articulation of how the higher GDP spending on R&D will form part of
public sector assistance to technological upgrading, e.g. the establishment of
common industry services, technological incubation, industrial research labs,
etc.




15Overview


2. Policies suffer from inconsistencies and often,
overall incoherence


A key issue that stands out is that sophisticated policies are not sufficient.
While industrial development strategies in the selected countries recognize the
importance of technology-led growth, and whereas all STI frameworks recognize
the importance of coordinating with industrial policy, the same historical patterns of
lack of coordination between innovation and industrial policy frameworks persist.
Countries have tried to tackle these issues by providing for common goals or
missions in the two policy frameworks, but policy incoherence often occurs at the
stage of policy articulation, and is also often deeply rooted in policy implementation
processes.


The country chapters help to illustrate the main finding of the analytical framework,
namely that it is crucial that policy processes are clearly laid out. Specifically, the
findings show that even elaborate policy frameworks on STI policy and industrial
development need to be accompanied by policy consistency and coherence at the
levels of:


(a) Policy conceptualization and design;
(b) Policy implementation and coordination


A number of reasons explain the existence of policy incoherence and inconsistencies.
The country chapters show that they could be the result of ineffective policy
transitions (where countries embark on changes in policy, but remain incomplete
and lose momentum as a result of changing political leadership at different levels
of governance), institutional inertia and resistance, or a lack of policy competence
to foresee and avoid overlaps. A second form of policy incoherence is when the
frameworks are overarching but not accompanied by a concrete implementation
plan. However, in many other cases, policy frameworks are accompanied by
implementation mechanisms, but several shortcomings have prevented them (to a
different extent in the three countries) from achieving an impact. A key issue (already
raised in the previous point) is that in the absence of stocktaking and attempts to
streamline the institutional apparatus, many public sector agencies have mandates
to implement the policies. When the policy framework is not completely consistent
or accompanied by clear implementation mechanisms, the country analyses show
that there is no clarity at the policy implementation stage as to which of the existing
agencies should implement the mandates contained in the policy framework and
how they should be implemented.




16 TECHNOLOGY AND INNOVATION REPORT 2015


a. Policy incoherence in conceptualization can be a result of ineffective
or slow policy transitions


Moving towards an innovation policy is a challenging coordination task, and not
just one of providing a regulatory framework. In reality, although a wide variety of
policies emphasize ‘innovation’, field investigations show that while some policies
seek to fundamentally chart new ground, in some other instances, the policies
often make reference to ‘innovation’ but are not comprehensive enough to tackle
the difficulties of fostering innovation. Furthermore, there are difficulties imposed by
the fact that policy processes are not followed through, and maintained during and
after political transitions in countries.


The same difficulty holds true for industrial development policies. Sudden policy
shifts that do not promote a coherent notion of industrialization as a continuous
process lead to policy inconsistency and incoherence simply because they
do not offer a consistent and reliable level of support to the process of industry
transformation.


b. Policy incoherence can be due to institutional
resistance and inertia


The field interviews and surveys shed light on the fact that policy and institutional
history matters. Historical analyses of the evolution of policies and implementation
mechanisms conducted in the chapters shows that agencies implementing these
mandates operate within weak, unaccountable implementation processes. Such
inter-agency rivalries exacerbate policy coordination issues and have led to a
large-scale neglect of the private sector. In almost all countries surveyed, private
sector enterprises considered that existing policy frameworks and the actions of
implementing agencies operated at a distance from them, making little attempt to
liaise and understand the constraints they faced or tried to alleviate them. Such
institutionally embedded habits and practices often offer severe resistance to newer
more collaborative modes of interaction. Policies on industrial development, if they
are to be coherent with innovation policies, should seek to address the operative
mandates of agencies to promote a change in mindset.


c. Policy incoherence can be due to insufficient policy competence /
policy foresight


Another set of coordination issues arise from the fact that both industrial development
and innovation policies often identified targets and objectives that were impacted upon




17Overview


by other policies differently. For example, in Ethiopia, the STI policy aims to ‘develop,
promote and commercialize useful indigenous knowledge and technologies’. To
promote this, there would normally be a need to assess whether the sui generis
system created by the Ethiopian 2006 Proclamation on Access to Genetic Resources
and Community Knowledge, and Community Rights could help protect useful
indigenous knowledge and technologies. In other words, the IPR protection has to
be integral part of the indigenous knowledge commercialization process. But what
appears to be missing in the objectives are strategies to create STI policy awareness
at all levels of government, including the Cabinet and Parliament, as well as to build
an innovation culture among businesses, the youth and society at large. Similarly,
one of the projects under the GTP is the establishment of industrial parks, but these
are expected to act as hubs for FDI, and to leverage technology transfer of the kind
outlined in the country’s STI policy. This once again calls for coordination of policy
implementation on a strategic basis between the ministries, as well as agencies
implementing the mandates on industrial development, investment and STI. But
often the lack of policy competence, as well as a lack of incentives on part of the
agency employees leads to very minimalistic interpretations of these mandates.


d. Recommendations to improve policy coherence
in conceptualization and design


Assessing the successes and difficulties faced by the countries in this report, the
following recommendations are suggested to avoid this kind of policy incoherence:


• Policy vision, mission and objectives should be closely aligned: The review
of ongoing initiatives at the African level, as well as the country chapters lend
strength to the conclusion that a close alignment of industrial development
and innovation policies is still an elusive goal in countries. Oftentimes, even the
targets or objectives for STI mentioned in industrial policy are not the same as
the objectives of the STI policy itself (see previous point), thereby promoting
policy incoherence and leading to confusion.


• Emphasis should be placed on developing local linkages and unlocking
learning potential: Although STI policies clearly lay down the broader vision
to build capacity, fostering an innovation ecosystem calls for emphasis on
the creation of an innovation and entrepreneurship culture with concrete
links to industrial development. It is necessary to promote entrepreneurial
programmes, align academic curriculum with entrepreneurial needs, and
introduce entrepreneurship classes at schools and institutions of higher




18 TECHNOLOGY AND INNOVATION REPORT 2015


learning to enable the effective application of new technologies and innovation
for industrial development. The GTP in Ethiopia, for instance, has at least two
such projects on building capacity.


• While enacting new policies, there is a need to clearly link them with existing
initiatives and agency mandates: The country chapters found that although
national policymakers are aware of the need to review existing policies and
agency mandates, change is usually slow, leading to policy ineffectiveness,
as in the case of Nigeria. Making this happen alongside the policymaking/
revision process is critical for at least for two reasons: Firstly, previous policies
often have agency mandates that call for review in the light of the new policy,
to ensure that the institutional framework embodies the changes in a dynamic
and efficient way. Secondly, reviewing policy mandates is very important to
ensure that national resources, particularly financial resources and human skills,
are used efficiently.


e. Recommendations to improve policy coherence in in the implementation process


The recommendations in this regard include:


• Coordination hurdles need to be tackled at the level of agencies and
organizational structures in order to avoid overlapping mandates between
newly created agencies and existing agencies, and how they interact with
the private sector. Duplicated measures should be taken stock of, and efforts
should be made to eliminate such duplication over time.


• Policy changes should be accompanied by appropriately funded and
transparent budgets and staffing of skilled employees to facilitate their
implementation.


• Schedules and critical milestones to be achieved jointly by the STI and
industrial policies should be clearly defined ahead of the process, and also
framed in a manner that addresses national needs and industry characteristics.


• A high-level governance structure and coordination matters, especially at the
ministerial level. More efforts should be made to ensure such interaction.


• Best practices from other countries can only serve as a guideline; the right
combination of innovation and industrial policies is a personal choice of
countries.


• The focus should be on contextualization in order to achieve results.




19Overview


3. Policy monitoring and evaluation mechanisms are required to ensure
efficient use of existing resources


Monitoring and evaluation (M&E) mechanisms are relevant from a variety of per-
spectives. They not only enhance coordination efforts but also point to the lack
of funding of various initiatives as part of the stocktaking process. They also
ensure that funding issues are taken into consideration and reviewed over time
to evaluate: (a) where is the current funding being used? (b) What are the funding
gaps to implement the goals of industrial and STI policies? (c) How can the gap
be financed? (d) What are the best ways to share risk and partner with industry to
effect transformation? (e) How to best allocate existing resources, and into what
agencies? (f) Can agencies be streamlined and better defined? These are some of
the issues that should form a core part of the monitoring and evaluation exercise.


Monitoring and evaluation exercises aimed at ensuring that existing resources and
agency strengths are put to good use will play a pivotal role in policy effectiveness.


In support of this point, the surveys and interviews showed that most funding given
to agencies supporting innovation is often spent on recurring expenses related to
staff maintenance and running costs, with little or no reserve for innovation support
infrastructure. In the United Republic of Tanzania, for example, about 95.1 per
cent of the sums allocated to agricultural R&D goes into staff salaries or operating
expenses, leaving only 4.9 per cent for capital investments in 2011. Similarly, staff
salaries and operating expenses account for about 83.4 per cent and 71.8 per
cent of agricultural R&D in Nigeria and Ethiopia, respectively.1 Similarly, supporting
staff account for about 29.3 per cent (2010), 33.6 per cent (2007) and 37.9 per
cent (2010) of the R&D expenditure in the United Republic of Tanzania, Nigeria and
Ethiopia, respectively. By way of comparison, the share of support staff in relation
to R&D personnel is smaller in other developed countries, e.g. Germany (16.8 per
cent in 2011) and Japan (16.2 per cent in 2011), as well as in other developing
countries with highly sophisticated R&D system, e.g. Hong Kong, China (5.5 per
cent in 2010).2


a. Recommendations to ensure efficient use of existing resources


In order to address these issues, the following recommendations could be con-
sidered:


• There is a need to integrate monitoring and evaluation from the start of the
policy process.




20 TECHNOLOGY AND INNOVATION REPORT 2015


• There is a need to ensure monitoring and regular follow-up, along with open
assessments of budgets and assistance offered by various agencies.


• Monitoring and evaluation should be based on institutional memory of why
and how coordination failed, because looking inwards to assess and apply
the learning of the country’s own past as to why policies failed or what factors
vitiated the policy processes helps to promote successful coordination.


• The resources earmarked to support the implementation of relevant policies
will largely determine the effectiveness of the policy in question. Hence, policies
should be accompanied by resource allocations that are on par with the
activities envisaged.


4. Policymaking, government interventions and the business environment
should be coordinated more closely


An important finding of this report is that policy is often reality-incoherent. That
is, as opposed to the practical structure of the local industry, which is often
overwhelmingly comprised of SMEs and the informal sector, industrial policy and
innovation policy elaborate sectors of importance that are entirely high-tech, or
require an institutional infrastructure that is very far-fetched from the on-the-ground
realities that firms face in their day-to-day existence. A number of the local firms
are operating on the fringes of technological development even in the so-called
high technology sectors. For example, in the ICT sector, many companies simply
offer call management or ICT services to users (as opposed to any production
or process improvements), in the pharmaceutical sectors, many companies only
distribute already packaged medicines, or engage in traditional medicine-based
preparations of low-technological nature.


It is important to bring the private sector into the policy focus and the realm of
policy discourse in the countries. The STI and industry policy frameworks should
be adequately accompanied by both business and industry support organizations,
which provide incentives for local firms such as R&D grants, R&D loans, tax credits
and governmental procurement, all of which have met with much success in other
developing countries. In fact, one of the key issues that were raised in the country
studies related to the way the question of finance was addressed.




21Overview


Countries, such as Thailand, have used policy mechanisms like government
procurement as an incentive for innovation.3 Incentives such as these could be
considered in all the three countries there were policy implementation gaps on the
question of innovation finance.


***


African countries are at a defining point of stocktaking, particularly as they transition
into an era of new development goals. It is becoming widely acknowledged that
sustainable development rests more broadly on stable industrial development of
a kind that can deliver better livelihoods to the people and eradicate poverty, as
several goals of the recently adopted 2030 Agenda for Sustainable Development
emphasize. In particular, Goal 9 encapsulates the dual objectives of promoting
inclusive and sustainable industrialization and fostering innovation.


Almost all countries in the African region, and more widely in the developing
world, including the three countries that were studied in depth for this report,
are currently at a policy and developmental stage where industrial development
through technological change should be a central, if not the most important,
priority. Not only is there a policy transition towards that end, the field surveys were
testimonies to the extent of political commitment to enacting elaborate industrial
policy frameworks, and revising their S&T policies towards policies dedicated to
innovation. But the private sector in the African region (particularly in sub-Saharan
Africa) is in dire need of greater support, and enterprise policies are currently the
weak link.




22 TECHNOLOGY AND INNOVATION REPORT 2015


NOTES


1 ASTI website (http://www.asti.cgiar.org/countries) accessed on 27 April 2015.


2 UNESCO Institute for Statistics database (http://data.uis.unesco.org/)
accessed on 27 April 2015. Full time equivalent (FTE) figures were used.


3 See UNCTAD, Promoting Innovation Policies for Industrial Development in
Thailand, Forthcoming.




Fostering Innovation Policies
for Industrial Development


Technology
and InnovaTIon


RepoRT 2015


OVERVIEW


U n i t e d n at i o n s C o n f e r e n C e o n t r a d e a n d d e v e l o p m e n t


EMBARGO
The contents of this Report must not be


quoted or summarized in the print,
broadcast or electronic media before


16 December 2015, 11:30 hours GMT


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