Facilitating Innovation in African Firms (Part 2)

Innovation in Africa’s Manufacturing and Service Firms (Cont'd)

Knowledge and Innovation Capabilities in African Firms

The first part of this article series highlighted approaches for overcoming challenges to innovation in Africa’s agricultural industry and in the manufacturing sector. We continue in this part by exploring three specific issues: how to facilitate innovation in the manufacturing sector, how sources of knowledge influence innovation and the effect of cross-boundary knowledge on innovation and patent outputs in Africa. The first two issues take evidence from two separate studies conducted in Ethiopia and Tanzania. This article concludes with important areas of consideration for future innovation and development research in Africa.

Innovation in Africa’s Manufacturing and Service Firms (Cont'd)

Exporting and importing improve firms’ productivity: International trade, which involves exporting locally manufactured goods and opening domestic markets to imported goods, is a critical factor in the development of countries. The importation and domestication of technology (inputs and new capital goods) from developed economies is considered as a viable option for developing countries to reduce the economic gaps between them and their developed counterparts. A study of the role of imported inputs, new capital goods and exporting on the performance of companies in Ethiopia’s manufacturing sector reported positive influence of these factors on firms’ productivity.

It was observed that with increased use of imported inputs and new capital goods came improved firm productivity and total factor productivity. This positive productivity was higher for companies that export than the non-exporters, suggesting that exporters were better able to match their inputs with labour. To harness the potentials for accelerated technology transfer and accumulation of local innovation capabilities, policies should be formulated to i) improve firms’ access to imported inputs; ii) encourage investment in new capital goods; and iii) strengthen export orientation among the country’s manufacturing firms.

Knowledge and Innovation Capabilities in African Firms

Innovation is a product of different factors, principal among which is the knowledge available to the innovating firm which can be internal or external. Consequently, the source, amount and quality of knowledge within a company will determine the company’s outcome concerning innovation and competitiveness.

Knowledge source matters in innovation: Companies translate ideas and inventions into goods and services that have economic value through innovation. For most companies, purchasing some embodied technology (i.e., machinery, equipment or software) is the main source of external knowledge while spending on internal research and development (IRD) is the main source of internal knowledge. A study of Tanzanian firms showed that internal and external knowledge are complementary. In other words, they have greater impact on innovation when combined than when used separately.

Interestingly, firms that develop internal knowledge are better positioned to exploit external technological opportunities. This is because, for a firm to access external knowledge successfully, it needs to have relevant internal knowledge that enables it to utilize such knowledge. This raises the need for firms to consciously invest in IRD and not rely solely on acquisition of external knowledge for innovation. Moreover, acquired external knowledge should complement existing internal capabilities, for optimal benefits.

Global knowledge fosters innovation and patenting: Patents are the exclusive rights that innovators have to exploit their inventions for profit over a period. They (patents) are issued on products and processes that are new, or are significant improvements on existing ones, and can be converted for economic benefits. Since patentable outputs usually emerge from research and development (R&D), and require considerable time and investment, having patents signify the possession of a good measure of new knowledge. While most African firms generally lag behind in their patent turnover, a study on how African companies continue to patent reported that firms that interact (exchange knowledge) with and co-create with partners outside Africa maintain innovativeness than those who do not.

It was observed that firms that manage to innovate at some point are more likely to repeat the innovative process. Similar to the Matthew effect, this perpetuates a gap between companies that constantly innovate and those that do not. In contrast to firms with only African researchers, the inflow of international knowledge (through the presence of at least a researcher or innovator from a developed country) into a company’s innovation process enhances the process, and increases the likelihood that the company would continue to patent over time.

Cross-border patenting activity is an efficient tool for building technological capabilities among developing and African countries. Harnessing this requires strategic policy framework, which include the following, among others. Tax reductions and other fiscal incentives can be used reassure companies involved in international co-patenting. Funding and facilitation mechanisms should be instituted to encourage African firms to participate in global R&D networks and exchanges via technical visits abroad, conference attendance and internships for foreign engineers and researchers in domestic enterprises.

Looking Ahead

The literature on innovation in Africa is rapidly expanding, but there is still a lot more to be discovered. Going forward, there is need for better understanding of the constraints to innovation within Africa. We need to know the impact of infrastructure on innovativeness and performance. There is also need for deeper understanding of the role of networks and collaboration, as well as the impact of barriers such as poor financing and corruption.

This article is based on:

Abiodun Egbetokun, Richmond Atta-Ankomah, Oluseye Jegede & Edward Lorenz (2016) Firm-level innovation in Africa: overcoming limits and constraints, Innovation and Development, 6:2, 161-174, DOI: 10.1080/2157930X.2016.1224619