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EDITOR'S NOTE

INVESTING IN INNOVATION

The Ancient Egyptians invented paper, glass, pyramids and the world’s first prosthetic limbs. In the ensuing 5,000 years, however, Egyptian innovation has gone flat. Not surprising given that the government allocates less than 0.5 percent of GDP to research and development (R&D). The US and Japan, by contrast, have earmarked 2.6 and 2.9 percent of GDP respectively. Put in perspective, Egypt’s total R&D expenditure in 2004, about $500 million, was less than the in-house R&D budget of many medium-sized US companies.

Almost all of this expenditure has been sunk into state universities and research centers. Some might argue this centralized approach has quashed the spirit of innovation in Egypt. After all, why would a bright scientist want to work for the government if it means low wages, poorly equipped labs and the prospect of seeing their inventions shelved for lack of funds or, at best, doled out to state-run firms for implementation?

It’s a dilemma that has sent scores of talented Egyptians overseas, where brilliant minds such as Ahmed Zeweil, a Nobel laureate for chemistry, and Dr. Magdi Yacoub, a world-renowned heart surgeon, prove their worth. It’s not just about fat paychecks, Egyptians are being lured abroad by the promise of due credit and the satisfaction of seeing their conceptual designs turned into reality.

There is hope that the liberalization of the economy will slow the brain drain. As Egypt shifts away from a highly centralized system, the onus of R&D will fall increasingly on the private sector. But in order to encourage innovation in the private sector, the government will have to adopt a risk-and-reward formula.

R&D is, after all, a risky venture. It requires enormous amounts of cash, resources and technical support – with no guarantee of success. In biotechnology, for instance, developing a new product takes 3-10 years and upwards of $500 million. Yet only a handful of products that enter the development stage ever reach the market.

The decision to pursue research is a complex one. Companies weigh potential sales, competitor activity, opportunity costs, resource availability, technical risk, outsourcing opportunities and value to their product portfolio. Businesses are often hesitant to gamble on capital-intensive research, which is where R&D tax breaks, research donor incentives, and a rational and predictable regulatory environment come in.

But the government would be wrong to think it can simply pawn off R&D onto the private sector. Experience has shown that the highest returns on R&D come in cases where the public and private sector work together: national research centers transfer technology to private enterprises, which in turn fund academic research. In the end, everybody wins.

CAM McGrath

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