Today's knowledge-based economy is singing to the tune that a failure to invest in research and development (R&D) is a failure to invest in the future. This tune should indeed compel under-investing countries like Egypt to go in the direction of lifting their only-too-modest R&D spending. Economy-wide (spanning both public and private sectors), Egypt spends 0.24 per cent of its Gross Domestic Product (GDP) on R&D, a share that pales when compared to its Arab and North African competitors, let alone best practices in countries worldwide. To put this figure into perspective, Morocco and Tunisia spend around 1.0 per cent of their respective GDPs on R&D, while the USA and Japan are on a par of 2.5 per cent, with Israel maintaining a high of 4.5 per cent. As economy-wide figures span the spending of both the public and private sectors, one also needs to probe how Egypt fares on R&D at both public (i.e. state) and firm levels, with the emphasis on how R&D is sponsored and managed, the size of R&D personnel relative to the total workforce, and the tools used to support R&D. The state level relates to the national system that sponsors scientific R&D in Egypt. This system is made up of three distinct sectors: higher education, production and services, each including multiple institutions and affiliated research bodies. To the sector of higher education belong both the ministry of higher education and the ministry of state for scientific research. The former is the hub for public universities (and affiliated research centres), and the latter encompasses large research institutions (eg the National Research Centre). Under the production and service sectors fall various ministries, each with its own set of research affiliates (eg among others, the production sector covers centres affiliated to the ministry of trade and industry, while services cover those of the ministry of health). Where then is the problem with such a national system sponsoring R&D? The problem lies in research being dispersed across a wide array of bodies. Each of these bodies operates within its own administrative and organisational setting, is funded and governed by its own set of rules, and, more often than not, is bloated with huge R&D personnel. Without sound coordination of the research efforts of these bodies, there is much duplication and redundancy. Moreover, the system still needs to advance the use of international standards for measuring and assessing the R&D output of its bodies. In sum, a coherent framework for the governance of the much-fragmented research effort is still missing. This marks the system's true Achilles' heel. Beside the modest spending and inadequate governance of its national R&D system, Egypt also needs to address other weaknesses. As revealed by its ranking in the innovation-related dimensions of the World Economic Forum's Global Competitiveness Report, Egypt falls in the lowest third bracket of countries included. Its weakness is particularly evident in the low level of firms' capacity for innovation (as measured by firms' ability to introduce new products and processes relying on their own R&D), the spending of firms on R&D, government procurement of advanced technology products, utility patents per million of the population, the quality of scientific research institutions, and, finally, the scope for collaboration between universities and industry on R&D. The picture is, however, less bleak with regard to the availability of scientists and engineers in Egypt. On that front, Egypt falls in the top third bracket of countries studied. What Egypt has also yet to address is the need for fiscal and financial incentives aimed at promoting company spending on R&D. A cursory look at Egypt's income tax law 91/2005 shows no allowances permitting firms to deduct R&D spending from their taxable income. Such allowances have been shown to promote firm-level R&D spending in many countries, among them the UK and New Zealand. Financial incentives such as government subsidies for the exchange of R&D personnel between the public and private sectors, the provision of grants and soft loans for R&D, and the availability of financial market mechanisms such as venture capital for R&D also need to be in place. Venture capital has been, for example, a major R&D-supporting tool for many US and Canadian companies, particularly in start-ups. At the firm level, poor R&D performance takes various forms, the first of which is low spending. In a study of R&D performance in Egypt's pharmaceutical firms, average R&D intensity (spending relative to a firm's sales revenue) has been found to be around 1-2 per cent. This is considerably lower than the US National Science Foundation's estimates of 8-10 per cent for US pharmaceutical firms. Moreover, firms in Egypt are mainly geared to spending on laboratory material and equipment for R&D-related projects. In the strict sense, their R&D spending is not on basic and applied research, but rather on piecemeal development-type projects. Basic and applied research has helped make India an important player in the global market for generic drugs and active ingredients. Poor R&D performance is further evident in the virtual absence of research collaboration among firms. This would entail their collective pursuit of new or applied knowledge, either vertically with upstream suppliers or horizontally with competitors. Firms may also establish cost-sharing agreements or strategic alliances for R&D. What is also absent is research collaboration between firms and universities. At best, Egypt's firms have been found to seek academic consultants from public universities on specific research areas, with precious little collaboration with university research centres. Pharmaceutical firms worldwide are known to commission research tasks to university research centres, or to provide research funds/grants. Either way, firms would benefit from potential cost reductions as universities possess large economies of scale and scope in R&D. Egypt's pharmaceutical firms also enjoy a very modest 1-2 per cent R&D personnel intensity (employees working in R&D relative to total employees), again falling short of worldwide practices. For example, according to Eurostat in 2008, pharmaceutical R&D personnel intensity in some of the new EU member states was: Poland 3.8 per cent; Romania 4.1 per cent; and the Czech Republic 5.3 per cent. At the higher end of the spectrum, intensities for older EU member states were: the Netherlands 27.4 and Denmark 26.3 per cent. Nevertheless, Egypt's low pharmaceutical R&D personnel intensity has not undermined personnel skills or competences. Entrepreneurs have assessed their R&D personnel as being highly skilled, with some holding higher academic degrees. In short, poor R&D performance in Egypt transcends the national system and also affects firms. We may whisper in the ears of both that it is only when they recognise the growth and competitiveness potentials of R&D that they will deepen their R&D practices and begin to sing to the right tune. The writer is a senior economist at the Egyptian Centre for Economic Studies.
