promoting investment in science and technology in idb member countries

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Promoting Investment in Science and

Technology in IDB Member Countries

Jamil Alkhatib

July 22, 2007

The Old City,

Jerusalem, Palestine

Abstract

In the rapid changing world, neither the financial capital nor the

human power are the only factors to the continuous progress in theeconomy, the innovation and the knowledge play nowadays major

role in the economic growth. This article will discuss the role of sci-

ence, technology and innovation on the economical development of

the IDB member countries.

In order to achieve such economical development, the investment

in innovation and knowledge based projects should be supported

and the industry awareness of the importance of science should be

increased. Besides that, the educational and research systems have to

focus on the applied researches to improve the quality of investmentoutcome. Some approaches that could be adopted to increase the

awareness of innovation and the investment in technological related

Technology and Innovation Management Consultant

1


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projects will be introduced in this article.

The status of the Innovation system in the IDB member countrieswill be discussed. Finally some recommendations on how to improve

the economics based on science, technology and innovation in the

IDB member countries will be suggested.


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4 1 INTRODUCTION

1 Introduction

Diffusion of technical know-how does not simply depend

on ability to pay. It owes a great deal to personal contacts and

discussion, or to the movement of people (Freeman and Soete,

2004, p.179)

Although sometimes large amount of money are invested in Science and

Technology projects, but they have minor effects on the national economy.

One of the common problems in such investments is buying the Technol-

ogy directly instead of developing it. Like in the turn key projects andICT infrastructure implementation where only the Technology and equip-

ments are transferred without the real knowledge behind them.

This article will focus on some approaches in promoting the investment

in Technology and Science while supporting the economical progress

through Innovation in the Islamic Development Bank (IDB) member coun-

tries.

In this context it is important to define some terms before proceeding with

the discussion.

Science is a system of acquiring knowledge based on the scientific

method. (Wikipedia the free encyclopedia, 2007b)

Technology is the system of knowledge, skills, experience and organi-

zation used to produce and utilize goods and services to satisfy human

demand. (UNIDO, 1996, p.21)

Invention is an object, process, or technique which displays an elementof novelty. (Wikipedia the free encyclopedia, 2007a)

The Innovation is the implementation of a new or significantly improved

product (good or service), or process, a new marketing method, or a new


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organisational method in business practices, workplace organisation or

external relations. (...) This includes products, processes and methodsthat firms are the first to develop and those that have been adopted from

other firms or organisations. (OECD, 2005, p.46)

Although the literature classifies the Innovations into 4 groups: product

innovations, process innovations, organizational innovations and market-

ing innovations this article will focus only on product and process inno-

vations since they are the most observable category.

2 Technology, Science and Economy

Innovation is of importance not only for increasing the

wealth of nations in the narrow sense of increased prosperity,

but also in the more fundamental sense of enabling people to

do things which have never been done before. It enables the

whole quality of life to be changed for better or for worse.

(Freeman and Soete, 2004, p.2)

Both Marx and Smith have considered Technology, Science and Inventions

as elements in the economical growth. Empirical studies showed that be-

fore the industrial revolution, the difference between industrial and devel-

oping countries was small and after that the difference has increased dra-

matically (Freeman and Soete, 2004, p.317). It is important for the devel-

oping countries to catch-up with the Technological development to reach

the economical growth. The catch-up can be achieved by imitation or in-

novation.

The Technological change and inventions can be drivers for new invest-

ments in new machines, new services or even training the staff. Innova-

tions and Inventions can attract not only local investment but also foreign


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6 2 TECHNOLOGY, SCIENCE AND ECONOMY

direct investment (FDI).

The effect of innovation on productivity and competitiveness improve-

ment on the national and countries level is similar to the effect on firms.

The entrepreneurs increase and start to invest in the country which in

turns opens new jobs specially in Research and Development (R&D).

Moreover, since the innovation is considered as creative destruction, it cre-

ates new needs and production qualifications in the country which opens

new chances for young people to have new jobs. Not only that, but the

Innovations improves the foreign trade through selling new competitive

products or services.

According to (Freeman and Soete, 2004, p.291) the National Innovation

system can be defined as the interactions between various institutions

dealing with science and technology as well as with higher education, in-

novation and technology diffusion (...) whether public or private insti-

tutes.

The Innovation system is a complex system and in order to improve it,

multiple fields should be considered. Nowadays the scientific and tech-nical progresses are the main drivers for innovations. Moreover the firms

can no longer be able to innovate alone, because the Innovation now often

requires more external and more multidisciplinary knowledge, as many

technologies have become extremely complex. (OECD, 2000b, p.4). The

firms also are required to save on their internal research and development

(R&D) due to the high competition.

Further more, the scientific researches are too expensive and tend to be

beyond the ability of universities and research institutes. In addition, the

lack of skilled personnel is a key barrier to innovation that needs to be

addressed. While a case can be made for greater international mobility

of human resources, countries also need to address education, skills up-


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grading and human resource management at the domestic level.(OECD,

2000b, p.9)

For all these reasons, the demand for cooperation between institute and

the establishment of innovation networks become the most common ap-

proach to innovate. Links between firms and research institutes and al-

liances between industrial firms have been established.

In order to explore the innovation system in any region it would be im-

portant to measure its main indicators and study the interaction among

different institutes. The indicators can be classified as Inputs and outputs

indicators. The input indicators are: R&D personnel, education and R&D

expenditure, while the output indicators are: patents, scientific publica-

tions and technology trade (Lederman and Saenz, 2005, pp.46); (OECD,

2005);(Nour, 2005, pp.1113);(ESCWA, 2003, pp.765). Moreover the in-

vestments incentives and ICT infrastructure are of great importance for

innovation promotion which could be measured.

3 The Innovation system in the IDB countries

This section will give an outlook at the Innovation system in some of the

IDB countries by reviewing the innovation indicators.

Input indicators

The expenditure Education in most of the IDB member countries are too

far away from the international standards and even in countries in the

same region as the IDB countries. Table 1 shows the expenditure of some

selected countries. Moreover the expenditure on R&D activities is very

low when it is compared to the global average expenditure in 2003 which


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Country/Region In Thousands Per million Inhabitants

Arab States 39.7 136Malaysia ... 730*New Industrialized states in Asia 291.1 777.2Israel 9.2 1395.2India 117.5 112.1OECD 3414.3 2984.4

Table 2: Number of researchers in 2002Source: (Watkins et al., 2005, p.6)

* Source: (MASTIC, 2005, P.7)

Output indicators

The weakness in the input indicators is reflected to the outputs. The

patents and publications in the IDB countries are too far away from the

neighboring countries according to tables 3 and 4.


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tured exports in the Arab States. This figure in the most IDB countries is

lower than the world average which was 18% except Malaysia (Watkinset al., 2005, pp.274277).

Countries/Region Hi-Tech export %

Arab States 2Indonesia 14Iran 2Malaysia 58Pakistan 1Senegal 9

Turkey 2Israel 18OECD 18East Asia 29

Table 5: High Technology Exports in 2003Source: (Watkins et al., 2005, pp.274277)

4 Promoting investment in innovationsIntangible investment in new knowledge and its dissemi-

nation are the critical elements, rather than tangible investment

in bricks and machines Freeman and Soete (2004, P.3)

As it has been noticed in the beginning of the article, direct investment in

Science, Technology and Innovation should be considered carefully or it

will not generate the accumulation of knowledge or technology transfer

to the state.

In the IDB countries there is a direct need for investments in the education

system improvements specially in the fields of science and technology and

to increase the students enrollment in these fields. Moreover, the gradu-


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12 4 PROMOTING INVESTMENT IN INNOVATIONS

ates from these fields should be able to find jobs in their field of the study

otherwise the investment in the students will be lost either due to braindrain problem or because they will be working in fields other than their

specialty. In order to minimize such problem, the R&D activities should

be promoted in both the public and private sectors.

The United Nations Industrial Development Organization (UNIDO, 2007)

in its service program for promoting the investment and technology puts

several recommendations and activities to focus on. These recommenda-

tions will be used as guidelines in this section.

Supporting Foreign Direct investments (FDI)

The main factor in promoting the FDI is the proper policies and incen-

tives structure planned by governments. Establishing business alliances

and building cooperation and innovation networks will encourage and

increase the FDI.

Although it is important to have FDI in capital accumulation and intro-duction of new machinery, the most effective approach for the economy

that lead investment in knowledge (know-how) transfer. This would be

achieved by more involvement of local researchers and engineers in the

development process because the normal storage of the knowledge is the

human brain and experience.

Supporting Institutional building

Institutions that support training in investment and feasibility studies play

great role in investment promotion and its efficiency. Business incubators

Technology centers and centers of excellence are some examples of such


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institutes which aim to implement and improve network of experts.

Moreover Small and Medium Enterprises (SMEs) play great role in Inno-

vation and employment while the investments in their activities are rela-

tively small compared to large firms. That is why lot of economies in the

world are based on the investments on SMEs.

Supporting Technology and Innovation Management Systems

Similar to financial management, the Technology and Innovation should

be managed carefully to optimize the use of the technology and the inno-

vation process. For example the process of creating new ideas and devel-

oping them to reach the level of investment, production and marketing

fall within the frame work of innovation management. Such management

will increase the productivity of the employees and increase the overall

competitiveness in the market.

On larger scale policies for key technologies diffusion in different fields

should be implemented. An example of that is the diffusion of the com-

puters and Internet not only in the industry but also in the educational sys-

tems (E-learning) , the governments (E-Government) and even for books

(E-Books). This indicates that buying or developing the technology are not

the only keys to the success of investment, its diffusion and making use of

it in several fields and programs lead to more effective investment.

The transfer of ideas and technologies from the science or research insti-

tutes to marketable products in the industry is considered a major process

to be managed which is known as the Technology Transfer. This will be

elaborated later in the next section.


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14 5 PROMOTING UNIVERSITY-INDUSTRY LINKAGE

Supporting Technology Foresight

Technology foresight and Capacity building in emerging technologies en-

able the policy makers to better plan for the future in education, science

and several fields. The investment in emerging technology leads to long

term and continuous progress.

5 Promoting University-Industry linkage

It should be noted that only 60% of university research in

the USA is financed with federal funds, the remainder stem-

ming from university partnerships with industry. (UNESCO,

2005, p.169).

The demand on University-Industry cooperation has increased because

the technologies are complex nowadays and depend on multidisciplinary

knowledge. Through cooperation the R&D and knowledge acquisitioncosts can be minimized. The universities seek industry contacts to en-

sure good job prospects for students, to keep curricula up to date and to

obtain research support.(OECD, 2000b, p.4) while firms are interested to

get talented employees and get access to knowledge to improve their po-

sition in innovation networks.

Technology Transfer is one of the common conventions used in the liter-

ature in the context of research and industry relationships. The conven-

tional conception of technology transfer is that it is a processes through

which the results of basic and applied research are put into use by recep-

tors (Rogers, 2003, p.150). This means the investment in science and new

technologies in new products and innovations.


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The Technology transfer is recognized to be complex social activities with

communication processes at the core of them (Hodgson, 2002, p.1). Fig-ure 1 shows the complexity of a technology transfer model and the ap-

proaches for cooperation.

Figure 1: Technology Transfer ModelSource: (OECD, 2000a, p.165)

Cooperation schemes and investment opportunities

The last figure shows several methods of cooperation approaches between

the industry and universities. Some of the major discussed and imple-

mented approaches are summarized below

Business and Technology Incubators

Where the entrepreneurs reach these incubators to be supported, get the

consulting form professionals in implementing their ideas in real products

and to markets and in some cases they can get seed fund to start their


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16 5 PROMOTING UNIVERSITY-INDUSTRY LINKAGE

projects. The investment in such institutes promotes and encourages the

innovation and in turns increases the demand on new innovations.

Spin-offs from universities

Lot of ideas and research results are generated from universities and many

of them could lead to better (or new) products in the market. The univer-

sities license their research results to start-up companies that are directly

linked to the university through its staff that could be shared between the

company and the university. Such kind of start-up companies play major

role in connecting the local industry to the universities.

Research, Development and Innovation (RDI) Networks or alliances

Such alliances or networks are created for large innovative projects where

neither companies nor universities can handle them alone. So they coop-

erate to gather the talents, knowledge and investment. They will be able

to produce joint projects or joint publications.

Mobility of scientists

The mobility of scientists between science and industry is also an impor-

tant channel of interaction (OECD, 2000b, P.5) because they are the main

holders of knowledge. When they move form university to the industry

and vise versa they help in the knowledge and technology diffusion. To

support such activity it is important to invest and cover the salaries of the

scientists besides giving the legal framework for their work.

Open Source Projects

They are projects that are developed in cooperation volunteers where the

results are made available for free on the Internet. Such kind of projects

knows no boundaries and is open for all participants. Through Internet

the researchers and engineers with specialty in specific field can cooper-


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ate together to produce large project no matters where they are. Moreover

the open source projects speed up the knowledge transfer between coun-tries and the access to experts from all over the world and from different

industries.

The investment in such projects will improve the skills of local researchers

and increase the spirit of cooperation which in turns could improve the

cooperation between the industry and research institutes.

6 The role of IDB Programs

The IDB aims to support the development of the Islamic states. Science

and Technology are of the key fields that will support the economical de-

velopment and the IDB focus on them.

One of the main programs that support the accumulation of the knowl-

edge is the Science and Technology Scholarship Program. The study schol-

arships enable the students to learn about new fields of knowledge and getthem back to their countries or to their field of work. In order to have such

program effective suitable jobs and work chances for the graduated stu-

dents must be created. Otherwise they will be overqualified in their work

field and may either leave the country for better jobs (brain drain problem)

or will stay and not be able to benefit the country with their study.

The IDB has implemented some programs to support the technology and

science. Science Development Network (SDN) is one of the major pro-

grams that support the science and knowledge diffusion among the IDB

countries. Establish network of scientists and experts that can cooperate

to promote scientific progress and the cooperation between research insti-

tutes among the IDB countries.


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18 7 CONCLUSIONS AND RECOMMENDATIONS

7 Conclusions and recommendations

The article has discussed the role of Science and Technology for the eco-

nomical development and the status of IDB countries. In order to promote

the science and technology, investment in these fields must be carried on.

The key factor to success in investment is not the amount spent on tech-

nology import but it is how and where the investment goes and how much

knowledge it generates.

The IDB plays major role in the investment in technology and science in

its member countries. It has several programs in that field. Moreover

there should be more focus on supporting studies on the economics of

innovation. The IDB should try to invest in non-conventional methods

like open source projects.

Finally the IDB has to support the establishment of institutes that provides

direct support to researchers and investment.


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REFERENCES 19

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