The Role of Money in R&D and Innovation

September 21, 2018

His Excellency Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, announced last June that the UAE would triple its spending on research and development (R&D) over the next six years and boost the national workforce by 185,000.

With the current low oil prices and government budget reductions, this decision has surprised some, but it should not have. Investing in R&D to fuel a knowledge economy transformation is a true investment in the UAE’s future.

This is because knowledge is perhaps one of the few truly renewable resources. There will always be more to learn and understand, and ways to capitalize on that information. The products, services and systems that result from that knowledge have a near infinite capacity to grow and develop. That is why the UAE leadership has made it its goal to transition from a hydrocarbon-based economy to a knowledge-economy.

And the fuel that powers a knowledge-economy is intellectual capital, which the OECD defines as a range of assets that create future benefits, but unlike machines, equipment, vehicles and structures, they do not have a physical or financial embodiment. This form of capital is a key contributor to growth in advanced economies. In recognition of this fact, last year the UAE leadership announced the new National Innovation Strategy, which requires all government entities to reduce their spending by 1% and commit the savings to research and innovation projects.

In economic terms, knowledge-capital that is innovative – which means it modifies or develops a more effective processes, products and ideas – is the most valuable type of knowledge capital. Innovative products, services or systems have the potential to completely displace the previous status quo to create a whole new system/market. Think of how mobile telephone technology completely changed the way we communicate, do business, and learn, creating thousands of new businesses, technologies and applications in its wake. The company or individual that that holds the patent or rights to a disruptive innovation receives a secure flow of profits and with its insider knowledge, can command its further development.

Yet how to produce innovative knowledge capital is global challenge that does not have a simple solution, but there are some known components and correlations. There are broadly two sources of R&D investment that are key to producing innovation – state funding and private investment. In the US the government provides 53% of all basic research funding, compared to 22% for the business sector, the US National Science Foundation reported. Of the two, state funding is considered to have more successful track record of producing disruptive innovation, as it tends to have more of a focus on the basic research that produces transformation innovation while private funding looks largely at development research that produces incremental innovation. It is estimated that investments in basic research can result in returns of 20% to 60% annually. “These investments in basic research create the building blocks for innovation by creating a transformative knowledge base upon which the private sector can draw,” the NSF report titled Research & Development, Innovation and the Science and Engineering Workforce stated.

As the provost of Masdar Institute of Science and Technology, it is my earnest hope that the newly announced increased R&D spend from the UAE leadership will include a significant focus on basic research. Basic research, after all, is considered the backbone of advanced higher education. The OECD has even estimated that increasing public R&D spending can increase multifactor productivity by 0.17% – which refers to the extent to which an economy can derive GDP growth from a certain level of labor and capital.

With the increased funding for R&D Masdar Institute will be able to better pursue its mission of developing the innovative human and intellectual capital required for the UAE’s future knowledge economy. The funding can provide equipment, materials, and collaborations to help competitive and novel products and services in the competitive high-tech sectors Masdar Institute targets including water desalination, renewable energy, semiconductors, water treatment, energy storage, microgrids and space systems. Additionally, increasing funding for basic research will give Masdar Institute the chance to achieve new breakthroughs that can not only provide the country with competitive advantage, but also change the world.

We welcome this visionary move from the UAE leadership. It is a fitting addition to the many achievements of the UAE’s Year of Innovation and promises to produce national and economic benefits for years to come. With this decision and others the UAE will continue to be a leader in the development of intellectual and human capital.

Dr. Behjat AlYousuf is the Interim Provost of Masdar Institute of Science and Technology in Abu Dhabi.

Printed in The National on 21 November 2015