South Africa has the potential to be an investment superstar

The world’s largest biotechnology gathering was held in Philadelphia, Pennsylvania in June this year. The BIO International Annual Convention attracted more than 15,000 individuals from countries all across the globe. The city of Philadelphia was a fitting host since the state of Pennsylvania, along with its two neighbours, Delaware and New Jersey, attract approximately 80 per cent of the United States’ (US) total pharmaceutical investment.

Innovation is the lifeblood of the US economy. Innovators and creators who live and work in the US are responsible for most of the advances in technology made over the last several decades. These innovations make the US a leader in the global economy. Innovations in medical technology specifically have provided scientists powerful tools to develop new procedures and drugs which have brought about unprecedented advancements in human longevity, not only in the US but throughout the world. To encourage the continued development of pharmaceutical products and for technological innovations to be brought to market, it is essential for there to be effective economic incentives.

One of the cornerstones that fuels this innovation and provides the US with the competitive advantage to continue to prosper, is the role of property rights. Recognition and protection of property rights lie at the foundation of a free society and allow for the development of a market economy. Without property rights, including intellectual property rights, there would be no economic incentive to bring products and services to market since there would be no laws that prevent anyone else from stealing your property.

In the US, both physical and intellectual property rights (IPRs) are taken for granted – they are a given. But in other parts of the globe this may not necessarily be the case. The US Chamber of Commerce’s Global Intellectual Property Center (GIPC) has developed an index on IPRs. The index was developed as a tool for governments that wish to understand the key IPR factors that drive business decisions in innovative industries. The index ranks 30 economies representing 80 per cent of global GDP. The index provides not only a picture of the global state of IPRs but also snap-shots of the IPR environment in individual countries. South Africa’s inclusion in the index provides an important indicator as to what changes may be occurring in South Africa, something that potential investors, no doubt, will be watching keenly.

South Africa’s overall score in the GIPC 2015 Index was 11.86 out of the sampled 30 countries. Although South Africa’s score may have improved on last year’s (11.6 out of 30), its latest ranking in 21st position is a downward slide of three places from last year’s 18th position. South Africa’s overall score is brought down by its poor performance in the category Patents, Related Rights, and Limitations as well as in the category that measures Membership and Ratification of International Treaties.

In the key area of patents, South Africa tied with India for last place behind countries renowned for their weak IPR protections, such as Argentina (29th), Brazil (28th) and Indonesia (27th). According to Meir Pugatch, a professor of intellectual property, innovation and entrepreneurship at the University of Maastricht and lead author of the GIPC International IP Index, “South Africa is changing its intellectual property laws, a move that experts from research firm Pugatch Consilium argue will narrow access to medical treatments and harm the country's investment attractiveness in the pharmaceuticals sphere”.

We are judged by the company we keep. South Africa must not strive to emulate the policies of the worst performing countries – we have the potential to be an investment superstar. We have highly skilled scientists and engineers, and a diverse population on which to conduct clinical trials. But, instead of adopting polices that will attract investment, we are taking the path of those ranked at the bottom of the pile. Due to the increasing competition for a slice of the available pool of investment, it is no longer appropriate to simply have the minimum standards of protection. In a globally competitive world such policies do not cut it. South Africa should be aiming to be ranked amongst the top ten countries. For this to happen, we must have stability and policies that investors find attractive.

IPR protection is a necessary but not sufficient condition to attract investment. It is no good having some good policies but others that scare off investors. South Africa ought to consider adopting a suite of policies that foster investment. For example, we need skilled foreigners to augment the pool of highly skilled scientists and engineers that the country already produces. But these individuals will not come here if crime remains a significant threat, and if they are effectively barred from entering and being able to practice due to onerous visa requirements.

Intellectual property laws are just one factor among several that foster innovation and development. Successful implementation of IPRs depends on complementary factors such as the quality of legal institutions, markets and infrastructure. Simply put, the efficacy of IP reform is ultimately subject to the environment in which IPRs operate. National prosperity is achieved when countries implement a policy paradigm – of which IPRs are an important component.

Countries characterised as ‘winners’ have strong IPRs. To lower South Africa’s IPR standards would be tantamount to relegating its citizens to the levels that characterise ‘loser’ countries. If we stop respecting the IPRs of international investors, they will simply take their money and expertise elsewhere. To them, this country is not a special case. South Africa needs to adopt policies that characterise rich nations and that includes respect for the rule of law and a sound property rights regime.

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