Policy debate
Enabling innovation in extractive industries in commodity based economies
Thomas Gstraunthaler
Research Professor, Research Laboratory for Economics of Innovation, Higher School of Economics, National Research University, Moscow, Russian Federation
Liliana N Proskuryakova
Research Laboratory for Science and Technology Studies, Higher School of Economics, National Research University, Moscow, Russian Federation
PP: 19 - 32
Abstract
As dependence on the extraction of natural resources seems inevitable in the short- and even medium-term perspective, commodity based economies will face the need to increase the sustainability and profitability of their extractive industries. This paper sets out to analyze the R&D policies of Brazil, Russia and South Africa, and benchmark them against the sizeable and innovative extractive industry of Canada.
Although the countries in our sample have similar economic features, we stress the differences between their social and economic stage of development. The particularities in each country's economic situation at times correspond with a different policy mix. Besides that, there are not many differences in the innovation policy instruments used in an economically advanced country vs. fast-growing economies. Rather, it is their synergy, governance, targeted design and application that make the difference.
Keywords
extractive industry; BRICS; competitive advantage; policy; Research & Development
Article Text
All around the world, the recent financial crisis triggered spending USD 1.92 trillion by governments as economic stimulus investments to tackle the effects of the global recession; most of this was spent in 2009 and 2010. Only a limited portion of this money has found its way into R&D. Although Europe and the US have shown decreasing R&D levels over the past two years, it seems that emerging markets all over the world are catching up fast with developed nations.
Some countries, like Australia, Canada, New Zealand, Norway and Sweden, managed to derive a great amount of national wealth out of their mineral deposits and could convert this into sustainable economic growth, accumulation of capital and the improvement of the technological base of the countries. Studies have demonstrated that the accumulation of domestic technological capabilities, together with a favourable institutional environment and the presence of technology-intensive suppliers and specialized knowledge-intensive services, had strongly improved production organization capabilities (Bigsten 2001; Katz 2006; Pirela 2007; Porter 1990; Ramos 2001).
The major commodity producers in Sub-Saharan Africa and Latin America, on the other hand, have suffered from the "Dutch disease" (Stevens 2003; Martin 2002; Matsuyama 1992) and did not succeed in turning their rich mineral deposits into lasting economic success. Their secondary sectors declined in favour of an ever-increasing primary sector and their economy became directed towards food production and the exploration of mineral deposits (Katz 2006).
Extractive industries, like all low-tech industries, are characterized by low R&D intensity. However, low-tech and medium-low-tech (LMT) industries employ a large portion of the workforce, even in many OECD countries. Also, many companies are innovative and knowledge intensive without engaging in substantial R&D activities by themselves. Supportive policies, therefore, "should encourage both the generation of knowledge and its diffusion between low-tech and high-tech sectors, and they should also promote stronger interrelationships between the sectors" (European Commission, 2006).
The focus of the paper rests on the policy mix aimed at increasing innovation activity of extractive industries in the four selected countries (Brazil, Russia, South Africa and Canada) and on a cross-country comparison. Our research question asks: Which policy mix did commodity-based emerging economies in the years 2008-2010 choose to best support increasing innovation activity of extractive industries? However, policy makers rarely target the extractive industry per se. Therefore, this paper firstly describes the policy systems in place that affect the extractive industry in each of the countries. Secondly, we analyze the policy mix in place, taking into consideration the particularities of the national economies and compare them with each other. It was not our intention to rank countries or their extractive industries, but to point out those areas where marked differences are found, as well as reasons for possible future failure or success.
This paper is structured as follows: after the introduction, there is a description of the policies and reforms regarding the extractive industry in Brazil, Russia, South Africa and Canada. The last country case is written as a benchmark for the three BRICS countries, followed by a chapter with a cross-country comparative analysis. In a second step, the policy settings are compared with key economic indicators as a basis for analysis. The paper concludes with a discussion of the salient points arising from the cross-country analysis that address the research question.
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