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In the GCC, government lead by quite a distance in their R&D commitments. The private sector can join in, but with tweaks to their strategies. Image Credit: Supplied

A major challenge for policymakers in the GCC countries seeking the transition into a knowledge-based economy is private investment in R&D. Despite increased government investment in R&D, private sector involvement remains modest.

Part of the problem is that R&D infrastructure itself remains underdeveloped. Whether it is national centers of excellence, university laboratories, or high-quality PhD programmes, the R&D infrastructure remains nascent. GCC governments are addressing the infrastructure problem by setting up special funds and initiatives to further expand R&D infrastructure and encourage more activities.

The real problem, however, lies in the structure of the Gulf economies before being an infrastructure problem. GCC industries generally don’t rely on R&D, at least not on in-house R&D. Petrochemicals, construction and retail dominate GCC economies, and these are largely low R&D-intensity. This is not to say that they don’t use technology, they do but they rely on external R&D suppliers to provide them with technology solutions. The private sector may procure technology solutions without performing R&D or investing in it. Furthermore, the private sector may invest without performing it. Create a better reason for R&D because private R&D won’t happen just because governments are making more money available for it or because the infrastructure for it exists.

GCC governments need to consider first why do they want to increase private R&D? This is an important question because it helps define the shape and form of R&D policies in the GCC.

A starting point is to establish the ultimate purpose of a government R&D policy. For example, if governments want firms to increase the related investment so that they become more competitive, then it should not matter where do these firms conduct their R&D. Firms should be able to invest in and perform R&D wherever it makes most economic sense to them.

How about R&D clustering?

But if the aim of government policy is to make a country home to R&D activities because such activities will create high value-added jobs to the economy, then a government policy cannot be location-agnostic. Recognizing the distinction between a firm investing in R&D and a firm performing R&D allows GCC governments to develop attractive packages for the providers of R&D as a service. This means it should be considered an industry of its own, more specifically a business service just like finance, accounting, and marketing.

The aim of GCC government R&D policies should then be to attract new investments in R&D service companies that would sell their services all over.

For that to happen, it is not a necessary that local demand for R&D services exist. Imec, the world’s largest nano and microtechnology R&D public company is based is Leuven, 30 kilometers east of Brussels. With no corresponding local industry around, Imec sells its services to over 600 clients scattered across the globe. GCC governments should design policies and develop instruments that aim to attract activities and investments in R&D as a service rather than an in-house activity undertaken by companies. Governments should aim to create local clusters of R&D companies.

The beauty of this approach is that the GCC governments do not have to wait for their economies to complete the transition into R&D-driven economies nor for their industries to demand it. They can leverage their investments in world-class infrastructure and business-friendly administrations to attract R&D performers now.