Only a quarter of the ICT sector's applications for government's research and development (R&D) tax incentives were approved, substantially lower than the approval rate for other sectors.
This is despite ICT-related activities accounting for a third of applications.
The R&D tax incentive programme, introduced in 2006, offers companies a 150% tax rebate on money spent undertaking R&D in SA. However, the programme has fallen short of expectations - both business' and government's.
Last year, 227 South African companies were granted approval for the R&D tax incentive, out of 876 that applied.
South Africa has consistently failed to spend more than 1% of its gross domestic product on R&D, an important metric for economic growth, competitiveness and potential job creation. The average for countries within the Organisation for Economic Co-operation and Development is 2.4%.
According to the recently released annual National Survey of Research and Experimental Development Survey 2013-14, the percentage has sat at 0.73% for the last three years. An important stakeholder in this percentage of this spend is business, which has spent less than government for the second-consecutive year.
"It is clear the country needs to significantly increase investment and growth in R&D," the Department of Science and Technology (DST) said in a statement, following the release of the report. "This means we need to maintain or scale up aspects of the current policy approach that are helping in this regard."
The R&D tax incentive programme, however, has come under fire, with science and technology minister Naledi Pandor establishing a task team involving government and business to investigate the slow uptake of R&D tax incentives.
The task team found that, while there were problems with the programme, there was still value in having an R&D tax incentive. The report, which was released last week, highlights ICT incentives as an area that needs improvement.
A third of all applications processed since 2006 involved ICT-related activities, says Godfrey Mashamba, chief director for science and technology investment within the DST. However, only about 25% of these were approved, which was low compared to the 62% approval rate for manufacturing-related applications.
"In South Africa, most of the ICT activities taking place are focused on the integration of third-party software, the adaptation of existing software systems and the implementing of off-the-shelf technology to adapt for the South African market conditions," Mashamba says.
"While these activities are important for business to maintain competitiveness, most do not meet the definition of R&D."
This challenge was not unique to SA's programme, he notes. It also affected ICT-related activities in other countries which had R&D tax incentives, such as the United States and Malaysia.
In response to the report, the department said it was "considering establishing a dedicated team to work with relevant departments [such as the departments of trade and industry and small business development] and agencies to review existing government support for ICT activities, a critical aspect of innovation, to see what policy improvements can be introduced, and to assess the feasibility of specific measures to promote R&D and innovation by SMMEs".
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