In the two previous articles on the UNCTAD report on Iran’s standing in science, technology and innovation we summarized the main findings of the report regarding Iran’s human resource base and infrastructure. Both of which have developed rapidly and have played and will continue to play a significant role in the transition towards a knowledge-based economy. In the final article we will present a general image of Iran’s STI landscape and discuss actions which Iran can take to further accelerate the transition.
Iran’s STI policy، since 1990، has gone through three stages of change. The first wave of STI policy in Iran was aimed at developing higher education and scientific publications, the implication of which was the development of the significant human resource base discussed in the first part of our report. From the year 2000، came the second wave of STI policy, which intended to develop research and emerging technologies, resulting in increased number of scientific publications and endeavors in nano- and bio-technologies. From 2010, transition towards innovation and a knowledge-based economy has gained pace. The outcome of the third wave today has been the increase in KBFs, S&T parks, VCs and other sources of funding, and the development of laws to support the transition.
The UNCTAD report in 2005 indicated that, at the time, the mostly state-owned economy created very low competitive pressure and very few incentives for technological upgrading and innovation. Before 2005 the private sector accounted for an only 15% share of the value added in GDP and policies were mainly focused on production, rather than innovation.
Structural changes to assist the growth of KBFs
In an effort to devise policies that intend to support KBFs, Iran’s government established the Vice Presidency for S&T in 2007. The establishment of this institution along with its 16 technology councils, and the Innovation and Prosperity Fund in 2011, were among the major institutional and structural changes made to assist the growth of KBFs. Other strategies were also used to achieve S&T goals; creating a system to monitor and evaluate institutions of higher education and S&T, increasing the ratio of gross expenditure on R&D by 0.5% every year and including the indicators of S&T, such as the revenue generated from exporting, in government planning.
While government and companies have increased R&D investments, the importance of the structure and type of R&D investments should also be taken into account. The UNCTAD report found that 64% of the R&D investments is associated with buying new equipment and machinery, whereas, collaborative R&D remains largely overlooked. Other forms of R&D investments such as collaboration with foreign companies and acquisition of external knowledge should have a larger share of R&D investments, especially at a time when political tensions have decreased and sanctions have, at least partly, been lifted. The ratio of R&D investment to sales is highest among ICT firms and remains under 0.5% in the food industry and agriculture.
Attracting Foreign Direct Investment (FDI)
To stimulate knowledge-based economic growth Iran should focus on attracting Foreign Direct Investment (FDI). For many years FDI in Iran remained below 0.5% of the GDP and is still estimated at below 1% of the GDP, compared to the average 2.6% for all developing economies. Most of the FDI is focused on the oil and gas sector and a large proportion is focused on maintaining existing businesses but not developing new leading businesses, export-oriented products or collaborating with existing firms in R&D and innovation. FDI is of great importance in economic growth, however, the government should develop incentives and policies to direct a significant share of FDI to innovation and R&D in high-tech industries. FDI should become means to accessing not only capital, but new technology and know-how.
Strengthening the private sector
Analyzing the input and output of STI indicators reveals a significant gap between the level of human resource and infrastructure development, and their contribution to an innovation and knowledge-based economy (high-tech exports account for less than 1% of Iran’s exports). To achieve this goal, policy making in Iran should be aimed at strengthening the private sector, creating a dynamic ecosystem for innovation in the business sector, creating stronger demand for innovative skills and knowledge-intensive activities in mature industries that are currently using mainly mid-level technologies, and increasing private sector investment in design, engineering, R&D and innovation.
Iranian businesses, startups and entrepreneurs are now extremely hopeful about their future. The macroeconomic context has stabilized significantly. Compared to before 2012, the entrepreneurial culture is spreading and the government has realized the importance of KBFs and has started to take action to enhance the business environment. All that s points to a brighter future for KBFs and a diversified economy less dependent on oil for Iran.