Building innovation capacity via PPP Ravi Randeniya - BSc Eng MScE MBA Innovation is a major factor of economic growth and its advancement is a good measure of overall performance in the globalized economy. Innovation drives new technologies to address industry challenges and new products help address issues such as health or the environment. When there are new ways of producing goods and deliver services to boost productivity and profitability, jobs are generated to improve the quality of life of a nation. Investment in new knowledge based research and development (R&D) provides the building blocks of innovation and help foster a climate of continuous skills development needed to help sustain and implement innovation in industries and society. For innovation to afford these benefits, it should have firm commitment from all stakeholders make innovation work. All researchers are driven to push the frontiers of knowledge, but that in itself is not enough. In Sri Lanka, we require viable systems to ensure that the results of that research reach the businesses and people to contribute to existing industries and to potential new lines for product and services. Therefore, the responsibility of Governments is to adopt policies that will encourage innovation and build mechanisms to ensure that they are given the best chance to develop into new products and processes to benefit nations. Global economy In the last three decades, the global economy has been transformed in a significant way. Asian countries have built up their industrial capabilities very rapidly - often at the expense of Western countries. It is the speed and extent of the dispersion of their industrial production capability has been chronicled as historic and unprecedented. Our Asian neighbours have brought a permanent change to the Western dominance of attracting talent and investment to enhance their innovation capabilities. In contrast, this change has permanently shifted away the centres of global innovation from rich nations. A notable number of developing countries have begun to make the difficult yet deliberate transition from being economically successful in industrial production to building innovation capabilities to profit from the foundation they laid from their economic gains.
Observers in the developed nations are finding the depth and width of the Asian transition confounding, it is giving rise to a fierce contest for research capacities and to the innovation jobs, which have been the bedrock of their economic prosperity. How the times have changed for the Western monopolistic intellectual capacity building. Questions should be raised as to why Sri Lanka failed to take advantage of the sectors and activities that are most lucrative for us during the Asian transformation or even to examine which factors enable those regional countries to make so much progress. Sri Lanka still can and should play a significant role and join this revolutionary trend since we represent one of finest in Asia producing intellect. For decades, we have let opportunities slip away through brain drain and not being far-sighted and dormant when others grasped the opportunities to race ahead. Innovation activities Studies show the following factors have contributed to the shift in the global distribution of innovation activities: * Return of migrant engineers, scientists, and managers * Big state and private investment in higher education * Improved wages for highly educated workers * The insertion of local firms in global value chains * The clustering of local firms and support institutions in the developing world * The increasing significance of lead markets in Asia * Governments facilitating market access for technology * The willingness of Governments and foreign enterprises to experiment with collaborative arrangements * The enormous financial resources that government agencies and enterprises can mobilise to buy technology or research teams. When Sri Lanka scramble to play catch-up revive its economy, we ought to look at maximizing our most valued asset - human resource talent and build the best strategies around them using Public-Private partnerships (PPP) as our Asian neighbours have successfully accomplished. There are forces and factors that matter in the collaboration between public and private sectors. To facilitate such an agenda we must understand the dynamics of relationships between public and private sector in the context of formulating innovative economic development policies for PPP. Further, they must be launched with the aim of mobilizing the nations capabilities for improving innovation in the viable sectors.
In Sri Lanka, the main instrument for promoting innovation is restricted public funding and external grants. This regularity is problematic and has been linked to scientific underdevelopment and to our technological deficit enormously. We must move away from these limited opportunities for scientific and technology research under existing programs. It is important to seek institutionalised solutions consisted of new funding system with priority national Research & Development (R&D) programs, engineered and managed by one authority for advance science research. The system in existence is mainly managed by academic interests, and in times of scarce resources i.e. economic downturn, most funding is captured by clients from the academic community. However, for nations such as Sri Lanka to grow, we must develop a new industrial policy that fund programs, which addresses the technological needs of the private sector, who would commercialize the innovations to benefit their strategic advantages. Public-private collaboration Through joint research projects, intervention instruments ought to be placed for policy initiatives to increase the use of PPP mechanisms to promote the involvement research actors. New approach must view commercialisation as the end use, startups and spin-off strategies ought to link-up with industries if these are to bring benefits our economy. It brings desperate funds for upgrading facilities and the talent retention to research laboratories. It is one unique win-win scenario in which a nation like ours can benefit eternally. Our science and technology research is entirely restricted to university research laboratories and never gets to see the daylight of industrial relevance no matter how breakthrough they are. The academia has no significant links with industry and the education authorities are nervy about seeking sponsorship for being accused of having a stake in promoting specific research agendas that benefit one industry. That may stem from not having an open honest dialogue with all industries to allay any public fears of partisanship in the best interest at heart. There ways and means to encourage private sector participation. For example, to stimulate technology transfer from universities to businesses, many Organization for Economic Cooperation and Development (OECD) governments have encouraged universities to patent their inventions. This makes their discoveries visible to business, and offers a source of revenue if the universities agree to sell or licence the patents to businesses. The purpose is to construct and support common pool resources for technological services and innovation under PPP to became collective technology and knowledge suppliers to firms. Australia, Canada and the United States pioneered such policies, and the share of patents filed by universities in these countries has stabilised at about 7 percent. But the share of patents filed by universities in Japan and the European Union (notably France and Germany) increased markedly over the past decade, although levels generally remain modest - 1.5 percent in Japan, 3 percent in the EU, but more than 5 percent in France (OECD: Policy Brief, November 2007).
In those countries, business also fund an important share of R&D in the higher education and government sectors, with an OECD-area average of 4.7 percent in 2005. In the EU, companies financed 6.4 percent of total R&D in public institutions and universities, compared to only 2.7 percent in the United States and 2.0 percent in Japan. In addition, Venture capital is a major source of funding for new technology-based firms and a decisive determinant of entrepreneurship and innovation. It represented about 0.12 percent of OECD-wide Gross Domestic Product (GDP) in 2005, up from 0.10% in 2003. In Spain for example, universities have become directly involved in the creation of new technology-based companies to form joint ventures for the exploitation of the stock of knowledge created by their aspiring technologists and scientists. The increased development of the risk is handled by PPP models combining banks, venture capital, private firms, universities etc. PPP Definition Public Private Partnership is a joint venture and they are the best where the public sector and private sector wish to share in the risks and rewards associated with a particular commercial enterprise, with each party undertaking the specific roles for which it has particular skill and expertise. The parties share in the risks and rewards of the enterprise either in accordance with their respective shareholdings or through other contractual arrangements. Joint ventures are increasingly being used to exploit the commercial potential of many public sector assets (including staff) under the wider markets initiative. In general a PPP will be: * A medium to long-term relationship between the public and private sectors, including the voluntary and community sector; * Involving the sharing of risks and rewards and the utilization of multi-sector skills, expertise and finance; * To deliver desired policy outcomes that is in the public interest. A particular arrangement or project may constitute a PPP where the following key characteristics are present, that is arrangements where: * The government contracts to purchase services from the private sector * An element of private sector ownership is introduced into public sector owned enterprises through the creation of joint ventures or non-profit distributing entities * The private sector is utilised to exploit the commercial potential of government assets e.g. Wider Market Initiative * The public and private sectors work together to bring about general policy outcomes * There is better value for money and optimal allocation of risk, for example, by exploiting private sector competencies (managerial, technical, financial and innovation) over the project s lifetime and by promoting the cross-transfer of skills between the public and private partner, and
* The public private partnership responds to changing needs and provide for transparency and inclusiveness sensitive to the interests of communities, including local communities and business communities. There is a clear distinction between a PPP arrangement within which the private sector partner supplies infrastructure and services on behalf of the public sector for a contract period, and the sale to the private sector of public sector assets (i.e. privatisation). PPP policy principles A Government's first task is to develop a set of policy principles for the use of Public- Private Partnerships. Its introduction reflects a government's desire to improve the quality, cost-effectiveness, and opportuneness of public services in the public's best interest. The PPP principles are based on three core principles: Value for money, Accountability, and Transparency. An agency within the Government needs to be setup to provide advice on the practical implementation of the PPP principles. A PPP is described as a method of procurement. It obviously involves the use of private sector capital to fund an asset owned by the public sector, which is used to deliver outcomes to the public. Generally, PPP are used for major asset and infrastructure procurements. PPP reconfigure the procurement process by placing emphasis on the service or capability that the public sector requires rather than the asset(s) used to provide them. Typically, the responsibility for delivery of the service or capability is shared between the public and private sectors. In simple terms, in a PPP, the private sector invests in the creation or acquisition of the asset(s) required to facilitate the delivery of a service or capability. The public sector provides payments to the private sector that are contingent on their performance, allowing them to recover their initial investment. Advantages PPP provides significant advantages compared with other forms of procurement: * It can contain incentives for the public and private sector partners to achieve the optimal allocation of the associated risks * It can allow the public sector to focus on delivering the core service or capability it is required to provide. The private sector partner is responsible for supplying the supporting infrastructure and services * It can facilitate better life-cycle planning by transparently recognizing the costs and risks associated with the whole life of the required service or capability, and * It can effectively implement the 'payment for performance' principle by placing the private sector's remuneration at risk, contingent on their ability to meet the public sector's requirements.
In advanced countries, a number of PPP policies have been implemented in many jurisdictions and in many industry sectors including transport, health, education, justice, defence, energy and utilities. Value for money PPP should be used where they can offer superior value for money relative to other procurement methods. It should be noted, as with other procurement methods, that the lowest priced option does not necessarily represent the best value for money. Value for money is determined through a comparative analysis of the benefits, costs, and risks of the available procurement alternatives. Assessing the value of these variables requires a degree of judgement and the use of both quantitative and qualitative, and costs, benefits and risks analysis. Value for money from PPP can manifest itself as: * The delivery of a service or capability at a lower cost, * Greater certainty of the financial outcome due to less exposure to significant risks and * Increased benefits to the end-users of a service due to the public sector's focus on service delivery rather than asset procurement. PPP also provide an opportunity to combine separate but related contracts. This is advantageous because it: * Simplifies the public sector's contract management task * Improves accountability by concentrating responsibility for service delivery in a single place; and * Generates efficiencies by creating incentives for the owner of an asset to design or acquire it such that future operating and maintenance costs are optimised with capital costs so that total costs are minimised, providing better value for money. Sharing capacity In some cases, only part of an asset's capacity is utilised by the public sector during the delivery of a service or capability. PPP provide an opportunity for the private sector to utilise the full capacity of the assets it would own, by simultaneously selling capacity to the public sector and other parties. Utilising the full capacity of assets in this way effectively lowers the cost to the government's service or capability. Innovation and Efficiency PPP allows the public sector to think of procurement in terms of the outputs to be delivered rather than the inputs to be used. The private sector has an incentive to seek more innovative and efficient ways of delivering the required outputs.
As PPP, arrangements are long-term in nature, the opportunity for the public sector to access new technology and best practice operation and asset maintenance can result in significant cost savings for the government and higher quality services for end users. It is paramount that there is a clear understanding of the key objectives to be realised using PPP: good quality services, cost effective delivery, clear customer focus, enhanced service diversity, enhanced incentive, better asset utilisation and project delivery on time bring wider economic benefits to stimulate our private sector and contribute to increased employment and economic growth through building our innovation capacity to serve the nation. The writer is Fmr. Senior Policy Analyst, Ministry of Trade and Economic Development, Govt of British Columbia