Innovation economy needs investment

Ecosystem needs more state funding of R&D

Photo by: Greg Demarque/Executive Magazine

Lebanon being Lebanon, there are no statistics. But by the accounts of stakeholders throughout the country’s entrepreneurship ecosystem, one big gap is not being filled: strong financial support from the state for research and development (R&D).

Many governments make R&D investments, and the Lebanese government does fund the National Center for Scientific Research—which has four centers for study around the country and gives out research grants on a bi-annual basis. Additionally, a small amount ($3.2 million) of the $650-or-so million in funds aimed at growing the entrepreneurial ecosystem and guaranteed at 75 percent by Banque du Liban (BDL), Lebanon’s central bank, is now being directed toward R&D investments. Word of slightly more of this money possibly being diverted toward R&D in the future is currently echoing in the jungle.

Calculating the return

In technical terms, the branch of scientific inquiry most likely to breed commercial success is called applied research (as opposed to basic research, which seeks merely to gain knowledge for the sake of doing so). Applied research is about solutions, and even if companies do not approach it with scientific rigor, they regularly invest in it. An online survey seeking to make a website more user friendly is R&D—but so is the possibly years-long process of a diaper manufacturer running lab tests and experimenting with various materials to create a new product that can pack in just a little more poop. The latter is obviously more capital- and labor intensive.

Innovation is impossible without R&D, but cost is often a barrier.

Applied research is about solutions, and even if companies do not approach it with scientific rigor, they regularly invest in it

In many countries, governments make strategic R&D investment decisions to help push innovation forward. Additionally, available evidence suggests that state R&D spending in a given area spurs more private R&D in the same area.

The exact return on state R&D spending, however, is difficult to quantify. A 2015 paper written for the European Commission sought to calculate a state’s return on R&D investment, based on a review of previous studies on the topic. The caveat in the paper’s findings is that because investigations into R&D investment returns have largely only been conducted in advanced economies (meaning the US and a few European countries), the results are by no means true globally nor easy to quantify (there is a lot of messy spillover involved—knowledge included).  That said, the paper found that available evidence suggests governments make a 20 percent return on R&D spending, and boosts private R&D investments by 7 percent.

In fact, state funding for R&D has probably changed the world as we know it. A component of the Silicon Valley story that often gets neglected is the role the US Department of Defense (DoD) played in ushering in the digital age. DoD was an early funder and adopter of microelectronic technology, nurturing it toward mass commercialization, which lead to the development of everything from desktop computers to smartphones and wearables.

Not a priority

While both the World Bank and the United Nations Educational, Scientific and Cultural Organization (UNESCO) collect statistics on state R&D spending as a percentage of GDP, neither has any data for Lebanon. Elise Noujeim, director of the grant research program with Lebanon’s National Council for Scientific Research (known by its French acronym, CNRS), says that state spending via CNRS is minimal, but that it increased slightly in 2017-18. CNRS gives out two-year research grants ranging in value from $20,000 to $40,000, up from approximately $13,333 to $26,666 in previous years.

She says that research money can be hard to find for local academics, but opines that “if a researcher has a good proposal, they will find the money.” She notes that CNRS helps link local researchers to international universities and research institutions, and can often fund travel and living expenses for local academics who can find research budgets abroad.

CNRS, Noujeim says, is also making headway in partnering with more of the country’s universities. In 2017, CNRS signed memorandums of understanding with eight of the 19 universities and hopes these agreements will lead to more coordination and cooperation in research activities in the country.

Working together

On the level of existing cooperation and coordination among universities, Dany Obeid, an assistant professor in the Faculty of Agriculture at the Lebanese University, and Sophia Ghanimeh, an assistant professor in the faculty of engineering at Notre Dame University, tell Executive that Lebanon has a “do-it-yourself” kind of research environment. Funding is scarce, and inter-university coordination is personal rather than institutional,  meaning academics have to leverage a network of personal contacts to make things happen as opposed to relying on formal cooperation mechanisms among different institutions of higher learning. Zaher Dawy, an assistant provost at the American University of Beirut, agrees that coordination could be better and admits that research spending in Lebanon is relatively low (although he says one gets more from each dollar invested, as salaries and tuitions are lower in Lebanon than elsewhere, so more of the investment goes to the actual research).

In 2017, CNRS signed memorandums of understanding with eight of the 19 universities and hopes these agreements will lead to more coordination and cooperation in research activities in the country

Ghanimeh singled out research that requires expensive equipment as particularly difficult to conduct in Lebanon, as research funding is often only in the tens of thousands of dollars. “Grant money can’t buy equipment,” she laments. Dawy agrees that state-of-the-art research needs state-of-the-art equipment and laboratories. And while he praised—but did not quantify—AUB’s investments into medical equipment that researchers and practitioners can use, he noted that few of the university labs around the country are state-of-the-art. Dawy also says the university is in talks with BDL to steer money the bank is guaranteeing to 75 percent for investment into the “knowledge economy” via 2013’s Circular 331 toward R&D at AUB. He refuses to go into details as discussions are underway, but says this is part of the university’s plan to better incorporate entrepreneurship in a multi-disciplinary way.

Wouldn’t be the first time

Elie Akhrass, director of the UK-Lebanon Tech Hub’s International Research Center (IRC), tells Executive that 331 money is being used to match $3.2 million in funding from the UK government for the initiative, launched in late 2016. Akhrass says the IRC is funding applied research into, for example, a wearable, non-invasive glucose monitoring device. The for-profit initiative is not time-bound beyond the ability to raise and deploy capital.

The Tech Hub itself was initially launched as an accelerator financed by an investment backed 100 percent by BDL, without the UK’s participation. Launching the IRC has been part of the Tech Hub’s monetization strategy for at least the past 18 months. Akhrass says IRC will monetize by sharing royalties with intellectual property right-holders as a start, but address the question on a deal-by-deal basis.

Stakeholders Executive queried over four months for this piece agreed that more R&D spending in Lebanon—whether by the state or others—would benefit the ecosystem, as the link between R&D and innovation is so clear. Calculating exact economic returns are difficult, but as Akhrass puts it, “If you want a knowledge economy and an innovation economy, you need R&D.”

Matt Nash

Matt is Executive's Economics & Policy Editor. He has been reporting on Lebanon since 2007 with a focus on oil and gas, policy and legal matters.

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