“The empowerment of young people and women lies at the heart of our organization,” declares Fatouma Harber — human rights activist, teacher, blogger and CEO of SankoréLabs. SankoréLabs is an incubator that also provides training and co-working spaces to young entrepreneurs in Timbuktu in northern Mali. Named for the city’s world-renowned historical university and 14th century mosque, SankoréLabs provides aspiring entrepreneurs with support and a space to work. Along with meeting incubees’ IT, internet and networking needs, the incubator is also a vehicle to promote better local governance and enhance citizen engagement in a region that desperately needs both.
Founded in January 2016, INCUBONS provides access to co-working spaces and free services to social enterprises and start-ups including intensive technical assistance, mentoring and 24/7 coaching. The incubator has an extensive outreach program, including events, debates and concerts, as well as networking opportunities to connect their incubees (10 companies a year) to each other and to potential partners and investors. INCUBONS also provides pre-incubation counters where people can present their ideas and projects are diagnosed free-of-charge and then referred to affordable training courses.
The Innovation Paradox: Developing-Country Capabilities and the Unrealized Promise of Technological Catch-Up – sheds light on how to address this paradox.
What is the new study Innovation Paradox all about?
The potential gains from bringing existing technologies to developing countries are vast, much higher for poor countries than for rich countries. Yet developing-country firms and governments invest relatively little to realize this potential. That’s the origin of what we are calling ‘The Innovation Paradox’.
Why do firms in developing countries lag behind when it comes to innovation?
The Innovation Paradox, argues that developing country firms choose not to invest heavily in adopting technology, even if they are keen to do so, because they face a range of constraints that prevent them from benefitting from the transfer.
Developing country firms are often constrained by low managerial capability, find it difficult to import the necessary technology, to contract or hire trained workers and engineers, or draw on the new organizational techniques needed to maximize the potential of innovation. Moreover, they are often inhibited by a weak business climate. For example, small and medium enterprises (SMEs) are constantly in a situation where they are putting out fires, they don’t have a five-year plan, they don’t have somebody keeping track of what new technology has come out of some place that they could bring to the firm.
The rates of return to investments and innovation of various kinds appear to be extremely high, yet we see a much smaller effort in these areas. In the developing countries, we need to think not only about barriers to accumulating knowledge capital, we have to think about all the barriers to accumulating all of the complementary factors—the physical capital. So, if I have a lousy education system, it doesn’t matter if I get a high-tech firm because there won’t be any workers to staff it.
Innovation requires competitive and undistorted economies, adequate levels of human capital, functioning capital markets, a dynamic and capable business sector, reliable regulation and property rights. Richer countries tend to have more of these conditions. This is at the root of Paradox. Even though follower countries have much to gain from adopting existing technologies from the advanced countries, in practice, missing and distorted markets, weak management capabilities and human capital prevent them from taking advantage of these opportunities.
Two years ago, we started counting how many Sri Lankan agencies were involved in trade facilitation processes such as issuing permits and managing the movement of goods in and out of the country. We counted at least 22 agencies in this assessment, and today, the Department of Commerce estimates that number at least 34 agencies are involved in issuing permits or publishing regulations that affect trade.
We know trade is critical to Sri Lanka’s future and that there are strong links between trade, economic growth and poverty reduction.
However, the trading community reports a lack of transparency, confusion around rules and regulations, poor coordination between various ministries and a dearth of critical infrastructure—you can see why trade has suffered in Sri Lanka.
When the World Bank evaluates a country’s performance in critical rankings like Doing Business, the ease of trading across borders is one of the benchmarks we consider. In this, and in other lists like the Logistics Performance Index, Sri Lanka is underperforming compared with its potential. Here, the average trade transaction involves over 30 different parties with different objectives, incentives, competence and constituencies they answer to, and up to 200 data elements, many of which are repeated multiple times. This environment constrains the growth of Sri Lanka’s private sector, especially SMEs.
But now for the good news. By ratifying the World Trade Organisation Trade Facilitation Agreement, Sri Lanka has signalled its determination to intensify reform efforts.
Rapid urbanization in the Philippines has brought new jobs, educational opportunities, and better living conditions for some. However, it has also brought challenges, which you’ll see when you move around the streets of Metro Manila. It’s a large sprawling metropolitan area of over 12 million, with congestion that is estimated to cost US$70 million (₱3.5 billion) a day. When it rains, streets and homes are quickly flooded because many drains are clogged or non-existent. Because of lack of affordable housing, an estimated 11 percent of the city’s population live in slums. With 17 cities and municipalities in the metropolitan area, trying to tackle these challenges becomes stuck in deep complexities of urban governance and management. While other cities in the Philippines don’t face the scale of these challenges, they tackle similar issues.
After a decade of strong growth in the late 1970s and early 1980s, Cameroon was compared favorably with fast-growing East-Asian economies. This fame came to a sudden stop in the late 1980s when the country experienced one of the world’s deepest and most protracted recessions, triggered by large fall in the terms of trade and appreciation of the real exchange rate. Debts - previously at reasonable levels - mounted, banks failed and poverty increased. A 50% devaluation of the CFA Franc, a currency Cameroon shares with other former French colonies, in January 1994 pushed the foreign-currency denominated debt to increase to over 100 percent of GDP, triggering the Heavily Indebted Poor Countries (HIPC) debt relief process. Cameroon successfully exited HIPC in 2006. Since then, the authorities have set the goal to become a middle income country by 2035, anchoring their growth strategy on building infrastructure. After some initial success, with real growth steadily increasing from 1.9% in 2009 to 5.9% in 2014, the country is facing again some fiscal strains and risk of its debt distress has risen from low to moderate to high, in just 3 years.
Israel has one of the most admired innovation systems in the world. With the highest Research & Development (R&D) spending and venture capital investment as a percentage of GDP, the country has positioned itself as a global leader in research and innovation, earning the title of “start-up nation.”
Avi Hasson, Chief Scientist of the Ministry of Economy and Industry and Chairman of the Israel Innovation Agency, was at the World Bank Group last week to share some of the “secret sauce” behind Israel’s success in the innovation and entrepreneurship space.
Hasson highlighted the key role played by public-private partnerships over the last 40 years. Those partnerships have resulted in the establishment of an innovation infrastructure — including educational and technical institutions, incubators and business accelerators —anchored within a dynamic national innovation ecosystem built around shared social goals.
Specifically, to reduce the risk for investors, the government has focused on funding technologies at various stages of innovation — from emerging entrepreneurs and start-ups to medium and large companies. Strengthened by that approach, the Israeli ecosystem is maturing: according to Hasson, mergers and acquisitions have increased and exit profits have almost tripled over the last three years, with more and more new projects being started by returning entrepreneurs.
The global economy is stagnating, and uncertainty about its future is rising. These trends weigh heavily on countries that depend on the production and export of a small range of products, or that sell products in only a few overseas markets. Prices of the minerals and other basic commodities that dominate the exports of many poor countries have also declined sharply. All of this points up the need for diversification strategies that can deliver sustained, job intensive and inclusive growth.
The World Bank Group’s Trade & Competitiveness Global Practice (T&C), a joint practice of the World Bank and International Finance Corporation (IFC), is working with a growing roster of client countries eager to achieve greater economic diversification. This is a worthy goal regardless of economic conditions, but especially so now, as developing countries with sector-dependent economies face mounting pressures.
Chile is an example of a diversified economy, exporting more than 2,800 distinct products to more than 120 different countries. Zambia, a country similarly endowed with copper resources, exports just over 700 products — one-fourth of Chile’s export basket — and these go to just 80 countries. Other low-income countries have similarly limited diversified economies. The Lao People’s Democratic Republic and Malawi, for example, export around 550 and 310 products, respectively. Larger countries that export oil, such as Nigeria (780 products) and Kazakhstan (540 products), have failed to substantially expand the range of products they produce and export.
AJG Simoes, CA Hidalgo. The Economic Complexity Observatory: An Analytical Tool for Understanding the Dynamics of Economic Development. Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence. (2011)
While the sluggish global economy is creating economic problems for traditional exports, other economic trends offer new routes and opportunities for poor countries to diversify. The trend toward the spatial splitting up of production across wide geographic areas, and the emergence and growth of regional and global value chains, offer new ways for developing countries to export tasks, services and other activities. Value chains offer developing countries a path out of the trap of having to specialize in whole industries, with all of the cost and risk that such a strategy entails.