1. EXECUTIVE SUMMARY

1.1 MISSION
To develop, coardinate and manage a National System of Innovation that will bring about maximum human capital, sustainable economic growth and improved quality of life for all.

1.2 VISION
To create a prosperous society that derives enduring and equitable benefits from science and technology.

1.3 STRATEGIC IMPERATIVES FOR THE FUTURE
The White Paper on Science and Technology (1996) created the policy framework, which continues to underpin and inform the strategic development of science and technology in South Africa.
In 2002, the Cabinet accepted the National Research and Development Strategy as the basis for further development of the National System of Innovation (NSI) and to address key challenges to the NS l's robustness and effectiveness. By 1999/2000 the realignment process for the NSI had been completed, moving it from the missions and focus that had characterised the apartheid period to a modern, flexible approach and an institutional framework based on the realities of globalisation and the challenge of addressing poverty and uneven development. This shift was achieved with essentially constant resource levels, expressed in terms of GDP spending, for science and technology. This process threw into sharp relief key challenges that now face the NSI. These are:

• Severe negative financial consequences of the termination of apartheid technology missions by the previous government between 1990 and 1994. This resulted in a drop in the national R&D spending from 1.1% in 1990 to 0.7% of Gross Domestic Product (GDP) in 1994. This reduction happened at a time when the National System of Innovation needed to expand to cope with the needs of 40 million people as opposed to a mere 5-6 million.
  
• Strategic risks faced by our region, from human, economic and security perspectives. Adequate responses to new diseases, and to new forms of old diseases, whether these diseases affect humans or animals, need to be informed by local research programmes. From a security perspective, even being a smart buyer of rapidly developing technology, rather than a developer, requires a critical mass of local scientists doing research in relevant areas.
  

Human Resources. Our human resources for science and technology are not being adequately renewed. The white, male and aging scientific population remains the backbone of scientific output. This demographic group is not being replaced by a younger generation more representative of our demographics.

R&D in the private sector. A complex set of factors driven largely by globalisation, have resulted in reduced levels of both investment and performance of R&D by the South African private sector This has been partially
reversed by increased investment and technology intensive medium-sized firms. However, the primary mode of new product development in most firms is based on imitation and localisation rather than innovation.

• Inadequate intellectual property legislation and infrastructure. New developments in biotechnology have increased our vulnerability with respect to the exploitation of our biodiversity. Inventions and innovations from publicly financed research are not effectively protected and managed.
  

• Fragmented governance structures. Although research institutions have been reviewed and key performance indicators put in place, the role of different government departments in governance and in setting output targets for government research institutions is not clear or synergistic. From a budget perspective, there is no holistic view of science and technology spending by government. This is a major focus of transformation activities in the 2004/5 financial year.

The National R&D Strategy was developed in the context of key' measurable indicators that are related to the required outcomes and outputs that will strengthen the NSI. The operational elements of the strategy require
performance and response in three key areas:

• Enhanced innovation
• Providing science, engineering and technology (SET) human resources and transformation
• Creating an effective government S&T system
  

These objectives are not ends in themselves but are intended to have an impact in the quality of life of South Africans (in the context of sustainable development and poverty reduction) and the generation of wealth through participation in the global knowledge economy. This means that science and technology for competitiveness, technology for development and effective international relations and resourcing are necessary foci for delivery, within a framework of effective governance of the science and technology system.

Our international engagement has three succinct objectives. The first is to foster bilateral, poly lateral and multilateral relationships to have a net flow of scientific knowledge into South Africa, The second is to muster international resources to implement our national imperatives in partnership with our global players. The third is to use science and technology as an instrument of foreign policy.

Some of the DST initiatives to meet these objectives include the development of new S&T relationships with strategic countries, leading the development of the Nepad S&T platform and implementing an innovative resources strategy to increase the amount offoreign funds available to the South African S&T system.Additionally we intend to make S&T interventions a cornerstone of a post-conflict reconstruction effort n Africa.

1.4 TECHNOLOGY MISSIONS AND TECHNOLOGY TRANSFER
Enhanced innovation requires the establishment and funding of a range of technology missions that are critical to promote economic and social development. These nclude the two key technology platforms of the modern age, namely biotechnology and information technology Two additional missions ate technology for manufacturing and technology to leverage knowledge and technology from, and add value to, our natural resources sectors. Finally, we have established key elements of the mission, technology for poverty reduction, to address one of the scourges of our age. This portfolio of missions needs to be managed to respond to both technology for development and technology for competitiveness requirements.

• The National Biotechnology Strategy published and financed at a seed level in 2002/3 and ramped up to a significant level in 2003/4. Seed financing will be provided in the area of advanced manufacturing and logistics, and resource-based industries and new approaches to innovation to reduce poverty, stimulate SMMEs and Black Economic Empowerment. There is still a need to attract new and additional resources for these areas.
  
  Some progress has been made in the domain of technology diffusion, but there is much more that needs to be done. In a situation where there is considerable private equity and venture capital available, and indications of a positive increase in protection of new intellectual property, South Africa lags behind badly in not having a comprehensive strategy for technology transfer. This will need to be developed as a building block for The broader NSI goals.
  

1.5 HUMAN RESOURCES
Our approach to human resource development is rooted in the need to radically increase the number of women and people from previously disadvantaged communities entering the sciences and remaining in the system and, on the other hand, a strategy to maximize the pursuit of excellence in global terms. Targeted programmes can succeed in increasing the number of young people, only if they can see fulfilling and remunerative careers ahead of them. Global experience shows that the time-tested way to produce high-quality creative scientists and engineers capable of transferring from one discipline to another is to focus on excellence. One way to achieve national excellence is to focus our basic and strategic science on areas where we are most likely to succeed because of important natural or knowledge advantages. In South Africa, such areas include astronomy, palaeontology and associated disciplines and indigenous knowledge. The key institution, in the context of this strategy, promoting science, is the National Research Foundation, linked to the higher education sector through the National Plan for Higher Education.

There is also a need to build the S&T skills of the broader workforce, through targeted interventions that focus on critical skills gaps in the biotechnology, lC~ and advancejd manufacturing sectors.

1.6 GOVERNANCE AND INVESTMENT
Across the world, in response to the increasing rates of knowledge production, dissemination and application the shortening of product life cycles and the increasing competition for human resources, many countries are increasing their national investment in research and development. The OECD average across public and private sectors is 2.15% of GDR Countries such as Finland and the Republic of Korea spend far more. Expenditure in a number of developing economies such as Chile and India is prioritised and rising. South Africa's current level of 0.7% is significantly lower than it should be to ensure national competitiveness in years to come.
Accordingly, the R&D Strategy depends on doubling government investment in real terms for science and technology over the next six years, with more gradual increases thereafter. This would raise the national investment to somewhat over 1 0A, not yet as large as many of our competitors, but enough to signal an appropriate, comprehensive and sustainable strategy for the Knowledge economy, South Africa's current research community and the new generation that will be required to ach~eve our goals.

The Department of Science and Tecnnology (DST), now under a single Ministry of Science and Technology will develop and administer policy institutional governance, performance and programmes. The objective is to establish and maintain key scientific competencies and technology platforms required to facilitate national competitiveness and development The DST will provide funding and a sound governance framework for science, engineering and technology, and monitor its performance. It will promote national capacities for innovation and provide the science, engineering and technology (SET) human resources while ensuring they are more representative of our nation and establish international Partnerships in science and technology. The Department will promote excellence in science that is uniquely South African with a global competitive edge. The National Research and Development Strategy is the guiding strategic framework for operational activities of the Department of Science and Technology. The various line functions of the OST have been capacitated to support the implementation of the strategy, and the implementation of a coherent and effective governance framework.

In the January 2002 Lekgotla, the lack of a strategic approach to the management of the State funded portion of South Africa's science and technology System was highlighted, Arising from this discussion and from the National Research and Development Strategy adopted by Cabinet in July 2002, a new strategic management model to improve the state of affairs was developed by OST and presented to Cabinet in early 2004, Cabinet has approved detailed Planning around this new governance framework.

The new framework classifies the technology related services and research, and development activities supported by Government into three basic types: (i) Early stage or highly cross sectoral genetic technology or knowledge platforms and core human capital, for which OST would take responsibility; (ii) Focused, Sectoral and relatively mature technology domains, which would primarily be the responsibility of line department, with OST assistance where required; (iii) Standard technology based services, for which line departments would take responsibility.
This initiative has implications for better allocation of accountability and more effective alignment between DSI and the me function Departments, and the Department of Education. The re-design and re-articulation of the Science Vote to reflect these new accountabilities and structures is a Science and Technology spending plan inked to these changes.

1.7 STRATEGIC ASSESSMENT OF THE CONTRIBUTIONS OF THE DST
In the period 1999-2002 the science system completed its initial transformation. This has enabled the funding instruments, and the science and technology institutions to make a significant impact in improving the quality of life and service delivery to the people and underpinned the economic performance of the economy. The focus and impact of science and technology remains robust as outlined in Chapter 2 of the 1996 White Paper on Science and Technology, namely competitiveness, quality of life, environmental sustainability, the harnessing of information technology and knowledge generation to address the needs of society and the economy.

The Science Vote, which delivers the major portion of public science funding in South Africa, was improved through the implementation of key performance indicators for the relevant institutions and consistently measuring performance. In 2002, the MRC underwent a further institution-wide review, which showed positive progress in core areas and effective leverage of the increased public funding received. All Science Councils are scheduled .to complete this round of reviews of 2005, which will feedback positively into the core competencies, focus and relevance of the institution stakeholders and customers.

The reform in funding regimes (removal of rigid formula-based approaches) allowed the Department, assisted by the NACI, to introduce ring-fenced funding to promote research and development thrusts in key areas. Funds within the budgets of the MRC, ARC, CGS, NRF HSRC and other science councils were earmarked to address specific South African problems, needs and opportunities. The problems and service delivery needs identified resulted in the establishment, inter alia, of the selected projects outlined below,

• The South African HIV!AIDS Vaccine Initiative (SAAVI) led by the MRC is aimed at developing a vaccine to combat HIV/AIDS. Major advances by researchers in the project include the developers of a vaccine candidate for clinical trials in 2003. The Department's funning to he project has been leveraged into a partnership with additional funding contributions from government, the private sector and international bodies, which have now reached R8Om per annum. The programme now has more than 200 researchers and technical staff. The major technical developments include a significant contribution that has been made in respect of human resources development (PhD, MSc post-doctoral and nursing qualifications) in vaccine research. Purchase of key equipment to advance research in this field is also prioritised. While the partnership encourages skills transfer, knowledge sharing and strong national and international linkages, intellectual property ownership issues, which are complex, are well managed. The first prospective vaccines were put into clinical trials in 2003.
  
• Seed funding was provided to the HSRC to initiate research on Human Resources Development (HRD). The HRD project focuses on understanding the country's gap and requirements in respect of human resource and technological capability that is necessary for social and economic development, as well as equity requirements. The Human Resources project produced a Development Review during 2003 and completed the implementation of the supporting data infrastructure.
  
• The development of Southern Africa as a region of excellence in space science and astronomy has profound geopolitical implications. The construction of the largest optical/infrared telescope in the southern hemisphere (the SALT at Sutherland in the Northern Cape) and the largest gamma ray telescope in the world (the HESS in Namibia) are now reaching completion and will strengthen our contribution in skill development and knowledge generation in these fields. Intensive work was undertaken in respect of the Square Kilometre Array in the last year, including an important technical visit by the Technical Evaluation Committee in 2004.
  

• The Innovation Fund (IF) was introduced to promote larger-scale consortium projects that involve participation from academia, science councils and industry. The Fund resources were R75 million in 2000/2001 and R171 million in 2004/5. Since its inception, the IF has supported projects in various focus areas viz. Crime Prevention, information and Communication Technology, Biotechnology, Fauna and Flora, new Materials and Advanced Manufacturing. The IF has been significant in providing researchers with funds to ensure that their work moves from the laboratory bench to be able to realise its full commercial potential. In addition to the financial support, the process has facilitated the important formation partnerships between industry and academia. The competitive process has ensured that public funds are disbursed to worthy consortia, and improvements to the business process can only act to cement this concept. The recent review of he IF indicated that new firms nave been created, with new high technology inns, new products developed and intellectual property secured in a number of the projects with the NRF for the operation of the fund.
  

• The Department's efforts in fighting poverty, supporting the fight against HIVIAIDS, providing S&T infrastructure, developing human resources and knowledge and promoting innovation are now giving results with notable successes. Technologies supporting poverty reduction focused on the utilisation of renewable natural resources as a means to production, income generation and job creation. Institutions such as the CSIR, the ARC and Wits Technikon joined forces with the DST to deploy resources to assist in the reduction of poverty. As a result, technologies in paper making, bee keeping, leather products, mohair and hemp production and other job creating activities have been transferred to poor communities. For example, a small community in Eshowe received training 10 manual papermaking technology. Now the community produces a variety of paper based products and generates sizeable monthly revenue.
  
• South Africa now has much increased institutional capacity to undertake technology diffusion in a practical and effective way. The Tshumisano Technology Stations Programme and the GODISA Incubator Programmes nave shown good early results. Tshumisano promotes the sharing of knowledge and innovation capacity between Technikons and the SMME sector in South Africa. A number of inventors and entrepreneurs from disadvantaged communities have linked to this programme. New products have been developed, processes improved and product quality significantly enhanced.
  

• The National Biotechnology Strategy, published in 2001, received a substantial funding allocation in the past year. Three Biotechnology Regional Innovation Centres (BRICs) have been established. The National Bio-informatics Network (NBN) is now in operation. Biotechnology will be given priority for support as one of five technology missions of the DST
  

• In the domain of science highly relevant to South Africa, active consideration and good progress has been made on Indigenous Knowledge, biosciences research including the development of infrastructure to protect biodiversity, palaeontology, the science and technology underpinning the Antarctic programme and the successful participation in the European Union 6th Framework for Research.
  
• The Research and Development Survey high level indicators were launched in January 2004. Indications are that private sector spending has begun to increase.

1.8 PURPOSES AND MEASURABLE OBJECTIVES
Science and technology drive economic development and .improvements in the quality of life. This is done through the improvement of existing products and services and he introduction or new ones; for instance, the development of new health care techniques and practise, scientific management of the environment and the extension of new agricultural capacities, among others. Th e Department of Science and Technology - will provide strategic direction and support to scientific research and technology development, through the National System of innovation (NSl) in support of key government objectives.

The Department will take new governance initiatives to reconfigure the Science Vote into a government wide MTEF S&T spending plan. These initiatives now in the detailed planning phase, will permit greater line Department accountability for research n their sector, reduce biurten accountability between OST and the other Departments and permit a clear OST budget vote that is dominated oy the programmes and initiatives of the DST in cross cutting S&T in government in the following domains:

• Research, development and innovation,

• Technology transfer,

• High-level science engineering and technology human capital development; and

• Global and international science relationships.

This will result in a fundamental change that will eliminate the science Vote as presently constituted. For completeness however, the Science Vote allocation for 2004/5-2006/7 is reflected below (Table 1). A summary of the mandates and missions of the institutions is provided in Paragraph 3.6.
The second aspect of the budget and allocation responsibility is the budget of the Department. The funding of these elements, for which the Department has line responsibility, is fully accounted for in the programme schedules, which in sum compose the budget of the Department. A summary of the major allocations in this budget is provided in Table 2.

A full description of the approach to the allocation of these resources is given below. The macro trends that can be observed are additional to the new financial resources, which have been made available for the implementation of the National R&D Strategy. This has been distributed in baseline adjustments to the Science Councils in the Science Vote and to specific programmes prioritised by the DST in consultation with NACI and S&T stakeholders. Finances are also provided for the capacitation of the OST to achieve the objectives of the strategy.