Philippine Elections: Presidentiables Tell Us Their Plans for Science & Technology
Roxas: Increase R&D closer to ideal 2% of GDP
To Mar Roxas, science, technology, and innovation sector is an important public investment. The sector creates jobs but more importantly, he said, it sustains economic growth.To him, R&D investment can make the Philippines self-reliant on many fields like disaster risk reduction, mass transport, health and nutrition, and renewable energy. If elected president, he would invest in cutting-edge technologies, among other applications.His spending list entails a lot of cost.Roxas thus proposed to invest in R&D that’s closer to the ideal 2% of the GDP by 2022. “Initially, we will target an extra 10% annual investment in R&D,” he said.Underlying his plan is a strategy to make spending efficient by having every R&D agencies collaborate on common themes. This is similar to an existing fund-pooling partnership between the Department of Science and Technology (DOST) and the Department of Health (DOH).He would partner with the private sector to increase the nation’s R&D expenditure. “Funds pooling, cost-sharing, private-sector-directed R&D are just a few instruments we can explore,” he said.
Poe: Devote 1% of GDP to STEM and R&D
Like Roxas, Grace Poe believes that technological change and innovation is the quickest way to drive growth. Korea, Israel, and China, she said, are case studies of how an investment equal to 2% to 4% of the GDP in R&D would lead to sustained growth and faster rise out of poverty.“As a testament to the priority we will give to developing our capacity for innovation and technological change, we shall devote at least 1% of our GDP to science, technology, engineering, and mathematics (STEM) and R&D,” she said.Her R&D budget would focus on these sectors: telecommunication, disaster risk reduction, information infrastructure, alternative energy sources, health and translational medicine, and agriculture and aquaculture.
Santiago: R&D at 2% of GDP by 2022
Miriam Defensor Santiago also noted that insufficient government investment stunts growth and makes the delivery of public services less efficient. That’s why Santiago aims to provide financing equivalent to 2% of the GDP.But Santiago is more ambitious than Roxas and Poe.“On the first budget proposal we will submit to Congress, my government will aim for an R&D allocation equivalent to 1% of the GDP,” she said, referring to the estimated P3.35-trillion National Budget for FY 2017 currently being prepared by the Executive Branch. The budget will gradually increase until the 2% target is reached by 2022.She would pour in funding in agriculture, manufacturing and MSMEs, health, renewable energy, and disaster risk reduction.Part of her plan is to increase infrastructure spending to 5% of the GDP. She would include S&T infrastructure in her proposed public-private partnerships.
Duterte: No clear R&D investment target
Among the candidates we talked to, Rodrigo Duterte is the least to expound on his agenda. He’s light on the specifics. He doesn’t provide a top-line investment plan.But the from the looks of his agenda, he’s set out to increase the R&D budget envelope. He would “expand R&D initiatives by providing more grant support for R&D through the DOST’s sectoral planning councils in cooperation with universities in the regions.”He would focus on five key areas: renewable energy, faster and cheaper internet, climate change adaptation, food production, and support for industries.But what differentiates Duterte from Poe, Santiago, and Roxas is that he is the only candidate to bring to fore the unevenness of R&D activities in the Philippines.For far too long, resources have been concentrated in Manila. Drawn from his broader federalism agenda, his S&T proposal calls for distribution of resources—meaning providing more research grants—to the regions.(Jejomar Binay’s campaign team did not respond to our repeated requests for a written interview.)
Can they deliver?
While they have set clear targets for the next six years, they may have also set themselves to doing what has never happened before in the Philippines and elsewhere.In 2009, the government, the private sector, and universities altogether spent way below 1% of the GDP on R&D. There’s no updated data on the private sector’s R&D expenditure, but the latest data on public spending show that the government’s R&D expenditure went down from 0.09% as a share of GDP in 2014 to 0.08% in 2016. The national government and state universities spent P11 billion in 2014 and P9.5 billion in 2015. This year, public R&D spending is estimated at P11.4 billion. In other words, the gap between the ideal 2% target and the current public funding hovers around P287 billion.With a current R&D budget that’s below 1% of GDP, Roxas would have a harder time getting closer to his target. He proposed to initially increase the budget by 10%, which would amount to P12.5 billion or about .076% of the GDP in 2017. From this initial increase, Roxas plans to raise the budget closer to the ideal 2% of the GDP. Assuming he would target at the very least 1.5% of the GDP by 2022, Roxas would need to raise the budget for 2018 by 423% to P65 billion or about .36% of the GDP. (This calculation excludes expenditure from the private sector, which Roxas plans to tap to raise the nation’s total R&D spending.)Poe’s plan is also optimistic. The 2017 R&D budget—which she will implement should she become the next president—will need to increase by 233% to an estimated P37.9 billion to hit the 1% target by 2022. The proposal put forward by Santiago, on the other hand, is unrealistic over the medium term.The R&D budget for 2017 will have to rise by more than 1,000% to P164.6 billion from the current budget, if Congress passes her proposal. The succeeding R&D budgets would amount to P218.3 billion in 2018 and P281.3 billion in 2019.Such annual budget increases are unusual in Philippine budgeting. And that has also never happened in many emerging markets.Some emerging economies like China took about two decades to reach their R&D spending to 1% or 2% of the GDP. Few such as Russia have remained within 1% of the GDP for about two decades. There are also those economies like Thailand that started at .1% of the GDP two decades ago, but have yet to reach R&D spending that’s equal to 1% of the GDP.
It’s best to scale down the target.
Regardless of whoever wins—there’s no question—the new president should substantially boost public investment in R&D. Historically, it’s the private sector that has been footing about 60% of country’s total R&D spending.But the next president must do so within a realistic target. He or she must set a target that can scale up current R&D initiatives, but which can be efficiently spent by the agencies. For instance, a target of 0.5% of the GDP looks more feasible in the next six years, considering the country’s current spending vis-a-vis the historical 20-year growth pattern observed in some emerging markets. Assuming the government would like to invest in R&D that’s about .5% of the GDP, its current budget will have to rise by 112% to P24.2 billion in 2017, increasing to P39.5 in 2018, and going in at P57.9 billion in 2019. For sure, meeting this scaled-down target is not a walk in the park. Even if the government splits the bill 50-50 with the private sector, it has to provide more funding than it currently does.
Fix the system first
The next president also needs to consider other structural challenges that hamper the government from efficiently spending its R&D budget.One of these is that most agencies have been struggling to spend all their budgets, as funding has grown bigger over the last six years. The problem now is not that the government lacks funding, but it has more money than it can handle. For instance, Poe observed some fundamental challenges on how R&D is funded and conducted in the Philippines. She noted that the slow procurement process has made it impossible to complete R&D projects on time. She estimates that reforming this process alone could improve how R&D agencies spend their budgets by 20%.As it is now, some of the R&D agencies have low capacity to take in more money. The reasons are numerous, from limited staffing to procurement delays to poor planning. This “absorptive capacity” problem could be a cause of worry—particularly more pronounced under Santiago’s plan when the 2017 budget will increase by more than tenfold. It would, to say the least, a gamble to hike a budget during a transition period where a whole-of-government development plan hasn’t been fully crafted yet.To see how a sudden spike in funding may play out, take the case of the Department of Science and Technology. In 2015, the DOST was allotted P1.4 billion for science and technology funding assistance, but about 20% of which was not obligated. What that means is that the agency failed to use about P290 million already allotted by the Department of Budget and Management.It’s likely that this pressure to absorb increased funding may result in spending on projects that aren’t really etched under a clear plan. That would become a concern, as annual reports filed by the Commission on Audit routinely expose the challenges that come with technology transfers, among other things.COA noted that some R&D agencies have been failing to transfer their technologies to their clients:The Food and Nutrition Research Institute has been spending millions to provide equipment to adopters of its technologies. In 2014, COA said: “A total of 51 units costing P2.5 million, out of the 193 units of equipment for distribution to adopters of FNRI technology, are still with FNRI, sitting idle in the pilot plant for an average of 624 to 813 days, since the equipment were acquired between CYs 2012 and 2013.”The Philippine Nuclear Research Institute built a P57.1-million facility in 2010 for the production of Tc-99m generators. But according to COA, “the objective of promoting the growth of nuclear medicine in the country…was left to be desired and the ultimate objective of the project by its eventual commercialization activities and technology transfer were considerably delayed.”Some projects have not been operational after they were completed:The Metals Industry Research and Development Center (MIRDC) funded two locally fabricated Automated Guideway Transit as a means to decongest traffic in Metro Manila. The 2014 COA report noted: “MIRDC has completed the construction of two (2) AGT costing P128.144 million, but were not yet operational.”Other projects were not completed on time:MIRDC also posted dismal completion rate for its projects in 2013. COA found out: “Only six out of the total 25 Single-Year Projects with total approved budget of P326 million were completed within the approved timelines, reflecting a low 24% of completion. [Thus] project objectives were not attained on the projected timeframes, the intended benefits both for the agency and the public as well were not timely realized.”What these audit findings tell us is that increasing the R&D budget won’t necessarily make things easier for government agencies. Once they reach their limit, they would become less efficient. They would run into spending problems—and their operations would turn to worse.Right timing is crucial. The pace of growth should be set to a level where the increased resources can be fully maximized.A reasonable approach then would be not to overwhelm R&D agencies by forcing them to receive budgets way bigger than they are used to.They would be more efficient when the increase depends on their performance. The next president must have a rational, metrics-driven way of allocating R&D investment to the best-performing agencies, while providing milestones and augmenting operational capabilities of worst-performing ones before they are given more funding.
National government can’t do it alone
But the reality is that the national government cannot shoulder the whole cost alone. There are other equally important programs that need to be done too.Other stakeholders must spend more.State universities can tap into their own internally generated incomes to fund more R&D projects. Over the years, public universities have been collecting incomes from their students’ tuition, donations, and other business operations. These off-budget accounts are held by state universities and are not reverted back to the treasury.Existing laws give them the authority to spend these to pay for salaries, or fund operational or capital expenditures. The problem is that huge sums of these monies have been sitting idle in bank accounts of many state universities.Currently, SUCs have an estimated P24.3 billion at their disposal. A portion of this money could potentially supplement national government’s funding either through cost sharing or fund matching mechanisms.The private sector can also do more than what it currently does. While the candidates proposed to partner with the private sector, the bigger challenge is enticing them to engage in R&D.That means addressing, first and foremost, the lack of access to cheap capital and financing, because what has been hampering many SMEs to do innovation work is capital formation.Fiscal incentives have been found to positively attract the private sector to go into R&D activities. But this should be designed as an “incentive package,” given that only few firms had been found to avail of fiscal incentives in the past.Incentives could also improve academe-industry collaboration in R&D.One study suggested incentivizing firms that engage with the academe. This suggestion stems from evidence that some SMEs do not consider as important government support programs such as funding and technical advice, among other things. This despite about majority of the country’s businesses are small enterprises.More than a well-designed incentive system, better infrastructure, faster government processes, and a bigger pool of research scientists and engineers can do a lot more for the country’s fledging R&D ecosystem.But what the candidates proposed is a start.Their plans are bold, and that’s perhaps what the country needs right now—to be more ambitious, to be bolder, and more forward-looking. Over the past decades, the government couldn’t afford to spend bigger and be more ambitious in its spending, because it simply didn’t have the money to do so. Revenue collections were below target. The budget had too many loopholes, resulting in spending in inefficient or corruption-prone projects. There were times in the past when it had to delay or impound the release of funds to agencies, because revenue collection was unpredictable. That’s why for the longest time, the government couldn’t afford to increase its R&D budget. As a result, there hasn’t been much talk about setting the country’s R&D expenditure target.Now we have. Their investment plans—although still preliminary—lay down the first crucial step towards working out a better, more attainable plan in the years to come.What the new president will need to think over is whether his or her proposed R&D expenditure is justifiable by the available manpower and current capacity.The second part of this series – the role of talent and human capital in R&D – will be published on Monday, May 2.Read your candidate’s agenda here: [Stack] Grace Poe’s S&T Agenda[Stack] Mar Roxas’ S&T Agenda[Stack] Miriam Defensor Santiago’s S&T Agenda[Stack] Rodrigo Duterte’s S&T Agenda