Laying the foundations a new era for rd in the middle east

We would like to thank the following individuals listed alphabetically by organisation name who participated in the interview programme: l Marwan Abdulaziz, director of business developm

Contents

Conscious of the need to diversify away from dependence on oil and gas revenue, and to increase job

opportunities for an increasingly restive youthful population, Arab governments are redirecting their investments towards knowledge-intensive industries, having recognised the central role that innovation can play in the development of robust economies Yet, although ambition and financial resources are not lacking, the key challenge will be to convert these advantages into a sustainable ecosystem environment for research and development (R&D) With sound policies and a long-term vision, however, the Arab world has the potential to become a significant hub for R&D over the next decade

Laying the foundations: A new era for R&D in the Middle East is an Economist Intelligence Unit report

that examines the steps that countries in the Middle East are taking to boost their attractiveness

as recipients of R&D investment The report is sponsored by the Advanced Technology Investment Company (ATIC) The Economist Intelligence Unit bears sole responsibility for the content of this report The findings and views expressed in this report do not necessarily reflect the views of the sponsor The report was written by Rob Mitchell and edited by Stephanie Studer

August 2011

In July 2011 the Economist Intelligence Unit conducted an online survey of 214 executives from

around the world Around one-half of the respondents were C-level executives and a similar proportion represented companies with US$500m or more in annual revenue All respondents had previously invested in R&D activities in the Middle East and North Africa1

To complement the survey results, we also conducted a programme of qualitative research that included in-depth interviews with a range of experts and senior executives The insights from these interviews appear throughout the report We would like to thank the following individuals (listed alphabetically by organisation name) who participated in the interview programme:

l Marwan Abdulaziz, director of business development, Dubai Biotechnology and Research Park (DuBiotech), a member of TECOM Investments’ science cluster

l Gary Amy, director of the water desalination research centre, King Abdullah University of Science and Technology (KAUST), Saudi Arabia

l Andy Brown, managing director of Pearl GTL, Shell

l Ralph Cavin, chief scientist, Semiconductor Research Corporation (SRC)

l Timothy Dalton, program manager of the nano-science and technology partnership, IBM Research

l Peter Heath, chancellor, American University of Sharjah, UAE

l Wyatt Hume, provost, UAE University

l Sunil Kumar, dean of engineering, NYU Abu Dhabi

l Shihab Kuran, chief executive officer, Petra Solar, US

l Tod Laursen, president, Khalifa University of Science, Technology and Research, UAE

l Vladimir Misik, senior regional director, Middle East, clinical operations, Quintiles

l Fred Moavenzadeh, president, Masdar Institute, UAE

l Navi Radjou, fellow, Cambridge University’s Judge Business School, UK

l Haitham Sibai, regional technical manager for the Middle East, 3M

l Tom Speechley, senior partner, Abraaj Capital, UAE

About the research

1 For the purposes of this

report, the Middle East

and North Africa region is

defined as the region’s Arab

countries only, and does not

include Turkey or Iran.

For the first half of the previous millennium, the Middle East was the most innovative and technically

advanced region of the world During the so-called Islamic golden age, scholars and scientists across the Middle East and North Africa made major advances in mathematics, astronomy, medicine and engineering

But as the scientific revolution took hold in 16th-century Europe, the Middle East’s position as a global scientific hub faded The industrial revolution later sealed the West’s success, as pole position in science and technology passed to Europe, and then in the 20th century to North America Meanwhile, the achievements of the Islamic golden age were consigned to history books

The development of a new golden age for innovation in the Middle East may seem like a distant possibility, but there are signs that the region is starting to regain a foothold in the global innovation stakes Governments in the region, and particularly the six countries of the Gulf Co-operation Council (GCC), have been investing heavily in the infrastructure and institutions to support research and development (R&D) activity And although it is still early days, a growing number of multinationals are dipping a toe in the waters and connecting new R&D centres in the Middle East to their global operations

In this report, we examine the progress that countries in the region are making to create fertile environments for R&D investment We assess the appetite of multinationals to establish their R&D centres in the region and look at the prospects for the Middle East to become a sizeable hub for global R&D over the next decade

Here are the key findings of the research:

Companies are deepening and broadening their global R&D footprint Despite facing continuing

pressure to cut costs and trim investment, the companies surveyed for this report remain keen supporters of R&D as a source of competitive advantage and future growth The vast majority expects

to increase their investment in R&D over the next three years This R&D activity will also become more widely distributed, with most companies boosting the number of their R&D centres and diversifying their investments around the globe

Most companies regard the Middle East as an increasingly important destination for R&D investment Over the next three years, more than half of the companies surveyed for this report expect

to increase the level of their R&D investment in the Middle East This result is slightly skewed, however,

by the presence of local companies in the survey Among those companies from outside the Middle East and North Africa, around 40% plan to increase their R&D investment in the region over the next three years For the most part, R&D centres in the region are currently relatively small, and generally focused

on late-stage development, rather than “blue skies” research

Executive summary

The Middle East possesses many of the key ingredients necessary for becoming an effective R&D hub in its own right When choosing a location for an R&D centre, companies prioritise the availability

of talent and proximity to markets as the key criteria In theory, this should play well for the Middle East The region has a large, young population, relatively high per capita incomes and a strategic geographical location that enables it to serve as a gateway to other fast-growing regions, including Africa and the Asia Pacific region

Centres of excellence in specific sectors are gradually emerging in some countries Although there

is considerable variation across the MENA region, a number of governments are investing heavily

in R&D infrastructure and institutions to diversify their economies, to create jobs and to make the transition to becoming knowledge-based societies Although R&D is still in its nascent stages in the region, there are signs that some countries are becoming internationally recognised as research destinations for a number of sectors, including agriculture, alternative energy and biotechnology

Governments are naturally key players in building an R&D infrastructure, but greater participation

of the private sector will also be required The countries at the vanguard of innovation in the Middle

East combine a clear long-term vision with the resources to turn this into reality This is ensuring rapid progress in building the institutions and infrastructure that will create the foundations for sustainable R&D investment But government alone cannot create a fertile R&D environment More than half

of respondents agree that government-led efforts to develop R&D clusters in the Middle East are insufficient to create genuine centres for innovation To turn robust R&D infrastructure into a hotbed for innovation, greater private-sector involvement will be required There are also concerns that there may be too much emphasis given to flagship projects Almost two-thirds agree that government-led R&D in the Middle East is too often focused on mega-projects, rather than more practical, small-scale initiatives

A lack of management and technical skills remains a barrier to further R&D investment from multinationals In recent years, the Middle East has made significant progress in establishing

educational centres that will provide a pipeline of R&D talent for the future Respondents say that talent is a key reason why they invest in the region, although they are also conscious that the supply

of specialist engineering and management skills does not always meet demand This apparent contradiction may reflect a recognition that progress is being made in strengthening skills, but that there is still some way to go before the region can compete effectively on a global level To increase their share of global R&D, it will be important for governments in the Middle East to deepen their investment in education, particularly at the postgraduate level It will also be important to develop an innovation culture through the introduction of funding mechanisms and greater market competition

The Middle East region has historically been fairly low on the priority list for companies seeking new

centres for R&D Companies that globalised their innovation processes typically favoured countries such as India and China, where a combination of low labour costs, abundant skills and massive local markets had created a fertile environment for R&D investment

But as companies start to look further afield in their search for growth, the Middle East region is beginning to look increasingly attractive Among our survey respondents (all of whom already have some R&D stake in the Middle East and North Africa), 57% say that they will increase their level of investment in the region over the next three years (see chart 1)

The broader distribution of R&D activities reflects a view that global innovation should remain a strategic imperative across the entire business cycle There is strong empirical evidence linking a focus

on innovation with overall corporate performance Boston Consulting Group, for example, reckons that innovative companies outperform their peers by 12.4% in terms of total shareholder returns2.Over the next three years, most companies in our survey will redouble their efforts to use innovation

as a competitive differentiator Almost one-quarter say that they will increase their overall level of

Part I: The push and pull of R&D investments

Africa Asia-Pacific Eastern Europe Latin America Middle East & North Africa North America Western Europe

Chart 1: Over the next three years, what change do you expect to your company’s level of R&D investment in the following regions?

(% respondents)

36 1

32 21

11

19 1

21 38

31 1

36 22

6

30 1

32 22

11

6 1 34 45

21

12

23 2

5 25 32

12

24 2

9 30

27 9

Increase of 20% or more Increase of up to 20% Stay the same Up to 20% decrease Decrease of 20% or more Not applicable

2 BCG, Innovation 2010

investment in R&D by 25% or more, and only a tiny proportion (4%) say that they will reduce their spend Even during the downturn, few cut back on innovation, despite strong pressure to slash costs and rein in capital expenditure (see chart 2).

Past three years Next three years

13

25 27 28 6

0

23 24

31 17

1 1

Moderate decrease—10%-25%

Significant decrease—more than 25%

Chart 2: What change have you made to your firm's overall levels of R&D investment in the past three years, and what change

do you expect to make over the next three years?

Source: Economist Intelligence Unit

Interest in the Middle East as a destination for R&D is growing for a number of important reasons One is geographical good fortune Situated halfway between Europe and Asia, and with fast-growing regions such as the Asia Pacific region and Africa within striking distance, the Middle East has an enviable location as a potential hub for global R&D “Proximity to the world’s fastest-growing markets will make the Middle East very attractive for R&D investment,” says Navi Radjou, fellow of Cambridge University’s Judge Business School

For some companies, the Middle East may even represent a better opportunity than India for establishing an R&D base “Instead of grappling with infrastructure issues in India that can cause difficulties doing business there, you could set up shop in Abu Dhabi, which has world-class, modern infrastructure and the latest technology,” says Sunil Kumar, dean of engineering at NYU Abu Dhabi.The MENA region is also becoming more important as a market in its own right Between 2012 and

2015 it will grow by an annual average of around 5% The region is home to around 444m people, with

a GDP per capita of around US$10,000 This is a sizeable market and one that many multinationals have not done enough to serve in the past “If you look at the region as a whole, you’ve got a lack of historic investment, combined with demographic growth, which means you’ve got supply and demand gaps in

a variety of sectors,” says Tom Speechley, a senior partner at Abraaj Capital, the largest private equity group in the region

A number of sectors can expect to see significant growth in the region In consumer goods, for example, retail sales will grow consistently above the global average over the next four years By 2015, almost 3% of global retail sales will derive from the Middle East and Africa (see table 1) In healthcare, spending per capita is expected to surge by 40% in dollar terms by 2015

From market push to environment pull?

The increasing share of global sales represented by the Middle East and North Africa is encouraging

45 31

29 23

21 9

3 1

To access government/financial incentives

To build closer partnerships with local firms

It is a key centre of R&D within our industry Other, please specify

Not applicable, we have not yet set up an R&D centre there

Chart 3: What have been the key reasons for your firm conducting R&D in the Middle East? Select up to two

(% respondents)

companies to increase their R&D footprint in the region Asked about the main reasons for conducting R&D in the Middle East, respondents point to the local market as the key factor (see chart 3).

Ensuring that products and services meet the needs of customers in the Middle East can require companies to take into account specific environmental factors, such as climate, consumer preferences, spending power or genetics “Sometimes products may require a slight modification to suit the local climate and nature of the environment,” says Haitham Sibai, regional technical manager for the Middle East region at 3M, the global technology company “The only way we can grow is by becoming local and building the R&D capabilities to enable these modifications to be understood and made.”

Local R&D can also help to solve problems that are specific to the region In general, for example, the MENA region is dry and hot, which means that there are specific challenges linked to water scarcity, and good opportunities to research the capabilities of solar power Asked about the sectors that they think are most closely associated with R&D investment in the region, respondents point

to biotechnology and pharmaceuticals, agriculture and water, and alternative energy as the most prominent (see chart 4)

In Saudi Arabia, the King Abdullah University of Science and Technology (KAUST) has established

a research centre to conduct R&D into water desalination and reuse technologies that involve

None of the above

Chart 4: Which of the following sectors do you think are most closely associated with R&D investment in the Middle East?

Select up to three

(% respondents)

case study Quintiles

The Middle East and North Africa region is becoming an increasingly

important market for large pharmaceutical companies Currently, it

accounts for 2-4% of global pharmaceutical sales, but this proportion

is expected to increase in the next few years The modernisation and

expansion of medical provision, growing populations, and the high

prevalence of diseases such as Type-2 diabetes are all expected to

drive significant growth

Capturing this growth requires pharmaceutical companies to

build a stronger presence on the ground Many are increasing the

proportion of clinical trials that they conduct in the region in order

better to understand cultural and genetic differences and ensure

that these are taken into account when developing new drugs

As a company that provides clinical research services to

pharmaceutical clients, Quintiles has been well placed to witness this

trend “Regional directors from pharmaceutical companies now have

a very strong voice and are using it to ask for a fair share of clinical

trials to be conducted in the Middle East,” says Vladimir Misik, senior

regional director for Quintiles, clinical operations, in the Middle

East “By demonstrating that they are conducting research locally,

pharmaceutical companies can build their reputation in the region

It also helps when they enter into discussions with local regulators or

meet the heads of hospitals in the Middle East.”

In recent years, countries across the region have strengthened

the regulation of clinical trials in order to attract investment from

pharma companies and ensure that the environment is conducive

to rigorous, effective R&D “It’s encouraging to see governments

in the region taking proactive steps to regulate clinical trials and develop a clear understanding of their value,” says Mr Misik “In some countries, the regulatory framework for clinical trials was practically non-existent just four years ago.”

Better co-ordination between regulators that review marketing authorisation and those that regulate clinical trials should lead to

an increasing volume of late-stage R&D taking place in the region

“Regulators may consider requesting proof that some percentage

of the trials took place locally,” says Mr Misik “That would certainly

be a vehicle through which the government could apply additional pressure on pharmaceutical companies to channel some of their R&D work into the region.”

But despite this development, Mr Misik warns that potential R&D investors may find it difficult to recruit workers with the necessary skills when entering the Middle East “You cannot come to a market that is largely clinical-research nạve and expect that your head-hunter would be able to recruit hundreds of clinical research professionals, because they simply do not exist,” he explains

“Companies that come here to conduct clinical trials will need to train their staff.”

He also highlights the importance of developing a local presence, rather than flying in researchers on a temporary basis “You won’t get anywhere unless you hire local staff and ensure that the company

is visible on the ground,” he says “There is no substitute for local presence.”

collaborating with more than a dozen industrial partners “This is a very water-scarce region, so there are only two real choices, which are to desalinate sea water or reclaim waste water,” says Gary Amy, director of the water desalination research centre at KAUST

Genetic and cultural differences within the local population are also prompting new R&D investment In the GCC countries, there is an unusually high prevalence of Type-2 diabetes among the local population Tackling this problem has encouraged the development of new research agreements

In 2006, for example, a partnership between Imperial College London and the Mubadala Development Company led to the opening of a major new diabetes research and treatment centre in Abu Dhabi

By solving problems locally first, researchers can then roll out their innovations to other world regions that are facing similar issues “These niche opportunities are stimulating lots of research activity They can be very lucrative and potentially transferable to other parts of the world,” says Peter Heath, chancellor of the American University of Sharjah in the UAE

This “market push” R&D can be seen as a natural consequence of business and research institutions competing for a share in a fast-growing market with specific unmet needs Attracted by growth prospects, and recognising that R&D must increasingly be local in order to provide effective solutions, companies are gradually building up their capabilities and combining imported best practice with local talent and infrastructure

A key question is whether innovation in the Middle East will increasingly be driven by “environment pull” in addition to “market push” In other words, will companies be attracted to the region first and foremost by a desire to access local skills and resources and to operate in an environment and infrastructure that is regarded globally as best in class?

Our survey suggests that there is some way to go before this is the case The ability to tap into local talent or to form partnerships with local institutions is generally seen as a less important driver of R&D investment than local market potential (see chart 3) But there are signs that “environment pull” innovation is becoming more important One indicator of this is the development of R&D centres for global industries, such as semiconductors and aerospace This suggests that companies are looking at R&D in the Middle East, not just as a destination for researching solutions to local problems, but also as

a world-class R&D location in its own right

There is no doubting the scale of the ambition behind efforts to position certain Middle East countries

as leading centres for R&D investment At the forefront of the trend are the wealthy, oil-producing economies of the GCC Major new initiatives, such as the Masdar Institute of Science and Technology

in Abu Dhabi, a research-driven university, and the establishment of outposts for globally recognised universities, such as the Sorbonne and New York University, speak of a firm commitment to bringing about

a long-heralded knowledge-based economy

There are important socio-economic reasons behind this trend In the GCC countries, for example, oil and gas currently account for around 80% of export revenue Although the sector continues to be highly lucrative, governments in the region recognise that they must diversify their economies to ensure their long-term prosperity According to the survey respondents, economic pressure, including the need for diversification, is a key driver behind the uptake of R&D in the region (see chart 5)

Although oil prices are currently high as a result of strong demand from non-OECD countries and a political risk premium across the MENA region, oil-exporting countries are well aware that large swings in demand can see prices fall rapidly In the past 15 years, crude oil prices have ranged from a record high of US$147 a barrel in 2008 to a low of US$17 in the wake of the Asian financial crisis When oil prices fall, this can place pressure on public spending, particularly among those countries with smaller cash reserves This can have an impact on infrastructure projects and, by extension, levels of employment

In the longer term, the finite nature of fossil fuel reserves means that hydrocarbon-rich countries

Part II: The need for diversification

43 24

17 17

Economic pressures (eg, the need for diversification) Competitive pressures (eg, outperforming regional rivals) Environmental pressures (eg, water shortages, climate change) Social pressures (eg, meeting the needs of citizens)

Chart 5: Which of the following forces do you think will play the most significant role in driving the uptake of R&D in the Middle East?

(% respondents)

must prepare for a post-oil future “There’s a clear recognition that the oil isn’t going to last for ever,” says Tod Laursen, president of Khalifa University of Science, Technology and Research in the UAE “Having

a deadline provides a little bit of urgency to ensure that the economy diversifies and becomes more knowledge-based.”

But even if the oil were to last forever, economic diversification would still be imperative to increase employment Many countries in the region have fast-growing and very young populations In Saudi Arabia, for example, 38% of the population is under the age of 14 Between 2011 and 2015, the country will see its labour force jump from 7.6m to 9.2m Finding jobs for this new generation is a key policy priority—and one that has become particularly pressing in the wake of the Arab Spring, which was partly caused by resentment at high levels of unemployment

Although lucrative, the oil and gas sector provides few jobs for locals—some estimates put the local employment figure as low as 1% Governments therefore need to encourage investment in other sectors that are more labour-intensive, in order to reduce unemployment and ensure social stability This is equally true of non-oil exporting countries, such as Morocco and Egypt, which also have very young populations and high levels of unemployment

The transition to a knowledge-based economy will be a key component of economic diversification

The countries of the Middle East can be broadly divided into two

groups: those that have abundant energy resources and can export

them around the world, and those that must rely on imports for their

energy needs Jordan falls firmly into the second camp It imports

around 95% of its energy, mostly from Saudi Arabia and Iraq In recent

years, this heavy dependence on imports has come to be seen as a drag

on economic growth, particularly when combined with high oil prices

When King Abdullah II of Jordan visited Washington in 2010,

exploring innovative solutions to the country’s energy situation

was an important item on the agenda In the course of a series of

meetings, the King met Shihab Kuran, the Jordanian-born CEO of Petra

Solar, a US-based solar energy and smart grid company Its technology

consists of solar panels that can be mounted directly onto utility poles,

such as streetlights, which then feed power directly into the grid

King Abdullah saw potential in the idea, and the use of Petra

Solar’s technology has become one approach that Jordan will take to

address its future energy needs In 2011 Petra Solar opened an R&D

centre in Amman, Jordan, that would develop solar and smart grid

technologies, initially for deployment in Jordan, but ultimately with

a broader Middle East market in mind “The Middle East is a very large

market for solar power,” says Mr Kuran “The energy needs are there, the funds are available and the solar resource is abundant What we can do is become the facilitator that matches those funds with the technology and market.”

In addition to helping address Jordan’s energy needs, the R&D centre is also seen as a catalyst for creating a market for jobs in green industries in the country According to Mr Kuran, the talent available in Jordan is of very high quality “Jordan has a very broad base of talent,” he says “And we can speak from experience at Petra Solar, because many of our young PhDs are graduates of Jordanian universities.”

Although the talent is available, what is less well advanced is the ability to link this with market needs “The talent is there, but the infrastructure is lacking,” explains Mr Kuran “Jordan needs

to develop its sources of funding, its facilities, equipment, and relationships with the industry We see our role as being the catalyst that brings everything together.”

For Mr Kuran, the development of local R&D activity aimed at solving local problems is an exciting development “It’s a win-win situation,” he says “We can gain revenue and access to talent in Jordan, and the Jordanian economy can benefit from technology transfer, job creation, and addressing its energy crisis.”

in the region Although this has many aspects, a central one will be the promotion of the region as a destination for scientific and commercial research and development “The approach to innovation in the Middle East has for a long time been that, if they wanted a new technology, they would outsource the expertise required to develop it,” says Mr Laursen “There’s now a recognition that that will need to change for the economy to achieve its objectives.”

Most countries in the Middle East are currently at an early stage of development in their R&D

capabilities Although official data on R&D spending are scarce, it is estimated that the GCC countries spend less than 0.3% of their GDP on R&D The average for OECD countries is 2.26%3 Other, more qualitative measures also highlight the relative immaturity of R&D in the region In the Economist Intelligence Unit’s 2009 Innovation Index, no Middle East country appears in the top quartile The highest-ranked country is Kuwait, which places 36th out of 82 countries Saudi Arabia is ranked 37th, followed by the United Arab Emirates in 44th position

But over the past few years, investment in the infrastructure and institutions for R&D has accelerated dramatically in some countries Qatar, the UAE and Saudi Arabia, for example, are formulating a strong vision for a future knowledge-based economy What’s more, they are putting considerable investment behind the expression of that vision Qatar, for example, has announced that

it will invest 2.8% of its GDP in R&D “It’s relatively rare to see an alignment between an overall vision and having the resources available to fulfil it,” says Mr Laursen “Governments don’t have trouble making decisions here And things actually happen once those decisions have been taken, which is quite refreshing.”

Much of this, of course, is made possible by a political system in which governments play an active role in setting economic and industrial policy Not having to worry about being voted out of office means that policymakers in some Gulf countries have the luxury of long-term thinking “Putting aside political views, when governments are not having to prove themselves every election cycle, it is possible for them to have the patience to form a vision and then execute it,” says Mr Kumar

When combined with deep pockets, a strong vision helps to achieve results quickly There is, however, no guarantee that a top-down approach to investment means that the right decisions get made Indeed, a lack of accountability may mean that vanity projects are chosen over those that might have more practical benefit This does appear to be a risk Among our survey respondents, more than half agree that governments in the Middle East are too focused on mega-projects, rather than smaller-scale, practical initiatives A slightly smaller proportion of 46% agrees that, excluding the provision of

Part III: If you build it, will they come?

3 Wilson and O’Sullivan,

Shaping the Gulf National

Innovation Systems, Gulf

Research Meeting 2011,

Cambridge University.

funds, reduced state participation in R&D would allow the private sector to innovate more effectively (see chart 6).

Despite these risks, the role of government in helping to steer investment is one that several interviewees see as vitally important, while the region diversifies and puts in place a more knowledge-oriented economy “There does need to be a component in an innovation culture where

a more unbiased broker is saying there are some things we are going to invest in because they are fundamentally good for our people,” says Mr Laursen

Getting the balance right between public- and private-sector involvement is always challenging What is clear is that the role of the government in innovation in the Middle East is large by

international standards Some estimates put the percentage of R&D investment that derives from the government as high as 97%4 By contrast, government spending in the US is just 30%, with the private sector making up the remainder

Mr Speechley would like to see a much greater involvement from the private sector in the Middle East “Governments have been forced to shoulder the responsibility of investment and job creation for too long,” he says “The private sector now needs to be encouraged to invest more and I think this will come down to [small and medium enterprises] SMEs The best innovations take place in entrepreneur-led businesses, not in governments or big corporations You need somebody who’s willing to test a new business model, and that’s often an entrepreneur.”

In addition to providing the resources and infrastructure for R&D investment, governments can also play a role in facilitating investment through better regulation This is an area where some commentators think there is progress to be made “Bureaucracy needs to be reduced,” says Mr Heath

“There is still too much going to different offices for permits Investors need a system of clear and transparent one-stop shopping when they set up their businesses.”

Steps being taken to improve the regulatory environment, particularly in the GCC countries, include the strengthening of intellectual property (IP) rights, patent protection and the establishment of free zones that enable 100% foreign ownership and other benefits “Countries in the region already realise

Barring the provision of funds, reduced state participation in R&D in the Middle East would allow the private sector to innovate better Government-led efforts to develop R&D clusters in the Middle East are insufficient to create genuine centres for innovation Socio-cultural factors play a major role in hindering the take up of R&D in the Middle East

Political instability and social unrest will set back R&D in the region in the short term, but boost it in the medium term The quality of post-graduate qualifications in the Middle East are of a sufficiently high enough standard for international R&D work The Middle East’s efforts to foster local R&D now has genuine momentum

Government-led R&D projects in the Middle East are too often focused on mega-projects, rather than more practical small-scale initiatives

Chart 6: To what extent do you agree or disagree with the following statements?

(% respondents)

16 18 25 21 9

11 17

5 12 37

30

4 7 32 39

3 7 33 33

3 9 23

44

6 18 42

26

3 17 41

28

1 36

38

1 Strongly agree 2 3 4 5 Strongly disagree

4 Sasson, A Research and

Development in the Arab

States: the Impact of

Globalization, Facts and

Perspectives, 2007, UNESCO

Forum on Higher Education,

Research and Knowledge

that they have to streamline their rules and regulations to appeal to multinationals and spare them extended and confusing bureaucratic procedures,” says Fred Moavenzadeh, president of the Masdar Institute.

Regulation aimed at smoothing regional integration and facilitating cross-border trade could be an important driver of investment in R&D, according to some commentators “It’s more difficult than it should be to invest and sell across the region,” says Mr Speechley “If governments can bring down the barriers to the movement of people, goods, capital and ideas, then private-sector companies are likely

to invest more.”

Education

Investment in education is perhaps the single most important component in enabling the development

of a knowledge-based society in the MENA region And although considerable progress has been made

in recent years to put in place the necessary foundations—Abu Dhabi, for example, has established an Education Council, which counts among its missions the support of collaborative R&D programmes—building an education pipeline to feed R&D activity is an inherently long-term project

Consider, for example, the amount of time required simply to develop a young graduate into a PhD degree holder, focused on R&D as a career “That may require at least eight to ten years of college education,” says Mr Moavenzadeh “And for that individual to penetrate the market, and establish a venture-capital-backed company, another ten years may be required.”

For now, the quality and availability of key engineering and science skills is seen as the key challenge that hinders progress on innovation (see chart 7) And while technical skills are seen as most important, the management capabilities to bring innovations to market should also not be overlooked

50 41

33 23

21 19 11

Implementing appropriate rewards and incentives Limited funds and/or resources

Fostering effective collaboration between local researchers and their peers globally Allocating projects to local researchers that are sufficiently appealing, relative to our global research efforts Fostering effective collaboration between local researchers and other stakeholders in our innovation ecosystem (eg, partners, universities) Other, please specify

Not applicable, we have not yet set up an R&D centre there

Chart 7: Within your firm’s R&D centre(s) in the Middle East, what are the key internal innovation challenges that hinder progress? Select all that apply

(% respondents)

5 The National (online), April

2011

This is also seen as an area of weakness by many respondents.

Governments in the region are well aware of these shortcomings The speed with which some have been investing in education over recent years has been astonishing Since 2003, for example, Saudi Arabia has trebled the number of its state universities from eight to 245 Wyatt Hume, provost of UAE University, notes that, in the space of two decades, the number of universities in the UAE has risen from one to 100 “This makes for a very vibrant place,” he says

Major universities that have recently been completed or are under construction in the region include:

lPrincess Noura Bin Abdul Rahman University, Riyadh, Saudi Arabia Due for completion in 2012,

the Kingdom’s first women-only university will have the capacity to enrol 40,000 students altogether The campus includes its own automated transportation system and will house research centres for nanotechnology, information technology and bioscience

lEducation City, Qatar Originally launched in 1998 by the Qatar Foundation, Education City covers

14 sq km in the outskirts of Doha It houses branch campuses from six US universities, including Carnegie Mellon, Texas A&M University and Weill Cornell Medical College

lMasdar Institute of Science and Technology, UAE Developed in close co-operation with the

Massachusetts Institute of Technology (MIT), MIST is the world’s first graduate-level research institute dedicated to alternative energy and sustainability It was officially launched in 2009 with an intake of

88 students

lKhalifa University of Science, Technology and Research, UAE An Abu Dhabi government initiative

owned solely by the Emirate of Abu Dhabi, the university was inaugurated in February 2007 and opened its interim campus in Abu Dhabi in October 2008

lNYU Abu Dhabi, UAE A joint venture between New York University and the emirate of Abu

Dhabi, NYU Abu Dhabi opened its doors to students in September 2010 The university is the first comprehensive liberal arts campus to be established abroad by a major US research university It consists of a highly selective liberal arts and science college (including engineering), and a world centre for advanced research and scholarship—all fully integrated with each other and connected to NYU in New York

lKing Abdullah University of Science and Technology (KAUST), Saudi Arabia Founded in 2009,

KAUST is a research-based university that offers graduate programmes in life sciences, engineering, computer sciences and physical sciences

lThe Columbia University Middle East Research Center (CUMERC), Jordan Columbia University

established its Middle East Research Center in 2009 to conduct research and promote co-operation among research institutes in the region

Despite considerable investment in education across the region, respondents to our survey think

that more progress is needed Asked what they thought would do most to boost the investment attractiveness of the MENA region, they point to improved education systems and standards as having

32

2

30 29 29 24

19 18 16 15 14 13 13

Improved education system and/or standards Increased number of graduates with advanced degrees (eg, PhDs) Closer links between academia and business

Increased investment incentives (eg, tax breaks) Increased average government R&D spend Increased intellectual property protections Better living environments for knowledge workers Immigration policies that attract scientists and engineers More broadly accessible education

Regulatory policies that support R&D investment Better support for small, entrepreneurial businesses Development of specific R&D clusters

Other, please specify

Chart 8: In your view, which of the following actions would do most in order to boost the investment attractiveness of the MENA region for your firm, in terms of its R&D? Select up to two

28 14

3 9 40

33 13

8 15 36

30 11

13 22

33 19

12

1 11 38

36 14

2 15 36

36 11

3 11 42

33 11

5 21 35

32 8

7 19 45

25 4

7 20 39

27 6

1 Strong 2 Above average 3 Average 4 Below average 5 Weak

Government support for R&D Tax environment Availability of skills Political stability Availability of financing Size of local market Geographic location Quality of local educational establishments Regulatory environment

Protection of intellectual property

the biggest potential impact (see chart 8) And only 40% of respondents think that, overall, the quality

of local educational establishments is strong or above average (see chart 9)

Some interviewees questioned for this report argue that more needs to be done to improve ordination and competition between educational institutions “There’s certainly investment in individual universities, but rarely a nationwide investment structure,” says Mr Heath “What we need is

co-a competitive environment where professors co-are forced to compete with eco-ach other This will stimulco-ate research and lead to improved outcomes across the educational system as a whole.”

A greater focus on post-graduate research will also be important to provide the raw materials for high-end R&D work Currently, only 35% of respondents agree that the quality of post graduate qualifications in the Middle East is high enough for international R&D work (see chart 6) “There is a realisation that graduate education is becoming more and more important,” says Dr Timothy Dalton, program manager of the nano-science and technology partnership at IBM Research “There is a real need for deeper specialisation, taking students to Master’s and PhD level.”

In Europe and North America, the popularity of engineering as a research subject has been in decline for a number of years, and policymakers are constantly bemoaning a lack of interest in science among students By contrast, the Middle East suffers from no such lack of interest “Engineering is often first choice for the region’s brightest and best students, because it is perceived as having the best opportunities and a high level of prestige within society,” says Mr Kumar

Encouragingly, engineering is also popular among women “My sense is that women in the region are more inclined to study science and technology than some of the men,” says Ralph Cavin, chief scientist at SRC “In addition to forming a higher proportion of the overall student intake in engineering, some of the best students tend to be women.”

Technology transfer

Even if countries in the region do develop world-class educational institutions, this will not automatically lead to a fertile environment for commercial R&D Universities need links with business, both as a channel for commercialising research and as a source of future jobs for graduates “You’ve got PhDs driving taxis here, because, although there are some very good educational establishments, there aren’t enough research jobs,” says Mr Speechley

In the absence of local R&D jobs, graduates will often look overseas for work Reversing this “brain drain” and providing suitable opportunities for researchers in their home country has become a key policy goal “We’ve heard many times when talking with researchers from the Middle East who have gone abroad that they would love to return home and work on cutting-edge research projects that benefit their home country,” says Dr Dalton

Some universities in the region are taking steps to address this by building links with multinationals

to ensure that there are better commercial opportunities for graduate researchers “Many governments

in the region are very much interested in developing relationships with multinationals that go beyond purchasing their products or services,” says Mr Moavenzadeh “Substantial investment in R&D capacity