SA is optimising for the wrong economy — it needs to own ideas, not export rocks

As political parties prepare for this year’s local elections, the debate has become strikingly familiar: potholes, refuse collection, water infrastructure, policing, housing. These are essential responsibilities of local government, but the campaign has largely become a referendum on ANC-led governance.

There is remarkably little discussion about whether our cities can realistically compete as a manufacturing hub in the global economy, or how we intend to capture more value from the strategic minerals that will underpin artificial intelligence and clean energy.

Our politicians remain fixated on managing the industrial economy while more and more value lies in intellectual property. In the 1970s, most S&P 500 value came from tangible assets – factories, machinery, inventory and property. Today, 80% comes from intangibles: software, patents, brands, algorithms and data. The World Intellectual Property Organization describes this as a structural shift, with spending on intangible assets now consistently outpacing investment in physical assets.

This is more than an accounting curiosity – it’s a profound change in where value is created. Apple owns remarkably few factories. Nike manufactures almost none of its own shoes. Nvidia designs the world’s most advanced chips but outsources production. These companies haven’t abandoned manufacturing; they’ve relegated it to a commodity. The scarce resource, and the source of outsized profits, is intellectual property (IP). Factories can be relocated, labour outsourced, capital moved across borders in milliseconds. What can’t easily be replicated are breakthrough ideas, trusted brands, proprietary technology and scientific discoveries.

Knowledge has become the new capital, and AI will accelerate this – compressing research cycles, speeding up design and testing. As execution gets cheaper, the bottleneck shifts from labour to insight. Countries that own insight will pull further ahead of those that merely supply labour.

So the real question is whether we keep trying to mine and export rocks, or start owning more of the intellectual property, processing capability and advanced manufacturing that turns them into products the world can’t do without. Wealth is no longer created mainly by owning factories, but by owning ideas – and almost none of our economic policies is built to reward that. Worse, some of our most politically sacred policy instruments are pointed in exactly the wrong direction.

Under the Preferential Procurement Policy Framework Act, the state designates entire product categories – buses, rail rolling stock, pharmaceuticals, textiles, cables, furniture – for mandatory local production content. The logic is understandable: protect jobs, build local capacity. But the designation criteria measure the location of assembly, not invention. A firm that imports a foreign-designed product and bolts it together locally can qualify; a South African firm that designs and owns the IP behind a product made elsewhere often cannot. We’ve built a procurement system indifferent to who owns the IP.

BEE has the same blind spot. The generic scorecard rewards ownership, management control, skills development, enterprise and supplier development, and socioeconomic development – a reasonable framework for redressing exclusion from an economy built on land, mines and factories. But it does not meaningfully reward black ownership of patents, black equity in high-growth tech cap tables, or black-founded IP ventures capitalised at scale. Ownership points are calculated against a business’s net value, so the more capital-light and IP-rich a company is, the less those points are worth, making it harder for a black entrepreneur to build a knowledge company than to take equity in someone else’s mine.

The problem with BEE runs deeper. By rewarding ownership structures and existing enterprise over new IP, BEE can unintentionally tax investment into precisely the high-growth sectors South Africa needs – capital flows where returns are maximised, and when regulation rewards compliance over innovation, investment follows the scorecard rather than IP creation.

This is uncomfortable because BEE remains our flagship instrument of economic redress. But good intentions don’t exempt policy from economic reality. None of this argues against transformation. Our history demands deliberate redress. But transformation and growth are mutually dependent, not substitutes: if the framework discourages investment and risk-taking, there will be less wealth to enable empowerment in the first place. A more forward-looking BEE would treat founding an IP-generating company, or holding meaningful equity in one, as at least as transformative as a board seat at an existing industrial incumbent.

Universities and companies still treat R&D as a cost centre, not an export industry. Per the National Advisory Council on Innovation’s 2025 report, South Africa spends only 0.61% of GDP on R&D – far below OECD innovation leaders. Patent applications have declined sharply, and we ranked just 69th in the 2024 Global Innovation Index. Yet fights over university funding are almost always about enrolment and fees, never about whether research becomes IP. We treat a university patent like a bursary: a nice-to-have, not a national asset.

Our industrial policy still measures success in jobs-per-factory, not ideas-per-rand – incentive schemes tied to capital investment and headcount, special economic zones and local content quotas. None of it asks whether the country now owns something – a patent, an algorithm, a platform – it didn’t own before. The OECD’s review of our innovation system put it plainly: we need to shift from resource-based industries towards productivity-driven, innovation-led growth.

A focus on IP creation also does not argue against manufacturing. Germany remains a manufacturing powerhouse. South Korea exports cars and electronics. Taiwan makes semiconductors. But these countries don’t compete on cheap labour, they compete because their factories embody decades of accumulated research and IP that they themselves own. The factory is the final expression of a stock of knowledge, not a substitute for it.

Nor is it an argument against mining. The AI revolution makes South Africa’s mineral endowment more strategically valuable, not less. But history shows the greatest returns rarely accrue to whoever digs the ore out of the ground – they accrue to whoever develops the technology that makes extraction cheaper and processing more sophisticated. Australia has relentlessly improved mining productivity through automation and robotics; South African extraction has become steadily more expensive and less competitive as productivity has stagnated. Forty years ago our mining was globally admired; today many operations struggle to compete. If we fail to innovate, we risk exporting increasingly valuable minerals while importing the technologies built from them.

Ideas don’t need ports. South Africa has extraordinary talent – every additional engineer, scientist and entrepreneur expands the country’s stock of productive knowledge. Every research breakthrough creates the possibility of a future industry. Every successful start-up generates IP that can be exported without ships or railways. Ideas are among the few exports that scale almost without limit, and one of the few areas where a fiscally constrained country can still compete with far richer nations on something other than cheap labour.

This should reshape what we treat as untouchable. Broadband is economic infrastructure, not a communications line item. University funding is industrial investment, not an education budget. Research grants are long-term capital formation, not an expense to trim. Our empowerment codes and procurement rules should reward who owns and develops tomorrow’s assets.

The same logic applies to natural resources. South Africa should aspire not merely to mine the critical minerals of the AI age, but to own the technologies that discover, extract, process and refine them into higher-value products. IP and mineral wealth aren’t competing strategies, they’re complementary, and the greatest value lies in combining both.

The countries that dominate the next century won’t be those with the largest reserves or the cheapest labour. They’ll be those that combine strategic resources with the IP to exploit them more intelligently. The raw materials matter but increasingly, the ideas wrapped around them capture the greater share of value.

South Africa has shown flashes of this capability before. Our universities produce world-class researchers, our entrepreneurs have built globally competitive tech companies and our financial sector is among the most sophisticated in emerging markets. The ingredients exist. What’s missing is the political will to redirect procurement, empowerment, university funding and industrial incentives towards the economy we’re actually entering, rather than the one several generations of policy were built to fight for.

The Industrial Revolution rewarded nations that accumulated physical capital. The AI revolution will reward nations that accumulate intellectual capital. If South Africa keeps optimising for yesterday’s economy, we risk becoming ever more efficient at producing things that capture a shrinking share of global value.

The challenge is not to create more jobs, attract investment, or hit a localisation percentage. It is to build a country whose greatest asset is the intellectual property of its people. DM