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A researcher works in a lab at the Center of Advanced European Studies and Research in Bonn, Germany. DAAD/Volker Lannert, Author provided (no reuse)

Moving Indonesian research forward with more private sector support: lessons from Germany

Limited support from industrial players contributes to Indonesia’s poor research development. In some countries, private firms play a key role in developing a country’s research industry, by providing either research funds or market access for innovative research results.

Germany is one such country with an advanced research landscape due partly to strong support from private industry.

This article aims to analyse the research landscape in Indonesia and Germany and how the former can learn from the latter to get more support from private companies.

Research in Indonesia

Indonesia has never made research a top priority. The meagre allocation for research in the national budget reflects this.

The administration of Joko “Jokowi” Widodo has increased the research budget to 0.2% of the country’s gross domestic product (GDP) in 2017, or around Rp24.9 trillion (US$1.7 billion).

“It is the highest in our history. Previously, our research budget was only at 0.09% of the country’s GDP,” the director of research and public engagement at the Ministry of Research, Technology and Higher Education, Ocky Karna Radjasa, said in an interview.

Despite this increase, the country’s research budget is still among the lowest globally.

Even in the Southeast Asia region, Indonesia is behind Malaysia and Vietnam. Recent data show Thailand allocated 0.5% of its GDP for research and Vietnam set aside 0.4%.

The Indonesian government has yet to realise its promise to increase the research budget to more than 1% of GDP.

To develop research in Indonesia, the government has set up an endowment fund of Rp990 billion. The fund is allocated outside the state budget.

Private sector support is still limited. This is due to the lack of incentives, relevant policies and awareness of the need for research among industrial players.

Ocky said the contribution from private companies stood at around Rp6 trillion, or around 20% of total research spending in Indonesia.

“In other countries, it is the opposite. Research funding from the private sector accounts for 80%, while the government only provides 20%,” he said.

Research in Germany

Germany is one of the countries with a robust research landscape. It is also one of the countries that invest the most in research and development. The latest publication from the German Academic Exchange Service (DAAD) states that this investment was around 90.3 billion euros in 2015 – around 2.9% of its GDP. This places Germany among the world’s top 10 countries in terms of research spending.

The most fascinating aspect of German’s research industry is the huge support from the private sector. In 2015, investment by industrial players accounted for almost 70% of the total investment.

Big companies have participated in developing research in Germany. They usually fund projects in universities or research institutions to develop products that can improve their business.

A recent publication titled The German Research Landscape by DAAD states that the biggest investors in research come from the German automotive industry. They invested almost 22 billion euros.

“There are no regulations that oblige businesses to invest in research. The big companies invest willingly so they can be more competitive and successful,” DAAD’s team leader for publications and press relations, Ruth Andre, said in an email.

A research associate at the German Institute for Economic Research, Heike Belitz, said the huge support from the private sector was “a result of a diverse national innovation system”.

The system is run with strong support from key stakeholders in the German research sector. These are universities and non-university research institutions with financial support from not only private firms but also federal or state authorities.

“Direct government support for R&D (research and development), mostly in the form of project funding, is only one important element of this innovation ecosystem,” Belitz explained.

Researchers collaborate at Fraunhofer Institute for Laser Technology ILT in Aachen, Germany. DAAD/Volker Lannert, Author provided (no reuse)

Why is support from private sector important?

A researcher at SMERU Research Institute, Rendy A. Diningrat, said private companies need to be more involved in developing the research industry in Indonesia.

Researching on human development and public policy, Rendy argued that involving industrial players in research will bring high-quality research to the market.

“These firms are the ones that really know what the public want. By collaborating with them, we can do research that can really answer what the public needs,” he said.

However, he admitted that not many companies were willing to invest in research.

“It is important to also improve their awareness on the importance of conducting research for their business,” he said.

Research, Rendy said, can ensure the sustainability of a company both in the short and long terms. And collaborating with the government can also create opportunities for companies to discuss policies with impacts on their businesses.

The statistics show that countries with advanced research industries are the ones with huge support from private industry. Almost 80% of research investment by the top three research spenders (South Korea, Israel and Japan) is from private companies.

How to gain more support from private companies

The common practice to lure private companies to invest in research is by offering them tax deductions. This means they can reduce their tax in return for their investment in research and development.

Countries like the UK and France have offered these tax deductions.

However, some doubt its effectiveness, including Belitz.

“In countries with substantial tax incentives (such as France and the UK), companies’ R&D spending relative to economic output has not increased any faster than in countries with no tax incentives at all (such as Germany),” Belitz said.

In her research, Belitz suggested giving the tax incentives to small and medium enterprises only.

“This is still being discussed,” she said.

Rendy acknowledged that tax deductions might be the most practical way to lure companies to invest more in research. However, it might not be the best.

In Indonesia’s case, he believes that collaboration is the key to encourage more support from the private sector for research and development. Not only will these companies work together with the government but they can collaborate in similar research fields.

“Under this collaboration, e-commerce firms can chip in to support certain research projects that are related to their business,” he said.

The Conversation Indonesia was invited to participate in the “Research in Germany” press tour sponsored by the German Academic Exchange Service (DAAD) last October.

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