The relevance of innovation in low income countries (LICs)

Xiaolan Fu

Is innovation relevant for the LICs? For some people the answer is a clear ‘yes’, but other people may argue that there are other more important issues in LICs, such as food safety, water, health and conflict. However, only innovation and technical progress can provide fundamental solutions to the major challenges facing LICs, such as poverty reduction, environment and resource constraints, and sustainable development. Therefore innovation should be regarded not as an outcome of development but as a means to achieve it.

The term “innovation” is often associated with patents or ground-breaking discoveries. Those are the results of costly, risky and lengthy processes which require intense knowledge and capital investment to create something “new”. For those reasons, most of the patent registrations and ground-breaking innovations are concentrated in a few rich countries linked with specific forms of university science and research capacity, and amongst a small number of firms. Would this view of the world imply that in LICs, where skills and capital constraints are prevalent, innovation is not relevant and firms are hardly innovative?

What is innovation? Does innovation refer only to those laboratory-based scientific research and development activities? The classical definition of innovation comes from Schumpeter who defines innovation as creative destruction. Nowadays our understanding of innovation has evolved and the most widely accepted definition of innovation is contained in the Oslo Manual. Innovation refers to the creation or adoption to a new product or process, and new organizational and marketing practices, where ‘new’ means new to the world or new to the country or the firm. It also includes new business models and new sources of supply. It is important to highlight that innovation means not only laboratory-based research and development activities. It also includes the whole innovation chain, which covers both the creation and adoption of new knowledge and commercialisation process.

Innovation as a public good has several distinguished features. Innovation includes both codified and tacit knowledge. The first is knowledge that can be written and expressed, while the latter refers to the knowledge that cannot be expressed and cannot be easily shared. Tacit knowledge often has to be picked up through learning and practice over time. It cannot easily be acquired, neither can it be easily repeated and imitated. Moreover, innovation has a feature of being a non-rival good, which means the marginal cost for additional use of it is zero. In other words, the use of innovative knowledge by one additional use does not reduce the availability of the knowledge to others. Finally, innovative knowledge is likely to generate positive externalities, which means others can benefit from the newly created or diffused knowledge by learning, observation, and imitation. In other words, the new knowledge can benefit others who are neither the inventor nor the owner of the new knowledge. The characteristics of innovation shape its transmission as well. Since tacit knowledge is difficult to be written down and transferred, most of the new knowledge is geographically localised and the diffusion of innovative knowledge needs several specific channels.

How does innovation emerge then? Innovation can be developed by an original idea but also emerges from diffusion, absorption, or imitation of the new methods that are observed. The imitative innovation includes technological innovation and also non-technological innovation. Many innovations are from or for the bottom of the pyramid, the poorest socio-economic group, and to be relevant need to be economically and socially appropriate and accessible for them. It means being affordable and suitable for the poor.

Innovation in LICs can have an impact on multiple dimensions, from income growth and job creation to poverty reduction, and more generally on improving human well-being. Innovation can support poverty reduction and enhance human well-being through three main channels. Firstly, innovation can contribute to household’s poverty reduction by improving medical care, supporting education, updating agricultural techniques, and providing sustainable energy. Secondly, innovation can have a direct impact on the people and production at the bottom of the pyramid. If innovations are affordable and easy enough to be used, poorer people would be provided with more goods and opportunities. In such context scenario, the so-called frugal innovation aims to reduce both the complexity of the technologies and the skills needed to use them, making them affordable to poorer people. Thirdly, at the macro-economic and structural levels innovation is a driver to improve productivity and increase the production capacity of an economy. Eventually the impact of innovation will improve competitiveness, increase sales, generate more profits, and create more employment. Improving more people’s living conditions can also help others to leave poverty. It is clear from the data collected that innovation can be everywhere, even in the informal economy. Small workshops around the country are constantly trying out new ideas and better ways to deal with constraints. For example, a local Ghanaian entrepreneur told the survey “I survive because I innovate and this makes my business competitive in the market”. Through different channels, innovation can support people to solve the poverty and income growth problem.

By defining innovation as a new product or process, or new management, organisational or marketing practices (where ‘new’ means new to the world or new to the country or the firm), the Diffusion of Innovation in Low Income Countries project (DILIC) was designed to shed light on the role of innovation in LICs by exploring the nature of innovation in the private sector and the determinant factors and transmission channels for effective innovation creation, diffusion and adoption in LICs under institutional, resource and affordability constraints. The research included in-depth case studies and findings from a unique innovation survey of more than 500 Ghanaian firms.