Saudi Arabian policymakers know that increasing knowledge-based sectors is the key to sustainable growth as their economy transitions away from oil.
“You cannot be depending on oil in a world where the knowledge economy is the driver of economic development — manufacturing is 20th century,” Fahd Al-Rasheed, CEO of King Abdullah Economic City, said in June.
Vision 2030, the plan to diversify the Saudi economy, also sees a big role for knowledge-based industries.
This makes sense. In the U.S., knowledge-intensive goods and services from sectors including biotech, chemicals, entertainment and information technology now make up over half of all U.S. exports, reversing the situation of only 40 years ago when manufacturing dominated.Advanced Asian economies — Japan, the Republic of Korea,
Advanced Asian economies — Japan, the Republic of Korea, Singapore and Taiwan — have also taken this path, moving over recent decades from agriculture to manufacturing to knowledge-based economies.
Few countries have developed thriving knowledge-based industries purely from domestic resources. Scientific knowledge, technological know-how and the required research and development capital are dispersed globally.
Gone are the days when one R&D company, for example, the industrial behemoth General Electric or the biopharmaceutical major Merck, created products in-house from start to finish.
Today, innovation is a result of collaboration between multinational companies, small companies, start-ups, academia and the public sector at all stages of the R&D cycle, often across borders.
Saudi Arabia’s challenge is to become a meaningful participant in this new world of networked innovation. It must attract innovative companies to its shores, bringing with them the capital, skills and technological know-how the Kingdom may be missing.
The potential prize is enormous: China now captures more Foreign Direct Investment in R&D than the U.S. thepharmaceuticals sector leads the way with investments, totaling $1.6bn between 2010 and 2015, according to FDI Markets.
The Kingdom has some advantages that could direct it down the R&D path. It has a young population, a growing base of science graduates and relatively high investment in health care, internet and other forms of infrastructure.
Tax incentives, and investment in education and information technology will only go so far, though. Above all, foreign investors need certainty over their intellectual property rights, including clearly defined and easily enforceable patent rights.
If this protection is strong, companies will be more likely to invest in local R&D facilities, or enter into partnerships with local companies. New products will be launched early into Saudi Arabia, as innovators will have no fear of their valuable IP rights being compromised.
Saudi Arabia has the intellectual property basics in place, in line with its World Trade Organization commitments. In fact, the U.S. Chamber of Commerce’s 2017 International IP index noted Saudi Arabia has a “strong patenting environment.”
Yet, recent developments risk derailing this progress. Just months after granting a patent for a new medicine to a company based in the United States, the Saudi Food and Drug Administration (SFDA) reneged on the deal.
The Saudi patent for Hepatitis drug Daclatasvir was granted by the Patent Office of the Gulf Cooperation council (which encompasses Saudi Arabia) to BMS in Dec 2016. Nevertheless, the SFDA granted marketing approval to a generic version manufactured Saudi company in May 2017, despite the BMS patent still being in force. Granting marketing approval to generic copies of the product in this way is arguably a breach of patent rights.
Likewise, the SDFA has also recently allowed local companies to manufacture generic versions of another medicine developed by another U.S. biotech company — potentially contrary to World Trade Organization rules surrounding the protection of clinical test data, itself an important intellectual property right.
Saudi IP law allows for 5-year period in which generic companies may not use the clinical trial data submitted to regulatory authorities by originator drug manufacturers to gain marketing approval ("data exclusivity"). Gilead Sciences was granted marketing approval by the SFDA in 2014 for its product Sofosbuvir. The SFDA has subsequently granted marketing approval for generic versions of this product made by a Saudi and Egyptian company — within the 5-year data exclusivity window. This could be a breach of Saudi data exclusivity regulations.
Taken together, such actions send a hostile message to foreign investors that their valuable IP rights are not safe in Saudi Arabia. Such hostility will undermine Saudi’s economic ambition by scaring off valuable investment and skills.
They also act as an irritant to U.S.-Saudi relations, with the Trump administration indicating a higher prioritization of IP enforcement amongst its trading partners.
Meanwhile, regional neighbors such as the UAE and Asian competitors such as Singapore are seizing the opportunities presented by the globalization of innovation, which drive increasing proportions of their economic growth.
Saudi Arabia could emerge as a global competitor in knowledge-based industries. It’s an achievable vision, but it requires the policy details to be right, not just the rhetoric.
Philip Stevens is director of Geneva Network, a UK-based research organization focusing on trade and innovation issues.