A Critical Review of Policy Instruments for Promoting Innovation in Manufacturing Small and Medium Enterprises (SMEs) in South Africa

The growth, productivity and competitiveness of small and medium enterprises (SMEs) are dependent on their innovation capabilities and performance. It is in recognition of this truism that governments have adopted different policy instruments to promote innovation in SMEs. This chapter provides a critical review of policy instruments for promoting innovation in manufacturing SMEs in South Africa. There is scant evidence-based analysis of how various national policy instruments influence innovation performance of manufacturing SMEs in the country. National policy instruments that impact on innovation by manufacturing SMEs are identified based on a review of literature, a firm-level survey, two stakeholders’ workshops, as well as interviews with policy-makers and representatives of SMEs, we identify. The study shows that the instruments have not been effective in promoting innovation in SMES because of weak policy mix and inconsistency, weak capacity of government to adjust policy instruments to target systemic innovation deficits, and institutional disarticulation within government departments. The suggestion is a reconfiguration of policy instruments and related institutional arrangements to focus on the challenge of enhancing the innovation performance of the enterprises.