This Interview conducted by Leana van der Merwe CBA(SA), CA(SA), a Technical Specialist at the Chartered Institute for Business Accountants (CIBA) and editor of CFO Club, with Dr. Daan Steenkamp, the CEO of Codera Analytics. The primary focus of the discussion revolves around the rising importance of intangible assets in South Africa’s economy, particularly in comparison to more advanced economies.

Key Topics Discussed:

Intangible Assets and Economic Growth:

• • The significance of intangible assets such as software, data, intellectual property, and brand value in boosting productivity worldwide.
  • South Africa’s lag in investing in intangible assets compared to advanced economies.
  • The impact of intangible assets on long-term productivity and economic growth in South Africa.

Challenges with Intangible Asset Investments:

• • Limited investment in intellectual property, data, and patents in South Africa.
  • Differences in accounting treatment for intangible assets in South Africa versus other countries.
  • Barriers such as regulatory constraints and difficulties for tech startups, which hinder the growth of a thriving tech sector in South Africa.

Role of Data and Technology:

• • The potential of data as a strategic business asset, but underutilization in South Africa due to regulatory and economic barriers.
  • Comparisons between South Africa and other countries, where open data initiatives and technology sectors are more advanced.

Regulatory and Economic Impacts:

• • The influence of South Africa’s Protection of Personal Information (POPI) Act on data sharing and business activities.
  • The need for regulatory frameworks that both protect data citizens and encourage responsible data sharing to drive innovation and productivity.

Potential for Growth:

• • Opportunities for South Africa to catch up in terms of leveraging data and technology for economic development.
  • The importance of a thriving tech sector, with data-driven businesses and investments in disruptive technologies.

Human Capital as an Intangible Asset:

• • A discussion on whether human capital (e.g., employee value through training and development) should be recognized as an intangible asset.
  • The economic perspective of human capital as a factor in production and growth.

Challenges to Achieving a Thriving Tech Sector:

• • Recommendations for overcoming red tape and regulatory barriers that stifle tech innovation and investment in South Africa.
  • The importance of collaboration between businesses, government, and industry leaders to foster a stronger tech ecosystem.

The interview provides insights into the underinvestment in intangible assets in South Africa, the potential reasons for this, and the opportunities that exist for businesses to better leverage intangible assets to drive productivity and growth.

Why is this important for CFOs?

Here’s why the discussion on intangible assets and related themes directly affects them:

Financial Reporting and Valuation of Intangible Assets:

• CFOs are responsible for ensuring that their company’s financial statements accurately reflect the value of its assets, including intangible assets like software, data, intellectual property, and brands.
• The conversation about the underinvestment in intangible assets in South Africa, and the challenges of accounting for these assets (due to subjective accounting treatments), directly impacts how CFOs approach financial reporting. They need to determine how to capitalize intangible assets and ensure compliance with local and international accounting standards (e.g., IFRS, US GAAP).

Investment Strategy and Productivity:

• CFOs play a critical role in deciding how a company allocates its resources. The interview highlights how companies that invest more in intangible assets (e.g., software, data analytics, intellectual property) tend to experience higher productivity and growth.
• This information can help CFOs evaluate the return on investment (ROI) of intangible assets, which can be harder to quantify compared to tangible assets. CFOs must understand that properly leveraging intangible assets can create long-term value and competitive advantages for their business.

Tech Adoption and Business Innovation:

• The discussion emphasizes the importance of investing in technology (such as data marketplaces, automation, and analytics) to drive growth. CFOs are often responsible for overseeing investments in IT and technology infrastructure.
• This is crucial for CFOs, as adopting new technologies can reduce operational costs, improve efficiencies, and enable the company to remain competitive in a global market. It also affects strategic decision-making around whether to invest in automation or other emerging technologies.

Regulatory and Compliance Considerations:

• CFOs must navigate regulatory landscapes and ensure compliance with laws such as South Africa’s POPI Act. The discussion touches on how data regulations impact the ability to use and share data, which can hinder or enable business growth.
• Understanding these regulations helps CFOs mitigate legal and compliance risks while finding ways to capitalize on data as an asset without violating privacy laws.

Strategic Planning and Innovation:

• CFOs are key players in a company’s strategic planning, and part of their role is to look for areas where investments can boost innovation and long-term growth.
• The conversation about South Africa’s lagging investment in intangible assets and the lack of a thriving tech sector signals to CFOs that there is an opportunity to innovate in this space and gain a competitive edge by capitalizing on these underutilized areas.

Human Capital as a Strategic Asset:

• The debate on whether human capital should be considered an intangible asset has implications for CFOs, as they oversee budgeting for training, development, and talent acquisition.
• Although not traditionally considered an asset in accounting, human capital investments are critical to ensuring that the workforce is adaptable and able to leverage new technologies, which can affect overall company performance.

Why This Affects CFOs:

• Resource Allocation: CFOs need to decide how much to invest in intangible assets like data, software, and intellectual property, which require careful financial planning and justification.
• Risk Management: Intangible assets come with regulatory risks, such as compliance with data protection laws, which CFOs must manage to avoid legal complications.
• Valuation and Reporting: Properly recognizing and valuing intangible assets impacts financial statements, investor relations, and the company’s market valuation.
• Strategic Growth: Intangible assets, especially in tech-driven economies, are key to a company’s ability to grow, innovate, and remain competitive. CFOs are pivotal in steering the company’s long-term strategic direction through investments in these areas.

By focusing on these issues, CFOs can help their companies maximize value, manage risks, and take advantage of new opportunities presented by a more tech-driven, intangible asset-focused economy.

Transcript:

Host: Leana van der Merwe, Technical Specialist at the Chartered Institute for Business Accountants (CIBA)
Guest: Dr. Daan Steenkamp, CEO of Codera Analytics

 

Leana van der Merwe:
Welcome to our podcast and interview discussion today. My name is Leana van der Merwe, a Technical Specialist at the Chartered Institute for Business Accountants (CIBA). We at CIBA are thrilled and excited to have with us Dr. Daan Steenkamp. He is the CEO of Codera Analytics. We’re going to dive into a very relevant and timely topic that’s taking up a lot of space in our accounting environment today, which is the rising importance of intangible assets in South Africa’s economy.

But before we dive into that, let me introduce our guest. As I mentioned, we have Dr. Daan Steenkamp, an economist and the CEO at Codera Analytics. Dr. Daan has extensive experience and background. Currently, he’s the CEO at Codera, and before that, he spent time at the South African Reserve Bank as a research fellow and lead economist. He also worked for quite a long time in New Zealand. Daan, thank you so much for joining us today at CIBA. We’re really excited to discuss this topic with you.

 

Dr. Daan Steenkamp:
Thank you, Leana. It’s great to be here, and I’m looking forward to our discussion.

 

Leana van der Merwe:
To our audience, what happened earlier this year is that Codera shared some important insights in February and August, highlighting critical points around intangible assets. These reports focused on how intangible assets like software, data, intellectual property, and even brands have seen substantial growth and played a significant role in boosting productivity worldwide.

However, here in South Africa, the share of intangible capital has stagnated at the same levels we saw back in 2005. We are not seeing the same growth and investment in intangible assets as the rest of the world.

Naturally, this raises important questions:

• How are these intangible assets measured?
• How are they valued in our economy?
• How are they accounted for in our businesses?
• Why aren’t investments in these assets growing as rapidly in South Africa?

For example, while software is being recognized as a valuable asset, data—despite its potential—represents only a small portion of South Africa’s intangible assets. This suggests that organizations might not be fully capitalizing on the strategic value that data can offer.

Given this background, we will discuss the implications of this underinvestment in intangible assets for productivity growth and long-term economic development, both in South Africa and globally, as well as what businesses and policymakers can do to address this gap

 

Leana van der Merwe:
Daan, could you give us some background on the points I’ve just shared? What has Codera observed regarding intangible assets, and why do you believe there is such a big difference between the value of South Africa’s intangible assets compared to other countries? Are we not investing in intangibles correctly, or are we not treating them right from an accounting and recognition perspective? Is there a significant difference between US GAAP and IFRS, or are we just being a bit too conservative here in South Africa? I would love to hear your thoughts on this.

 

Dr. Daan Steenkamp:
Hi Leana, it’s lovely to be with you, and thank you for the generous introduction. As you mentioned, I’m an economist, not an accountant, so your listeners likely know more about the accounting treatment of intangible assets than I do. However, I can provide a macro perspective on how the industry-wide and economy-wide treatment of intangible assets affects South Africa’s long-term economic outlook.

To start, let’s define intangible assets. These are things that create value for companies but are not physical. Examples include software, data, other forms of intellectual property, and brand value.

Globally, especially in fast-growing economies, the proportion of intangible assets to tangible assets has been rising. Investment in intangible assets has also been increasing significantly. There is a wealth of research showing that intangible assets are crucial for productivity growth. This makes the fact that South Africa hasn’t seen the same growth in intangible assets particularly concerning. Over the long term, productivity is the major driver of improvements in economic welfare.

In South Africa, over the past two decades, we have seen investments in software, which is a component of intangible assets. However, investments in data and other forms of intellectual property have not grown at the same rate as in more advanced economies. For example, if you look at patent filings or trademarks on a per capita basis or compared to the size of our economy, South Africa is actually behind—particularly in domestic patent filings. We’ve also seen very little investment in data at a macro level.

Even if we ignore how individual companies treat these assets from an accounting perspective, the broader issue remains: South Africa is falling behind in the accumulation of intangible assets.

 

Leana van der Merwe:
That’s very interesting, Daan. Essentially, you’re saying that we are investing in intangible assets, but we’re only investing in certain types like software. There’s a downturn in patent filings and trademarks. Do you believe this is a regulatory issue in South Africa? Is it easier for South Africans to register patents and trademarks abroad rather than securing them locally.

 

Dr. Daan Steenkamp:
Yes, Leana, I think there are many reasons why we don’t see the same level of investment in intangible assets in South Africa as we do in other economies. One reason could be the accounting treatment of these assets. At an individual firm level, whether you want to treat expenditures on things like data and software as an intangible asset depends largely on whether they can be shown to have commercial substance—for example, through research and development. There’s a lot of subjectivity involved in the accounting treatment of intangibles.

As a result, the difference could just be that South Africa has a different accounting treatment compared to other countries. But at a macro level, the lack of investment in intangible assets is very concerning.

So, why don’t we see investment at a macro level? There are several macroeconomic reasons for this. The standard economic factors that influence incentives to invest also apply to intangible assets. Regulatory constraints, for example, can discourage investment in intangible assets, especially in sectors that are tech-heavy. The hurdles that tech startups face in South Africa, and the difficulties in developing a tech sector, have meant that we haven’t accumulated intellectual property in the tech space to the same extent as other major economies.

There’s quite a bit of research, including from Codera, that summarizes the government restrictions affecting tech companies in South Africa. These restrictions discourage e-commerce, the use of data, and data-sharing. South African institutions, especially on the commercial side, haven’t monetized their data to the same extent as institutions in other countries.

In general, we’ve seen limited investment in technology overall compared to major economies. That’s not to say there aren’t exceptions. We do see examples in the news of certain institutions making large investments in technology and data, but as a collective, South Africa is lagging behind in terms of investing in these areas.

 

Leana van der Merwe:
That is both interesting and, honestly, a little bit concerning, Daan. It’s surprising to hear that we’re even falling behind some of our peer countries on the African continent when it comes to intangible assets. South Africa has always been ahead in so many areas, so this feels like a significant hurdle we need to overcome.

You mentioned data and how it can affect businesses and the economy. Do you think the POPI Act (Protection of Personal Information Act) impacts data-related investments in South Africa? Does it play a role in why we’re not fully investing in data, or is that a separate issue?

 

Dr. Daan Steenkamp:
That’s a great question, Leana. I think it’s important to consider the balance between protecting data rights and enabling the use of data to create value. The POPI Act is critical because it provides protection for data citizens and ensures their rights are safeguarded. South Africa is actually a global leader when it comes to data protection regulations, which is a good thing.

However, while protection is important, we also need regulations that encourage the use and sharing of data in a way that adds value to businesses. It’s important to have governance frameworks that protect data citizens but also enable data sharing—both in the public domain (such as government data) and between corporates—so that data can become a valuable resource. For example, data-sharing can drive the development of a fintech industry that creates innovative products, solves business problems, and enhances efficiency.

Where South Africa lags behind is not in the area of data protection but in enabling regulations that promote the responsible use of data. If you compare South Africa to other countries, one study called the Global Data Barometer found that South Africa does not have as many open data initiatives as other countries. We don’t have the same frameworks in place to promote the use and reuse of data, and we also lack the frameworks to support e-commerce and data-sharing responsibly.

The good news is that there is a real opportunity for South Africa to catch up. We have an advanced infrastructure and access to valuable data. If we learn how to implement new technologies and leverage data effectively, we could drive investment and join the 4th Industrial Revolution.

 

Leana van der Merwe:
That’s encouraging to hear, Daan. There’s hope, and it sounds like there’s an opportunity for South Africa to catch up and leverage its data resources more effectively.

I’d like to shift the focus slightly to our CFO Club members. Many of them are wondering how, if we can overcome these regulatory and investment hurdles, South Africa can benefit from properly valuing, accounting for, and recognizing intangible assets like data, intellectual property, patents, and trademarks.

If South Africa’s investment and recognition of intangible assets were more in line with global standards, how would that impact our economy and our businesses? I think this is something our CFOs would be very interested in knowing from a strategic point of view.

 

Dr. Daan Steenkamp:
That’s an excellent question, Leana. There’s a lot of economic research that shows a strong correlation between investment in intangibles and productivity growth at the firm level. Companies that invest more in intangible assets tend to experience faster growth. What’s interesting is that this is true regardless of the sector. So, whether you’re in financial services, telecommunications, or even manufacturing, investing in intangibles is highly correlated with better performance.

Some industries, especially knowledge-intensive sectors, show an even stronger relationship between intangible asset investment and productivity. In countries with large economies, companies that invest in data and other intangibles often use these assets to develop competitive advantages. However, achieving this is easier said than done. Companies must ensure that their research and development is well-utilized, and they need to successfully implement disruptive technologies to create value.

We’re already seeing examples of companies starting to monetize their data and use real-time analytics to better understand their customers and what’s happening in the economy. These companies are finding ways to leverage their proprietary data to gain insights and improve decision-making.

At an international level, the firms that outperform others tend to be the ones that invest heavily in intangibles. In South Africa, as I mentioned earlier, there are various reasons why corporates haven’t invested as much. But I believe there’s a huge opportunity for South African companies to benefit from disruptive technologies such as automation. By reducing costs and improving efficiencies, they can set themselves up for long-term success.

It’s also important for companies to share their success stories. As a community, we need to promote the success of firms that have invested in intangible assets so that others are encouraged to do the same.

 

Leana van der Merwe:
I agree, Daan. The potential for growth and productivity through investment in intangible assets is massive. However, it’s also concerning to hear that there has been disappointment in some industries due to investments in data not leading to the expected returns. It seems like there’s still a learning curve when it comes to embracing new technologies and implementing them in ways that deliver tangible value.

Dr. Daan Steenkamp:
Yes, exactly. There has been some disappointment, but that’s part of the learning process. Companies need to figure out how to adapt technologies to their specific context and how to realize value from these investments. It’s not just about the technology itself but also about how you integrate it into your operations and strategy.

 

Leana van der Merwe:
Right, that makes sense, Daan. So, you’ve highlighted the importance of having a thriving tech sector in South Africa. It sounds like this is where we’re falling short. We need to think differently about how we’re using intangible assets to create value in our businesses.

But I want to ask you, how do you practically do it?
How does a CEO, CFO, or COO in a business wake up and say, “Right, I want to embrace this. I want to be at the forefront in South Africa, helping to grow our intangible asset base”? How do they practically go about doing that?

Before we dive into that, there’s an age-old debate about intangible assets, and we’ve already touched on software, data, intellectual property, patents, and trademarks—the more “traditional” intangibles, if you will. But what about human capital?
Do you believe that human capital can be considered an intangible asset for a business? I had a discussion with someone from a large professional practice who told me they recognize the value of their employees on their balance sheet. I was intrigued because, technically, the accounting rules don’t allow this, but they argued that they were investing in human capital by training and developing their employees. So, where do you think human capital fits in when we talk about intangible assets? Is there a place for it?

 

Dr. Daan Steenkamp:
That’s a really interesting point, Leana. Perhaps this is an area where economists are a little ahead of accountants when it comes to understanding the value of different types of capital. In economics, we use models called production functions to measure productivity, and these have long recognized the importance of human capital as a key factor in production.

Investing in human capital—whether through training, development, or innovation—is crucial for driving economic growth. There’s significant evidence that enhancing human capital leads to endogenous growth, meaning it promotes faster economic progress and higher welfare over time.

However, when it comes to how human capital is recognized on a balance sheet or income statement, I’m not the right person to ask, as that falls more under accounting. But from an economic perspective, it’s clear that investing in human capital is vital. Companies that want to remain competitive in a global market need to invest in things that not only maintain their current competitive advantages but also help them adapt and innovate as market conditions change.

 

Dr. Daan Steenkamp:
So, this means investing in having a more agile workforce. It means looking after your people and ensuring they have the tools and support they need to succeed. With the rise of AI and other emerging technologies, it’s increasingly about how well your staff can leverage these new technologies. Having a workforce that can adapt and learn new skills is becoming crucial.

How you account for these types of investments and accumulate them into assets is, again, more of a question for accountants. But I do think it’s an important question because, at the C-suite level, corporates need to make decisions about where to allocate resources. Should they invest in human capital? In data? Or in more traditional tangible assets?

From an accounting perspective, the challenge lies in developing frameworks that allow firms to measure the returns on different investments—whether in human capital, data, or other assets. It’s more complicated than just putting things into separate “buckets.”

For me, it’s really about how companies develop a data strategy at the enterprise level that enables the C-suite to differentiate between various use cases, measure the returns on investments over time, and understand how these investments align with the company’s strategic direction.

There’s significant overlap between the industries we work in. At Codera, we help companies build models and automate systems. We work hard to measure tangible improvements in efficiency, cost reductions, or new value creation. As a community of practitioners, we need to develop frameworks that enable us to properly prioritize investments and leverage technology more effectively.

Leana van der Merwe:
That’s a great point, Daan. It sounds like the challenge isn’t just about the labels or definitions, but more about how companies can measure outcomes from their expenditures and represent that in a way that helps guide strategy.

 

Dr. Daan Steenkamp:
Exactly. There’s often disappointment when it comes to investments in technology because realizing value in large institutions can be incredibly difficult in the short to medium term. It’s hard to measure the returns on these kinds of investments.

That’s where the focus should be—measuring outcomes and understanding how to integrate them into your financials in a way that promotes strategic decision-making at the C-suite level.

 

Leana van der Merwe:
That makes a lot of sense, Daan. Listening to you, I’m thinking maybe we at the CFO Club, along with our sister organizations like CIBA and Codera, need to sit down with the right people—perhaps the big accounting and auditing firms—to see how we can develop or enhance investment in intangible assets from an accounting perspective.

We are responsible for accounting and recognizing intangible assets, and you, on the economy side, are focused on how these assets impact businesses. But, as you said, the rules are there, and we need to follow them. Yet, as a country, we are unique. Maybe we need to get together and see if the issue is not that we aren’t investing in intangibles, but rather that we don’t have a thriving tech sector to leverage them.

I definitely think it’s something that requires input from some big players.

 

Dr. Daan Steenkamp:
I agree, Leana. That’s a great idea. We’ve spoken about the impact on the economy and the growth potential of intangible assets. We’ve touched on some of the challenges. To sum up, if you had to pick the top two or three challenges that organizations in South Africa might face when trying to leverage intangible assets, what would they be?

For example, you mentioned we need a thriving tech sector, but what practical steps can businesses take to achieve that? Do we need more investment? Do we need investors? Are companies perhaps too conservative? What’s holding us back from fully embracing technology and intangible assets?

 

Dr. Daan Steenkamp:
Those are excellent questions. Let me try to break it down. I think, first and foremost, government can make a huge difference by reducing red tape. It’s well documented that South Africa has a lot of regulatory red tape compared to other economies, and this makes it difficult, particularly for tech companies.

There’s also policy uncertainty, as well as preferential procurement rules, which further complicate things for tech firms. If we can address these issues, it will make it much easier for tech businesses to thrive in South Africa.

 

Dr. Daan Steenkamp:
Secondly, I think industry itself can take action. There’s a huge opportunity in technology, especially in terms of cost reduction. In my experience, many large corporations in South Africa have not fully realized the value that can come from investing in automation and data management.

The good news is that some of these technologies are becoming cheaper to implement. We’re also seeing that it’s easier to learn from international experiences in terms of how to implement automation and modernize data systems at an institutional level. This means that, even though South Africa may have started this process later than other countries, there’s a chance to leapfrog by embracing these technologies now.

One area where I believe South Africa is really lagging behind is in creating data marketplaces and ecosystems that allow companies to link and share data responsibly. This is a huge gap compared to leading countries with strong tech sectors and fintech industries. If we can establish frameworks that allow for responsible data sharing, it would create tangible returns.

For example, when CFOs need to account for investments in data systems, they should be able to demonstrate the financial returns on these investments. We need more successful use cases in South Africa, where companies trumpet their successes with big data and technology. This will help other businesses understand the returns on investment (ROI) from these initiatives and encourage further investment.

 

Leana van der Merwe:
That’s such a key point, Daan. If we had more companies sharing their success stories, it would certainly help CFOs, CEOs, and COOs make better decisions around what to prioritize in terms of investments and technology.

 

Dr. Daan Steenkamp:
Exactly, Leana. It’s about giving business leaders the confidence that these investments will pay off. We’ve written extensively on this topic in several posts, for anyone interested in exploring it further.

 

Leana van der Merwe:
Thank you, Daan. I just wanted to share with our listeners a little more about Codera. As I mentioned earlier, we’ve been following your work, and that’s what prompted us to have this interview. You’ve been sharing such great insights about data, statistics, and information. Could you briefly share what Codera does and what you set out to achieve?

 

Dr. Daan Steenkamp:
Sure, Leana. Codera is a team of economists working in data science and software development. Our goal is to make data more accessible and usable, both for public domain data and for corporate proprietary data.

On the one hand, we aim to be part of the movement to democratize data in South Africa. We work to make it easy for people to use complex public data. On the other hand, we help businesses combine their proprietary data with public data to better understand what’s happening in their industry and identify opportunities. We create tools that help companies think about their strategy and how to either react to threats or take advantage of new opportunities.

We also build forecasts and automate analytical systems for companies. What sets us apart is that we build everything ourselves—we create the models, we write the code, and we produce the tools in-house. We take pride in using leading-edge frameworks to answer important questions about how the economy impacts a firm and how different actions might affect outcomes.

So, in a nutshell, we help companies leverage their data to make better strategic decisions and automate their analytics to improve their operations.

 

Leana van der Merwe:
That sounds amazing, Daan. I’ve just signed up for your newsletter so I can stay up-to-date with everything you share. Thank you so much for spending time with us today. But before we let you go, I want to ask you one final question: is there a book you’d recommend to our listeners—something that you believe everyone should read?

 

Dr. Daan Steenkamp:
Ah, great question! You’ll have to forgive me because I come from a research background, so my recommendation might not be your typical business book. The book I would suggest is more of a textbook that gives a comprehensive overview of how intangible assets affect productivity and growth at the firm level.

The book is called “Intangible Assets, Productivity, and Economic Growth” by Bloch et al. It’s a great resource if you’re interested in understanding how intangible investments impact various sectors and economies around the world. You probably won’t find it on a regular bookstore shelf, though—you’ll need to visit a university library for this one. It’s a great academic reference for anyone who wants a deeper dive into the topic.

 

Leana van der Merwe:
Thank you for that, Daan. I’m sure many of our listeners who are really interested in intangible assets will be checking that out. From all of us at the CFO Club and the CIBA team, we want to thank you again for spending time with us today. We really appreciate the insights you’ve shared.

I hope that from this discussion, many of our CFOs, CEOs, and business leaders will start thinking about the opportunities available in South Africa when it comes to intangible assets. Like you said, the opportunities are there; we just need to seize them and make them work for us.

Listeners, thank you so much for joining us today for this podcast. Be on the lookout for our next episode, and we hope you have a great day ahead.

 

Dr. Daan Steenkamp:
Thank you so much, Leana. It was a pleasure.