Introduction

Since the influential work of Corrado et al. (2005) which standardized and popularized the measurement approach of investment in intangible assets, evidence is growing stronger that investment in intangible capital, also known as knowledge-based capital (OECD, 2013), has become increasingly more important over time. According to the estimates constructed by Corrado and Hulten (2014), the share of intangible investment had already exceeded the share of tangible investment in the USA by the early 1990s and reached over 14 percent of gross domestic product (GDP) in 2010 (see Figure 1). This increasing importance of intangible investment is not only specific to the USA or industrialized economies such as the European Union (Corrado et al., 2012), studies that look at other parts of the world, such as China (Hulten and Hao, 2012) and Brazil (Dutz et al., 2012), also show a similar pattern with investment composition gradually shifting away from tangible to intangible assets. By including intangible capital estimates in a growth accounting framework, the extant literature also finds that intangible capital plays an important role in determining labor productivity growth (e.g. Corrado et al., 2009; Fukao et al., 2009; Roth and Thum, 2013; van Ark et al., 2009). This new finding suggests that the role of measured total factor productivity (TFP) or “our measure of ignorance” as it was coined by Abramovitz (1956) is reduced, while capital deepening (tangible and intangible combined) constitutes the dominant source of growth. Despite the growing interest and the rapidly expanding literature on intangibles, most studies tend to focus on advanced or emerging economies. No study has yet looked at intangible investment in Africa, a continent that experienced very fast or even miraculous economic growth in the last decade (McMillan and Harttgen, 2014; Young, 2012)[1]. It is of interest in itself to examine what has been the investment pattern or trend in intangible assets in Africa? It could also be relevant to the query whether the “African Growth Miracle”, dubbed by Young (2012), can be sustained in the long run as knowledge-based ntangible capital is increasingly recognized as a highly important driver of future growth (e.g. OECD, 2013). To fill the gap, the current study focuses on two specific African countries, namely, Egypt and South Africa where the data are available, and estimates their investments in intangibles over the period 1995-2011. Given the comparability of the data source, this paper provides detailed descriptive analysis by comparing the two countries in terms of their levels and compositions of investment in intangible assets. Following the broader literature and due to data constraints, this paper confines the scope of analysis to the market-sector economy and focuses on three specific intangible assets (i.e. scientific research and development, organizational capital, and brand equity)[2]. Using the expenditure-based approach for measurement, this paper finds that investments in intangibles as a portion of GDP have grown from 1.9 to 2.8 percent in South Africa over the period 1995-2011. Whereas, the investment share of intangibles remained stagnant at about 0.5 percent of GDP in Egypt in the same period. If one looks deeper by asset types, the increase in the investment share of intangibles in South Africa is mainly driven by the increasing share of investment in organizational capital; while investments in brand equity and R&D remained fairly constant at 1 and 0.4 percent of GDP in South Africa.