Promotion of Innovation in CyprusBest Practices, Prospects and Challenges

IKTIMED STARTING SEMINARMaribor, April 20th 2011

Hotel Habakuk

Dr. Antonis Theocharous, Lecturer, Cyprus University of TechnologyMs. Rozita Pavlidou, Research Officer, Cyprus University of Technology

Innovation• Innovation is recognised as a major driver for productivity, growth

and employment creation

Innovation ideas can derive from:

• Research• Collaboration between suppliers & clients• Market & technology watch• Competition• Collaboration with technology transfer centers• Collaboration with financial institutions

The benefits of innovation are usually long-term

Barriers in Innovation Process

• Lack of time “…We are so busy to work in the business that we have no time to work on the business…”

• Organisational structure • SMEs are resistant to change• Lack of funds• High risks• SMEs infrastructure • Limited/No access to information

Failure of Innovation

• Innovation has very high rate of failure and this is the major reason why companies especially SMEs do not innovate

• Only 12%-20% of innovations succeed while the remaining 88%-80% fail (Edwin Mansfield)

Cyprus – General Information

• Population: 797,800• Surface area: 9,251 km2

• Annual Growth Rate: 5,2%• Distribution of the working population Agriculture: 4% Industry: 20% Service: 76%• GDP per capita: 15.000 Euro• R&D rate: 0.2%

Innovation Policy in CyprusThe past

• Up until 2006, no single entity responsible for the design, promotion & coordination of innovation measures

• Innovation system is structured on:1. Policy level2. Intermediary level3. Implementation level

• The EIS (European Innovation Scoreboard) 2008 classifies Cyprus in the group of 'moderate innovators'. Combining a close to the EU27 average level of performance with a high growth rate Cyprus is a growth leader among the group of ‘moderate innovator’ countries. Finance and support, Linkages & entrepreneurship and Innovators are relatively strong dimensions of the country’s overall performance.

Evolution of RTDI Activities in Cyprus

Cyprus is a growth leader among the group of Moderate

innovator countries, with an innovation performance just

below the EU27 average and a rapid rate of improvement.

CYPRUS EU

Evolution of RTDI Activities in Cyprus

1990

time

Imp

rove

me

nt o

f RT

D a

ctiv

ities

1998

RPF

EU MemberNational Priority

2004

UCY

1992

2009

Towards future challenges

Evolution of RTDI Activitiesin Cyprus

R & D E X P E N T I T U R E% o f G D P

0.18

0.22 0.23 0.24 0.25

0.30

0.350.37

0.400.43

0.45

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

1992 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Evolution of RTDI Activities in Cyprus

R & D E X P E N D I T U R E( m l E u r o )

5.6

10.8 12.414.1

15.819.4

23.927.2

31.9

35.9

41.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1992 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Evolution of RTDI Activities in Cyprus

N U M B E R O F R E S E A R C H E R Sf u l l t i m e e q u i v a l e n t / y e a r

366

564

681 680 690

822922

1,017

1,1571,226 1,244

0

200

400

600

800

1,000

1,200

1,400

1992 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Evolution of RTDI Activities in Cyprus

R T D E X P E N D I T U R E

0.27 0.38

1.141.55

1.88 1.92 1.98 2

2.59 2.763.15

3.48

3.98

5.11

0.41

0

1

2

3

4

5

6

ΧΩΡΕΣ

% Ε

ΠΙ Τ

ΟΥ

ΑΕ

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CYPRUS

EU

Innovation Policy in Cyprus

Policy level

• Planning Bureau (PB) is responsible for the economic

policy of the country

• PB has central role in the RTDI strategy

• Ministry of Commerce, Industry & Tourism responsible for

the promotion of high-tech companies, reconstruction of

traditional industry, attracting foreign investment &

promotion of high-tech industry

Innovation Policy in Cyprus Implementation Level

• Cyprus Institute of Neurology & Genetics• University of Cyprus( public)• Cyprus University o Technology (public)• State General Laboratory• Agriculture Research Institute• Cyprus Productivity Center• Private colleges & research centers• Business Incubators• Private enterprises• Industry Liaison offices

Innovation Policy Developments

Strategic Development Plan 2004- 2006 priorities:

• Extension & upgrading of infrastructures • Boosting competitiveness • Human resources development-promotion of equal

opportunities• Balanced rural development• Protection of the environment & upgrading the quality of

life

Innovation Policy in Cyprus Strategic Development Plan 2004-2006

Boosting competitiveness:

• Emphasis in strengthening SMEs• Encouragement of the R&D sector• Exploitation of the information society• Support of competitiveness • Exploitation of new technologies• Promotion of innovation• Productivity improvement

Innovation Policy in Cyprus Strategic Development Plan 2004-2006

Encouragement of the R&D sector:

• Support of research & technological infrastructure

• Support of research & technological development

• Innovation and technology transfer support

• Promotion of the information society

Innovation Policy in Cyprus Strategic Development Plan 2004-2006

National framework to foster Innovation:

• Business incubators measure

• Youth entrepreneurship measure

• Women entrepreneurship measure

• Subsidisation of studies for the adoption of standards

• Guarantees for loans to SMEs measure

• Technology Park in co-operation with Sofia Antipolis Technology Park (future action)

• Technology Park for ICT companies in co-operation with the Indian government (future action)

• Research Center jointly with the School of Public Health of the University of Harvard

• The Cyprus Institute

Main innovation policy challenges that Cyprus faces are as follows:

– Increase inputs and efficiency of business innovation: Public research capabilities and innovation policy have considerably improved over the last decade, while the business sector is still considerably under-investing in R&D and innovation. Measures fostering entrepreneurship as well as supporting university-industry cooperation and clusters are adopted in an effort to meet this challenge.

– Increase the number of S&E graduates: The number of S&E graduates is low due mainly to the late creation of universities on the island. The real challenge now will be to effectively employ the newly graduating scientists and engineers both in the research system and the business sector.

– Make innovation policy and support to innovation more effective: Innovation policy has evolved rapidly but in a rather fragmented way. The government has recognised this weakness and has reinforced the role of the RPF, now dealing with innovation as well. At the same time, better coordination at governmental level is being planned through the creation of two new coordination mechanisms.

The credit crisis and its effect on innovation activity

• The main ways through which the Cypriot economy is exposed to the global crisis are the following: – tourism: decline in tourist movement slows significantly export-

oriented services and thus results in a contraction in tourism revenue;

– real estate market: potential buyers from abroad (mainly from Russia and the UK ) terminate or restrain deals due to the financial problems they face;

– financial restrictions: limited bank credits available for companies; – psychology has a restrictive effect on consumption and investment

expenditures.

The credit crisis and its effect on innovation activity

• It is unlikely that the crisis will influence innovation considerably in the foreseeable future, as the innovation system relies on public expenditure and the government is determined to honour its financial commitments to the promotion of research and innovation.

• The commitments for the current period are significantly higher than those of the previous periods.

• The budget of the DESMI 2008 to 2009 (EUR 70 million) is more than four times higher than the budget of the previous DESMI 2006 (EUR 17 million), while the budget for the DESMI 2009 to 2010 is expected to reach EUR 50 million.

Identified Challenges

• The business sector is still considerably under-investing in R&D and innovation.

• Insufficient involvement in RTDI activities in terms of participation in R&D and innovation expenditures, is one of the main challenges of the NIS.

• Business R&D expenditures as a share of GDP are among the lowest of all countries benchmarked (0.1 % of GDP, notably lower than the EU average of about 1.18%)

• The structure of the business sector in Cyprus does not favour R&D. There are no big multinationals with headquarters on the island and even the biggest among national companies are effectively SMEs by European standards.

Identified Challenges

• The majority of SMEs are very small family-based companies with limited export orientation. Most enterprises tend to concentrate on low added value activities.

• Very low demand for knowledge and innovation is partly explained by the sectoral structure of the economy which is dominated by the service sector (tourism and finance), with manufacturing representing only a small fraction.

• This is reflected in very low employment in medium-high and high tech manufacturing, but above average employment in knowledge-intensive services. Financial services are of a more traditional nature and had not been innovative during the earlier boom with new structured products (which proved invaluable in the current crisis).