Towards a smart specialization strategy:ESTONIA

Heli AruMay 10, 2012

Estonia at a Glance • Population: 1,340 million (2011)• Parliamentary democracy: The Government (cabinet)

consists of the Prime Minister and Ministers (12)• Two tiers of government: National and local (226

municipalities)• Since 1999 ruling of center right coalition governments.

The current government is lead by the Prime Minister Mr. Andrus Ansip who has held the office since April 2005

– The third term, renewal of the mandate in March 2011.

• GDP per capita at current prices (EUR) 12 686.• GERD 1,63 % of GDP, BERD 0,82% of GDP (2010).

Estonian specifics• Very small country

– The smallest non-island country with it’s own fully fledged higher education system based on local language.

– R&D needs to balance between specialisation and cultural/educational coverage

• Very dynamic– Unfavoured starting point, but catching up (fast). – No stabile economic structure to align the research system

• Very lean government– Very simple tax structure (no tax incentives for R&D)

• Very “e”– E-banking – 98% of transactions

– European largest Public Key Infrastructure– First e-elections in the world

Estonia – EU convergence (% of the EL27)

R&D expenditure 2001 - 2010

R&D volumes fast growing

• In 2010, GERD 1,63% of GDP (0,61% in 2000)

• In nominal terms 2000-2010, R&D expenditures in enterprise sector (BERD) grew on average 30 % per year

– The growth of total R&D expenditure (GERD) of Estonia has been in 2000-2010 on average 20 % per year.

• The share of BERD in GERD in 2000-2007 has grown from 22,5% to 50,2% 2010

• Estonian R&D system is quite an effective in terms of publications or getting FP grants (retour)

• The R&D intensity „Barcelona goal“ – GERD 3% of GDP – is lifted from 2014 to 2020. but is still very ambitious, possible only in the case of strong investment in both public as well as private sectors

Features of a fast growth• On a long run you need …

– Sustainability, stability– Balanced, fine-tuned, policy mix

• During fast change …– No stability exists by definition – Fine-tuning is impossible

• Problems of the fast growth:– How to absorb effectively the growth?– What is a right balance for different policy elements?– How to target the R&D during the growth?– How to use different financial instruments?– How to exit from growth (different) phases?

Balance of policy elements• What is a right balance for R&D policy elements? • For a short period you may survive even omitting some

important elements!– In 1990 –ies in Estonia several R&D policy elements were missing or

inadequate

• First switch on the missing elements (!)• Most importantly the growth of R&D expenses in Estonia is

decribed by switching on (and absorbed by):

– About 2000: major growth in enterprise R&D support

– 2006 onwards: infrastructure reconstruction

– 2008: major growth in human factor support

– ~2010: bigger attention in international activities

Thematic focuses of current RDI strategy

• Estonian strategic RDI priorities are chosen to support research-driven, technology-driven and problem-driven R&D.

• Three of the seven national programs are selected with a technological focus – ICT, biotech and material technologies)

• Four are focusing on societal challenges– energy, defence and security, health care and welfare services,

environmental protection.

Targeting R&D during growth• ~ 25% growth per annum cannot be very focussed

– If focussed to 10% of target group, the growth would be 250%

• Broad focuses apply!

• No stabile economic structure exists (fast restructuring even before crisis) to align the research system – R&D should be aligned with future economic structure

• R&D policies concentrate to basic values:– People, quality, enterpreneurship, infrastructure and cooperation – On the verge of change of economic structure (critical phase,

metastability) R&D may drive economic changes

• Estonian current RD&I strategy is not of a „smart specialisation“ type

• Our strategy has been of „basic capacity building“ type;

• However, topics of national programmes have to be: – Of high scientific quality and– Of high economic and social relevance

• In the preparing process of each national programme, a study was performed, analysing inter alia– Main competitive advantages– Key challenges– Main opportunities for future (regional) development

ERAC peer review of Estonian R&D&I system

• The Innovation Union Flagship Initiative of EU 2020 Strategy invites Member States to conduct peer-reviews of their research and innovation systems

• 2011 Estonia asked European Research Area Committee to conduct an external peer-review of its research and innovation policy

• Using the EU Innovation Union Self-Assessment Tool as the overarching methodology

• Four international experts from benchmark countries (DK, ISL, SLO, FI) were invited as peers

ERAC peer review findings

• OUTSTANDING PROGRESS, BUT NOT WITHOUT CHALLENGES

• Overall conclusions– Steady progress driven by quality, excellence and competition– Innovation system detached from vast part of the economy– Challenge to further develop RDI system to make a difference

in the economy & society at large– Upgrade the role of Estonian industry in the global value chains– Lack of trained personnel hinders growth and investments

ERAC peer review - some recommendations• Perceive RDI as a means to achieve economic and

societal goals– Priorities directly responding to the needs of Estonian society

and the economy

• More clear focus for Estonian RDI programmes – linked to the implementation of the new national strategy– Fewer programmes of key importance

• Ensure coherent and systemic RDI policy– Attention on coordination and implementation of policies– Stronger horizontal coordination by RDC

• Harness RDI measures to drive structural change in the economy

Summary and next steps

• Estonian current RD&I strategy has not been of a „smart specialisation“ type. – Our case study will present a horiontal type approach.

• Efforts are made that the next strategy would integrate more S3 approaches.

• We will be happy to learn from the experiences of others.