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“The €10 billion question”: How to most effectively support enterprise

innovation in Poland

Dr. Marcin PiątkowskiSenior EconomistThe World Bank

EU - Israel Seminar on Technology TransferTel Aviv, November 25-26, 2012

The World BankEurope and Central Asia RegionFinance and Private Sector Development

Poland has been growing much faster than peers, also during the crisis…

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220 Czech Republic Hungary Poland

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LV EE GR IE LT IT DK

HU UK SI ES FI PT RO LU FR NL

DE

BG BE CZ AT SE CY MT SK PL

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Figure: Real GDP per capita growth 1990-2010, (1990 = 100)

Source: EC Autumn Forecasts 2011, World Bank

Figure: EU27 output level in 2Q2011, 2007=100

Source: IBS based on OECD

Despite stagnant R&D expenditures…

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0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2002 2004 2006 2008 2010

Romania

Slovakia

Bulgaria

Poland

Hungary

Czech Rep.

Slovenia

Germany

0.0

0.5

1.0

1.5

2.0

2000 2002 2004 2006 2008 2010

Romania

Slovakia

Bulgaria

Poland

Hungary

Czech Rep.

Slovenia

Germany

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2000 2002 2004 2006 2008 2010

Romania

Slovakia

Bulgaria

Poland

Hungary

Czech Rep.

Slovenia

Germany

Total R&D spending% of GDP

Private sector R&D spending% of GDP

Public and scientific sector R&D spending% of GDP

Source: Eurostat

And low public innovation outputs

Source: Economic Papers 382, DG Economic & Financial Affairs, July 2009. 2

Figure: Assessment of the Amount and Quality of Public R&D Spending in EU-27

Source: European Commission (2010)

Poland has an elaborate public support system…..

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Figure: Public support instruments, 2007-2013

Source: IBS

… that distributes almost €10 billion euro of EU and national funds

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Figure: Total budget for public support instruments, 2007-2013, in PLN

Source: IBS

However, most spending on low-tech rather than high-tech and on capital investments in large companies

Share of public support for private R&D and capital investment under OP IE in total expenditures, 2008-2010

0%

5%

10%

15%

20%

25%

Low and medium-low tech manufacturing Medium-high and high tech manufacturing

Private R&D

Capital investment

Structure of public support to innovation (OP IE only) with respect to intervention type and firm size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Private R&D Capital investment

Big Medium Small Micro

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Source: IBS

Capital acquisition (i.e. technology absorption) is higher than in peers and more developed economies

8Source: IBS based on the EU CIS

Intramural R&D8%

Extramural R&D3%

Acquisition of machinery,

equipment and software

87%

Acquisition of other external

knowledge2%

Poland

Intramural R&D23%

Extramural R&D15%

Acquisition of machinery,

equipment and software

59%

Acquisition of other external

knowledge3%

Central Europe

Intramural R&D60%

Extramural R&D16%

Acquisition of machinery,

equipment and software

18%

Acquisition of other external

knowledge6%

France

Intramural R&D23%

Extramural R&D15%

Acquisition of machinery,

equipment and software

60%

Acquisition of other external

knowledge2%

Czech Republic

Structure of innovative activities of enterprises in Poland and comparator countries (in 2008, by expenditure)

Support systems needs to change to allow higher spending on innovation

EU15

POLAND

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0.5

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1.5

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3.5

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10 15 20 25 30 35 40

Figure: GDP per capita and total R&D spending, in % of GDP, 2008

Notes: Horizontal axis – GDP per capita in thousands of PPS (Purchasing Power Standard) in 2008 in a sample of 35 countries (EU-27, EFTA, US, Japan and Korea). Vertical axis – total expenditure on R&D as percentage of GDP in 2008.

Source: IBS

Our recommendations

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Polands needs to…

• Start moving from supporting absorption to supporting innovation: – Re-focus matching grants on early stages of the innovation process

(R&D, proof of concept and prototyping, mentoring) rather than capital investment

• Scale down absorption grants in favor of market-based instruments:– Revolving financial instruments, technology credit for creditworthy

companies and first loss guarantees for less creditworthy firms. • Strenghten institutional capacity:

– Re-assingn responsibility within public implementation agencies with regards to technology absorption, innovation, R&D finance, entrepreneurship support.

• Reduce public sector’s risk aversion: – change incentives to allow for commercial failure, involve the private

sector

And …

• Shift the focus of incubation services: – the scaling-up stage rather than the pre-incubation stage. Incubators

to take an equity stake in the start-ups.• Change the selection process in public/EU funding:

– focus on project innovativeness, eliminate irrelevant criteria, introduce selection committees, use ex ante impact evaluation to test new approaches, accept failure

• Improve monitoring and impact evaluation: – design selection processes with impact evaluation in mind, set clear

objectives, assign clear responsibility to policymakers• Enhance incentive systems for researchers to collaborate with business:

– promote success, increase private share in IP ownership rights, show leadership in “naming and shaming”; subsidize R&D trainee programs

And finally…

• Promote international flow of talent: – expand scholarships for researchers to study abroad and to return

home, expand the role of foreign experts, promote highly qualified immigration

• Support human capital development in the private sector: – cost-share training expanses with the private sector (PPP).

• Increase competition: – promote single EU market, improve the business environment to

lower entry barriers to startups• Promote R&D intensive FDI:

– increase the budget of PAIIZ, focus on R&D, enhance diplomatic support

• Stimulate international knowledge-sharing: – support participation in technology conferences, study tours and

workshops abroad• Keep the real exchange rate at a competitive level

THANK YOU!

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Inefficient public support for private R&D

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Figure: Structure of R&D financing in Poland, by sectors, 2008

Source: IBS

87,9%

72,6%

12,3%

6,3%

3,3%

83,2%

0,3%

17,8%

0,1%5,5% 6,3% 4,5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Government sector Higher education sector Business enterprise sector

Government Business enterprise Higher education sector Abroad

Mostly funded by EU funds

0,00%

0,05%

0,10%

0,15%

0,20%

0,25%

0,30%

0,35%

0,40%

0,45%

0,50%

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2004 2005 2006 2007 2008 2009 2010

EU National government Percentage of GDP

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Figure: Public innovation-related spending, billion PLN

Source: IBS