How to use prioritization methods in the course of implementation of RIS3 S3 Platform – Peer review workshop 25 February 2014, Rīga

How to use prioritization

methods in the course of

implementation of RIS3

S3 Platform – Peer review workshop

25 February 2014, Rīga

Introduction

• Methodology for selecting and reviewing RIS3 priorities via identification of industry sectors with highest growth potential.

• Method developed by a group of experts: Gundars Kuļikovskis, Aiva Švēde, Gatis Ābele, Krišs Riekstiņš during June, July – 2013 as part industry analysis for RIS3 Latvia

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Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA. 2

RIS3- Simplified

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Continuous improvement Review cycle once a year

Challenges• Identification of industries with highest growth potential for

selecting RIS3 priorities should be evidence based process, based on hard and objective data

• Were to create human capital to benefit from it, rather than feed to brain drain

• Implementing RIS3 is aiming at moving target. Re-evaluation of priorities should be done on regular basis:

• Important changes in external context should be expected during strategic planning 7 year cycle

• Non-linearity. Even successful policies result in unforeseen changes in internal context

• Process of re-evaluating priorities should be compatible with process of initial strategy setup

• Rent seeking is a problem at every step. Lobby groups are powerful and government needs strong arguments

• Cost of re-evaluation should be reasonable

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RIS3 – strategy of economical transformation

• Economic transformation should lead to higher productivity at individual as well as cumulative level

• Innovation is the key to move to higher value products and activities

• Successful smart specialization:

• Increase trade - higher volume of exports & imports

• Decrease number of technologically unrelated products produced locally

• Increase value of products produced locally per volume

• “What You export matters” by Ricardo Hausmann, Jason Hwang & Dani Rodrik

• Export is the key for growth

• Moving to higher value products can be done only step by step using existing and related production factors

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Sectorial gap analysis

• Value gap between Latvia and more developed countries is good indicator of unrealized growth potential

• Used 9 reference EU countries: Austria, Belgium, Denmark, Ireland, UK, Netherlands, Finland, Germany and Sweden. We can expect that these countries:• Done maximum in order to increase value

• Similar environment and climate

• There are no product requiring low skilled and low labour

• Database of international trade (COMEXT). Data of international trade of 2010, 2011 and 2012• 4 digit product level which is highest degree of detail available

• Export value (EUR) & volume (KG)

• Only countries with significant volume or value of export. Country is excluded in given 4 digit product group if it is not at the top 3 at any of- physical volume, value or total value

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Gap calculation

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Results – growth potential by industry sector

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Notes

• Approach is very conservative. Movement to higher product value is in very related product set . If we allow migration between the products the gap is higher

• The methodology is useful:• For identifying sectors with potential for building up human capital

• For measuring success of convergence of economy

• For regions which by size is country due to type of data – Eurostat

• Potential of industries does not reflect potential of direct investment into industries.

• It might be that investment should be done in other: R&D, human capital, internationalization etc. For example wood industry can move to higher value product by employing nanotechnology

• If the realization of growth potential is lack of investment then such investment should be done by private capital

• Most important lesson is shortlist of industries which have significant value creation potential

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Thank You!

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Documents

How to use prioritization methods in the course of implementation of RIS3 S3 Platform – Peer review workshop 25 February 2014, Rīga