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Galérie Slovensko, Európsky parlament, Ostatné

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SME Union and Sandoz Symposium: Boosting Innovation for a Competitive Europe

European Parliament, Brussels

Ladies and gentleman,

                                                                                                                                                                                                                                                                       At the beginning let me express my thank to the organizer of this event giving me an opportunity to express my position on the issue of innovation and brain drain from the regional point of view.

Initially I considered having presentation much more emphasized on facts and analyses of situation in the field of innovation in Slovakia but I would rather limit myself on saying that it is in all respects far under the EU 15 standard.

The R&D expenditure in Slovakia equals 0,60 % of GDP. In EU the average R&D spending is 1,99 % of GDP, in the neighboring Czech Republic it is 1,22 and in Hungary 0,95 % of the gross domestic product.

Slovak authorities have not formulated any explicit innovation policy up to now. There is no governmental body that takes care of innovation related matters in a coherent manner. The public spending on R&D reached 0,30 % of GDP in 2003 covering a half of all research and development expenditure.

The structure of the Slovak industry shows that there are few knowledge –intensive industries, such as pharmaceuticals, biotechnology or software development.
Only 16% of companies in the processing industry and only 7,3 % of small enterprises can be classified as innovative in Slovakia. SMEs practically do not have any access to institutional venture capital funds in  Even if the Slovak government shows in theory good understanding of importance of innovation for the Slovak economy any significant policy measures were not taken yet.

Central authorities satisfied themselves by creating the so called Seed Capital Company run by the National Agency for Support of Small and Medium Enterprises. The fond disposing some poor million Euro functions more like a standard business investment fund than seed/venture capital company supporting few standard businesses. Any innovative but too risky project is excluded by definition.

Now I would rather shift in the specific issue of innovation at the regional level and bring to you a little bit more of my personal view resulting from my own experience. Since 1992, I have been fully involved in the process of SME development in the Eastern part of Slovakia as a director of business support agency.

Although I have to admit that I am not very familiar with the EU innovation policy, I can not deprive myself of feelings that we are focusing too much on applying EU or national formal rules and structures rather than dealing with the real needs of holders of knowledge on the local and regional level.

There is no holistic approach to support an innovative idea and its holder from the very beginning and finance its development until it reaches a phase of practical use.
I am speaking about any holder of innovation idea: students, graduates, individual inventors, home researchers or micro enterprises. They are very often coming out with unique innovative ideas in different fields of industry looking for an opportunity to transform their ideas to real products with considerable added value. The financial constraints however prevent them from developing their ideas further.

Let me use an example from my own experience.
We created a technical incubator in Eastern Slovakia. We accomplished successfully the first phase of real construction of the center which is quite costly and problematic itself.  But as we did not manage to find enough investors willing to support completely new ideas perhaps with big development potential but not promising instantaneous financial reward, the fund was finally transformed into classical business incubator supporting already running standard businesses. Changing thus completely the initial idea of boosting high valued added business and creative jobs into the region.

As in a vicious circle Eastern Slovakia staying an industrial and agriculture region is loosing its most talented people for regions where they can use their intellectual potential.

What are the reasons why the young, capable, well-educated people and researchers leave less developed regions and/or Slovakia?
(It is estimated that 1/3 of university graduates leave our regions annually)

1) Lack of interesting jobs, if there are some at all:
• In the region with 30 percent unemployment rate, more than 40% of graduates are jobless.

• Due to regional labor market problems the Eastern Slovakian Kosice and Presov university are showing highest graduates unemployment rate among all Slovak universities;

• Although several big investors came to Slovakia in last years, they invested mostly to simple manufacturing (like car industry, household electronics manufacturing etc.), offering very few jobs for skilled labor force

2) Unfavorable business environment that does not enable them to start up their own business in an innovative area;

3) Few companies and research institutes in Slovakia dealing with R&D;
• according to national and European data, the number of R&D companies and researchers have decreased in Slovakia in last 5 years

4) Insufficient level of financial and moral satisfaction if they are dealing with innovation.

I order to increase economic coherence within the EU we absolutely need to retain these talented individuals, to engage them into systematic innovation process in their respective geographical environment. We have to create a proper base for: finding good researchers, attracting them to Europe, analyzing their ideas, selecting and protecting their ideas, developing the ideas to the products, securing their further development.

There are already many excellent examples of technological incubators, business innovation centers and/or high-tech centers worldwide that provide a tremendous environment and utilities for the already mentioned target groups.

To fulfill the Lisbon objectives we have to build on such best practices and start from the local and/or regional level.  This should be a challenge first off all for new Member states to solve the problem of brain drain and strengthen the competitiveness of their economy through SMEs.

To sum up, taking into consideration regional conditions I would recommend to build regional points of R&D and innovation (as e.g. hi-tech centers, BICs, technological incubator centers) where missing in order to utilize regional innovative potential. It should be a joint effort of all regional players: public authorities, entrepreneurs, schools and universities as well as financial institutions.

The most serious problem of establishment of functional regional point of R&D and innovation we have encountered is funding of particular innovative projects. As it was already mentioned the institutional base of venture capital funds does not exist in Slovakia and as far as I know from different sources that is a bottleneck in many new Member states and even in old ones.

Flexible venture capital funds (seed capital funds) acting closely with the regional points of R&D and innovation would be a solution as it was proved by many examples. The problem remains to find investors. Private funding is unavoidable to create such a fund.

In my opinion, also the EIF should take over more initiative in the process of establishment of the mentioned funds especially to encourage other contributors to invest in it. The EIF could perhaps reconsider co financing level necessary to get its support and often creating unbeatable obstacle.

The public contribution should be an important impulse creating a leverage effect for encouragement of private investment. Public sources should be represented by local and regional self-government and also state government. The EU structural funds could be also a part of a particular investment portfolio.
   

To conclude my contribution I would like to emphasize the fact that the European innovation policy makers have to carefully listen to the mentioned regional players to meet their real needs. This is the only way how to avoid brain drain from regions lagging behind in development and strengthen SME´s competitiveness across Europe.

 As soon as we do this properly we can build a superstructure of the system. 
  
 

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