Towards a smart specialization strategy : ESTONIA

1. Towards a smart specialization strategy:ESTONIA Heli Aru May 10, 2012

2. 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 rulingofcenterrightcoalitiongovernments. ThecurrentgovernmentisleadbythePrime Minister Mr. Andrus Ansip whohasheldtheofficesinceApril 2005 Thethird term, renewalofthemandateinMarch 2011. GDP per capita at current prices (EUR) 12686. GERD 1,63 % of GDP, BERD 0,82% of GDP (2010). Estonia at a Glance

3. Estonian specifics • Verysmallcountry • Thesmallestnon-islandcountrywithit’sownfullyfledgedhighereducationsystembased on locallanguage. • R&D needstobalancebetweenspecialisation and cultural/educationalcoverage • Verydynamic • Unfavouredstartingpoint, butcatchingup (fast). • No stabileeconomicstructuretoaligntheresearchsystem • Veryleangovernment • Verysimpletaxstructure (no taxincentivesfor R&D) • Very “e” • E-banking – 98% oftransactions • EuropeanlargestPublicKeyInfrastructure • Firste-electionsintheworld

4. Estonia – EU convergence(% of the EL27)

5. R&D expenditure2001 - 2010

6. R&D volumesfastgrowing • In 2010, GERD 1,63% of GDP (0,61% in 2000) • Innominalterms2000-2010, R&D expenditures inenterprise 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. • Theshareof BERD in GERD in 2000-2007 hasgrownfrom 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 – isliftedfrom 2014 to 2020. butisstillveryambitious, possibleonlyinthecaseofstronginvestmentinbothpublicaswellasprivatesectors

7. Featuresof a fastgrowth • On a longrunyou need … • Sustainability, stability • Balanced, fine-tuned, policymix • Duringfastchange … • No stabilityexistsbydefinition • Fine-tuningisimpossible • Problemsofthefastgrowth: • Howtoabsorbeffectivelythegrowth? • Whatis a rightbalancefordifferentpolicyelements? • Howtotargetthe R&D duringthegrowth? • Howtousedifferentfinancialinstruments? • Howtoexitfromgrowth (different) phases?

8. Balanceofpolicyelements • Whatis a rightbalancefor R&D policyelements? • For a shortperiodyoumaysurviveevenomittingsomeimportantelements! • In 1990 –iesin Estonia several R&D policyelementsweremissingorinadequate • Firstswitch on themissingelements (!) • Mostimportantlythegrowthof R&D expensesin Estonia isdecribedbyswitching on (and absorbedby): • About 2000: major growthinenterprise R&D support • 2006 onwards: infrastructurereconstruction • 2008: major growthinhumanfactorsupport • ~2010: biggerattentionininternationalactivities

9. Thematicfocusesofcurrent 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.

10. Targeting R&D duringgrowth • ~ 25% growthperannumcannotbeveryfocussed • Iffocussedto 10% oftargetgroup, thegrowthwouldbe 250% • Broadfocusesapply! • No stabile economic structure exists (fastrestructuringevenbeforecrisis) to align the research system • R&D shouldbealignedwithfutureeconomicstructure • 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

11. Estoniancurrent RD&I strategyisnotof a „smartspecialisation“ type Ourstrategyhasbeenof „basiccapacitybuilding“ type; However, topicsofnational programmes havetobe: Ofhighscientificquality and Ofhigheconomic and socialrelevance Inthepreparingprocessofeachnational programme, a studywasperformed, analysinginter alia Main competitive advantages Key challenges Main opportunities for future (regional) development

12. The Innovation Union Flagship Initiative of EU 2020 Strategyinvites Member States to conduct peer-reviews of their researchand innovation systems 2011 Estonia asked European Research Area Committee toconduct an external peer-review of its research and innovationpolicy Using the EU Innovation Union Self-Assessment Tool as theoverarching methodology Four international experts from benchmark countries (DK, ISL,SLO, FI) were invited as peers ERAC peer review of Estonian R&D&I system

13. OUTSTANDING PROGRESS, BUT NOTWITHOUT 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 inthe 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 findings

14. Perceive RDI as a means to achieve economic and societalgoals Priorities directly responding to the needs of Estonian society and theeconomy 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 theeconomy ERAC peer review - some recommendations

15. Estoniancurrent RD&I strategyhasnotbeenofa „smartspecialisation“ type. Ourcasestudywill present a horiontaltypeapproach. Efforts are made thatthenextstrategywouldintegratemore S3 approaches. Wewillbehappytolearn fromtheexperiencesofothers. Summary and next steps