Science, Technology, and Economic Development in South Eastern Europe

1. Science, Technology, and Economic Development in South Eastern Europe Milica Uvalic, University of Perugia UNESCO-ROSTE Workshop Stockholm, Aug. 26, 2004

2. Assessment of the state of S&T in SEE • Which SEE countries? Albania, B&H, Croatia, FYR Macedonia, S&M (“western Balkans”, or the SEE-5) • State of S&T: determined by the general economic/political situation in SEE Cs • Current economic situation - poses major constraints on national policies in S&T

3. Specific circumstances • Extreme political instability since 1991 (break up of SFRY, 5 military conflicts, sanctions/isolation, NATO 1999 bombing) --- delays in economic & political reforms, inward-oriented economic strategies • Positive turnaround since mid-1999-2000, but events of the 1990s left very deep traces

4. In EU: transition to a knowledge-based economy • S&T perceived as a key resource for competitiveness and long-term growth • Lisbon and Barcelona European Councils: commitment to invest 3% of GDP in R&D by 2010; innovation and information technologies; European Research/HE Areas • Highly relevant for the SEE Cs aspiring to become EU members (Croatia a candidate)

5. Key issues • Economic constraints for S&T in SEE • Some main features (in SEE) • National policies in S&T • Investment in R&D • Human resources in R&D • Impact of S&T on competitiveness and employment • International/regional/bilateral cooperation

6. Economic constraints for S&T in SEE • Still today: rather unfavourable economic situation (+ unresolved political issues) • Macroeconomic stability achieved (low inflation), but development and other economic indicators reveal serious longer-term structural problems

7. Economic features... • GDP in S&M, B&H: in 2002 50% of 1989 level; only Albania surpassed it by 20% • GDP/capita: 10-30% of EU average, wide differences (Croatia over $6,000, 3x higher) • Industrial production even sharper fall (in B&H to 28%, in S&M to 38% of 1989 level) - dramatic consequences

8. Economic features... • Economic structure: backward trend! Process of de-industrialisation (return to agriculture) • Very high unemployment, even 30-40% in Mac, B&H, S&M • Increasing public debt, public deficit still 4-8% of GDP, further cuts necessary • Very low national savings and investment

9. Economic features... • External deficits, low competitiveness on EU markets, non-diversified exports, high dependence on imported technology • Dependence on foreign resources to cover CA deficits (problem of “aid-addiction”) • Very limited inflows of FDI into SEE-5 (1989-2002): $ 10.6 billion (6.1% of total FDI in 27 transition Cs), 60% in Croatia

10. National policies in S&T • Starting conditions different • Former Yug more favourable (institutions, human capital): e.g. Universities (Zagreb 1669, Belgrade 1889), education system, openness (intern. cooperation, scientific exchange, travel abroad) • Albania: traditional model, most closed economy, first University set up in 1957

11. National policies in S&T... • Reforms in course in all Cs (variable speed) • New laws (HE, Science & Research, etc.), government documents, national strategies, new institutions (Agencies), BUT... • Delays in implementing laws, only on paper • S&T in the shadow of other priorities, lack of understanding of importance of science, absence of a clear longer-term strategy

12. National policies in S&T... • Higher Education reforms - different paths: Croatia too centralised (state), B&H too decentralised (no single Ministries) • New laws on HE: declarative autonomy, all Cs signatories of Bologna Declaration, Croatia introduced 3+2, others to follow... • New private universities, but lack of proper accreditation and quality assurance

13. National policies in S&T... • Limited possibilities to modernise scientific infrastructure (purchase new equipment, modernise laboratories, libraries, information systems), due to poor financial situation of R&D institutions • Inappropriate treatment of R&D: a serious obstacle for more intensive research

14. Investment in R&D • R&D poorly funded (budgetary cuts), R&D investment lower than the EU-15 average • Govern. budget prevalent source of finance • Private funding limited - delays in privatisation (private sector 45% GDP in S&M, 50% in B&H), no links with univer. • Donors aid crucial, but often short-term, no interest to invest in certain key areas (labs)

15. Investment in R&D... • In Croatia (1995-2000): Ministry for S&T got only 1.1-1.3% of GDP, of which • 31-26% for R&D, but a large part for staff salaries, only 17-20% for research projects • 57-65% for higher education • 10% Croatian Academy of Arts and Sciences • Still, Croatia’s investment in R&D higher than of some EU acceding Cs (Hung, Eston)

16. Investment in R&D... • In Serbia, R&D spending much lower: 0.32% of GDP in 2003, though rising - plans to increase public spending to 1% of GDP by 2005 and further to 1.4% by 2010 • In Macedonia: only 0.025% of GDP in the 2001 budget for the 375 projects funded by the Ministry of Education and Science • B&H: no reliable statistics, only estimates

17. Human resources • Dramatic effects of SFRY break-up, wars, economic crises, financial cuts: • massive&continued brain drain (best experts) • brain “waste” - leaving S&T professions for more profitable jobs (private or informal sector) • No. of researchers and scientists declining, though trends differ - in Croatia R&D personnel reduced slower than total employ

18. Human resources... • S&T professions unattractive: low pay, no social status, no incentives • Recent social changes (rising inequality, social differentiation, “new rich” class) - disruption of the system of values • Education no longer a guarantee to get a job • Limited employment prospects for S&T professions - decreasing graduates

19. Human resources... • Brain drain - Tirana University lost 40% of its academic staff over the last 10 years, of which 90% are under 40 years old • Dramatic proportions of brain-drain from all other Cs (BiH, Mac, Serbia, estimates vary), departure of best experts, deficit of researchers of middle age generation • Some recent improvements in Cs worse off

20. Human Development Index (UN)(GDP/cap, education, life-expect)

21. R&D impact on competitiveness and employment? • Limited, but potential exists - highly under-utilised human capital (unemployment!) • More public support for R&D (particularly in SMEs) and of knowledge industries • More active labour market policies (better matching of demand & supply of skills, lifelong learning, retraining courses)

22. Competitiveness and employment • FDI limited (key channel for transfer of knowledge and modern technology) • Unfavourable situation regarding trade in high tech products - all SEE Cs highly dependent on imports of high-tech products, export very few high-tech products (pharmaceutics, armaments)

23. Competitiveness and employment... • European Charter for SMEs in WB (2004): Surveys of firms attitudes - Findings? • Education and training, and technological capacity - not attributed high priority by business community in SEE Cs, yet... • Informal market of training/education, networks of regional business centres

24. Competitiveness and employment... • Many local initiatives to raise public awareness about entrepreneurship • Training courses for managers, courses on entrepreneurship (in Mac from age of 7) • TV programmes - notions of good practices • Fairs, exhibitions, debates, even national competitions to select the best entrepreneurs (Croatia, Montenegro)

25. Competitiveness and employment... • Fostering technology-sharing through inter-firm clusters: experience gained in Serbia, Macedonia, recent tender in Croatia • Technology parks: Croatia and Macedonia each have 4, Serbia has feasib. studies for 3 parks, Maced in Bitola, plans for B&H • EU initiatives to support high-tech start ups replicated in SEE? To be explored...

26. International, regional, bilateral cooperation in S&T • SEE-5: Constant renewal of international links in recent years, benefiting also S&T • EU support of SEE: SA Process, Stability Pact for SEE, CARDS programme, EIB loans, EBRD…+ IFIs + other donors • Promotion of regional cooperation in SEE: many regional projects in course • Bilateral agreements: numerous projects

27. International cooperation... • Results clearly positive also for S&T • Regional networks in education (Graz process, Ljubljana Network); Inter-Balkan Forum on IST, Balkan Physical Union, etc. • TEMPUS programme: university exchange • Inclusion of SEE Cs into FP6, gradual integration into European Research Area • BUT -much more could be done

28. International cooperation... • Making SEE-5 eligible for other EU programmes reserved for candidates, e.g. EIB’s i2i (Innovation 2000 Initiative) • Proposal: to set up a special EU regional assistance programme for R&D (technology incubators, start-ups, venture capital) • Limited funds for longer-term research or researchers mobility (conf participation)

29. Concluding remarks • Situation in the S&T sector in SEE Cs not very satisfactory, complex tasks ahead • Prevent an increase in the technological gap EU-SEE through more appropriate policies (domestic and international) • Raise public awareness about the knowledge-based economy (key role of innovation and technological progress)

30. Concluding... • Right balance between restrictive economic policies, and other types of policies with long-term effects - raise competitiveness and employment (human capital!!!) • Attract more FDI by improving business environment and decreasing country risk • Continued foreign assistance important in the medium term