Commission Staff Working Paper: Member States Competitiveness Performance and Policies (2011 report) accompanying the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Industrial Policy: reinforcing competitiveness - Hoofdinhoud

COUNCIL OF Brussels, 14 October 2011 THE EUROPEAN UNION

15587/11 ADD 1

COMPET 446 IND 124 MI 495

COVER NOTE

from: Secretary-General of the European Commission,

signed by Mr Jordi AYET PUIGARNAU, Director

date of receipt: 14 October 2011

to: Mr Uwe CORSEPIUS, Secretary-General of the Council of the European

Union

No Cion doc.: SEC(2011) 1187 final

Subject: Commission Staff Working Paper: Member States Competitiveness

Performance and Policies (2011 report) accompanying the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Industrial Policy: reinforcing competitiveness

Delegations will find attached Commission document SEC(2011) 1187 final.

________________________

Encl.: SEC(2011) 1187 final

EUROPEAN COMMISSION

Brussels, 14.10.2011 SEC(2011) 1187 final

COMMISSION STAFF WORKING PAPER

Member State Competitiveness Performance and Policies

(2011 report)

Accompanying the document

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions

Industrial Policy: Reinforcing Competitiveness

{COM(2011) 642 final i}

{SEC(2011) 1188 final}

TABLE OF CONTENT

1 Introduction .................................................................................................................. 4

2 Structural Change and the Competitiveness of EU Member States............................. 7

2.1 Introduction .................................................................................................................. 7

2.2 Structural change in the European Union .................................................................... 8

2.3 Summary of findings.................................................................................................. 13

3 Overview of progress by broad policy area ............................................................... 15

3.1 Towards an innovative industry ................................................................................. 15

3.2 Towards a sustainable industry .................................................................................. 21

3.3 The business environment.......................................................................................... 29

3.4 Entrepreneurship and SME policy ............................................................................. 34

4 Country chapters ........................................................................................................ 43

4.1 Belgium ...................................................................................................................... 43

4.2 Bulgaria ...................................................................................................................... 49

4.3 Czech Republic .......................................................................................................... 55

4.4 Denmark..................................................................................................................... 62

4.5 Germany..................................................................................................................... 68

4.6 Estonia........................................................................................................................ 74

4.7 Ireland ........................................................................................................................ 80

4.8 Greece ........................................................................................................................ 86

4.9 Spain........................................................................................................................... 93

4.10 France......................................................................................................................... 99

4.11 Italy .......................................................................................................................... 105

4.12 Cyprus ...................................................................................................................... 112

4.13 Latvia........................................................................................................................ 117

4.14 Lithuania .................................................................................................................. 125

4.15 Luxembourg ............................................................................................................. 131

4.16 Hungary.................................................................................................................... 136

4.17 Malta ........................................................................................................................ 141 4.18 The Netherlands ....................................................................................................... 147

4.19 Austria ...................................................................................................................... 153

4.20 Poland....................................................................................................................... 161

4.21 Portugal .................................................................................................................... 168

4.22 Romania ................................................................................................................... 174

4.23 Slovenia.................................................................................................................... 181

4.24 Slovakia.................................................................................................................... 188

4.25 Finland ..................................................................................................................... 195

4.26 Sweden ..................................................................................................................... 203

4.27 United Kingdom....................................................................................................... 209

5 Annex: Methodology and indicators used ............................................................... 216

5.1 Industry classifications and indicators used in section 2 and introductions of country chapters .................................................................................................................... 216

5.2 Indicators used in section 3 and the introductory graph of country chapters........... 226

5.3 Data sets ................................................................................................................... 233

This report has been written by the staff of the Directorate-General for Enterprise and

Industry, European Commission. Any comments are welcome to the following e-mail address: ENTR-MS-COMPETITIVENESS@ec.europa.eu

1 I NTRODUCTION

The recovery of the EU industry from the crisis remains fragile. At the same time, many structural challenges need still to be addressed in order to safeguard its international competitiveness. These include weaknesses in the creation and exploitation of knowledge, improvement in the business environment, and raising the ability of industry to adjust to challenges such as demographic change, globalisation and climate change. A large part of the policy instruments which can improve industrial competitiveness are national, and the success of EU industry critically depends on national action. At the same time, important initiatives at the EU level are also necessary to complement national actions.

The competitiveness of European industry in international product and services markets is revealed by its rising global market share over the last decade and by some favourable dynamics regarding its trade specialisation, such as increasing reliance on exports by technology driven and capital intensive industries. Nevertheless, this encouraging performance masks a variety of developments at national level, many of which are not reassuring. Also, studies on the international competitiveness position of the Member States and their attractiveness as a location for foreign direct investment suggest that the international competitiveness of the EU may be eroding, a consequence of falling behind in the race for gaining market share through price and cost advantages, (see F IGURE 1 below), innovation and ultimately productivity growth.

F IGURE 1: Competitiveness Index (based on unit labour costs)

15,00% -15,00%

10,00% -10,00%

5,00% -5,00%

0,00% 0,00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-5,00% 5,00%

-10,00% 10,00%

-15,00% 15,00%

Annual change in competitiveness index, % (left-hand scale) Annual change in nominal effective exchange rate, % (right-hand scale)

Source: DG Economic and Financial Affairs.

Over the period 2000-2007, the cost competitiveness of the 27 EU Member States eroded by more than 25%, largely due to the movements of the exchange rate of the euro against the currencies of the 36 partner countries under consideration. The drop in the exchange rate after 2007 has brought about an improvement in the EU position in terms of cost competitiveness. From an aggregate point of view, unit labour costs in EU 27 only grew slightly faster than for the 36 trading partners (+3% above them over 2000-2010). However, as presented in the individual country chapters of this report, the situation varies considerably across Member States, a few countries (including Germany, Austria, Poland, Sweden and the UK) having

experienced a gain in external cost competitiveness 1 .

Nations characterised by strong and sustained productivity growth are able to gain international market share and improve their standards of living; those nations experiencing comparatively poor productivity growth are unable to gain and sustain a competitive advantage internationally.

The present report focuses on the measures Member States have carried out to improve their competitiveness, and assesses their performance with respect to a number of key framework conditions. The main policy areas covered are industrial innovation, sustainability of industry, the business environment, entrepreneurship and SMEs. The report derives from Article 173 of

the Treaty on industry and forms part of the Europe 2020 framework 2 , specifically of the flagship initiative “An Industrial Policy for the Globalisation Era” 3 . Implementation of the

flagship initiative is on track and the Commission has already adopted, notably, the

commodities and raw materials strategy 4 , the Small Business Act Review 5 and the Standardisation package 6 . The policy areas which are covered in this report are also ingredients of the Broad Economic Policy Guidelines 7 which, in the relevant parts, call for

improving the business and consumer environment, and for modernising and developing the industrial base in order to improve the functioning of the internal market.

This report contains a horizontal part focusing on structural change (section 2) and an overview of progress by broad policy area (section 3), followed by country chapters presenting national performance and policy developments in the same policy areas. The

1 Cost competitiveness is measured as the inverse ratio of annual unit labour costs in aggregate EU 27

(labour compensation per unit of output) to annual unit labour costs in the 36 main trading partner countries of EU 27. Unit labour costs are calculated with a common currency using the average annual exchange rate of the EURO against the currencies of the trading partners (nominal effective exchange

rate – see part 5 under "Foreign trade indicators").

2 Article 173 of Treaty on the Functioning of the European Union (TFEU) stipulates that “[t]he Union

and the Member States shall ensure that the conditions necessary for the competitiveness of the Union's industry exist.” Article 173 further specifies a number of objectives to this end, such as speeding up the adjustment of industry to structural changes, a favourable business environment, particularly for SMEs, and fostering better exploitation of the industrial potential of policies of innovation, research and

technological development. The Commission is invited to take any useful initiative to promote coordination, in particular initiatives aiming at the establishment of guidelines and indicators, the organisation of exchanges of best practice, and the preparation of the necessary elements for periodic monitoring and evaluation.

3 COM(2010) 614 i of 28 October 2010.

4 COM(2011) 25 i of 2 February 2011.

5 COM(2011) 78 i of 23 February 2011.

6 COM(2011) 311 i and COM(2011)315 i of 1 June 2011.

7 Council Recommendation of 13 July 2010 (2010/410/EU) on broad guidelines for the economic

policies of the Member States and of the Union.

Annex provides details on the indicators and industry classifications used as well as the data used in the preparation of the various graphs.

Box 1: The Implementation of the Industrial Policy Flagship

The Europe 2020 flagship initiative on “An Integrated Industrial Policy for the Globalisation Era” is an ambitious action plan with more than 70 key actions. It has been well received by

the EU institutions 8 and major stakeholders. In the first year following its adoption, the

Commission has been vigorously pursuing implementation of the proposed actions. Here are some of the highlights of the progress achieved so far.

The Competitiveness proofing process has been launched as a part of the impact assessment process to ensure a reinforced analysis of the impact on competitiveness of new policy proposals. Commission services have been working on the methodology to put this commitment into practice. Competitiveness is now increasingly taken into account in Commission impact assessments. This has notably been the case for the proposals on banks' capital requirements ("CRD IV") and their impact on access to credit for companies.

The Small Business Act for Europe was reviewed in February 2011 9 and related follow-up

actions, such as a new strategy to support internationalisation of SMEs should be adopted before the end of the year.

An Action Plan for SME access to finance will also be adopted before the end of the year. SME Access to finance has been established as a major priority in the dedicated programme for industrial competitiveness and SMEs to be proposed by the Commission in the

framework of the Multiannual Financial Framework for 2014-2020 10 .

The Single Market Act was adopted in April 2011 11 . It contains twelve priority actions to

relaunch the single market aiming at favouring the revival of a strong industrial economy in Europe.

In the area of industrial innovation, the High-Level Group on Key Enabling Technologies presented its final report in June 2011 with concrete recommendations on development and

deployment of these technologies 12 . The Commission has included a major increase in

investments in current and future enabling and industrial technologies and services in its proposals for the future Horizon 2020 programme for research and innovation. The Commission also proposed in June a major modernisation of the European standardisation

system 13 .

On the global dimension of industrial policy, a new trade policy agenda was put in place in November 2010 and is currently being implemented. It ensures a more focused and incisive battle against trade and investment barriers in major partner economies to assure a global

level playing-field for European companies. 14 On international dialogue, the Commission has

made steps towards mutually beneficial cooperation with third countries, such as the Mediterranean neighbours, Latin American countries and the African Union to improve market access for European products.

Concerning sector-specific initiatives, the Commission has presented a strategy for space

policy 15 16 , relaunched the CARS21 process and continued its efforts to address concerns of

energy-intensive industries, in particular through initiating the Sustainable Industry Low Carbon Scheme (SILC) and by promoting ultra-low carbon production technologies.

8 Council conclusions of 10 December 2010; European Parliament resolution of 9 March 2011, European

Economic and Social Committee opinion of 4 May 2011.

9 COM(2011)78 i of 23 February 2011.

2 S TRUCTURAL C HANGE AND THE C OMPETITIVENESS OF EU M EMBER S TATES

2.1 Introduction

Structural change is the long-term evolution of an economy stimulated by secular trends in income and wealth, technology, innovation and preferences or it can be initiated by changes in economic and other policies. Structural change is typically manifest by changes in the composition of national output over time. The key features of a structural change are the secular decline in the share of primary production (agriculture, fishing and mining); a rise and then stabilisation in the share of the manufacturing sector; and the increasing domination of modern industrial economies by services sectors. However, the nature of sector shifts and the secular transition to services-dominated economies reflect changes in competitiveness. As successful enterprises grow and take advantage of market opportunities, technology and innovation, it is inevitable that they will also experience changes in their domestic and international market shares over time.

This section highlights some of the shifts of production and trade shares between sectors

based on a detailed study of structural change in the EU 17 . It analyses four country groupings

based upon similarities in terms of industrial structure The criteria used for these groupings are GDP per capita, R&D intensity (including the R&D intensity of inputs) and a range of

industry and trade specialisation indicators. These groups 18 are:

• Group 1: Countries with higher GDP/person than the EU average, with specialisation

in technologically advanced sectors: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Sweden, United Kingdom.

• Group 2: Countries with higher GDP/person than the EU average, with specialisation

in less technologically advanced sectors: Cyprus, Greece, Italy, Luxembourg, Portugal, Spain.

• Group 3: Countries with lower GDP/person than the EU average, with trade

specialisation in technologically advanced sectors: Czech Republic, Hungary, Malta, Poland, Slovakia, Slovenia.

• Group 4: Countries with lower GDP/person than the EU average, with specialisation

in less technologically advanced sectors: Bulgaria, Estonia, Latvia, Lithuania, Romania.

The four country groups display a hierarchy in terms of GDP per capita. Income levels correlate closely with economic structure. Shares of agriculture are lowest in group 1, the wealthier group, and highest in group 4, the less wealthy group; shares of manufacturing are lower in the higher income countries (group 1 and 2) than in the lower income countries (group 3 and 4), while for services, both market and (other) public services, shares are in

10 COM(2011)500 i of 29 June 2011.

11 COM(2011)206 i of 13 April 2011.

12 http://ec.europa.eu/enterprise/sectors/ict/key_technologies/kets_high_level_group_en.htm

13 COM(2011)311 i and COM(2011)315 i of 1 June 2011.

14 COM(2011)114 i of 10 March 2011.

15 COM(2011)152 i of 4 April 2011.

16 First meeting of the relaunched High Level Group on 10 November 2010.

17 Detailed results will be included in a forthcoming study ”Structural change and the competitiveness of

EU Member States“ under preparation by WIFO.

18 Group averages are weighted by the relative importance of countries within the EU.

reversed order, consistent with longstanding accounts of structural change as economies develop.

In this presentation, the focus is on indicators 19 of relative value added share (RVA) and

revealed comparative advantage (RCA) for high-technology industries and high-education sectors, as well as indicators of world market share and international trade prices. Hightechnology industries and high-skill industries are important because they tend to have higher productivity growth. Moreover, they tend to be less exposed to international competition, since they face weaker price-based competition from the emerging economies than traditional labour intensive industries.

Since strong cyclical effect dominate the post-2007 data, for the analysis of structural change this report concentrates on data up to 2007.

2.2 Structural change in the European Union

2.2.1 Industry specialisation and structural change

Structural change is generally a slow process where substantial movements may take several decades to occur. Examining the changes in industrial structure in the period 1999-2007, industries have followed different paths towards higher technology or higher skills base. Changes in the production share of different sectors in national income may ultimately lead to sector specialisation and could also result in improving competitiveness. Similarly, firm-level specialisation and changes in the sector composition of output may also be a reflection of improving competitiveness, especially if firms upgrade their capabilities and intangibles by absorbing or developing new technologies or production routines, or if new, more innovative firms enter a sector. In general, a predominantly less advanced country might play a key role in the production of technologically advanced products as a result of specialisation and of the geographical disaggregation of production. The data should, therefore, be interpreted with caution when making judgements about industrial structure and the level of economic development.

F IGURE 2 compares the change and the level of relative valued added (RVA) in technologydriven industries. The 2007 level of the relative valued added on the horizontal axis and its change relative to 1999 on the vertical axis. Countries can be in one of four areas, as shown in Figure 2: i) high and improving – level and change values above the EU average, in the top right of the figure; ii) high and declining – levels above the EU average and changes below the EU average, in the bottom right of the figure; iii) weak and improving – meaning levels below the EU average and changes below the EU average, in the top left of the figure; and finally, iv) weak and declining – meaning level and change values below the EU average (bottom left of figure).

Group 1 is in the strong and improving area, which means that the share of technology driven industries is high and increasing. Countries in groups 3 and 4 are also improving, but from a weaker position, indicating a catching up path. On the other hand the share of technologydriven industries seems to be declining in group 2, from an already low level. The level of group 3 is above the one of groups 2 and 4. Finland and Germany have improved most and the Netherlands, Spain, Austria and Sweden have lost most.

19 See the Annex for a summary presentation and Table A for details.

For countries specialised in labour-intensive industries (as opposed to those specialised in more technology-driven industries), competitiveness can be improved by shifting towards higher skilled activities – typical examples include the manufacturing of machine tools, furniture, or electrical equipment.

F IGURE 2: Change (1999/2007) vs. level (2007) of relative value added in technology-driven industries

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s tr weak DE strong

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Level of RVA in technology-driven industries

Note: Change in relative value added of Greece was cut to a half to improve the graphical representation. The intersection of the horizontal and the vertical line represents the EU average. Countries where data are incomplete are not shown (Estonia, Cyprus, Latvia, Lithuania, Luxembourg, Malta, and the United States). Source: Eurostat (SBS).

F IGURE 3 shows the value added shares of high education intensity sectors, including services sectors in addition to manufacturing. Classic service-oriented countries such as the United Kingdom excel here. Group 1 is characterised by a strong and improving level. Despite substantial differences in levels, most countries are increasing their share of value added arising from these sectors, again proving that the Member States are moving up the value chain. The progress towards high-education sectors in groups 3 and 4 is broadly similar to that of group 1. However, the development of high-education sectors is progressing on average more slowly in group 2. There thus appears to be room for countries in the lower part, including many countries in group 2, to further develop their high-skill sectors, particularly in service industries.

F IGURE 3: Change (1999/2007) vs. level (2007) of value added in high-education sectors

rs 5

to

e c MT

o n

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4 HU

a ti UK

d u c LU

SI

h -e ig 3 DK

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FR

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DE

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5 7.5 10 12.5 15 17.5 20 22.5 25 27.5

Level of value added in high-education sectors

Note: Change in value added share of UK was reduced by a factor of 1.8 to improve the graphical representation. The intersection of the horizontal and the vertical line represents the EU-25.

Source: OECD (STAN), EU KLEMS databases.

2.2.2 Trade specialisation and structural change

Regarding trade performance, consider world export market shares in 2009 and their changes

compared to 1999 for industry and to 2004 for services. 20

In total manufacturing, the EU (27 Member States) increased its market share by 2.5 percentage points to 22.1% between 1999 and 2009, while the US and Japan both lost market share, by 6.6 and 4.3 percentage points to 12.2 and 7.6%, respectively. China increased its share of manufacturing exports by 11.2 percentage points to almost 17%, while the other BRIC countries showed slower growth. In terms of trade specialisation, the EU has gained more than 5 percentage points in its market share in exports by technology-driven industries, in which it is now specialised as compared to 1999. Like the US and Japan, the EU has a higher market share in technology-driven industries than in the total. Only mainstream manufacturing industries have an even higher market share, but the dynamics over the time period in question (1999-2009) are much less pronounced. The second-strongest growing area by market share is capital-intensive industries, where the EU is not specialised but might soon be if current trends continue. By contrast, the market share of labour-intensive industries is declining quickly, along with the market share of marketing-driven industries.

The performance of the EU in services sectors has been evaluated over a shorter period 2004- 2009. It is less positive given a fall in market share by 1.8 percentage points between 2004

20 See the Annex for details. Note that detailed service data is not available prior to 2004.

and 2009, as opposed to the moderate decrease observed in the US and in Japan over the same period. In comparison with the latter two countries, the fall in market share is most pronounced for insurance, financial and ICT services, in which the EU holds substantial world market shares.

Overall, the market share developments in services are much more stable than in manufacturing. The EU, the US and Japan have held up their export market shares much better in comparison with the BRIC. China has only 5.8%, with an increase of 1.5 percentage points (about as much as India’s market share gain to 4%). China achieved substantial market share only in construction, whereas India has a considerable 35.5% market share in computer services.

A more detailed example of trade shifts in technologically-driven industries using the country groupings can be provided using the revealed comparative advantage indicator21. Figure 4 positions countries and groups according to their revealed comparative advantage in technology-driven industries over the period 1999-200722.

The data show that, in contrast with relative value added, group 3 is improving specialisation in technology-driven industries, while group 1 in the positive and stable category; this relationship is mirrored by group 2 and 4, both in the weak area, with group 4 improving while group 2 is stable. Group 3 thus seems to be well integrated with the supply chains of advanced firms in group 1, as is well known for example in the automobile industry. Group 3 may thus be seen as a form of ”China“ of the EU. It remains to be seen whether trade specialisation is a predictor of future industry specialisation as measured by value added shares.

F IGURE 4: Change (1999/2007) and level (2007) of revealed comparative advantage in technology-driven industries

s 1

.5

tr ie u s CY i n

d

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ri v RO

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-d

SK

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Level of RCA in technology-driven industries

21 See the Annex for a definition of this indicator.

22 See T ABLE L in the Annex.

Note: The intersection of the horizontal and vertical line in the origin represents the EU average.

Source: Eurostat (Comext). Includes intra-EU exports.

2.2.3 Quality content of exports

To look at the quality content of export, prices are taken as a proxy for quality. Figure 5 illustrates the change (1999/2009) and the level (2009) of Member States’ share of exports in the low price segment compared to the EU average, on the grounds that this reflects a country performance in terms of its position on the quality ladder and in terms of upgrading over time. A low or declining share in the low price segment may be regarded as an advantageous outcome. Therefore, countries in the bottom left area – level and change values below the EU average – can now be interpreted as being in a strong and improving position.

F IGURE 5 shows the shares of exports in low-skill and labour-intensive industries. Group 2 is in the strong area, mainly due to the good performance of Italy. Many more countries now display substantial changes in performance revealed by a decline in the share of exports in the low-price segment. This suggests that many countries react to rising competition in labourintensive industries from low-wage countries by improving the quality of their products. The quality performance in labour-intensive industries also seems to explain how Italy is able to sustain exports in this industry type, and also how Italy achieves relatively high GDP per capita in industrial structures which are poorly associated with firm capabilities. Moreover, even in labour-intensive and low-skill industries, in which Italy is heavily specialised, it seems to be possible to defend competitive advantage in terms of product quality.

More generally, the data are in line with evolutionary theories of the firm, according to which technology or routines developed by firms to achieve product quality cannot be copied that easily by others. A high share of tacit knowledge involved in production – even e.g. in textiles – means that any diffusion of this knowledge is tied to learning by doing, which implies a learning process during production. Such processes usually take time, just like Italian firms have accumulated their routines and recipes for production over decades. Hence, while competitive pressure is certainly rising and the EU is losing market share in labour-intensive industries, the potential for upgrading by EU firms in a variety of sectors and the time it takes for firms from emerging countries to reach the same level of firm capabilities should not be underestimated. Competitiveness can be sustained in traditional structures, on the condition of high quality.

F IGURE 5: Change (1999/2009) and level (2009) of low price segments in low-skill labour-intensive industries

s

k ill 5

0 MT

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w e 4

0

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0

NL

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f lo w 0 PL LV

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10 20 30 40 50 60 70 80

Level of low PSM in LI industries with lower skills

Note: Change is expressed in percentage points and level as percentage. The intersection of the horizontal and the vertical line represents the EU 27.

Source: Eurostat (Comext).

2.3 Summary of findings

Indicators of structural change, patterns of specialisation and sector upgrading shed light on firm capabilities, prospects for growth and on how to cope with adjustment pressure in the wake of rising competition.

Due to the high level of country heterogeneity within the EU, interpreting simple comparisons between individual countries and the EU average would not necessarily be particularly enlightening. Building country groups that share similar characteristics facilitates considerably the structuring and interpretation of the information in hand. The performance of the country groups is consistent across indicators and in line with theoretical and empirical research on drivers of country competitiveness.

The group of countries with higher GDP/person than the EU average, and with specialisation in technologically advanced sectors (group 1) consists of Belgium, Denmark, Germany, France, Ireland, Netherlands, Austria, Finland, Sweden and the United Kingdom. A key development is that for the years under review the specialisation of this group in technologydriven industries and high education intensity sectors increases further.

The group of countries with higher GDP/person than the EU average, and with specialisation in less technologically advanced sectors (group 2) consists of Greece, Spain, Italy, Cyprus, Luxembourg, and Portugal. A positive trend is a strengthening of its specialisation in sectors presenting high educational intensity (essentially services), albeit from a low level. However, the shift towards higher education sectors is still too slow relative to the other groups. Moreover, taken as a group, its specialisation in labour intensive industries and low education intensive sectors, its weakness with respect to gaining market share in fast growing emerging markets signal risks of relative decline, at least with respect to the first group of countries.

The group of countries with lower GDP/person than the EU average, and with trade specialisation in technologically-advanced sectors (group 3) consists of the Czech Republic, Hungary, Malta, Poland, Slovakia and Slovenia. This group is similar to group 1 regarding trade specialisation in technology-driven industries. In terms of change, group 3 shows a decline in trade specialisation in labour-intensive industries and similarly strong but opposite trends in technology-driven industries, both in terms of production and in trade. Thus Group 3 looks like shifting towards becoming an. assembly powerhouse for the more technologically advanced countries of group 1.

The group of countries with lower GDP/person than the EU average, and with specialisation in less technologically-advanced sectors (group 4) consists of Bulgaria, Estonia, Latvia, Lithuania and Romania. In terms of specialisation it is very similar to group 2, with which it also shares the strengthening of specialisation in sectors with high educational intensity. But group 4 experiences more positive changes than group 2 as regards industry and trade specialisation in technology-driven industries.

Qualifying to some extent the above considerations, the analysis shows that competitiveness can be sustained in very different industries or sectors; there is not only one industrial structure that is conducive to growth and the creation of more and better jobs. Ultimately, it is the successful transformation of different production factors into innovative or high-quality outputs that determines the competitiveness of firms in developed countries. These processes take time to be established and cannot be copied overnight. However, it is clear that in technologically less advanced industries the task of maintaining competitiveness is harder. Even though in some countries labour-intensive industries produce high product quality, the fact remains that these industries are clearly declining, both in terms of export market share and in terms of shares in national value added. Apart from firm capabilities, structures can also provide information about future growth prospects. These may be linked to knowledge spillover, but may simply arise from trade growth patterns, i.e. international demand for European exports. Technologically advanced industries feature much higher shares in exports to fast growing emerging countries than industries characterised by low innovative activity.

3 O VERVIEW OF PROGRESS BY BROAD POLICY AREA

3.1 Towards an innovative industry

3.1.1 R&D: there is margin for improvement

The EU has achieved research excellence while in terms of R&D intensity it is on the third place behind the US and Japan, largely because of lower private investment. Some of the recently industrialised countries have also increased their research and innovation investments. Within the EU, Denmark, Germany, Finland and Sweden are innovation leaders.

This year's Innovation Union Scoreboard 23 concluded that while less innovative Member

States grow faster and have been catching up with the more innovative countries, this convergence process seems to be slowing down.

Direct comparisons of R&D expenditures relative to GDP are heavily influenced by the industrial structure of each country and so give a distorted picture, especially business R&D expenditures (BERD). The decomposition of business R&D intensity into a sector effect and a country effect allows for appropriate assessments of the level and change of R&D intensity over time, both showing structural change between sectors and sector upgrading in terms of rising (or falling) R&D intensities.

R&D intensity in a given country is defined as the ratio of R&D expenditure to total value added. In the context of cross-country comparisons this ratio can be analysed as the result of two effects: a "structural" effect measuring aggregate innovation intensity if all business sectors, relative to their value-added, invested in R&D like the cross-country average, and a "country" effect taking account of deviations of country-specific R&D intensities to the crosscountry average for all business sectors.

F IGURE 6 shows all EU countries, with the exception of Luxembourg, and a variety of non-EU countries relative to the size of their country and sector effect. Countries above the 45°-line show a positive country effect, meaning that the sum of their sector R&D intensities is above the sector R&D intensities averaged across a set of benchmark of 12 countries at the technology frontier: Japan, the US, Norway; and EU Member States Belgium, Denmark,

Germany, France, the Netherlands, Austria, Finland, Sweden and the United Kingdom 24 . The

size of the country effect corresponds to the vertical distance between the 45 degree line and the individual countries. If the country effect is below this line, it is negative, meaning that sector R&D intensities are below the average of the benchmark countries.

The sector effect (horizontal distance from the origin) reflects the industrial structures of countries. Group 1 is above the line, while group 2, 3 and 4 are below the line, in principle lending support to the view that structural specialisation is related to innovative ability or at least to the intensity of R&D investment.

At the country level, some countries specialised in knowledge-intensive structures, such as Ireland and Hungary, are well below the line, but some countries featuring less-knowledge intensive structures – e.g. within group 1, Denmark and Austria feature high R&D intensities.

23 http://www.proinno-europe.eu/inno-metrics/page/innovation-union-scoreboard-2010, page 4

24 See the Annex and T ABLE Q for details;

Some countries featuring high sector specialisation in technology driven industries do not seem to have yet reached full potential in R&D intensity (Germany). Again, as with quality indicators, this comes as a qualifier that while industrial structure is an important concept, it is advisable to complement it with indicators measuring structural change within industries, or sector upgrading. The ”within industry“ indicators provide important clues as to why countries with structures which are only poorly associated with advanced firm capabilities and the potential for future growth prospects are able to sustain high incomes per capita, and the other way around – why countries with structures which seem to indicate advanced firm capabilities have not reached a high level of income per capita, an indication that these countries work in less technology intensive value chain segments. Moreover, the Member States at the forefront of innovation, specialising in technology-driven sectors, such as Germany, Ireland or the Netherlands, may need to invest even more in research and innovation than they currently do to maintain their position.

F IGURE 6: R&D decomposition: country and sector effect 2007

IL

4

d ) d d

e

e )

e A °l

in

FI

a lu o 4

5 3

SE

KR

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it y

 (

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NO NL CZ

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R D C

o ES

IT EE

PT MT HU

B E NZ TR

LT

EL LV PL RO SK CY BG

0

0 1 2 3 4

Sector effect (% BERD / Value Added)

Source: Eurostat, OECD.

The rest of the section focuses on recent innovation policy developments 25 with particular

relevance to the business sector. Analysis on Member State performance regarding innovation

and research can be found in recent publications of the European Commission and others 26 .

25 The country reports of the Innovation Trendchart available at http://www.proinno

href="http://www.proinno-europe.eu/trendchart/annual-country-reports">europe.eu/trendchart/annual-country-reports providing detailed information about innovation policies of the Member States. However, as there will be no Trendchart edition in 2011, the innovation sub-section

of this report has been expanded.

26 Innovation Union Scoreboard 2010, http://ec.europa.eu/enterprise/policies/innovation/files/ius/ius

2010_en.pdf , and Innovation Union Competitiveness Report, http://ec.europa.eu/research/innovationunion/pdf/competitiveness-report/2011/iuc2011-full-report.pdf . The OECD Working Group of National Experts on Science and Technology Indicators (NESTI) has developed statistical methodologies for the analysis of science and technology performance.

3.1.2 Facilitating private research efforts

Research, development and innovation are key sources of economic and productivity growth with private research deemed orientated towards shorter term results. Many Member States have therefore enacted measures to promote business sector research, in particular tax incentives, grants and credits.

Concerning tax incentives, France has a comprehensive system to support innovation 27 including a tax credit 28 of up to 50% for first time applicants in the first year and 40% in the

second year. Portugal has now one of the most competitive tax credit systems for R&D in the EU 27 in place and is expanding it further. Denmark provides tax deductions for R&D expenditures and subsidises R&D by SMEs. Italy has also tax credits for companies financing research projects in universities. Austria, Belgium and Ireland have extended their R&D tax incentives, while Finland and the Czech Republic are planning to introduce them. The Netherlands is cutting subsidies and transforming them into generic tax deductions, especially for R&D wages and R&D based profits. The United Kingdom is reviewing its R&D tax credit scheme.

All Member States are encouraging closer cooperation between academia and enterprises, with some new developments: Malta even plans to only fund projects involving at least one commercial actor. Sweden, Slovenia and Latvia have set up further competence centres to bridge the gap between companies and academic research. Innovation vouchers for enterprises to buy services from R&D providers are an increasingly popular policy measure. For instance Estonia, Slovenia, Portugal, Greece and Lithuania and two regions in the Czech Republic recently introduced them.

3.1.3 Promoting technology development and diffusion

Key enabling technologies, e.g. micro and nano-electronics, advanced materials, nanotechnology, industrial biotechnology, photonics and advanced manufacturing systems are

the basis for future competitiveness of EU industry 29 . Several Member States are promoting

such technologies explicitly, while others set up functionally similar programmes: Germany adopted a new high-tech strategy until 2020 while Estonia has set up a loan scheme. France invests heavily in digital infrastructures, while Sweden, Italy, Portugal and Slovenia promote high-tech projects. Lithuania incentivises technology investment by tax relief, Greece by grants but is moving towards tax reliefs as well. Going a step further, the United Kingdom adopted a new key technologies strategy.

Some countries pursue active cluster policies to promote regional links between academia, enterprises, banks and policy-makers, for instance Denmark, France, Germany, Poland, Sweden and all regions in Belgium. Lithuania has adopted an ambitious programme with significant funding while Malta aims for ”smart specialisation“. Italy promotes cooperation among companies and Greece has published a first call for expression of interest in clusters.

But more could be done in line with the Innovation Union Communication 30 . The

27 http://www.oseo.fr/votre_projet/innovation/aides_et_financements

28 http://www.oseo.fr/votre_projet/creation/guides_de_la_creation/credit_d_impot_recherche_cir

29 See the report of the High Level Expert Group on Key Enabling Technologies and its policy

recommendations http://ec.europa.eu/enterprise/sectors/ict/files/kets/hlg_report_final_en.pdf

30 http://ec.europa.eu/research/innovation-union/index_en.cfm?pg=intro development of clusters and networks can be supported through smart specialisation

strategies, with the assistance of the EU Regional Policy 31 .

Eco-innovation programmes aimed at greening the economy are spreading quickly. For instance, Germany extended a sustainable energy research programme, Denmark set up a ”renewal fund“ for green technologies in SMEs, and Italy has introduced incentives for sustainable energy production. France and Belgium shifted considerable funding towards clusters for environmental technologies.

Several Member States have set up ambitious programmes to use public procurement better as a tool to promote innovation: The United Kingdom is extending its Small Business Innovation Research programme. Spain has recently adopted a package of measures in order to promote innovative public procurement. Pre-commercial procurement is being introduced in Cyprus, while Slovenia intends to use conventional public procurement better for innovation.

3.1.4 Unlocking the transformative power of service innovation

The boundaries between manufacturing and services are increasingly blurring and service innovation can have a transformative power to change value chain, sectors and markets. Service innovation is now recognised by an increasing number of Member States as element of innovation policy that reaches beyond manufacturing enterprises. Service innovation can contribute to smart, sustainable and inclusive growth with profound effects on industrial value chains. Examples include amongst others public-private partnerships for efficient logistics in Germany, real-time vessel fuel consumption optimisation services in Finland and initiatives to innovate tourism and hospitality service in the Czech Republic and Slovenia through

bundling, support services and regional competitions. 32

If service innovation escapes the logic of conventional R&D projects and rather occurs through experimental interaction with users and potential clients, policies to foster service innovation require such ‘experimentation environments’. It is recognised that the model regions for e-mobility in Germany and demonstrator projects for healthcare services in the UK integrate such aspects. It can therefore be observed that Member States have started to use service innovation to address societal challenges. However, the transformative power of service innovation is not yet exploited at a policy level in all Member States.

3.1.5 Improving skills for innovation

Technological and industrial changes are increasing demand for people with high and

intermediate levels of skills 33 . Excellence in management, research, engineering and science

needs to be accompanied by a broader skills base (including team work, creativity, and design). A better trained and more entrepreneurial workforce is crucial to ensure that enterprises can benefit from new technologies and develop innovative products, but also innovative process and work organisation.

Some Member States have started to experience skills gaps, partly related to a decrease in the working age population due to decreasing birth rates over the last decades and emigration of

31 "Smart Specialisation Platform": http://ipts.jrc.ec.europa.eu/activities/research-and

href="http://ipts.jrc.ec.europa.eu/activities/research-and-innovation/s3platform.cfm">innovation/s3platform.cfm

32 Expert Panel on Service Innovation in the EU, http://www.europe-innova.eu/web/guest/innovation-inservices/expert-panel/about

33 Cedefop (2011), "What next for skills on the European labour market?", Briefing note well-qualified persons . This issue is likely to become more important in the future. However, progress is slow. For instance, most Member States have a low share of graduates in science, technology and engineering (F IGURE 7), but only a few have taken ambitious action. The positive examples include Germany, which is rewarding the excellence of universities, the Czech Republic which will provide grants to attract more students to science, technology and engineering studies and Finland plans to extend a distinguished professor programme. Luxembourg liberalised immigration rules for researchers and provides grants for PhD and post-docs of all nationalities whereas Estonia has announced plans for tax deductions for work-related studies of enterprises' employees.

F IGURE 7: Tertiary graduates in science and technology per 1000 of population aged 20-29

30

2005 2009 Unweighted average 2005 Unweighted average 2009

25

20

15

10

5

0

EU 27 BE BG CZ DK DE EE IE EL ES FR IT CY LV LT HU MT NL AT PL PT RO SI SK FI SE UK

Note: Latest available data for Greece and Italy are from 2008 instead of 2009.

Source: Eurostat, 2011.

Innovation management has been identified as a further bottleneck for innovation in many enterprises. Some Member States have therefore set up advisory services. Ireland is stepping up cooperation between enterprises and higher education institutions to increase the managerial capacity. Malta plans to provide advice on innovation management. Innovation in workplace organisation is also receiving increased attention, but only few Member States have put an emphasis on it, for instance the Netherlands and Belgium.

3.1.6 Good governance in the area of innovation policy

Many Member States have improved the governance of their innovation system. However, further steps to better monitor and evaluate policy impacts are needed.

With regard to evaluation, a recent study concluded: «An evidence-based approach to informed agenda setting and policy adjustments is relatively weak in many EU countries. Evaluations, benchmarking, foresight studies, etc. are not as frequent and generalised as might be expected. One argument may be that there is reluctance to spend scarce resources on intelligence gathering, another that there is an inherent reluctance to be evaluated and a third

is a belief that internal knowledge is sufficient. 34

In fact, there is evidence that the practice of evaluation is progressing. Austria has evaluated its innovation system recently while Finland has performed an extensive international evaluation of its innovation system in 2009 and is planning further evaluations of its strategic centres for science, technology and innovation. France plans to evaluate of its clusters policy in 2012 and of its research tax credit programme in 2013. The Netherlands has performed several evaluations of its R&D wage tax deduction scheme and innovation vouchers. Italy has developed a national research programme which has a potential to improve evaluation and to simplify funding instruments. Poland has started to evaluate its innovation policies. Romania and Greece have committed under their Memoranda of Understanding to monitor and evaluate its innovation policy. Slovakia is planning an external audit on the institutional aspects of its innovation system and the Czech Republic is already in the process of an international audit.

Policy fragmentation due to overlapping programmes, unclear competences of public bodies and lack of an overall strategy to promote innovation has been identified as a challenge in many Member States over the last few years. However, there have been a number of positive steps taken to improve governance and overcome policy fragmentation. Denmark has adopted a new strategy in 2010 and had good results from reducing the number of funding programmes but increasing the funding level. Austria has adopted a new comprehensive innovation strategy in 2011. Spain has a new strategy for innovation in place and plans to revise its science and innovation law, putting the emphasis also on structural factors, not just on funding levels. Slovenia has adopted a new Research and Innovation Strategy in March 2011 for the next 10 years with an increase in public investments in R&D and an increased autonomy of scientific research institutions. Poland is planning to reform its innovation strategy on the basis of ongoing evaluations. Sweden is also planning a reform, to make its strategy more coherent and reduce overlaps and gaps between funding programmes. France has adopted a new national strategy for research and innovation. Lithuania has a new strategy 2010-2020 in place which seems to address the main challenges. Portugal has started preparations for a new comprehensive innovation strategy until 2020. Governance will also be addressed in the new strategy planned in Cyprus.

Some other countries are moving in a similar direction: Finland is reforming its rather fragmented innovation system and Hungary is reforming its innovation system further. Slovakia is merging institutes and promotes specialisation to rationalise the innovation system, but policy coordination is still a weakness.

Stakeholder involvement has been recognised as an important success factor in public and

private innovation governance systems. 35 However, only for Austria, Portugal, Italy and

Malta consultations have been explicitly mentioned.

In this context, there is some evidence that improving the business environment for start-ups, reduction of administrative burden, SME policy and entrepreneurship can be more useful for

34 Innovation Trendchart European Progress Report 2009, published in January 2010, page 11

35 Innovation Trendchart European Progress Report 2009, published in January 2010, page 11 fostering innovation than fine-tuning innovation subsidies or increasing tax incentives for

private R&D expenditure. 36 In this regard, it is interesting to note that Switzerland grants no

specific innovation subsidies to profit-oriented enterprises, but scores very well according to the key innovation surveys. However, it provides an excellent business environment, a good education and research system and a well-functioning public administration.

Last year's report referred to the risk of a widening innovation gap between EU Member States due to the diverging way in which they have reacted to the financial and economic crisis, with innovation leaders addressing the challenges of the crisis proactively while innovation followers likely to cap or reduce their funding and support for R&D.

This year's Innovation Union Scoreboard came to a more differentiated conclusion: ”There continues to be a steady convergence, where less innovative Member States have – on average – been growing faster than the more innovative Member States. This convergence process however seems to be slowing down […]. While the Moderate and Modest innovators clearly catch-up to the higher performance level of both the Innovation leaders and Innovation followers, there is no convergence between the different Member States within these 2 lower

performance groups”. 37 It should be noted, however, that the full impact of the crisis may still

be underestimated because of a lag in data availability. The positive news is that, as evidenced in the previous section, individual governments can embark on ambitious policies regardless of their rank in the Innovation Scoreboard – if they have the political will.

3.2 Towards a sustainable industry

Decoupling economic growth from natural resources usage is a major societal challenge and the related policies – regulation and/or incentive schemes – have direct implications for the business sector, particularly industry. At the same time, change brings about opportunities and building up strongholds and first mover advantages in environmental as well as new and innovative goods and services is a strategic challenge, associated to the need for dealing with

progressive scarcity of resources and resources' price volatility 38 .

Overall, the path towards sustainable ways of production requires a stable policy framework, providing for short- and long-term incentives to encourage market creation, and addressing the whole value chain, including recycling.

3.2.1 Energy consumption

Particular emphasis in this context should be put to energy consumption as improvements in energy efficiency directly translate into widespread benefits for the whole economy and help in achieving ambitious climate and environmental goals. Energy savings means indeed energy-related costs savings; reduced CO 2 and other greenhouse gas emissions; increased energy and resources security (by reducing import dependency); improved industrial competitiveness on a world-wide scale, therefore, ultimately it represents a fundamental way for delivering growth and jobs.

36 See Bronzini and Iachini (2011) on the risk of deadweight loss. (Raffaello Bronzini/Eleonora Iachini:

Are incentives for R&D effective? Evidence from a regression discontinuity approach, Banca d'Italia Working Papers, Number 791, February 2011)

37 http://www.proinno-europe.eu/inno-metrics/page/innovation-union-scoreboard-2010, page 4

38 By mainly referring to a MS perspective, the present section does not deal with non-energy raw

materials and strategic natural resources. For a focus on such important issues at EU industry level, please refer to the related sections in the European Competitiveness Report 2011.

For the EU 27 as a whole, final energy consumption in industry (including construction) 39

decreased by more than 18 % between 1995 and 2009, compared to increases of about 22 %, 23 % and 5 % recorded over the same period in the transport (mainly pulled by road transport and aviation), services and residential sectors, respectively. As a consequence, the share of industry in total final energy consumption dropped from 30.7 % to 24.2 %, while transport, residential and the services sectors absorbed 33 %, 26.5 % and 12.6 %, respectively, of final energy demand in 2009. It must be noted, however, that the recent financial and economic crisis contributed decisively to this result.

3.2.2 Energy intensity

Energy intensity 40 in EU 27 industry decreased by 27.5 % between 1995 and 2009, indicating an absolute decoupling 41 as the result of absolute energy savings combined with an increase in

value added. In this respect, it can be noted that the financial and economic crisis has only reinforced a positive trend, already operating before 2007. Over the last decades, industry in the EU has indeed clearly improved its overall energy performance, as the combination of positive results in most of the individual sectors, although some unexploited margins for further improvements persist, as well as the great variety of conditions at the level of Member States.

F IGURE 8 below illustrates the wide variety of Member State performance in terms of energy

efficiency 42 in industry and energy. A striking development concerns the rapid convergence

of the twelve Member States that joined in 2004 to the older Member States. Estonia, Romania, Poland, Bulgaria, Slovakia and Czech Republic have all reduced their energy intensity by more than 50 % over the period up to 2009 (64.5%, 63.3% and 62.5%, respectively for the first three countries), compared to a decrease of about 21 % for the 27 EU countries as a whole. Results well above the EU average were also registered for Ireland, Luxembourg, Sweden, Finland and France.

39 If not otherwise specified, the definition of industry used always includes the construction sector.

40 For ease of comparability between sectors and countries, energy intensity is here measured as the ratio

between energy consumption and gross value added and is measured as kg of oil equivalent per euro.

41 An important distinction needs to be made between the two concepts of relative and absolute

decoupling which, while both indicating a positive development in terms of performance, imply different paths of sustainability. In particular, the concept of either energy or carbon efficiency (as measured by intensity indicators) refers to the use of less energy inputs, or to the generation of less emissions, associated to an equivalent level of economic activity, therefore signaling relative decoupling. Absolute decoupling occurs when energy or CO2 savings in absolute terms are associated to increased level of outputs. Therefore, it can be stressed that gains in efficiency do not automatically translate into a reduction of overall energy consumption or emissions (the so-called rebound effect, that is, an increase in demand triggered by lower costs) and that important implications stem from the need

to induce behavioral changes in production and consumption activities.

42 Due to data availability and to the specific structure of the Eurostat databases on energy and national

accounts as well as of European Economic Area greenhouse gas inventories, the indicators of energy and carbon intensity calculated in the present report with regards to Member States have been built in order to include a broader, still consistent definition of industry and provide information for all countries (with the exception of Malta) and the most recent available year. In particular: energy

intensity calculations refer to final energy consumption in industry (including construction), final nonenergy consumption (i.e. for chemical reduction activities) as well as to consumption in the energy sector. On the other hand, the carbon intensity indicator refers to CO2 emissions in industry (including construction), from industrial processes and from solvent and other product use in industry as well as CO2 emissions from energy industries. Both aggregates (energy consumption and emissions) have been then put into relation with consistent gross value added data at constant price (2000 as the reference year).

F IGURE 8: Energy intensity in industry and the energy sector

2,0

1995 2000 2005 2007 2009

1,5

1,0

0,5

0,0

BG RO SK LT CZ EE HU NL LV PL BE PT FI EL ES EU27 SE SI DE AT LU FR IT CY UK DK IE

otes: Includes construction and final non-energy consumption. Measured in kilogrammes of oil equivalents per euro gross value added (reference year 2000). Due to lack of data on gross value added, for Greece and Romania only the periods 2000-2009 and 1996-2009, respectively, could be covered by the analysis on energy intensity. No data were available for Malta.

Source: Calculations based on Eurostat data. Countries are sorted by the level of energy intensity in 2009.

Overall, all countries have attained improvements in their energy performance by reducing energy intensity over the period 1995-2009. Again, the recent crisis has certainly had an impact on results but mainly it has reinforced a positive trend already in place. By 2009, 17

Member States have achieved absolute decoupling 43 , that is, an absolute decrease in energy

consumption combined to an increase in activity levels, while the remaining ones have recorded relative decoupling.

A closer look at data for 2008 and 2009, indicates that for some countries (Belgium, Ireland, Latvia, Portugal and Slovakia) the decrease in activity levels brought about by the crisis has been decisive for the positive results in terms of absolute decoupling, although relative decoupling was already registered up to 2007. On the other hand, for four countries (Germany, Cyprus, Latvia and Sweden) a strong decrease in gross value added between 2007 and 2009 was associated to an increase in energy intensity.

In most cases, the assessment of recent policy developments in Member States in the field of industry's energy efficiency does not reveal major strategic changes, in line with the fact that national policy frameworks up to 2010 were already set under the first National Energy Efficiency Action Plans (NEEAPs). Rather, efforts at country level have mainly concerned the implementation of already planned measures as well as the assessment of results in view of the submission of NEEAPs 2011-2014.

43 Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Ireland, Greece, France, Cyprus, Latvia,

Luxembourg, Hungary, Poland, Portugal, Romania, Slovakia, and Sweden.

Member States showed a different pace in the implementation of the highly differentiated set of actions which constitutes the core of their strategies, according to a great variety of national framework conditions and level of ambitions. Overall, although on a different scale and with wide-ranging results, almost all Member States have implemented some sort of grant and support schemes for improving sustainability and energy efficiency in industry, in most cases accompanied by energy audit schemes.

From a sector-wide perspective, the analysis of the responses provided by Member States to a

specific questionnaire at the end of 2010 44 , showed that most of the national measures so far

implemented under the NEEAPs have targeted energy performance in buildings (public and private services as well as residential), energy services and the simultaneous generation of heat and power. At the same time, despite the fact that not all countries have focused on each of the remaining sectors (tertiary, industry and transport), measures oriented towards the promotion of energy efficiency and savings in industry (outside the scope of the EU Emissions Trading System) and industrial buildings have also been the focus of specific attention and implementation efforts (F IGURE 9).

F IGURE 9: Total number of energy efficiency measures in the Member States

180 163

160 157

140 130 127

120 117 113 107

100 91 82

80 76 73

59 60

41 40

20 9

0

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Source: Commission Staff Working Paper, ational Energy Efficiency Action Plans ( EEAPs): update on implementation, SEC (2011) 276 final.

With regards to industry, it is important to note that it has not been the object of any direct priority measures in the framework of the EU Energy Efficiency Action Plan 2006. In fact, many industrial installations (in particular, the most energy intensive ones) are already subject to provisions implemented under the EU Emissions Trading System, aiming at reducing carbon emissions. Therefore, besides the natural vocation of industry towards reducing costs and exploiting solutions for increasing competitiveness (including recourse to energy

44 Commission Staff Working Paper, National Energy Efficiency Action Plans (NEEAPs): update on

implementation, SEC(2011) 276 final.

efficiency), the cap-and-trade system has introduced a market based mechanism for pursuing a reduced (more rational) use of energy sources.

Though industry is the part of the economy which has attained the biggest improvements in

energy efficiency over the past decades, according to recent projections 45 a cost-effective

potential for further increasing energy savings (estimated at 3 % of GDP) still remains unexploited and will not be reaped by 2020 if additional measures are not implemented on top of the current scenario represented by NEEAPs.

In particular, room for action is envisaged with regards to SMEs, for which lack of information, insufficient price signals and lack of financial resources and expertise all

represent major obstacles to significant improvements in energy performance 46 .

Overall, the positive developments attained so far by some Member States in defining and implementing a consistent legislative framework for stimulating energy efficiency and savings in the economy, contrast with clear difficulties experienced by others for which lack of experience and adequate administrative capacity proved to be major obstacles. Especially with regards to the latter group of countries, it is then evident the key role played by a consistent advancement in framework legislation at the EU level, providing for clear guidance and support. This holds particularly true when considering that for many Member States the submission of the first NEEAPs represented the very first attempt to define a strategy addressing energy efficiency in a comprehensive way.

In particular, a field of action which still needs specific attention and improvement is the implementation of consistent monitoring systems at national level, as a priority for assessing progresses towards commitments and inspire the adoption of effective solutions. In this respect, particular attention should be paid to limit the compliance burden on business and industry through minimising as much as possible enforcement and compliance costs arising from the regulatory framework.

3.2.3 Carbon intensity

In terms of carbon intensity 47 , significant improvements have been achieved in all countries

and, in particular, in most of the EU-12 Member States which, as already signalled for energy efficiency, have undergone a virtuous path towards progressive reduction of the gap with the EU-15 average, although the process is clearly not yet completed (F IGURE 10).

Over the period examined, almost all Member States have recorded absolute decoupling in industry, by reducing the total amount of CO 2 emissions while experiencing a growth in the value added of industry and the energy sector. The remaining countries have however still recorded relative decoupling, either because of absolute CO 2 emissions increasing at a lower pace than GVA (Spain and Austria) or due to CO 2 emissions reduction well above the contraction registered in value added, (UK, Italy and Germany). The only exception is represented by Cyprus, for which CO 2 intensity increased between 1995 and 2009.

45 See footnote 23 above.

46 As reported in SEC(2011) 277 final, p. 10: "For some industry sectors, with the right technology and

support, could make energy savings of around 20%. By changing certain production processes, energy savings of 30% and even up to 65% can be obtained".

47 See note 21.

F IGURE 10: CO 2 intensity in industry (including construction, process emissions and solvent and other product use) and the energy sector, kg CO 2 per euro gross value added (reference year 2000)

14,0

1995 2000 2005 2007 2009

12,0

10,0

8,0

6,0

4,0

2,0

0,0 BG EE RO CZ PL CY EL SK HU LT LV PT SI NL DE EU27 ES BE DK IT LU FI UK AT FR IE SE

ote: Due to lack of data on gross value added, for Greece and Romania only the periods 2000-2009 and 1996- 2009, respectively, could be covered by the analysis on CO 2 intensity. No data was available for Malta.

Source: Calculations based on Eurostat data. Countries are sorted by the level of CO 2 intensity in 2009.

3.2.4 Development of environmental industries

The development of eco-industries 48 inside the EU represents a key factor towards reaching

the ambitious climate change and environmental targets set at the Union's level, by ensuring the availability of the wide range of goods and services needed for greening the economy while sustaining job creation and innovation. At the same time, it also implies great business opportunities and the possibility to strengthen the EU competitiveness on a world-wide scale.

All these aspects may be captured to a certain extent by the analysis of the share of environmental goods over the total flows of exports of goods. In 2010, such share for the

EU 27 49 amounted to 0.76%, representing a significant increase compared to 2005 (0.28 %).

The result can certainly be considered as extremely positive, although the situation remains highly differentiated at Member State level.

F IGURE 11 reports the composition of environmental goods exports in 2010, when the group "photosensitive semiconductor devices, incl. photovoltaic cells" represented almost half of the total value, compared to less than 25 % in 2005. This is in line with the leadership achieved by the EU (and some of its countries in particular) at world level. An important share of exports is then absorbed by the groups of "machinery" or "parts of machinery for

48 The notion of "eco-industry" refers to sectors whose products measure, prevent, limit, minimize or

correct environmental damage. The trade codes considered to cover eco-industry goods are those identified in the Ecorys study on the “Competitiveness of the EU eco-industry ” (pages 190/191) of 22 October 2009, carried out for DG ENTR.

49 For the EU as a whole, the share was calculated by taking into account both intra- and extra-EU27

exports.

filtering/purifying liquids, air and gases, which all registered sustained growth rates over the five years examined.

F IGURE 11: Composition of intra- and extra-EU 27 exports of environmental goods, 2010 (volumes)

El ectroni c i ns truments or Non-el ectroni c ga s or

El ectroni c ga s or s moke a ppa ra tus for mea s uri ng or s moke a na l ys i s a ppa ra tus a na l ys i s a ppa ra tus checki ng va ri a bl es of 2%

3% l i qui ds or ga s es , n.e.s .

Submers i bl e pumps , s i ngl e 2% Non-el ectroni c i ns truments

s ta ge or a ppa ra tus for mea s uri ng 3% or checki ng va ri a bl es of l i qui ds or ga s es , n.e.s .

Pa rts of i ndus tri a l or 1%

l a bora tory furna ces , nonel

ectri c, i ncl . i nci nera tors ,

n.e.s .

3%

Li ght-emi tti ng di odes , i ncl .

l a s er di odes

4% Photos ens i ti ve

s emi conductor devi ces ,

Ma chi nery a nd a ppa ra tus i ncl . photovol ta i c cel l s

for fi l teri ng or puri fyi ng 50%

ga s es (other tha n a i r), by a

ca ta l yti c proces s (excl . i s otope s epa ra tors )

5%

Ma chi nery a nd a ppa ra tus

for fi l teri ng or puri fyi ng a i r (excl . ...)

6%

Pa rts of ma chi nery a nd

Ma chi nery a nd a ppa ra tus a ppa ra tus for fi l teri ng or for fi l teri ng or puri fyi ng puri fyi ng l i qui ds or ga s es , l i qui ds (excl . …) n.e.s .

8% 13%

Source: Eurostat COMEXT.

Measures in favour of the development of environmental industries take various forms. Financial support to green innovation and environmental industries has been actively pursued by several Member States, such as Germany, Denmark, Finland, Ireland, Sweden, France and Portugal.

Concrete measures of a more sectoral nature have been taken by Germany (‘Electro-Mobility’ initiative adopted in 2011), Estonia, Portugal (MOBLE programme) and Spain (in the framework of the recent 2010 Industrial Action Plan) in designing strategies for the development of the market for electrical vehicles and related infrastructures, accompanied by demand side measures and setting of specific targets. In the same field of electro-mobility, also Romania has started preliminary discussions at ministerial level for implementation of ad hoc interventions.

An interesting and innovative action has been announced by the UK for supporting access to finance for green projects: the establishment of a dedicated green investment banks is indeed planned, by 2012 and with a provision of £ 3 billion as initial funding.

Specific attention towards SMEs and the need to foster the integration of environmentally compatible solutions in their business models can be signalled in Ireland, Lithuania and Greece where financial support schemes have been put in place also via the use of structural funds. In Austria, more focus has been devoted instead to the provision of energy efficiency consulting services to SMEs.

Green public procurement is gaining in momentum throughout Europe. A majority of Member States (21) have adopted specific national action plan on green public procurement or sustainable public procurement, which outline a variety of national actions and support measures. Most have set targets for green public procurement, either in terms of overall procurement, for different levels of public procuring entities or for individual product/service groups. Although the use of green public procurement criteria between and within Member States has been uneven, significant progress was achieved in all Member States in the last three years. Denmark, Germany, the Netherlands, Austria, Finland, Sweden, and the UK stand out as front-runners on green public procurement, with reaching on average over 50% of green purchasing contracts in ten priority product groups and services. These Member States have well defined green public procurement schemes, have developed their own criteria and made proactive capacity-building efforts. Belgium, France, Cyprus, Portugal and in particular some regions in Italy and Spain are also fairly advanced, with well-established and elaborate approaches to green public procurement. Progress has been achieved also by the rest of the EU countries, although they appear to fall noticeably behind the front-runners in terms of the communication, levels of support, uptake and institutionalisation of green public procurement.

Finally, an important development in 2010 is certainly represented by the design and submission by Members States of National Renewable Energy Action Plans, according to provisions set out by the EU Renewable Energy Directive (2009/28/EC) and providing detailed indication of the path to be followed in order to meet the legally binding 2020 national targets.

Besides the essential contribution of an increased use of renewable energy sources towards reaching environmental and climate targets, the promotion of renewable energy sources and the encouragement of bio-based products positively imply targeted support in favour of ecoinnovation and environmental industries, while also contributing to the objective of increased energy security. At the same time, provided that a great majority of Member States has already implemented concrete actions in this field (mainly by adopting feed-in tariffs and subsidies schemes), particular attention should be paid to the rationalisation of national energy markets and to avoid further distortions in energy prices, as they have been registered in a number of Member States in recent years and which negatively affect final consumers, particularly SMEs.

In 2011, Germany decided on far-reaching changes in its energy policy, including a gradual phasing-out of nuclear energy production until 2022; measures to accelerate grid expansion and a more market-based development of renewable energies. Such a major strategic change could certainly further stimulate the demand for environmental technologies and services. At the same time, possible side effects should be carefully analysed and properly anticipated in terms of the expected evolution in energy prices and availability, in particular for industry, not only in Germany but in all neighbouring countries.

3.3 The business environment

An open, efficient and competitive business environment provides opportunities and incentives to improve performance throughout an economy and across borders by reducing unnecessary costs for enterprises and promoting business activity. Also, studies on the effects of foreign direct investment suggest that its contribution is most significant when domestic

capability is high 50 . Capability is understood as a function of human capital, of the state of

infrastructure, and of the institutional framework in which enterprises operate in the market.

According to the Ernst & Young Survey of 2011 51 , the EU remains the largest regional destination for foreign direct investment 52 , with a quarter of all consumption and investment

taking place within its expanding borders. This remains a formidable advantage, but the EU must continue investing in its potential to lead by innovation and entrepreneurship in an increasing competitive world. Despite progress made over the last decade in the EU business environment, further improvements can still be achieved in terms of the quality of infrastructure, quality of legislation and the modernisation of public administrations.

Indeed, the international rankings measuring the legal and regulatory framework for businesses like IMD competitiveness index, the World Economic Forum Global Competitiveness Report or World Bank Doing Business (see F IGURE 12 and F IGURE 13 below) show how half of the EU Member States included in the ranking have slid down since the previous year. This does not necessarily mean that the business environment has worsened in absolute terms in those Member States but rather that other countries in the world have progressed much faster in the improvement of theirs.

50 World Bank 2001, Building Coalitions for Effective Development Finance, Washington DC.

51 Ernst & Young: Restart, European Attractiveness Survey 2011,

http://www.ey.com/Publication/vwLUAssets/Europe_attractiveness_2011_web_resolution/$FILE/Euro pe_attractiveness_2011_web_resolution.pdf .

52 The United States, Germany and the UK remain the leading source countries for FDI projects in

Europe. China and India provide 6% of all FDI projects in Europe, unchanged year on year, but fewer of the new jobs.

F IGURE 12: Changes in rank of the IMD competitiveness index 2010-2011.

Improvement in rank

6

4 4

2 2 2

1 1 1 1 1

B CZ IE EL FR IT LT 0 HU NL AT PL PT

BE DK DE EE ES LU RO SI SK FI SE UK

-1

-2 -2 -2 -2 -2

-3 -3

-4

-5 -5

-10 Decrease in rank

Source IMD.

F IGURE 13: Changes in rank of ease of doing business 2010-2011

Improvement in rank

19

6

4 3 3 3

2 2 1

BE 0 0 DE 0 IE EL ES IT CY LU NL AT RO SK FI 0

BG CZ DK EE FR LV LT HU PL PT SI SE UK -1 -1 -1 -1 -1 -1

-2 -2 -2 -3 -3

-4

-12 Decrease in rank

Source: World Bank.

3.3.1 Infrastructure

The quality and availability of both transport and energy infrastructure varies significantly across Member States. Effective transport systems are important for the EU companies' ability to compete inside the EU and in the world economy. Improvement of transport infrastructure is a major challenge in the new Member States and transport systems in rural areas is a general challenge throughout the whole EU. With the support of the Structural Funds, some of those Member States (e.g. Bulgaria, Estonia) have started important investments of modernisation. The Commission has outlined recently a plan with 40 initiatives to upgrade the

EU transport sector until 2050 53 .

EU's energy infrastructure is outdated and poorly interconnected as it has been pointed out in

a recent Commission Communication 54 , although the situation varies across the EU.

Developing EU's energy infrastructure will not only enable the EU to deliver a properly functioning internal energy market, it will also enhance security of supply, enable the integration of renewable energy sources, increase energy efficiency and enable consumers to benefit from new technologies and intelligent energy use. Also, decentralisation of energy infrastructure would make it more adapted and flexible to smaller energy-generation plants and reduce transmission losses for electricity.

3.3.2 Reducing administrative burden and improving the quality of legislation

Regulation is important and necessary, but implementation can also entail costs. Some of these expenses are linked to legal obligations to provide information either to public or private parties. These are called administrative costs. The Commission introduced in 2006 a distinction between administrative costs and administrative burdens: the latter designate costs specifically linked to information that businesses would not collect and provide in the absence of a legal obligation. It started a large-scale operation to reduce administrative burden in the EU. The EU Action Programme for Administrative burden reduction fixed a target of 25 % by 2012 and invited MS to set similar targets at national level. By October 2009, all Member States had adopted national targets for reducing administrative burden by about 25 %, with the exception of ES and LT which adopted a target of 30 % and five Member States set targets below 20 %. However, not all Member States have effectively started to measure the current administrative burden which is needed as a baseline against which its reduction can be monitored. Only 16 Member States have carried out measurement work by June 2011. Progress in simplification has been achieved in all sectors but agriculture, public procurement and company law are the areas where progress has been greater.

Substantive progress has been made regarding the Single Market for services. However it is not yet delivering its full potential. Intra-EU services trade lacks dynamism since it still represents only one-fifth of total intra-EU trade, a share that is modest compared with the presence of services in the economy. Since 2004, trade in services between the EU and the rest of the world has been growing faster than inside the Single Market. The Services Directive (Directive 2006/123/EC i) has been a crucial milestone in improving the functioning of the Single Market. It has done so by removing unjustified barriers, simplifying the regulatory framework and helping modernise public administrations. Member States have done important efforts in the implementation of the Services Directive but it is still under

completion in some of them. Moreover, the recent mutual evaluation process 55 has identified

a number of areas in which work remains to be done with a subsequent proposal of actions to improve it.

Use of impact assessment in preparing legislation can also be an important tool in limiting the increase of administrative burden for enterprises. In the last months, progress has been achieved in some countries regarding the developing and implementing impact assessment

53 Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport

system, COM(2011) 144 final i.

54 Energy infrastructure: Priorities for 2020 and beyond COM (2010) 677 final i of 17 November 2010.

55 Towards a better functioning Single Market for services – building on the results of the mutual

evaluation process of the Services Directive - COM (2011) 20 final i of 27 January 2011.

systems. Hungary has extended the areas to be examined in impact assessments, Slovakia has made it mandatory since July 2010 and the UK obliges an impact assessment for all policy proposals with potential policy or regulatory impacts as well as expressing costs and benefits in monetary values. Up to June 2011, impact assessments for new legislative proposals were mandatory in 18 Member States, although not all of them have a full coverage of all significant economic, social and environmental issues.

The early involvement of stakeholders in designing legislation is crucial for getting a significant impact on the quality of new legislation. Almost all Member States require a formal consultation of stakeholders for major policy proposals. There are diverse ways for these consultations. Some Member States have created institutionalised bodies (advisory boards) whereas others identify and then consult concerned parties. The minimum period of consultation also varies widely, from 10 days in Hungary and Lithuania, to at least 12 weeks in the United Kingdom.

3.3.3 Modernising public administration

A highly performing and innovative public sector, enabling the delivery of sustainable, modern and quality public services, is a prerequisite for economic competitiveness. The reform of public administration is high on the agenda of several Member States, and the area of e-government has taken special importance recently. E-government initiatives range from data centers and shared networks to unified service centers for the public.

Developing e-government could permit SMEs to spend less time on administrative procedures and to gain new business opportunities. In particular, a full switch-over to e-procurement, practical e-identification and e-authentication for cross-border services would open up

numerous new business opportunities across borders. According to recent surveys 56 the egovernment

 performance in the EU has greatly converged in geographic terms since the expansion of the EU in 2004 – there are both old and new Member States among the leading e-government nations. If we look at the different aspects of the service delivery by the public administrations, Ireland, Malta, Austria and Portugal are the top performing Member States in the EU, followed closely by Sweden, Germany and Italy.

Motivated by clear benefits of better efficiency and productivity, European administrations are accelerating their transition towards e-procurement. Indeed e-procurement is one of the high impact services representing a major portion of Europe’s economy – in 2009, total EU procurement accounted for some EUR 2.1 trillion of public administration expenditure. Increasing the use of trans-EU procurement services can make Europe more competitive for particularly SMEs, and offers substantial efficiency gains.

Another reform among Member States to modernise the public administration is the creation of one stop shops. Besides the obligations of the Services Directive regarding the "Points of Single Contact" to allow businesses to get all relevant information and complete procedures online, Member States have created one stop shops, either physical or virtual, to carry out many other integrated functions, like business registration, licensing, investment, completion of company taxes, etc. Creation of one stop shops does not necessarily require big spending or legal changes and entrepreneurs and citizens see immediate benefits. Single interfaces not only save time and money but they also increase transparency.

56 Digitising Public Services in Europe: Putting ambition into action, 9th Benchmark Measurement.

December 2010, prepared by CapGemini.

3.3.4 Market functioning and competition policy

A well functioning Internal Market results in increased opportunities for business and ultimately improves competitiveness of European industry. Recent initiatives like the

proposed Regulation on European Standardisation 57 can help to boost EU companies’ export

activities and competitiveness. Moreover, the contribution of information and communication technologies to this objective is not trivial. Lowering barriers to internet take-up and

acceleration of the delivery of the Digital Single Market 58 will help kick-start GDP growth,

enhance Europe's competitive edge and create new jobs and businesses.

In order to exploit the Internal Market's full potential the legislation needs to be timely and correctly transposed into national law and properly applied by all Member States. Despite the current economic difficulties, Member States have maintained a satisfactory rate of transposition of internal market directives into national law. The latest Internal Market Scoreboard, published in March 2011, shows that, at 0.9 %, the percentage of nontransposition of legislative texts for which the deadline has passed remains just beneath the 1 % limit set by the heads of state and government in 2007. Twenty Member States meet the 1 % deficit target, with Malta the top performer with only two directives awaiting transposition. A year ago, the Member States took an average of nine months to transpose EU directives. This has been brought down to 5.8 months, an improvement of nearly 40 %. Seven Member States - Austria, the Czech Republic, Estonia, Cyprus, Hungary, Poland and Italy - are still above the 1 % transposition target.

The number of infringement procedures related to the Internal Market still remains high but has decreased, with taxation and environment the biggest areas of infringements. In recent years, the Commission has introduced a number of alternative problem solving and complaint handling mechanisms that have had a considerable influence on the decrease. Belgium continues to account for the highest number of infringement proceedings, followed by Greece and Italy.

The level and quality of state aid granted by national governments has a significant impact on the functioning of the Internal Market. State aid should not distort competition and trade inside the Internal Market. To this end, Member States committed to reduce the general level of state aid and to shift the emphasis from supporting individual companies or sectors towards tackling horizontal objectives, environment, SMEs or training. The 2011 spring State Aid Scoreboard shows that state aid to support expenditure in research, development and innovation has steadily increased in the last 10 years to support job creation and increase Europe's competitiveness. R&D and innovation state aid stood at 0.09 % of GDP in 2009, the last year for which figures are available, against 0.05 % in 2005. In this period, more than half of the total EUR 46.5 billion of R&D and innovation aid was spent by two Member States: Germany (29 %) and France (22 %) while five other Member States accounted for another third of the total: Italy (11 %), Spain (9 %), the United Kingdom (7 %), Belgium (5 %) and The Netherlands (4 %). In 2009, EUR 13.2 billion of state aid was granted in the EU for environmental objectives, either as direct aid or through tax reductions and exemptions. Germany accounted for half of this. Regarding support exclusively for SMEs, the vast

57 Proposal for a regulation of the European Parliament and of the Council, COM (2011) 315 final i,

01.06.2011

58 The Digital Single Market could deliver 4% extra GDP growth over the next ten years. Monti Report

2010

majority of support between 2004 and 2010 concerned risk capital measures, with Germany, the UK and Italy accounting for more than half of these measures.

3.4 Entrepreneurship and SME policy

3.4.1 Entrepreneurship in the EU

The Small Business Act for Europe (SBA) Fact Sheets 2010/2011 59 provide a detailed

analysis of the structure of small and medium-sized enterprises (SMEs) and provide indications for both economic and societal environment for entrepreneurship in the EU. The results vary considerably among Member States and reveal different attitudes towards selfemployment, different reasons for becoming an entrepreneur, but also different perceptions about the feasibility of starting a business under the current conditions.

The results indicate that on average about 45 % of the adult population in the EU generally preferred to be self-employed. In countries such as Cyprus (66 %), Greece (60 %), Romania (52 %), Portugal (51 %), Bulgaria, France or Italy (50 % each), this preference was pronounced even stronger than the EU average. However, in countries such as Belgium (30 %), Czech Republic, Denmark or Sweden (32 % each), as well as Malta (36 %) for example, respondents were more reluctant in this respect.

According to the survey, 11 % of the adult population in the EU had concrete intentions to start a business over the next three years. In countries such as Latvia (21 %), France or Hungary (14 % each) for example, this figure exceeded the EU average. However, in countries such as Italy (4 %), Austria or the UK (5 % each), Denmark, Finland, Germany, Ireland, the Netherlands or Spain (each 6 %), the intention to become an entrepreneur was less pronounced.

The results also illustrate very different reasons for becoming an entrepreneur. Opportunitydriven entrepreneurship (EU average 55 %) was more pronounced in countries such as Denmark (81 %), the Netherlands (78 %), Belgium (72 %), Finland (71 %) or Sweden (69 %) for example. By contrast, it was a less important factor in countries such as Estonia (36 %), Bulgaria (38 %), Greece (39 %), Latvia (41 %), Cyprus (42 %) for example. Hence, in these countries, a larger share of entrepreneurial activities was triggered by necessity and lack of other alternatives.

Also in respect to the perceived feasibility of starting a business, the results varied considerably across Member States. Overall, 28 % of the respondents in the EU believed it was feasible to become self-employed under the current circumstances. Becoming selfemployment was perceived as being more difficult in countries such as Belgium (13 %), the Netherlands (15 %), Portugal (18 %), Hungary or Malta (19 % each) for example. By contrast, respondents were generally more optimistic in their assessment in countries such as Poland (36 %), Cyprus or the Czech Republic (37 % each), Finland (45 %) or Sweden (49 %).

59 SBA Fact Sheets 2010/2011, European Commission, DG Enterprise & Industry,

http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-review/index_en.htm#h2-

34

3.4.2 Policy measures to promote entrepreneurship

Many Member States have made substantial progress over the last years in promoting the

sense of initiative and entrepreneurship 60 . Some have introduced programmes aimed at raising

awareness particularly among young people but also among adults by integrating the subject into school and university curricula as well as by organising targeted awareness-raising projects.

However, Member States have made variable progress in facilitating entrepreneurship education. Some countries (e.g. Belgium, Denmark, Finland, Lithuania, the Netherlands, Portugal, Sweden, the United Kingdom) have set up strategies dedicated to entrepreneurship education while others are planning to do so (e.g. Austria, Estonia, Ireland, Malta, Poland,

Slovenia and Spain). 61

The majority of Member States has launched initiatives aimed particularly to increase the share of female entrepreneurs, for example by supporting female entrepreneurship ambassadors and networks of women entrepreneurs. A number of Member States have also intensified support dedicated to entrepreneurship among migrants and ethnic minorities (e.g. Belgium and Denmark). Belgium has been particularly active in promoting entrepreneurial activity after having fallen considerably behind the EU average in this field. Examples include projects to enhance entrepreneurial education, support for the temporary replacement of entrepreneurs, the introduction of a platform to facilitate business transfers, the introduction of a specific company statute for business starters etc.

Finally, in order to stimulate the creation of micro and small enterprises, several governments have also permanently reduced or abolished the minimum capital requirements to set up a company (e.g. Belgium, Estonia, Germany, Netherlands, Latvia, Luxembourg). In France, the Independent Contractor Limited Liability Statute was adopted in January 2011, which allows individual entrepreneurs who own or who are starting a business in any sector of activity to separate the business assets from their personal assets regardless of the turnover, and thus ensure the protection of any personal assets.

3.4.3 Challenges faced by SMEs

SMEs perform a critical role in the European economy. Despite their small individual size, they are the most important source of employment in the EU. Some 23 million SMEs provide about 90 million jobs (or 67 %) within the private sector in the EU, thereof about 30 % deriving from micro enterprises, 20 % from small enterprises and 17 % from medium-sized enterprises. Until 2008, the number of jobs in SMEs increased by 1.9 % annually, while the number of jobs in large enterprises increased by 0.8 % annually. Moreover, among highgrowth firms, as measured by employment expansion rates, small firms exhibit higher net job creation rates than larger ones.

60 Progress towards the Lisbon objectives in Education and Training. Analysis of implementation at the

European and national levels. European Commission, 2009, pp. 66 http://ec.europa.eu/education/lifelong-learning-policy/doc/joint10/sec1598_en.pdf

61 ‘Towards Greater Cooperation and Coherence in Entrepreneurship Education, Report and Evaluation of

the Pilot Action High Level Reflection Panels on Entrepreneurship Education initiated by DG Enterprise and Industry and DG Education and Culture’, A report by ECOTEC, 2010. Available at http://ec.europa.eu/enterprise/policies/sme/promoting-entrepreneurship/education-trainingentrepreneurship/reflection-panels/files/entr_education_panel_en.pdf

SMEs account for nearly 59 % of the value added produced in the EU and they are also an important driver for innovation and economic growth. However, due to their smaller size and limited resources, SMEs face a number of particular challenges which can have a negative impact on their profitability. F IGURE 14 provides an overview of the most pressing problems reported by SMEs.

F IGURE 14: The most pressing problem faced by euro area SMEs (percentage of respondents)

Source: ECB, April 2011.

While some of the problems faced by SMEs are due to general market developments such as increasing competition and finding customers, which are beyond the scope of direct public intervention, other problems such as access to finance or the complexity of regulation can and should be addressed by EU and national authorities. Addressing these challenges will improve the growth prospects of all enterprises, whether industry, services or socially oriented. As it is the second most pressing problem, the issue of access to finance is explored in more detail in the following section.

3.4.4 Access to finance

Access to finance has become an important challenge for many SMEs since the beginning of the financial and economic crisis, as SMEs have been particularly affected by tightening credit conditions. As a response to the financial and economic crisis, most Member States have adopted measures to enhance SMEs’ access to finance, especially bank lending, through

advantageous subordinated loans, loan guarantee schemes or microcredit programmes. 62

Member States also increasingly use parts of their EU Structural Funds to support SMEs' access to finance, including through financial instruments available under the 'Joint European Resources for Micro to Medium Enterprises' (JEREMIE) managed by the European Investment Fund. However, the use of financial instruments for SMEs could be further intensified, including in particular in the areas of innovation, business modernisation and energy efficiency.

With the gradual economic recovery, there have been signs of improvement compared to the previous year, when the effects of the crisis were still felt acutely and – with very few exceptions – conditions for bank loans to businesses remained tight. The following chart gives an overview of the significant decline in new corporate loans below and above EUR 1 million during the period 2004 – 2011 in the euro area.

62 Review of the Small Business Act for Europe, COM(2011)78 i, 23 i.2.2011,

http://ec.europa.eu/enterprise/policies/sme/small-business-act/index_en.htm F IGURE 15: Change in new loans to firms

40

30

20

10

0

-10

Up to EUR1m -20

Over EUR1m

-30

-40

a r u l v a r l o o v a r u l o v a r l o v a r J u l o v a r l o v J u a r J u l

4 M N M J u J u

l

o v a

r

0 4

J

0 4 0 5 0 5 5 N 6 M N 0 0

6

0 7

M

0 7

J 8 J u

0 7

N

0 8 M 8 N M 0 9 9

N

1 0

M

1 0 0 N 1 M

2 0

0

2 0 2 0 2 0 2 0 2 0

0

2 0

0

2 2 0 0 6 2 0 2

0

2 0 2 0 2 0 0 2 0

0

2 0 2

0 0

9

2 0

0

2 0 2

0

2 0

1

2 0 1 1

2 0

1

Note: Year on year change; data up to July 2011. Source: ECB

The results of the latest ECB-Commission survey on access to finance of SMEs 63 indicate that

access to external financing – and in particular bank loans – continued to improve, albeit moderately. However, there is considerable variance across the EU. SMEs in Spain, for example, have continued to report significantly lower success rates when applying for a bank loan (about 50 %, compared to 66 % in the euro area). By contrast, the success rate of German firms has increased substantially (from 69 % in the previous survey to 79 %). SMEs in Germany and Italy are generally expecting the availability of bank loans to improve, which is not the case in Spain or France. Despite improvements in several Member States, access to finance therefore remains an important obstacle for SMEs in many countries.

Moreover, SMEs still face more difficult financing conditions than large enterprises. 16 % of SMEs identified access to finances as their most pressing problem according to the ECB- Commission survey (F IGURE 14). By contrast, access to finance is considered as the most pressing issue by only 10 % of large enterprises. In the second half of 2010, SMEs assessed the availability of external financing still negatively, but the situation had improved since the first half of 2010. By contrast, large enterprises generally reported positive developments in the availability of external financing. About one quarter of SMEs applied for a bank loan between September 2010 and February 2011. In 63 % of the cases, the firms received the full amount they had applied for. The rejection rate for SMEs remained essentially unchanged at 11 %, compared with about 2 % for large enterprises. More than half of the SMEs reported increases in interest rates charged and other costs of financing (charges, fees and commissions) while there was a small improvement in the requirements related to collateral and loan covenants.

In line with the recovery in economic activity, SMEs increasingly need external sources of finance. Increases have been noted in particular regarding overdrafts and use of existing credit lines, trade credit, as well as leasing, hire-purchase or factoring (F IGURE 16) .

63 ECB-Commission survey on the access to finance of SMEs,

http://www.ecb.int/stats/money/surveys/sme/html/index.en.html F IGURE 16: Sources of external financing of euro area SMEs

Note: Over the preceding six months; percentage of respondents.

Source: ECB, Survey on the access to finance of SMEs in the euro area, April 2011.

Looking forward, SMEs expected the availability of internal funds to slowly improve, while the availability and conditions for bank loans and trade credit was still expected to further deteriorate. Larger enterprises, on the other hand, were clearly more positive in their

assessment and expected an improvement for all sources of finance. 64

The results of the SME survey also correspond with the latest ECB Bank Lending Survey 65 ,

which confirmed a further slight tightening for loans to SMEs and a continued widening of margins on loans for SMEs compared to large enterprises. Looking forward, the Euro area banks expected a further moderate tightening of their credit conditions in 2011, primarily affecting long-term loans. They also expected a moderate increase in demand for corporate loans, relating to both SMEs and large firms.

The average payment time also has an important impact on the financing needs of SMEs. According to the 2011 European Payment Index, about 25 % of all bankruptcies in Europe are due to late or non-payment of outstanding invoices, and 28 % of companies stated that late payments posed a threat to their survival. Moreover, almost half considered that late payments

were detrimental to their growth 66 . In 2010, the average payment delay for firms in the EU

was 54 days. However, the differences across Member States are significant. Countries which considerably exceeded the EU average in 2010 included Cyprus (73 days), Portugal (97 days), Spain (104 days), Greece (107 days) and Latvia (117 days). By contrast, the situation was better in countries like Finland (23 days), Estonia (26 days), Germany (32 days), Ireland (33

days) or Sweden (33 days) for example. 67 Regarding the public sector, not much progress has

been made to further reduce late payments and in some Member States, the situation has even deteriorated (including Czech Republic, Greece, Cyprus, Hungary, Austria and Slovakia). F IGURE 17 illustrates the average payment time in the public sector.

64 ECB-Commission survey on the access to finance of SMEs in the euro area, April 2011

65 ECB Bank Lending Survey, July 2011, http://www.ecb.int/stats/money/surveys/lend/html/index.en.html 66 European Payment Index 2011, Intrum Justitia

67 SBA Fact Sheets 2010/2011, European Commission, DG Enterprise & Industry,

http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-review/index_en.htm F IGURE 17: Payment times for public authorities

2010 2011 Unweighted average 2010 Unweighted average 2011

180

160

140

120

100

80

60

40

20

0 BE CZ DK DE EE IE EL ES FR IT CY LV LT HU NL AT PL PT SK FI SE UK

Source: European Payment Index 2011, Intrum Justitia.

By far the largest scope for improvement can be found in countries such as Italy (180 days), Greece (168 days), Spain (153 days) and Portugal (139 days). The late payment directive adopted by the Council in January 2011 requires payments by public authorities to be processed within 30 days. Meeting this objective will be a challenge for many Member States, but at the same time, a further reduction in late payments by public authorities could contribute significantly to easing the financing needs of enterprises and in particular those of SME.

3.4.5 Internationalisation of SMEs

According to a recent study on opportunities for the internationalisation of SMEs 68 , about

29 % of SMEs in the EU 27 are engaged in importing and about 25 % are engaged in exporting, both referring to EU and non-EU markets. Hence, the business activities of the bulk of SMEs are concentrated on their domestic market. Moreover, the survey indicates that only 2 % are investing abroad and 7 % have technical cooperation with partners abroad. From those SMEs which are involved in international business activities, about 46 % are active only within Europe, 45 % are active both within and beyond Europe and 9 % are active only outside the EU. About 23 % of SMEs which are active abroad are engaged in key target markets including Brazil, China, India, Japan, Russia, South Korea and Ukraine. On average, however, internationalised European SMEs still generate only a relatively small percentage of their total turnover from international business activities (less than 20 % from other EU countries and about 10 % from third markets).

According to the study, payment risks, difficult bureaucratic procedures and lack of financing have been identified as the most important barriers to international business activities beyond the Internal Market.

68 “Opportunities for the internationalisation of SMEs”, forthcoming, EIM Business & Policy Research

Most Member States support the internationalisation of SMEs, both financially but also by providing information and support on market access and regulation or the organisation of trade fairs. During the crisis, many Member States intensified their efforts in this field, particularly regarding export credit, export insurance and bank loan guarantees. Interesting recent measures in this field include for example the launch of a mentoring scheme, whereby big companies support the internationalisation of SMEs, which is currently being piloted in France. Another interesting example is Estonia, which has launched a training program for potential export sales manager, which can benefit from training over a period of one year and which are matched with companies which intend to expand their international activities.

The study provides some surprising results regarding the awareness and the effectiveness of public support measures in this field. Only about 27 % of internationalised SMEs stated they were sufficiently aware of existing public support measures and only 7 % stated they actually used public support for their international business activities. This figure was slightly higher among the subgroup of enterprises with business activities in non-EU countries (12 %). Nevertheless, among those SMEs which used public support measures to develop their international business activities, nearly 60 % were quite positive about the effects (3 % stated the support increased their international business activities, 9 % reported they started their international business activities earlier because of the support, and 12 % stated they would not have engaged in international business activities without the public support). This discrepancy might be explained to some extent by the fact that the majority of entrepreneurs (60 %) consider it too difficult to get an overview of existing support for business activities in markets outside the EU. At the same time, an equally large share of SMEs thought that the existing support measures were not easily accessible.

In view of the general positive assessment by those enterprises which use public support to internationalise their business, the results seem to suggest that the awareness and accessibility of public support in this field could be further improved. The Commission will present in autumn 2011 a Communication for a coherent approach on supporting EU SMEs in their attempts to develop business internationally.

3.4.6 Implementing the Small Business Act (SBA)

The Small Business Act for Europe (SBA), adopted by the Heads of State and Government in 2008 and reviewed in 2011, recognises the important role of SMEs in the economy and aims to promote SMEs' growth by helping them tackle barriers that hamper their further development. The SBA consists of ten principles which should guide the conception and implementation of policies both at EU and national level. The aim is to create a level playing field for SMEs throughout the EU and to improve the administrative and legal environment so that these enterprises can realise their full potential.

The results of the SBA Performance Review, published in February 2011 69 , recognise that

considerable progress has been made in a number of areas. For example, a recent survey suggests that SMEs experience fewer administrative burdens when accessing public

procurement and have better opportunities for joint bidding 70 . Another example includes the

new SME Centre in China launched in November 2010, which helps SMEs accessing the Chinese markets. As part of the SBA Review, the Commission invited Member States to

69 Review of the Small Business Act for Europe, COM(2011)78 i, 23 i.2.2011,

http://ec.europa.eu/enterprise/policies/sme/small-business-act/index_en.htm

70 http://ec.europa.eu/enterprise/policies/sme/business-environment/public-procurement/index_en.htm nominate a national SME Envoy to complement the role of the European Commission's SME Envoy. Together with representatives of SME business organisations, the Network of SME Envoys will make up an SBA advisory group.

Considerable progress has also been made over the last five years to reduce the average time and cost required to start a business (F IGURE 18).

F IGURE 18: Time needed to start a business (days)

2005 2010 Unweighted average 2005 Unweighted average 2010

70

60

50

40

30

20

10

0 BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU NL AT PL PT RO SI SK FI SE UK

Source: World Bank, Doing Business, 2011.

The average time to start-up a company was 15 days in 2010 according to the World Bank. 71

Recent good examples include Italy, where since April 2010 it has been possible to register a company in one day. The Companies Register in Italy submits the data also to other relevant bodies like tax and social security offices. Another good example is Greece, which has launched a new Commercial Electronic General Registry. This allows the registering of a business in one day and considerably reducing the related cost.

Despite noticeable progress in a number of areas, the results of the SBA Performance Review, published in February 2011 also point out that the approach taken and the results achieved vary considerably across Member States. For example, while most Member States have adopted national targets for reducing administrative burden, not all of them have effectively reduced it.

Several Member States have already integrated an SME Test into their national decisionmaking approach (including Austria, Denmark, France, Finland, Germany, Hungary, Latvia, Luxembourg, Netherlands, Romania, Sweden and the United Kingdom). Malta, Slovenia and the Slovak Republic are in the process of setting it up. Among those that apply the SME test there are, however, disparities in practical terms. Only half of those Member States systematically consult SME stakeholders as part of the SME test. Most of these countries

71 World Bank, Doing Business 2011; see http://www.doingbusiness.org target a mix of SME organisations, individual SMEs and public authorities working on SME- related issues in their consultations.

Some Member States have started to promote the European Code of Best Practices in order to facilitate SMEs’ access to public procurement (Austria, Cyprus, France, Germany, Hungary, Ireland, Lithuania, Poland, Portugal, Sweden and the United Kingdom). In the majority of Member States, SMEs’ access to public procurement is not subject to a specific strategy or policy. The most widespread SME-friendly measures in this area remain cutting tenders into lots, whenever possible, and facilitating access to information through centralised websites, interactive web pages, and other e-procurement developments.

Finally, there is still scope to further shorten the time needed to wind up a business in case of non-fraudulent bankruptcy. So far only five Member States (Belgium, Finland, Ireland, Spain and the UK) comply with the recommendation to complete all legal procedures to wind up a

business in the case of non-fraudulent bankruptcy within a year. 72

72 Review of the Small Business Act for Europe, COM(2011)78 i, 23 i.2.2011,

http://ec.europa.eu/enterprise/policies/sme/small-business-act/index_en.htm

4 C OUNTRY CHAPTERS

4.1 Belgium

Belgium

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2009) d u i n v e Labour productivity per person employed (EU27=100; 2010) ti ti

p e Labour productivity per person employed in manufacturing (1000 PPS; 2009)

o m

c

n d a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9

a rd in tr (kg CO2 / euro GVA; reference year 2000; 2009) ta

T o

w

u s d u s

in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

n m

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v ir o

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011) u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

E s Enterprise survival rate after two years (2008) N.A.

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip

Share of high-growth enterprises as % of all enterprises (2007) N.A. u rs

n e e p re Early stage financing (% of GDP; 2009)

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Belgium (2009)

Refined petroleum products Paper products; publishing and printing Wood and wood products

Textiles and textile products Leather and leather products

Chemicals, chemical products Food products

Manufacturing n.e.c.

Rubber and plastic products

Transport equipment

Other non-metallic mineral products

Electrical and optical equipment

Basic metals and fabricated metal products Machinery and equipment n.e.c.

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.1.1 Introduction

Trade and industry specialisation Most prominent sectors in Belgium

Manufacturing contributes 14 % to Belgium's total Highest relative value added (2007) value added against 14.9 % for the EU in average Coke, refined petroleum and nuclear fuel

(2009). At the detailed manufacturing industry Chemicals and chemical products

level, Belgium is specialised in capital-intensive Textiles and textile products

industries, such as iron processing, basic chemicals Change in the relative value added (1999/2007)

and man-made fibres. At the more aggregated Increasing specialisation Coke, refined petroleum and nuclear fuel

sector level, Belgium is specialised in sectors Water transport featuring medium-high educational and innovation Tobacco products

intensity, such as chemicals, coke and refined Decreasing specialisation

petroleum, but also textiles. Electricity and gas Inland transport

 Recycling

Belgium’s sectoral R&D and export quality performance are positive: R&D intensity is above the EU average given its industrial structure. The

shares in the low price segments of exports are Structural change

below the EU average, in high price segments

above the EU average, indicating that Belgium is In terms of change, Belgium has considerably high up on the quality ladder. increased its specialisation in higher quality market

segments. It has increased its sectoral R&D intensity and its relative share of value added in high education intensive sectors such as computers

and business services, and the share of technologydriven industries in exports, such as

pharmaceuticals and pesticides. It has decreased strengthen the competitiveness clusters and even further its share of labour intensive industries. business networks: creation of a 6th cluster focused Manufacturing production in Belgium has on environmental technologies (February 2011), recovered relatively fast from the crisis, reaching in higher involvement of SMEs, closer collaboration March 2011 its previous cyclical peak. between regional, national and international

clusters, opening up to companies from Nominal unit labour costs have increased in neighbouring regions, launching a call for Belgium by 23% between 2000 and 2010, which is sustainable development projects, boosting the slightly higher than the average increase in the funding and the training component and fostering EU27 and the Euro area (14% and 20% the development of spin-off (specific R&D grants, respectively). Estimated labour productivity per support from public equity funds, financing of hour worked has declined over the last decade, experts). The overall objective of the indicating a gradual loss in productivity as well as competitiveness clusters policy is to strengthen the cost and price competitiveness. However, labour specialisation of the regional economy in key productivity is still about 34 percentage points sectors. In this regard it can be considered as a above the EU27 average and about 20 percentage “smart specialisation” strategy. points above the Euro area average.

In 2010, more focus was placed on fostering 4.1.2 Towards an innovative industry innovation and creativity with the so-called

“Creative Wallonia” Action Plan. Some innovative According to the Innovation Union Scoreboard measures were implemented within this framework 2010, Belgium is an innovation follower. It has a such as grants to support commercialisation of low share of new science and technology graduates prototypes developed by SMEs or allowing SMEs and a low share of high-tech exports in total to undertake an audit of their innovation potential. exports.

The "Marshall plan" has also a strong focus on the

Business R&D is highly concentrated in a few large implementation of a new culture intending to companies and multinationals. A large majority of increase public private partnerships. European these firms are in the chemicals, pharmaceuticals Structural Funds are being substantially used in and biotech sectors, thus giving Belgium a establishing partnerships and networks between specialist profile for these sectors. The increasing large firms and SMEs and financing innovation in importance of the service sector, growing at a faster SMEs.

rate than manufacturing, would also justify specific measures to improve the knowledge intensity of In Flanders, cluster policy is also part of the this sector over time. innovation strategy mainly for green and

sustainable development. Societal challenges are

Increased tax credits for R&D have been introduced the main drivers, leading to a shift towards new and there are also plans to provide suitable fields. The Science and Technology Council incentives for setting up and developing new identified six priority areas: regulation and science-base companies spinning out of large education in general; framework conditions for enterprises or spinning off from research private R&D; a model for mobilising industry institutions is foreseen. towards the factory of the future; the role of

infrastructures in supporting intelligent networks;

All Belgian Regions/Communities are drafting the role of industrial innovation with risk funding; strategic innovation plans covering all major and the role of human capital and social innovation. elements of an innovation strategy. Flanders is In the scope of networking and facilitating cluster planning a new Innovation Pact, while Wallonia, formation, there is the Flemish Innovation Network the Brussels Capital Region and the French(VIN), whose main task is to stimulate knowledge speaking Community are contemplating a joint transfer and intensify cooperation between research strategy. Most actions are at companies and knowledge institutes. As difficult Regional/Community level, although federal access to capital is often a bottleneck for innovative research covers 25-30 % of total public research entrepreneurship, the governmental authorities expenditure mainly due to space research (a provide some instruments in support of innovation remaining federal competence). initiatives, such as Vinnof, PMV Innovation

Mezzanine, ARKimedes (Activating Risk capital)

In the Walloon Region the focus has been on the and win-win loans. In the future, Flanders seeks a implementation of the so-called "Marshall plan" higher international profile and wishes to position with a stronger focus on competitiveness clusters itself as an innovative region.

(les pôles de compétitivité, a cluster approach).

Various initiatives are developed in order to In the Brussels Capital Region, strategic platforms

are being or will be launched in three innovative terms of agricultural production (attention will sectors: information and communication focus on self-sufficiency and competitive strength technologies (ICT) in 2010, the life sciences in of agricultural businesses).

2011 and the environment in 2012. It is worth

mentioning that about 90 % of the research is Key measures of the Walloon Region are applicable concentrated on ICT and ICT services. The both to the energy performance of buildings, government foresees greater assistance to smaller support for controlling energy consumption (of the innovative companies and more resources for corporate sector through second generation sectoral

European and international cooperation. agreements, and to consumers through continuing actions concerning social energy guidance), and 4.1.3 Towards a sustainable industry sensibilisation via the public social assistance centres. An overall objective of the first

The higher energy intensity in the Belgian industry Employment-Environment Alliance, part of the and energy sector is to some extent explained by Marshall 2 Green Plan, is to improve the quality of the industrial structure of the country. Nevertheless Walloon buildings and their energy performance, it represents a potential disadvantage due to while organising the construction industry

overexposure to energy and CO according to a sustainable approach and increasing ² price volatility. the level of employment in that industry. The role

On the energy and climate fronts, key measures of of the public authorities as an engine for sustainable Belgium stem directly from the implementation of development has been strengthened. In the case of the Energy & Climate package. Some other industrial policy and innovation, an environmental measures that will be applied by the federal technologies competitiveness cluster has been authorities are an adjustment to the tax cuts for created and the environmental dimension is energy saving investments for achieving maximum reflected in all competitiveness clusters. New efficiency, and specific integrated procedures for “sustainable innovation grants were also launched obtaining permits for new energy production to help SME to develop eco-innovative products or facilities and electricity and gas transmission services and a strong focus has been put on systems that could provide energy savings in the supporting the development of Walloon expertise in case of generation and transmission. In 2003, the area of sustainable vehicles, especially electric Belgium adopted a law that provides for a gradual cars. Finally, a research programme on energy

nuclear phase-out between 2015 and 2025. efficiency and renewable energies has been launched.

There is a wide variety of actions put forward by Energy efficiency in buildings is also a main policy the three Belgian regions. A main policy orientation orientation for the Brussels region. An of Flanders concerns energy efficiency in buildings: Employment-Environment Alliance is seeking to the Flanders region tightened up and stringent ensure the availability in the construction industry energy standards for new construction and imposed of a series of local companies capable of meeting a minimum share of renewable energy for new the challenge set by the new energy requirements buildings. for buildings. The Iris2 Plan aims to reduce the

traffic load by 20 % in 2018 relative to 2001,

Flanders also focuses on green growth. In order to thereby helping to cut greenhouse gas emissions speed up its greening process, Flanders has and other pollutants generated by the transport developed a plan to establish a system of green sector.

guarantees and a green investment fund. Flanders

also promotes green jobs. In the scope of the 4.1.4 The business environment

Employment and Investment plan (WIP) the VDAB

(Flemish Service for Vocational Training and Belgium presents a mixed picture regarding the Employment) organises training programmes business environment as negative perceptions about through outsourcing for vulnerable groups. VDAB the legal and regulatory framework and further consults with the sectors, employer administrative burden coexist with good organisations and companies about training paths performance on specific issues such as regulation of that can be arranged within the provided WIP business start-up.

funds. Further to the above mentioned priority measures, the realisation of the ‘20-20-20’ Belgium scores above the EU average concerning objectives will also be supported by sustainable the availability of high-speed broadband lines. measures in the area of mobility and transport (e.g. However, prices for many goods and services are e-mobility; mobility plan Flanders; general reform generally higher than in other Member States, of traffic taxes), in terms of governmental actions reflecting weak competitive pressures, especially in (sustainable living and building; Flemish action the retail sector and network industries. plan on sustainable public procurement) and in

In the retail sector, barriers to entry have been administrative burden by 2012. Adopted in reduced but some operational restrictions remain, September 2010, the Industry Action Plan seeks to especially in terms of specific (zoning) regulation identify industry's general demands and rapidly of large outlets and the regulation of shop opening eliminate specific obstacles restricting industrial hours. While measures to make regulations less activities. stringent in some areas and to reduce the

administrative burdens involved in opening new In November 2009 the Government of the Brussels shops, have been taken in the retail sector - under Capital Region has approved the Brussels plan for the new law on "Market Practices and Consumer administrative burden. The goal is to reduce the Protection" (WMPC, 2010) and the "Ikea law" administrative burden by 25% by the end of 2012. (2004) - Belgium still has economic and social To succeed in this goal the government approved a regulations that aim to allow fair competition first list of 11 projects. While some of the projects between all forms and types of shops. A aim to prevent administrative burden in future recommendation on this subject has been made by legislation, some other projects aim to reduce the Council in its Council Recommendations of 12 existing administrative burden through renewing

July 2011 (2011/C 209/01). existing processes. The focus is mainly on businesses, for example an E-procurement system

Despite liberalisation, prices in many network has already been introduced. Furthermore, sectors (electricity, gas and telecom) are higher in consultants are currently screening existing Belgium than in other Member States. A common economic legislation which will lead to proposals to competition problem in the network sectors in reduce administrative burden.

Belgium is the strong position of the incumbent and 4.1.5 Entrepreneurship and SME policy the high entry barriers compared to other Member

States, meaning that former monopolists in these The SME sector in Belgium has a similar structure sectors can still reap higher profits by charging as that of the EU: the percentages of micro, small higher prices than a competitive market would and medium-sized enterprises and their

allow. contributions to employment and value added are on a par with the European averages. Concerning

Belgium's business environment in general is general SME policy, the federal government characterised by an administrative burden resulting adopted in 2008 an action plan inspired by the from procedures and administrative obligations at European "Small Business Act" (SBA) comprising

regional and local levels. 40 measures. An "SME test" is also in preparation. Most of the actions have been initiated or

Specifically, the administrative landscape in implemented; however some difficulties still exist, Flanders has a multitude of governance levels and such as for example the long payment delays by rules and regulations. The result is insufficient public authorities to enterprises. Wallonia also synchronisation of the different levels or intends to launch before end 2011 a regional departments of the Flemish administration. framework to strengthen the SBA implementation Administrative simplification and faster delivery of at regional level. This approach will complement permits can help create the conditions for a good the “Pacte de soutien à l’initiative” (part of the Plan business climate. The long term programme Marshall 2.green) which is currently the framework ‘Decisive Governance’ includes four strategic for SME policy in Wallonia.

objectives and twelve key projects to enhance the Initiatives have been undertaken to stimulate efficiency and effectiveness of the Flemish entrepreneurship in education (Unizo Enterprising authorities, and commits to a more efficient School in Flanders, Boost your Talent in Brussels government administration vis-à-vis the business region or starters grants by Agence de Stimulation sector (e.g. the establishment of a one stop shop for économique wallonne). In 2006, the Flemish entrepreneurs in Flanders, the further development government approved the ‘Ondernemend of e-procurement, etc.). Onderwijs’ plan, the Flemish Entrepreneurial

Educational Action Plan. The objective was to give

The Walloon Region established the Plan each child a sense of entrepreneurship and to put 'Ensemble Simplifions' (Let's Simplify Together any interested children on the road to starting their Plan) 2010-2014 and the Industry Action Plan: the own business. aim is to minimise administrative complexity and reduce administrative burden affecting all users of Platforms for mediating business transfers have public services, particularly companies, and the been set up in Flanders (Unizo), Brussels region public services themselves. Adopted in February (BruTrade) and Wallonia (SOWACCESS). A 2010, the Plan 'Ensemble Simplifions' will be special tax regime for succession has been put in applied during the 2010-2014 period as part of the place to allow smooth transfer of family businesses European objectives of achieving a 25 % cut in between generations. At the federal level, a Family Plan to improve the social conditions/situation has New programmes (some of them being financial been put in place as well as special measures for engineering instruments co-financed with ERDF' female entrepreneurs on maternity leave. A register resources) have been put in place to support and for replacing entrepreneurs has been set up for stimulate innovation for SMEs by means of entrepreneurs who want to suspend their activities subordinated low interest loans for innovative temporarily while ensuring their business to projects (for example "Novallia" in Wallonia) and continue. Other measures include advisory for funds to stimulate the economic tissue towards young entrepreneurs and a special type of company innovative sectors of activity (for TINA fund in statute for starters (SPRL - Starter - BVBA) with Flanders). limited capital requirements (the limited capital may however lead to difficulties when obtaining 4.1.6 Conclusion bank loans). A federal network of female

entrepreneurs from Belgium in being put in place. In terms of change, Belgium has increased its Some more measures were mentioned indicating specialisation in higher quality market segments in that this area has got wide attention. a few specific sectors (e.g. pharmaceuticals) and it

has decreased further its share of labour intensive Enterprises welcomed the anti-crisis measures put industries. Manufacturing production in Belgium in place at federal level, such as easier access to has recovered relatively fast from the crisis notably finance and the credit mediator (CeFiP – KeFik). as a result of the favourable economic situation in Also the system of temporary unemployment Germany. The impact of the crisis in terms of (extended for employees) was very effective for structural change was rather limited. companies as it allowed them to keep staff on board

and restart business activity very quickly. As Belgium has a low share of new science and

Concerning access to credits, in particular for technology graduates and a low share of high-tech SMEs, federal and regional governments have exports in total exports, there is room for taken measures to reinforce the capital of SMEs and improvement of innovation policy. The energy other structural or short-term measures: for instance intensity of the industry could also be improved. creation of a credit ombudsman (such as Conciléo Notwithstanding the fact that the higher energy in Wallonia), the export credit guarantee scheme intensity in the Belgian industry and energy sector Belgacap, steps to reduce public payment delays is to some extent explained by the industrial and a system for cash advancements on outstanding structure of the country, it represents a potential payments for SMEs (Casheo). Loan guarantee disadvantage, and further action on the energy and schemes have been put in place in cooperation with climate fronts will be important to reduce the banks (for example Microcrédit PME in Wallonia, energy intensity of the industry and energy sector. PMV Flanders or BruStart/BruSoc in Brussels Finally, administrative simplification and faster

region). delivery of permits can help create the conditions for a good business climate.

4.2 Bulgaria

Bulgaria

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti ti

v

p e Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9 -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009) w u

s

s ta d

T o u in Waste generated by enterprises (all NACE sectors; -4.2 -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

% of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2006)

n e

u

re

e p Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011) N.A.

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Bulgaria (2006)

Textiles and textile products

Wood and wood products Leather and leather products

Paper products; publishing and printing

Refined petroleum products Food products

Chemicals, chemical products

Rubber and plastic products Manufacturing n.e.c.

Transport equipment

Other non-metallic mineral products Electrical and optical equipment

Machinery and equipment n.e.c. Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.2.1 Introduction ladder. Overall, Bulgaria is a typical member of the group of countries featuring relatively lower Trade and industry specialisation income levels and specialisation in labour-intensive industries.

Manufacturing contributes 18.6 % to Bulgaria's total value added against 14.9 % for the EU as a whole. At the detailed manufacturing industry level, Most prominent sectors in Bulgaria

Bulgaria is specialised in labour-intensive industries (manufacture of knitted and crocheted Highest relative value added (2007)

articles), in capital-intensive industries Wearing apparel, dressing and dyeing of fur Tobacco products

(manufacture of cement, lime and plaster) and in Recycling marketing-driven industries (manufacture of grain Change in the relative value added (1999/2007) mill products). In the top 5 industries, mainstream Increasing specialisation

manufacturing industries (such as the manufacture Recycling Wearing apparel, dressing and dyeing of fur

of batteries) can also be found. At the more Non-metallic mineral products

aggregated sector level, Bulgaria is characterised by Decreasing specialisation Water transport

strong trade specialisation in sectors with a low Tobacco products

intensity of innovative activity and low educational Water supply

intensity, such as wearing apparel and recycling.

The high share of high growth enterprises in the population of active enterprises indicates that

Bulgaria is catching up. Structural change

Bulgaria’s R&D intensity is below the EU average In terms of change, Bulgaria shows a different given its industrial structure. The share in low price picture to its current position, almost the flip side. It segments of exports by technology driven industries has increased the relative value added share in high are above the EU average, while the shares in high education sectors (such as in computers and price segments are below the EU average, software), and exports in technology-driven indicating an unfavourable position on the quality industries (such as the manufacture of radio and TV transmitters). However, its specialisation in labourexpenditures in Bulgaria are increasing, they are intensive low-skill industries (such as in the still much lower than the EU average level. The manufacture of wearing apparel) has also continued structure of R&D expenditure remains strongly to increase. imbalanced and the share of public sector financing

is double that of businesses. Bulgaria has improved its export quality strongly, it has increased its share in high-price exports and The current policy support system is fragmented decreased export share in low-price segments and uncoordinated and is unsuited to the considerably. However, the sectoral R&D intensity implementation of the coherent and coordinated has decreased relative to the change of the EU science, technology and innovation policy. The average; a positive change in sectoral R&D Bulgarian Innovation Strategy, which was adopted intensity was recorded in machinery and software. in 2004, will be updated. It is mainly implemented

by the Operational Programme “Competitiveness Manufacturing production fell dramatically during 2007-2013” funded by the European Regional

the crisis (-35 %). It has rebounded moderately Development Fund (ERDF) 74 and the National

since then (8.5 %) but in April 2011 was still lower Innovation Fund. However, the Fund has not been by 16.7 % from its previous cyclical peak. The operating for the past 2 years as there were no new crisis seems to have accelerated Bulgaria’s calls for proposals. Moreover, the peer evaluation structural change towards more advanced and of the Fund has been continuously postponed due to knowledge-intensive industries and sectors, as lack of funds. demonstrated by the sizeable gains in exports by technology-driven and mainstream manufacturing The Ministry of Economy, Energy and Tourism industries. works on a proposal for a new law on innovation to

set appropriate framework for the private sector. Bulgaria has experienced a strong appreciation of Such a law will try as well to address among other the real effective exchange rate over the last decade the lack of appropriate funding instruments to (55%, compared to 21% in the EU27), indicating a support the national innovation policy. The loss in cost and price competitiveness. Here, the Bulgaria Academy of Sciences increasingly works increase in nominal unit labour costs (73%) with enterprises in order to support its research between 2000 and 2010 played a significant role. activities as there are planned only a few calls in While labour productivity per hour worked has 2011. However, there is still no officially adopted gradually increased over the last years, it is still national strategy for R&D by the National about 58 percentage points below the EU27 Assembly. average.

4.2.3 Towards a sustainable industry Overall, Bulgaria can be seen as catching up with respect to competitiveness, in particular as regards Although the sustainability indicators continue to specialisation and the quality ladder, but not with improve, the Bulgarian industry lags behind the EU respect to R&D. average in terms of energy intensity, carbon

intensity, waste generation by enterprises and 4.2.2 Towards an innovative industry exports of environmental goods. The decrease in

foreign direct investments due to the economic Bulgaria is one of the catching-up countries with an crisis has slowed the process of catching-up in this innovation performance well below the EU area. The industry is particularly vulnerable to average. The industrial R&D activity essentially energy price shocks and stringent environmental takes place in the sectors of information and and emissions obligations because of the high level communication technology, electronic equipment of energy intensity and Bulgaria's dependency on and machine building. The development of limited number of foreign energy suppliers. adequate human capital, well-established clusters and technology centres would help for the The increase of the energy efficiency should be a innovation capacity of Bulgarian companies in the key priority, as the industry still remains several long term. times more energy-intensive than the EU average.

The national target in the National Reform

Programme of 1.5 % GDP spending in R&D by

2020 has mainly been based on future increases of

the private R&D investments 73 . Although the R&D already LEVS 108 million in 2009. R&D

increased 7 % only in 2009.

73 Private R&D investments stood at 74 EUR 250 million have been earmarked for

LEVS 30 million in 2002 and they were innovation and R&D by the end of 2015.

The Energy Efficiency Strategy has to address the scores above average regarding the availability of

bottlenecks in the area of industrial sectors. 75 broadband infrastructure or prices of electricity for

businesses. On the other hand, Bulgaria scores At the same time, the compliance with the below average in the availability and quality of environmental and climate requirements will infrastructure and the legal and regulatory require significant financial efforts from industrial framework. enterprises in order to improve their processes, know-how and technologies. Therefore, the The implementation of the Programme for Better increased use of EU Structural Funds will be crucial Regulation 2008-2010 has somewhat enhanced the to support important investment projects in the business environment. Measures include the field. The ERDF earmarked via the Operation abolishment of 112 illegal municipality regimes, Programme Competitiveness EUR 206 euro for reduced minimum paid-in capital for registration of SMEs and enterprises for projects in these fields, a company, and the removal and/or facilitation of which have to be implemented by the end of 2015. 32 licensing regimes. The 2nd Programme for

The achievement of the renewable energy targets 76 Better Regulation 2010 – 2013 has been in force

will mainly depend on the successful since 1 June 2010 and sets again concrete actions to implementation of the Renewable Energy Action further improve the regulatory and administrative Plan. The adoption of a National Climate Change environment. The complete implementation of the

Action Plan 77 has been delayed. Programme is expected to have a positive impact on

the business environment. A System for Certification of Green Jobs is operational since January 2011. It is a measure to However, challenges remain, both at local and state promote green jobs in which eligible companies level. These include the alleviation of regulatory receive public support. The companies need regimes/permitting (e.g. construction, chemistry amongst other to put in place an environmental and pharmaceuticals); simplification and decrease

management system in place such as ISO 14001 78 of administration fees, implementation across the and EMAS. board of the practice of silent approval 79 ;

significantly increasing the provision of e Operational Programme “Environment” for the government services; development of the one-stop period 2007–2013 (EUR 1.5 billion envisaged) and shop practice; improvement of the public the pre-accession programme ISPA are the main procurement framework, better contract instruments for the development of environmental enforcement. infrastructure. This concerns the reduction of water basins contamination by untreated municipal waste It should be stressed that the progress of the key waters, improvement of the quality of drinking initiatives for better regulation and e-government water, and development of regional waste has been rather slow and irregular. In 2010, the management systems. Timely implementation and usage by enterprises of e-government services still the design of quality projects, although challenging, stands below the EU average. can help fostering the development of related industries, mainly in the field of water and waste The actions, in the spheres of improving the management. functioning of the judicial system and fighting

against corruption and organised crime, could be 4.2.4 The business environment further strengthened in order to address their

negative impacts on the economic and social The indicators regarding business environment development as well as on the implementation of show a mixed picture of Bulgaria. On one hand, it EU funds. In the long term Bulgaria needs to build

up more stable and efficient institutions as well as

75 to increase their capacity to support the business The European Regional Development

environment. Fund earmarked via the Operational

Programme Regional Development The absorption of EU funds is low because of low

approximately EUR 200 euro for

municipal and educational buildings. administrative capacity and lack of support by 76 16 % of renewable energy sources in final commercial banks. The administrative procedures

are complicated and, at the same time, the

energy consumption and a 10 % share of enterprises do not find the needed co-financing for

renewable energy in the transport sector by 2020.

77 135 installations in Bulgaria are covered 79 If a business does not receive a reply to its

by EU Emissions Trading System. request from the administration within a

78 In Bulgaria, around 700 enterprises are certain time period, this means that its

certified with ISO 14001. request has been approved.

the projects. EU funding does not seem riskless to Private capital finance is undeveloped and has banks because there is a chance of suspension of insignificant share in the market. Commercial funds (e.g. corruption, fraud) or liquidity problems banks rarely finance start-ups and there is no due to delayed payments by the administration. The integrated venture capital framework setting the administrative reform has only been focused at the conditions for financing start-ups. Concrete reduction of administration staff costs without examples of active venture-capital entities such as improving the capacity for effective policy business angels can be found in the field of

implementation 80 . information technologies (e.g. software for mobile

phones, video games), however, these are rather The modernisation of the transport infrastructure is exceptions than common practice and the invested a major challenge after years of underinvestment in amounts are below EUR 100 000. There is need to important core areas such as highways, ports, and intensify and expand financial engineering rail. The better usage of European structural funds instruments for SMEs also in the area of will be a prerequisite for the successful completion innovation, business modernisation and energy of these projects as Bulgarian public funding is efficiency. limited. The current efforts to accelerate the construction of important infrastructural projects The recently agreed JEREMIE financial instrument (e.g. Trakia highway, Sofia subway) will have managed by the European Investment Fund (EIF) positive effects on the business environment in will cover a significant part of the needs of the terms of putting in place new key transport market. EUR 200 million have been earmarked for infrastructure. venture capital, seed capital, equity and mezzanine

funds as well as guarantee fund to be allocated by 4.2.5 Entrepreneurship and SME policy 2015 via the Operational Programme

"Competitiveness". The Operational Programme "Competitiveness

2007-2013" envisages special support to export The education system does not fully reply to the oriented SMEs equal to EUR 40 million. The market requirements i.e. it does not provide all the support includes encouragement of SMEs to benefit necessary qualifications for the businesses. Primary from the growth of the markets, support for and secondary education lacks dedicated training participation in international economic, trade, for entrepreneurial skills. Existing business and investment and innovation events, creation of management training and other related subjects in electronic portals and increase of export training. tertiary education do not sometimes prepare

entrepreneurs with the needed skills to success in However, Bulgarian small and medium enterprises highly competitive market. Concerning different still face many obstacles to benefit from crafts, there are no sufficient technological learning internationalisation as they experience pre-export programmes and adequate practical training financing problems which are not properly courses. Finally, wage differentials within the EU addressed by the current export framework. The as well as social systems benefits (e.g. pensions, support institutions (e.g. trade representatives) do medical cover) mainly explain the lack of qualified not always provide useful practical information for workers and employees.

companies and export guidance seems to be rather outdated. A better support is crucial for the further 4.2.6 Conclusion internationalisation of Bulgarian SMEs via available, regularly updated, commercial statistics Bulgaria faces some important challenges on its and data, export guarantees, and pre-export way to improve its competitiveness such as cutting financing. red tape at different levels of the state and local

authorities, fostering innovation in view of The access to finance for SMEs has become increasing productivity, improving the energy difficult and often impossible as there has been a efficiency across all sectors of the economy and substantial slow-down of bank lending to developing the transport infrastructure. In the short businesses, in particular, to young and innovative term, absorption of structural funds which is crucial enterprises. SMEs face severe credit conditions in supporting these undertakings remains with excessive interest rates and requirements for dramatically low. A proper implementing collateral. This hinders the SMEs from matching mechanism for management and control of the EU Structural Funds and as a result such funding is funds can help remedy that situation, in particular lost. the EU co-financed programmes.

80 Cooperation and coordination between research An average 12 % cuts of the number of

institutions and businesses is still limited. The

civil servants in the administration was implementation of the measures of the existing

reported in February 2011.

innovation and R&D programmes is rather slow In the short term, high loan interest rates, required and there is lack of large flagship projects of collateral and securities and government arrears excellence in the field. Bulgaria needs to improve remain a significant burden to business. its administrative capacity and simplify existing rules and procedures in order to accelerate the absorption of funding in all sectors.

4.3 Czech Republic

Czech Republic

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w ta d u T o u

s

in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2007) n e

e p re Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Czech Republic Cyprus (2009)

Chemicals, chemical products Paper products; publishing and printing Rubber and plastic products Wood and wood products

Refined petroleum products Textiles and textile products Leather and leather products

Machinery and equipment n.e.c. Food products

Manufacturing n.e.c.

Electrical and optical equipment

Transport equipment Other non-metallic mineral products

Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

imports, resulting in only small value added in

these sectors.

4.3.1 Introduction

The Czech Republic could benefit from increased

Trade and industry specialisation specialisation in those sectors where educational

intensity is high, both in trade and industry, such as

Manufacturing plays an important role in the Czech in financial services or research and development. economy, contributing 23.6 % to total value added Its R&D intensity is also below the EU average, (EU 14.9 %) in 2009. At the detailed manufacturing given its industrial structure. The export quality industry level, the Czech Republic is specialised in performance is characterised by low share in high capital-intensive industries (parts and accessories price and high shares in low price export segments, for motor vehicles), mainstream manufacturing indicating an unfavourable position on the quality (manufacture of rubber products), and labourladder.

intensive industries in terms of value added. At the

more aggregated sector level, the Czech Republic is Overall, the Czech Republic is a typical member of specialised in sectors with high innovation country group 3, where trade specialisation in intensity, such as electrical machinery, but also advanced manufacturing industries and sectors and medium-low innovation sectors (such as printing relatively low R&D activity reflect these countries’ and publishing). Trade specialisation is to some position in the international value chain, i.e. they extent different to industry specialisation in terms are more focused on assembly and production, of being more tilted towards knowledge-intensive whereas innovation and R&D are more likely to be sectors, with the Czech Republic specialising in done in the group of countries with higher income technology-driven industries (such as computers), a levels and specialisation in knowledge-intensive defining characteristic of the group of countries sectors (group 1). In contrast, educationally with lower income levels and trade specialisation in intensive service sectors are underrepresented, as knowledge-intensive sectors. However, the there is less scope for the international division of relatively large share of high-tech exports (mostly labour.

related to electronics and telecommunications) has also coincided with a large share of high-tech

challenge for the Czech research and innovation system is to increase domestic private research and

Most prominent sectors in Czech Republic innovation investment. While in 2009, the level of business enterprise expenditure in R&D rose to

Highest relative value added (2007) 0.92 % of the national GDP, one of the highest in Motor vehicles, trailers and semi-trailers Central and Eastern Europe, a large share of this

 Rubber and plastics

 Electricity and gas investment was carried out by multi-national Change in the relative value added (1999/2007) corporations. Indigenous firms, especially SMEs, Increasing specialisation have not engaged yet in boosting its technological

 Rubber and plastics

 Air transport and innovative capacity and to a large extent the

 Motor vehicles, trailers and semi-trailers majority of Czech firms still compete

Decreasing specialisation

 Wearing apparel, dressing and dyeing of fur internationally in costs, instead of differentiation

 Coke, refined petroleum and nuclear fuel through innovation. Concerning the indirect support

 Recycling of private R&D, the existing fiscal incentive

scheme falls short of its objectives: While it allows the Czech enterprises to deduce their R&D

Structural change expenditures from the tax base, they can do so only for R&D carried out in own premises. The ongoing

In terms of change, the Czech Republic shows revision of the tax scheme aims at rectifying this

similar behaviour to its country group. The relative situation and including the purchased R&D into deductible items. It is planned to be finalised in

export and value added share in labour intensive 2012.

industries (such as the dressing and dying of fur) and low innovation intensity sectors (such as

wearing apparel) have decreased, while they have The low share of private contribution to the increased in high innovation and high education university and public research organisations´ R&D sectors as well as in technology-driven industries, (below 1 %), and the low number of public-private (such as the manufacture of radio and TV co-publications evidence the relative weak linkages transmitters and receivers, or computers). The between science and industry.

quality ladder and the R&D indicators show strong

improvement. Overall, this points to a positive A strategic document in the area of R&D and outlook in terms of competitiveness and catching innovation in the Czech Republic is The National

up potential to group 1. Research, Development and Innovation Policy of the Czech Republic 2009-2015. Its revision is

Manufacturing production fell by 23 % during the foreseen for end 2011, by when the results of an crisis but has mostly recovered, reaching in April ongoing international audit of the R&D and 2011 a level 3.4 % lower than its previous cyclical innovation system in the Czech Republic will be peak. The impact of the crisis on structural change known. An innovation element is elaborated in the Czech Republic was very limited, as no separately in the recently tabled Czech International

major change in specialisation patterns occurred. Competitiveness Strategy prepared by the Ministry of Industry. The objective of the strategy is to

The Czech Republic has experienced a strong promote the Czech Republic amongst the first appreciation of the real effective exchange rate over twenty most competitive economies in the world.

the last decade (62%, compared to 21% in the Besides innovation, it includes another eight key pillars for reform: Effectiveness of the goods and

EU27), indicating a loss in cost and price services markets, financial markets, labour market,

competitiveness. In spite of this, the Czech export

performance has improved, as growth in real education, healthcare, macroeconomics, infrastructure and institutions. It is linked to the

exports has averaged 11.8% between 2000 and Czech Cohesion policy and the forthcoming Pro

2008 and the balance of trade has improved.

Nominal unit labour costs have increased by 34% export Strategy for 2012-2020.

between 2000 and 2010, compared to an increase of

14% in the EU27 and 20% in the Euro area. While The Operational Programme Enterprise and labour productivity per hour worked has gradually Innovation (OPEI) includes support for increasing increased over the last years, it is still about 38 the innovative performance of firms (innovation of

percentage points below the EU27 average. products, processes, organisation and marketing), as well as for improving access to finance for new and 4.3.2 Towards an innovative industry developing SMEs, stimulating cooperation between the science and industry and developing high

quality services for business. Four of the

According the Innovation Union Scoreboard 2010, programmes within the OPEI support explicitly the Czech Republic is moderate innovator. A major innovation: Innovation (innovation projects and

protection of IPR), Potential, Prosperity (centres for intensity of its industry (such as metallurgy, steel technology transfer, business incubators, business and coal). In parallel, potential of cleaner angels) and Cooperation (technological platforms technologies remains largely untapped. and clusters). Interestingly, the share of environmental goods in

the exports of Czech enterprises is high (the Czech The recently established Technology Agency in Republic scores as the fourth in the EU) and they charge of applied and collaborative research generate comparatively low volume of waste. launched in 2011 its first R&D support programmes focused on advanced prospective technologies and Electricity and gas markets are still dominated by on the stimulation of cooperation between R&D incumbents and the Czech Republic has one of the institutions and industry in sectors such as highest electricity prices for businesses in the EU. transport, energy or environment. Alongside its The Government intends to continue using a system programmes ALFA, BETA and OMEGA, the so for the operational support of electricity production called Competence Centres programme supports from renewable energy sources in the form of the creation and operation of research, development guaranteed prices. Although the Czech National and innovation centers with strong application Reform Programme 2011 envisages a modification potential. It is expected that around 35 centers, each of the RES targets if needed, it does not analyse any including at least 3 enterprises and one public impacts of the RES support, particularly linked to research organisation, will be supported in the the state of the infrastructure, electricity prices and period from 2012 to 2019. This entails a budget subsequently the competitiveness of businesses. amounting to CZK 6 billion for the whole period and CZK 366 million for the first call. The Energy Efficiency Action Plan of the Czech

Republic sets an indicative energy savings target Two voucher programmes supporting cooperation for 2010 of 3 573 GWh, i.e. 1.6 % of the volume of of SMEs and universities or research institutes average energy consumption in 2002–2006. currently exist at the regional level (South Moravia Although the Czech National Reform Programme and Hradec Králové). The subsidies reach up to 2011 acknowledges a need to reduce the CZK 150 000 per voucher with a ceiling of 75 % of consumption of primary energy sources, it foresees the project's value. The South Moravian Innovation that the Czech Republic will set an indicative target Centre (JIC) launched the first call in the Czech only once a thorough feasibility analysis is carried Republic in summer 2009. So far, more than 90 out. Ongoing and foreseen measures improving the vouchers worth more than CZK 12 million were energy intensity focus on thermal insulation of distributed among Czech companies with the first buildings and improvement of efficiency of district payment made in February 2010. heating networks, reduction of energy intensity in

industries, public transport and railways in Within the specific programme of the Ministry of particular, improvement of conditions of energy Industry and Trade, called "TIP", 423 projects were performance contracting and energy services in approved in 2009; 118 in 2010 and 192 in 2011. general. However, these measures are not foreseen The programme supports industrial applied research to bring about any absolute reduction of primary and experimental development in the areas of new energy consumption. materials and products, new progressive technologies and new information systems. The So far, there has been little progress in overall budget is CZK 11.2 billion for the period implementation of the 2009 Programme for support 2009-2017. of environmental technologies, particularly in

prioritising R&D across the sectoral research Besides a higher mobilisation of resources for programmes. A new research programme is research and innovation, the challenge remains to therefore being prepared, focusing on energy ensure the efficiency of these investments, in resources and creation and protection of particular by enhancing the creation of linkages environment (renewable resources of energy, between science and industry. In this respect, a protection of ecosystems, environmentally friendly stronger reflection of the innovation aspect in the technologies). It will be implemented by the forthcoming revision of national Research and Technology Agency under its programme ALFA.

Innovation Policy 2009-2015, together with the inclusion of a multiannual funding framework, The Rules of the application of environmental would be desirable. criteria in public procurement and purchases of

government and public administration are binding 4.3.3 Towards a sustainable industry since 30 June 2011 for seven product groups. So

far, the progress seems to be limited to the two

The Czech Republic is one of the most energy originally selected product groups (office and intensive countries in the EU, mainly due to high computer equipment), with 31 manufacturers of furniture holding the eco-label "Ekologicky šetrný Concerning the availability of high-speed výrobek". For the office equipments, hundreds of broadband lines, the Czech Republic belongs to the models already comply with the stipulated weakest EU countries. On the other hand, the usage methodology. of e-government services by the Czech enterprises

seems to be well above the EU average despite An important incentive for investment in clean delays hampering the full launch of those services. technologies could be seen in a set of proposals The Czech Republic also provides relatively high currently in preparation, embedding the polluter levels of state aid (0.5 % of GDP in 2009). pays principle in the sectoral regulation on water, air and waste. Concretely, in the area of air The progress on the better regulation agenda has pollution the draft proposal foresees a substantial been made in implementing the Action Plan for increase of all fees related to certain pollutants (i.e. Reducing Red Tape: Until the end of 2010, 15.6 % TZL, NOx, SO2 and VOC) as of 2016 while of reduction was already achieved, which focusing on the largest sources of pollution. The corresponds to CZK 11,541 billion. The preparation of the new Water Act will be launched Government has set a new administrative burdens in 2013. reduction target of 30 % in 2020 compared to 2005.

By the end of 2012, the reduction of administrative While the new Waste Act is in preparation and burden is expected to reach the intermediate target should be submitted to the Government by of 25 %. While the reduction measures undoubtedly September 2011, the Waste Management Plan is facilitate doing business in the Czech Republic, scheduled only for two years later. The aim of the they remain to be of an ex post nature and do not Waste Management Plan will be to set long-term prevent new unnecessary burdens being imposed on priorities for the management of municipal and businesses in the course of the legislative process. hazardous waste, the prevention of the generation thereof, and the obligation to return products, In its decision of 16 February 2011, the appliances and packaging. Government took account of the deficiencies of the

existing impact assessment system and of proposals Despite past efforts and ETS, the Czech Republic for its improvement to be delivered by 30 remains one of the most energy intensive countries September 2011. A crucial element of the reform in the EU, which in combination with the high will be to ensure an adequate quality control of electricity prices poses a significant burden for its regulatory impact assessments and to define the businesses. Developing additional measures status of the Board for Regulatory Reform and promoting take-up of energy efficient solutions, Effective Public Administration vis-à-vis the especially in private and public buildings and Legislative Council. Unfortunately, the proposal energy-intensive industries is therefore a key, in fails to address the unequal treatment of particular in light of the current Czech projections stakeholders during open consultations and to which do not foresee any decrease of the Czech promote the Methodology on public consultations primary energy consumption by 2020. At the same among mandatory provisions on impact time, the challenge for the Czech Republic is to assessments. ensure that the capacity and performance of the transmission and distribution network enables the The Czech government adopted in May 2011 a implementation of the Czech RES target while revised version of the Public Procurement Act with safeguarding that electricity prices do not hamper the aim to increase the efficiency of the public the competitiveness of businesses. expenditure and the transparency of public

procurements by using the IT tools. While notable 4.3.4 The business environment progress has been achieved in publication of

information on ongoing tenders and their results, The Czech Republic ranks significantly below the several electronic auction tools seem to being EU average concerning the quality of its legal and developed in parallel. For the tenders of low regulatory framework: Business regulatory amount, an electronic market place is being environment remains subject to frequent changes, developed. often adopted without a thorough analysis of their impacts and notably impacts on SMEs. Such a An important measure to increase the efficiency of regulatory management policy increases the public administration is the introduction of the ecomplexity of business environment and imposes government. It has been launched on the basis of unnecessary burdens on businesses. Combined with the recently revised Smart Administration Strategy the lack of transparency and credibility of public (December 2010) and financially supported by the procurement rules, it significantly reduces the ERDF Integrated Operational Programme. Despite overall investor confidence. the fact that the strategy defines the priorities and

time schedule for the introduction of e-government in the Czech Republic, its implementation remains compatibility of several electronic auction systems hampered by insufficient legal framework for avoided. In order to alleviate the burden of public accessing and interlinking public databases and administration processes for businesses it is issuing electronic certificates, weak coordination of important to complete and increase the efficiency of individual projects and unstable public the e-government services. administration.

4.3.5 Entrepreneurship and SME policy The data boxes (electronic delivery system destined for the sending and receiving of documents relating The Czech Republic is placed well below EU 27 to the public authorities) were launched on 1 average regarding the share of people expecting to November 2009 and so far have not lead to a start a business, their desire to become selfnoticeable reduction of administrative burden – employed and the degree to which school education their usage remains limited, they are used only helped to develop an entrepreneurial attitude (the passively for obtaining documents while it is second worse performer in the EU). Access to impossible to communicate/send documents. finance remains extremely difficult for SMEs, Therefore, in the future, new functions of the data especially in the early stage of financing. boxes will be introduced (e.g. link to the bank Concerning bankruptcy procedures, it takes the account of users by end 2011). longest time in the EU to wind up a business (2

years in the EU on average versus 6.5 years in the The main part of the e-government measures Czech Republic). Czech businesses also face higher represent the so called basic registers which, once cost to start a business and it takes them longer to operational, will significantly reduce the register a property that the EU average. The cost of administrative burden for both citizens and enforcing contracts is the most expensive in the EU. enterprises. Contracting procedure for them has been launched and they are foreseen to become Despite the fact that the curricula in general operational as of July 2012. secondary education already includes essential

competences for entrepreneurship, it is not Discussion is also ongoing on the extension of the implemented on a systematic basis and remains at scope of the Czech Points ("all in one place points", the full discretion of teachers. Businesses in the where the citizen can obtain all the information on Czech Republic consider the lack of the data kept about him or her by the state in its entrepreneurship education as one of the main central registers), such as the possibility to access barriers in creating start-ups jobs and expanding in the Czech Points from home or to link them with third country markets. Becoming an entrepreneur is data boxes. seen too risky to try and becomes only the last

resort solution. From this perspective, it is no A new broadband strategy "Digitalni Cesko" was surprise that very few export oriented Czech SMEs approved by the Czech government in January are willing to open subsidiaries companies in third 2011. It specifies individual tools to reach the countries. strategy, the deadlines and responsible bodies.

Among others, the strategy sets a target to ensure The national scheme of guarantees for SMEs the availability of access to high-speed Internet in expired in 2010 as it was seen only as one of the all populated areas of the Czech Republic with a anti-crisis measures. Guarantee and loan schemes minimum transmission speed of at least 2 Mbps under the Operational Programme Enterprise and (download), and in cities of at least 10 Mbps by Innovations are not sufficient to substitute the 2013. By the end of 2015, the Czech Republic aims national scheme from the magnitude perspective. to have eGovernment services used by at least 50 % Several other temporary measures supporting of the population and 95 % of businesses (89 % in businesses were discontinued in 2010 but so far, no 2010 according to EUROSTAT). The main tools evaluation of their efficiency has been made are: establishment of development criteria available.

(preference of areas not yet covered by the internet), reduction of costs of frequency, use of the Financial instrument focusing on early stage Structural Funds for building high speed internet financing is still missing in the Czech Republic. infrastructure. The Operational Programme Enterprise and

Innovations includes a commitment to implement a A major challenge for the Czech business pilot project of the venture capital in the current regulatory framework is to reduce the frequency of programming period so that the instruments of legislative changes and to promote evidence-based financial engineering can be used for the support of policy making. The progress achieved so far in the SMEs more widely after 2014+. The concept of increasing the transparency of public procurements the venture capital fund co-funded from the needs to be sustained and possible non Operational Programme Enterprise and Innovations was finalised in March 2011 by the Ministry of The Czech business environment is an important Industry and Trade. The legislative proposal should bottleneck to economic growth and investor be finalised in the autumn 2011 so that the holding confidence. In the absence of evidence-based policy fund implementing the venture capital can launch making, it is subject to frequent legislative changes its activities during 2012. increasing uncertainty and imposing unnecessary

burdens on businesses. The progress achieved so far A special "Entrepreneurship Council" gathering in increasing the transparency of public officials, business and employees stakeholders is procurements needs to be sustained. It is similarly meeting at least three times a year to discuss and important to complete and increase the efficiency of assess new legislation having a direct impact on the e-government services. business environment.

Improving access to early stage financing has Given the export orientation of the Czech become a matter or urgency, particularly in relation economy, an increased attention is being paid to to the development of the venture capital fund. The the pro-export measures. Work is ongoing on the fact that the school education in the Czech Republic new Czech Export Strategy for 2012-2015, the does not help students to develop an entrepreneurial Government operated also a special green line for attitude will deserve closer attention. However, the export companies, which since 2006 provided over Czech International Competitiveness Strategy could 8 400 answers to interested SMEs. The so called be an important step forward in developing the "Export Academy" delivered complex export longer term vision of the Czech economy and education for SMEs with sectoral and territorial society. focus. A number of thematic seminars and workshop was planned for 2011 focusing on the following markets: Turkey, South Africa, Russia,

Argentina, Australia, and New Zealand.

It is still to be seen if the revised Act on Insolvency facilitated the restructuration and/or shortened the bankruptcy procedure of insolvent companies.

The main challenge for the Czech authorities remains to establish the venture fund as soon as possible and to explore all existing funding possibilities available under the EU Operational

Programmes to support SMEs. A particular attention should be paid to enhancing entrepreneurship education.

4.3.6 Conclusion

In line with the relatively low R&D intensity, the majority of Czech firms compete internationally on costs, instead of differentiation through innovation.

Alongside a need to mobilise and coordinate resources for research and innovation, the challenge is to ensure that the scientific output corresponds to the industrial need. The foreseen revision of the tax scheme has a potential to boost private research and innovation.

Developing additional measures promoting the take-up of energy efficient solutions is desirable, particularly in the light of the current projections foreseeing an increase of the Czech primary energy consumption by 2020. In this respect and given the fact that the Czech Republic is one of the most energy intensive countries in the EU, electricity prices may hamper the competitiveness of businesses.

4.4 Denmark

Denmark

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2010) d u i n v e Labour productivity per person employed (EU27=100; 2010)

p e ti ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m

c

n d

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

ta d u T o

w

u s in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008) N.A.

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2007) n e

e p re Early stage financing (% of GDP; 2009)

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Denmark (2009)

Refined petroleum products Paper products; publishing and printing Wood and wood products

Chemicals, chemical products

Food products

Rubber and plastic products

Textiles and textile products

Machinery and equipment n.e.c. Manufacturing n.e.c.

Transport equipment

Other non-metallic mineral products

Electrical and optical equipment Basic metals and fabricated metal products

Leather and leather products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.4.1 Introduction Denmark’s business R&D intensity is above the expected level given its industrial structure, and its

Trade and industry specialisation quality indicators are above average (with the exception of the high price segment in labour

Manufacturing plays a smaller role for Denmark intensive industries) and indicate a favourable than for the EU in total (13.2 % vs. 14.9 % of value position on the quality ladder. This explains how added in 2009). At the detailed level of Denmark manages to sustain competitiveness in manufacturing industries, Denmark is specialised in sectors characterised by low innovation intensity.

mainstream manufacturing industries (electric motors, generators and transformers), and in marketing-driven industries (the manufacture of games and toys, or meat and fish products). In Most prominent sectors in Denmark addition, in exports Denmark is also specialised in labour-intensive industries (the manufacture of Highest relative value added (2007)

builders’ carpentry and joinery). At the more Water transport Real estate activities

aggregated sector level, Denmark features value Tobacco products added specialisation in sectors with high innovation Change in the relative value added (1999/2007) intensity (machinery), and with low innovation Increasing specialisation

intensity (water transport). In exports, Denmark is Real estate activities Electrical machinery and apparatus, nec

strongly specialised in sectors with low innovation Tobacco products

and medium-low education intensity (again, water Decreasing specialisation Supporting and auxiliary transport activities; activities of travel agencies

transport). Overall, Denmark’s specialisation Inland transport

profile is strongly driven both by intangible assets Water transport

(marketing-driven industries such as games and

toys), but at the same time by natural endowments Structural change

(agricultural products, sea,...), explaining its bipolar

specialisation in both innovative and less innovative In terms of change, Denmark has strongly increased

sectors. its relative value added share in technology-driven industries such as in medical equipment as well as

in sectors with high educational and innovation research and private sector has increased intensity (electrical machinery e.g. wind turbines), significantly the last years and is expected to result while substantially reducing its specialisation in in higher productivity for the participating firms. In sectors with low innovation and education intensity the June 2011 "Agreement of Denmark as a Growth (land and water transport). The change dynamics Nation", the government launches several initiatives for exports have been somewhat different, with aiming at further strengthening the innovation high education sectors having increased strongly system in Denmark by re-organisation of the (financial services) but high-innovation sectors research councils and research institutions. (communication equipment) and technology-driven industries (aircraft and spacecraft) having slightly The Business Innovation Fund ("Fornyelsefonden") decreased. was launched in 2010 for 2010-2012. A total of

DKK 760 million was allocated to the fund with the Denmark’s R&D intensity has risen considerably, purpose of promoting restructuring and renewal of while there has been little change in the quality especially SMEs in the area of green technologies indicators. At the sectoral level, Denmark has and welfare solutions. gained R&D intensity mainly in services sectors such as distribution, software and research and The Danish Government's Globalisation Strategy development, while decreasing R&D intensity in which expires in 2012 and corresponding and machinery and transport and communications. matching national policies in areas including Overall, this points to a mostly unchanged positive innovation, education, energy and the environment, outlook for competitiveness. indicate how Denmark aims at being a country with

industries able to be highly competitive. The impact of the crisis on Denmark’s specialisation patterns was limited, with no clear The government published the innovation strategy overall direction of change in the crisis years. The "Strengthened innovation in businesses" in 2010. impact on total manufacturing production was The strategy includes 37 initiatives aiming at severe and its level was in April 2011 still 14 % strengthening the innovation capacities of Danish below its previous cyclical peak. SMEs. Initiatives include activities promoting

participating in cluster activities, subsidies for

Denmark showed an appreciation of the real SMEs' R&D activities and a strengthening of the effective exchange rate over the last decade by Industrial PhD programme.

22%, which is only slightly above the EU27

average (21%), indicating nevertheless a loss in Several initiatives aiming at strengthening the cost and price competitiveness. Nominal unit labour innovation capacity in the Danish economy are costs have increased by 34% between 2000 and launched in the "Agreement of Denmark as a 2010, compared to an increase of 14% in the EU27 Growth Nation". These include tax deductions for and 20% in the Euro area. Over the last decade, firms' R&D expenditures up to 5 million DKK per Denmark's labour productivity per hour worked has year.

remained relatively stable at about 18 percentage points above the EU27 average and 4 percentage

points above the Euro area average. Though Danish innovation policy is modern and comprehensive, a number of challenges remain.

Indeed, despite the growth-friendly business

4.4.2 Towards an innovative industry environment, there are concerns about the relatively

limited innovation capacity. Despite impressive

According to the Innovation Union Scoreboard efforts to increase R&D and innovation, the results 2010, Denmark is one of the innovation leaders in terms of high-tech exports and high-growth with a second place, well above the EU. While enterprises are below EU average.

Denmark scores high in sub-indicators such as

linkages and entrepreneurship and intellectual 4.4.3 Towards a sustainable industry

assets, output in terms of innovating firms is

relatively low. The performance of the Danish industry can be characterised as rather strong. This relates to, for

The innovation system is well functioning. Private example, the relatively low energy and carbon investment in R&D has increased by 54 % over the intensity in the industry. In 2008 an Energy last decade. The public part of the innovation Technology Development and Demonstration system has been consolidated through institutional Programme (EUDP) was established. EUDP reforms and mergers the last years. More funding in supports the development and demonstration of fewer funds has yielded a more efficient funding new energy technologies that can contribute to the system, and more risk capital and incubators have ambition of independency of fossil energy in 2050. been put in place. The co-operation between public An environmental technologies action plan,

launched in 2010, aims to promote new burdens by setting a target of 10 % reduction of the environmental technological solutions and foster perceived burdens also to be reached by 2015. growth and employment in the Danish industry. As From 1 July 2011, for a period of three years, startmentioned earlier, in 2010 the government ups and firms with less than 10 employees will be established the Business Innovation Fund exempted from new burdens incurred by (“Fornyelsesfonden”) of DKK 760 million for the legislation. period 2010-2012 with the aim of supporting innovation and market maturity within the green The third strategic programme to develop and welfare areas to create growth, employment eGovernment is focused on improving digital and export for Danish businesses. services, efficiency and collaboration across all

levels of governments. It includes the ambitious The government presented the Energy Strategy objective of digitalising all relevant communication 2050 in February 2011. The strategy aims at between government and business by 2012. In making Denmark independent of fossil fuels by 2010, the online availability of public services was 2050 and includes a number of initiatives targeted 95 % for enterprises, and eGovernment usage by toward fostering new green solutions for business. business one of the highest in the EU. "Virk.dk”, a Initiatives are planned for the wind area with business-to-government one-stop-shop, is a main opportunities for development of wind turbines, the initiative aiming at facilitating the provision of biomass and biofuels area, the biogas area, information to government authorities, including development of smart grids and measures for invoicing. Some 30 % of all information, which energy savings aiming at further reducing the enterprises must report to government authorities, is already low energy and carbon intensities in the sent via "Virk.dk". Denmark is one of the best Danish enterprises. performing countries regarding one-stop-shops.

Virk.dk is fully operational and web based (Danish

Danish industry has a clear advantage in exports of Commerce and Companies Agency, DCCA).

green-tech solutions. Exports of energy

technologies and equipment goods made up 12 % The recently adopted "Konkurrencepakke" is of total Danish manufacturing exports in 2009, mainly targeting the construction sector, the retail thereby doubling the share since 2000. As a sector and health services and the public sector comparison, energy technologies and equipment /public services. Other sectors for which measures only constituted of some 6 % of EU-15 exports in are considered include taxis, postal services and 2009. Danish industry is particularly strong in the public transportation services. The question of segment wind-turbine components, insulation liberalisation of the pharmacies sector will be

materials and energy efficient pumps. investigated further before any measures will be implemented. This also concerns the question about

4.4.4 The business environment allowing larger hypermarkets in the retail sector.

Denmark scores clearly above the EU average in all The market for construction materials will be indicator categories with the exception of the level addressed by measures announced in the of state aid. Denmark ranks among Member States "Konkurrencepakke". The measures aim among with the lowest burden of government regulation, other initiatives at increasing imports of foreign with a legal and regulatory environment that highly construction materials. Increased imports of foreign encourages the competitiveness of enterprises. building materials is likely to increase the supply on

the Danish market and result in a downward Regulatory reform has been on the agenda of the pressure on the prices of building materials. Danish government for over two decades with the Ownership of clinics for dentists and general aim of modernising the public sector and promoting physicians by others outside the profession will be an efficient business environment. As regards the opened up which may encourage establishment of reduction of the administrative burdens for larger firms on these markets.

businesses, the Government's objective has been to achieve the target of 25 % reduction in 2010

relative to the 2001 level. Over the period 2001- The government has launched a strategy aiming at

2010, 24.6 % of the 25 % target has been achieved. increasing competition for public services by gradually increasing public procurement in

In the "Agreement of Denmark as a Growth municipalities and regions. New target for Nation", the Government sets a new target of municipalities: 31.5 % of all procurement shall be reduction of administrative burdens with another public in 2015. In the "Konkurrencepakke" it also 10 % in 2015 relative to the 2010 level. announced that negotiations with the regions will In January 2011 the Danish Parliament decided to take place aiming at increasing public procurement complement the efforts of reducing administrative in the regions to 2015.

early 2011 and contains an agreement with pension funds which strengthens the market for risk capital

4.4.5 Entrepreneurship and SME policy with up to 10 billion DKK for entrepreneurs and

Danish SMEs constitute on average just as much of SMEs with growth potential (25 % risk, 75 % loan). total enterprises as the EU-27 average. The Danish The scheme is guaranteed by the Growth Fund. SME share of total employment is a bit smaller and Also a new fund "Dansk Vækstkapital" was the share of value added larger than the EU-27 established with the purpose of investing in private average, indicating a higher productivity in Danish equity/venture capital funds focusing on SMEs with SMEs. Danish SMEs are a bit larger than the EU-27 a growth potential. The government has also average. Micro enterprises represent 87% of all initiated analyses to explore possibilities to provide SMEs in Denmark while the corresponding share in corporate bonds market for SMEs.

the EU-27 is 92%. As a consequence, small and medium-sized SMEs hold larger shares of all In order to ease financial constraints for start-ups enterprises in Denmark than in the EU-27. and young firms, tax legislation has been amended Therefore the average SME size is larger in in some respects. These amendments include Denmark than in the EU-27, 5.6 employees per firm corporate tax exemptions, under certain conditions, compared to the average EU SME which employs for return on investments in young unlisted 4.2 persons. companies, tax exemptions for savings by

individuals who use the money to start a company Indicators, from the EU SBA fact sheets, reveal that ("Etablerings- og Iværksætterkontoordningen"). the entrepreneurship rate is lower in Denmark than Non-financial measures include the initiative for in the EU. Attitudes towards entrepreneurship and easing transfer of business from retiring business self-employment indicate that Danes are less prone owners to new owners. Some 16 000 firms are than the average EU citizens to start their own affected in the coming years. As a part of businesses. On the other hand, Danish SMEs are "Agreement of Denmark as a Growth Nation", a more internationalised than the average EU SME. committee has been established with the task of

investigating possible ways of reducing corporate Denmark has a high level of start-ups. The taxes from 25 to 20 pct. challenge is a low level of high growth firms. This underpins almost all policy measures in the SME 4.4.6 Conclusion area, e.g. the "Erhvervspakken" and the New firms package with measures aiming at providing funding The main challenges facing the Danish industry and easing financial constraints for start-ups and remain the weak competition and low productivity SMEs. growth, low shares of innovating enterprises, hightech

 exports and high-growth enterprises. The Measures include; provisions of DKK 500 million limited innovation performance may be due to a to venture capital markets to be matched by private combination of factors relating to a limited funding; a growth loan guarantee scheme of entrepreneurial culture, weak competition in DKK 1.5 billion to small businesses with high especially the services sector and the fact that the growth potential as well as a strengthening of the results of reforms of the public innovation system loan guarantees and counselling for new and micro have not yet showed up in the statistics. The enterprises; also the Export Credit Fund was increased co-operation between public research and extended and introduced the SME guarantee, a new private companies that have taken place during the targeted scheme, of DKK 2 billion, which aims to last years, could lead to a better performance in facilitate export firms to gain new orders. With terms of high-growth innovating enterprises "Agreement of Denmark as a Growth Nation", it exporting high-tech products in a near future. A has been decided to provide an additional 600 number of measures addressing these problems million DKK to the loan guarantee scheme. The were put in place during the last year with effects measure "Seed 2.0" is targeted specifically to startyet to materialise. ups and new firms and provides seed and pre-seed

loan of 500 million to be matched by private Further policy actions aiming at fostering funding up to DKK 1.5 billion. competition could also spur innovation and increase

the share of innovating enterprises. An especially

Among other measures to facilitate exports for important area is the service sector where there is a SMEs, in the Agreement of Denmark as a Growth large number of SMEs who would benefit from Nation, the Export Credit Fund has been extended more competitive service markets. The to 2015. "Konkurrencepakke" was a first step in the

direction of opening up public procurement for

The New firms package was launched in late 2010 SMEs and increasing productivity in the service

sector by liberalising some important sub-sectors.

4.5 Germany

Germany

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u

s

T o u

s ta Waste generated by enterprises (all NACE sectors;

-4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007) N.A.

n e

u

re

e p Early stage financing (% of GDP; 2009) E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Germany (2009)

Rubber and plastic products Chemicals, chemical products

Other non-metallic mineral products Refined petroleum products

Paper products; publishing and printing

Wood and wood products Textiles and textile products

Machinery and equipment n.e.c.

Food products

Leather and leather products Manufacturing n.e.c.

Electrical and optical equipment Transport equipment

Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.5.1 Introduction Germany’s export shares in technology-driven and

Trade and industry specialisation labour-intensive industries are extremely low in the low price segments, and in line with the average of

Manufacturing plays a bigger role for Germany the higher income, knowledge-intensive countries than for the EU on average of value added (22.7 % in the high price segments, indicating a strong against 14.9 % in 2009). At the detailed level of position on the quality ladder. The R&D country manufacturing industries, Germany is strongly effect is slightly negative, i.e. Germany’s business specialised in technology-driven industries R&D investments are below the expected level (manufacture of motor vehicles, electricity given its industrial structure. distribution and control apparatus), and less so in mainstream manufacturing, e.g. in the manufacture of transport equipment. Germany is also specialised

in capital-intensive industries (e.g. the manufacture Most prominent sectors in Germany

of parts and accessories for motor vehicles) in terms of value added but not in exports. The only labour Highest relative value added (2007) intensive industry in the top five industries is a high Motor vehicles, trailers and semi-trailers

skill industry (machine tools). At the more Office, accounting and computing machinery Electrical machinery and apparatus

aggregated sector level, Germany is specialied in Change in the relative value added (1999/2007) high and medium-high innovation intensive sectors Increasing specialisation

(motor vehicles, electrical machinery and medical, Office, accounting and computing machinery Motor vehicles, trailers and semi-trailers

precision and optical instruments). However, Radio, television and communication equipment

Germany is not overly specialised in sectors with Decreasing specialisation Renting of machinery and equipment

high educational intensity because of the relatively Air transport

low value-added share in financial services and Real estate activities

software. The share of exports by technologydriven industries going to the BRIC countries is very high, indicating further growth potential for

Germany. Structural change

In terms of change, Germany has further increased its value-added specialisation in technology-driven target of 3 %. In order to move a step closer industries and highly innovation-intensive sectors, towards reaching the defined target, Germany e.g. in computers and electronic components. In invests an additional EUR 12 billion in education exports, technology-driven industries have stayed and research over the period of 2009-2013, about stable, while highly innovation-intensive sectors EUR 6 billion in research and EUR 6 billion in have lost relative share (radio, TV and education and training. communication equipment). Interestingly, Germany has also considerably increased its relative share in Nevertheless, from a global perspective, Germany low innovation sectors, due to a mix of several is still lagging behind major competitors such as sectors (recycling, wholesale trade, water Japan or South Korea, in particular concerning transport...). Germany’s share in the high quality business R&D investments. segments of technology-driven industries has

decreased, as has its sectoral R&D intensity (R&D The measures to support innovation in Germany are country effect) and its relative value added share of described in the new high-tech strategy 2020, educationally highly intensive sectors. At the presented in July 2010, which continues a first sectoral level, Germany’s R&D intensity (i.e. R&D initiative launched in 2006. The overarching expenditure in relation to total value added) has strategy aims to foster cooperation between science decreased in motor vehicles, transport equipment, and industry in key technology areas and lead pharmaceuticals and communication equipment, markets and to improve the general framework while other sectors saw small increases (e.g. conditions for innovation. The strategy focuses on machinery). R&D in priority areas such as energy and climate

protection, health and nutrition, mobility, as well as Germany's manufacturing production rebounded security and communication. It also supports the fast after the crisis and was in April 2011 4.1 % development of key enabling technologies, which below its previous cyclical peak. The impact of the act as drivers of innovation and which build the crisis on Germany’s specialisation patterns was basis for new products, processes and services, limited overall, with technology-driven industries including for example optical technologies, declining as compared with before the crisis. materials technologies, biotechnology,

nanotechnology, micro-systems technology etc. Germany is among the few Member States which have experienced a depreciation of the real effective The new strategy also includes SME funding via exchange rate during the last decade (-6%, the Central Innovation Programme for SMEs compared to an appreciation of 21% in the EU27), (ZIM). In order to meet the challenges of global indicating a gain in cost and price competitiveness. competition, SMEs are supported to enhance their Nominal unit labour costs have increased research and innovation efforts and to intensify the moderately by 6% between 2000 and 2010, development of new products, processes and compared to an increase of 14% in the EU27 and services. The programme provides funding for 20% in the Euro area. Germany's labour cooperation and network projects and, since 2009, productivity per hour worked is about 24 also for individual R&D projects. The planned percentage points above the EU27 average and 10 annual budget amounts to approximately percentage points above the Euro area average. EUR 500 million. The strategy also comprises

support to regional thematic clusters that bring Overall, Germany occupies a very favourable together public research and enterprises to further competitive position, which it could however develop high technologies in various areas. strengthen even further by boosting sectoral R&D intensity. In the long-term, one of the main challenges faced

by Germany will be to avoid a systematic skill 4.5.2 Towards an innovative industry shortage in industry and academia, considering the

emerging demographic challenge of the country The Innovation Union Scoreboard 2010 classified (low birth rates and ageing society) and its Germany among the innovation leaders in the EU. relatively low availability of new science, It belongs to those countries with the biggest technology and engineering graduates. The research and development (R&D) capital stock, and emerging shortage of skilled workers has already the output of R&D and innovation activities in become an increasingly important obstacle to terms of patents, new products and high further growth in many industries. High skilled, productivity is remarkable. German R&D intensity professions – in areas such as Mathematics, (percentage of GDP spent on research and Informatics, Natural Sciences and Technology – are development) is clearly exceeding the EU average, particularly affected, though difficulties in the which was 2.0 % in 2009. With 2.8 % in 2009, recruitment of skilled workers are also visible in Germany is already closely approaching the R&D other sectors, including health care and certain crafts. terms of waste generated by enterprises and exports

of environmental goods, Germany scores better The imminent shortage of skilled labour in both than the EU average. Germany also continues the academia and industry is recognised by the federal trend of further reducing raw materials government in its initiative "Konzept für consumption while increasing industrial Gross

Fachkräfte", launched in June 2011 81 . Value Added (GVA). Moreover, the support to

The federal government estimates that within the environmentally friendly technologies has been a next 15 years, the German labour market could face focus of both Germany’s structural reform agenda a shortage of up to 6.5 million skilled workers, if no and its economic recovery packages. measures were taken. The Federal Ministry of

Labour and Social Affairs expects that a large part The national "Energy Concept" presented in of the additional skilled labour could be met by September 2010 outlines the country's path towards fully seizing the potential of the domestic labour renewable energy in a long-term strategy up to market. The related measures are in particular 2050. In 2011, Germany has decided on additional aimed at increasing the number of students, far-reaching changes in its energy policy, including reducing school drop-out rates and increasing the a gradual phase-out of nuclear energy production labour market participation of older workers and until 2022, measures to accelerate grid expansion, women. In particular regarding the latter, Germany and a more market-based development of performs considerably below the EU average, with renewable energies. Germany intends to increase only 55% of employed women working full time. the share of renewable energy sources in the total

energy consumption from currently 17 % to 35 % Germany has committed to spend 10 % of GDP on by 2020. Challenges remain particularly in ensuring education and research by 2015, thereof 7 % on the cost-effectiveness of renewable energy and in education and 3 % on research. Though the budget providing the required network infrastructure. has already been considerably increased in this Germany’s interregional and international energy respect, further efforts will be necessary to meet the grids still need to be further enhanced in order to objective. According to the results of the first phase allow for a wide distribution and storage of energy

of the higher education reform package 82 , progress produced from renewable sources. Several

has been made in certain fields, including in respect regulatory and non-regulatory measures, such as the to increasing the number of study places and “ etzausbaubeschleunigungsgesetz”, are improving the quality of tertiary education. addressing this issue, but an effective Nevertheless, further improving the quality of implementation will be required in order to ensure education and training will remain an important the intended progress. challenge.

As part of the national "Energy Concept", the In addition to strengthening the education system existing Energy Research Programme ("5. and the labour market, however, the German Energieforschungsprogramm") has been extended economy will also depend on better attracting and funds dedicated to research in the field of skilled workers from other EU and non-EU sustainable energy have been increased. For countries. The initiative "Konzept für Fachkräfte" 2010/2011, EUR 1.27 billion are dedicated to R&D foresees a number of measures in this respect, in modern energy technologies, including smart including for example simplified procedures for networks and energy storage techniques. In 2011, recruiting engineers and doctors as well as easier the German federal government also decided to recognition of foreign diplomas. While these launch a new Energy Research Programme ("6. initiatives go into the right direction, it remains to Energieforschungsprogramm"), which increases the be seen whether they will be effectively financing for R&D in these areas using funds from implemented and whether they will be sufficient to the special "energy and climate fund". Between address this increasingly important problem. 2011 and 2014, about EUR 3.5 bn will be dedicated

to energy research. 4.5.3 Towards a sustainable industry

Initiatives to increase the share of electricity from

Overall, the environmental performances of renewable energy sources launched in recent years Germany’s industry can be characterised as good. have been continued, including in particular the The energy intensity in manufacturing is below the “Renewable Energy Law”, which stipulates the EU average, the carbon intensity in the non-energy guaranteed feed-in tariffs to be paid by network supplying industry is close to EU average, and in providers to producers of renewable energy. In

2011 feed-in tariffs for solar energy have been

81 further reduced while incentives have been Bundesregierung, "Konzept für Fachkräfte",

increased in other sectors such as off-shore wind 22.6.2011

82 Hochschulpakt

parks, geothermal and hydroelectric energy. entrepreneurship. In this sense, the Bureaucracy Reduction and Better Regulation programme of the

The automotive sector is of particular importance to German federal government comprises a number of Germany. In 2011, the federal government has important measures to further reduce administrative adopted the initiative "Electro-mobility", which burden in the business sector. A number of aims to establish Germany as the leading measures have been taken over the last years to international market for electric vehicles. The target further reduce reporting obligations in the business foresees that one million electric vehicles should be sector. By the end of 2010, the administrative on German roads by the year 2020 and up to six burden associated with reporting obligations has million by the year 2030. The promotion of electric been reduced by 22.6 % compared to the level of mobility needs to be coupled with the use of 2006 according to a report published by the federal

renewable energy in order to have a significant government 83 . Continued efforts will be necessary

positive environmental impact. Given the in order to meet the defined target of a 25% importance of the automotive sector for Germany, reduction by 2012. The programme is currently progress in promoting electric mobility and being extended to address in addition to reporting renewable energies will be crucial for the obligations also other measurable compliance costs, competitiveness of its industry. The German federal based on a standard cost model. In 2011, a tax government has allocated additional funding of simplification act has been proposed by the federal EUR 1 billion until 2013 for this initiative and will government, which aims among others at establish a national project coordinator. introducing the possibility to submit income tax

declarations every two years, simplifying the use of

The public procurement system in general has an electronic invoicing and improving the electronic important potential to support the deployment of communication with tax authorities. environmentally friendly products given its significant level of expenditure. Public procurement There is still potential to further stimulate on federal and regional level in Germany has competition in services. Regarding network increasingly integrated sustainability aspects such industries, competition is still hampered as as resource efficiency and emissions based on a enterprises in these markets are still highly life-cycle approach, though so far this was mainly vertically integrated, although there are indications based on individual initiatives rather than a of some progress due to initiatives launched in

systematic approach. The proposed legislative recent years 84 . Improving the interregional

package foresees the introduction of legally binding interconnection might lead to an increase in energy efficiency criteria in the public procurement competition in the future. In 2011, the federal regulations to support the procurement of products government decided to further liberalise longand services complying with the highest energy distance bus services within Germany, which could efficiency standards. contribute to enhancing competition in passenger

transport. 4.5.4 The business environment

4.5.5 Entrepreneurship and SME policy Germany offers a favourable business environment and successfully attracts foreign direct investment. The share of large enterprises in Germany is higher It scores the highest among the 27 Member States than the EU average and also SMEs tend to be concerning the overall satisfaction with the quality larger than their average EU counterparts. The SME of infrastructure. However, it scores around average sector accounts for 61 % of employment in regarding the regulatory framework and Germany (EU 67 %) and generates 54 % of value administrative burden, as well as other related added (EU 59 %). Large enterprises contribute indicators. 39 % to employment (EU 33 %) and generate 46 %

of value added (EU 41 %). The contribution of

Ex ante impact assessments are mandatory for micro-enterprises to employment is considerably initiatives of the federal government and also the lower than the European average (19 % vs. 30 %). "Länder" increasingly use impact assessments. Both the preference for self-employment and also Public consultation by the federal government is the entrepreneurship rate are slightly lower than the formally regulated by the Joint Rules of Procedures, EU average.

which specifies that federal ministries must consult

early with an extensive range of stakeholders, 83

including SMEs. "Bericht der Bundesregierung 2010 zur Anwendung des Standardkosten-Modells

The simplification of the regulatory framework and und zum Stand des Bürokratieabbaus",

the reduction of administrative burden are crucial to Dezember 2010 84

strengthening investment and encouraging E.g. "Kraftwerksnetzanschlussverordnung" and "Energieleitungsausbaugesetz"

German SMEs perform particularly well in respect process of European decision making, including the to innovation. The share of SMEs with activities in participation in public consultations. process innovation, product innovation, as well as marketing or organisational innovation is overall Considering their relatively larger size, German considerably higher than EU average. In the area of SMEs also tend to be more active in other EU and skills and training, however, the results are more non-EU markets than their European counterparts. mixed and the performance is much closer to the Information and support for SMEs including in EU average. respect to internationalisation, market access in

third countries as well as intellectual property rights The business environment is overall favourable for is particularly provided through the well developed entrepreneurial activities and federal and regional international network of German Chambers of programmes are in place to support the Commerce ("Deutsche Auslandshandelskammern") development of SMEs through a broad range of as well as the German economic development consulting and financing services. The wellagency "Germany Trade & Invest". Regarding developed network of chambers of commerce as patents and the enforcement of intellectual property well as other business and crafts associations also rights, costs for legal and tax advisory services plays an important role in supporting SMEs and often play a more important role than entrepreneurs. administrative costs. In particular in non-EU

countries, the enforcement of intellectual property The funds dedicated to providing SMEs with loans rights is an increasingly significant obstacle for and guarantees have been significantly reinforced SMEs, due to complex administrative procedures during the crisis, which has contributed to the fact and high costs for legal advisory services. that concerns of a credit crunch have not materialised in Germany. A number of these loans Effectively addressing the challenge of a possible and guarantee funds were supported through ERDF emerging shortage of high-skilled work force will resources. In view of the general economic be of particular importance to SMEs, as they are recovery in Germany, the stimulus package often in a weaker position to attract and retain high "Wirtschaftsfonds Deutschland" was phased out at skilled workers compared to large enterprises, the end of 2010. Over 20 000 enterprises, in particularly in an increasingly competitive particular SMEs, have received credit funding or environment. guarantees with a total amount of about

EUR 14 billion. 4.5.6 Conclusion

In 2010 the Federal Ministry of Economics and Overall, Germany enjoys a favourable position with Technology launched a start-up initiative respect to competitiveness. Its economy and "Gründerland Deutschland" comprising a broad industry benefit from framework conditions which range of programmes and activities. The aim is to are conducive to R&D and innovation as well as to raise awareness of entrepreneurship and selfthe deployment of environmental technologies. employment, including among pupils, apprentices, With its specialisation in capital goods, the German students and adults. export sector was particularly well placed to benefit

from the increasing demand in emerging markets Both in terms of average time and average costs and the incipient global recovery. required to start-up a limited liability company,

Germany is placed clearly below the EU average The business environment is overall also favourable and has further improved over the last years. for entrepreneurial activities as SMEs and However, an analysis performed on regional level entrepreneurs have at their disposal a broad range highlighted considerable differences among of services provided by government authorities and individual "Länder" in respect to the time required the well-developed network of chambers of for business and tax registration, which might commerce and other crafts and business indicate potential for further improvement. associations.

In 2011, the Federal Ministry of Economics and In the long-term, a major challenge will be to avoid Technology has introduced an "SME monitor" a systematic shortage of high-skilled labour force ("Mittelstandsmonitor für EU-Vorhaben"). The tool by adapting both the educational system and the aims at identifying projects and legislative labour market to the changing requirements of proposals on EU level that might be of interest for technology and innovation. Overall Germany could SMEs and at strengthening the participation of benefit from further investment in R&D to remain German SMEs and their representatives in the at the technological frontier.

4.6 Estonia

Estonia

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2010) d u i n v e Labour productivity per person employed (EU27=100; 2010)

p e ti ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m

c

n d

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

ta d u T o

w

u s in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2007) n e

e p re Early stage financing (% of GDP; 2009) N.A.

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Estonia (2009)

Wood and wood products Textiles and textile products

Leather and leather products

Paper products; publishing and printing

Food products

Refined petroleum products

Chemicals, chemical products

Rubber and plastic products Manufacturing n.e.c.

Other non-metallic mineral products Transport equipment

Basic metals and fabricated metal products Electrical and optical equipment

Machinery and equipment n.e.c.

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.6.1 Introduction been driven by manufacturing of electronic products, fabricated metal products, motor vehicles,

Estonia is one of the countries that are catching up electrical equipment as well as machinery and fast: among the population of active enterprises, it equipment, with 70% of the whole manufacturing has a high share of enterprises that are growing fast; production sold on the external market. However, manufacturing production has regained all the Estonia remains predominantly specialised in ground lost during the crisis, exceeding by 2.6 % its labour-intensive manufacturing industries, such as previous cyclical peak in April 2011. Estonia sawmilling and wood planning, carpentry and remains a typical member of the group of countries joinery and manufacturing of textiles. In terms of with relatively lower income levels and a exports, Estonia is weakly specialised in capitalpredominant specialisation in labour-intensive intensive industries, such as refined petroleum industries. However, Estonia’s R&D intensity is products. At the more aggregated level, Estonia much higher than the average of this country group, remains highly specialised in sectors with low even though it is below average when taking into innovation and education intensity, such as clothing account its industrial structure. Moreover, the share apparel and auxiliary transport activities, while the of labour-intensive exports is in decline, while the top sector – wood and wood products – is shares of capital-intensive products and (difficult to characterised by medium innovation intensity. Most imitate) research-intensive exports is expanding. trade happens with other EU countries, with Overall, Estonia is improving its competitiveness Sweden and Finland being partner number one and and, if it keeps momentum, it will join the group of two; however, as is the case for the other Baltic higher income countries that are specialised in States and Finland, Russia is an important

labour-intensive industries. destination for Estonian exports. This explains Estonia's relatively high share in exports to the Trade and industry specialisation BRICs. While Estonia's share in the low price segment of exports is above the EU average, its

In 2009, the relative value added share of Estonia's share in the high price segment is below the EU manufacturing industry was close to the EU average, thus indicating an unfavourable position.

average – 14.3 % versus 14.9 %, respectively. The Nevertheless, Estonia has been climbing the technology ladder from low tech exports in the late

country's rapid recovery in industrial production has nineties to medium-to-low tech exports in the 4.6.2 Towards an innovative industry recent decade and the good dynamism of its medium-to-high tech exports augurs relatively well The Innovation Union Scoreboard 2010 classifies for future trade developments. Estonia as an innovation follower. It has been

registering a rather good performance in as far as R&D and innovation are concerned: Investment in

Most prominent sectors in Estonia R&D reached 1.4 % of GDP in 2010. However, public funding for R&D has been decreasing in the

Highest relative value added (2007) last two years and European Regional development

 Wood and products of wood and cork

 Wood and products of wood and cork Fund has continued to be a very important source of

 Textiles and textile products financing in Estonia. To counterbalance this Change in the relative value added (1999/2007) situation, the government is planning to increase Increasing specialisation public sector investments to reach 1.2 % of GDP in

 Coke, refined petroleum and nuclear fuel

 Wood and products of wood and cork 2011, hoping that this will foster private R&D Electrical machinery and apparatus investment.

Decreasing specialisation Wearing apparel, dressing and dyeing of fur Supporting and auxiliary transport activities; activities of travel agencies

 Water transport Even though the percentage of Estonian enterprises providing training to their employees is higher than

the EU-average – 67 % versus 58 %, respectively,

Structural change one of the main challenges of the Estonian economy is the shortage of skilled labour, in

In Estonia, the crisis seems to have slowed down particular engineers, as identified in a 2010 survey structural change, as the variations in relative shares on export obstacles by the Chamber of Commerce. have been much smaller than those for the entire According to the new Research and Development

period 1999-2010. Organisation Act, in order to increase the number of high-skilled workers, the government is planning

Estonia has increased its industry specialisation in to offer state funding for university students taking sectors with high innovation and education classes in areas related to competitiveness and intensity, such as electrical machinery. In addition, increase the number of PhD students by offering trade specialisation has decreased in labour them an employment contract with appropriate intensive (e.g. textile weaving) and technologysocial guarantees. It is worth noting that the driven industries (e.g. aircraft and spacecraft), Estonian Research, Development and Innovation while it has increased in mainstream manufacturing Strategy 2007-2013 targets the areas of IT, (e.g. manufacturing of electric motors) and capitalbiomedicine, and material sciences as having the intensive industries (e.g. refined petroleum highest potential for increasing competitiveness.

products, man-made fibres). In particular, Estonia

has substantially improved the R&D intensity in the In addition, a program of studies fostering transport, communication and chemicals sectors. entrepreneurship as an elective will be introduced While the quality of technology-driven industry has in secondary education as of 2013. A similar stagnated, Estonia has climbed the quality ladder in initiative – the 2010 Entrepreneurial Studies

labour-intensive industries. Promotion Plan – identifies the relevant concepts in the field of entrepreneurial studies, including

Estonia has experienced a strong appreciation of the potential problems and recommendations on how to real effective exchange rate during the last decade solve them. Furthermore, by exempting work(53%, compared to 21% in the EU27), pointing to a related studies from the tax on fringe benefits, the possible loss in cost and price competitiveness. The government expects to encourage companies to increase in nominal unit labour costs (66%) invest in the improvement of employee skills. Once between 2000 and 2010 was significant, but wages these measures are implemented, their effectiveness remained largely below those prevailing in in improving the market of skilled labour will have Estonia's main trade partners. Nevertheless, a loss to be assessed.

of profitability and competitiveness hurt low-skilled

and labour intensive sectors, such as textiles, and In order to improve the research and innovation non-price elements were not always sufficient to capacity of enterprises, the government intends to maintain Estonia's market shares. While labour create a financial instrument to support technology productivity per hour worked has gradually investments for manufacturers, offer venture capital increased over the last years, it is still about 38 to start-ups that innovate, improve the marketing of

percentage points below the EU27 average. innovation output, but also attract more knowledgeintensive foreign investment. Further measures are

envisaged to conduct design, IT and intellectual property audits, review public procurement

regulations to enable innovation, support creative Estonia remains below the EU average in terms of industries and space technologies, and encourage export of goods from eco-industries. the use of research infrastructure.

In order to address the problem of energy In order to support new innovative enterprises, efficiency, the government is considering the coencourage the commercialisation of business ideas generation of electricity and heat, the reconstruction and develop international networks, the Start-up of plants that use oil shale, improved energy Estonia Program has been allocated a budget of connections in the region, in particular with EUR 3.7 million. Moreover, a EUR 20 million new Finland, the development of an intelligent power loan scheme for technology investments is being grid and possibly the use of nuclear energy. In launched by the Ministry of Economic Affairs and addition, attention is paid to reducing the size of will run until 2015. In addition, enterprises can now individual cars, reinforcing the effectiveness of benefit from 'innovation vouchers' (up to 5 public transportation, in particular railways, and vouchers per enterprise, worth EEK 50 000 each) promoting the energy efficiency of households and attached to R&D providers; the list of providers is public buildings. Estonia has a functioning currently under revision to include private R&D environmental tax system and revenues from providers and creative companies. While 30 % of environmental taxes have been growing in recent Estonian companies produce in-house innovations, years, from approximately 2.3 % of GDP in 2005 to the impact of these new measures needs to be around 3% in 2009, above the EU average. On assessed against the research and innovation sustainable tourism, Estonia cooperates with the performance of Estonian enterprises. Destinations of Excellence Program, but no

particular investment measures are foreseen, as the Estonia has been taking some initiatives aimed at infrastructure – i.e. hotels – is quite recent and improving the cooperation between business and considered to be energy efficient. In spite of these academia. While Centers of Excellence, managed measures, energy intensity needs to be further by the Ministry of Education, have been further reduced through the adoption of new technologies developed to carry out research, Competence and green public procurement, which will have a Centers, managed by the Ministry of Economy and positive impact on both the environment and the responsible for applied research, have been security of energy supply. multiplying. However, in order to increase their effectiveness, Competence Centers could be further The sustainability of industry remains one of the integrated into clusters and linked to similar main challenges in Estonia, which has been Centers in the Baltic region. In general, there is addressed so far only through piecemeal initiatives. room for improving the knowledge transfer As part of the 2008 Clusters Program, two ecobetween universities and enterprises, such that clusters – energy efficiency in construction and R&D output could be efficiently produced and waste recycling – have been in operation since the marketed. end of 2009. In addition, a project enabling the use

of electric cars has been developed, with the Given its small economy, limited resources, and infrastructure – 200-300 chargers – being partially dependence on external trade, Estonia has to funded by the Japanese government; by the end of identify and prioritise knowledge-intensive sectors 2012 when the project ends, around 1 000 electric that are competitive internationally. This goes hand cars could be in use. Further, the National R&D in hand with fostering a better cooperation between Program on environmental issues has an energy business and academia, increasing the number of technology component that has been operating for high-skilled workers, and enabling the business some time. Rather than tackling it through disparate sector to innovate and boost its research activity, measures, a comprehensive strategy for the including through the use of Structural Funds and decrease of resource intensity should be developed, support schemes. including, among other things, additional

infrastructure projects and the development of 4.6.3 Towards a sustainable industry cross-border interconnections in the Baltic region.

The energy intensity of the Estonian industry 4.6.4 The business environment

remains high, as over 90 % of electrical energy is generated from oil shale. However, the share of Estonia's business environment is relatively good renewable energy has been growing in recent years, and business-friendly. In terms of legal and as a result of the 2007 support scheme and the 2010 regulatory framework and burden of government Renewable Energy Plan, and is likely to increase, as regulation, Estonia scores clearly above the EU a result of the production of wind energy and the average. While satisfaction with the quality of use of wood. While there is a slight increase in the infrastructure did not change and remains below the percentage of environmental goods exported, EU average, there has been a significant improvement in infrastructure expenditure and the environmental impacts have recently been adopted currently planned infrastructure projects appear and are to be submitted to Parliament for approval. adequate. A similar improvement has been Business organisations are confident in the registered in the availability of high-speed improvements introduced by this reform, although broadband infrastructure, but the percentage of they are rather satisfied with the current broadband lines in Estonia is well below the EU consultation system – i.e. the Advisory Council average. attached to the Ministry of Economy.

Estonia is doing rather well in terms of the timeless In order to further strengthen the infrastructure, the of tax payment, the cost of enforcing contracts, government is planning to continue investments in property registration and transfer, as well as start-up consolidating the secondary roads grid and conditions: the one-stop-shop to start a company is extending airport runways and terminals, as well as fully operational and the current state-funded startto improve the quality of equipment and reinforce up scheme stipulates further administrative connection points between different transport simplifications. Further measures have been means. Special attention is devoted to ICT planned to identify and reduce the most infrastructure and the continuation of the largeburdensome obligations for enterprises and allow scale broadband project. In terms of cross-border companies in financial difficulty to restart their networks, there are plans to improve connections activities faster. The 2010 amendments to the between Estonia, the Baltic region and the rest of Public Procurement Act facilitate the participation the EU. In order to attract investors, the government of companies in tenders through: a web portal and intends to further develop the local government the possibility of electronic submission of tenders, infrastructure, supply information materials in simplification of requirements for subcontractors English and consolidate county development and bidders, and faster procedures for signing centres. However, the energy-intensity indicators in contracts and solving disputes. Most basic public freight transport may be deteriorating. This, services – social contributions, corporate tax, VAT, together with the declining investment and company registration, customs declaration, maintenance costs of rail infrastructure, requires to environmental permits – are available online to be monitored closely. businesses. The single contact point – the State

Portal www.eesti.ee – has been improved to 4.6.5 Entrepreneurship and SME policy increase its user-friendliness and has been opened to companies from other Member States. In Compared to the EU as a whole, Estonia has a addition, the transposition of the Services Directive relatively lower share of micro-enterprises, but a has been finalised and the single point of contact is relatively higher share of small and medium-sized already operational and being upgraded with more enterprises, half of which are active in services. In user-friendly applications. In spite of this progress, general, the business environment is SMEs-friendly the participation of companies in public and fosters entrepreneurship. procurement is rather low and could thus be

improved, and tendering could be accelerated and Estonia has made progress in simplifying business made more transparent. Since it is below the EU conditions for SMEs. In order to facilitate the average, Estonia's e-commerce capacity and use of creation of start-ups, a 2010 amendment of the IT in sales could be further strengthened. Commercial Code has eliminated the minimum

paid capital requirement of EUR 2 500 for start-ups

The Estonian government has made efforts to cut in their first year, unless debt is incurred. In red tape by 20 %, as set in the 2007 Action Plan for addition, the Ministry of Economy is preparing a Administrative Burden Reduction. The Economic project allowing SMEs to do their book-keeping Activities Code includes the target of reducing the through an e-service platform. However, the number of economic activities requiring business organisations are concerned that such an permits/licenses. In addition, by creating a oneinitiative might crowd out private enterprises stop-shop or simply consolidating existing offering accounting services. In addition, the procedures, Estonia has recently eliminated license Reorganisation Act has enabled the closing of nonrenewal, some licenses deemed as unnecessary, as fraudulent businesses in fewer months, such that well as some burdensome steps for entrepreneurs enterprises in financial difficulty could restart their requesting licenses; some other licenses will be activities. In spite of this, business organisations replaced by simple notifications by 2014. complain that the conditions for accessing this

scheme are too strict, which has resulted in a low The reform of the impact assessment system has number of applications in the first two years of continued: new guidelines extending the scope of operation (5 applications in 2009 and 10 assessment beyond budgeting to aspects of policy applications in 2010); the government has promised analysis including economic, social and a future revision of the eligibility criteria. increased the maximum allowed amount for state

export guarantees, thus being able to cover higher Access to finance is getting easier due to initiatives amount transactions that take place on foreign taken to facilitate the availability of credit and markets. equity for enterprises. Some measures like the

Estonian Development Fund and the Large National In order to promote a positive attitude towards Loan launched by the government are still entrepreneurship, the main body in charge of operating. Start-up financing and venture capital are business support, Enterprise Estonia, has organised largely available in Estonia, although the lack of four project contests in the last year, focused on interesting investment projects is seen as a major business development and raising business bottleneck. In order to attract more capital and awareness. The target groups have included leverage the effect of public financing, Estonia entrepreneurs and potential entrepreneurs, high could encourage a more extensive use of nonschool and university students, teachers and traditional funding mechanisms and financial lecturers, as well as the wider public. instruments like JEREMIE or JESSICA of the

Structural Funds, although business organisations 4.6.6 Conclusion tend to perceive the implementation of these

instruments as too burdensome. In order to continue its catch up with the average

productivity rate in the EU, the share of higher In order to increase Estonia’s share in world value added products and services, in particular in exports, the government is planning to reinforce its exports, should continue to rise. Further policy support to entrepreneurs oriented towards external efforts could be aimed at strengthening the markets, to facilitate access to global venture contribution of capital to growth. At the same time, capital markets, to encourage the participation of benefits would be available from reducing resource creative industries in foreign markets and to make intensity, developing the infrastructure and better use of foreign representations and fostering productivity by boosting R&D and international fairs. The Export Revolution Program, innovation, identifying and prioritising knowledgeinitiated by Enterprise Estonia in February 2011, intensive sectors that are competitive offers training to export sales managers and internationally and enhancing human capital matches them with exporting enterprises: 25 through a comprehensive education reform. potential export managers will benefit from training

during an entire year, after which they will be In particular, Estonia would benefit from an matched with 25 companies interested to boost their increase in the supply of high-skilled labour, exports. In addition, in July 2010, KredEx, a new enabling the business sector to innovate and to state credit insurer, became the provider of export increase research activity. Here the use of Structural guarantees, thus enabling a more efficient issuing of Funds could be envisaged, fostering better medium and long-term export guarantees, covering cooperation between academia and business, both political and economic risks up to 90 %. integrating research activities and exploiting cross Similarly, as a result of an additional capitalisation border cooperation opportunities in the Baltic of the system, the Export Guarantee Act has region.

4.7 Ireland

Ireland

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti ti

v

p e Labour productivity per person employed in manufacturing (1000 PPS; 2009) 3.4

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009) w u

s

s ta d

T o u in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

% of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008) N.A.

M

n d

S

Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007) N.A.

n e

u

re

e p Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Ireland (2009)

Paper products; publishing and printing

Refined petroleum products Wood and wood products

Food products

Machinery and equipment n.e.c.

Chemicals, chem ical products Basic metals and fabricated metal products

Manufacturing n.e.c. Transport equipm ent Textiles and textile products Rubber and plastic products Other non-metallic mineral products

Leather and leather products Electrical and optical equipm ent

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.7.1 Introduction Most prominent sectors in Ireland

Trade and industry specialisation Highest relative value added (2007)

Manufacturing plays a bigger role for Ireland than Office, accounting and computing machinery Chemicals and chemical products

for the EU in total (24.2 % vs. 14.9 % of total value Medical, precision and optical instruments added in 2009). At the detailed manufacturing Change in the relative value added (1999/2007) industry level, Ireland is highly specialised in Increasing specialisation

technology-driven industries such as computers, Air transport Medical, precision and optical instruments

pharmaceuticals and electronic valves. In valued Renting of machinery and equipment

added, Ireland is also specialised in capital Decreasing specialisation Post and telecommunications

intensive industries (e.g. basic chemicals). At the Radio, television and communication equipment

more aggregated sector level Ireland is specialised Chemicals and chemical products

in high and medium-high innovation-intensive sectors such as medical, precision and optical

instruments and chemicals. Structural change

Ireland is characterised by a high share of exports In terms of change, Ireland has considerably in high price segments and low share in low price increased the R&D intensity of its industry and segments, indicating a position high up on the climbed up the quality ladder although the overall quality ladder. In contrast, its R&D intensity is far R&D intensity declined. This overall decline is due below the average given its industrial structure. to the reduced value added specialisation in high Overall, while in specialisation and quality Ireland innovation sectors (communication equipment). At is a typical member of the group of higher income the same time trade specialisation in technologycountries specialised in knowledge-intensive driven industries (optical instruments, industries (group 1), its R&D performance is more pharmaceuticals) has increased. The sector with similar to the group of lower income countries most value added is air transport.

featuring trade specialisation in knowledgeintensive

 industries (group 3) which operate at the The crisis of 2009 had a moderate impact on more production- and assembly-oriented segments manufacturing production which recovered in 2010,

of the value chain. but has turned down again in 2011. In July 2011 manufacturing production was 6 % lower than a

year earlier. In general, the crisis seems to have hit situation, the focus of the government is on the capital-intensive and marketing-driven industries deliverables from the previous investment in terms harder, while technology-driven ones have suffered of products and services, which could be less. commercialised, and on setting priorities for future

R&D spending. While the latter is clearly needed, Ireland has seen an appreciation of the real effective scientific output in many fields has increased exchange rate by 25% over the last decade considerably in recent years and has placed Ireland (compared to 21% in the EU27), indicating a loss in in the top league of research. However, it should be cost and price competitiveness. Nominal unit labour noted that commercialisation of research is a timecosts have increased by 27% between 2000 and consuming process and its use as a short-term 2010, compared to an increase of 14% in the EU27 benchmark may distort the assessment of the utility and 20% in the Euro area. Over the last decade, of research spending.

Ireland's labour productivity per hour worked has remained relatively stable at about 23 percentage Another important challenge is to help mediumpoints above the EU27 average and 10 percentage sized indigenous companies to increase their points above the Euro area average. This means that financial and managerial capacity to innovate and despite the exchange rate effect, the outlook for undertake R&D, including by closer cooperation Ireland’s structural competitiveness position between companies and institutions of higher remains favourable (as opposed to the education. It would now be important to use lowmacroeconomic and financial problems). In line budget instruments such as “knowledge brokers” in with many other countries, to preserve and heighten order to facilitate closer cooperation with thirdits advantage, Ireland needs to move further up the level institutions. Indeed, this would also offer new value chain to the knowledge-creating parts of the opportunities to commercialise research output and knowledge-intensive industries it is already help universities to tap new sources of funding. specialised in.

There are no indications that Ireland is currently 4.7.2 Towards an innovative industry suffering from significant skill gaps in any sector

and, until the onset of the crisis, the Irish Diaspora According to the Innovation Union Scoreboard has proved to be an important source of skilled 2010, Ireland is an innovation follower. While workers. The share of science and technology foreign companies are expected to have reduced graduates in Ireland is still above the EU-average. R&D outlays slightly in 2010 compared to 2009, A key challenge for the years to come is therefore Irish companies are expected to have increased to ensure that spending cuts in the higher education theirs slightly. As a consequence, private R&D sector will not translate into significantly lower expenditures in Ireland have proven to be numbers of STE students compared to arts and surprisingly resilient during the crisis. This is likely humanities graduates, whose education is usually to be due to the tax exemption for small start-up less costly. companies and the R&D Tax Credit which contributed measurably to fostering R&D. 4.7.3 Towards a sustainable industry

The new government has made the accounting The environmental performance of the Irish treatment of the research tax credit regime more industry is broadly in line with EU trends. If flexible to make it more attractive and accessible to anything, energy intensity is somewhat lower than smaller businesses. on average in the EU, but this reflects the absence

of heavy industry in Ireland rather than better The Irish government has proposed further actions performance. The relatively low share of in its services strategy to promote the continued environmental goods in total goods exports development of the services sector. These actions indicates in any case that Ireland does not yet fully include integrated inter-disciplinary education for benefit from the emergence of green markets. In service activities, dedicated business support fact, its position relative to the EU average has measure to promote R&D and the use of public deteriorated in recent years although the share itself procurement to stimulate innovation in services. So has somewhat increased. far, however, public procurement rules, although in principle innovation friendly, seem to be applied Moreover, buoyant economic growth has led to even stricter to ensure that costs are kept low. significantly increased CO 2 emissions, in particular

from transport, and the existing housing stock often One of the main challenges for the Irish innovation suffers from poor thermal efficiency. These system is the higher education sector. The sector challenges provide an opportunity to reallocate the received significant funds since 2000 but has now resources freed from the construction sector into to cope with significant cuts. Given the budgetary sustained investment in transport infrastructure, and can provide new markets for ways to increase the the EU surpassed only by Denmark and the UK. thermal efficiency. Together with being an English-language location

and due to historically close ties with the US, these Ireland has taken a number of policy measures and factors have contributed to attracting a considerable initiative to improve sustainability and to foster the amount of overseas FDI. Another important factor development of a genuine environmental products in this regard has been the availability of a well and services sector. The Environment and Green educated labour force increasingly fuelled by Technologies Department of Enterprise Ireland repatriates and thus a reversal of Ireland’s offers a GreenTech Support scheme to its clients, traditional role as an emigration country. particularly in the SME sector. The scheme is designed to help these companies take advantage of Going more into detail, Ireland scores significantly the opportunities presented by integrating above the EU average concerning infrastructure environmental sustainability into their business. expenditures and clearly above average concerning The Dublin Airport Authority is pursuing the the legal and regulatory framework and eestablishment of a specialist 'Cleantech Incubation government usage by enterprises. However, Ireland Facility' at the airport. It is intended to house up to still scores below the EU average concerning 20 high potential start-ups’ in a concentrated satisfaction with the quality of infrastructure and environment allowing research synergies, shared the availability of high-speed broadband lines. But services and access to trade services to take place. while electricity prices for medium-sized Moreover, capital allowances of 100 % of the cost enterprises were a matter of concern in the past, are available until 2014 to those companies market opening and increased competition have investing in specific high energy-efficient been improving the country’s ranking in almost all equipment. The Better Energy programme, consumption bands since he second half of 2007. previously known as Home Energy Saving Scheme

(HES), has also received additional funding. Despite its all-in-all satisfactory position, Ireland Together with lower individual grants, this means has initiated over recent years a number of policy that more homes can avail of these incentives. The measures to further improve the business programme provides grants for retro-fitting environment. Their track-record varies though. For insulation and other energy efficiency measures to instance, the government has initiated in 2010 the housing stock built before 2006. The measure is construction of a smart broadband network called thus likely to help the construction sector to the Exemplar Network that makes use of multiple reallocate resources towards more sustainable colours of fibre to dramatically boost the speed of purposes. fibre-based communications. This network will go

live for test and trial in the course of 2011. By The National Action Plan on Green Public contrast, the ambitious Transport 21 programme, Procurement which is currently subject to public whose implementation was well under way until consultation aims to harness public procurement to 2008, and which had foreseen major investment move the market in favour of eco-efficient goods projects for all transport modes, had to be and services. It puts forward seven priority product reassessed in view of the budgetary situation. The groups for which the public sector should have GPP original allocation for Transport 21 totalled about criteria in all of their tendering processes. In view EUR 7 billion between 2008 and 2014. The capital of the amount of government purchases, GPP has review which is being currently carried out in order the potential to provide considerable leverage. It to establish a new capital investment framework for remains to be seen however how much fiscal the period 2012-2016 is expected to be completed leeway public authority will have to apply the by the end of September this year, and will criteria in practice. supersede Transport 21.

The main issue for Ireland in the years to come is to In particular infrastructure development did not grasp the opportunities a comprehensive greening always keep pace with high growth in recent years of the economy is likely to offer. To ensure and may therefore lead to bottlenecks once growth synergies and the efficient use of limited resources, picks up again. Against this background, the efforts to prioritise R&D and strengthen innovation relatively high level of infrastructure expenditures could be strengthened by taking into account the for both transport and communications must be need to foster sustainability. seen as an attempt to compensate for insufficient

outlays in the past. The main issue is therefore that 4.7.4 The business environment infrastructure investment in real terms is maintained

at an adequate level. Ireland is generally perceived as one of the most attractive business locations. For instance, it ranks Legal costs in Ireland are for quite some time being ninth in the World Bank’s Doing Business index, in criticised for being both high and opaque. In an effort to contribute to improved price refusal decisions. In view of the limited success of competitiveness, the Irish government intends this review system, the new government now therefore to introduce legislative changes to remove intends to initiate a tendering process for the restrictions to trade and competition in sheltered development of a temporary, partial credit sectors, notably the legal profession, by establishing guarantee scheme. The design of the scheme will an independent regulator for the profession and draw from international experience to support new implementing the recommendations of the Legal lending that would not otherwise have been Costs Working Group and outstanding Competition extended by the banks. The scheme is intended to Authority recommendations including the complement, rather than be a substitute for, existing introduction of conveyors as a new profession. lending activities by the main financial institutions. However, in spite of its good record, Ireland could Its objective is to encourage banks to lend to new or strengthen the enforcement of its competition law expanding commercially viable SMEs so that they by introducing effective sanctions for can grow their company, develop new products or infringements. expand into new markets. In addition, a

Microfinance Start-Up Fund to provide loans to Another key challenge in the years to come is to small businesses is being developed. In this context, ensure that the current economic situation does not a workable scheme and optimum delivery initiate large scale emigration as this would mechanisms are currently being considered and the undermine Ireland’s attractiveness as a key work is to be finalised in time for the December destination of FDI in Europe. Budget.

4.7.5 Entrepreneurship and SME policy A three-year corporate tax and capital exemption for start-up companies was introduced in 2009.

The economic significance of SMEs in Ireland is New guidelines for procurement practices have also broadly in line with the European average. In terms been published by the Department of Finance. of employment, the contribution of SMEs is slightly These guidelines encourage smaller lot sizes and higher than the European average (68.5 % instead “open” tendering procedures without preof 67.4 %) whereas in terms of value-added the qualification of tenders. They aim to encourage share of SMEs is somewhat lower than the greater SME participation in tendering for public European average (51.7 % instead of 57.9 %). contracts. A nation-wide one-stop-shop allowing

entrepreneurs to carry out all the necessary

In terms of the specific framework conditions for procedures – including registration, tax, VAT and SMEs, Ireland scores slightly above the EU average social security – at once and at one administrative for the payment duration by public authorities. point had been announced for December 2009 but Nevertheless, there was some criticism from is not yet fully functional.

businesses complaining about lengthening payment periods. As to financing, Ireland scores slightly Ireland does not face major challenges with respect below average concerning the rate of business bank to entrepreneurship and SME policies. However, to loan demands rejected by banks or bank loan offers facilitate business creation and growth once to companies that were rejected by the latter. As a economic growth picks up again, a timely and consequence of the economic and financial crisis, comprehensive implementation of the broad range however, there is now even more widespread of initiatives and measures which are currently on concern about both access to finance and credit the agenda would be helpful.

costs. Available statistics may indeed underestimate the problem as many businesses are reluctant to 4.7.6 Conclusion apply for credit in the first place or are given informal advice to abstain from a credit application. The main short-term challenge for Ireland is to

return to a balanced growth path in line with the Ireland has taken a number of policy measures Council recommendations. At the same time, the which are of particular relevance for undisputed need to consolidate public finances entrepreneurship and SMEs and which also address necessitates a careful review of spending and some of the aforementioned issues. As part of the taxation priorities with a view to avoid the anti-crisis measures, the government has reduced emergence of future bottlenecks to growth, in the payment period by central government particular with regard to infrastructure and research. departments to their business suppliers from 30 to

15 calendar days and other government agencies Ireland’s efforts to shift growth from foreign direct have been asked to do the same. A credit review investment based on labour cost and construction to system has also been set up to ensure that SMEs, more innovative sectors and services had already sole traders and farm enterprises will have recourse born some fruit before the onset of the current to an independent, external review of bank’s credit crisis. Long-term efforts to provide incentives for more sustainable growth also go in the right particular the capacity of indigenous firms to direction. In addition, Ireland scores significantly innovate could be stepped up further, capitalising as above the EU average on many aspects of its much as possible on the increased investment in business environment and work force. The country public R&D and the development of a green tech is therefore relatively well-placed to overcome the sector. crisis although some challenges remain. In

4.8 Greece

Greece

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti ti

v

p e Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2008)

rn

o d

e R&D performed by business (% of GDP; 2007)

m

s a

Share of innovating enterprises as % of all enterprises (2006)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009) w u

s

s ta d

T o u in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

Infrastructure expenditures (euro per inhabitant; 2009) N.A. m o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

% of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008) N.A.

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007) N.A.

n e

u

re

e p Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Greece (2009)

Food products

Textiles and textile products

Leather and leather products

Refined petroleum products

Manufacturing n.e.c. Chemicals, chemical products

Wood and wood products Transport equipment

Electrical and optical equipment

Paper products; publishing and printing Machinery and equipment n.e.c.

Rubber and plastic products

Other non-metallic mineral products Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.8.1 Introduction 85 technology-driven industries, but still below the EU average. The same holds true for its R&D intensity, Trade and industry specialisation which is below average given its industrial structure but above its group average.

Greece belongs to the group of EU Member States characterised by higher income and a specialisation in technologically less advanced sectors (group 2).

At the detailed manufacturing industry level, Most prominent sectors in Greece

Greece features strong specialisation in marketing

driven industries (manufacture of vegetable oils, Highest relative value added (2007) Water transport

processing and preserving of fruit and vegetables), Coke, refined petroleum and nuclear fuel

as well as in labour-intensive (dressing and dying of Wearing apparel, dressing and dyeing of fur

fur) and capital-intensive industries (manufacture of Change in the relative value added (1999/2007) Increasing specialisation

cement, lime and plaster). At the more aggregated Coke, refined petroleum and nuclear fuel

sector level, Greece is specialised in low and Tobacco products Wearing apparel, dressing and dyeing of fur

medium-low innovation and education sectors, such Decreasing specialisation

as wearing apparel and water transport. The shares Hotels and restaurants Retail trade, except of motor vehicles and motorcycles;

of its exports to the BRIC countries are very low. repair of household goods

Water transport

Greece differs from its group higher income countries specialised in labour-intensive industries

through its tendency to compete in the low price Structural change

market segments of labour-intensive industries; it is

somewhat higher up on the quality ladder in In terms of change, Greece has increased the

relative share of mainstream manufacturing

85 For main sources used see the (manufacture of batteries, accumulators) and methodological annex. The cut-off date for technology-driven industries (electronic valves) in all data and qualitative information is 31 exports, while the relative share of the same

August 2010.

industry types in value added (manufacture of and the Structural Funds) play a major role in both electric motors, motor vehicles) has decreased. It R&D and innovation activity in Greece. has further increased its specialisation in labourintensive industries. Moreover, Greece has Private R&D projects are promoted through tax considerably increased its relative share in highly rebates and the new investment law which also innovation-intensive sectors – albeit from a very provides grants for technology upgrading projects. low level – (machinery, computers, instruments) The co-funded by the EU Structural Funds action and has decreased its relative share of low Collaboration 2011 (collaborative research projects innovation sectors (hotels and restaurants, water between companies of any size and research transport). Greece demonstrates a mixed institutions) of a total public expenditure of EUR 68 performance on the quality ladder, with some million has been launched in May 2011. Further indicators improving and others deteriorating. Its actions are being planned regarding spin offs and sectoral R&D intensity has decreased relative to the spin outs (a similar action was completed in 2010), average, with however increasing intensity in clusters (preliminary call for expression of interest computers. published) and innovative SMEs (announcement

made for a call for projects to open in July 2011, The crisis seems to have had a limited but visible budget EUR 30 million). In addition, the Innovation impact on Greece’s economic structure. Vouchers action launched in 2009 is still open Manufacturing seems to have reversed its declining (budget EUR 8.4 million). trend while construction accelerated its decline in value added. Nevertheless, manufacturing Following the transfer in November 2009 of the production in March 2011 was 22.2 % less than its Secretariat General for Research and Technology 2008 peak. Regarding exports, only marketingfrom the Ministry of Regional Development and driven industries fared clearly better during the Competitiveness to the Ministry of Education (on crisis than before. the grounds that the majority of research is carried

out in Universities) the main research programmes Greece has showed a moderate appreciation of the suffered delays as the whole evaluation regime has real effective exchange rate over the last decade been redrawn. It is now based on an electronic (11%, compared to 21% in the EU27), indicating platform and is conducted entirely in English. nevertheless a loss in cost and price However, in many instances this led to research competitiveness. Nominal unit labour costs have proposals being re-written and re-submitted. increased by 37% between 2000 and 2010, compared to an increase of 14% in the EU27 and Producing new technology and transferring it to the 20% in the Euro area. Labour productivity per hour market are both problematic. Bottlenecks are worked is about 25 percentage points below the funding (R&D investments and early venture EU27 average and 39 percentage points below the capital are too low) but also structural issues, since Euro area average. existing instruments do not seem to be very

effective. This points to a need to improve Overall, Greece is in an unfavourable innovation policy design and implementation, competitiveness position, while the structural notably through evaluating and drawing lessons dynamics are mixed, showing improvement in from past experience. However, improving some areas (from low levels) but deterioration in drastically the business environment would others. probably do more for improving innovation

performance as new investments will help bring 4.8.2 Towards an innovative industry about new process and product innovation.

According to the Innovation Union Scoreboard 4.8.3 Towards a sustainable industry

2010, Greece is a moderate innovator. The structure of the Greek economy (specialisation in less On the basis of existing indicators the technologically advanced sectors and predominance environmental performance of the Greek industry of micro to small, family owned enterprises) is not can be characterised as rather poor. This relates to conducive to a strong R&D activity. Consequently, weaknesses in the regulatory and administrative R&D investments in relation to GDP, particularly environment (inspection and enforcement, absence in the private sector, are amongst the lowest in EU of land-use codes, delays in delivering and the innovativeness of the Greek economy environmental permits) and to the absence of basic depends heavily on imported technology and knowinfrastructures (waste treatment facilities, but also, how. It flourishes thanks to organisational and to a certain degree, organised industrial zones). marketing innovations and much less on the production and exploitation of new knowledge. EU The main current funding instrument for programmes (the Research Framework Programme environmental policy is the Operational Programme Environment and sustainable development with a Greece emerges from the various international total envelop of EUR 2.550 billion benchmarking exercises as among the weakest EU (EUR 1.800 billion Community funds and countries. Also, the very low level of inward FDI EUR 450 million national participation) over 2007- bears testimony to its lack of attractiveness as a 2013. Some targeted actions focusing on businesses business location. In comparison with other EU or are also funded by the OP Competitiveness and OECD countries, Greece displays a higher number entrepreneurship. Its two actions, Green of procedures and a higher cost –monetary or in Infrastructures 2010 (promoting SME investments time- in carrying out routine business operations in recycling, rehabilitation, waste collection, while basic instruments, such as land use codes, are treatment and disposal) and Green Enterprise 2010 not operational. Moreover, slow (energy, port (encouraging investments of manufacturing SMEs services) or inexistent liberalisation in some key aiming at reducing their environmental impact), markets (road haulage, professional services) have entered the payments phase in 2011. contributes to higher costs.

An important institutional development in 2011 is In the May 2010 Memorandum of Understanding the adoption of Law 3982/2011 simplifying the (MoU) between Greece on one part and the licensing of business parks (previously industrial European Commission, the European Central Bank zones). In parallel, work started for the and the International Monetary Fund on the other, rationalisation and simplification of procedures the Greek government committed itself to a number regarding environmental permits, notably by of important reforms relating to product markets modernising the classification of installations which complement the actions relating to public according to the nuisances they produce and by finance and the labour market. These reforms target introducing strict deadlines for reaction by licensing a number of well documented weaknesses of the authorities, the principle of silent consent and business environment (business creation, licensing standardised environmental impact assessments. of activities, investment authorisations, deficient The same action plan includes actions to make land use regime, administrative burden to exports, operational (i.e. adopt all remaining implementing absence of a coherent Better Regulation policy) regulatory acts) the specific regional planning directly and detailed milestones for addressing them framework for industry and integrate it in the have been set out. regional plans under preparation as well as the revision of the national management scheme for Further actions are being planned under the hazardous industrial waste. forthcoming Action Plan for a Business Friendly

Greece, which focuses on the removal of the most A consultation was launched to constitute an index important barriers to entrepreneurship over the of available products and services with a period 2011-2012 by adddressing isssues related to environmental label in order to determine the company law, starting up, establishment and readiness of the domestic market for the winding-up of a business, labour and insurance introduction of environmental standards in public matters, transportation, market operating problems, procurement. transactions with the public sector and public

procurement, taxation, absorption of the EU Lengthy and opaque procedures for obtaining Structural funds etc. environmental permits and the absence of detailed and clear spatial planning codes are interlinked and Regarding business start-up, Law 3853/10 of 17 constitute a major hurdle for investments of June 2010 on the simplification of procedures for significant scale in Greece. Therefore, the efforts the establishment of personal and capital companies being deployed to rationalise, simlify and complete became effective in April 2011 when the new this framework are of major importance, not only Commercial Electronic General Registry (GEMI) from the sustainability point of view but also for the started operating. The new one-stop-system made business environment in general. possible starting up new business in one day and

reducing considerably related cost and will acquire Steps are being taken to adapt the regulatory additional functionalities in future, including onframework and reinforce incentives towards line registration and facilitation of start-up of more bringing about a more sustainable industry. Timely forms of businesses. and effective implementation, including through overhauling enforcement, will be crucial in order to A new law on fast-tracking the authorisation of improve the situation in existing enterprises and to large-scale investments was adopted earlier in the create a viable market for eco-industries. year. It was followed by Law 3982/2011

simplifying and accelerating licensing of 4.8.4 The business environment manufacturing activities (installation and operation

permits), adopted in June 2011. It simplifies licensing, especially for lower nuisance activities the Greek public administration remains a crucial and introduces strict deadlines for reaction by undertaking, not only because it can raise the licensing authorities and the principle of silent productivity of the public sector but also, and even consent, while at the same time it offers the more importantly, because it can contribute to possibility of licensing through certified chambers. raising the overall efficiency of the economy by Moreover, the new law modernises and simplifies improving the state's capacity to deliver the the licensing of a series of technical professions in necessary policies and by reducing its burden on the the context of the Services Directive. Additional business sector. Indeed, the main challenge in the measures to simplify environmental permits and immediate future is the effective design and make the land use codes operational (ref. supra) implementation of the planned measurest through will contribute towards removing some of the main secondary acts. bottlenecks for investment.

Over the longer term, it would be useful to address With respect to product markets, new legislation also other determinants of the business strengthened the effectiveness of the Hellenic environment, including reducing excessive delays Competition Commission (HCC), essentially by in the judiciary and restoring stability in business increasing its independence and its autonomy in taxation. fixing its agenda through pre-set criteria. Another law targeted regulated professions, removing a 4.8.5 Entrepreneurship and SME policy number of restrictions regarding lawyers, notaries, engineers and certified auditors and outlawing The SME sector in Greece is more prominent than horizontally a series of restrictive practices in other in the EU as a whole, and dominated by micro professions. Additional sector-specific restrictions enterprises, which account for 58 % of total were abolished in the framework of implementing employment, almost twice as much as in the EU on the services Directive (retail trade, tourism and average. The total SME sector employment is also education services). significantly higher than in the EU as a whole

(85.7 % to 67 %). The preference for self An effort to reform the central administration is employment is much higher than in the rest of the ongoing under the MoU but is still at a preparatory EU but the entrepreneurship rate is average. The phase, pending the realisation of a number of ineconomic crisis has put Greek enterprises under depth functional reviews. They should provide the considerable stress both through a credit squeeze basis for identifying actions to streamline public and an internal demand shock. organisations so as to eliminate overlapping responsibilities. A major reform of territorial The government has redesigned its instruments for organisation and administration has been completed providing targeted financial support to the business in 2010 and should reach steady state in 2011 with sector for fostering investment. The new the final transfer of some key competencies. Plans Development law (national state aid scheme for to reorganise state companies (including those investments) is marking a departure from grants controlled by local authorities) proceed rather towards tax rebates, with the exception of the slowly. measures in support of new enterprises. Contrary to

the past, it is fully budgeted with periodic calls for A draft law on better regulation had been endorsed investment projects of a pre-determined total by the Council of ministers. In practice, all new amount. The first call, for projects totalling legislation is the subject of public consultation and EUR 2.2 billion of tax rebates and EUR 800 million impact assessment analysis even though the quality of grants run in April and May 2011. Another of the latter is variable. The national plan for EUR 1.2 billion will be offered in the second half reducing administrative burden has suffered delays, of the year, to which will be added the credits not especially as concerns measuring. However, in absorbed in the first call. More specific calls, open substance, measures such as those recently adopted all year, should be made later addressing youth on licensing of manufacturing and those linked to entrepreneurship (EUR 150 million), clusters the services directive will achieve considerable (EUR 50 million) and large projects. regulatory simplification and reduction of

administrative burden. Another new instrument, complementary to the

investment law, is the National Fund for This situation has started to change with a number Entrepreneurship and Development (ETEAN - an of laws adopted in 2010-2011 while many others instrument replacing and expanding the are in preparation. They address some business competencies of the ex-SME Guarantee Fund). environment bottlenecks identified over the years in ETEAN is financed by the EU Structural Funds Greece, such as excessive red tape and insufficient (OP Entrepreneurship and Competitiveness) and its competition in the services sector. The reform of modus operandi is the creation of funds, together with and under the management of commercial should have a positive effect over the longer term. banks, destined to provide "softer" loans to Of relevance in this context is also a partial revision enterprises, mainly SMEs. It launched in May 2011 of bankruptcy law that was announced recently,

a call 86 for bank proposals aiming at the creation of aiming at facilitating the surviving of over-indebted

business loan portfolios totalling EUR 1.2 billion but otherwise viable businesses. In essence, the (EUR 800 million from the banks and procedure of opening up consultations and EUR 400 million from ETEAN). The loans would negotiations between creditors and other be long term (up to ten years) and their interest stakeholders will become pre-bankruptcy, i.e. will rates would be subsidised. The beneficiaries should take place before the opening of the bankruptcy be SMEs. Half of this amount of loans is destined process. Moreover, the agreement will also commit to facilitate the financing of projects submitted minority creditors (no need of having consensus) under the development law while the rest will and there will be more flexibility on the modalities concern projects linked to SME internationalisation, of negotiations. Additionally, a special liquidation the development of alternative tourism and the procedure is introduced allowing for the sale of the green economy (RES, waste management and undertaking either en bloc or partially, following resource efficiency). the submission to the court of a business proposal.

A similar approach is followed by JEREMIE, co The immediate challenge for the business sector is financed by the EU Structural Funds. It has to survive the crisis, now in its third year. The launched three actions so far, targeting newly liquidity problems are severe and since they also established enterprises (EUR 120 million), seed reflect a drop in internal demand of a more capital (EUR 60 million) and ICT projects structural nature, policy – restricted by fiscal (EUR 180 million, still pending). constraints - can only partially address them in the

short run. Over the longer term, the real challenge From the facilities launched earlier by the ex-SME will be to strengthen the structure of the productive Guarantee Fund, the offering of guarantees to micro base towards higher value-added and exportand small enterprises for loans to pay-out suppliers oriented activities. The financial instruments put in of a total around EUR 1 billion is still open until place, together with the measures to remove December 2012 and close to exhaustion. regulatory obstacles to growth and the reforms of

the labour market should facilitate this structural

With a view of supporting internationalisation, a change.

co-funded action titled Internationalisation and

Competitiveness of SMEs addressed to all 4.8.6 Conclusion enterprises was launched in March 2011 with a total budget of EUR 30 million, with a possibility to be Apart from the short-term concerns related to the modified reaching 55 million. Another action coeconomic crisis, such as getting access to finance funded by the EU Structural Funds, which is and adjusting to the internal demand shock, the currently in the phase of implementation, is main challenge facing industry, but also the real Manufacturing in new conditions of a total budget economy overall in Greece is a business of EUR 200 million. environment that is not delivering optimally.

The instruments and actions mentioned above Improving the business environment through support mainly new investment and, as such, do not actions such as those planned in the MoU will address directly the liquidity problem. However, contribute to growth by reducing the costs of doing their quasi-simultaneous entering into operation business in Greece across the board, thus increasing lifts part of the uncertainty that clouds business productivity. However, there remains the structural prospects. In addition, there are press reports of problem of specialisation in less technologically plans to put in place a more massive injection of advanced and low growth sectors. The policy liquidity to the business sector in collaboration with response to this problem calls for actions to the EIB but no details are available as yet. facilitate structural change, some of which, such as

labour and product market reforms have been With respect to entrepreneurship, the measures the adopted or are in progress, and to raise the referred to in the previous section on simplifying knowledge base. business start-up and licensing and removing restrictions in a large number of product markets The public administration constitutes an important

bottleneck to economic growth, through its huge

86 The programme is currently (July 2011) in cost to the rest of the economy, both through its

size and through its often ineffective functioning. In

the phase of the drafting of agreements for this area, as in the business environment, some financing and co-investments with the progress has been made, mainly in the context of

selected banks.

the MoU, but efforts will have to persevere over the sustainable growth.

medium term for setting in place the conditions for 4.9 Spain

Spain

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2009)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2009)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector

-3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u

s

T o u

s ta Waste generated by enterprises (all NACE sectors;

-4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010) -3.3

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007)

n e

u

re

e p Early stage financing (% of GDP; 2009) E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Spain (2009)

Refined petroleum products Paper products; publishing and printing

Wood and wood products Chemicals, chemical products

Food products Rubber and plastic products

Machinery and equipment n.e.c.

Textiles and textile products

Leather and leather products

Other non-metallic mineral products Manufacturing n.e.c.

Transport equipment

Basic metals and fabricated metal products Electrical and optical equipment

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.9.1 Introduction 87 intensive industries. While its R&D intensity is below average given its industrial structure, it is Trade and industry specialisation close to the average and higher than its group average.

Manufacturing contributes less to Spain's economy than in the EU as a whole (12.7 % against 14.9 % in

2009). At the detailed manufacturing industry level,

Spain is specialised in marketing-driven industries Most prominent sectors in Spain

(particularly in exports, processing and preserving

of fish and fruit, manufacture of vegetable oil), Highest relative value added (2007) Construction

capital-intensive (ceramic tiles) and labour Coke, refined petroleum and nuclear fuel

intensive industries (cutting and finishing of stone). Non-metallic mineral products

At the more aggregated sector level, Spain is Change in the relative value added (1999/2007) Increasing specialisation

specialised in low innovation and low education Coke, refined petroleum and nuclear fuel

sectors (construction, wearing apparel), however in Real estate activities Recycling

exports also specialises in medium-high innovation Decreasing specialisation

sectors such as motor vehicles and in low Office, accounting and computing machinery Wearing apparel, dressing and dyeing of fur

technology sectors such as non-metallic mineral Leather, leather products and footwear products.

Spain has a high share of exports in the low price Structural change segment and a low share of exports in the high price segment, well below the EU average and its group In terms of change, Spain has increased the relative of higher income countries specialised in labourvalue added in high education sectors (software,

businesses services) but has decreased it in high

87 For main sources used see the innovation sectors (computers), as well as in methodological annex. The cut-off date for labour-intensive low-skill (dressing and dying of all data and qualitative information is 31 fur) and technology-driven industries August 2010. (communication equipment). Export specialisation

in marketing-driven and labour-intensive industries with new programmes like INVIERTE, for high (wearing apparel, knitted and crocheted articles) risk-high return projects. has increased further.

There are two recent major milestones in the The impact of the crisis on the Spanish industrial Spanish innovation policy, the Innovation Strategy structure seems to have been limited overall, with (Estrategia Estatal de Innovación e2i) and the new technology-driven industries suffering and all the Science and Innovation Law (replacing the previous other industry types gaining relative shares in the law of 1986), adopted in May 2011. This new crisis. However, manufacturing as a whole suffered policy proposes a structural and comprehensive considerably, production being still at 21.6 % less approach which complements the funding-based than its previous peak. strategy prevalent up to now.

Spain experienced an appreciation of the real The new innovation policy focuses on enhancing effective exchange rate by 16% over the last public procurement for innovation, increasing decade, which is slightly below the EU27 average funding for innovative SMEs and for risk capital, (21%), indicating nevertheless a loss in cost and improving knowledge transfer by changing the price competitiveness. Nominal unit labour costs legal possibilities for public researchers to start have increased by 29% between 2000 and 2010, work on the commercialisation of scientific compared to an increase of 14% in the EU27 and inventions, and by using the Technology platforms 20% in the Euro area. Over the last decade, labour and boosting the science and technology parks. productivity per hour worked has gradually increased to about 10 percentage points above the Another priority area is human resources for EU27 average but still about 4 percentage points science and innovation, strengthened also by the below the Euro area average. However, along 2010 new legal framework provided by the Spanish law and in the first months of 2011, Spanish exports for science. This new law also proposes to have shown a relative strength, compared to the restructure the funding system with a structure average of the EU27, which may mean competitive around two agencies: Agencia Estatal de gains beyond prices. Investigación and Centro para el Desarrollo

Tecnológico Industrial (CDTI). The former focuses Overall, Spain is in an unfavourable on research and the latter organisation (which competitiveness position with mixed signals as to already exists) on innovation. change dynamics. Spain’s public efforts to boost

R&D have been rather unsuccessful until now and a The size of the skilled force in Spain has been recently adopted innovation strategy reflects those undermined in recent years by the still high level of concerns and the need to a change of approach. early school leaving, one of the highest in the EU.

The Law on Sustainable Economy adopted on 15 4.9.2 Towards an innovative industry February 2011 includes measures aiming at

increasing the quality and quantity of human capital Spain is considered as a moderate innovator in the through education and vocational training.

Innovation Union Scoreboard 2010 which is partly based on the fact that R&D performed by The current main challenge for Spain's research and businesses in 2009 was still below the EU average, innovation policy is to ensure knowledge transfer accounting for only 0.72 % of GDP. and public-private cooperation, and in parallel

increase the research activity of the business sector. After strong increases in public funding for These are also areas of priority for the Spanish

research and innovation until 2009 88 , public policy in the broader context of a structural change

investments in R&D have decreased slightly in to a more knowledge-intensive economic and 2010. In 2011 R&I investment has been protected industrial structure. from the cuts compared to other budgetary expenses. CDTI's (Centro para el Desarrollo 4.9.3 Towards a sustainable industry

Tecnológico e Industrial) budget has managed to grow substantially in the last four years and Spain scores below the EU average on several continues supporting R&D and innovation projects sustainable industry related indicators and in

particular the Spanish industry is still more energy

intensive than the EU average.

88 The Spanish Government Budget

Appropriations or Outlays on R&D have As a follow-up of first Energy Saving and increased steadily with an annual growth Efficiency Plan 2008-2011, Spain has adopted the rate of more than 14% between 2004 and second National Energy Efficiency Plan for the

2009.

period 2013-2020 on the 30 of June 2011. This plan reduction of red tape and is having pernicious aims at fostering energy savings both in the end-use effects on innovation and productivity of consumption of energy as well as in the enterprises. A key element to obtain effective transportation chain since generation to administrative simplification is greater transmission. The Law on Sustainable Economy administrative cooperation between the 3 layers of (Law 2/2011 of 4 March) also contains relevant public administration (national, regional and local). measures addressing energy efficiency.

Progress has also been achieved regarding impact Another priority of the Spanish government assessments. Regulated by RD 1083/2009, all new continues to be renewable energy and as a result legislation has to include an Impact Assessment Spain has adopted its new Renewable Energy Plan since 1 January 2011. The quality of Impact for the period 2011-2020 (Plan de Acción acional Assessment can still improve and efforts to change en materia de Energías Renovables - PANER). The the administrative culture of officials are being PANER includes the development of new done by the Ministry of Public Administration in technologies such as geothermal and wave power in that respect. Draft laws which are not accompanied response to commitments assumed by Spain in the by impact assessments are simply stopped by the Energy and Climate Change Package for 2020. State Secretary of Public Administration and sent

back. A regular cooperation and dialogue of the The Industrial Action Plan for the next 10 years Administration with the business organisations (PIN 2020) adopted in 2010 aims at increasing the before drafting new legislation seems to be size of the industrial sector in the Spanish economy, effective in that respect. raise its level of internationalisation and guarantee its long term sustainability. The Plan identifies The transposition of the Services Directive, that has some priority sectors (automotive, aerospace, implied the amendment of a considerable number pharma-health, ICT, agrofood, renewable energies) of laws and decrees at national and regional level, with a number of actions on greening the industry, has led to important reduction of administrative like the development of the electric vehicle with the burden (estimated at around 1,700 million euros) ambitious goal of 250 000 electric vehicles in 2014. and liberalisation of certain services, namely retail,

tourism, industrial services and services of the 4.9.4 The business environment regulated professions. However, some professional

services still present high regulation by the means

Spain has recently implemented significant of both reserves of activity and obligation of regulatory changes but the business environment in membership of a professional association (colegio Spain is still more burdensome than the EU average profesional). The government is working on a new according to international indexes such as the Law on Professional Services that could be adopted Global Competitiveness Report or IMD. That is before the end of of 2011. The new law intends a especially relevant regarding entry and exit substantial reduction of the mentioned obligations conditions of firms and the lack of competition and to keep only those for services performed in the high regulation in some professional services. general interest or those requiring maximum

protection of the citizen (i.e.: doctors). The new law

The Spanish government is continuing efforts to may have an important impact in reducing prices, reduce existing administrative burden for improving quality and creating more opportunities enterprises over the last months in order to achieve for employment due to the economic dimension of its target of 30 % set in its Action Plan for the sector. Indeed it is estimated that only the Administrative Burden Reduction of 20 June 2008 professional services requiring membership of a and, ultimately, the 50% administrative burden colegio profesional are estimated to contribute reduction target set for 2020 as part of the Strategy 8.8 % to the Spanish GDP.

for a Sustainable Economy, approved by the

Council of Ministers in 2009. Since last year the Spain has addressed the lengthy delays regarding government has passed a substantial number of business start-up by adopting Royal Decree initiatives in different sets, being some examples 13/2010 of 3 December 2010 which aims at the Sustainable Economy Law and the RD 13/2010. reducing time to register an enterprise to up to 5 The estimate burden reduction is approximately days as well as at reducing the notary and registrar 2.000 million Euros, of which firms’ savings are costs involved to up to 250 euros. The Sustainable expected to be 1.400, with another 500 million Economy Law has also contributed to the Euros expected to benefit both firms and citizens. simplification of the start-up process by reforming However, increasing overlapping regulation the operating licenses and permits system with the emerging from lower levels of the Administration introduction of ex-post controls, positive silence of over the last years due to a lack of coordination the Administration and electronic processes. These between Administrations is offsetting in part the measures, included in Royal Decree Law 8/2011 of 1 July, still need further implementation by regional linked to the structural funds, like JEREMIE, with a and local authorities. The city of Madrid has started view to increase public private partnerships. to subcontract the management and approval of operating licenses with an acceleration of The long delays in payments, in particular by public processes. administrations, are still worrying and aggravating

the liquidity problems of enterprises. The Spanish A series of measures have been taken to simplify government adopted in July 2010 a law to reduce insolvency and bankruptcy, via supporting greater the times for payments by both businesses and the use of court settlements (Royal Decree Law public administration but it may take some time 3/2009) and the reduction of the cost of judiciary until we see a real impact of this law for various officials (RDL 5/2010). A new draft Insolvency reasons: first, the law will only be implanted Law which is in its final stages will introduce some gradually until 2013, second, there is a strong simplification measures. The Law gives a greater culture of late payments in Spain, third, the law has impulse to extra-judiciary agreements (out-of-court no retroactive effects (only applies to operations settlements), provides greater guarantees for any after 7 July 2010). Moreover, due to the difficult additional funds that may be re-injected into the financial situation of some Autonomous company as a result of a re-financing agreement Communities and municipalities, the law may face and develops a new abbreviated and simplified significant challenges for its implementation at procedure. These measures should result in easier regional and local level. firm restructuring.

Although Spain has progressed considerably in 4.9.5 Entrepreneurship and SME policy Entrepreneurship over the recent years, it still

scores below EU average in most of the SBA Spain has a high share of micro enterprises indicators of this area, and in particular regarding compared to the EU average and those micro the society's perception of entrepreneurship. The enterprises employ significantly more people than Government set up an Entrepreneurs Support their counterparts in other Member States, being Action Plan in order to promote entrepreneurship consequently their contribution to the economy also and business creation through financial support, higher than in the EU. This may be explained by advice and promotion of entrepreneurship. Another the sectoral distribution of SMEs in sectors with area in which Spain scores below the EU-average is smaller average enterprise size such as services and in public procurement. Indeed, the Spanish SMEs construction. Promote these enterprises to grow account for a slightly lower proportion of the value would contribute to increased levels of innovation of public procurement contracts (33 % versus 38 % and productivity in the economy. in the EU).

Access to credit continues to be one of the main 4.9.6 Conclusion concerns of Spanish enterprises. During 2011, ICO lines of credit have been reformed in order to After the sharp economic adjustment in Spain improve the availability of financial resources to during the years 2008 and 2009, particularly in its SMEs and self employed workers (e.g.: by construction sector, and the market pressure of implementing new credit lines such as ICO-liquidez 2010 and 2011 in the context of the euro area and ICO-directo). The Government is working to sovereign debt stress, Spain has put in place a develop the non-traditional funding mechanisms, considerable number of measures in the last months like venture capital and business angels, which is to facilitate structural change and enhance still underdeveloped compared to other major productivity, like improving the innovation European economies. A new fund to support framework, access to finance for SMEs and intermediary organisations of this type has been simplifying the regulatory framework for business launched in 2010 with the aim of carrying studies, creation and growth. seminars and dissemination. Also, Royal Decree

8/2011 establishes tax exemptions for the Some challenges still remain in order to enhance acquisition of shares of new enterprises under the business environment in the area of access to certain circumstances. The CDTI is also working finance as well as in easing entry and exit with other Member States with the aim of creating a conditions of firms. Improving coordination cross-border venture capital market. A new between different levels of public administrations Guarantee programme for Entrepreneurs has been would help reducing the administrative burden for created in 2011 with the aim of encouraging small enterprises. Enhancing competition and lowering business development, being the financial risk regulation in a number of selected services sectors partially covered by the Spanish Refinancing with high spill over effects such as professional Company (CERSA). Spain still has a potential for services would increase potential GDP and create developing more financial engineering instruments opportunities of employment. Another challenge is the low private sector participation in R&D and public-backed initiatives in the area.

innovation activities besides the large number of 4.10 France

France

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2009) d u i n v e Labour productivity per person employed (EU27=100; 2010)

p e ti ti

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

o m

c

n d

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

ta d u T o

w

u s in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008) N.A.

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip

Share of high-growth enterprises as % of all enterprises (2007) N.A. u rs

n e

e p re Early stage financing (% of GDP; 2009)

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – France (2009)

Refined petroleum products Paper products; publishing and printing Wood and wood products

Chemicals, chemical products Textiles and textile products Leather and leather products

Rubber and plastic products Food products

Machinery and equipment n.e.c.

Manufacturing n.e.c.

Other non-metallic mineral products

Transport equipment

Basic metals and fabricated metal products Electrical and optical equipment

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.10.1 Introduction 89 France has a high R&D intensity with respect to its

industrial structure and a particularly good Trade and industry specialisation performance in labour-intensive industries,

reflecting its luxury fashion industry, similarly to

Manufacturing plays a significantly smaller role for Italy. France is less well-placed on the quality France than for the EU in total (10.6 % vs. 14.9 % ladder in technology-driven industries. Overall, of value added in 2009). At the detailed together with the UK, Belgium and the manufacturing industry level, France is specialised Netherlands, France has industry specialisation in in technology-driven (manufacture of air- and high education sectors which are predominantly spacecraft) and marketing-driven industries (soaps services.

and detergents, luggage and handbags). At the more aggregated sector level, France is specialised, in export terms, in goods and services of medium-high innovation and education sectors (transport Most prominent sectors in France equipment such as trains and aeroplanes) and, in terms of relative value added in medium innovation Highest relative value added (2007)

(air transport) and high education sectors (research Transport equipment Air transport

and development, business services). France is less Recycling specialised in high innovation sectors, notably due Change in the relative value added (1999/2007) to its lower specialisation in machinery and Increasing specialisation

computers. A high share of France's technology Real estate activities Air transport

exports goes to the BRIC countries, indicating Research and development

potential for higher growth. Decreasing specialisation Office, accounting and computing machinery

Coke, refined petroleum and nuclear fuel Tobacco products

89 For main sources used see the

methodological annex. The cut-off date for Structural change

all data and qualitative information is 31 August 2010.

In terms of change, France has considerably technological innovation. decreased its relative share of capital-intensive industries (cement, refined petroleum), while Since 2008, public incentives to business increasing its industry specialisation in technologyexpenditures have been increased and focused on a driven industries (air- and spacecraft). In exports, few key instruments, namely the Research Tax France has decreased the relative share of Credit (CIR), the ‘innovative start-up scheme’ technology-driven industries (radio and TV (Jeune Entreprise Innovante), funding by the transmitters) and increased it in marketing-driven Innovation Agency (OSEO) and support to industries (e.g. musical instruments). The relative ‘Competitiveness clusters’ (Pôles de Compétitivité). share in sectors with high education (business Numerous projects financed by the new services) has increased considerably while the share ‘Investments for the Future’ programme also in high innovation sectors has decreased promote business R&D activities.

(computers, communication equipment). France has

climbed further up the quality ladder, in particular R&D expenditures by businesses did not decrease in labour-intensive industries. Its sectoral R&D during the crisis and even increased in 2009 intensity has fallen in manufacturing sectors compared to 2008, possibly thanks to the Research (chemicals, cars and transport equipment) while Tax Credit, which is likely to remain acutely increasing in services sectors (business services and necessary in the medium term in case of tightening research and development). access to finance. No significant modification of

this scheme is expected before its thorough ex-post Manufacturing production fell by 20 % during the evaluation in 2013. recent economic crisis and has increased by 11.2 %

since then (April 2011). The impact of the crisis on The new ‘Investments for the Future’ programme the French industrial structure was limited overall; aims at promoting both a knowledge economy and technology-driven industries came out better than industrial competitiveness, and put the emphasis on capital-intensive and mainstream manufacturing the excellence of the science base, public-private industries. cooperation and knowledge transfer. The

programme amounts to EUR 35 billion, out of France experienced a moderate appreciation of the which 13 % are dedicated to the digital economy, real effective exchange rate over the last decade 13 % to sustainable industry, 6 % to SME and (8%, compared to 21% in the EU27), indicating industrial competitiveness, and more than 60 % to nevertheless a loss in cost and price education, research and innovation strictly competitiveness. Nominal unit labour costs have speaking. increased by 23% between 2000 and 2010,

compared to an increase of 14% in the EU27 and Investments in digital infrastructures are dealt with 20% in the Euro area. The employment legislation by the ‘Digital France 2012’ Plan. The ‘Investments remains very protective and the minimum wage is for the Future’ programme devotes among the highest in Europe. Labour productivity EUR 4.25 billion to ICT infrastructures (mainly per hour worked has slightly declined over the last optic fibre) and to the development of innovative decade. Nevertheless, it is still about 27 percentage digital uses (with an emphasis on household points above the EU27 average and about 13 applications). A fund to provide growing SMEs in percentage points above the Euro area average. the ICT sector with equity financing was created in

June 2011. The creation of the ational Digital Overall, France is in a a favourable competitiveness Council (April 2011) is meant to provide the position, with change dynamics partly positive but government with in-depth insight on future ICT partly pointing to vulnerabilities in the export of business applications, including in SMEs, future knowledge-intensive manufacturing industries. technological developments and the

competitiveness of the ICT sector. The impact of 4.10.2 Towards an innovative industry these measures on the competitiveness of the digital

sector (and its contribution to GDP growth) is According to the Innovation Union Scoreboard expected to be positive but is not assessed yet. IT 2010, France remains an innovation follower but its skills and business applications, including in SMEs, innovation performance tends to improve faster will be crucial to fully exploit the growth potential than most Member States falling in this category. of the digital economy.

Public R&D expenditures are above the EU average and they are in line with the 2020 target, but private Regional Innovation Strategies contributed to R&D and innovation expenditures remain identify the major needs of businesses locally and insufficient. Enterprises, especially SMEs, do not thus complemented the ational Strategy for innovate sufficiently, including as regards non Research and Innovation, which primarily focuses

on the priorities of public research bodies and laboratories. road transportation (i.e. ports, waterways and rail

freight, with effective intermodal connexions, in An evaluation of the economic impacts of the order to achieve the national target of 17.5 % of Competitiveness clusters is planned in 2012. In non-road freight by 2012) would positively affect 2010, public support to six Competitiveness traffic congestion and related transport costs. Policy clusters was suppressed, and shifted to new support is still necessary to allow the full Competitiveness clusters on environmental development of the market of electrical vehicles, technologies. The impact of the 2011 adjustment of including as regards infrastructures (in particular the Research Tax Credit and of the ‘innovative plug-and-ride terminals) and R&D, which could be start-up scheme’ on enterprises below 2000 complemented by demand-side measures such as employees remains to be assessed. A public procurement. EUR 1 billion from the comprehensive ex-post evaluation will be necessary ‘Investments for the Future’ programme is by 2013 to assess the effectiveness of the various dedicated to R&D on ‘vehicles of the future’, which schemes and, if necessary, to prepare a refocusing should include R&D on hybrid technologies and of the policy mix. electrical technologies (e.g. battery life). The

introduction of a tax on heavy transport on free

As a whole, the innovation ‘ecosystem’ has roads has been delayed and is now planned in 2013.

significantly improved since 2008. However, higher

R&D and innovation expenditures by businesses, a The policy framework to improve the energy larger number of innovative enterprises and performance of buildings is comprehensive stronger development of high-tech and high-growth (regulation, audit and certification, tax and financial sectors remain prerequisites to increase incentives, consumer information and training of competitiveness and reach the 2020 R&D target. professionals). Its full and sustained More synergies between the main fields of implementation could contribute to the excellence in academic research and high-growth development of a strong eco-construction market economic sectors, and stronger linkages between and therefore to reaching the national target of - the scientific base and businesses could contribute 38 % in energy consumption from buildings by to this objective, as well as more favourable 2020. framework conditions for innovative enterprises below 2000 employees, notably as regards access to Two French producers of biomass heating are in the finance, the tax and regulatory environment, and world top 10, but there is no significant French skills in SMEs. manufacturer in the solar and wind sectors, where

France seems to have lost the competitive race so Efforts to consolidate the cooperation between the far. R&D is a priority to allow France to position on education system and the business community may second generation technologies. EUR 1.35 billion be usefully pursued and amplified, which could from the ‘Investments for the Future’ programme is include more vocationally-oriented curricula with dedicated to research and innovation in renewable technical or engineering background, innovation energy and green chemicals, including and managerial courses, introduction to careers and demonstration projects and technology platforms. economic sectors, excellence curricula for post The development of a competitive supply of graduate studies, etc. renewable energy technologies will need to be

combined with a predictable regulatory framework,

4.10.3 Towards a sustainable industry notably as regards legal requirements for new

installations and feed-in tariffs for wind and solar

Greenhouse gas emissions followed a downward electricity, to allow for the growth of this market in trend since 2005 and decreased by 5.1 % in 2009 the medium term. This is also essential to reach the compared to 1990, which is consistent with 2020 target. The share of renewable energy in gross

France’s Kyoto target. N 2 O emissions from final energy consumption was 11 % in 2008,

agricultural soils significantly decreased. Emissions against a 2020 target of 23 %, and mainly comes per capita remain low compared to most developed from biomass (heat and power) and hydropower.

countries. However, emissions from transports and

buildings, in particular CO 2 emissions from road Electricity prices, including for medium-sized transport, increased since 1990, and energy enterprises, are relatively low and energy consumption from buildings increased by 4.8 % dependency remains below the EU average. Energy between 2000 and 2007. Overall, the projected gap intensity decreased by 15 % between 1991 and to the 2020 target on greenhouse gas emissions is 2006 and energy efficiency is high compared to +6 %. most developed countries.

The quality of transport infrastructures remain very The ‘Investments for the Future’ programme good as a whole, but stronger development of nondevotes EUR 4.6 billion to green industry and rightly spots major industrial challenges, including target to reduce the most burdensome or ‘irritating’ renewable energy, green chemicals, waste & procedures by 25 % by 2011 has not been assessed recycling, sustainable cities and transports, thermal yet. 700 administrative procedures were analysed renovation of buildings, green vehicles. Sustained so far, and 250 simplified, but the approach has efforts will be necessary to build ‘green’ been enlarged to private individuals and less competitive advantages, reach the Grenelle targets focused on enterprises. A permanent, structured and and implement the comprehensive ational systematic screening of the regulatory environment, Strategy for Sustainable Development, e.g. as to ensure effective simplification for enterprises, regards biological agriculture, adaptation to climate would improve the business environment over time. change, waste prevention, collection and recycling, integrated policy framework for green products, The current constrains on public finances imply elimination of environmentally harmful subsidies efforts to streamline public administrations (notably and state aids, consolidation of a knowledge and with the second General Review of Public Policies scientific base in the environmental field etc. 2011-2013). There are synergies between these

efforts and a systematic review of the business 4.10.4 The business environment environment from the ‘competitiveness’ angle. This

offers an opportunity to simplify the interfaces France scores significantly better than the EU between businesses and public authorities, and to average concerning electricity prices for mediumscreen and simplify existing state aids, subsidies sized enterprises, infrastructure expenditures and and other public support schemes benefiting to

satisfaction with the quality of infrastructure. enterprises 90 . This could allow a simplification of

eGovernment usage by enterprises is slightly above the regulatory and tax environment and thus the EU average. improve the business environment, provided that it

does not lead to an increase in the overall fiscal France scores clearly below the EU average pressure on enterprises. concerning the burden of government regulation and the legal and regulatory framework. The 4.10.5 Entrepreneurship and SME policy business environment remains complex and costly, despite recent efforts. Simplification of the The SME sector in France employs, in total, regulatory environment (e.g. ‘gold plating’; relatively less people than in the EU (60.4 % corporate and labour law; hygiene, safety and against 67 %) and lost almost 5 % of its total environment rules; public procurement codes), workforce due to the crisis. The time required to administrative procedures and interfaces between start a business is significantly shorter in France businesses and public authorities (e.g. single IT compared to the EU average. France scores below interface for all procedures applicable to the EU average as regards the business churn. enterprises) offer potential to strengthen competitiveness, in particular for enterprises below The volume of early financing is slightly below the 2000 employees. The De la Raudière report (2010) EU average. SME access to credit remains easier also points out some recurrent practices, such as than in many other Member States. However, in regulatory inflation and legal instability. January 2011, one fourth of enterprises between 10

and 500 employees reported cash and financing Since 2008, France has undertaken several problems. In 2009, 30 % of SMEs noticed a initiatives to improve the regulatory environment. declining willingness of banks to provide loans and The administrative bill of 17 February 2011 the cost of credit remains significantly higher (by extended the obligation to make (and publish) ex 25 %) for small enterprises. Access to finance is ante impact assessments to implementing legal acts. reported to be especially difficult for very small The list of impacts to assess is comprehensive, but enterprises, innovative SMEs and mid-term

SME test is not included and the methodology is investment 91 . Mutual guarantee schemes and

not fully transparent yet. New consultation

practices since 2008 (e.g. États généraux, Grenelle, 90

Assises) have allowed longer and wider Public support to research and innovation consultation of all legitimate stakeholders, but by businesses, which is costly for the consultation is not homogeneous and does not State, has been more systematically always benefit to SMEs. A Commissioner in charge evaluated ex-post in the last few years. of Simplification was appointed in November 2010. This good practice could be extended to

The most recent simplification law (18 May 2011) other domains. 91

includes provisions for enterprises but is not Reportedly, access to bank loans is primarily focused on competitiveness of businesses. acceptable as regards short-term cash and 80 simplification measures have been announced in investment in fixed assets, but more April 2011, but not yet implemented. The national difficult for long-term investment in nonfixed

 assets (e.g. R&D, patents, brands) stronger development of private finance (e.g. retired, students or civil servants. Services, retail venture capital, private equity) may improve SME trade and construction are the most popular sectors. access to finance. The ‘Investments for the Future’ programme also allocates more than The rate of SMEs which import, export (intra or EUR 800 million to finance SME growth and outside the EU) and invest abroad as well as the competitive development, in addition to other funds rate of innovative SMEs remain below the EU available from the Innovation Agency (OSEO) and average, as well as the share of SMEs participating the Caisse des Dépôts et Consignations. in EU funded research. This may be correlated to

the insufficient number of high-growth SMEs and Between 2008 and 2010, duration of payments by to an overall insufficient growth of SMEs as well as public authorities decreased (from 75 down to 65 to the insufficient number of SMEs in high-tech days) and duration of payments by enterprises sectors. Besides, IT skills in SMEs still need to be increased (from 50 days up to 59 days). This promoted. To enhance their innovation capacity, increase may be due to the crisis. SMEs report an non innovative SMEs primarily need information overall shortening of payment duration but more and contacts, in particular at local or regional level, payment delays by large customers. The while innovative SMEs need financing, especially Subcontracting Ombudsman (appointed in April in the expansion stage. Both need enhanced access 2010) is meant to improve relationships between to skilled workforce. The ‘Investments for the large customers and SME suppliers, including as Future’ programme dedicates more than regards payment delays and insufficient compliance EUR 1 billion to finance R&D, innovation, training with the Law on the Modernisation of the and structural adaptation in SMEs. Pursuing efforts

Economy 92 . to streamline and increase the efficiency of

structures accompanying SMEs on international The entrepreneurial spirit, in particular the positive markets may contribute to the development of image of entrepreneurship, seems to be relatively export-oriented activities, in particular in emerging less embedded in the national culture than in other countries. As a whole, improving framework Member States. But the survival rate of enterprises conditions to stimulate higher growth, better after 2 years was 80 % in 2007, against 76 % in technological and geographical positioning and

2006 and against 71 % in the EU on average. More higher differentiation 93 of SMEs remain the major

entrepreneurial education and the new Independent general challenges to increase competitiveness. Contractor Limited Liability Statute (which allows This includes the improvement of the business to separate business assets from personal assets) environment. may improve both the enterprise creation and survival rates. 4.10.6 Conclusion

The statute of 'auto-entrepreneurs', introduce in Challenges for France remain to improve its 2008 by the Law on the Modernisation of Economy external competitiveness and to facilitate structural (LME), is successfully contributing to promote change, notably through higher growth and better entrepreneurial spirit in France. This statute allows technological and geographical positioning of a self-employed person to start a business with no enterprises below 2 000 employees. To this end, formalities and no capital. More than 660 000 efforts to improve the business environment, ‘auto-entrepreneurs’ were registered by end January including by alleviating the burden of regulation 2011, which means almost 350 000 new ‘autoand administrative procedures and facilitating entrepreneurs’ in 2010 (against ~270 000 creations access to finance would be helpful. The research under other statutes). Around one third of ‘autoand innovation ‘ecosystem’ would also benefit from entrepreneurs’ declared sales in 2010, with an further efforts. average turnover of EUR 8 350. Around one half of auto-entrepreneurs are unemployed and 17 % are

which are crucial for non-price competitiveness of enterprises below 2000 employees.

92 This law (2008) sets a maximum duration

of payments by enterprises of 45 days, with derogations in 34 sectors until 2012.

By-passing practices include later 93 Differentiation includes non-technological

registration of invoices, ‘slicing’ of orders, improvements to products and services requests for rebates and discount prices (e.g. branding, quality) and constitutes a

etc. competitive advantage.

4.11 Italy

Italy

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2008) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u

s

T o u

s ta Waste generated by enterprises (all NACE sectors;

-4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh;2007)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009) N.A.

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007)

n e

u

re

e p Early stage financing (% of GDP; 2009) E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Italy (2009)

Paper products; publishing and printing Wood and wood products Refined petroleum products Textiles and textile products

Chemicals, chemical products Leather and leather products

Rubber and plastic products

Food products

Machinery and equipment n.e.c.

Manufacturing n.e.c.

Transport equipment Other non-metallic mineral products

Electrical and optical equipment Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.11.1 Introduction structure. Overall, Italy shows how specialisation in labour-intensive industries can be sustained when Trade and industry specialisation sectoral upgrading, e.g. through climbing up the quality ladder, takes place.

Manufacturing contributes 16.1 % to Italy's total value added against 14.9 % for the EU on average

(2009). At the detailed manufacturing industry Most prominent sectors in Italy

level, Italy is relatively specialised, both in value Highest relative value added (2007)

added and exports terms, in labour-intensive Leather, leather products and footwear

(leather clothes, cutting and shaping of stone) and Wearing apparel, dressing and dyeing of fur

in mainstream manufacturing industries (fabricated Textiles and textile products

metal products, domestic appliances, motorcycles Change in the relative value added (1999/2007) Increasing specialisation

and bicycles) and, with respect to exports, also in Air transport

marketing-driven industries (tanning and dressing Water supply Wearing apparel, dressing and dyeing of fur

of leather, luggage and handbags). At the more Decreasing specialisation

aggregated sector level, Italy is specialised in low Inland transport Electricity and gas

education and innovation sectors (leather, wearing Coke, refined petroleum and nuclear fuel apparel), but also in highly innovation-intensive sectors such as machinery and automotive. Its relative share in high education sectors is low due Structural change to weaknesses in software, business services and research and development. In terms of change, Italy’s changing specialisation

patterns are quite complex, with opposite directions Italy’s position on the quality ladder is very high in in trade and industry specialisation: while it has labour-intensive industries, while in technologydecreased capital-intensive industries in value driven industries it is below the EU average. Its added (ceramic tiles), it increased them in exports R&D intensity is below average given its industrial (basic non-ferrous metals), along with the other industry types (e.g., technology-driven industries – allocation for this instrument is EUR 484 million). TV and radio transmitters) with the exception of This tax credit does not cover in-house R&D by labour-intensive industries (leather clothes). The companies. same holds true for high innovation sectors

(increasing in value added – e.g. medical, precision In April 2011, the National Research Programme instruments, decreasing in trade) and vice versa for 2011-2013 was presented and welcomed by high education sectors (increasing in financial stakeholders. The Programme has been prepared on services). the basis of a consultation of interested parties

through thematic working groups dealing inter alia Manufacturing production fell by around 25 % with: environment, health, life sciences, energy, during the crisis and is still 17.4 % lower than its agrofood, nano-sciences and new materials, "Made previous cyclical peak. The impact of the crisis on in Italy", ICT, aeronautics and space, sustainable Italy’s industrial structure was limited overall, mobility and transports, cultural goods, favouring somewhat marketing-driven industries. construction.

Italy has experienced an appreciation of the real The Programme notably defines as major objectives effective exchange rate by 19% over the last for the Italian research system increasing R&D decade, which is slightly below the EU27 average expenditure, improving competitiveness in key (21%), indicating nevertheless a loss in cost and technological areas, favouring cooperation between price competitiveness. Nominal unit labour costs companies and public research institutions, have increased by 31% between 2000 and 2010, improving analysis and evaluation of research compared to an increase of 14% in the EU27 and programmes and bodies. The intention is to 20% in the Euro area. Labour productivity per hour rationalise and reinforce a number of existing worked has declined over the last decade and is measures, such as Technology Districts, national now only marginally above the EU27 average and technology platforms (interlinked with EU ones), about 13 percentage points below the Euro area national excellence poles. Furthermore, 14 priority average. projects (progetti bandiera) have been identified,

most notably in relation to key enabling Italy improved its sectoral R&D intensity and was technologies, energy or space, to be supported with stable on the quality ladder gaining in the high EUR 1.7 billion in public expenditure in the 2011- quality segment of technology industries, but also 2013 period. The Programme also focuses on in the low quality segment. Overall, Italy shows a simplification of national funding instruments and mixed picture with respect to competitiveness. on improving support to participation in EU and While it undoubtedly features strengths and international research projects. improvements in some areas, its overall outlook is impaired by its performance in knowledge One instrument to simplify and facilitate access to intensive industries and does not unequivocally financing in the field of industrial research projects point in direction of improving competitiveness. is the sportello della ricerca (one-stop shop for

research), which should facilitate contacts between 4.11.2 Towards an innovative industry companies and the Ministry for Education,

University and Research and should be operational According to the Innovation Union Scoreboard in 2011.

2010, Italy is a moderate innovator with below average performance, in particular concerning The implementation of the "Industria 2015" private R&D investment (0.65 % of GDP). The programme, launched in 2006 and organised in five share of high tech exports is another weakness, Industrial Innovation Projects (Energy Efficiency, illustrating the relatively unfavourable product Sustainable Mobility, New Life Technologies, New specialisation of the Italian industry. On the other technologies for the 'Made in Italy', Innovative hand, there are some positive developments Technologies for Cultural Goods), is ongoing and regarding human resources (e.g. new doctorate has been confirmed as a priority by the graduates) and intellectual assets (e.g. Community Government. However, the progress in the actual trademarks). disbursement of funds appear to be quite slow.

A tax credit for research has been established in A major priority for Italy is reducing the December 2010 and subsequently replaced and North/South gap, which is particularly evident in strengthened, in May 2011, by a tax credit for terms of research and innovation. Indeed, the level companies financing research projects in of expenditure in R&D in the Mezzogiorno is universities or public research bodies equivalent to broadly one third inferior to that in the Centre and 90 % of the additional expenditure in 2011-2012 North of the country. Furthermore, the relative compared to the 2008-2010 average (total share of business R&D is especially low (about half that in the Northern regions). Therefore, Concerning renewable energy sources, it should be guaranteeing an optimal use of the 2007-2013 recalled that Italy has been a relative laggard in the Structural Funds, notably in the area of research development of new renewable energy sources such and innovation, is essential. The National as solar and wind. In the framework of the EU ”20- Operational Programme on Research and 20-20“ package, a new impetus has been given to Competitiveness for the Convergence Regions has a supporting these sources and most notably solar total budget of EUR 6.2 billion. A number of calls panels, which benefited starting in 2007 of a for proposals have been published in the last year relatively advantageous feed-in tariff system (conto including, in December 2010, for establishing or energia). The result has been a significant increase reinforcing High Technology Districts and for in solar panel diffusion but also a larger impact on Public-Private laboratories (EUR 915 million). energy prices, as reported by the Italian Energy

Authority. In March 2011, in the framework of the The research system will be affected by a law implementation of Directive 2009/28/EC i on the granting more autonomy to universities' governing promotion of the use of energy from renewable bodies, increasing their ownership of performance, sources, a review of the feed-in tariff has been also from a financial point of view, enhancing announced in order to reduce the level of incentive meritocratic criteria in selection procedures and while preserving security for investments already in improving quality in teaching and research. A the pipeline (ministerial decree adopted in May 'Brain return' measure to attract Italian researchers 2011). living abroad through a tax incentive, initially introduced in 2008, has been confirmed for the The Italian implementation of the Directive on 2011-2013 period. Also significant in the area of renewable energy sources also foresees measures skills, the reform of professional and technical supporting new technological and industrial institutes (secondary education), has been developments in the area, with particular regard to implemented starting from Autumn 2010. energy infrastructure, biomass, second generation

biofuels, new technologies for solar energy such as Summing up, the National Research Programme high concentration panels. These developments 2011-2013 includes positive ideas to achieve higher appear highly desirable, taking into account that up coordination and coherence of measures and to now the recent and rapid growth in new appears consistent with priorities defined at EU renewable energy sources' penetration in Italy (fast level, for instance key enabling technologies. development of wind energy in the Southern However, the level of ambition might be regions, especially Puglia and Sicilia, is a case in insufficient, given that the challenges to Italy's point) does not appear to have fostered an competitiveness are high and a drastic improvement equivalent growth in the domestic supply of in implementation of measures is essential (e.g. industrial products and may be considered, at this Structural Funds, especially for the Southern stage, a missed opportunity. regions, and the "Industria 2015" programme).

Concerning waste, it should be noted that the 4.11.3 Towards a sustainable industry operation of an electronic Industrial Waste

Monitoring System (SISTRI) to monitor waste from Compared to last year's report, Italy's industrial activities has been delayed. environmental performances appear to have improved compared to the EU average. While the Concerning the diffusion of Green public level of energy intensity in industry is a traditional procurement in Italy, the implementation of the positive feature – which can be partly explained by 2008 national Action Plan is in progress. In the relatively high energy prices – the carbon particular, a Ministerial Decree of February 2011 intensity is now better than the EU average. The has defined minimum environmental standards for a share of environmental goods in exports, however, number of goods purchased by public is a weak aspect. administrations (textile products, office furniture,

IT, public illumination). Further decrees for specific Environmental regulation in Italy is particularly goods and services are in preparation. burdensome and unstable. The repartition of competencies between different levels of the public The absence of a comprehensive national energy administration and between different bodies does strategy is a major structural weakness of Italy. not exclude duplications, is a source of delays, e.g. Such a strategy has been repeatedly announced in in authorisation procedures, and contributes to legal the past but has yet to be presented. A number of uncertainly. Also, implementation of EU initiatives – quite often as direct consequence of EU environmental legislation is disappointing with a legislation and orientations – are taken, at national high number of infringement proceedings. and regional level as well as in the private sector. A

more consistent, stable approach provides an improved framework for investments and to networks and has also been designated as the systematically foster eco-innovation in the national point of single contact as required by the industrial fabric, notably with respect to SMEs Services Directive. would improve Italian R&D performance. More generally, the opportunities of "green growth", The public administration reform, launched in which could be particularly relevant for Southern 2008, has continued in the last few months. regions, are still not fully grasped by Italian Notably, a new Digital Administration Code has industry. been established through a legislative decree

adopted in December 2010. The new Code intends 4.11.4 The business environment in particular to simplify relationships between the

administration and businesses by facilitating The Italian business environment is relatively exchanges of information, online payments, the use unfavourable across the board. The burden of of digital signatures and guaranteeing in general government regulation, the complex and slow more transparent procedures through enhanced judicial system, the quality of infrastructure institutional websites. The quantitative goals of the (especially but not only in the Southern regions) new Code are a reduction of up to 80 % in the and energy prices are all indicators where Italy length of administrative procedures, saving up to compares unfavourably with the EU average. 90 % in costs of paper, and up to EUR 200 million Furthermore, the degree of competition in a number in reduced mailing costs. of services sectors is still generally considered a major bottleneck for growth. There are however In terms of opening of services sectors to improvements and positive efforts to be emphasised competition, independent assessments show that as well as a good performance concerning the eimprovements have taken place in energy (with government usage by enterprises. electricity more advanced than gas), financial

markets and postal services while no progress or In October 2010, the Government presented the even negative trends are identified in sectors such Administrative Simplification Plan 2010-2012, as professional services, transports, and local public which aims at a 25 % reduction of administrative services. Italian authorities were supposed to adopt burden (estimated at about EUR 68 billion) on an Annual Law on Competition, which would take companies by 2012, equivalent to an estimated into account the main recommendations from the reduction of up to EUR 17 billion. The Plan focuses National Competition Authority and further on three areas: 1. measurement and reduction of opening of protected sectors. However, the Italian administrative burden in all areas of State Government has not yet presented the draft law to competence; extension of the State approach to the Parliament. This is a major disappointment as Regions and local authorities; 3.Simplification this law could be a "best practice" at European level focusing on SMEs (criterion of proportionality in and could remove remaining bottlenecks hindering administrative procedures). growth in Italy. It should be noted that the

Government adopted in February 2011 a proposed

This approach was applied inter alia, in July 2011, constitutional reform aimed at liberalising the with simplification several measures concerning the economy but it is unclear whether this reform will areas of fire prevention, environment, public be implemented and what would be its practical procurement and privacy regulations which, all effects on the business environment. together, should allow a reduction of burden estimated at EUR 2.2 billion per year. So far the Concerning the development of broadband Government has adopted measures that should infrastructure, a Memorandum of understanding allow for a reduction in administrative burden for (MoU) was signed in November 2010 between the companies estimated at EUR 7.6 billion per year. Ministry for Economic Development and the main

telecommunication operators. The declared aim is

In September 2010, the new regulation reforming to define and implement a public-private the Italian one-stop-shops for productive activities partnership for the deployment of Next Generation (Sportello unico) was adopted. With these new Networks and ensure coverage of 50% of the Italian rules, one-stop shops are identified as the only population by 2020. An executive committee public bodies at territorial level responsible for formed following the MoU was supposed to interacting with operators on all procedures related complete the necessary preparatory activities in with access and exercise of productive activities three months but has yet to deliver. and provision of services. Furthermore, communications from operators to one-stop-shops Summing up, Italy starts from a very unfavourable should be transmitted only through the Internet. The position in terms of its business environment. portal "impresainungiorno.gov.it" should ensure the Italian authorities are implementing an ambitious interoperability of existing infrastructure and programme for reducing administrative burden, simplifying procedures and improving relations of the "network contract" (contratto di rete) that between the public administrations and business, became operational with an implementing decree with a strong emphasis on e-Government. These adopted in April 2011. This contract, supported by developments have been largely welcomed by a dedicated tax incentive (EUR 48 million for 2011- stakeholders but their actual impact is yet unclear 2013), allows companies, while remaining and will need to be carefully assessed. Opening of independent, to collaborate on specific projects, services sectors to competition remains a key such as in research and innovation or on bottleneck to growth and on this front there is no internationalisation. The emphasis on «network major progress to report. contract» seems to have supplanted, at least at

national level, a previous focus on industrial 4.11.5 Entrepreneurship and SME policy districts.

Like other EU economies, Italy's is dominated by Late payments by public authorities are a major SMEs (99.9 % of companies and 81.3 % of problem in Italy (also connected with the difficult employment) but has a higher prevalence of micropublic finances situation at national, regional and companies of less than 10 employees (47.4 % of local level). Since January 2011, enterprises can employment, compared to 29.8 % in the EU compensate their debts and credits with the Public average – this share is even larger in the Southern Administration. This measure reduces the cash regions where the average number of employees problems of enterprises and accelerates the payment per enterprise is 5.8 in the manufacturing sector procedures of the Public Administration. compared to 8.5 at national level). On the one side, this demonstrates the strong entrepreneurial spirit To address financing difficulties of SMEs in the prevalent in Italy but, on the other side, it raises framework of the crisis, the Italian Government has specific concerns related to the overall promoted in 2009 a "credit moratorium", which is competitiveness of the economy. an agreement between business associations and the

banking association allowing for a delayed Favouring dimensional growth of companies is repayment of loans. This moratorium has been therefore an important priority, also given the fact prolonged in February 2011 until 31 July. that that medium-sized and "medium-large" (up to

500 employees) companies appear to be particularly The time required to start a business is below the export-oriented and crucial in contributing to the EU average and could even further improve. overall economy's competitiveness. Indeed, the Certified Statement of Business Start up

(SCIA – Segnalazione Certificata di Inizio Attività), The financial structure of Italian SMEs, which are which replaces since 2010 the existing Declaration relative less capitalised that counterparts in other of Business Start Up (DIA – Dichiarazione di Inizio Member States, appears to be a factor limiting Attività), allows a new company to start operating dimensional growth, as well as a higher reliance on from the first day (whereas the DIA required a short-term borrowing. Attempts these last few years thirty day standstill). With the SCIA, public at developing alternative, non-bank, financing administrations should control compliance with options for companies have been only partly relevant requirements in the following 60 days (or, successful and, for example, the Italian venture after this period, only in exceptional circumstances capital and private equity markets remain relatively such as for public safety reasons). underdeveloped compared to other EU countries despite the potential to promote firm growth and There is a wide recognition that the dimensional improve corporate governance. growth of companies in Italy should be a priority.

Measures such as the Italian Investment Fund and The Italian Ministry for Economy and Finance, the "network contract" are now in place and appear together with bank groups and business steps in the right direction. Given the magnitude of organisations, have set up in 2010 the Italian the issues at stake, however, it is unclear whether Investment Fund (Fondo italiano d'investimento) they will be sufficient to address the identified that intends to address the above-mentioned shortcomings. Concerning late payments, an early weaknesses by proving risk capital (or "expansion transposition by Italy of new Directive 2011/7/EC i capital") to promising SMEs with an income could be a welcome move. between EUR 10 and EUR 100 million. The Fund has started its operations at the end of 2010 and has 4.11.6 Conclusion already invested in a few promising SMEs.

While it maintains a diversified and in some To overcome the disadvantages related to the instances globally competitive industrial basis, limited average size of companies in Italy, another Italy's overall growth potential is a source of approach is to favour cooperation. This is the aim concern. The last few years have seen some measure of transformation in the industrial fabric, meaning that there is considerable scope for not so much in terms of relative specialisation but catching up of the Mezzogiorno that would of climbing the quality ladder. significantly enhance Italy's overall

competitiveness. As the policy front, significant efforts can be reported, notably in order to improve the business Some policy interventions appear uncoordinated environment or ensure a more coherent research and fragmented while some promising measures strategy, but much more would be required in a remain only partly implemented or are delayed by number of areas, such as in promoting ecolack of resources or by complex decision-making innovation, in enhancing competition in services procedures and practices. Given the importance of markets or in fostering dimensional growth of industry, Italy would benefit from putting forward a companies. In general, there are no major comprehensive industrial competitiveness policy, improvements in closing the North/South gap, which would make sense in a country with such an which is evident in a wide number of domains, important industrial sector.

4.12 Cyprus

Cyprus

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2010) d u i n

Labour productivity per person employed (EU27=100; 2010)

ti v

e

p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m

c

n d

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

ta d u

s

T o

w

u s in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010) 4.9

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009) N.A. o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

% of broadband lines with speed above 10 MBps (2011)

u s

in

B

Legal and regulatory framework (0= neg. / 10=pos.; 2011) N.A.

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008) N.A.

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007) N.A.

n e

u

Early stage financing (% of GDP; 2009) N.A. e p re

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Cyprus (2009)

Textiles and textile products

Food products Paper products; publishing and printing

Leather and leather products

Wood and wood products

Refined petroleum products

Chemicals, chemical products Manufacturing n.e.c.

Transport equipment

Rubber and plastic products Electrical and optical equipment

Machinery and equipment n.e.c.

Other non-metallic mineral products Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.12.1 Introduction Given its industrial structure, Cyprus’ R&D intensity is (slightly) below average, as is its

Trade and industry specialisation position on the quality ladder. It is closer to the average in technology-driven industries than in

Cyprus belongs to the group of EU Member States labour-intensive industries.

characterised by higher income and a specialisation

in technologically less advanced sectors (group 2) 94 .

At the detailed manufacturing industry level,

Cyprus features specialisation in marketing-driven Most prominent sectors in Cyprus industries (processing and preserving of fish, fruit, manufacture of vegetable oils, dairy products etc.), Highest relative value added (2007) value added specialisation in labour-intensive Water transport

industries (bricks and tiles) and export Hotels and restaurants

specialisation in technology-driven industries Air transport

(electronic valves, photovoltaic systems). However, Change in the relative value added (1999/2007)

the share of manufacturing in Cyprus is very small Increasing specialisation Real estate activities

(the three top economic sectors are all in services), Recycling and exports of manufactures even smaller, so that Non-metallic mineral products

(manufacturing) export indicators should be Decreasing specialisation

interpreted with care. At the more aggregated sector Water transport Wearing apparel, dressing and dyeing of fur

level, Cyprus is specialised in low innovation and Hotels and restaurants education intensity sectors such as water transport and hotels and restaurants. The export

specialisation in high education sectors is due to Structural change

financial services.

In terms of change, Cyprus has considerably

increased its trade specialisation in technologydriven

industries (electronic valves, photovoltaic

94 For main sources used see the Annex.

systems, air and spacecraft and medical equipment), giving more emphasis toinnovation over research. and its relative share in high education and innovation sectors (radio, TV and communication R&D and innovation funding actions are designed equipment), while it has decreased its specialisation and implemented by the Research Promotion in the low innovation and education sectors (water Foundation, an independent body co-financed by transport, hotels and restaurants) as well as in the state and the EU structural funds. Actions under exports of labour-intensive industries. Cyprus is one of the five priorities are destined to enterprises stagnant on its sectoral R&D intensity, and the even if the latter can also use the other actions. quality indicators paint a mixed picture, showing There are no policy changes in 2011 as all actions improvement in the high quality segment but also take place within the framework defined for 2009- reinforcing the low quality ones. 2010.

Overall, Cyprus is clearly catching up with respect While public research capabilities and innovation to competitiveness in terms of specialisation; policy have been considerably improved over the however the indicators referring to sectoral last decade, the business sector is still considerably upgrading such as R&D and quality show that under-investing in R&D. Innovation policy has Cyprus needs to move further up the value chain. evolved rapidly but in a rather fragmented way and

the government is planning drawing up a new In Cyprus, the crisis clearly held back the structural national strategy. In a context of fiscal constraint, it change towards technology-driven industries, while will have to be well-targeted so as to contribute in leading to higher shares of capital-intensive and achieving the long-term objective of diversifying marketing-driven industries. the economy towards higher value activities.

Cyprus experienced an appreciation of the real effective exchange rate by 18% over the last decade, which is slightly below the EU27 average 4.12.3 Towards a sustainable industry

(21%), indicating nevertheless a loss in cost and

price competitiveness. Nominal unit labour costs The high energy and CO 2 intensity of the Cypriot have increased by 32% between 2000 and 2010, business sector, in combination with the heavy compared to an increase of 14% in the EU27 and dependence on imported oil for energy generation 20% in the Euro area. While labour productivity per and a small and isolated energy grid represent a hour worked has gradually increased over the last potential risk in case of high volatility in oil and decade, it is still about 20 percentage points below CO 2 prices. This risk is addressed by investing for

the EU27 average and about 33 percentage points the incorporation of natural gas as a source of below the Euro area average. energy generation and by encouraging energy

savings and the development of renewable sources 4.12.2 Towards an innovative industry of energy.

The Innovation Union Scoreboard 2010 classifies A number of grant schemes were in force to Cyprus among the innovation followers with a encourage manufacturing establishments reducing close to average performance. Its relative ranking their environmental nuisances and increase their has improved gradually over the years. Its energy efficiency. The legal framework has been enterprises outperform in non-R&D innovation but completed by the recent transposition into national underperform in R&D expenditure. Due to the law of the eco-design Directive of 2009 and the structure of the productive sector, with a clear publication on-line of all relevant information. The predominance in small firms specialising in regulation on energy audits has been submitted to services, a significant increase of business R&D the Parliament. expenditures is unlikely in the near future.

Cyprus was among the early adopters of green On the other hand, low levels of R&D activity in procurement. The corresponding framework, valid the business sectors weaken the incentives for for 2007-2009 is being revised to take into account students to pursue a researcher career, thus the GPP toolkit. The use of green standards is constraining the development of human capacities widespread, including in the private sector. for research. This situation risks to persist as fiscal

constraints do not allow for a significant increase in 4.12.4 The business environment

public research in the near future. The government

is preparing a National Strategy for Research and Cyprus offers a generally favourable business Innovation for 2011-2015 aiming at addressing environment. Satisfaction with the regulatory these bottlenecks in a coherent way, including by burden and the quality of infrastructure is above the

EU average. The small size and the geographic Attitudes towards entrepreneurship are more isolation of the economy pose some challenges favourable as the entrepreneurship rate and the regarding the functioning of competition. More preference for self-employment are markedly generally, domestic firms face high operating costs, higher in Cyprus in comparison to the EU average. especially as concerns energy and water but, also, The one-stop-shop for setting up a business is some professional services. Also, there remain operational and the average time to register a new areas where dealings with the administration are company (8 days) is shorter than EU average. It lengthy and costly in comparison to EU average. should permit handdling the registration fully online

 shortly (eFilling project, launched in 2008). It Better regulation policy is defined by an also serves as the single point of contact for the interdepartmental Steering Committee and is purposes of the Services Directive. It provides implemented by a Central Specialised Unit at the information regarding procedures and formalities Ministry of Finance. The vast majority of new needed for the access to, and exercise of service legislation is subject to a simplified impact activities either through the establishment of a assessment carried-out through a standard business or through the cross-border provision of questionnaire. Consultation of stakeholders during services. The electronic completion of a number of the drafting procedure is systematic. For the procedures is available through the Cyprus PSC achievement of the national target of 20% reduction portal. of administrative burden by 2012, a sectoral baseline measurement in all national legislation Access to and the cost of credit constitute a concern relating to enterprises, based on 8 national priority for Cypriot SMEs. The creation of a Loan areas, was completed in April 2011. The reduction Guarantee Granting Facility to support SMEs that proposals resulting from the project were approved are not able to provide sufficient collateral is still by the Council of Ministers and are, currently, on hold. Following the Financing Agreement under implementation concluded in April 2009 with the European

Investment Fund for an amount of EUR 20 million, The eProcurement initiative is operational since Two fionacial products were put in place, the November 2009. Using the central platform is Funded Risk Sharing instrument which offers mandatory for all calls for tender of all public micro-credits (up to EUR 100 000) assorted with entities. At a next stage also offers will be made favourable conditions to small and very small electronically. There are 2500 registered users for enterprises with co-funding and the First Loss restricted calls, 10 % of which are non resident to Guarantee Financial instrument which offers credit Cyprus. A Help Desk contributes to making the risk protection (to the amount of (50 % by loan) platform SME-friendly and, in general, the with the aim of facilitating the access of micro and transition to an electronic platform is considered as small enterprises and start-ups to bank credit. The successful. first instrument is operational since January 2011

while the second is in the phase of negotiation with

Following a rapid increase, usage of eGovernment the financial intermediary that will implement it. services by enterprises reached the EU average in New loans of, respectively, EUR 20 and 2009. However, the supply of public services on EUR 50 million in total are expected through these line is still among the weakest in the EU (2010). two instruments. Payment delays, both from the The government is preparing an ambitious Digital state to businesses but also in transactions between Strategy for 2011-2020 wich would also support the businesses constitute another source of complaint. the development and competitiveness of the This is expected to be improved with the adoption economy. of the Late Payments Directive.

4.12.5 Entrepreneurship and SME policy A number of features make the eprocurement platform particularly SME-friendly (Help Desk –

The contribution of Cypriot SMEs to the overall including for filing in the forms, existence of model economy compared to that of large firms is documents for all procedures, system of alerts and significantly higher than for the EU average. In possibility of submitting only a declaration in particular, the contribution of micro firms to honour in order to participate). In addition, tenders employment is in Cyprus (39 %) higher than the are divided into lots (for example, on a European average (30 %) and the contribution of geographical basis) and, when sub-contracting is the total SME sector to employment (83 %) is in used, sub-contractors are paid directly by the Cyprus higher than in the EU on average (67 %). In procuring authority.

terms of value added, the contribution of SMEs

amounts to 75 % (EU 58.6 %), pointing to their Regarding grants to SMEs, the execution of significantly lower productivity than larger firms. existing actions financed by the EU structural

Funds, targeting manufacturing (total budget EUR 23 million), the processing of agricultural problem linked to its structural specialisation in products (total budget EUR 24 million), tourism labour-intensive, low-skills and low technology (total budget EUR 13 million), agro tourism (total sectors, which is also reflected in its current budget EUR 15 million) and women and youth account deficit. On the other hand, Cyprus is entrepreneurship (total budget EUR 5 and endowed with highly educated and multilingual EUR 6 million respectively) is ongoing. The latter workforce. The policy priority therefore remains to was particularly successful in creating new adjust the structure of the economy towards more enterprises and jobs, also thanks to its skills knowledge-intensive and high growth activities, acquiring dimension. Of notable interest for its primarily in services and tourism, through a well reduced administrative burden is the nationallytargeted R&D and innovation policy and funded action for the relocation of manufacturing or encouraging entrepreneurial activity in high value nuisance producing very small enterprises to added sectors. authorised areas (Industrial Areas, Industrial Zones, etc). Besides this overarching challenge, there are

structural weaknesses that could be addressed in the 4.12.6 Conclusion short term, such as further improving the business

environment by addressing regulatory burden and The insular nature and distance from the rest of the offering more public services on-line, reinforcing internal market pose a challenge for small Cypriot competition, especially in some professional enterprises. Cyprus faces a chronic competitiveness services, and promoting energy efficiency.

4.13 Latvia

Latvia

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti ti

v

p e Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9

a rd in tr (kg CO2 / euro GVA; reference year 2000; 2009) w s ta d u

s

T o u in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009) o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

% of broadband lines with speed above 10 MBps (2011)

u s

in

B

Legal and regulatory framework (0= neg. / 10=pos.; 2011) N.A.

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

E s Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007)

n e

u

re

e p Early stage financing (% of GDP; 2009) N.A. n tr

E Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Latvia (2009)

Textiles and textile products Leather and leather products

Wood and wood products Food products

Paper products; publishing and printing Manufacturing n.e.c.

Refined petroleum products Transport equipment

Chemicals, chemical products

Electrical and optical equipment Rubber and plastic products

Other non-metallic mineral products Machinery and equipment n.e.c.

Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.13.1 Introduction intensive manufacturing industries, such as sawmilling and wood planning, manufacturing of

Latvia is one of the countries that are catching up: veneer sheets and wooden containers, as well as among the population of active enterprises, it has a marketing-driven industries (e.g. fish processing high share of enterprises that are growing fast. The and preserving). At the more aggregated level, impact of the crisis on Latvia’s economic structure Latvia is specialised in sectors with low and seems to have been limited, favouring capitalmedium-low innovation and education intensity, intensive industries against the trend. While such as metal processing and machinery, wood and manufacturing production fell by almost 27 % wood products, food production, and inland during the crisis, it has partially recovered, reaching transport. As is the case for the other Baltic States, 12.7 % below its previous cyclical peak in April Russia is an important destination for Latvian 2011. Latvia belongs to the group of countries with exports.

relatively lower income levels and specialisation in labour-intensive industries. Moreover, Latvia’s

R&D intensity is higher than the average of this

country group, even though it is below average Most prominent sectors in Latvia

when taking into account its industrial structure.

The same holds true for Latvia’s position on the Highest relative value added (2007) Wood and products of wood and cork

quality ladder: it is below the EU average but above Inland transport

its group average, while the low quality segment is Real estate activities

on par with the EU average. Overall, Latvia is Change in the relative value added (1999/2007) Increasing specialisation

improving its competitiveness, especially in terms Air transport

of specialisation and to a lesser extent in as far as Real estate activities Recycling

sectoral upgrading is concerned. Decreasing specialisation

Post and telecommunications Wood and products of wood and cork

Trade and industry specialisation Supporting and auxiliary transport activities;

activities of travel agencies

In 2009, when compared to the EU average, manufacturing contributed significantly less to

Latvia's total added value – 9.9 % against the EU

average of 14.9 %. Latvia is specialised in labour Structural change

In terms of change, Latvia has been moving The Innovation and Entrepreneurship Motivation unequivocally towards knowledge-intensive Program encourages innovative enterprises through industries: the share of technology-driven industries training and information sessions, consultations for (e.g. motor vehicles, radio and TV receivers) in new entrepreneurs and an annual competition of exports has increased considerably, as has the share business plans – Cup of Ideas. However, the budget of sectors with high innovation and education allotted by the government for the support of intensity (e.g. communication equipment, innovative enterprises could be considered rather computers). At the same time, trade specialisation limited in comparison to other countries, hence the in labour-intensive industries and specialisation in low likelihood of having a long term impact on low innovation sectors (e.g. clothing apparel, increasing the number of innovative enterprises as auxiliary transport) has decreased. In particular, well as improving the innovation performance of Latvia has improved its position on the quality Latvian companies. ladder; the exception is the share of technologydriven industries in the low price segment of In terms of cooperation between business and exports, which has been decreasing in Latvia academia, the most prominent program is the relative to the EU average trend. However, Latvia’s support of industrial research in competence sectoral R&D intensity has remained unchanged centers: running until 2015, the 6 existing centers relative to the EU average. are active in the main exporting industries: wood,

machine building, pharmaceuticals, electronics, Latvia has experienced a strong appreciation of the ICT and biotech. In addition, in order to facilitate real effective exchange rate during the last decade the commercialisation of state funded research, (48 compared to 21% in the EU27), indicating a contact points for technology transfer have been loss in cost and price competitiveness. Here, the established in 8 universities, under a program increase in nominal unit labour costs (87%) running until 2013. It is worth mentioning the between 2000 and 2010 played a significant role. Institute of Solid State Physics of the University of While labour productivity per hour worked has Latvia, Latvian Institute of Organic Synthesis, gradually increased over the last years, it is still Latvian Biomedical Research and Study Center and about 53 percentage points below the EU27 the Institute of Mathematics and Computer Science average. of the University of Latvia as stories of successful

cooperation between scientists and entrepreneurs. 4.13.2 Towards an innovative industry

As most universities are largely involved in state Latvia is classified as a modest innovator with a funded research, the Law on Scientific Activity is performance significantly below the EU average, being amended to allow the intellectual property according to the Innovation Union Scoreboard rights on inventions funded with public money to 2010. In 2009, 0.46 % of GDP was spent on R&D, stay with the originating universities or institutes. out of which 37 % from the private sector. However, state-funded universities do not have

enough incentives to reach out to the industry. On

While reduction of all public expenditures in 2010 the other hand, companies either do not know what affected the implementation of R&D and thus universities can offer or have a short term approach continued to place Latvia well below the EU that disfavours research and innovation, as long average, the country has still benefitted from ESF term projects. The R&D and innovation community and ERDF funds intended for developing both argues that, should more funds be dedicated to new research and IT infrastructures, attracting human laboratories, enterprises will have an incentive to resources to science, commercialising science approach universities and thus sponsor common output, supporting applied research as well as projects. Similarly, more should be done to R&D. encourage applied research, continue to fund the

ongoing clusters program, as well as directly

The government supports innovative enterprises in support research activities in companies. Another developing new products and technologies through way to bridge the gap between the science and the loans, guarantees, grants for the manufacturing business communities is through several innovative sector and for high-added value investment companies that are led by former scientists.

projects, as well as the creation of a technology and business incubators. In order to improve access to In order to address the shortage of highly skilled venture capital for innovative enterprises, seed and labour force, the government plans to increase the start-up funds have been made available for concept number of people employed in science and and/or product development; a venture capital research, strengthen the infrastructure of the state instrument is being created to develop and enhance scientific institutions with state-of-the-art production capacities. equipment (a EUR 148 million program, starting in

June 2011) and support 9 national level research centres in priority fields like: energy and In addition, there are some ongoing programs that environmental resources, extraction technologies, aim at developing co-generation power plants using pharmacy and biomedicine, ICT, creative renewables (running until 2015), supporting technologies, nanotechnologies and nanomaterials technology transfer from fossils to renewables, etc. using biofuels in the transport sector and enabling

energy production from agricultural and forest There are important challenges that Latvia will biomass (to be used outside the farm). However, have to address if it wants to increase the these measures need to be further implemented and competitiveness of its enterprises by improving their impact will need to be thoroughly assessed. their innovation capacity and boosting R&D. The infrastructure for science and research should In terms of energy efficiency, the law on end-use continue to be upgraded, the number of highly energy efficiency introduces energy audits in skilled people should be increased and significant Latvia, which function on a voluntary basis in investment should be made in the high tech sector. industry, but become mandatory for obtaining In addition, the commercialisation of research public financial support. However, stakeholders output should be further improved and cooperation emphasise that there is a lack of skilled auditors between industry and academia should be who could carry out energy audits. While there is encouraged by means of incentives. an ongoing program for the heat insulation of multiapartment

 houses and increasing the energy Latvia needs to continue to improve its R&D and efficiency of centralised heating systems, the innovation governance system and its Climate Change Financial Instrument has a communication and coordination with the R&D and component that aims at increasing the energy innovation community. Stakeholders argue that efficiency of public and industrial buildings. Street R&D and innovation could also be further lighting is becoming more energy efficient as well, enhanced by offering more government guarantees through the use of LED lamps, under a grant and better access to finance, for instance through an scheme of LVL 7 million. Most importantly, some innovation or mezzanine fund, or some forms of industrial sectors are becoming more energy risk capital. efficient. For instance, to export timber, producers

are obliged to produce a certificate of sound

4.13.3 Towards a sustainable industry environmental management, without which it is

difficult to find clients; this requirement has pushed

Latvia's energy intensity still remains well above the sector towards more environmentally-friendly the EU average. Energy consumption in Latvia is solutions. Another example is a large Latvian beer high and the situation has worsened as a result of producer that spent more than 1 million euro on a the crisis: the industry, as well as public opinion, new heat/water system that is more energy efficient. seems rather reluctant to 'go green'. Given that the Moreover, a green investment scheme is being implied costs are too high, companies prefer to implemented in some manufacturing buildings and either stick to business as usual or expect fiscal technological processes. However, despite the incentives in order to take action. Banks are also actions taken and the significant impact, the less willing to provide long term loans for green necessary investments are still delayed, which will investments. eventually lead to a considerable slowdown of

progress. Further on, more effort is needed to raise

Latvia has a good record on renewable energy: the awareness on the importance of energy efficiency.

energy produced from renewable energy sources as

a percentage of the total net final energy The use of green procurement advances very slowly consumption in Latvia was 29.9 % in 2008, in Latvia, also as a consequence of the fact that it is compared to the EU average of 10.3 %. The largest implemented on a voluntary basis. While until sources of renewable energy are hydro-power and recently the main criterion in procurement was the biomass; the quotas on the production of electricity lowest price, 'economically efficient' solutions have from renewable sources have been abolished started to be considered. The Climate Change recently. There are measures in place to Financial Instrument also supports, among other increasingly replace fossil fuels with renewable things, green public procurement although its energy: the new draft Renewable Energy Law implementation is not broadly developed yet.

replacing the current support mechanism aims at further increasing awareness and promoting the use As local demand is more inclined towards low cost of renewables, and ensuring a long term supply of products and services, the environmental goods renewable energy. The Climate Change Financial produced in Latvia are mainly targeting export Instrument facilitates heat and electricity markets. However, the share of Latvia's exports of production from renewable energy sources rather environmental goods as a percentage of total than fossil fuels in municipalities and households.

exports is still lagging behind the EU average. while implementation is still pending, authorities claim that the procedures involved have already

Latvia is performing rather well in the area of waste been simplified. In addition, the new legislation on management; it is well above the EU average in insolvency procedures has shortened the length of terms of reducing the waste generated by procedures from 3 to 1 year. enterprises. An ongoing program, running until

2013, targets the development of water and waste As regards business start-ups, the minimum equity management infrastructure. capital requirement of a newly established company

was reduced, such that it is now possible to start a Among the challenges that are still to be addressed, new company with a minimum equity capital of the decrease of energy intensity in industry remains EUR 1.43 (one Lat). Additionally, business starta high priority, as is the utilisation of more efficient ups are able to get support co-financed by ESF in heating solutions, possibly using some underthe form of consulting, training, loans and grants; exploited technologies. Financial support and tax so far, 396 loans have been provided and 966 incentives could be used on a wider scale, in order persons have received training. The Latvian to reduce the costs of green solutions and thus make authorities claim that a one-stop-shop for start-ups them more affordable for companies. In addition, has been completed, as from June 2010 the more effort needs to be put into building and/or Enterprise Register enables start-ups to apply modernising the Latvian energy infrastructure and simultaneously for VAT registration. However, improve the interconnections in the Baltic region, individual cases have been reported by business including through a Baltic energy market. organisations that the one-stop shop system for new

entrepreneurs was not yet fully functional. 4.13.4 The business environment

In terms of access to markets, a set of measures Latvia has made noticeable progress in improving have been introduced by the government to support its business environment, but there is still room for SMEs. Apart from export guarantees, which intend significant development. In terms of burden of to support exporters by covering risks for export government regulation, Latvia scores slightly below transactions, the government is developing a the EU average. While satisfaction with the quality Foreign Direct Investment Attraction Strategy of infrastructure did not change and remains below aiming at bringing foreign direct investments (FDI) the EU average, there has been a significant to export-oriented sectors with high value added. improvement in infrastructure expenditure. Latvia The Investment and Development Agency of Latvia scores well above the EU average on state aid for has been developing similar measures. The Agency industry and services and slightly above the EU has 11 Foreign Economic Representative Offices in average on electricity prices for medium-sized countries that are Latvia’s main trade partners and enterprises. In addition, Latvia has made provide the main source of FDI for Latvia. These considerable progress in increasing the percentage offices serve as points of contact, provide of broadband lines with speed above 10 MBps, information on market access and support the which places it slightly above the EU average. This diversification of exports as well as the attraction of year, Latvia moved from position 27 to position 24 FDI. In 2010, 55 informative and training seminars (position 9 among EU countries) in the Doing have been organised by the Agency for enterprises Business indicators of the World Bank. interested in foreign markets. The Agency also

offers individual consultation and support to

In order to further improve the business entrepreneurs, organises match-making events in environment, the government is planning to enable Latvia and abroad, as well as individual trade visits municipalities to foster entrepreneurship by and trade missions to foreign countries, including amending the laws on property lease and participation in trade fairs abroad. Despite these redistribute EU structural funds to improve the measures, export support still remains a priority business infrastructure by developing industrial and, according to stakeholders, there is still room areas, ensuring availability of public services and for further improving the effectiveness of existing modernising the country's regional roads. The instruments.

government Annual Action Plan for Improvement

of Business Environment has stipulated, among The use of e-commerce by both enterprises and other things, a new microenterprises tax law, a private individuals could be further improved. patent fee for individuals in certain professions, and According to the most recent government data, 20 amendments to the laws on property registration. A basic services are 94 % available online, 70 % of new Construction Law has been adopted in May enterprises submit forms electronically; 50 % of 2011, aiming at reducing the number of procedures companies perform full e-transactions. The required for obtaining a construction permit from government has in place two 2011-2013 24 to 6, and cut the duration from 186 to 69 days; Development Plans for E-government and E-skills, respectively, aiming at developing e-services, e.g. micro-enterprises – companies with an annual the e-declaration system for the State Revenue turnover not exceeding LVL 70 000 and less than Service and the e-registration of a company in the five employees. The Micro-enterprises Tax Law Register of Enterprises. In addition, the government and the implementation of the Program of Support intends to further develop the e-procurement system Measures for Microenterprises has resulted in a set – at present containing almost 400 buyers and 100 of 30 measures intending to reduce the suppliers – as well as a business section in the administrative burden of companies, such as: portal www.latvija.lv , which contains information smoother bookkeeping and access to finance; a on all state and local government services and special reduced tax for micro-enterprises (9 %); provides access to e-services for both companies better access to information; and a lump sum patent and individuals. However, these measures have not fee for individuals in certain professions (crafts and been sufficiently advertised, such that entrepreneurs services), essentially replacing their income tax and are not aware of the simpler access to esocial security contributions. These measures have government. proven successful, as the number of new microenterprises

registered in Latvia has increased. In terms of infrastructure, Latvia has significantly increased the total amount of funds spent on In order to improve the competitiveness of infrastructure, including from the EU funds; the enterprises, the government has taken steps to offer main investment areas are the more financial support instruments. It is intended to construction/improvement of railways, roads, provide support to at least 300 enterprises within seaports and broadband networks. The government the framework of the state support program is planning to introduce International Freight administered by the Ministry of Economics until Logistics and a Port Information System to make 2013. The following instruments have already been freight transport more competitive . The Next made available to enterprises: loans for increasing Generation Access Network for rural areas aims to the competitiveness and growth, individual credit ensure broadband internet connection for all local guarantees, venture capital, seed and start-up capital administrations and facilities by 2020. However, funds; so far, 618 loans and 490 guarantees have more could be done in the area of transport, as been provided, both together providing access to Latvian roads are not in optimal condition, thus finance in amount of almost 300 million lats. The generating higher energy consumption: public government is in the process of creating one united transport based on electricity and biofuels (rather Financial Development Institution of Latvia by than fossil fuels) could be further developed. merging the Latvian Guarantee Agency, the

Mortgage and Land Bank, the Latvian Despite noticeable progress, Latvia should continue Environmental Investment Fund, the Rural its efforts to create a better business environment. Development Fund and JEREMIE Holding Fund to According to stakeholders, the procedures for both provide entrepreneurs with a one-stop-shop facility. obtaining licenses and permits, and paying taxes Other instruments, such as a mezzanine instrument could be further simplified; the uncertainty of the and a new co-investment fund to provide equity, are tax situation seems to be particularly detrimental to currently being developed. Nevertheless, access to enterprises Standardisation and certification were finance still remains a priority and an analysis of also considered rather difficult and expensive in possible additional support instruments should be Latvia. In addition, property registration, starting made in order to better meet market needs. and closing a business and exploiting the ICT Furthermore, business organisations believe that, in potential to raise productivity are areas where spite of the availability of existing instruments, the Latvia should continue reforms, so that the business supply of good business ideas that could receive environment would become more attractive for both funding is relatively short or the expectations of local entrepreneurs and foreign investors. investment readiness for new commercial proposals

relatively high. As a result, very few investments 4.13.5 Entrepreneurship and SME policy are actually made. In addition, access to finance

seems to be especially difficult for companies

Compared to the EU average, Latvia has a higher operating in the domestic market, whereas exportnumber of larger SMEs and a lower percentage of oriented companies have more opportunities to micro-enterprises. The SME sector contributes secure financing.

70 % of total value added to the Latvian economy,

with services being the most important sector. The The Innovation and Entrepreneurship Motivation general entrepreneurship rate is slightly below the Program encourages innovative enterprises through EU average and there is a relatively low share of training and information sessions, consultations and opportunity-driven entrepreneurs in Latvia. mentoring for new entrepreneurs and an annual

competition of business plans – Cup of Ideas (760

Latvia has made good progress in supporting participants in 2010). A set of measures has been

taken to further increase the attractiveness of 4.13.6 Conclusion entrepreneurship: 567 people have benefited from business and self-employment/start-up training In order to continue to improve its competitiveness through a life-long learning program; the training of conditions, Latvia would benefit from a further 1200 new entrepreneurs is ongoing as well as the strengthening of the growth potential of its previously mentioned motivation program. In economy through a range of structural reforms. In addition, 9 regional business incubators have been particular, stronger policies would be benefit the created, encompassing 274 enterprises, including absorption of EU funds; improve public one incubator in Riga for creative industries. procurement and competition; enhance performance However, more needs to be done to foster of public administration; and improve active labour entrepreneurial attitudes and skills by market and lifelong learning policies, including systematically introducing entrepreneurship skills upgrading and retraining. education in schools. During 2009 – 2011, support

has been provided under The Innovation and In order to further improve the business Entrepreneurship Motivation Program to the nonenvironment, increased efforts to attract FDI and government organisation Junior Achievement to promote exports would help growth, as would widen involvement of school children (primary and further implementation of the program for the secondary schools) in the Pupils Learning Firms support of small and micro companies, continued Program. Equally, the government could intensify reduction of the administrative burden, (re)building its efforts to support specific target groups, and modernising the infrastructure and expanding including in particular women who want to start a the use of e-services. In addition, there is potential business, for instance through mentoring programs. to further exploit the cooperation opportunities

offered in the Baltic region.

4.14 Lithuania

Lithuania

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2009)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u

s

T o u

s ta Waste generated by enterprises (all NACE sectors;

-4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2005)

n e

u

re

e p Early stage financing (% of GDP; 2009) N.A.

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Lithuania (2009)

Textiles and textile products

Leather and leather products Food products

Wood and wood products

Paper products; publishing and printing

Refined petroleum products

Chemicals, chemical products Manufacturing n.e.c.

Rubber and plastic products Transport equipment

Other non-metallic mineral products

Basic metals and fabricated metal products Electrical and optical equipment Machinery and equipment n.e.c.

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.14.1 Introduction 95 Given its industrial structure, Lithuania’s R&D

intensity is below the EU average, as are its shares Trade and industry specialisation in the high price segment of industries, while export

shares are high in the low price segment, indicating

Manufacturing contributes 16.4 % to Lithuania's an unfavourable position on the quality ladder. total value added against 14.9 % for the EU on Overall, Lithuania shares all the characteristics of average (2009). At the detailed manufacturing its group of lower income countries specialised in industry level, Lithuania is specialised in labourlabour-intensive industries (group 4).

intensive (wooden containers, sawmilling, builders’ carpentry) and marketing-driven industries

(processing and preserving of fish, dairy products) in terms of value added and exports. It is also Most prominent sectors in Lithuania specialised in capital-intensive industries (refined petroleum products) regarding exports. At the more Highest relative value added (2007)

aggregated sector level, Lithuania is specialised in Wearing apparel, dressing and dyeing of fur Wood and products of wood and cork

low and medium-low innovation and education Inland transport sectors (wearing apparel, inland transport) and in Change in the relative value added (1999/2007) medium-high sectors (textiles, coke and refined Increasing specialisation

petroleum) for its exports. Its share of high growth Recycling Furniture, jewellery, musical instruments, sports goods,

firms indicates that Lithuania is catching up, while games and toys

the high share of exports to the BRIC countries is Office, accounting and computing machinery Decreasing specialisation

mainly due to exports to Russia. Water supply

Water transport Coke, refined petroleum and nuclear fuel

95 For main sources used see the

methodological annex. The cut-off date for all data and qualitative information is 31 August 2010.

Structural change high value added, knowledge intensive modern industrial sectors, regardless of their position in

In terms of change, Lithuania has increased its low-high tech classification.

relative value added share in high education sectors

(computers, software, business services) and its An amendment to the Law on Corporate Income relative export share in technology-driven Tax entered into force in 2009. It encourages industries (electricity distribution and control companies' investment in R&D by reducing the apparatus), while it has decreased trade taxable profit 3 times the investment and reducing specialisation in labour-intensive industries and in the amortisation process to 2 years. In 2009 98 high education sectors; it has also decreased its firms used the scheme for a volume of relative share in high innovation sectors further LTL 98 million. Another option is to use Income (communication equipment), but has gained in Tax Relief for Investments into New Technologies; medium-high innovation sectors (motor vehicles). It assessable profit for the enterprises could be has substantially improved its position on the reduced up to 50 % of expenditures incurred by quality ladder, with the exception of the share in the investing into equipment, means of communication, low price segment of technology-driven industries, computers, etc. In 2009 this measure was used for a which has decreased relative to the EU. While volume of LTL 475 million.

sectoral R&D intensity, e.g. in machinery, is rising

more quickly than in the EU, it still remains below Another quite successful measure is the Innovation

the EU average. Voucher scheme which started being implemented in 2010 with 86 SMEs benefitting during that year.

Manufacturing production has recovered to a large It allows businesses to easily buy R&D services and extent from the crisis, being in April 2011 3.4 % technical feasibility studies from state universities lower than at its previous cyclical peak. The crisis and research institutes. The allocated budget of clearly slowed Lithuania’s structural change LTL 1 million was distributed in less than one towards technology-driven industries while month thanks to the high number of applications. favouring capital-intensive industries. There have been some attempts recently to improve Lithuania has experienced a strong appreciation of co-ordination and implementation regarding the real effective exchange rate during the last innovation policy. They have now been integrated decade (35%, compared to 21% in the EU27), in a broad, horizontal policy paper, the Lithuanian indicating a loss in cost and price competitiveness. Strategy for Innovation 2010-2020. A set of Nominal unit labour costs have increased by 26% measures is oriented to strengthen innovation between 2000 and 2010, compared to an increase of support infrastructure and develop its institutional 14% in the EU27 and 20% in the Euro area. While capacities, to improve R&D and business colabour productivity per hour worked has gradually operation in innovation development, to improve increased over the last decade, it is still about 45 quality of human resources for R&D and

percentage points below the EU27 average. innovation and to strengthen the public and private R&D base.

Overall, Lithuania is catching up with respect to

competitiveness. In comparison with its similar The innovation policy discussion has intensified neighbour Latvia, Lithuania’s specialisation profile and addressed innovation culture, cluster is less clearly improving, while its sectoral development issues, and the problems industry is

upgrading performance is superior to Latvia. facing - intensifying brain-drain and international migration of qualified labour.

4.14.2 Towards an innovative industry EU structural funds are used for nine instruments

Lithuania is classified as a moderate innovator in focussing on both technological and other forms of the Innovation Union Scoreboard 2010, with a low innovation across different stages of the innovation share of innovating companies and low R&D process, beginning with first ideas over feasibility expenditures by businesses. On the other hand, it studies to putting ideas into practice.

scores well in the share of science and technology

graduates. A key initiative in terms of reorganisation of research and innovation activities is the ongoing

The current Lithuanian industry structure remains establishment of five integrated science, study and disadvantageous for rapid productivity growth and business centres – so called Valleys – which are high value added manufacturing development. supposed to reinforce the strengths of regionally Therefore, the major challenge for Lithuania is to concentrated research and innovation networks.

upgrade its sustained traditional industries towards Each Valley gathers in one place higher-education institutions, research centres, business companies

and Science & Technology parks which are indicate a problem of slow absorption. intermediaries between science and businesses.

Each Valley is focussed on certain S&T fields and A 2007 Green Procurement Implementation is now implementing its programme for the Programme foresees a 25 % increase in the share construction of research infrastructures and (in 2011) of public procurement for which research centres in those fields. The total State's purchased products and services have to meet investment in the 5 Valleys is about established environmental criteria.

EUR 320 million.

4.14.4 The business environment In order to increase innovation activities, a recent

reform of the Law on Education and Science gives Lithuania scores clearly above the EU average the ownership of intellectual property rights (IPRs) concerning the e-government usage by enterprises to higher education institutions which belonged to and slightly above average concerning the the state before. Along with recommendations on availability of high-speed broadband lines. how to manage these IPRs this is expected to However, the country scores below average encourage scientists to patent research findings. concerning infrastructure expenditures. Policies to

systematically improve the business environment Key challenges include, first, to improve skills for are still relatively recent. innovation and entrepreneurial attitudes. Even

though Lithuania has a relatively high share of In 2008, Lithuania adopted its National Programme science and technology graduates there remain for Better Regulation with the aim of creating the concerns about skills shortages in certain fields adequate institutional framework and strengthening (e.g. highly skilled human resources in specific administrative capacities, improving the quality and areas of science and technology). Secondly, the efficiency of regulations as well as reducing Lithuanian business sector suffers from the administrative burden and unjustified compliance relatively low R&D potential, both in terms of the costs for businesses. In March 2009, the number of researchers in the business sector and in Government adopted the target of reducing by 30 % terms of R&D funding. Improving R&D the administrative burden on businesses by the end capabilities in firms, the development of a sound of 2011 in the seven priority areas: Tax R&D base and closer links with public research and Administration, Work Relations (Labour Law), higher education institutions are therefore Statistics, Environment Protection, Transport, important. Thirdly, there is a need to develop Territorial Planning and Construction and Real knowledge-intensive clusters across public Estate Operations. The mapping of the information knowledge poles. obligations was completed in the beginning of

2009, and the corresponding baseline measurement 4.14.3 Towards a sustainable industry to quantify the administrative burdens is delayed to

the second half of 2011. Though, by June 2011 Substantial efforts are needed for Lithuania to about 50 'fast track' measures were proposed reduce its greenhouse gas emissions in line with corresponding to an estimated 6 % out of the 30 % agreed policies. targeted reduction.

With the aim to promote Cleaner Production (CP) An expert body composed equally of technologies the Lithuanian Environmental representatives of public authorities and businesses Investment Fund (LAAIF) provides subsidies to (the Sunrise Commission) was established in March environmental projects within the de minimis 2009 and has presented since then some 170 threshold. The main recipients are SMEs that invest proposals to improve the regulatory environment; in less polluting or waste preventing technology. about half of them have been implemented. For Funding can reach 60-80 percent and shortens the instance the process of establishment of individual amortisation period of the investments to a enterprises and private limited liability companies maximum of three years. has been simplified by abolishing notarial

registration of private limited companies and In spite of progress in recent years energy intensity registration term of legal entities in the Centre of in Lithuania is still twice as high as the EU average. Registers has been shortened from 5 to 3 working In order to increase energy efficiency a budget of days. These reforms in the area of start-up LTL 1.8 billion is available since 2009 to support conditions as well as others planned in the areas of renovation and insulation works of public buildings licensing and business inspections should be and private apartment blocks, co-financed by EU rigorously implemented and supplemented by the structural funds (ERDF). If the tendency of uptake findings of the administrative burden measurement of these funds from early 2011 (15 loan agreements exercise. signed from January to March) continues this could

Two major regulatory reform projects are ongoing. Lithuania 96 . Ensuring long-term stable and

The reform of business inspecting institutions diversified supply as well as strengthened which currently involves more than 70 public competition remains a challenge that can be institutions aims to reduce the burden on achieved by implementing the mentioned strategic businesses, optimise use of resources, promote projects and structural energy sector reforms. compliance and eliminate abuse. Although the implementation of the reform is slow due to In transport policy, Lithuania's rail and road scepticism and resistance from some inspectorates, networks are largely isolated from its EU progress is tangible: inspectorates are restructured neighbours. Therefore the strategic objective is to in 9 clusters in order to pursue joint planning and become a transport hub between Western and inspecting functions and there is a provision that Eastern markets and to integrate in the European sets two dates for adoption and entry into force of networks, with the North-South flagship projects legal acts as obligatory for inspectorates. Second, Via Baltica and Rail Baltica. during the implementation of the Services Directive

300 out of more than 800 screened legal acts have 4.14.5 Entrepreneurship and SME policy been identified as containing requirements that are

in conflict with provisions of the Services Directive SMEs in Lithuania tend to be, relatively, larger than and create administrative burden for businesses. in the EU. This is consistent with the good Some of these requirements have been removed. performance in terms of share of high growth

enterprises. The total SME sector employs eGovernment policy is part of the Lithuanian proportionally more people in Lithuania than in the Public Administration Development Strategy until EU.

2010 as well as of the Information Society

Development Programme 2009-2015. The central The national education strategy for 2003-2012 eProcurement platform is mandatory and allows states that entrepreneurship education should be contracting authorities to implement the whole introduced at all levels of the educational system, online process of public procurement. Usage of including secondary, professional and university eGovernment by enterprises in general is quite high education, as well as in training programmes for with 91 percent compared to 77 % for the EU teachers and lecturers. In 2008, the government average. enacted the National Youth Entrepreneurship

Education and Incentive programme with a budget

Since the closure of the Ignalina nuclear power of EUR 35 million until 2012. It focuses on plant in December 2009, which has turned entrepreneurship education, incentives for Lithuania from a net exporter to a net importer of businesses run by young people and monitoring as electricity, electricity prices have risen by about an input for governmental institutions and the 30%. In 2010 Lithuania imported more than 62 % society. Mentoring and support for entrepreneurs is of electricity to satisfy its demand which is the provided by the Public institution “Versli Lietuva” highest import score among EU member states. The and its representatives in the regions. gas sector is monopolised by a single supplier and

creates high dependence on gas for heating and Current policy measures to support SMEs include electricity generation. Therefore structural energy access to finance, business internationalisation, as market reforms are being implemented, including well as shifting priorities towards exporting the electricity spot market BaltPool for the Baltic enterprises in granting financing.

region since January 2010, deregulation of

electricity tariffs, implementation of ownership In order to actively improve SMEs' access to unbundling in the electricity and gas sectors as finance, which remains a bottleneck after the crisis, foreseen in the Third Energy Package as well as a number of financial engineering instruments (10) increasing physical and organisational integration have been introduced since 2009 that use EU in the Nordic (NordPool) and Continental EU structural funds (ERDF) in the order of energy market. A number of strategic generation, EUR 268 million (2007-2013). The uptake of some interconnection and storage projects are foreseen of the instruments is still slow. An export until 2020, some of them EU co-financed, including promotion strategy for 2009-2013 and its the new regional Visaginas nuclear power plant, implementation plan were adopted by the electricity interconnections with Sweden government in 2009. It identifies services and high (NordBalt) and Poland (LitPol Link), an value added sectors as priority as well as some underground natural gas storage facility, an LNG priority regions for exports: Scandinavian countries, terminal and a gas pipeline between Poland and large EU Member States including Poland and the

96 These projects are outlined in the National

Energy (Energy Independence) Strategy.

CIS countries. The share of exporting SMEs is which are characterised by security of supply, currently above the EU average but clearly lower ownership unbundling, increased competition and than e.g. in Estonia. interconnection with European markets.

The one-stop-shop to start-up a company (Centre of Mid- to long-term challenges are to promote Registers) is fully operational and an SME Council structural change towards more high value added was set up in 2008 to advise state authorities on and knowledge intensive sectors. Appropriate policy developments. policies include strengthening links between

industry and public and private research, increase A mid term challenge remains to ensure SMEs R&D and innovation funding and continue the access to finance. A longer term objective would be reform of the research system. to promote a culture of entrepreneurship, in particular by continuing to implement the The business environment in Lithuania can be respective reforms in the educational system. Many further improved through administrative burden of the problems addressed by the ongoing reductions, in particular in the areas of licensing, regulatory reforms are also relevant for SMEs, such business inspections and territorial planning, as reducing burdens related to starting up a through further developing road and rail business, obtaining licences or building permits. infrastructure and through regulatory reforms that

further improve start-up conditions. 4.14.6 Conclusion

Finally, a long-term challenge is to increase The most imminent challenge to ensure the resource efficiency of Lithuanian industry competitiveness of Lithuania's economy is to create significantly and to transform it into a low carbon energy markets both in electricity and gas sectors, economy.

4.15 Luxembourg

Luxembourg

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2009)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti ti

v

p e Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c N.A.

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009) w u

s

s ta d

T o u in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009) N.A. o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

% of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007)

n e

u

re

e p Early stage financing (% of GDP; 2009) 3.5

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011) N.A.

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Luxembourg (2009)

Chemicals, chemical products Paper products; publishing and printing

Rubber and plastic products Wood and wood products

Textiles and textile products

Other non-metallic mineral products Food products

Manufacturing n.e.c. Transport equipment

Electrical and optical equipment

Machinery and equipment n.e.c.

Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.15.1 Introduction the very low value added specialisation in technology-driven industries and highly innovation Trade and industry specialisation intensive sectors, as well as its mixed quality performance, Luxembourg was attributed to the

Luxembourg is the Member State where group of higher income countries with manufacturing plays the lesser role in the economy specialisation in labour-intensive industries.

(6.5 % of total value added against 14.9 % for the

EU on average in 2009). At the detailed manufacturing industry level, Luxembourg is

specialised in mainstream manufacturing industries Most prominent sectors in Luxembourg

(rubber products) and capital-intensive industries

(basic iron and steel, cement, basic non-ferrous Highest relative value added (2007) Research and development

metals). It also features export specialisation in Air transport

technology-driven industries (radio and TV Basic metals

transmitters). However, as Luxembourg is a small Change in the relative value added (1999/2007) Increasing specialisation

country with a small share of manufacturing, export Basic metals

indicators should be interpreted with care. At the Research and development Business services

more aggregated sector level, Luxembourg is Decreasing specialisation

highly specialised in high education sectors Post and telecommunications Water transport

(research and development, business services, Recycling finance), but also in low education ones

(construction, inland transport). Furthermore,

Luxembourg features specialisation in medium and medium-high innovation sectors (e.g., basic metals, textiles, air transport).

Luxembourg is high on the quality ladder in technology-driven industries, but slightly below the

EU average in labour-intensive industries. Due to

Structural change 1.65 % in 2000 to 1.68 % in 2009, with a predominant financing by the private sector.

In terms of change, Luxembourg has moved overall Whereas the private spending fluctuated over the towards more knowledge-intensive industries and a last decade, the public R&D spending has increased higher position on the quality ladder, also in laboursteadily, but remains relatively low, at 0.44 % in intensive industries. It has increased trade 2009 (after 0.12 % in 2000). In its National Reform specialisation in technology-driven industries (radio Programme (NRP) submitted in April 2011 and TV transmitters, medical and surgical Luxembourg foresees to increase its efforts in this equipment) and value-added specialisation in high field and programs to drive the public R&D education and innovation sectors (computers, intensity to 0.7%-0.8% of GDP by research and development, business services), while 2020.Luxembourg has made efforts in order to it has decreased its trade specialisation in high provide support for R&D and innovation. The

education sectors (financial services). reforms have encouraged public-private partnership and increased the financial support for R&D for

Manufacturing production fell sharply during the companies. Further actions are foreseen, both in the crisis (around 33 %) and has partially recovered field of public and private research. The objective is since then, being 12.2 % lower in April 2010 than to concentrate efforts on a limited number of its previous cyclical peak. The crisis has had an priority fields and to develop the 'knowledge impact on Luxembourg’s industrial structure in triangle' concept aiming at strengthening links terms of slowing down structural change towards between research, high education and innovation.

technology-driven industries, but also accelerating

the decline of labour-intensive industries; the crisis Its sole University, which was only set up in 2003, “winners” were the mainstream manufacturing cannot fully meet the economy's needs for high

industries. skilled workforce. Therefore, Luxembourg's growth depends most on its capacity to attract and retain

Nominal unit labour costs have increased in talent. Recent reforms have increased the mobility Luxemburg by 32% between 2000 and 2010, which of researchers mainly through a new law on free is considerably higher than the average increase in movement of people and immigration and the grant the EU27 and the Euro area (14% and 20% scheme "Aid for Research Training" providing respectively). Labour productivity per hour worked funding for PhDs and post-docs of all nationalities.

remains the highest within the EU, exceeding the

EU27 average by about 89 percentage points and Due to the country's specificities, such as a small the Euro area average by about 74 percentage and service-oriented economy, large companies

points. undertaking research abroad and a deficit of entrepreneurial culture, Luxembourg has

Overall, Luxembourg faces a favourable position difficulties to attract and keep the necessary human with respect to competitiveness, in particular given resources for developing local competitive centres its improvement in terms of quality segments and of excellence and small innovative firms.

specialisation. Keeping this trend, it could soon

upgrade to the group of higher income countries 4.15.3 Towards a sustainable industry

specialised in knowledge-intensive industries,

similar to countries such as Belgium and the The main challenges that Luxembourg seems to Netherlands which also feature specialisation in face as regards climate change and energy are the

high education sectors. national targets for the reduction of greenhouse gas emissions (-20 % by 2020 compared to 2005 levels)

and for the increase of the share of renewable energy in energy consumption. A Partnership for

4.15.2 Towards an innovative industry Environment and Climate was launched in February 2010 in order to gather representatives from public

The Innovation Union Scoreboard 2010 ranks administration, social partners and NGOs to reflect Luxembourg as an innovation follower with on optimal policies and measures in the field of innovation performance above the EU 27 average. environment and climate change. A Second

Relative weaknesses are in firm investments and National Action Plan for CO 2 reduction was adapted in May 2011.

linkages & entrepreneurship. Relative strengths are in open, excellent and attractive research systems,

innovators and outputs. In November 2010, Luxembourg adopted the Second National Plan for Sustainable Development: R&D intensity in Luxembourg has only slightly the social (health, poverty); economic (economic diversification, transport) and environmental

increased over the last decade, growing from (biodiversity, renewable energies) pillars of

sustainable development. for enterprises to find suitable industrial zones. In addition, mainly due to a considerable increase in

Luxembourg is active on green technology support the number of cross-border commuters in measures. In the framework of the 2009 Action Luxembourg in recent years (from 8 % in 1990 to Plan on ecotechnologies, the EcoDev cluster has 40 % in 2010), the level of saturation of road and been created, covering eco-construction/ecotrain connections to and from neighbouring materials, renewable energies, eco-design/ecocountries has constantly risen to a point where this conception, rational use of energy and other transport bottleneck could have important negative selected topics. It is a network of public and private consequences on enterprises and on the whole actors at national and international level, aiming at economy in the future. . Therefore the cooperation creating and developing new business opportunities with neighbouring countries has been intensified, dedicated to the development of the ecoespecially with France where a strategic program technologies sector in Luxembourg. for the development of cross-border mobility has

been worked out. A similar approach has been The law of 18 February 2010 on aid schemes for launched with Germany and Belgium. Meanwhile, environmental protection and the rational use of besides the complementary extension of road natural resources provided for new possibilities for infrastructure, the Government pursuits a strategy financial support for companies implementing an seeking promotion of public transport (extension of environmental and energy efficient policy. Eligible railway infrastructure, new cross-border train and investments for this support should be aimed at bus connections, more attractive transport pricing increasing the protection of the environment, etc.).

adapting to future standards, achieving energy

savings, installing high-efficiency cogeneration or 4.15.5 Entrepreneurship and SME policy

at producing energy from renewable energy

sources. The average size of SMEs in Luxembourg is larger than the average in the EU. The share of medium 4.15.4 The business environment enterprises in the total number of enterprises in Luxembourg is double the EU-average (2 % versus

Luxembourg has performed well as regards the 1 %) but as Luxembourg's economy is servicesetting-up of the Single Contact Point "Enterprises", oriented, only 4 % of SME are manufacturing firms which is already operational as regards information against EU average of 11 %. Luxembourg's providing pillar. Further work is ongoing to make entrepreneurship rate is below the EU average (8 % the system fully operational where a range of versus EU 12 %) but 'opportunity-driven important administrative procedures can be entrepreneurship' rate is above the EU average

performed online. (62 % versus EU 55 %). Different initiatives have been launched to promote entrepreneurship spirit

Different measures have been undertaken to reduce and to assist entrepreneurs to develop his/her administrative burden such as the simplification of businesses (Jonk Entrepreneuren in 2005, Business the social security regime. Although the progress in Mentoring Programme in March 2010).

the field of business environment has been made,

further measures are needed. . A new legislation SMEs face however shortages in specialised regarding "establishment/setting-up of businesses" professions, mainly in the industrial and in view of implementing the Services Directive was construction sectors. Certain measures have been voted by the Chamber of Deputies on 13 July 2011. initiated to better match people's skills to labour It aims to regulate in a horizontal manner the access demand, such as creating a professional skills to almost all economic activities. observatory and the obligation for enterprises to

Under the Euro Plus Pact, which is reflected in the declare their vacant posts.

NRP, the Luxembourgish government committed to

a number of measures to reinforce structural Globally, Luxembourg enjoys a good average competitiveness by improving business performance in access to finance for SMEs, state environment through administrative simplification aid and share of SMEs with intra-EU imports and and better infrastructure. Measures to reduce exports. On the contrary, the country performs less formalities for companies to obtain permits and as regards SMEs outside-EU imports and exports.

measures to reduce the delays for their treatment

are planned to be taken during 2011. Since June 4.15.6 Conclusion

2010, administrative simplification and better Luxembourg occupies a favourable position with regulation issues are under the State Minister's respect to competitiveness. The country is also responsibility. ranked in the category of innovation followers with

Luxembourg faces high-cost of land and difficulties innovation performance above the EU 27 average but due to the country's specificities, there are

difficulties in attracting and keeping the necessary that Luxembourg seems to face as regards climate human resources for developing local competitive change and energy are the national objectives for centres of excellence and small innovative firms. the reduction of green house gas emissions and the

increase of the share of renewable energy in energy The business environment is improving, even if consumption. further measures are needed. The main challenges

4.16 Hungary

Hungary

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w ta d u T o u

s

in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2007) n e

e p re Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Hungary (2009)

Refined petroleum products Chemicals, chemical products

Paper products; publishing and printing

Wood and wood products

Rubber and plastic products Textiles and textile products

Machinery and equipment n.e.c. Food products

Leather and leather products Manufacturing n.e.c.

Electrical and optical equipment Transport equipment

Other non-metallic mineral products Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.16.1 Introduction intensive industries (group 3), where the knowledge-creating part is provided by other, more

Trade and industry specialisation R&D intensive countries.

Manufacturing plays a more important role in the

Hungarian economy than in the EU on average

(21.3 % of value added against 14.9 % in the EU). Most prominent sectors in Hungary

At the detailed manufacturing industry level,

Hungary is specialised in technology-driven Highest relative value added (2007) Coke, refined petroleum and nuclear fuel

industries (radio and TV transmitters and Electrical machinery and apparatus, nec

receivers), both in value added and exports terms, Radio, television and communication equipment

and in capital-intensive industries (petroleum Change in the relative value added (1999/2007) Increasing specialisation

refining) in value added terms. At the more Radio, television and communication equipment

aggregated sector level, Hungary features high Real estate activities Electrical machinery and apparatus

specialisation in innovation intensive sectors such Decreasing specialisation

as communication equipment, electrical machinery Wearing apparel, dressing and dyeing of fur Office, accounting and computing machinery

and computers, but not in high education intensive Coke, refined petroleum and nuclear fuel sectors, because of relatively low shares in software, R&D and business services. Hungary shows also a high share of exports to BRIC countries. Structural change

Given its industrial structure, Hungary’s R&D In terms of change, in Hungary the relative value intensity is particularly low, indicating that added share of labour-intensive low-skill industries Hungary is focusing on the production and (leather, clothes) and of low education sectors has assembly-parts of the value chain. Its low position decreased, while it has increased in mainstream on the quality ladder confirms this. Overall, manufacturing (electric lamps, isolated wire, Hungary is a typical member of the group of lower batteries). Its trade specialisation in technologyincome countries specialised in knowledgedriven industries (air- and spacecraft, measuring instruments) and highly innovation-intensive Generally, Hungarian enterprises are less sectors (computers, electrical machinery) has innovative than the European average. Moreover, increased as well. Hungary has considerably R&D and innovation activities are concentrated improved its sectoral R&D intensity, while its mainly to large foreign- owned enterprises. Also movements on the quality ladder have been mixed, R&D activity is not evenly distributed across partly improving and partly deteriorating. regions, with high concentrations in the most

advanced regions. Patent activity is similar to that Industrial production grew by 22.3 % from the lows of the regional competitors, and high-tech export reached during the crisis; in April 2011 it was still exceeds the European average, which is, however, 7.9 % lower than its previous peak. In Hungary, the largely attributable to activities of foreign-owned crisis clearly slowed structural change towards enterprises (especially in electronics and knowledge-intensive industries, while labourtelecommunication) and thus it does not necessarily intensive industries gained relative shares. reflect a technology-leader position of the sectors.

Hungary has experienced a strong appreciation of One of the main problems of the Hungarian the real effective exchange rate during the last science, technology and innovation policy in the decade (36%, compared to 21% in the EU27), past was its low priority, but the institutional indicating a loss in cost and price competitiveness. system was recently reorganised. Priority measures Here, the increase in nominal unit labour costs for 2011 consist of the comprehensive revision of (58%) between 2000 and 2010 played a significant the R&D strategy and a consolidated R&I role, similar to most of the countries in the region. supporting system. The National Research, While labour productivity per hour worked has Innovation and Science Policy Council was set up gradually increased over the last years, it is still in 2010, ensuring efficient decision making on about 40 percentage points below the EU27 policy issues of strategic relevance and major average. projects. The national support system will also

undergo significant changes; the support of

Overall, Hungary is clearly catching-up with adaptive innovation and technology transfer will respect to competitiveness. If it moves further up stimulate the R&D and innovation potentials of the the value chain, i.e. increases the R&D intensity SME sector. An example is the loss of and output quality within existing sectors, Hungary specialisation advantages in the office machinery will ultimately join the group of higher income sector over the past ten years, indicating countries specialised in knowledge-intensive vulnerability. industries.

Hungary set the target to raise R&D expenditure to

4.16.2 Towards an innovative industry 1.8 % by 2020, while further increasing the share of

the business sector. Under the Structural Funds

Based on the Innovation Union Scoreboard 2010, more than EUR 990 million have been allocated in Hungary belongs to the moderate innovators, the Economic Development Operational representing a below average performance. R&D Programme to support R&D and innovation in the investments relative to GDP (in 2010: 1.14 %) is far 2007-2013 period, targeting in particular the below the EU average. Business sector R&D promotion of R&D cooperation between spending has been growing since 2004 both in enterprises, universities and research institutes, the absolute and relative terms, however it is still low establishment of modern research infrastructure and (in 2009: 0.66 % of GDP). A recent survey on innovation parks, as well as patenting activity. For R&D 97 reported that three-quarter of medium and 2011 the government has earmarked large enterprises do not intend to increase R&D HUF 122.5 billion for R&D and innovation expenditures in the coming years. purposes.

In terms of human resources for R&D and The low level of overall innovation activities, innovation there are also bottlenecks, both on the especially among domestic SMEs, remains a supply and demand sides. The share of science and significant challenge. Moreover, the links and technology graduates, is well below the EU networks between public and private research are average. Both the new reform programme on weak or missing and there are still gaps in the education and the new STI strategy are expected to quality and quantity of scientific human resources. address skills challenges for a knowledge-based Multinationals would represent a potential for economy and provide policies aimed at increasing raising innovation capacities more widely if they the proportion of science and technology graduates. were better embedded into the local research and

economic networks and the regional innovation systems.

97 Deloitte: Vállalati K+F Jelentés 2011

4.16.3 Towards a sustainable industry Like in most Member States the high administrative burden on enterprises, such as wide range of

Environmental sustainability of the Hungarian reporting obligations and other requirements have industry is rated low. The energy insensitivity of negative effects especially on SMEs. In Hungary, the industrial sector is above the EU average. The the time it takes to prepare, file and pay corporate share of renewable energy (7.3 % in 2010) in gross income tax, value added tax and social inland energy consumption increased in the past contributions is 277 hours per year, while the

decade with significant ground to cover to reach OECD average is 199 hours 98 . It has been also

2020 target (14.6 %). reported that administrative costs account for more than 10 % of the GDP. Furthermore, low

The Hungarian National Climate Change Strategy transparency in public administration has been for the period 2008-2025 was adopted by the considered as a barrier to start and run a business.

Parliament in 2008. A long-term energy strategy is currently under public consultation, which will One of the main goals of the new Government is to cover, among others sustainable tourism, improve competitiveness of the Hungarian agriculture and industry. Pursuant to the revision of economy by creating better business environment. the National Energy Efficiency Action Plan, a In the frame of the Széll Kálmán Structural Reform national strategy on energy efficiency in buildings, Programme a comprehensive programme on will be prepared in 2011. Adoption of the act on administrative burden reduction has been sustainable energy management and the revision of announced. The first two packages are estimated by the feed-in tariff scheme in the course of 2011 will the authorities to yield some HUF 500 billion in further increase stability in the regulatory administrative burden reduction already in 2011. environment that facilitates the production and use By the end of 2011, new laws will be adopted for of renewable energy sources. quicker foreclosure and liquidation proceedings

with more transparency to reduce burdens on

One of the seven priorities of the New Széchenyi enterprises. The planned measures are expected to Plan is the green economy. Different measures ensure a 25 % administrative burden reduction by encourage investments in the sectors associated 2012. with greening the economy. Energy efficiency, renewable energy, bioenergy, recycling industry, eGovernment is a key element of the administrative green employment, R&D, innovation, and training reform. In the first half of 2011, the e-government and education are all covered in the green economy pillar of the Magyary Programme (the strategy on programme. Calls for bids in these areas have been renewal of public administration) was finalised. It announced continuously. In the next programming provides digital solutions to cut administrative period more sources are expected to allocate into burdens, simplify processes, implement on-demand the Environment and Energy Operational programmes with the participation of the citizens, Programme in order to deliver the goals. develop public services and support information

and knowledge-based asset management and

One of the main challenges in this policy area is to economy.

reduce energy intensity of production. Shifting towards a green economy requires not only A new public procurement law was adopted in July financial sources and a transparent regulatory 2011. The new and less complicated and framework, but also timely and effective transparent framework law is aimed at better implementation from all type of actors. Recent serving the transparency of public spending and fair initiatives are going in the good direction, reflecting competition. that industrial and growth objectives are compatible with sustainability targets. If the implementation of the above measures is

effective, considerable improvement of the business 4.16.4 The business environment environment can be expected. Reduction of the

administrative burdens, the better regulatory Hungary scores clearly below the EU average on framework and the improvement of the quality of business environment indicators, such as the legal public administration can contribute to the growth and regulatory framework with the exception of the of the business sector and facilitate of starting new e-government usage by enterprises. In particular, it businesses.

provides a high level of state aid for industry and services (excluding crisis measures) compared to 4.16.5 Entrepreneurship and SME policy other Member States. Direct support from the central budget has been allocated mainly to public transport services.

139

The SME sector in Hungary provides 73.8 % of At the beginning of 2011 a new governmental employment in the business economy and 56.1 % agency was established to facilitate of the business sector´s value added. The share of internationalisation of Hungarian enterprises. It is micro enterprises is higher than the EU average. feasible to raise the share of the SMEs´ exports Unlike in other European countries the net number from 18 % to 20 % of total export of Hungary. The of SMEs declined during the last decade. Hungarian Investment and Trade Agency works

closely with professional associations, business Over the period 2005-2011 the performance in most chambers and trade development agencies. 173 of the SBA areas has considerably improved, export development programmes in 20 sectors on however, still two-third of them are trailing the 40 target markets are planned this year and some

respective EU averages 99 . Statistics show 3 000 companies can be affected. Emphasis will be

significant gaps in entrepreneurship, skills and placed on competitive, job-creating sectors, such as innovation, as well as in internationalisation. The biotechnology, the pharmaceutical industry, green willingness to start up companies is lower than in industries, the food industry, IT and software other Member States in general. This can be development. explained by the complexity of the regulatory and legal framework and high administrative burdens, The corporate income tax was decreased to 10 % but also entrepreneurial attitude and perceptions for enterprises with profit up to HUF 500 million, were found to be weak in Hungary. Skills and which is especially beneficial for SMEs. innovation is one of the most problematic areas in international comparison. The rate of Hungarian Increasing employment is one of the main targets of SMEs with innovation activities scores clearly the Hungarian Government, in which SMEs are below the EU average. Employees´ participation expected to play a significant role. Administrative rate in education and training is very low. Despite burden reduction, supporting programmes, easier the very high openness of the economy, access to finance are all aspects likely to encourage internationalisation of the SME sector is far from entrepreneurship; however entrepreneurial mindset the EU average, which is mainly attributable to the and innovative attitudes remain a challenge. As relative high costs and time required to export or international experiences show, entrepreneurship import outside the EU. education can play an important role here.

However, the share of rejected SME loan To address these challenges Hungary initiated applications is lower than the EU average, access to several actions. First of all, the New Széchenyi Plan financing for SMEs, early stage financing and the has identified new investment priorities in a frame insufficient leverage of private funds remain a of a restructured development and support policy. A challenge. more efficient support system, which allocates the

EU sources, provides new tenders for SMEs 4.16.6 Conclusion

(including e.g. enhancing innovation activity). The simplification of the tendering system also The crisis period and slow recovery shed light on encourages enterprises to apply for non-refundable the bottlenecks of the Hungarian economy that sources. Due to these steps the number of grant hamper sustainable and balanced growth. In 2011 contracts has also increased significantly and structural measures have been identified in key number of payments has doubled in the recent areas such as the labour market, the pension and months. .Second, the Széchenyi Card programme welfare system, education and public administration has been extended, which provides preferential etc.

loans for SMEs, creating better financial conditions

for SMEs. The role of non-banking funding One of the priorities of the Government is to mechanisms, like seed capital, business angels and improve business environment by reducing high venture capital is lagging behind that of other administrative burdens and introducing a new European economies. However, significant sources public procurement legal framework beneficial for (EUR 700 million) under the JEREMIE Holding SMEs. Along with the full implementation of these Fund have been available; it has not had a sufficient measures significant positive impacts on the leveraging effect. Recently, the allocation plan has profitability and investment activity of enterprises been modified aiming at leveraging more additional can be expected. Access to finance and reducing private funds than before. For example, policy and institutional uncertainty, the reallocation combinations of non-repayable grants with of EU funds for innovation and green development revolving instruments such as guarantees and purposes and entrepreneurship are remaining microloans have recently been introduced under the challenges as well as the low R&D intensity of heading of JEREMIE. many companies.

99 SBA Factsheet 2010/2011, Hungary.

4.17 Malta

Malta

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2009)

u s i n

d

v e Labour productivity per person employed (EU27=100; 2010)

p e ti ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) N.A.

le

s a b y CO2 intensity in industry and the energy sector -3.9 N.A. a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u T o u s ta in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009) -3.4

Electricity prices for medium size enterprises (euro per kWh; 2010) -3.6

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009) N.A. o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B

Legal and regulatory framework (0= neg. / 10=pos.; 2011) N.A.

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010) N.A.

s

E Enterprise survival rate after two years (2008) N.A.

M

n d

S

Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007) N.A.

n e

u

re Early stage financing (% of GDP; 2009) N.A. e p E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011) N.A.

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Malta (2009)

Refined petroleum products Paper products; publishing and printing Wood and wood products

Textiles and textile products Chemicals, chemical products Leather and leather products

Food products

Rubber and plastic products

Other non-metallic mineral products

Basic metals and fabricated metal products

Machinery and equipment n.e.c. Manufacturing n.e.c.

Transport equipment Electrical and optical equipment

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.17.1 Introduction effective exchange rate by 16% over the last decade, which is below the EU27 average (21%), Trade and industry specialisation indicating nevertheless a loss in cost and price competitiveness. Nominal unit labour costs have

Manufacturing in Malta accounts for 13.3 % of increased by 29% between 2000 and 2010, total value added (2009). In terms of export compared to an increase of 14% in the EU27 and specialisation at the detailed industry level, Malta is 20% in the Euro area. Estimated labour productivity highly specialised in technology-driven industries per hour worked is about 18 percentage points (electronic valves mechanical systems, electricity below the EU27 average and about 32 percentage distribution control apparatus, pharmaceuticals) and points below the Euro area average.

weakly specialised in marketing-driven industries

(printing and services activities related to printing).

However as Malta is a very small country, the

export data should be interpreted with care as a Most prominent sectors in Malta

small number of enterprises can dominate the

market and export content might be significantly Highest relative value added (2007) Hotels and restaurants

influenced by imported inputs. At the more Chemicals and chemical products

aggregated sector level, Malta features Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel

specialisation in medium-high innovation and Change in the relative value added (1999/2007)

education sectors (communication equipment, Increasing specialisation

chemicals), as well as in low innovation sectors. n.a. n.a.

n.a.

While Malta’s R&D intensity considering its Decreasing specialisation n.a.

industrial structure is far below the EU average, its n.a.

position on the quality ladder is much better, n.a.

featuring only a slightly higher share in the low price segment of labour intensive industries.

Malta has experienced an appreciation of the real Structural change

In terms of change, Malta has decreased trade specialisation in labour-intensive industries (leather 1- Continuation of R&I programme (onclothes) and in technology-driven ones (computers, going) and extension towards TV and radio transmitters, medical and surgical commercialisation (new): the equipment), as well as decreased value added implementation of the national R&I specialisation in low innovation and low education programme is an ongoing measure, the sectors. It has increased trade specialisation in objective of which is to fund research capital intensive industries (basic chemicals), projects of between EUR 50 000 and mainstream manufacturing (weapons and EUR 200 000 concentrating on ammunition, transport equipment) and marketingtechnology transfer between academia and driven industries (prepared animal feeds). Like industry with specific focus on the four other lower income countries featuring trade priority sectors identified in the National specialisation in knowledge-intensive industries, R&I Strategy, namely Environment and Malta has improved its sectoral R&D intensity and Energy Resources, ICT, Value Added has climbed the quality ladder in technology-driven Manufacturing, and Health and Biotech. industries, but not in labour-intensive ones, where it By 2012, the Research and Innovation deteriorated its position. Programme will be supplemented by a

Commercialisation programme to provide Manufacturing production has partially recovered dedicated support to the from the crisis, reaching a level 11.6 lower than its commercialisation of research results. previous cyclical peak in April 2011. The crisis clearly slowed down structural change towards 2- Incentives for R&D in Industry (new): in technology-driven industries, while it also slowed 2009, the Government launched an down the decline of labour-intensive industries. incentive package to support Industrial

Research and Experimental Development.

However, it can be said that Malta is catching up It incorporates a total of eight incentives with respect to competitiveness, even if the patterns that provide assistance to increase the of change yield a mixed picture in terms of amount of research and development specialisation and sectoral upgrading. activities in Malta. The Government plans

to continue investigating and addressing

Unit labour costs and effective exchange rate gaps in funding and provide support for

developments ideas to innovation, thus closing the cycle between the generation of a new idea and

Malta has experienced an appreciation of the real its realisation as a new product/process on effective exchange rate by 16% over the last the market.

decade, which is below the EU27 average (21%),

indicating nevertheless a loss in cost and price 3- Doctoral and post-doctoral scheme (oncompetitiveness. Nominal unit labour costs have going): the post-graduate programme of increased by 29% between 2000 and 2010, the Malta Government Scholarship compared to an increase of 14% in the EU27 and Scheme and the ESF funded STEPS 20% in the Euro area. Estimated labour productivity project (ongoing until 2013) have both per hour worked is about 18 percentage points yielded important results in enlarging the below the EU27 average and about 32 percentage pool of Malta’s researchers, especially in

points below the Euro area average. areas which have been identified as priority research areas in the 2007-2010

national R&I strategic plan.

4.17.2 Towards an innovative industry

4- Set-up of a Life Science Centre (new): a

Following consultations with the European state-of-the-art Life Sciences Centre is a key factor in maintaining existing FDI in

Commission, Malta has set its national R&D target

at 0.67 % of GDP by 2020 (down from 0.75% in Malta, attracting new FDI and sustaining 2010). Malta has defended its rather low R&D the local industrial base. The Life

target as realistic regarding its structural Sciences Centre will encompass the whole Innovation life cycle and Supply Chain

disadvantages (market size, structure and location, process for companies specialising in absorption capacity). areas related to Life Sciences, from the

The National Reform Programme (NRP) of April development of the Innovation process 2011 focuses on the following four priority and the start-up of new businesses and

measures: entrepreneurial activity through to ongoing growth within the Centre. The

Centre is being financed through the sources could bring the double benefit of improving ERDF programme and is expected to be competitiveness and achieving energy and climate fully operational by end 2013. targets. The Government has announced a series of

actions to address these issues: A National Research and Innovation Strategy 2011

– 2020 is being drawn up which builds on progress Issues pertaining to security of supply are being made and lessons learnt in implementing the addressed in the NRP with plans to extend the previous strategy, but which will put particular power station at Delimara by 2012 and to build an attention to the whole cycle of innovation from blue electricity interconnector with Sicily partially sky to market by providing a policy framework for funded under the European Economic Recovery the coming decade. Plan that is expected to be completed by 2013.

In addition, the NRP identifies the need to smartly In terms of energy-efficiency some clear national specialise its R&I investments in niche markets. It targets have been set as part of the climate change identifies health as a first area, which is also the strategy: 22 % primary energy savings are targeted first pilot area for the European Innovation by 2020 (0.235 Mtoe) with an intermediate target Partnerships. The links with education (especially for 2014 of 15 % or 0.145 Mtoe. The energy higher education in biotechnologies and medicines) efficiency target for 2020 is based on primary should be analysed further. energy consumption for Malta, capped for aviation

(energy consumed in aviation is included in the As with other policy areas, the design and calculation of the target only up to the level of announcement of sophisticated strategies is not 4.12 % of the overall energy consumption) in the necessarily a guarantee that they will be fully same manner as the target for renewables sources of implemented in the way they were intended to. The energy. It is based on national models of energy Smart City project is a case in point. Originally consumption projections, and assumes primarily conceived as an IT cluster- similar to the planned that the energy end use savings envisaged in the Life Science centre- it is criticised to have turned NEEAP are achieved and that the new electricity into a real estate venture at the expense of the generation plant in Delimara is commissioned as envisaged IT-focus. In this context it should be well as a new interconnector with Sicily. The noted that a new strategy is to be flanked by a proposed actions in this area also include measures dedicated system monitoring implementation by to improve electricity generation efficiency by using key performance indicators. The various 10 %, with a third of this expected to come from the existing support schemes may need to be reviewed promotion of energy saving upon end-use so as to ensure that they are not overly consumption. The introduction of smart meters will differentiated. Hence, establishing clearer and also help in this regard. broader programmes and better communication remains a priority. As regards renewable energy, the proposed

measures include extending schemes to encourage Finally, to support a wide-spread knowledgesolar water heaters and micro-generation from intensive production, it seems indispensable to raise renewable sources and supporting investment in the qualification level of the workforce, in renewable energy sources through the introduction particular with a view to demographic of a feed-in tariff system. The success of the latter developments and the expected increase in skill largely rely on avoiding delays in the demands. implementation of the renewable energy projects

announced in the NRP and ensuring that the costs

4.17.3 Towards a sustainable industry of support schemes remain limited.

Malta's energy provision is characterised by As far as the use of community funds go, only considerable dependence on imported oil. This 4.67 % of Malta's total ERDF and Cohesion Fund makes the economy vulnerable to oil price changes, allocation for the 2007-2013 programming period which may be posing problems to entrepreneurship was dedicated to renewable energy and energy and the competitiveness of its businesses. In efficiency investments. The take up of these addition, in spite of the influence of the economic investments has been relatively high, however, crisis, the recent evolution of the greenhouse gas especially under the ERDF Energy Grant Scheme emissions does not appear in line with the 2020 for SMEs, where the initial allocation has already national target defined at the European level (+5 % been increased by 50 %. Using new possibilities for compared to 2005 level), suggesting additional introducing financial engineering instruments for emissions reduction measures and/or the use of energy efficiency and the use of renewable energy flexibility mechanisms may be required. Exploiting in buildings (including in existing housing) through the potential to produce energy from renewable the Structural Funds has until now not been exploited. Malta is in the process of preparing a 4.17.5 Entrepreneurship and SME policy second National Energy Efficiency Plan, due to be

submitted in August this year, which should The Malta Small Business Act was enacted in underpin the government's strategy on energy Parliament on 29 June 2011. The objectives of the

efficiency in a more comprehensive way. SBA, or at least parts thereof have become enshrined in national law. The Malta SBA is,

Despite recent upgrades to Malta’s public transport however, not a 1:1 translation of the EU-level SBA. system, it should be noted that further measures in Instead of addressing all the ten SBA principles, the road transportation and waste sectors would be there has been a deliberate focus on those issues of key importance given their weight in the national that were considered to be of specific priority in the

emissions. national context. This refers in particular to "Think Small First" and responsive administration. The

Overall, the envisaged measures appear to help SBA Malta is regarded by government and business reducing the country's vulnerability to the oil price, representatives alike as a major achievement. contribute to sustainability and foster business´ Government is now working on the implementation competitiveness. The information provided in the of the Act including the implementation of the SME National Reform Programme on energy measures is Test and the training of officials at all limited, however, making it difficult to assess their administrative levels. This is a crucial

feasibility and cost-effectiveness. accompanying so as to ensure that the legal provisions set out in the SBA Malta will also be

consequently adhered to in the administrative 4.17.4 The business environment practice. On this specific point, the Government’s

Malta’s significant progress in reducing state aids is Better Regulation Unit (BRU), has already prepared acknowledged (but requires continued monitoring). a detailed training plan as part of their better The most important institutional development is the regulation strategy. Overall, the BRU activities establishment of the Malta Competition and seemed to be the area with the clearest strategy and Consumer Affairs Authority which is a more commitment to follow-through with actions.

institutionally independent body (previously the

corresponding functions were covered by a In other areas, access to finance appeared to be the department and an Authority falling within the most challenging one. Timely access to microportfolio of the Ministry of Finance, the Economy credit programmes such as Jeremie, to venture and Investment and, more recently, the Office of capital, as well as selected delayed payment the Prime Minister). The new Authority was to be practices by some government institutions (late operational during the first half of 2011. At the clearing of invoices, protracted pay-out of promised same time significant amendments to the subsidies, etc) are important issues in this respect. Competition Act (Cap.379) were also expected to Some steps to alleviate the existing problems have come into force so as to make the Competition Act been already undertaken, though: the recent launch more effective in achieving its objective of (April 2011) of the Jeremie programme has been a regulating competition and providing for better step in the right direction with the local financial functioning markets. At this time, a leniency intermediary signing around €4 million worth of programme was to be in place by the second half of contracts that total to 28 contracts with an average 2011 to complement the new administrative fines in loan value of €145,000. Also, with regard to the

the amended Competition Act. delayed payment practices, the revised Directive on late payments as well as the agreement that

Government also reported about liberalisation steps Government had signed with the pharmaceutical in the transport sector (coaches and minibuses sector are meant to ensure a positive approach for completed, taxi services to be completed until the way forward.

2015). On the issue of simplification as part of responsive However, a number of issues persist. For instance, administration the question of the one-stop-shop the grey carry trade from Italy putting law-abiding (OSS) requires specific attention. Since a number of entrepreneurs at a disadvantage as such imports years the establishment of the OSS has been would regularly not comply with certain standards promised but full implementation has been the and not be submitted to fees etc, is in need of even subject to several postponements. The most recent closer surveillance following the recent set–up of plan is that the planned OSS will actually turn, still an inter-ministerial committee tasked with coin 2011, into "Business Service Centres" said to be ordinating enforcement between the different equipped with even more comprehensive authorities concerned with the objective of authorities than a regular OSS. The eventual

curtailing this. establishment of a functioning OSS or Business Service Centre is clearly needed and the further

progress in this matter needs to be closely and reliable implementation strategies (one-stopmonitored. shops, leniency programme). So as to fully realise

the results of the announced measures, a reinforced

4.17.6 Conclusion emphasis on implementation, follow-up and tools or processes that help to regularly measure the

The Government continues to pursue the reform implementation progress of announced policies in a agenda. However, the often prevailing impetus and transparent way does seem advisable. ambitious plans are not always backed up by clear

4.18 The Netherlands

The Netherlands

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u

s

T o u

s ta Waste generated by enterprises (all NACE sectors;

-4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009) N.A. o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007)

n e

u

re

e p Early stage financing (% of GDP; 2009) E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Netherlands (2009)

Wood and wood products Textiles and textile products Paper products; publishing and printing

Refined petroleum products Food products

Chemicals, chemical products

Leather and leather products

Manufacturing n.e.c. Rubber and plastic products

Other non-metallic mineral products Transport equipment

Basic metals and fabricated metal products Electrical and optical equipment

Machinery and equipment n.e.c.

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.18.1 Introduction 100 (tobacco) and value-added specialisation in low innovation-intensive sectors (water transport).

The first part of this country chapter considers

mainly the sector structure of manufacturing Overall, the Netherlands form together with the industries, while the remaining four parts extend to UK, France and Belgium a group of countries policies that support business activities in all specialised in educationally intensive sectors,

sectors, in particular manufacturing. within the group of higher income countries specialised in knowledge-intensive industries.

Trade and industry specialisation

Manufacturing plays a slightly smaller role in the

Netherlands (12.6%) than the EU on average (14.9 Most prominent sectors in the Netherlands

%). At the detailed manufacturing industry level,

the Netherlands is specialised in capital-intensive Highest relative value added (2007) Manufacture of tobacco products

(man-made fibres, refined petroleum) and Water transport

marketing-driven industries (prepared animal feeds, Air transport

tobacco) as well as in technology-driven industries Change in the relative value added (1999/2007) Increasing specialisation

(computers, radio and TV transmitters) as regards Tobacco products

exports only. At the more aggregated sector level, Air transport Coke, refined petroleum and nuclear fuel

the Netherlands i value added and exports Decreasing specialisation

specialisation in high and medium-high education Research and development Radio, television and communication equipment

sectors (computers, software, R&D and business Water supply services), trade specialisation in high innovation intensive sectors, but also in medium-low sectors

Structural change

100 For main sources used see the

methodological annex. The cut-off date for In terms of change, the Netherlands has increasd its

all data and qualitative information is 31 specialisation in capital-intensive industries (man

August 2010.

made fibres) and in value-added also in mainstream generous in quantity and has a high efficiency and manufacturing (lighting equipment and electric effectiveness (when measured by the number and lamps), as well as trade specialisation in high impact of scientific publications and of patents). innovation sectors (computers, communication The Netherlands performs above average equipment). It has decreased its specialisation in concerning the number of patents. high education sectors (R&D), low education sectors (water and inland transport), in labour Given that public R&D expenditure is unlikely to intensive industries and the relative share in grow in the next few years, it is hoped that private technology-driven industries (television and radio R&D will increase significantly. In order to foster receivers). Sectoral R&D intensity has fallen private R&D, the new enterprise policy of the considerably in computers and risen in Netherlands is aimed at achieving more space for communication equipment. entrepreneurs, less regulatory burden, lower taxes

and increased tax incentives for innovation. Industrial production fell by 15 % at the trough of the crisis but recuperated most of the ground lost The government has also stated its ambition to turn since then. In April 2011 it was 2.7 % lower than the Netherlands into one of the Top five knowledge during its previous peak. The impact of the crisis on economies in the world, measured according to the the industrial structure of the Netherlands was Global Competitiveness Report of the World limited, with a trend reversal only in labour Economic Forum. In its 2010-2011 edition, the intensive industries (gaining in relative share). Netherlands ranked eighth. The new Dutch

enterprise policy ("Naar de top") consists of two The Netherlands has experienced an appreciation of components. The first part is a sectoral approach the real effective exchange rate by 15% over the with more demand-side management by industry. last decade, which is below the EU27 average The “Top sectors” on which activities will be (21%), indicating nevertheless a loss in cost and concentrated are: agro-food, horticulture, high-tech price competitiveness. Nominal unit labour costs systems and materials, logistics, creative industry, have increased by 23% between 2000 and 2010, life sciences, chemicals, water, energy, compared to an increase of 14% in the EU27 and headquarters.

20% in the Euro area. Labour productivity per hour worked has slightly increased over the last decade The government has identified these sectors as the to about 38 percentage points above the EU27 ones in which the Netherlands has a comparative average and about 25 percentage points above the advantage and performs well with regard to Euro area average. research. In order to bring research closer to

business to foster valorisation and product Overall, while the Netherlands’ position with innovation, the Top-sector approach aims at respect to competitiveness is still favourable, the stimulating more cooperation between government, pattern of change is mixed. business and knowledge institutes.

4.18.2 Towards an innovative industry The second part of the Dutch enterprise policy is

aimed at giving entrepreneurs more space by

According to the Innovation Union Scoreboard lowering administrative burden and taxes and 2010, the Netherlands are an innovation follower, increasing the tax incentives for innovation. partly due to its relatively low share of science and Various specific subsidies have been or will be cut technology graduates, mainly due to the fact that (including innovation programmes and innovation the process of turning scientific research into vouchers) and a big part of the remaining product innovation (valorisation) is staying behind. innovation budget is transformed into tax The R&D intensity of the Netherlands was 1.84 % incentives. For example, the RDA (Research and

in 2009 which is below the EU average. Development Aftrek) will be implemented as a new instrument to stimulate innovation. It can be

It should be noted that the Netherlands has a expected to encourage capital-intensive R&D in relatively large service sector, which is not very larger companies. A drawback may be the complex R&D intensive. The overall share of high-tech interaction with other incentive schemes like the sectors is relatively low and attracting more R&I special tax rate of the "Innovation box" and the intensive companies from abroad has proven WBSO wage cost subsidy.

difficult. The new government has decided to use the

Mainly private R&D and innovation expenditures revenues from the Fonds Economische remain relatively low compared to other EU Structuurversterking (FES) to consolidate the

Member States, while public R&D spending is budget and to fund transport infrastructure, no longer to invest in science and innovation. The

funding for innovation and science from this source co-financing. The project is coordinated via a will be phased-out until 2015. It is not clear yet branch organisation. The programme has been very how large scale research infrastructure will be positively evaluated and is very popular among funded in the future (so far by FES). On the other enterprises. The advantage is that this programme hand, the government has decided that a revolving fosters SME collaboration for bottom-up product or innovation fund will be set up in favour of fastservice development with little administrative growing innovative SMEs with a size of EUR 500 burden for the SMEs. million by 2014. It will be developed together with the EIB/EIF. 4.18.3 Towards a sustainable industry

The subsidy for wage costs of R&D personnel The national strategy of 2008 with a time horizon (WBSO) is now by far the largest measure in the until 2030 remains valid. It states that sustainability Dutch innovation policy, with a budgetary weight is part of competitiveness. The government also of EUR 0.8 billion in 2011. It has been positively encourages all nine Top-sector teams under the new evaluated in several studies. Second in importance enterprise policy to include the topic in their is the “Innovation Box” (reduced tax rates for agendas and action plans. profits associated with R&D activities) which had a

budget of more than EUR 600 million in 2010. One specific topic to be addressed in each of the

nine sectors is the further development of a “bio An interesting feature of the Dutch innovation based economy” for which the Netherlands has system has been the innovation voucher scheme good starting conditions (well developed agrowhich allowed enterprises to purchase knowledge industry sector, chemicals sector, etc). The Social from public and private research organisations. Due and Economic Council (SER) has asked the to budgetary constraints and a general policy of government to concentrate on high-value products phasing out subsidies, this mechanism is likely to within its bio-economy policies and to ensure strict be discontinued in the future. sustainability criteria.

The potential shortage of skilled professionals Also the Dutch cabinet has launched a “Green could become an important barrier for more Deal” with the society. It is aimed at removing innovation and enhanced private R&D investments. concrete barriers which hamper projects for energy The inflow of new science and technology saving and renewable energy (e.g. quality of graduates is below the EU average. An interesting legislation and rules), to help citizens, companies practice example of innovation policy in the and other stakeholders to realise their plans for Netherlands is the SBIR (Small Business sustainability, without additional public subsidies. Innovation Research programme). It consists of 30 concrete projects have been put on track now calls for tender to procure an innovative product and more are planned.

that still needs to be developed in maximum two

years. In a first step, companies hand in their However, in light of budgetary constraints and proposals for product development. Several general policy considerations, the new government companies are funded for half a year to perform has reduced the ambition in several important feasibility studies. In the light of these studies, three dimensions in the environmental field: It has not set companies are asked to develop their idea into a a quantitative energy efficiency target and is not marketable product and are subsidised for 18 committed to more ambitious targets for renewable months with up to EUR 450 000 each. After that, energy and CO 2 emission reductions than those the procuring authority is free to buy one of these already legally required under EU law. However, three products. The advantages of this scheme are: even concerning these not overly ambitious policy It is quick, result-oriented and adapted to SME goals, the measures envisaged appear most likely to needs, with 100 % funding and little administrative be insufficient.

burden. The programme has been positively

evaluated. More than a dozen marketable Concerning green public procurement, it remains to innovations (e.g. traffic guiding, dyke monitoring, be seen whether the envisaged reforms will allow bio-based catalytic) have been developed through pragmatic steps forward or whether they will in fact

this tool since 2004. mean a reduction of ambition and commitment. The former government had aimed at a very high

A second interesting practice example is the percentage of green public procurement, but the concept of Innovation Performance Contracts criteria set were deemed too inflexible by many (Innovatie Prestatie Contracten – IPC): Groups of SMEs.

ten to twenty SMEs that develop an innovation

together are funded with up to EUR 30 000 each. The current Dutch energy production is oriented SMEs have to contribute another EUR 30 000 as towards gas and developing international gas

pipelines further. According to the national quickly settled. statistical office's environmental accounts, the

Dutch gas reserves could be depleted in the next 19 SMEs still complain about the difficult situation years, assuming constant net exploitation at the rate regarding access to finance. The anti-crisis as in 2009. measures in this field have been extended again. A

task force is currently looking at the situation on the Renewable energy is subsidised via an electricity Dutch financial market. A previous study in 2010 levy (SDE+). The government puts high priority on found that the level of credit granted in the building a sea electricity line to Denmark, to have Netherlands is similar to the period before the access to Danish sea-based wind park electricity, crisis, but the conditions for SMEs are tighter. The but this should not deflect attention from increasing top-sector agendas should provide an insight into investments in renewable energy in the Netherlands sectoral problems of access to finance. itself.

The Dutch microfinance scheme appears useful. The Dutch government wants to encourage more SME associations consider that the main problem nuclear energy. It has announced to issue licenses of access to finance occurs now the range to build new reactors if enterprises submit an EUR 100 000 to EUR 1 million loans. A microapplication. But it has made clear that it will not credit foundation ("Qredits") co-financed by provide any subsidies for this technology. government and big banks was set up in late 2010.

The plans to expand nuclear power will take time Progress on the new public procurement law is and raise questions of sustainability with regard to slow. In June 2010, a revised proposal for a new the radioactive waste generated. It is not clear public procurement law was sent to the Parliament whether these plans are a strategic anti-cyclical which includes the proportionality principle, less move towards competitiveness at a time when other paperwork upfront and an ombudsman system. It countries try to reduce their dependency on nuclear was hoped that this version could finally pass both power, or whether this will lead to lock-in chambers of parliament, but it was held up again in investments into a transitional technology with September 2011. It is also planned to issue an potentially higher adjustment costs in the future. In important guidance document developed jointly by particular, additional centralised power stations enterprise associations and public authorities and to (large scale coal, nuclear) may delay the train public procurers better. development of a smart grid which is more appropriate for decentralised renewable energy New legislative proposals have to go through an distribution, unless a more coherent approach is impact assessment. One part (“bedrijventoets”) taken to integrate all sources into smart-grid type concerns the impact on businesses, both large and solutions. small. But there is no separate SME test. There is

now an integrated guideline document on how to The electricity levy has been revised to concentrate perform impact assessments, rather than nine subsidies mainly on those renewable energy different guides for various aspects (business, investments that are highly cost-effective in the gender, etc.), but the system still has to prove itself. short run. The main advantage of SDE+ in comparison to the previous SDE system is that it Public internet consultations have become more provides an incentive to apply for a relatively low frequent but only address a small share of subsidy which is expected to spur innovation and legislative proposals. A central website has been set the development of more cost-effective up: www.internetconsultatie.nl technologies. One disadvantage may be that solar

panel projects are unlikely to get any subsidy at all. Regulatory reform has been on the agenda of the The new scheme will be operational from 1 July Dutch government for over two decades. The 2007- 2011 to 2020. 2011 Regulatory Burden Action Plan had set a

quantitative target of 25 % reduction of the 4.18.4 The business environment administrative burdens on businesses to be achieved

by 2011 which is going to be largely met. A new The Netherlands ranks among Member States with target is a reduction of 10% in 2012 and 2013 and a legal and regulatory environment that highly of 5% in the years thereafter. The actual encourages the competitiveness of enterprises and performance of the administrative burden scores clearly above the EU average concerning the assessment works well: A specialised body satisfaction with the quality of infrastructure. (ACTAL) looks at the most important pieces of Permits and other administrative procedures, new draft legislation at national level. including for import and export, can be very

Concerning infrastructure, project investments have been speeded up as part of the anti-crisis measures Since the tax year 2011, the corporate taxes have (concerning bridges, roads, waterways and been decreased from 25.5 percent to 20 percent for measures against rising sea level). SMEs. This will increase profitability and provides

more financial means for investments in capital 4.18.5 Entrepreneurship and SME policy equipment and innovation. A new Integrated

Entrepreneurship Facility (Geïntegreerde SMEs' contribution to employment in the Ondernemersfaciliteit) was set up, combining Netherlands is the same as in the EU (67%) but various measures to support successful they tend to be larger on average than in the EU, entrepreneurship. The first actions are expected in with the share of small and medium-sized 2011.

enterprises relatively higher. The Netherlands scores clearly above the EU average concerning the The public procurement agency “Pianoo” is time required to start a business and early stage offering trainings to contracting authorities on financing, but significantly below average writing their notifications according to the concerning bank loan conditions deemed acceptable standards set out in the EU Code of good practice to by companies and slightly below average ease participation of SMEs in public procurement. concerning the share of high-growth enterprises. It is remarkable that the share of "opportunity-driven" No notable challenges have been identified in this entrepreneurs for whom being an entrepreneur was policy area. the first career priority (rather than accepting it due to a lack of other options) is very high in the 4.18.6 Conclusion

Netherlands.

Important structural challenges in the Netherlands The Dutch government does not have a are to increase private R&D investments and to comprehensive plan of implementation of the promote renewable energy and energy efficiency. “Small Business Act” at national level, but the The recent new enterprise policy, with a focus on “think small first” principle is being mainstreamed nine top sectors and a move from specific into all kind of government programmes. innovation subsidies to more generic tax incentives

could be an interesting example to reduce the One policy success of the last few years is that the administrative burden for applicants and may number of entrepreneurs has risen and more young promote the efficiency and effectiveness of public people express an interest in entrepreneurial spending. However, the move should be carefully thinking. But most companies do not grow or, from evaluated in order not to jeopardise the overall the viewpoint of the government, do not grow fast innovative capacity of the Dutch economy. The enough. level of budgetary expenditure for research and

innovation is an important factor for the future, On late payments, the governments has enacted a even if the FES will no longer be used to fund these 30 day rule and increased compliance significantly. activities. The transition towards a more energy The different ministries are monitored for their efficient and low carbon economy could be stepped individual performance. up with further measures.

There is some concern among SMEs that the The policy recommendation of the Council of the "Prepare to start" programme will be abolished to European Union is to promote innovation, private cut subsidies. This programme provided coaching R&D investment and closer science-business links for internationalisation. The same may happen with by providing suitable incentives in the context of

a programme which subsidised SME participation the new enterprise policy (‘Naar de top’). 101

in trade missions. On the other hand, the Dutch foreign service will in the future increase its activities to help internationalisation of companies.

Better communication towards starting companies about this subject is necessary.

101

Entrepreneurship education programmes were very Country-Specific Recommendation No. 4 successful in the last few years and the government in the Council Recommendation of 12 July is planning to extend the six entrepreneurship 2011 on the National Reform Programme centres at higher education institutions (if the 2011 of the Netherlands and delivering a budget is available). The next step would be to Council opinion on the updated Stability

extend it to the vocational training (MBO). Programme of the Netherlands, 2011- 2015, published in the Official Journal of

the European Union, C 212, 19 July 2011, page 15.

4.19 Austria

Austria

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2010) d u i n v e Labour productivity per person employed (EU27=100; 2010)

p e ti ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m

c

n d

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

ta d u T o

w

u s in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2008)

t

e n Infrastructure expenditures (euro per inhabitant; 2009) N.A.

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2010)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip Share of high-growth enterprises as % of all enterprises (2007) N.A. u rs n e

e p re Early stage financing (% of GDP; 2009)

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Austria (2007)

Chemicals, chemical products Paper products; publishing and printing

Rubber and plastic products Wood and wood products

Other non-metallic mineral products Textiles and textile products

Leather and leather products

Refined petroleum products

Food products

Machinery and equipment n.e.c.

Manufacturing n.e.c.

Transport equipment

Basic metals and fabricated metal products Electrical and optical equipment

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.19.1 Introduction takes place, i.e. if a country moves to the knowledge-creating parts of the value chain.

Trade and industry specialisation

Manufacturing contributes 20.1 % to total value

added in Austria against 14.9 % in the EU on Most prominent sectors in Austria

average. At the detailed manufacturing industry

level, Austria features value added and export Highest relative value added (2007) Wood and products of wood and cork

specialisation in mainstream manufacturing Coke, refined petroleum and nuclear fuel

(manufacture of railway and rolling stock, electric Basic metals motors) and labour-intensive industries (builders’ Change in the relative value added (1999/2007) carpentry and joinery, sawmilling, machine-tools) Increasing specialisation as well as in capital-intensive industries (man-made Real estate activities

fibres) regarding valued added and in marketing Electrical machinery and apparatus, nec Renting of machinery and equipment

driven industries (sports goods, beverages) Decreasing specialisation regarding exports. At the more aggregated sector Tobacco products

level, Austria is specialised in highly innovation Inland transport

intensive sectors such as machinery and, in exports, Radio, television and communication equipment

in medium-innovation sectors (such as wood, basic and fabricated metals), but also in sectors with low innovation and education, such as in hotels and

restaurants and auxiliary transport activities. Structural change

Austria’s R&D intensity considering its industrial

structure is very high and its position on the quality In terms of change, Austria has further increased its ladder is high across industries and quality industry specialisation in mainstream segments. Overall, Austria shows that manufacturing (motorcycles, steam generators) and competitiveness can be sustained in structures labour-intensive industries (veneer sheets, made-up which are not markedly knowledge-intensive, if textile articles, machine-tools), as well as in high

sectoral upgrading in terms of R&D and quality innovation and high education sectors (computers, electrical machinery, communication equipment).

Austria has increased its R&D intensity taking insufficient. To address the emerging mismatches account of its industrial structure and overall on the labour market, the government introduced maintained its position on the quality ladder. the so-called "red-white-red card" as from July

2011. The card facilitates immigration of highly Austrian manufacturing output fell by around 20 % qualified labour force from third countries. The during the crisis but recovered rather fast. In April rights provided by the card to the successful 2011 it was 3.7 % lower than its previous cyclical applicants can be extended also to their relatives. In peak. The crisis has slowed structural change addition, the successful candidates need not speak towards technology-driven industries in Austria, German upon entry and only have to learn it within while it has also boosted labour-intensive the first two years. industries.

The formation of human capital remains a

Overall, Austria’s competitive position is challenge also due to persistent weaknesses in the favourable, with trends mostly going in the right education system, including the tertiary level. In direction both in terms of specialisation and view of the relatively high expenditure on

sectoral upgrading. education (per student), the quality 102 of primary

and secondary education in particular appears

4.19.2 Towards an innovative industry mediocre. On the other hand, in indicators such as

According to the Innovation Union Scoreboard the share of high-impact publications or patents, 2010, Austria is an innovation follower, with a Austria outperforms the EU27 average, indicating

developed innovation system and an above average decent scientific performance and technological knowledge productivity. There are several specific

innovation performance. initiatives 103 to further promote the number of

Austria's economy exceeds the EU average in R&D science and technology students, motivate more

intensity. The overall investment in R&D grew women to engage in research, and give incentives for expatriate researchers to return.

from 1.94 % in 2000 to 2.78 % of GDP in 2010, which was faster than in most other EU countries.

The share of private sector amounted to remarkable In March 2011, the Austrian Government adopted a

60 % of the total, including a significant portion of comprehensive strategy for research, technology and innovation - "Realising potentials, increasing

R&D investment coming from abroad. In spite of

the substantial level of public and private R&D dynamics, creating the future: Becoming an funding, the economic structure still seems largely Innovation Leader"

104 . The strategy confirms

based on low R&D intensive sectors, partly due to commitment to invest more in R&D (3.76 % of GDP by 2020) and highlights the importance of

the services industry and its weight in the economy.

However, R&D intensity in these sectors is higher R&D for economic policy and the long-term

in Austria than average. competitiveness of Austria’s economy. It outlines a series of measures aimed at reforming education

system and improving its links with the innovation Although the high-technology industries have been

gaining ground, their overall share is still relatively system, facilitating technology transfer and low. In consequence, the share of high-tech cooperation between science and business, or

products in total exports is below the EU average, making the framework conditions for R&D activity more innovation-friendly. The further promotion of

suggesting that the economic benefits of the R&D high quality research infrastructure including

investment are yet to be better exploited. Looking

only at the importance of high-tech sectors would university and extramural research institutions are however underestimate Austria’s innovation formulated as important objectives. The role of a performance, as mentioned in the structural change more innovation-oriented procurement practices is sub-section. Moreover, Austria has witnessed a also spelled out. The strategy further intends to high growth of community trademarks, license and strengthen fundamental research, which is in the

patent revenues from abroad. current research mix less developed. The keyenabling technologies do not seem to be explicitly

The share of Austria's innovative businesses addressed by a dedicated policy, the strategy accounts for 2/3 of total enterprises. The industry however calls for the formulation of national

specialises in sectors demanding high and lowintermediate

 labour skills. After several years of 102 PISA 2006, 2009. incremental improvement, the number of science 103 e.g. MINT – awareness-raising and and technology graduates nearly reached the EU promotion campaigns targeting potential average in 2009 (14 % vs. 14.3 %). Nonetheless, students in Mathematics, Information and Austria gradually begins to face shortage of skilled communication technologies, Natural or workforce and the number of researchers seems Technical sciences

programs for generic science and technology fields. development of venture capital and the role it could For its part, the strategy also recognises the low play in financing innovation. It spells out a number share of tertiary graduates and foresees improving of measures to improve the regulatory framework the rate of tertiary and equivalent graduates in the for venture capital and non-banking financing. Of 30-34 population to 38 % by 2020. particular interest are the measures planned to

strengthen finance competence and The public R&D and innovation funding consists of entrepreneurship at universities, including the two main components: (i) broad variety of funding establishment of knowledge transfer centers, which programmes with general (bottom-up) or thematic are expected to help universities better capitalise on (top-down) focus; complemented by (ii) indirect their intellectual property rights. instruments based on tax incentives. The funding schemes played in recent years a more prominent The competence for R&D and innovation policies

role. Three dedicated major agencies 105 operate is currently fragmented and shared by several

various schemes supporting (i) basis research, (ii) institutions. In consequence, policy development applied research and business R&D, and (iii) and implementation suffer from complex innovation projects in companies, seed financing governance structure. Under the new strategy, all and start-ups. As indicated in the strategy, the relevant ministries are to cooperate. The newly currently horizontal and diversified focus of the established Task Force for Research, Technology public funding schemes shall be reoriented towards and Innovation shall coordinate the activities of the well-defined research sectors. Smaller number of government bodies involved and ensure their thematic priorities should allow for more effective collaboration. The composition of this specialising and synergy in sectors where Austrian task force and its institutional standing vis-à-vis economy has comparative advantage. An example other governmental departments will determine to of thematic focus is the climate and energy funds what extent it can fulfil its role. The "Council for that annually invest EUR 150 million in innovative research and technology development" will and demonstration projects in the field of climate annually provide for strategic guidance and advise change. the federal government as to the implementation of

the strategy and its future orientation. Although The total R&D expenditure amounts in 2011 to monitoring and assessment mechanisms are in EUR 8.29 billion, out of which EUR 2.7 billion place, the findings evaluating the effectiveness of came from federal government, EUR 3.7 billion the existing R&D and innovation instruments could from corporate sector, EUR 1.3 billion from abroad better feed into policy formulation. and the rest originated from federal states, municipalities or NGOs. In 2010, the Austrian The strategy shows awareness of all major Research Promotion Agency co-financed 2 950 challenges and sets feasible targets. The effective applied research projects, amounting in total to implementation of the announced measures and

EUR 429 million 106 . As regards tax incentives, in initiatives is crucial for better exploiting the

its budget bill for 2011 the federal government economic benefits of R&D investments and increased the research tax bonus from 8 % to 10 %. speeding up structural shift towards economic The impact of the measure is estimated at EUR 100 activity with higher value added.

million. 4.19.3 Towards a sustainable industry

Although still respectably high, the private R&D Over the last decade, the overall energy efficiency investments have been somewhat losing ground in of Austria's economy has continuously been 2008-2010, stagnating in nominal terms. This improving. The relatively high share of renewable unfavourable trend, observed in many Member energy in final energy consumption further rose States, was compensated by robust growth in public from 24.8 % in 2006 to 28.5 % in 2008, funding, which, as a part of anti-crisis measures, representing fourth rank in the EU. increased its share from 31 % in 2007 to almost As regards the environmental footprint of industry, 39 % in 2010. To achieve the 2020 R&D intensity Austria sends positive but somewhat blurry a target in a context of fiscal consolidation efforts message. Between 1990 and 2008, the final energy though, it is instrumental to reverse this trend and consumption in industry, measured in quantity, mobilise the contribution of private sector. To this grew by 48 % (from 6 091 to 9 014 million toe). In end, the strategy recognises the relative underthe same years, however values for EU27 and

EU15 diminished or stagnated respectively. Whilst culminating in 2008, energy consumption of

105 Austrian Science Funds ( FWF ), Austria Austrian industry significantly fell back (to

Research Promotion Agency ( FFG ), 8 263 million toe) during the crisis year 2009. The Austria Wirtschaftsservice ( AWS ) largest energy consuming sectors of manufacturing

106 Source: Austrian Research and were paper and pulp, followed by iron and steel,

Technology Report 2011 non-metallic minerals and chemical industry. More technical rules promoting renewable energy importantly however, the energy intensity of systems in buildings, certification of installers, industry has been declining over the last decade, energy efficiency consulting for SMEs, including and Austria belongs to the better performing promotion of voluntary actions by industry sectors, Member States. The carbon intensity of industry awareness raising campaigns or sustainable also improved and was slightly below the EU consumption initiatives. average of 2009. The amount of waste generated by enterprises grew from 6.1 kg per habitant in 2006 to The existing funding schemes target "greening of 6.3 kg in 2008, contrary to the EU weighted industries" by supporting efficient energy, resource average that decreased from 5.5 kg to 4.81 kg in the and emission management plans, as well as same period. sustainable business models and take up of

environment-friendly technologies. In 2010, 2399 In April 2010, the Federal Ministry of Economy, projects were financed with a total value of EUR Family and Youth and the Ministry for 571.1 million. The energy efficiency of buildings Environment concluded the elaboration of the remained in 2010 an explicit goal. In view of their national Energy Strategy. It targets three main multiplication effect and positive impact on policy areas: increase in energy efficiency, share of employment, the existing funding instruments for renewables, and energy security. One of the main thermal insulation were reinforced and extended objectives is to stabilise the final energy into 2011-2014. For 2011, EUR 100 million were consumption at 2005 levels. To this end, the made available, out of which 70 % is envisaged for transport sector, heating and cooling, and the residential and 30 % for industrial buildings. electricity sector are expected to most reduce their Depending on the expected energy savings, energy consumption. In addition to 21 % for sectors investments can be co-financed by up to 35 %. The subjected to ETS, Austria aims at a 16 % reduction awareness raising campaigns and consulting of CO 2 emissions for the sectors outside the ETS by services on energy efficiency targeted in 2010 in 2020. Following the adoption of the "Green particular energy intensive SMEs.

Electricity Act 2012" 107 by the Parliament in July

2011, Austria has strengthened its renewable The Energy Strategy indicates the intention to electricity targets. It is investing to triple the overhaul the public procurement law, aiming at production of wind power and plans to achieve a making it more environment-friendly and tenfold increase in the production capacity of solar conducive to energy efficiency. The planned panels. The construction works of a new pumpedstrategy for introducing electro-mobility in Austria storage power plant (Kaprun-Limberg II), worth has still been in discussion in 2010. On the other EUR 400 million, approaches completion. In near hand, the first parts of the environmental tax future it will add a capacity of 480 MW to the reform, which aims at increasing taxation of hydroelectric power generation. To accommodate resources and energy consumption, were adopted towards the national 2020 target of 34 % of with the budget bill for 2011: e.g. the tax on renewable energy, the electricity grids would mineral oil went up (20 EUR/tonne); an airline benefit from upgrading investments and better ticket tax was introduced (EUR 8, 20, 35 for short, cross-border connectivity of distribution networks. medium, and long-haul flights respectively); the

ecological elements of the car registration tax were The Energy Strategy translated into a broad variety further strengthened. of horizontal and sector-specific measures of regulatory, financial or information campaign To secure the supply of mineral resources for its nature. The thematic sectors include buildings, industry, and to allow better planning of future production and services in industry, mobility, mining activities, federal and state governments energy supply and security. At federal level, the continued elaborating the Austrian Mineral most significant legal instruments include the Resources Plan. The first phase devoted to National Renewable Energy Action Plan, Climate identifying and estimating the value of mineral and Energy Fund Law, Green Electricity Act, deposits was accomplished. The crucial second Environmental Aid Act, Environmental Assistance stage, which aims at (i) eliminating any protection Austria, Bio-fuels Directive, Action Programme for conflicts (e.g. with residential areas, national parks, Mobility Management, Waste Management Act. water management zones) and (ii) declaring Altogether, these provide for developing exploitable deposits as "mineral protection zones", environmentally-friendly mobility, feed-in tariffs is still underway. In parallel, the Federal Ministry for renewable energy, financial support for solar for Agriculture, Forestry, Environment and Water energy, finances to reduce atmospheric pollutants management is working on the Resource Efficiency or dangerous waste, thermal insulation of buildings, Action Plan.

Austria has advanced in the application of

107 Ökostromgesetz 2012

sustainability patterns in public procurement. In 2010 target of EUR 564 million. For instance, the July 2010, the federal government adopted National new thresholds for VAT registration (raised to Action Plan for Sustainable Public Procurement, EUR 30 000) came into force in 2010. The new drawing lessons from the pilot phase and the EU accounting act, which amongst others increased the GPP Toolkit. The Action Plan targets primarily threshold for mandatory accounting to procurement practitioners by providing guidance on EUR 700 000, is estimated to trigger administrative good organisational practices, showing how to burden reduction of EUR 55 million. The second effectively apply environmental or sustainability phase of the initiative, which is focused on burdens criteria at various stages of procurement procedure. arising from EU legislation, too, shall bring about

administrative burden reductions of additional

4.19.4 The business environment 512 million. In 2010, the government extended the scope of the campaign. It now focuses also on

Austria has a favourable business environment and administrative burden for citizens. Starting from a scores well in the overall competitiveness of its focused baseline measurement of the 100 most

economy. 108 Businesses highly regard especially the burdensome administrative procedures more than

stability of legal and regulatory framework, the 150 simplification measures have been identified to enforcement of contracts and quality of cut red tape for citizens. To build up on the already infrastructure. Despite the high share of renewable enacted measures and to boost their effect, the energy, the electricity prices for SMEs remain institutional capacity for the better regulation competitive at below EU average. agenda could be strengthened by closer cooperation

between the central government and the federal To foster efficiency of the public sector and thus states. indirectly improve business environment, Austria implemented a budgetary and administrative reform The existence of broad variety of e-government (Haushaltsrechtsreform) coming into operation in solutions and online services, and their uptake by two stages (2009 and 2013). Inter alia, it introduced enterprises impact positively on business and further developed the Impact Assessment conditions. The implementation of the Business

System, including ex-ante und ex-post evaluations. Service Portal (USP) 109 , a flagship initiative aimed

The so called outcome-oriented impact assessment at establishing a central gateway for any contact will be enforced as from 2013. It puts the cost of between companies and authorities, further public policies and regulation into context with advanced. The first stage of USP (provision of outcome objectives and expected environmental, official information services for business) was social and economic impacts. completed in 2010. Whilst ensuring the single-signon

 approach in 2012, the second stage shall be Ministry of Finance developed a tool for the completed by 2013. Further developments will calculation of administrative burden for businesses integrate all existing (e.g. tax declarations, social and citizens (Verwaltungskostenrechner), screening security contributions) and develop new electronic all new legislative proposals. It also actively transactions including the public procurement area. supports other ministries in their estimations of If its full functionality is successfully achieved, this administrative burden. The tool takes into account electronic single-point-of-contact has the potential the size of an enterprise. An SME test is not to streamline many administrative procedures. included therein, however it is already under Based on the initial estimates, the USP could development. Overall, the impact assessment still reduce administrative burden by 100 up to tends to be limited to estimation of administrative EUR 300 million. The internet uptake by businesses burden rather than the overall cost to businesses. is relatively high, although the penetration of fixed

broadband lines with high-speed connection In 2007, the government launched an action remains significantly below EU average. On the program for reducing administrative burden for other hand, Austria ranks among the best businesses, setting a 25 % reduction target for 2012. performing EU countries as regards mobile internet. It identified 5687 information obligations stemming To further increase broadband capacity, in 2010, from 561 legal acts, which, based on the standardthe government assigned the 800 MHz frequency cost-model, induce administrative burden of band for mobile broadband services and the EUR 4.31 billion. In 2010, the implementation of regulator conducted auction in the 2.6 GHz band. the initiative further progressed and achieved its Moreover, in February 2011, the government

launched new support program 110 worth

108 Austria ranked 18 th in the 2010-2011

Global Competitiveness Report of the

World Economic Forum, and 32 nd in the 109 Unternehmensserviceportal (USP) –

2011 Doing Business survey of the World www.usp.gv.at EUR 30 million to prop up the broadband further streamlining. In this respect, the government infrastructure in rural areas. has advanced in preparations to reform the private

limited liability company (GmbH), which should

4.19.5 Entrepreneurship and SME policy enhance its attractiveness. The Austrian Corporate Governance Code has been adapted over the last

Austria’s SME sector resembles the EU average, years. Additional improvements could help further both in terms of employment (67.2 %) and solidify investor protection, in particular for contribution to valued added (61.9 %). As regards minority shareholders. its structure though, the small and medium-sized companies play a more prominent role. In contrast The banking sector dominates the financial market to that, the number of micro firms as well as their in Austria, and bank loans prevail as the main contribution to employment and value added is source of financing for industry. The relatively below EU average (88 %, 25 % and 18.9 % smaller stock market and venture capital (VC) compared to the EU average of 92.1 %, 29.8 % and industry do not generate sufficient availability of 21.9 % respectively). The business demography capital-raising alternatives. Total venture capital indicators show, on one hand, lower-than-EU- investments in 2009 were at 0.05 % of GDP,

average birth and exit rate of enterprises, and one of against the European average 115 of 0.19 %.

the highest survival rates after two years on the Although the government succeeded in stabilising other hand. the banking sector during the financial crisis, the

banks have restricted their lending policies and the At the beginning of 2011, the government forthcoming additional capital needs (Basel III) of

published the “SME Report 2010” 111 , listing the banking sector risk further limiting lending, in

support measures for SMEs that were structured particular to SMEs. Various financing and along the 10 principles of the EU Small Business guarantee schemes using public funds are already in Act (SBA). In 2010-2011, Austria was one of the place and are being operated e.g. by the Austria countries that launched actions in all SBA areas. In Wirtschaftsservice (AWS). Acting as a fund of cooperation with the Federal Economic Chamber funds, the AWS invests in VC funds participating (WKÖ), the Federal Ministry of Economy, Family in high-tech innovative start-ups. To prop up the and Youth also carried out the "SBA- availability of early-stage financing, in 2010 the Begleitprogramm 2009/2010" - a programme government launched additional “Venture Capital accompanying the SBA implementation. It targeted Initiatives”, worth EUR 15 million for high-tech in particular sole traders; topics included e.g. start-ups and 6 million for the Cleantech-Fund. The transfer of business, knowledge management, development of VC industry and thus also the women & innovation. In 2011-2012, the program access to private non-banking financing could will include thematic projects such as e.g. further be improved through reforms increasing the “Success-factor Knowledge”, “Reinvent your attractiveness and transparency of the legal forms company”, “Applying new legal frameworks”. used for (i) venture capital funds and (ii) for Building up on other measures, the systematic investment vehicles, and also by (iii) analyzing and introduction of entrepreneurship education was mitigating possible disincentives caused by stepped up in the competence-based curricula. different tax treatment.

Nonetheless, the attitude towards entrepreneurship and risk-taking still remains a cultural challenge As regards public procurement, in 2009 the that will require more time to change. government eased the access of SMEs to

procurement by temporally having increased the The one-stop-shop for businesses is operational, threshold for direct awarding of contracts from though there is still some room for improving the EUR 40 000 to EUR 100 000. This measure is still conditions for start-ups. In spite of gradual in force, however will not be extended beyond reduction over recent years, the number of 2011. procedures (8) and time (up to 28 days) required to start a typical company are markedly above the

OECD average. In particular, the licensing 4.19.6 Conclusion

procedures 112 , registration at courts and notary

certifications 113 , as well as the compulsory Austria scores well in the overall competitiveness

announcement requirements 114 would benefit from of its economy, the labour productivity is clearly above the EU average, and it need not cope with

any major bottlenecks in the short run. In the

111 Mittelstandsbericht 2010. context of a developed high-income country 112 Betriebsanlagegenehmigungen. however, it faces relative structural weaknesses in

113 Notariatsaktspflicht.

114 Veröffentlichungspflichten (Wiener 115 European Private Equity and Venture

Zeitung). Capital Association.

some areas, which may harm the long-term contribution of R&D to the competitiveness of its potential of its economy. economy, and thus facilitate the structural shift

towards more skill-intensive higher-value-added

The knowledge triangle (education, research and activities. The favourable business environment innovation) is one of the areas in need of priority could be made even more attractive by streamlining action. Better performance and interaction, and administrative procedures for start-ups, higher more effective public spending in these policy areas availability of non-banking financing, and by are instrumental to fully exploit the potential improving the corporate governance practices.

4.20 Poland

Poland

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2010) d u i n v e Labour productivity per person employed (EU27=100; 2010)

p e ti ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m

c

n d

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

ta d u T o

w

u s in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008) N.A.

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008) N.A.

a

h ip Share of high-growth enterprises as % of all enterprises (2007) N.A. u rs n e

e p re Early stage financing (% of GDP; 2009)

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Poland (2005)

Wood and wood products Textiles and textile products Paper products; publishing and printing

Refined petroleum products Food products

Chemicals, chemical products

Leather and leather products

Manufacturing n.e.c. Rubber and plastic products

Other non-metallic mineral products Transport equipment

Basic metals and fabricated metal products Electrical and optical equipment

Machinery and equipment n.e.c.

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.20.1 Introduction 116 Taking account of its industrial structure, Poland’s

R&D intensity is below average, as is its position Trade and industry specialisation on the quality ladder as evidenced by low shares in

high price segments and high shares in low price Manufacturing plays a more important role in segments across industries. This profile is very Poland than in the EU as a whole (18.5 % against similar to its group of lower income countries 14.9 % in 2009). Analysis at the manufacturing featuring trade specialisation in knowledgesector level shows that Poland is not specialised in intensive industries (group 3), while in terms of technology-driven industries, but in most of the industry specialisation Poland really is between other industry types, such as marketing-driven countries specialised in labour-intensive (group 4) (processing and preserving of fruit and vegetables, and countries specialised in knowledge-intensive soap and detergents), labour-intensive (wood industries. However, Poland has no trade products, leather clothes) and mainstream specialisation in technology-driven industries, a manufacturing industries (domestic appliances, lower specialisation in labour-intensive industries lighting, batteries). At the more aggregated sector and a higher relative share in mainstream level, Poland features low specialisation in the high manufacturing compared to group 4, making its innovation and high and medium-high education structure more akin to group 3. sectors, but above average relative shares in the low to medium (medium-high in innovation intensity) Most prominent sectors in Poland segments of these sectors, such as in tobacco, wood, non-metallic minerals, as well as textiles and rubber and plastics (medium-high innovation intensity).

116 For main sources used see the

methodological annex. The cut-off date for all data and qualitative information is 31 August 2010.

Highest relative value added (2007) This situation is also a result of frequent changes

Furniture, jewellery, musical instruments, sports goods, games and toys and uncertainty of the legal framework which

Water supply discourages companies from more strategic

Wood and products of wood and cork planning.

Change in the relative value added (1999/2007) Increasing specialisation

Recycling Recently Poland has adopted comprehensive

Real estate activities

Rubber and plastics reforms of science and higher education sectors

Decreasing specialisation with an aim to boost research and innovation and

Research and development

Coke, refined petroleum and nuclear fuel improve the functioning of the tertiary education.

Tobacco products The reform of science sectors has introduced more competitive rules for funding of research and decentralised implementation of science policy by establishing a National Science Centre dealing with

Structural change basic research and a National Research and Development Centre in charge of applied research

In terms of change, Poland has strongly increased and cooperation with industry. According to the its relative value added share in technology-driven reform, the priority areas of research are to be industries (computers, optical instruments) and in defined in National Research Programme and mainstream manufacturing (domestic appliances), strategic research programmes. The prioritisation of as well as its exports in education and innovation research projects and research agenda are to be intensive sectors (computers, communication assured through technological foresight that should equipment) while its specialisation in labouridentify growth potentials of industrial and service intensive industries (leather clothes, wearing sectors and key technologies for the future. The apparel) has decreased. initial strategic research programmes and projects,

which engage science units and entrepreneurs, Manufacturing production in Poland rebounded fast include carbon capture and storage and nuclear after the recent economic crisis, being 8 % higher in related technologies. There are also attempts to April 2011 than its pre-crisis peak. The impact of promote smart specialisation of the regions but it the crisis on Poland’s economic structure was seems that more coordination will be necessary to limited. Nominal unit labour costs have increased ensure more realistic and coherent planning of by 16% between 2000 and 2010, compared to an research policies at the local level. increase of 14% in the EU27 and 20% in the Euro area. While labour productivity per hour worked The reform of higher education has created a has gradually increased over the last years, it is still special pro-quality fund for higher education, considerably below the EU27 average. additional funding for the so-called “national

leading scientific centres” (abbreviation in Polish: Overall, Poland is clearly catching up with respect “K OWs”). The reforms have also introduced to competitiveness; its pattern of change has changes aimed at better use of the potential of the established it more firmly in country group 3. science units (i.e. research institutes and the Polish However, R&D investments have not yet followed Academy of Sciences and its institutes), the positive trend. improvement in quality of the scientific research

conducted at the institutes and in quality of

4.20.2 Towards an innovative industry education, improvement in management efficiency

(i.e. improving the legal framework for

Compared with other European countries, Poland is reorganisation, commercialisation and liquidation one of the least innovative economies, ranked as a of institutes) as well as greater autonomy of moderate innovator by the Innovation Union universities. Further initiatives are planned to Scoreboard 2010. In particular, it has a relatively increase the internationalisation of Polish science low share of innovating enterprises and of business (i.e. new mechanisms supporting mobility of investment in R&D. On the other hand, it scores researchers and knowledge transfer).

around the EU average on the share of science and

technology graduates. The government is currently evaluating the ongoing

innovation support measures. It will integrate the

Although the level of investment in innovation is results of the evaluation in the new innovation rising, Polish companies in general rarely base their strategy that should be adopted before the end of business strategies on innovation and tend to focus the year. It should allow focussing on the most rather on short term investments in new machinery effective support measures by the government. In and equipment. This is partially caused by low the immediate a new support measure will be absorptive capacities and lack of long term vision developed to help more effective management of among entrepreneurs, especially in case of SMEs. clusters by providing targeted training to cluster

managers. The structure of the industry and, in case of some industries, use of older technologies continue to

An outstanding challenge is the need to radically contribute to higher energy and carbon intensity. increase funding both for public and private Poland is performing worse than the EU average research. The difficult fiscal situation might impede with respect to the share of environmental goods in planned increases in spending on public R&D. export, but has managed to reduce waste generation Important part of public support comes from the of enterprises following a recent introduction of a structural funds through the Operational national waste management plan. Nonetheless, Programme – Innovative Economy and the Poland has taken few steps to use the crisis to green Regional Operational Programmes. To match the the economy. From the Polish perspective EU plans of increased R&D support from public climate action proposals can be a real challenge and sources an important increase of budgetary burden for Poland’s industry. spending would need to take place, which is currently difficult given the budget austerity plans. The recent projections of the World Bank indicate The underinvestment of the private sector is even that the 2020 national target (+14 % for non-ETS more worrying and more ambitious policy schemes sectors, compared to 2005 levels) may not be such as fiscal incentives for R&D that are reached if no adequate actions are taken. The main considered by the government are more than challenge to be faced in the energy sector is the necessary. problem of uncertainty of investors about the

possibility of obtaining permission for new Workforce education remains one of the major capacities that soon must replace the aging obstacles for firm operation in Poland. Apart from generation capacities. Together with old advanced technical or vocational skills, it is often transmission networks they could lead to general competences that the young graduates are undersupply of energy and increases in energy costs missing, such us responsibility and reliability, for end-consumers and industry. Moreover, the commitment, team working or self-management. majority of planned investments are to be still based The skills shortage is not only a result of the on coal due. This issue may require more intensive underperforming education system, but also of an policy measures to change this bias and to meet the ongoing restructuring of the economy that makes 2020 emission targets. Considering limited demand for skills rather unstable. The latest reform competition on the Polish energy market and slow of general education with more focus on learning progress in development of international connectors outcomes and the recent reform of tertiary of the electricity grid, this might also result in education address many of these gaps. Concerning passing carbon price increases into electricity the low science and technology graduate numbers prices. compared to industry needs, since 2008 the

Ministry of Science and Higher Education has run To address this issue Poland plans also to build its an intensive programme to support universities and first nuclear power plant which should be launched students of selected courses of interest for industry in 2020. However, taking into account huge using the structural funds. The reform of higher funding requirements and rather unfavourable education put particular emphasis on strengthening climate for development of nuclear energy sources, links between labour market needs and didactic the implementation of these plans could be rather offers, i.e. participation of employers in teaching difficult. and in evaluating its outcomes as well as obligatory and systemic monitoring by universities of their Poland has high expectations for the Clean Coal graduates’ careers. What remains to be dealt with is technologies that could make its energy production improvement of life long learning system including from coal much more ecological. Consequently, adaptability of employees and expansion of early relevant legislation as well as research on potential childhood development. deployment of these technologies is underway.

Poland has even launched a Carbon Capture Important challenges remain, such as assuring Storage (CCS) demonstration project for an energy adequate funding, especially from national funds, power plant. However, the break-even point for implementing effectively new legislative proposals CCS is estimated for a carbon price of EUR 60 per to improve science-industry cooperation, especially ton, which means that today CCS seems to be not a in sectors that have already invested significantly in cost-effective technology, posing a considerable R&D, and promoting multidisciplinary profile skills risk of a rise in energy prices. for innovation in order to ensure that the supply of innovation skills meets the industry demand. According to the adopted legislation (climate and

energy package), by 2020 15 % of energy 4.20.3 Towards a sustainable industry consumption in Poland should come from

renewable resources i.e. (5 % less than the target for the EU). In December 2010 Poland adopted the implementation document, which is currently being National Renewable Energy Action Plan aimed at negotiated with the EC. The negotiations will lead reaching this target. The plan is to be fully to a revision of the plan in mid-2012. This time lag implemented, but still the main source of support in implementation results in a slow modernisation for investments in renewable energy sources would and development of railway transport. Moreover, be coming from the European funds. the spending of cohesion funds is strongly focussed

on the development of the road networks rather

In addition, Poland intends to adopt in 2011 the 2 nd than railways. It is reinforced with recent requests

National Energy Efficiency Action Plan which will of the Polish government to reallocate some define clearly responsibilities, deadlines and structural funds initially planned for railway budgets. The current measures include subsidies for development to road constructions. The new investments in thermo-modernisation of buildings integrated transport strategy to be adopted in 2011 and a system of white certificates for energy is expected to address those issues and better providers. It is necessary, though, to stimulate balance new investments priorities in various investments in energy saving in public buildings transport modes. with reduced need for the engagement of public budgets, which requires a clearer and more As far as the gas market is concerned, the lack of favourable legal framework for energy performance possibility of third party access (TPA) is still an contracting. Besides, a special attention needs to be outstanding problem and Poland needs to further paid to road transportation, buildings and invest in gas interconnectors and domestic agriculture sectors given their weight in the national transmission pipelines in order to successfully emissions and the current trend. address energy security and market liberalisation

challenges. The construction of the gas terminal in The development of CCS technologies, the Swinoujscie is ongoing, in spite of controversies Renewable Energy Action Plan should indirectly over the Northstream pipeline that might be stimulate the green industry sectors in Poland. The blocking the entry to the port for the largest tankers. investment in thermo-modernisation of buildings The terminal is to be finished in 2014. and the future energy efficiency norms would have a similar effect. The government will support Despite some progress made in energy market investments in the field of energy efficiency, competition and energy infrastructure, Poland's allocating PLN 224.7 million for this purpose in energy market is still rather isolated from the rest of 2011, which should encourage industry to become the EU. The competition is limited by slow more energy efficient and stimulate green industries progress in development of international further. The government will also analyse the interconnections of the electricity grid and strong industry's needs in terms of raw materials in view to presence of the state. Given the high maturity of the increase the efficiency of the use of raw materials. existing power generation capacity and

underinvestment in distribution grid, they might 4.20.4 The business environment become soon a bottleneck to growth in Poland.

Available projections of demand and supply of

Poland scores slightly below EU average in most power indicate the need to significantly increase indicators related to business environment, in import of energy in Poland and to modernise particular concerning satisfaction with the quality interconnections with neighbouring countries. More of infrastructure. efforts may also be needed to open up the Polish

energy market to outside competition and to

Spending on a new transport network, co-financed increase the market's flexibility.

with the EU funds has accelerated in 2010. Also there are substantial modernisation works of local Concerning legal and regulatory framework, in road networks. The forthcoming Euro 2012 gives March 2008, Poland adopted a target of reducing by an additional stimulus to improve infrastructure of 25 % the administrative burden on businesses until the hosting cities and of the transport networks the end of 2011 in seven priory areas: environment, connecting them. Nonetheless, yet again the land development plan, social security, economic planned investments have been revised down in activity law, hallmarking law, employment law, and 2010 and the availability of funds for new projects tourist services. In 2008 the first phase was is uncertain taking into account the need to accomplished i.e. mapping of information consolidate public finances. Furthermore, it seems obligations (IO) in these priory areas. In the same that there is a lack of proper cost-benefit year a new project – Package for Entrepreneurship prioritisation of investments and projects are run – was introduced. On the basis of these two based on the possibility to spend European funds. initiatives, some concrete solutions for reducing the Two years after adoption of the master plan for administrative burden started being proposed: railways in 2008 Poland prepared the necessary amendments in the Code of Commercial Law making it cheaper to set-up up limited liability technical platform has been already created but the companies; changes in the Civil Code facilitating local authorities do not have qualified resources or business transfer to next owners; introduction of estrategies to develop e-government services at their judiciary for small law suits; or increasing level. The use of e-signature is mainly restricted to transparency in the taxation system. Furthermore, a the social security declaration. major business environment reform – the act on reducing administrative burdens on entrepreneurs 4.20.5 Entrepreneurship and SME policy and citizens – came into force in July 2011. The

objective of the act is to abolish licences and Polish SMEs wait shorter for a payment by public permits, replace redundant attestations issued by authorities compared to their EU peers. The time to public institutions with declarations of honour as start a business should also shorten thanks to the

well as some other changes like: reducing court fees fact that from July 1 st 2011 each entrepreneur can related to civil law cases, introducing a consumer register the business online through the Central leasing, introducing a possibility for an Register and Information on Business Activity 117 .

entrepreneur (natural person) to transform into There is a similar share of SMEs in Poland capital company or to transform a cooperative compared to the EU. The main difference consists society into commercial company. Since the launch in a higher share of micro enterprises at the expense of the Package, 19 major acts of law have been of small ones. It is most likely the artificial effect of either implemented or amended in favour of self-employment visible in the statistics in the form businesses, particularly SMEs. Several other bill of micro enterprises, but could also be the symptom projects are still in preparation, notably another act of an enterprise growth problem. The structure of on reduction of administrative burdens. Polish enterprises is dominated by microenterprises

 (especially those with up to 2 persons Poland has also recently implemented e-judiciary employed) mainly active in trade and services. for certain legal proceedings. Still contract Majority of SMEs in Poland do not have mid and enforcement is not very easy due to lengthy judicial long term development strategies or plans for proceedings and legal enforcements. Obtaining innovative activities. As a consequence they are not construction permit is another unfavourable factor eager to use external financial sources. for business operation. It is not only a complicated

and lengthy process but also very costly compared The entrepreneurship attitude is one of Poland’s to other European countries. This together with a main strengths while access to finance is at the EU lack of predictable and binding local zoning plans is average level. All remaining areas of SME policies one of the main challenges to be dealt with. could be improved. Foremost, the general business

environment could be made more business friendly. The Regulatory Reform plan for 2009-2011 The business registration procedures need to be promotes preparation of better Impact Assessments, made finally more efficient and its costs reduced. including impacts on SMEs. The Ministry of The bankruptcy procedures are still very long, but Economy has been providing training on impact could be made shorter thanks to the ongoing assessment preparation since December 2009 with 'second chance' programme of the Ministries of an intended number of almost 3 000 public officials Economy and of Justice. The innovation capacities from different ministries to be trained until the end of Polish enterprises are also behind EU's average of 2011. Currently, The Ministry of Economy is and their involvement in the single market as well. working on e-consultations which, when In the latter domain the government claims to implemented in 2012, will strengthen the role of ensure better monitoring of the EU law public consultations in new regulations. A manual applications, but will need to redouble efforts to for conducting such consultations was adopted in reduce the worrisome transposition deficit of July 2009. The weak point of the system is that internal market directives. there is no single institution which would represent

SMEs in public consultations, such as SME Although the one-stop-shop for business associations. Despite these systemic improvements, registration was introduced in March 2009, it has so far there are only a few examples of proper not been evaluated positively due to the lack of an applications of the impact assessment or public integrated IT system. Such an integrated IT solution consultations. was lunched in July 2011 and it enables setting-up a

company fully online within 24 hours (zero-stop eGovernment usage by enterprises in 2010 was shop). The central commercial register created for above the EU average and has increased since this purpose may be expanded further with 2005. eGovernment policy is part of a wider increased functionality giving an opportunity for Information Society Strategy until 2014 (adopted in

2008) and is focused on improving basic

166

further efficiencies in the functioning of public and international companies. Yet, the country faces administration. many challenges and could fare better with

improved policies. The Polish Agency for Enterprise Development

(PAED) implements at full scale the project of its Despite government's efforts to solve some of these network of SME information and advisory centres. issues, entrepreneurs keep on complaining about More than 100 of these centres located across persistent administrative burden and an inefficient Poland not only provide information, signpost to administration apparatus. The general improvement other more targeted information providers, but also of business environment requires more efficient and offer tailored advisory services to entrepreneurs and stable governance. This implies simpler and more start-ups. transparent regulations, steadily improved

efficiency of public administration and of the To stimulate innovation in Polish SMEs the judiciary as well as enhanced e-government government has simplified access to the so called services.

'technology credit'. It could be a positive factor encouraging catch-up innovation, but its effects will Furthermore, underdeveloped transport need to be monitored. In particular, innovation in infrastructure does not match the raising SMEs needs to be effectively supported by transportation needs of the expanding economy. measures improving the innovation environment. Similarly the energy infrastructure is not adequate

to facilitate competition or to assure stable and SMEs in Poland do not have yet access to public secure electricity provision. The latter will need to procurement equal to EU average. For this reason, be upgraded especially to meet the environmental to facilitate SME access to public procurement, challenges and to replace the obsolete generation legislative changes were made, the Public capacities without increasing the prices of energy Procurement Office introduced further IT solutions excessively. and also launched a training programme for SMEs.

The government took some limited measures to Finally, the low level of innovation becomes an improve access to finance: one of the available increasingly important challenge to make the sources in this respect is ERDF acting through the growth of the Polish economy more sustainable in financial engineering instruments, the JEREMIE the longer term. Adopting and creating new programme in particular. In principle, these lending technologies and social innovations would help operations should be directed to support more Poland to keep its economic activity up and to cope innovative investments. Further measures might be with external competition. To achieve this, industry necessary to ease access to capital given a more needs to prepare and implement long-term restrictive attitude of banks towards lending. development strategies and invest more in human

capital development, innovation and R&D, and 4.20.6 Conclusion SMEs need more organisational skills to develop

business in a fast changing environment. Incentives The Polish economy withstood well the crisis and to develop growth poles and measures to link continues to grow. Poland benefits from its position universities with industry more effectively would as a manufacturing hub for Europe and increasingly also help.

as a business service provider for many European

4.21 Portugal

Portugal

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w ta d u T o u

s

in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2007) n e

e p re Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Portugal (2005)

Textiles and textile products Wood and wood products

Leather and leather products

Paper products; publishing and printing

Refined petroleum products Food products

Chemicals, chemical products

Manufacturing n.e.c. Rubber and plastic products

Transport equipment Other non-metallic mineral products

Electrical and optical equipment

Basic metals and fabricated metal products Machinery and equipment n.e.c.

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.21.1 Introduction

Trade and industry specialisation Most prominent sectors in Portugal

Manufacturing plays a similar role in Portugal than Highest relative value added (2007)

in the EU as a whole (14.6 % against 14.9 %). At Leather, leather and footwear Wearing apparel, dressing and dyeing of fur

the detailed manufacturing industry level, Portugal Textiles and textile products is highly specialised in labour-intensive (low-skill) Change in the relative value added (1999/2007) industries (wood and cork, cutting and finishing of Increasing specialisation

stone, made-up textile articles) as well as in capital Tobacco products Air transport

intensive (cement, refined petroleum) and Recycling

marketing-driven industries (footwear). At the more Decreasing specialisation Hotels and restaurants

aggregated sector level, Portugal features Wearing apparel, dressing and dyeing of fur

specialisation in low and medium-low innovation Non-metallic mineral products

and education sectors (wood and cork, leather, wearing apparel). Its share of exports to the BRIC countries is low, thus not taking full advantage of

the opportunities offered by these high-growth Structural change

emerging economies. In terms of change, Portugal has decreased its Portugal’s R&D intensity is slightly below average specialisation in labour-intensive (textile weaving, given its industry structure, while its position on the other wearing apparel and accessories) and quality ladder is clearly below the EU average. technology-driven industries (electronic valves, While Portugal is very similar to its group of higher electrical equipment), but increased specialisation income countries specialised in labour-intensive in capital-intensive (cement, articles of concrete countries in terms of specialisation, in terms of and cement, refined petroleum) and marketingsectoral upgrading it shows better R&D, but worse driven industries (luggage and handbags). At the

quality performance. sector level, the relative share of high education sectors has increased (computers, research and

development, software, business services), while developments in high innovation sectors have been split between trade (decreasing) and value-added (increasing). The specialisation in low innovation and education sectors is unequivocally decreasing

(e.g. apparel, hotels and restaurants). Portugal has moderate innovators identified in the Innovation substantially improved its R&D intensity, taking Union Scoreboard 2010. Its relative weaknesses are into account its industrial structure, and moved into in a low business R&D investment and low highhigher-quality segments across industries. tech-exports. On the other hand, its strength is a However, the share of low quality segments has relatively high share of science and technology also been rising. graduates. R&D expenditure reached 1.71 % of the

GDP in 2009 (close to 1/2 in the private sector). Manufacturing production fell by more than 20% during the crisis and has recovered only modestly Portugal made a considerable effort and adopted a (by 2.7 %) since then. The impact of the crisis on wide set of public policy measures promoting R&D Portugal’s economic structure was limited, with and innovation in the recent years. Important only technology-driven industries declining even structural measures included the Technological faster than before the crisis. Plan, a sustained favourable tax credit framework

for R&D expenses (SIFIDE is one the most Portugal has experienced an appreciation of the real competitive tax credit system for R&D in the effective exchange rate by 15% over the last EU27) and series of programmes and incentives, decade, which is below the EU27 average (21%), largely supported by EU funds, targeted at backing indicating nevertheless a loss in cost and price innovation and R&D investment by SMEs and their competitiveness. Nominal unit labour costs have cooperation with research institutes and universities increased by 25% between 2000 and 2010, (e.g. through R&D and innovation vouchers) and compared to an increase of 14% in the EU27 and public policy measures aiming at the promotion and 20% in the Euro area. While labour productivity per development of clusters and technology and hour worked has gradually increased over the last competitiveness poles) or implementation of years, it is still about 35 percentage points below technology clusters. the EU27 average and about 49 percentage points below the Euro area average. Measures recently adopted included granting

additional tax advantages (through SIFIDE) for Overall, Portugal faces an unfavourable competitive expenditures incurred by SMEs in contracting position, while the pattern of change is mixed, with Doctorates, or the "Zero rate for innovation" some areas improving (knowledge-intensive programme, exempting innovative SMEs and startservices, R&D, high-quality segments) but others ups from paying public services charges and fees. deteriorating (knowledge-intensive manufacturing, low quality segments). Portugal has also started preparatory works and

public consultations for a comprehensive strategic The vulnerability of the Portuguese economy, initiative on Entrepreneurship and Innovation, exacerbated by the economic and financial crisis, aiming the improvement of business environment, rendered sustainable refinancing difficult and led the reinforcement of linkages between science and Portugal to request financial assistance on 7 April industry, the creation of better conditions to attract 2011. Financial assistance to Portugal (from EFSM, venture capital investments and the development of EFSF and IMF) was approved by the ECOFIN an entrepreneurial and innovation culture in our council on 17 May 2011 (on the basis of an agreed society.

Memorandum of Understanding on specific

Economic Policy Conditionality - hereafter MoU - In line with the EU2020 Strategy, Portugal has programme). The MoU includes significant fiscal launched the Digital Agenda 2015 in order to consolidation measures, efforts to safeguard the provide further impetus to the development of firms financial sector and ensure a smooth deleveraging and high value added ICT products and services process and a set of comprehensive and frontloaded applied to different domains and economic sectors. structural reforms aimed i.a. at unlocking growth The Digital Agenda 2015 is now being reinforced potential and creating more jobs and the conditions having in consideration the priorities of the new for future productivity growth. In particular, strategic initiative on Entrepreneurship and Portugal needs to create more favourable conditions Innovation. for investment, innovation and entrepreneurship, to improve its overall business environment, foster competition, economic flexibility and speed up adjustment to structural change. The challenges ahead include maintaining, to the

extent possible (giving the demanding 4.21.2 Towards an innovative industry macroeconomic adjustments ahead), the efforts and

investments in R&D and innovation, and at the Portugal continued improving its overall innovation same continue improving the efficiency and performance and is now leading the group of visibility of outputs and economic effects of innovation. Continuing the efforts in reducing companies and households. iii) The Energy Agency administrative burden, improving the efficiency of performs audits to houses and buildings resulting in public services and promoting adequate access to 417 000 energy certifications up to May 2011; iv) finance - including effectively reinforcing the promotion of smart electricity grids and launch of mechanisms of public and private risk capital and pilot experiences in some cities; v) some thematic the attraction of international venture capital - are energy efficiency awareness and information crucial framework conditions to attract and foster campaigns e.g. in transport, housing, work, etc. investments with high innovation potential.

The Ecological Public Procurement intends to 4.21.3 Towards a sustainable industry incorporate ecological criteria in public

procurement, environmental policy and Portugal has adopted a series of comprehensive sustainability, giving priority to climate change and programmes and important initiatives promoting the problem of CO2 emissions. sustainable growth, renewable energies and some eco-industries. Further to the National Strategy for Energy efficiency, the coherence and cost Energy 2020 presented in April 2010, Portugal efficiency of energy related incentives adopted and adopted in July 2010 the National Action Plan for their effect on competitiveness, in particular for the renewable energy (PNAER 2020). The PNAER industry, continues to be an issue. Portugal will aims at achieving an ambitious quota target of 31% review existing energy related instruments, of gross final energy consumption and 60% of including taxation and energy incentives, introduce electricity production from renewable sources by modifications to ensure that they provide incentives 2020 and sets out detailed targets and development for rational use, energy savings and emissions plans and actions per different types of renewable reduction (MoU paragraphs 5.13-5.14). energy (Hydro, Wind, Solar, Biogas and Waste,

Biofuels, Geothermal, etc.). Portugal introduced 4.21.4 The business environment significant incentives, made large investments and

is one of the leading EU countries in the Portugal scores significantly above the EU average development of renewable energies (e.g. in 2010, in the availability of high-speed broadband lines but 52 % of the gross electricity consumption was below the average in other indicators related to the sourced from renewables). An example of the business environment such as the legal and promotion of eco-industries is the MOBI.E regulatory framework.

programme (including tax incentives for the

acquisition of electrical vehicles and the Portugal has made e-Procurement mandatory for all development of a pilot infrastructure that in June contracting authorities and virtually all purchases 2011 had 1 300 charging points -50 of which for (small value contracts may still be conducted on quick charging- covering 25 municipalities) as a paper) since 1 November 2009. According to the basis for the development of sustainable mobility in latest figures, 75% of public procurement was Portugal. carried out electronically in 2010.

The National Strategy for Energy 2020 sets out a The continued implementation of programmes such 20 % target for energy efficiency gain by 2020 as the "Simplex", "Legislar Melhor" and e(superseding the -2008-2015- 10% reduction in Government initiatives has overall reduced energy consumption target foreseen in the National administrative burden with positive effects on Action Plan for Energy Efficiency adopted in business conditions. Recent measures include a new 2008). Some of the specific measures adopted to ("Simplegis") programme adopted in 2010, aimed improve energy efficiency include: i) a at simplifying and improving the quality of management system for energy intensive firms, put legislation, facilitate citizens and firms access to in place in 2008, covers now 850 industrial legislation (e.g. by publishing online summaries in installations (representing around ¼ of the energy plain language of legislative acts), and improving consumption by industry and construction). enforcement. An ex-ante impact assessment for all Installations submit and discuss energy government legislative acts was introduced as from rationalisation plans (including setting out January 2011. An "SME test" (for evaluating the minimum energy efficiency thresholds), are object effects of new legislation on the competitiveness of of regular energy audits and benefit from some SMEs, the large majority of companies in Portugal) financial incentives for their energy related is not included in the impact assessment. Examples investments and expenditures; ii) Set up of the of other positive initiatives recently adopted Energy Efficiency Fund in May 2010 (and include: the "Zero Licensing" programme that is definition of eligibility conditions in January 2011) now being tested and will be fully implemented in aimed at supporting investments and equipment 2012 (introducing a simplified electronic acquisition improving energy efficiency by registration process, eliminating licences,

authorisations and other similar administrative acts 2010, mandatory payment of interest by the state for setting-up and running business activities such and other public entities (including municipalities) as shops, restaurants, bars); simplifications and a in case of late payments; program of annual ("SME lower threshold (EUR 10 million instead of leader" and "SME Excellence") awards granted to EUR 25 million) for projects to be granted PIN best economic and financial SME performers, ("Projectos de Interesse Nacional") programme improving financing conditions for these SMEs; treatment (streamlined approval procedures). some efforts have been made in the promotion of Examples of announced forthcoming initiatives venture capital funds, and including Business Angel include the "Simplex Exports" programme (aimed initiatives; introduction of a number of fiscal at reducing administrative burden for exporting simplifications and incentives for the companies) are also welcome. recapitalisation of SMEs and programmes

supporting reorganisation, concentration or the Actions are being developed and reinforced in transfer of the ownership of SMEs (including certain areas, such as dealing with construction management buy-outs or real state sale and lease permits, taxation complexity and compliance costs back operations). for firms, the full implementation of simplification

programme for Municipalities ("Simplex In this context, several measures were implemented Autárquico"), or the simplification of procedures to specifically aimed at promoting exports and the attract national and foreign investment. Other key internationalisation of SMEs, such as the areas include (as indicated in the MoU) improving programme “Internationalisation for Growth”, the efficiency of public services, particularly in the (“Internacionalizar para Crescer”) by AICEP judicial system and in the application of Portuguese Foreign Investment Agency.

competition rules, promote competition and Portugal needs to effectively further develop flexibility overall and in particular in the energy alternative (equity related) funding mechanisms for and transport sectors, other network industries, SMEs, taking into account the current budgetary services and housing markets, broadening the scope constraints. At the same time, it needs to monitor of the "Zero Licensing" programme. indebtedness, secure (re)financing in the short term

to economically viable SMEs, particularly young 4.21.5 Entrepreneurship and SME policy and more vulnerable SMEs highly dependent on

banking loans, promote liquidity conditions for

The SME sector in Portugal is relatively more business by timely implementing the New Late important than in the EU as a whole and is Payments Directive (as indicated in the MoU). dominated by micro firms (accounting for 40 % of total employment compared to the 30 % in the EU). Portugal has a structural weakness in the quality of Portugal performs significantly better than the EU entrepreneurship and some measures have been average concerning the time required to start a adopted for the direct promotion of business and the business churn but significantly entrepreneurship skills: a training program for worse concerning the firm survival after two years managers of micro and SMEs, aimed at improving and duration of payments by public authorities. their managerial skills; the Institute of Employment

and Vocational Training runs a programme actively Portugal adopted during the crisis a set of important supporting entrepreneurship and self-employment, measures easing access to finance to SMES (the including by those receiving unemployment large majority of Portuguese firms and highly benefits; the EU structural funds through some dependent on bank credit for funding). Supported programmes within the QREN are also being used by Structural Funds' contributions, the series of to actively support entrepreneurship, including credit lines "PME Investe" and "QREN Investe", female entrepreneurship, through training and targeted to specific sectors or exporting SMEs coaching measures oriented for SME managers and provided a total volume of credit of EUR 7.9 billion its human resources; a National Plan for to 55 000 SMEs (including micro-sized companies) Entrepreneurship Education entrepreneurship was since July 2008 (total capacity of these credit lines introduced in the curriculum tested in of around 130 EUR 9.7 billion). Other significant measures easing secondary schools between 2006 and 2009 is this liquidity and financing constraints for SMEs project is currently being evaluated, aiming at the included: reinforcement of the National Mutual development of integrated measures to stimulate an Guarantee System (with total of EUR 5.7 billion entrepreneurial culture in schools. outstanding guarantees in 2010, + 48 % compared to 2009) and credit export insurance lines; some Further proactive promotion of entrepreneurship is progress in the reduction of late payments by public required and it is one of the concerns for the next entities (although recently there was again a months under the new strategic initiative on deterioration, particularly in some health care areas Entrepreneurship and Innovation. Possible areas of and in municipalities) and, as from 1st September action include: exploiting further the existing knowledge, experiences and good-practices (e.g. in securing access to finance under regular conditions its Research and University system and other to economically viable SMEs, particularly young initiatives from the civil society such as awards SMEs and start-ups, and effectively develop granted to the Portuguese Diaspora by Cotec); alternative funding and recapitalisation mechanisms promoting second chance and a wider range of for SMEs, including venture capital and business restructuring options in the revision of the angels. insolvency law (foreseen in the MoU).

The full implementation of the set of structural 4.21.6 Conclusion measures included in the MoU (such as fostering

competition, particularly in the services sector and Portugal would benefit from maintained and network industries, further administrative reinforced efforts to promote research and simplification, burden reduction and greater innovation, from an integrated policy to boost efficiency of public services, notably in the judicial entrepreneurship and overall skills development. system) will improve business conditions, Further, it could continue to support a gradual contributing to unlocking growth potential the transition to a sustainable, low carbon, energy and creation of more jobs. resource efficient economy. Equally important is

4.22 Romania

Romania

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u

s

T o u

s ta Waste generated by enterprises (all NACE sectors;

-4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007)

n e

u

re

e p Early stage financing (% of GDP; 2009) E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011) N.A.

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Romania (2008)

Leather and leather products Textiles and textile products

Wood and wood products Food products

Paper products; publishing and printing

Refined petroleum products

Chemicals, chemical products

Manufacturing n.e.c.

Rubber and plastic products

Other non-metallic mineral products Transport equipment

Basic metals and fabricated metal products

Machinery and equipment n.e.c. Electrical and optical equipment

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.22.1 Introduction

Trade and industry specialisation Most prominent sectors in Romania

Manufacturing plays a bigger role in Romania than Highest relative value added (2007)

in the EU on average (22.4 % vs. 14.9 % of total Wearing apparel, dressing and dyeing of fur Leather, leather and footwear

value added). As a consequence, Romania ranks Water supply among the EU Member States with the highest Change in the relative value added (1999/2007) share of manufacturing in GDP and the lowest Increasing specialisation

share of market services. At the detailed Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel

manufacturing industry level, Romania is highly Computer and related activities

specialised in labour-intensive industries Real estate activities Decreasing specialisation

(preparation and spinning of textile fibres, Wearing Apparel, Dressing And Dying Of Fur

sawmilling, wearing apparel and accessories), as Water supply Tobacco products

well as in capital-intensive industries (cement), and marketing-driven ones (value-added only; footwear). At the more aggregated sector level,

Romania features specialisation in low innovation Structural change

and education sectors (wearing apparel, leather),

but also in medium-high innovation sectors In terms of change, Romania is again very similar (textiles, basic metals). to group 4, with strongly increased relative share of

technology-driven industries (radio and TV

In line with its group of lower income countries transmitters and receivers) and of mainstream specialised in labour-intensive industries (group 4), manufacturing (motorcycles and bicycles, isolated Romania’s R&D intensity considering its industrial wire and cables), as well as of high-education and structure is below average and its position on the innovation-intensive sectors (communication quality ladder is far below the EU average. equipment, software), and decreasing specialisation

in labour-intensive industries (leather clothes, dressing and dyeing of fur, cutting and finishing of

stone) and low innovation and education sectors R&D and innovation, poor financial services and (apparel). Romania has climbed the quality ladder instruments to mitigate risks, little awareness of the in labour-intensive industries, but not in funding opportunities for innovative enterprises that technology-driven ones. Its sectoral R&D intensity have recently become available, the excessive is declining relative to the EU, probably partly as a reliance on government funds, and the low share of result of the pronounced change in specialisation funding attracted from EU funds and other sources. patterns towards the parts of the value chain in knowledge-intensive industries which are not The current set of innovation policy instruments in knowledge-creating. Romania includes direct instruments, which

continue to be the dominant funding mechanism, The impact of the crisis on manufacturing and a few indirect instruments, such as tax production was moderate (around -13 %). By April incentives, which are still largely insufficient. There 2011 it had reached its previous cyclical peak. In are three main instruments: (1) the ational Plan Romania, the crisis seems to have accelerated for RDI 2007-2013, which is oriented towards structural change towards technology-driven enterprises with a view to support innovation, industries at the expense of capital-intensive technological development and implementation of industries. research results in industry, (2) tax allowances of

up to 120 % of R&D and innovation investment Romania has experienced a strong appreciation of (through an increase of the deductibility of R&D the real effective exchange rate over the last decade and innovation expenditure from 100 % to 120 %) (80%, compared to 21% in the EU27), indicating a and (3) accelerated depreciation on machinery and loss in cost and price competitiveness. Here, the equipment used for R&D and innovation activities significant increase in nominal unit labour costs since January 2009. Moreover, the OP Increase of (326%) between 2000 and 2010 coupled with high Economic Competitiveness provides support for inflation played an important role. While labour several R&D and innovation activities with the aim productivity per hour worked has gradually of increasing the R&D capacity, stimulating the increased over the last years, it is still about 58 cooperation between R&D and innovation percentage points below the EU27 average. institutions and enterprises, and increasing the

enterprises' access to R&D and innovation. In

Overall, Romania is clearly catching up with addition, the adoption at the end of 2010 of the respect to competitiveness as evidenced by quickly Public-Private Partnership Law created the legal changing structures, but needs to pay attention to basis in order to foster investments, including those sectoral upgrading in terms of quality and R&D. in R&D.

4.22.2 Towards an innovative industry Given the reduction of public R&D and innovation

spending in 2009 (50 % less than foreseen in the

Romania is classified as a modest innovator multiannual planning and 25 % less than in 2008) according to the Innovation Union Scoreboard and with no significant changes thereafter, there are 2010, with a performance well below the EU concerns about how to ensure adequate funding for average, partly due to a relatively low share of ongoing research programmes and projects. In light innovating enterprises and low business of this, the Romanian government adopted in May investments in R&D. Still, its growth rate makes 2010, in line with the conditionalities attached to Romania one of the growth leaders in the 'catching– the Memorandum of Understanding (MoU) of the up' group of countries. EU financial assistance to Romania concluded in

June 2009 in the framework of the EU-IMF

Romania's economy is characterised by the adjustment programme, a plan setting out a number prevalence of low- and medium-technology sectors, of measures with a view to improve the efficiency with low demand for knowledge and with an and effectiveness of R&D and innovation. These underdeveloped innovation culture. The innovation measures aim at facilitating the adjustment to more infrastructure and mechanisms are still at an early limited financial resources, ensuring the stage of development. This situation is due to a consistency of R&D and innovation policies and large extent to chronically low public and private programmes, stimulating private sector activities, as R&D and innovation expenditures (the latter may well as establishing and implementing uniform be somewhat underestimated since enterprises face procedures for monitoring and evaluation of R&D few incentives to report such expenditures and innovation activities.

correctly). Low levels of business R&D and

innovation both in large firms and SMEs, are rooted The challenge remains to increase the innovative in turn, in several structural and managerial potential of enterprises, particularly SMEs. Another deficiencies, such as the reluctance of firms to take major challenge is to improve technology transfer on financial and commercial risks arising from and the business support infrastructure (business

incubators, technology transfer offices, science and promoting renewable energy sources. Major recent technology parks and clusters) which is still initiatives with direct relevance to industry are the underdeveloped and poorly functional, in spite of state aid scheme for promoting the upgrading of recent significant improvements. In this respect, existing and the construction of new electricity and there are bottlenecks in the absorption of foreign heat generating capacity, and the Rabla programme technology as well as challenges to reduce high for stimulating the renewal of the car fleet. innovation costs, particularly for SMEs, which could be addressed through appropriate assistance On an institutional level, main developments programmes, the availability of information include the government decision to implement the regarding technology, and facilitating access to various Regulations and Directives on eco-design financing instruments. requirements for the energy performance of energyusing

products as well as setting up the basis of the Moreover, partnerships among industry, university 2010-2013 roadmap for the implementation of the and R&D institutions could be improved and public Romanian Environmental Technologies Action Plan funding could be used more to leverage private (ETAP Romania). The ational Action Plan on sector investments, strengthen links between Green Public Procurement (GPP) which sets multibusiness and research institutes and better adjust annual green procurement targets for different research to market needs. categories of products and services will be finalised

by the end of 2011. Targets are currently being A cross-cutting challenge is the shortage of a discussed but no specific measures have been taken. medium and highly skilled labour force. The high Finally, an inter-ministerial working group was share of science and technology graduates and the established in April 2010 in order to develop the quality of math and science education are not Romanian strategy on electric cars, but again no converted into competitive advantages, partly due action has been taken so far. to the higher-education system suffering from repeated institutional changes, and substantial brain As one of the most energy-intensive economies in drain. In this respect, a new National Education Europe, improving energy efficiency should be a Law was adopted at the end of 2010 in order to key priority in Romania. Whilst some measures are substantially reform the education system. already foreseen in the context of the Operational

Program Increase of Economic Competitiveness, an 4.22.3 Towards a sustainable industry ambitious and integrated strategy is now required to

improve radically the energy efficiency of The sluggish restructuring of the industrial base production in order to reduce energy dependency, which, prior to 1989, was characterised by a highcurb CO 2 emissions and reduce costs for end-users. share of energy-intensive and non-sustainable Moreover, complying with environmental industries and a poor energy-saving culture, has standards, which is essential for industrial resulted in out of date technologies and equipment competitiveness, will require significant financial which does not meet contemporary environmental efforts to support the adoption of standards, standards. In addition, foreign direct investment in upgrade productive processes, and implement manufacturing industries has shown a clear environmentally friendly, eco-efficient preference for low-technology and energy-intensive technologies. Given scarce financial resources, sectors. As a consequence, the environmental further efforts should therefore be made to increase performance of the Romanian industry remains the use of EU Structural Funds.

relatively poor. Although considerably improvements can be noted, energy-intensity in 4.22.4 The business environment industry is still the third highest in the EU while the amount of waste per inhabitant generated by The business environment in Romania is enterprises is almost twice the EU average. At the characterised by weak administrative capacity at same time, exports of environmental goods score both central and local level. Insufficient structural well below the EU average. and institutional reforms have resulted in a

cumbersome regulatory environment, characterised The main funding instrument for environmental by a lack of transparency in decision-making policy is the Operational Programme Environment processes and significant red tape in all sectors of with a total budget of EUR 5.6 billion the public administration. The high number of (EUR 4.5 billion EU contribution and around authorisations and permits combined with delays in EUR 1.1 billion national public participation) over obtaining them, as well as the world’s second the period 2007-2013. The Operational Programme highest number of tax payments (113) are Increase of Economic Competitiveness provides responsible for the weak position of Romania in also funding for the development of eco-efficient various international rankings. Moreover, the production, for increasing energy efficiency and for underdeveloped road and rail infrastructure is also a drag on economic competitiveness. Economy, Trade and Business Environment

(MECMA). The Department has prepared an Action In accordance with the requirements set through the plan to improve the business environment, which MoU of June 2009the Law on the reorganisation of provides for a set of measures to support Romanian public authorities and institutions, streamlining entrepreneurs. Some of the measures are merely public spending and supporting the business conceptual, while others comprise substantial environment adopted in 2009, and the Laws on actions such as the introduction of a voucher salaries of the civil servants adopted in 2009 and scheme which allows SMEs to purchase 2010 include several measures to reduce budgetary consultancy services for innovation purposes, the expenditure and to help businesses to overcome the creation of a credit facility, or setting-up companies economic crisis. Furthermore, in order to by young entrepreneurs. consolidate the achievements of the 2009-2011 EU-

IMF adjustment programme, a precautionary EU- A Better Regulation Strategy for the period 2008- IMF programme for 2011-2013 was concluded in 2013 was adopted in 2008. Romania assumed a 2011. The new programme puts a strong emphasis national target of 25 % for administrative burden on structural reforms in product markets (in the reduction by 2012 and the identification of energy and transport sectors), namely to strengthen information obligations was completed in June corporate governance of State Owned Enterprises 2009 (4.430 information obligations were identified (SOEs) and to improve the collection of the arrears in 13 sectors). The present stage involves the in the economy based on quarterly targets. As a measurement of administrative costs in 11 fields. In consequence, a new legal framework aiming at parallel, the development of a sector-specific introducing private management in the SOEs is in methodology to improve ex ante impact place and a decision on the first 5 companies that assessments in the field of education and health was will benefit from private management has been completed. It should also be noted that the number taken. In addition, the Government adopted the of taxes and tariffs in the area of para-fiscality has strategies for the privatisation of 4 SOEs in the been reduced substantially from 491 in early 2009 enrgy sector and 1 SOE in the quarrying sector. In to a total of 237 today. At the same time, the single the context of the 2009 MoU, several structural statement regarding social contributions and record reforms that should contribute to improving the of insured persons were implemented by January business environment have been initiated over the 2011. Finally, work is ongoing to draft an period 2009-2010. A functional review of the Administrative Code and an Administrative public administration led by the World Bank – Procedure Code. which aims at addressing both specific challenges in individual ministries and the systemic problems Romania has also taken a number of measures to that may require a government-wide approach – improve the quality of public services via Internet. started in 2010; it was carried out in two phases and Ambitious objectives for eGovernment and finalised in May 2011. Based on its outcomes, both eBusiness have been set through the Governmental the government and the individual institutions Strategy for Broadband Communications under investigation have adopted action plans in Development in Romania for the period 2009-2015,

order to implement the recommendations on how to which was adopted in 2009. However, very little streamline decision makings processes and progress has been made in the implementation of strengthen strategic planning. However, to this day this Strategy. Moreover, the creation of a national the government has taken no steps to implement its portal (eRomania) is under way, but has not made action plans (a first set of action plans of which was visible progress. It should be noted that in March adopted already at the end of 2010). 2011 was launched 'Ghiseul.ro', the electronic

system for the payment of taxes, duties and fines, Romania recently amended regulations related to operational at present only in several local construction permitting to reduce fees and expedite administrations. the process while property registration was expedited with the introduction of new procedures While the size and scope of the government at the land registry and cadastre. Substantial program for infrastructure investment appear rather amendments to Romania’s bankruptcy laws were ambitious, both the timeline for its implementation also made which introduce, among other things, a and its financial underpinnings are unclear. procedure for out-of-court restructuring Furthermore, ICT up-take by enterprises and negotiations. administration is still low, in particular in rural

areas, in spite of a percentage of broadband lines Institutionally, reform efforts are underpinned by with speed above 10 MBps above the European the creation of a National Competitiveness Council average. and the establishment of the Business Environment

Department (DMA) within the Ministry of By cutting red tape and developing the information society, the measures already initiated or foreseen temporary tax exemption for reinvested profits), address some deficiencies in the business thus considerably delaying the expected effects environment. However, strengthening while some have not been adopted at all. Financial administrative capacity remains the key challenge support to SMEs is primarily being provided via to be addressed. Thus, implementing timely and multi-annual national programmes and guarantee effectively the recommendations of the functional instruments. Thus the National Credit Guarantee review of the public administration currently led by Fund for SMEs was capitalised and improved its the World Bank is an important undertaking. guarantee activity, also as a result of the Another major challenge is to continue and broaden establishement of the Counter Guarantee Fund of the scope of administrative simplification initiated Loans to SMEs in 2009. In addition, legislative in the frame of the MoU conditionalities. Since measures were taken in 2009 to ensure the many of the categories of authorisations and implementation of the JEREMIE initiative. Starting permits already simplified do not have a significant from February 2011 the guarantee facility under impact on businesses, particularly on SMEs, it is this initiative has become operational while the risk essential to further extend the inventory to other facility will be operational by the end of 2011. areas of the public administration and to work in Moreover, there are several actions, financed by the close collaboration with stakeholders and the OP Increase of Economic Competitiveness, which business community. Although a massive reduction provide support for new investments, for the in the number of taxes and tariffs in the area of internationalisation of SMEs, for the para-fiscality has been implemented, the implementation of international standards, and for administrative and fiscal burden remains a advisory services. In addition, support for challenge. Above all, a massive reduction of the investment projects of micro-enterprises as well as number of tax payments is essential. Last but not for developing the regional business infrastructure least, sufficient and timely investment in transport is provided through the OP Regional Operational and communication infrastructure will be critical to Programme. Finally, the projects financed through improving competitiveness and attracting the OP Administrative Capacity Development investment in the longer run. aiming at implementing a coherent plan for

improving the business environment, implementing 4.22.5 Entrepreneurship and SME policy at national level the Small Business Act, and

developing an operational one-stop-shop pilot SMEs are prevailing in the Romanian economy and model were completed. represent over 99 % of all enterprises. In recent years, the SME sector has consolidated its role in Regarding public procurement, the public the economy in terms of the number of employees procurement law was modified with the aim to and the average turnover per enterprise although the accelerate and render more flexible the procedures crisis has left its mark. The recession has resulted in for the absorption of European funds. In addition, much more restrictive credit terms for SMEs and an assessment of the participation rate of SMEs in larger enterprises. Although the steady decline in the public procurement process was carried out, private credit growth appears to have bottomed out, showing that over 55 % of contracts with a total SMEs in particular suffer from insufficient access value of EUR 4 billion were allocated to SMEs. At to bank financing as the latter appears to be the same time, public procurement is not yet used crowded out by the financing needs of the public proactively to foster innovation or the help greening sector. The financing problems of SMEs are further of the economy and tender specifications compounded by excessive delays of VAT refunds sometimes stipulate conditions, such as experience and other payments to companies by state-owned with prior projects, which are difficult to fulfil for enterprises and the government. All this is likely to SMEs or market entrants with innovative products have contributed to the number of SME or services. bankruptcies, which increased in both 2009 and

2010. Being aware of these problems and in order Romania's efforts to help SMEs to survive the to reduce payment arrears, the government has economic crisis were hindered by the need for fiscal recently adopted a number of measures in order to consolidation, which left little room for manoeuvre address these issues. In this respect, good progress to launch costly recovery measures. Mitigating has been made by reducing the payment arrears by further high financing costs, overcoming the two thirds from 2009 up to present. scarcity of credit and reducing the lack of working

capital are therefore the main challenge in the short In the wake of the crisis, Romania had taken a term. Related to this, Romania needs to increase small number of stimulus measures with a view to support to enterprises, particularly SMEs, in supporting businesses and help them weathering the accessing EU funds, as well as to reduce effectively crisis. Some of the measures announced in early payment arrears. Moreover, facilitating the access 2009 have been adopted very late (e.g. the of Romanian companies to markets could help to offset the decline in domestic demand. In this Moreover, transparency in decision-making respect, using public procurement in a more processes and accountability of public resource proactive manner and further supporting the mobilisation and use are essential cross-cutting internationalisation of SMEs could be important issues to consider. At the same time, it is also steps. important to maintain some institutional stability

and to abstain from rushing reforms unnecessarily 4.22.6 Conclusion since the success of reforms depends also on the

ability of economic actors to adjust and get

Whilst the short-term priority is to bring public accustomed to new rules and procedures.

finances under control and stabilise the macroeconomic situation, the implementation of a Nevertheless, improving the heavy regulatory number of urgent structural reforms should help to environment and reducing the significant red tape significantly improve the business environment. In in all sectors of the administration would contribute this light, the effective and timely implementation to unlocking the business potential and reducing of the measures included in the 2009 and 2011 costs of doing business. Furthermore, developing MoU will be critical as it will help to pave the way the weak transport (especially motorways) and for a return to sustainable growth. communication infrastructure would be critical to

improving competitiveness and attracting

An effective reform of the public administration at investments.

central and local level would be key since weak administrative capacity limits reforms, hinders the In the long term, the challenge will be to ensure a absorption of EU funds and is, in general, paradigm shift away from unskilled labour and dissuasive for investors. Strengthening the energy intensive sectors towards more smart, lowefficiency, effectiveness and independence of the carbon and resource-efficient activities. Upgrading public administration should help improve the productive capacities and processes, investing in quality and enforcement of policies as well as the environmentally friendly, eco-efficient effective absorption of structural funds. Making an technologies, increasing the innovative potential of increase of the low rate of absorption of the EU enterprises, and upgrading labour force skills and Structural Funds a priority for economic policy improving vocational and higher education and would also allow increasing the necessary training will be essential for the future investment in infrastructure and human capital competitiveness of the Romanian industry. without an excessive burden on the national budget.

4.23 Slovenia

Slovenia

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

s tr Labour productivity per hour worked (EU27=100; 2010) d u i n v e Labour productivity per person employed (EU27=100; 2010)

p e ti ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m

c

n d

a Share of science and technology graduates (% of 20-29 years old population; 2009)

rn

o d

e R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd

w

T o Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

ta d u T o

w

u s in Waste generated by enterprises (all NACE sectors; -4.2

a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2007) n e

e p re Early stage financing (% of GDP; 2009) N.A.

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011) N.A.

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Slovenia (2009)

Chemicals, chemical products Paper products; publishing and printing

Wood and wood products Leather and leather products

Refined petroleum products Textiles and textile products

Rubber and plastic products

Food products

Machinery and equipment n.e.c. Manufacturing n.e.c.

Transport equipment Other non-metallic mineral products

Electrical and optical equipment Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.23.1 Introduction

Trade and industry specialisation Most prominent sectors in Slovenia

Manufacturing contributes 19.6 % to total value Highest relative value added (2007)

added in Slovenia against 14.9 % for the EU on Textiles and textile products Leather, leather and footwear

average (2009). At the detailed manufacturing Wood and products of wood and cork industry level, Slovenia features specialisation in Change in the relative value added (1999/2007) labour-intensive industries (sawmilling and Increasing specialisation

planning of wood, made-up textile articles) and Recycling Electricity and gas

mainstream manufacturing (domestic appliances, Post and telecommunications

other non metallic mineral products). At the more Decreasing specialisation Supporting and auxiliary transport activities; activities of travel agencies

aggregated sector level, Slovenia is specialised in Leather, leather and footwear

highly innovation-intensive sectors (machinery, Wearing apparel, dressing and dyeing of fur

electrical machinery, R&D) in value added only, but also in the low to medium range of education and innovation intensive sectors (e.g. wood and

cork). Structural change

Slovenia’s R&D intensity is below average given In terms of change, Slovenia has increased the its industrial structure, as is its position on the relative share of technology-driven industries quality ladder. However, in comparison with its (computers, industrial process control equipment), group of lower income countries with export as well as the relative value-added of mainstream specialisation in knowledge intensive industries, manufacturing (domestic appliances, batteries) and Slovenia manages a higher R&D intensity and capital-intensive industries (e.g., man-made fibres), better quality performance in labour-intensive but its specialisation in labour-intensive industries

industries. (builders’ carpentry and joinery, apparel and accessories) has decreased. This has also been the

case in low innovation and low education sectors (leather, auxiliary transport activities). Slovenia has

gained export share in the high-quality segments, automotive industry, pharmaceutical industry, but also in the low-quality segment in technologybiotechnology, energy, electric engineering and driven industries; its R&D intensity considering its electronics industry. industrial structure has decreased relative to the EU.

More than EUR 120 million has been committed Industrial production fell by 26.5 % during the for 2009-2013 by the Ministry of Higher Education, crisis and has partially recovered since. In April Science and Technology to support investment in 2011 it was 14.5 % lower than its previous cyclical R&D in specialised technology areas. Priority peak. The crisis slowed down structural change technology areas were defined by the Government: towards technology-driven industries, favouring User Platforms and Interfaces, Network Systems instead capital-intensive ones. and Services, Food and Health Biotechnological

Research and Innovation, Biomedical Engineering, Slovenia has experienced a moderate appreciation Process Technologies, Sustainable Building of the real effective exchange rate over the last Industry, Effective use of energy (smart grids). decade (12%, compared to 21% in the EU27), Seven competence centres were designed and are indicating nevertheless a loss in cost and price operational since 2010, bringing together competitiveness. Nominal unit labour costs have competencies of the public R&D institutions and increased by 53% between 2000 and 2010, companies on the defined technology priority areas compared to an increase of 14% in the EU27 and for joint strategic investment. In 2009, Ministry of 20% in the Euro area. Labour productivity per hour Higher Education, Science and Technology worked has gradually increased over the last years launched the call for proposals for development of and is currently about 17 percentage points below Centres of Excellence in the areas recognised as the EU27 average and 31 percentage points below potential for Slovenia to reach international, the Euro area average. worldwide excellence. Eight centres were selected

and have been operational since 2010. Overall, Slovenia is catching up with respect to competitiveness, but needs to pay attention to Despite considerable progress in the area of public sectoral upgrading, i.e. increase R&D investments procurement in Slovenia, public procurement is still and output quality within existing industries. under-used to support technological innovation.

The government intends to use more systematically

4.23.2 Towards an innovative industry public procurement to promote areas where the

Slovenian technologies and solutions could stand

According to the 2010 Innovation Union out, in particular in relation to social challenges and Scoreboard, Slovenia is part of the second most sustainable growth. For instance, EU cohesion advanced group of innovative countries in the EU, policy funds are to be used to target sustainable the innovation followers and has a high rate of construction and efficient energy use.

improvement. Its R&D as a share of GDP reached

1.9 % in 2009. Slovenia performs particularly well Financial instruments were introduced to support in international scientific co-publication, in public R&D and innovation investments. The Ministry of private scientific co-publications, in innovative Higher Education, Science and Technology backed SMEs collaborating with others and in non-R&D in 2010 the Slovenian Enterprise Fund with innovation expenditure but not very well in EUR 50 million enabling through commercial business R&D innovation expenditures. In 2010, banks EUR 150 million of loans for R&D projects. numbers of policy measures were introduced to The objective is to provide more investments and overcome the implementation deficit, to reinforce working capital to high technology projects. the knowledge triangle: research, education and Additional EUR 35 million is invested by the innovation and to further increase public spending Ministry of Economy to a holding fund promoting on R&D. development of venture capital market. Moreover, a

new holding fund for financial engineering

In 2010, numbers of policy measures have instrument is being established by the SID Bank supported public spending on R&D and intended to with EUR 50 million backed by the Ministry of reinforce the knowledge triangle: research, Higher Education, Science and Technology and it education and innovation. will be operational later in 2011.

The Ministry of the Economy is co-financing 17 A new financing scheme has been launched for projects of Economic development centres. The SMEs to develop their R&D and innovation projects sum up to EUR 425.483.576 and will be activities, linked with IPR and design. It is worth co-financed with EUR 179.581.344. Building on highlighting that many applications were made in the knowledge base in Slovenia, the targeted areas the field of design.

cover wood-processing sector, new materials, ICT,

According to the Slovenian National Reform the predominance of many energy intensive Programme, the number of graduates in the fields manufacturing sectors. In addition, intense road of natural sciences, technology and other sciences traffic due to transit of freight transport worsens the relevant for innovation is considered as too low. As overall outcome. a response, the NRP highlights numbers of

measures, like training programmes in natural Slovenia is the 10 th country with the highest share

sciences and encouraging entrepreneurship among of renewable energy in gross final energy young doctors of science. As a response, a new consumption in 2008. In fact, the proportion of measure was introduced recently by two relevant renewable as a share of total energy consumption Ministries with EUR 20 million in 2011-2013 to has considerably increased in comparison with the strengthen competencies for R&D in companies, rest of the EU. Slovenia benefits from highly stimulate development of R&D departments and favourable conditions as it has large hydro-electric co-finance employment of researchers, engineers as installations and is rich in biomass. well as both local and foreign high qualified personnel In the area of energy efficiency, the Slovenian Eco

Fund and the Ministry of the Economy have Finally, Slovenia’s academic research is still not launched calls for tenders targeting the public and sufficiently connected to corporate research and private sector, and also households. Energy vice-versa. For instance, some of the largest and efficiency in buildings, supported by ad hoc most competitive Slovenian firms have their own financial mechanisms, is a priority. The use of research departments and hardly interact with decentralised renewable energy sources is also research institutions. fostered.

A rationalisation and simplification in the system of With regards to renewable energy sources, EU funds drawing is under way. Some significant investments are supported and in absolute terms steps were implemented and as a result the amount until 2020 use of hydro and biomass are projected of funds for R&D and innovation increased in to increase the most. The measures are also meant 2010. If properly implemented, it would generate a to encompass energy distribution and transportation better absorption of EU funds and therefore services including the building of ‘SMART reinforce R&D and innovation in Slovenia. GRIDs’. Call for tenders in renewable energy will

aim at developing co-generation, creating facilities Proper coordination and collaboration between the using sustainable biomass (heat and power) and various organisations is essential to avoid overlaps building district heating facilities. and make the R&D and innovation policy measures more transparent and user-friendly. In this respect, A new coal-fired plant, implying an estimated the Government plans to reorganise the EUR 1.2 billion investment is under way. And the implementing agencies and thereby increase their second Slovene power company (that represent transparency and efficiency. 22 % of installed generation capacity) is

considering building a new nuclear power plant. 4.23.3 Towards a sustainable industry

Green procurement: The use of green procurement The volume of emission-intensive industries in could be more developed. EU cohesion policy Slovenia dropped significantly because of the crisis. funds are to be used to target sustainable Some of the most emission intensive sectors, such construction and efficient energy use. as the aluminium one, have seen their production, and therefore their greenhouse-gas (GHG) Waste recovery from production and services has emissions, reduce considerably. Along with the represented about 60 % of waste in the last few recovery, the GHG emissions have peaked up again years. The Government intends to further intensify in 2010. Due to high share of emission-intensive the building of waste management plants and to sectors, Slovenia has one of the highest propensities promote waste prevention measures.

for high emission in the EU. In 2008 118 , it ranked

fifth among EU countries. 4.23.4 The business environment

Slovenia was the 10 th most energy-intensive EU Considerable progress has been achieved in

country in 2009. Slovenia’s gross inland different areas relative to the Slovenian business consumption of energy divided by GDP represented environment, for instance: on preventing illegal 150 % of the EU average in 2009. In comparison work, on public procurement, on setting up a with the EU average, Slovenia is characterised by business, on tax relief for intangible investment, on

value added tax and on online tax declarations. The

118 UMAR-IMAD Development report 2011

single point of contact called VEM has been very The level of competition in many Slovenian successful. This one-stop-shop solution offers services sector could be enhanced. High information, advice and mentoring. It has seen concentration and high mark-ups can be observed considerable improvement and the government in certain services sector, notably food retail, wants to push it even further in the years to come. construction, professional services and land

transport. Slovenia still had the lowest share of International surveys point to areas that can still be knowledge-based market services in the EU in improved, mainly with regards to the legal and 2009. According to a survey of 58 countries from regulatory framework. According to the Slovenia the IMD 2011 Global Competitiveness report, World Bank Doing Business rankings in 2011, Slovenia is the second country with the highest Slovenia is ranked low with regards to registration threat of relocation of its services activities. of real estate and duration of procedures for dealing with construction permits. According to the IMD Administrative burden is also visible in the area of World Competitiveness report, Slovenia does not regulation of professions. Slovenia has one of the offer an attractive legal and regulatory framework. highest numbers of regulated professions in the EU. In fact, Slovenia is the worst performing EU A report is underway (‘Deregulacija poklicev v RS

country 119 for this indicator. Besides, governance – med javnim interesom in konkurenčnostjo,

standards are evaluated to be deficient in both the Deregulation of Professions in the Republic of public and private sectors. The 2011 issue of the Slovenia – Between the Public Interest and IMD competitiveness report evaluates the Competitiveness’) to provide an international supervisory board of Slovene companies as one of benchmark of regulated professions by March the poorest among the countries that are 2012. Concomitantly, the European Commission is benchmarked. It is not surprising therefore that the to offer in 2012 a proposal of a new legislation governance of state-owned companies will be under based on the results of an evaluation of the the responsibility of a new agency for the implementation of the Directive on the recognition management of state-owned assets. Besides, a land of professional qualifications (Directive register act has already been adopted. It offers a 2005/36/EC). digital version of all the procedure of a registration and the access to the land register is free of charge The Services directive is still not fully and available in a decentralised manner (in every implemented. Single points of contact should see local court and notary instead of only the main land some improvements by autumn 2011, at first for for register). tourism, construction and crafts with a progressive

extension to all services sectors by end of 2013. Administrative burden is to be reduced by 25 % by

2012. There are five phases in the program and the Concerning Slovenia’s resources and infrastructure, third phase was finalised in June 2011. The fourth several elements are worth highlighting. Despite the phase is going more or less according to plans, rise in unemployment resulting from the crisis, which means the deadline should be met. there is still a lack of qualified staff in the health, Concerning impact assessment, a resolution was tourism, engineering and science sectors. Access to taken by the parliament and the government in resource is also an issue in Slovenia, especially in 2009. Technical support has been set up both the field of rare earth. Transport infrastructure has internally and externally. The consultations take developed unevenly, with a strong road network place online, so that the public can react. The and much less modern and developed railways. The implementation is unequal across ministries. Some priorities with regards to railway infrastructure in are very good and others are lagging behind. 2011 and 2012 are supposed to be modernisation,

electrification and development of the second The competition protection office has become Divača-Koper track. extremely under-staffed over the last 3 years. Only competition authorities of smaller countries such as The Slovenian export promotion strategy is Luxembourg or Malta have as few employees. undergoing organisational changes. The previous While the office is to become fully independent in trade promotion organisations (TPO) are now 2012, it is still questionable whether it will function merged with JAPTI. In fact, JAPTI is going to be at full scale. With the institutional changes planed reorganised further. Its support activities for for 2012, issues related to staff increase and their internationalisation will be shared differently capacity-building are also to be resolved among different organisations. The Slovenian

embassies but also the chambers of commerce and business clubs will join forces. Concerning the content of the export promotion policies,

119 cooperation with new emerging markets is Cyprus, Latvia and Malta are not included

promoted as Slovene firms generally turn to in the ranking. neighbouring EU and Balkan markets. Slovenian EU countries ranked by the Global entrepreneurship companies are already to some extent present in monitor. Slovenia is considered as more ‘passive’ emerging countries. Nonetheless, foreign markets in terms of entrepreneurship compared to its peer are more easily accessible for large than for small group. Necessity entrepreneurship is the lowest Slovenian companies. The barriers to prevalent form of entrepreneurship while internationalisation are mainly the fact that most opportunity driven entrepreneurship is the most Slovenian companies are small companies and widespread. This is consistent with the fact that cannot extend their activities abroad or produce early stage entrepreneurs in Slovenia come from the large enough quantities of goods for certain highest household income category. markets. Among internationalisation measures,

Slovenia also strongly supports direct foreign The Global entrepreneurship monitor found that investment through national scheme. Besides, the female entrepreneurs are under-represented in insurance scheme for internationalisation offered by Slovenia. Their share has even decreased in 2009 to SID bank works well for companies. Exception are represent 24.2 % of early stage entrepreneurs. As an small companies that have to get private insurance answer, the government organised four female schemes. Among other measurements, Slovenian entrepreneurship events in 2010. The business business clubs abroad have been established and are organisations think that more could be done in this a Slovene specificity; there are 17 currently area. The forthcoming programs, still at pilot stage, operating, but not all of them are financed through are concentrated on mentoring vouchers for women country revenue. Most of them are in the Balkans in and promotion of female entrepreneurship.

Russian regions.

The public guarantee scheme designed as an answer In conclusion, the legal and regulatory framework to the crisis has not had the expected impact. SID is still the most problematic area of the Slovene bank, which has coordinated the use of the business environment. Better regulation of guarantee scheme through commercial banks, has professions should create new employment only channelled a third of the amount available. opportunities and better match between The banks have passed on the funds to individuals qualifications and jobs. Last but not least, better rather than to companies. Although banks have absorption of ERDF funding could play a role in tightened loan conditions, access to finance is strengthening the railway infrastructure. generally not an issue for sound companies.

4.23.5 Entrepreneurship and SME policy A lot of progress has been achieved in the field of financial engineering. In addition to SID Bank, the

Despite the long lasting effects on unemployment, Slovenian Enterprise Fund implements guarantees the Slovenia's SME sector is expected to reach with subsidies of interest rate - with this measure again pre-crisis levels in 2012. SMEs' production 890 projects have been already supported (with has progressively recovered since 2009. The investments’ value of EUR 378 million: loans EUR breakdown of SMEs by size class in Slovenia is 243 million and guarantees EUR 153 million). comparable to the EU average. A higher Important progress has been in the field of equity concentration of SMEs can be observed in financing: there are currently nine venture capital manufacturing (15% vs. 11% in the EU) and firms in Slovenia, including six supported by the construction (19% vs. 14%). Slovenia scores well Government through a EUR 26.7 million holding for almost all Small Business Act dimensions and fund of the Slovenian Enterprise Fund and this has addressed all of them except one. It performs measure is co-financed by the ERDF. The first better than the rest of the EU in entrepreneurship, investments by venture capital firms in SMEs are think small first, state aid and public procurement, expected in the second half of 2011. and Single market.

Compared to the 2010 edition of ‘Member States Despite some management buy-out scandals and competitiveness performance and polices’, an act difficult economic situation, the entrepreneurship on prevention of late payments has already been culture in Slovenia is increasing. Entrepreneurship voted. It provides a maximum 30 days payment is even well perceived as 77.6 % of the Slovenian deadline for public institutions and a 60 days population had consideration for successful payment for economic agents (with possible

entrepreneurs in 2009 120 . Young people are more exceptions for 120 days). It has been in force since

entrepreneurial and open. In 2009 and 2010, 16 March 2011. entrepreneurial activity dropped by 1.7 p.p,

however, Slovenia ranked 10 th in terms of early Concerning the SBA, Slovenia has made a progress

stage entrepreneurial activity compared to the 20 in the third principle, the ‘Think Small First’ principle’ and SME envoy was nominated by the

120 Ministry of economy. A proposal for ‘SME Test’ Global entrepreneurship monitor

has been prepared. The eighth principle ‘Promote 4.23.6 Conclusion the upgrading of skills in SMEs and all forms of innovation’ could also be developed further. In fact, Notwithstanding its size, Slovenia is faced with the the government‘s future priorities of the Small challenge to increase both the competitiveness of its business act in Slovenia will consist of: 1. Access to export and domestic sectors. Better regulation, finance, 2. Think small first legislation, 3. especially in the area of services, can be achieved Innovation and skills, 4. Internationalisation. thanks to the revision of regulation of professions.

Along with the proper implementation of the A three year program targeting young people is services directive and a fully-functional supposed to foster creativity and innovation. The competition protection office, the potential of the program is monitored jointly by the Ministry of services sector could be unleashed. economy and the Ministry of education and sports.

Slovenia was one of the first countries to allocate Summing up, several areas of the Small business part of its EU funds to competitiveness programs act are still to be put into action. Nonetheless, the (up to 40 %). Europe 2020 could facilitate further recent reforms in financial engineering and in late the alignment between competitiveness goals and payment legislation are signs that the areas that EU funds allocations. Focusing on regions and were highlighted in the previous report have sectors undergoing the most significant structural consequently started to be tackled. changes, such as the Pomurje region as one

example, could be an opportunity to accelerate the

restructuring processes.

4.24 Slovakia

Slovakia

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9

a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w

T o u s ta d u

s

Waste generated by enterprises (all NACE sectors; -4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007)

n e

u

re

e p Early stage financing (% of GDP; 2009) N.A.

E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Slovakia (2009)

Chemicals, chemical products Paper products; publishing and printing Rubber and plastic products Wood and wood products

Refined petroleum products Leather and leather products

Textiles and textile products Machinery and equipment n.e.c.

Food products

Electrical and optical equipment Manufacturing n.e.c.

Other non-metallic mineral products Transport equipment

Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.24.1 Introduction 121 Slovakia’s R&D intensity is far below average

when taking account of its industrial structure, Trade and industry specialisation indicating a position in the production-oriented part

of knowledge-intensive industries. Slovakia The manufacturing industry in Slovakia accounts features high shares of exports in the low price for 19.6 % of value added against 14.9 % for the segment and low shares in the high price segment, EU on average (2009). At the detailed indicating an unfavourable position on the quality manufacturing industry level, Slovakia features ladder, similar to its group of lower income industry specialisation in mainstream countries specialised in knowledge-intensive manufacturing (lighting equipment and electric industries (group 3). lamps, wire and cable) and capital-intensive industries (Basic iron and steel) and trade specialisation in technology-driven (radio and TV receivers) and labour-intensive industries Most prominent sectors in Slovakia

(manufacture of steam generators). At the more aggregated sector level, Slovakia shows Highest relative value added (2007)

specialisation in high and medium-high innovation Leather, leather and footwear Basic metals

sectors (communication equipment and motor Electricity and gas vehicles), as well as in medium to medium-low Change in the relative value added (1999/2007) education sectors (fabricated and basic metals). Increasing specialisation

Slovakia features a high share of exports to the Radio, television and communication equipment Leather, leather and footwear

BRIC countries, especially Russia, by technology Basic metals

driven industries. Decreasing specialisation Electricity and gas

Coke, refined petroleum and nuclear fuel Tobacco products

121 For main sources used see the methodological annex. The cut-off date for Structural change

all data and qualitative information is 31 August 2010.

In terms of change, Slovakia has increased its indeed experienced a steady decline from 0.66 % in relative value added and export share in 1999 to 0.48 % in 2009. R&D performed by the technology-driven industries (radio and TV Slovak businesses has also declined and from receivers and transmitters), as well as its value 0.41 % in 1999 has reached 0.2 % of GDP in 2009. added specialisation in mainstream manufacturing

(lighting equipment and electric lamps). Further, The "Long term plan of the state science and Slovakia has increased its relative value added technology policy by the year 2015", setting the share in high innovation sectors (computers, national policy framework in terms of R&D, is communication equipment, medical, optical and expected to be updated in 2011 with a view to precision instruments) and has decreased its redefine fields of intervention and related measures. specialisation in labour-intensive low-skill At the moment, the overall objective is the gradual industries (dressing and dying of fur) and low shift from institutional to project-based R&D education sectors (wearing apparel). Slovakia has funding of both universities and research institutes climbed the quality ladder in contrast with its peer including a rationalisation of the system (mergers group, but its R&D intensity, taking account of its of research institutes, promotion of higher industrial structure, has continued to fall. specialisation). In order to proceed in this direction,

a revision of the evaluation system is being carried Manufacturing output fell sharply during the crisis out.

(-32 %) but recovered remarkably, being in April

2011 4.1 % higher than in its previous peak. In The legal Act on R&D incentives to the business total, the impact of the crisis on Slovakia’s sector, which was adopted in 2009 as part of antieconomic structure was limited, slowing down the crisis measures, provides state aid for basic and decline of capital-intensive industries and structural applied research, feasibility studies, employment of change towards technology-driven industries. qualified researchers, experimental development,

establishment of a research laboratory and income Slovakia has experienced a strong appreciation of tax relief. Out of 35 applicants, 14 companies have the real effective exchange rate over the last decade used the support so far, 4 starting in 2009 and the (80%, compared to 21% in the EU27), indicating a remaining in 2010. Incentives are conditional to the loss in cost and price competitiveness. Nominal unit establishment of new laboratories (creation of labour costs have increased by 33% between 2000 workplaces) or the employment of researchers to be and 2010, compared to an increase of 14% in the maintained for at least 5 years and will run until EU27 and 20% in the Euro area. While labour 2014. No further calls are open at the moment. productivity per hour worked has considerably increased over the last years, it is still about 22 Innovation policy in Slovakia is currently based on percentage points below the EU27 average and 35 two strategic documents: the Innovation Strategy percentage points below the Euro area average. for 2007-2013, which sets the general framework

for intervention, and its translation into concrete Overall, Slovakia is catching up with respect to measures via the Innovation Policy document, competitiveness, however R&D trends constitute a covering a three-year period. The document for cause for concern. 2011-2013 sets 3 priority areas (infrastructure;

quality of human resources and support for 4.24.2 Towards an innovative industry innovation) and 13 measures such as: clusters;

support to innovation for regional projects; human

Slovakia has been classified as a moderate resources and SMEs trainings. A national project innovator according to the Innovation Union for increasing innovation of entrepreneurs is being Scoreboard 2010, with a performance below the EU prepared and discussed with coordinators of the OP average. In particular, it ranks amongst Member Competitiveness and Growth.

States with the lowest share of R&D expenditure in relation to GDP. A positive development in the governance of

innovation policy seems to be the appointment in Slovakia has a small and underdeveloped R&D February 2011 of a High Government system. Currently, large multinational companies Representative for knowledge economy and operating within the country, with high productivity information society.

levels, mainly run their R&D activities abroad and limit liaising activities with Slovak research The lack of coordinated intervention in the policy facilities. On the other hand, national companies, areas of research, education and innovation is, including SMEs, are characterised by low R&D together with a weaker human capital formation, a expenditure. As a result, the production system is fundamental issue that negatively affects the mainly dominated by technology imports. efficiency of the national innovation system. Aggregated across all sectors, the indicator has Responsibilities in these areas remain fragmented and are shared between different ministries and corresponding to a 2.7 % reduction in final energy their implementing agencies. In the period 2008- consumption compared to the 2001-2005 average. 2011, the national budget for innovation has been Most of the energy savings are expected by the new diverted to other priorities due to the crisis and document to be achieved in industry (about 30 %), resources were channelled only via Structural public sector (27 %) and buildings (21 %) but Funds (OP Competitiveness and Growth). The measures are also foreseen with regards to electrical system of innovation vouchers which was designed appliances and transport. In terms of the total public in 2009 and expected to be implemented in 2010 and private financial resources expected to be did not receive financial coverage so far. At the mobilised over the three years (more than same time, the call for tenders to create Regional EUR 4.5 billion), about 50 % will be absorbed by Innovation Centres (RICs) was launched for a the transport sector, while EUR 316 million (7 % of budget of EUR 5 million and 7 applications were the total) will be channelled towards industry via received from local governments but technical three measures focused on: innovation and implementation did not start due to procedural and technology transfer; increase in energy efficiency of financing issues. Clusters have been mapped but industrial production and enforcement of the law on not fully implemented, with an exception at compulsory energy audits in industry (the latter regional level (cluster for software applications in accounting for about 90 % of the planned savings in the Kosice region). the sector).

In order to properly take into account concrete The assessment of the previous three-year period business needs in terms of innovation, an external (2008-2010) reveals that the 2010 intermediate audit on the most relevant institutional aspects is energy savings target of 3 %, corresponding to expected to be launched in June/August 2011. At 12 405 TJ, has been achieved and, in particular, the same time, undercapitalised companies may indicates the good performance registered for profit from new measures through JEREMIE (in construction and manufacturing, although both still particular venture capital funds). present big potential for energy consumption

reduction. 4.24.3 Towards a sustainable industry

The economic crisis had also an impact in According to the reference indicator here adopted, determining positive results: a significant decrease Slovakia ranks third amongst the most energy in energy intensity was indeed registered both in intensive countries in the EU. In particular, despite 2008 and 2009. However, the crisis acted on top of significant recent improvements, relatively high a trend which was already undergoing, pushed by energy intensity is still registered in the industrial two important drivers for energy saving, namely: sector (dominated by traditional manufacturing the increase in energy prices and the development activities) to which relatively high carbon intensity of the regulatory framework. in energy consumption is also associated.

Funds for implementing sustainable energy projects Several actions have been undertaken over the past in the private sector (industry and households) were years in order to set both energy production and provided via national banks by the EBRD's consumption activities on a sustainable path. Slovakia Sustainable Energy Financial Facility, Slovakia has progressively transposed at national created in 2007 with a provision of EUR 60 million, level most of the relevant EU legislation and the extended by additional EUR 90 million in 2010 due overall legislative framework is now in place to high demand from beneficiaries and supporting concerning energy efficiency, promotion of 350 projects overall. In February 2011, the EBRD renewable energy sources (RES) and energy supply has announced a further EUR 15 million loan which security. will cover investment grants, accompanied by

technical assistance to borrowers. The Slovak Energy Policy is the strategic document defining the long-term framework in terms of For better exploiting the energy efficiency potential objectives and actions. Developed in 2006 for across all sectors, a new data collection and adapting policy intervention to the new national monitoring system is expected to be launched in the situation and to the adoption of EU directives, it second half of 2011. covers a period of 25 years and is expected to be updated by the end of 2011. Energy efficiency and environmental performance

will become obligatory part of the selection criteria As prescribed at the EU level, the second Energy in public procurement as from January 2012. The Efficiency Action Plan (NEEAP) for the period Slovak Innovation Agency is in currently charge for 2011-2013 has been adopted in May 2011, setting a their definition. total energy saving target of 8 362 TJ,

The National Renewable Action Plan published in oriented towards legislative simplification, the October 2010 defines trajectories for the improvement of consultation practices in the design development in the use of RES up to 2020 and a of primary and secondary legislation and final target of 14 % in gross final energy developing impact assessment capacities. consumption. Since 2009, Slovakia has adopted legislative actions for supporting the production of In 2007 Slovakia adopted the Action Program for electricity from RES, also as a response to major Reducing Administrative Burdens, establishing a national concerns in terms of energy security and target of 25 % reduction by 2012. Since 2009 industrial diversification. However, the feed-in important steps have been undertaken in order to price mechanism put in place, while ensuring define the legislative areas for most urgent predictability for investors, has caused distortive intervention and of greater reduction potential, effects on prices in the energy markets detrimental although concrete measures did not find proper to business. Actions have been announced by the implementation as a follow-up. At the end of 2010, government in the NRP 2011-2014 for redefining a second phase of assessment has started and lead the support schemes to RES as well as to domestic to the definition of a set of 94 measures, included in energy sources (coal) in order to maintain costthe Proposal of the Business Environment effective incentives while limiting negative effects Improvement Policy, adopted by the Slovak on the electricity prices. Government in July 2011. With a main focus on

administrative burden reduction, law procedures 4.24.4 The business environment acceleration and improvement in impact assessment

activities, the document proposes the Business environment in Slovakia remains implementation over the short- to medium-term characterised today by important drawbacks, which (2011-2015) of a comprehensive better regulation may limit the attractiveness of the country and agenda which has been lacking so far in the hinder the potential for higher economic activity country. In this respect and based on past levels. The situation is captured by the related set of difficulties encountered in the domain, the concrete indicators presented above. Compared to the EU27 implementation and monitoring of the measures average, Slovakia performs relatively well in terms identified will prove of utmost importance. of the share of enterprises using e-government services. However, a closer look at complementary In July 2010, an updated Unified Methodology to indicators shows that the range of available services Assess Selected Effects was introduced, containing is limited and the country ranks in the latest an obligatory methodology for evaluating the positions at the EU level. The potential for further impact on the business environment and other four improvements in this area is indeed recognised areas (public finance, social area, environment and within the NRP 2011-2014 in which legislative acts information society/e-government), to be used by are announced, while a 'Revision of eGovernment all departments when preparing legislative and non Building - Medium Term Priorities Implementation legislative proposals. The actions undertaken seem Plan' has been approved early in 2011. then to go into the right direction although further

efforts are still required for the new system to be Low performance compared to the EU27 average is fully deployed in practice by responsible also registered with regards to the availability of authorities, contributing to make legislation more high-speed broadband lines and to the level of effective. satisfaction expressed by business representatives on the quality of transport infrastructures. The transposition of the EU Services Directive was According to the 2011 Doing Business survey by completed via a law in force since January 2010, the World Bank, Slovakia ranks 41 out of 183 also addressing the issue of the points of single economies in the overall ease of doing business contact which are now in places for both legal indicator and amongst the last EU countries in persons and professions since June 2010 as well as terms of cost and length of procedures for enforcing for sole traders. There are currently 50 one-stopcontracts and closing a business. shop offices in Slovakia and 8 of them provide

services also to EU persons. Proposals are currently Legislation in Slovakia remains highly complex and under discussion concerning the simplification of subject to frequent changes. As an example, the business licensing system and reduction of reported by analyses at national level, the 15 most registration fees. The creation of electronic points important legislative acts governing business of single contact is expected to be finalised by the environment were amended more than once every end of 2011. two weeks, on average, in the last decade (2000-

2010). This is associated with the overwhelming A major challenge is today represented by the limits amount of laws and regulations for which targeted to a truly cost-effective access to energy for intervention is also needed. Efforts are to be business. By progressively transposing EU regulations, Slovakia has formally liberalised its extension is currently not envisaged. energy market but significant bottlenecks still persist. Electricity prices paid in Slovakia by Overall, insufficient access of SMEs to suitable industry and by medium-sized enterprises in financing may represent in Slovakia an obstacle to particular, are indeed amongst the highest in the the improvement of the business environment, EU. High levels of upstream concentration in gas growth and job creation. This holds true especially and electricity markets (e.g. the dominant producer with regards to small and micro enterprises, accounts for more than 80 % of electricity innovative start-ups and entrepreneurs who have generation) and low competition in the retail experienced bankruptcy. market; excessive use of price regulation; nontransparent regulatory framework and price Support provided by Structural Funds currently formation process are some of the main issues represents the main tool available to SMEs but a characterising the current scenario. At the policyclear need arises for improving overall absorption making level, focus is currently given to the capacity; simplifying and shortening length of concrete implementation of the third EU Energy procedures and increasing transparency and package. effectiveness. On the other hand, despite the

support offered via public funds, the situation A further obstacle to the improvement of the concerning the provision of guarantees remain business environment in Slovakia is associated with problematic: the Slovak Development and poor enforceability of rights and underperforming Guarantee Bank (SRZB) which used to provide judicial system. These bottlenecks have been guarantees up to 80 %, after some defaults now clearly recognised within the NRP 2011-2014 and only guarantees up to 65 % while conditions specific measures are expected to be implemented, applied by commercial banks for applicants with in particular, in order to streamline civil court insufficient collateral remain prohibitive. procedures; set deadlines for action by courts on

selected matters; support the use of alternative Following new operating rules adopted by the methods of dispute settlement in commercial law; government in 2010 and the start of a restructuring improve the qualification of personnel and the use process of the National Agency for Development of of ICT solutions; ensure publicity to judicial SMEs (NADSME) in October, traditional financing decisions on internet. Effective implementation of instruments, such as a micro-credit scheme run by these actions is essential. the Agency and implemented via partnership

regional centres were suspended with the intent to As a way for improving transparency in public centralise operations, including final approval of all procurement, new rules have been introduced since credits to be allocated. The quick completion of February 2011, based on an e-auctioning system: such restructuring and the restart and possible public administrations, including regional and reinforcement of related successful programmes are municipal governments, will have to publish all considered as of great importance. procurements, contracts and invoices above certain

values on the internet and contracts will be valid A positive development for improving access to only after publication. The reform certainly goes funding and introducing innovative financial into the right direction for ensuring increased instruments is certainly represented by the start, transparency in the public administration, fighting after several delays, of the concrete implementation corruption and reinforcing trust of citizens and of the JEREMIE initiative, financed from the EU businesses. Structural Funds under three 2007-2013

Operational Programmes and managed by the EIF Overall, a more efficient public administration and through the Slovak Guarantee and Development stronger institutions in general would be beneficial Fund (SZFR). The latter was established already in to the business environment in Slovakia. 2009 and will work as a local state-owned entity,

participated by SZRB and EIF (until 2015), aimed 4.24.5 Entrepreneurship and SME policy at ensuring support to SMEs financing also in the

longer-term. Three calls for expression of interest Although the Slovak banking sector has proved from financial intermediaries are expected to be sound during the financial and economic crisis and launched in the second half of 2011, and the first initiatives have been taken at national level in order two will focus on portfolio guarantees and risk to support corporate cash flows, lending and capital, for the amount of EUR 33 million and guarantee conditions have inevitably tightened for EUR 31 million, respectively. The effective and enterprises, in particular SMEs, and the timely implementation of the scheme is now crucial implementation of anti-crisis measures is expected and should be strongly pursued, as well as the only to continue until natural conclusion while their setting up of a proper monitoring and evaluation system. been progressively transferred from the government

to regions and then to municipalities, leaving room Officially, today there is not an SME test in place for uncoordinated actions, mainly carried out on a and the 'think small first' principle is not concretely voluntary basis. implemented by Slovak authorities. Under the responsibility of the Ministry of Economy, 4.24.6 Conclusion

NADSME currently only conducts an annual assessment of the impact of new legislation on The economic and financial crisis has emphasised SMEs, that is, an ex-post evaluation. the importance of creating and sustaining in

Slovakia the necessary framework conditions for Another important issue in Slovakia is associated to ensuring substantial improvements in the business bankruptcy and the lack of services and funds environment, as a fundamental prerequisite for available to companies in order to promote 'second growth and job creation. This holds particularly true chance'. In this respect, no specific developments in periods of complex economic recovery and have been registered lately and the attempt is still public finances constraint. Calls for action and today to find solutions, amongst which the selection enhanced intervention in this respect are not new of a nominee who will be in charge of coordinating and mainly concern: the need for better regulation and boosting initiatives on ‘second chance’. and reduction of administrative burden; the

enforcement of legal rights; access to finance; the In terms of vocational training, Act 148 is in force availability of human capital; energy prices for since 2009, giving entrepreneurs the possibility of businesses and the efficiency of public financing training at secondary and university level, administration. therefore supporting the integration of entrepreneurship and specific skills into curricula. Overall, today Slovakia has set the relevant legal Projects were also organised by NGOs and coframework for supporting the development of financed by EU funds: over the period 2009-2010, sustainable production and consumption models pilot projects on “Quality in school” and “Success and the main focus should be on the effective in life” involved more than 40 000 students of implementation of available tools for greening the secondary schools and proved highly successful, economic system. However, specific attention inspiring the preparation for the future of a more should be paid not only towards reaching permanent approach, provided that previous actions environmental targets but also to the possibility of in the field were more of a “one off” nature. exploiting related business opportunities, therefore

increase competitiveness, support innovation and However, in terms of entrepreneurship job creation. development, a weak link between educational system and the business environment still persists, In terms of R&D and innovation, today the lack of generating a significant mismatch between skills a national coordinated approach adds up to the main demand and supply. Major obstacles are still challenges represented by a weaker human capital represented today by the overall lack of funds formation, low level of funding and quality of (which mainly are of public nature); too low supported activities, highly bureaucratic incentives for enterprises to cooperate with procedures, low participation of Slovak enterprises educational institutions and the lack of a broader to R&D and innovation programmes and weak ties strategy at national level, provided that between industry and academia sectors. All these responsibility for vocational education policies has issues would benefit from targeted responses.

4.25 Finland

Finland

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w ta d u T o u

s

in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2005) n e

e p re Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Finland (2009)

Paper products; publishing and printing Refined petroleum products

Leather and leather products Chemicals, chemical products Wood and wood products

Textiles and textile products

Rubber and plastic products

Food products

Manufacturing n.e.c. Machinery and equipment n.e.c.

Transport equipment

Other non-metallic mineral products

Electrical and optical equipment

Basic metals and fabricated metal products

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.25.1 Introduction industries (manufacture of pulp, paper and paperboard), both in terms of value added and Trade and industry specialisation exports, as well as in mainstream manufacturing (agricultural and forestry machinery, electric

Finland belongs to the group of EU Member States, motors) and labour-intensive industries (sawmilling which is characterised by higher income and a and planning of wood, steam generators, building specialisation in knowledge intensive sectors and repairing of ships). As regards exports and (group 1). The contribution of manufacturing to technology-driven industries (apparatus for line total value added is higher in Finland than in the telephony), Finland features specialisation in value EU on average (18.2 % against 14.9 % in 2009). In added only. At the more aggregated sector level comparison with a year earlier, the importance of (NACE 2-digit), Finland is specialised in highly manufacturing has somewhat declined (22 % vs. innovation-intensive sectors (communication 17 % of total value added in 2008). The economic equipment) and, in exports, also in medium and financial crisis, which led to an historical drop innovation-intensive sectors (pulp and paper, wood in Finnish manufacturing output, exports, and in and cork). Finland is not specialised in high industry value added in 2009, has had an impact on education sectors, due to low relative shares in the industry driven structure of the Finnish R&D and in business services.

economy. More than 40 000 jobs were lost in the

technology industry alone. 122 Given its industrial structure, Finland’s R&D intensity and position on the quality ladder for

At detailed manufacturing industry level (NACE 3- technology-driven industries are well above the EU

digit), Finland is specialised in capital-intensive average. However, the quality indicators for labourintensive industries are below the EU average 122 (interestingly, the same applies to the other The Federation of Finnish Technology Scandinavian countries). Overall, within the group

Industries, 27/05/2011, of higher income countries specialised in http://www.teknologiateollisuus.fi/fi/uutis knowledge-intensive industries, Finland is more huone/tiedotteet/2011-5/kilpailukyvynsimilar to countries featuring specialisation in heikkeneminen-vaarantaa-suomalaisetknowledge-intensive manufacturing, such as

tyopaikat.

Germany, Austria and Sweden, than to countries with respect to competitiveness, however, both specialised in knowledge-intensive services. structural change and trends within sectors (R&D

intensity and quality upgrading) may present risks

for competitiveness in the medium term.

Most prominent sectors in Finland 4.25.2 Towards an innovative industry

Highest relative value added (2007) Finland has a very good innovation performance

Radio, television and communication equipment

Pulp, paper and paper that puts this country in the group of EU innovation

Wood and products of wood and cork leaders. Finland scores well above the EU average Change in the relative value added (1999/2007) in terms of high quality scientific publications, Increasing specialisation patents and their contribution to a knowledge-base

Radio, television and communication equipment

Coke, refined petroleum and nuclear fuel economy. Both public and private R&D Recycling expenditure is well above EU average. Despite high

Decreasing specialisation

Post and telecommunications public R&D inputs, only a relatively small part of

Water transport companies are active in regular innovation

Pulp, paper and paper products activities. Maintaining the level of R&D funding at

a minimum of 4 % up to 2020 is a national goal in the context of the EU2020 Strategy, where the

Structural change share of public investment should be at least 1.2 % of GDP and the share of private sector investment

In terms of structural change, Finland has at least two thirds. The on-going restructuring in the drastically reduced its trade specialisation in ICT sector is expected to have an impact on the technology-driven industries (manufacture of TV business R&D intensity, which may decrease and radio transmitters). This is in contrast with already in 2012.

increasing industry specialisation and can be

explained by the more recent trade data, which may As an innovation leader Finland faces a particular reflect Nokia’s problems with smartphones. competitiveness challenge. Finnish industry sectors, Moreover, Finland has increased its specialisation particularly firms in ICT, forest-based industries, in mainstream manufacturing (other transport and mechanical engineering have already reached equipment, forestry machinery) as well as in high the international productivity front. This implies innovation and education sectors (machinery, R&D, that further growth requires experimental R&I, business services). Finland’s R&D intensity is rather than achieving growth by relatively more declining, considering its industrial structure, and simple catch-up strategies.

its movement on the quality ladder is mixed, with

some segments improving and others deteriorating. The main structural problem regarding internationalisation of the R&I system is the low

Manufacturing production fell by some 27 % share of foreign experts, researchers and students during the recent crisis and suffered sharp reversals compared to most western European countries. at the beginning of 2010 and again in early 2011. In Lack of foreign human capital poses a challenge in April 2011 manufacturing output was still 23.5 % efforts to create an internationally competitive lower than at its previous cyclical peak. innovation environment. Although being among the Technology-driven industries saw a considerable scientific and technological leaders in Europe, slump, which may be explained partly by the crisis, Finland's internationalisation in science and

but also by ongoing restructuring. technology still remains behind the reference group, notably in terms of technological cooperation. This

Finland has experienced a moderate appreciation of may signal an untapped potential for progress that the real effective exchange rate over the last decade could benefit future competitiveness and growth. (11%, compared to 21% in the EU27), indicating Other major challenges are a low volume of inward nevertheless a loss in cost and price FDIs, a fragmented innovation support system, and competitiveness. Nominal unit labour costs have a low number of innovative growth-oriented increased by 22% between 2000 and 2010, companies.

compared to an increase of 14% in the EU27 and

20% in the Euro area. Labour productivity per hour Against this background, the entire research and worked is about 11 percentage points above the innovation system is currently undergoing reforms:

EU27 average but 3 percentage points below the

Euro area average. - In 2008, a new innovation strategy was adopted, which advocates transformation

Overall, while Finland enjoys a favourable position towards a broad-based innovation policy

with demand and user based elements. the needs of the future labour market, but their results need to be put into practice also on a

• - 

  In 2009, a broad international evaluation regional basis, which is a long-term challenge.

of the Finnish innovation system was

completed followed by an action 4.25.3 Towards a sustainable industry

programme for 2010-2013, which aims at

improving the effectiveness of innovation The Finnish industrial sector is more energypolicy

by increasing the number of actors intensive compared to the EU average. The pulp

and by utilising innovations also in solving and paper industry, as well as the iron and steel

challenges in society. industries are the major industrial energy

consumers in Finland. Finnish industry, research

• - 

  Comprehensive research and innovation institutes and universities are working together to

policy guidelines for 2011-2015 were develop globally competitive technologies in

adopted by the Research and Innovation energy and environment. The overall objective of

Council chaired by the Prime Minister The Finnish Energy and Environment Competence

setting out the national strategic guidelines Cluster 124 established in 2008 is to leverage Finnish

for the next few years. competitiveness to top level in international energy and environmental markets. Its research agenda

• - 

  Major policy developments include a includes reducing energy intensity in products and possible R&D tax incentive for companies, services and improving energy efficiency in a new strategy for the government funding industrial processes.

  agency (Tekes), and a major university funding reform. The Climate and Energy Strategy adopted in 2008 envisages that growth of energy consumption will

• - 

  Diversification will be promoted by broadbe halted and reduced by 2020. According to the based investment in expertise and research Climate and Energy Strategy Finland has set a quality, for example through the Finland primary energy saving target of 49 TWh. A Distinguished Professor (FiDiPro) Government Foresight Report on Climate and programme, which is a joint funding Energy Policy published at the end of 2009 programme of Aalto University, the supplements the strategy from 2020 onwards by Academy of Finland and Tekes. setting long-term targets for priority areas, such as, reducing greenhouse gas emissions and energy

• - 

  Public-private partnerships (PPPs), or efficiency of buildings. In June 2009, a broad-based Strategic Centres for Science, Technology Energy Efficiency Committee proposed 125

and Innovation (known as SHOKs) 123 , will measures to achieve the 37 TWh of energy-savings be used to speed up innovation processes by 2020. Based on the Committee’s report, in and renewal in traditional industry sectors. February 2010 the Finnish Government adopted an An evaluation of the Strategic Centres of Action Plan on intensifying measures to enhance Excellence in Science, Technology and energy efficiency to be implemented in 2010-2020. Innovation will begin in 2011. It is estimated that the greatest savings of energy

could be achieved in industry and services (13.4

The Finnish education system performs well in TWh) and transport (12.7 TWh) sectors. Finland relation to all European benchmarks and headline plans to tighten energy efficiency regulations for targets. Finland scores well above the average on new buildings from the beginning of 2012 by indicators measuring human resources in science around 12 %.

and technology, which represents 34% of total

employment and 29% of all degrees. Participation Developing an efficient energy system has been a in lifelong learning has traditionally been very high long-standing priority in the Finnish energy strategy in Finland (22.1% in 2009 while the EU average driven by high domestic energy needs and scarce was 9.3%). In view of emerging new skills energy resources. Voluntary agreement schemes are requirements and the demographic changes there is applied in a drive to promote energy efficiency and a need to ensure its adequate provision also in the the latest energy efficiency agreements for future. Efficient foresight systems exist to predict industries were signed for the period 2008-2016.

During 1998-2008 Finnish companies have

123 voluntarily invested nearly EUR 400 million in “SHOKs” are Strategic Centres for

energy efficiency. The agreements will play a

Science, Technology and Innovation and operate in six strategic areas: forest, ICT,

metals and engineering, energy and 124 CLEEN Ltd. is one of the Strategic

environment, built environment Centres for Science and Technology

innovations, health and well-being. (SHOKs).

central role in the national implementation of the resources (such as forest, mineral ores, and peat). A EU Energy Services Directive applying to report on “Building an Intelligent and Responsible companies that are not part of the emissions trading Natural Resource Economy” was submitted to the scheme. The goal is to make their energy Parliament by the Finnish Government in February consumption 9 % more efficient by 2016. 2011. It defines a vision for 2050 where Finland is Moreover, the agreements are a part of the pioneering the development of a responsible natural implementation of the EU climate action and resources economy.

renewable energy package 125 . The continuous

modernisation of the energy system has helped

Finnish energy related technology to reach worldclass standard providing opportunities for energy 4.25.4 The business environment technology exports, which has been growing in

recent years. Finland scores significantly above the EU average

concerning almost all business environment

Finland has signed up to an EU commitment to indicator categories, with the exception of business raise the use of renewable energy to 38 % of its churn and the availability of high-speed broadband overall energy production by 2020. Currently the lines, where it scores slightly below average. share is about 30 %. To respond to this challenge, Regarding the latter indicator, as from 1 July 2010 the Finnish government agreed in April 2010 to Finland became the first country in the world to fund the growth of renewable energy, mainly woodrecognise broadband access to 1 Mbps (Megabit per based energy, wind power, biofuels and heat second) as a universal legal right. The national pumps. The renewable energy package will include broadband action plan 2009-2015 is ambitious feed-in-tariff for wind, biogas, and small-scale aiming at making connections of very high speed combined heat and power production. In total, the (100 Mbps) available throughout the country to support for renewable energy will be more than permanent residencies, business premises and

EUR 300 million per year by 2020 126 . On 1 January government offices from 2015.

2011, Tekes (the Finnish funding agency for

technology and innovation) launched a new In Finland, the Better Regulation Strategy is programme “Groove-Growth from Renewables”, embedded in the 2011 Government Programme and which will run from 2010-2014 with a total budget Government Strategy Document implementing of EUR 96 million. The main objective is to find them. It includes tools and processes, such as the new ways of commercialising technology more forward looking legislative plan, the instructions on swiftly by enhancing the business capabilities and effective law drafting, legal quality and ex ante international competitiveness of Finnish SMEs impact assessment, simplification and working on renewable energy. administrative burden reduction for businesses. The

Prime Minister’s Office and the Ministry of Justice The relative share of waste generated by Finnish are responsible for the monitoring of the enterprises is one of the highest in the EU. The Government legislative plan in accordance with the largest amounts of waste are generated within the Government Programme.

construction, and the mining and quarrying sector.

The goal of the new Waste Act, which was adopted Uniform ex ante impact assessment guidelines were in March 2011, is to reduce the amount and adverse adopted in 2007, which include assessing the effects of waste and to promote sustainable use of impacts on SMEs, entrepreneurship and growth of natural resources. The waste tax, gradually to be enterprises. The responsibility of conducting an raised in 2011 and 2013, is extended to cover all impact assessment is decentralised. The Ministry of waste that is delivered to landfill sites which from a Employment and the Economy has the lead in technical and environmental perspective could be assessment of impacts on enterprises, including

utilised. 127 costs and earnings, competition and functioning of

the market, SMEs, entrepreneurship and growth In comparison with other industrialised countries, opportunities, investments and innovation and Finland’s economy is extensively based on natural international competitiveness. These developments

are a step in the right direction, but there is still

125 http://www.energyscope for making the impact assessment more

systematic through a uniform application of

enviro.fi/index.php?PAGE=17&NODE_I guidelines. In particular, the assessment of impacts

D=19&LANG=1.

126 http://www.energyon SMEs should be more strongly integrated into

enviro.fi/index.php?PAGE=2&NODE_ID the legislative process instead of ex-post assessment.

=4&ID=3101.

127 Finland’s National Reform Programme

2011. Public consultation of stakeholders on new

regulations is based on guidelines adopted in 2010, wholesale and retail trade, which are reflected in a and recent trends include electronic consultation in relatively high consumer price level, although a order to encourage a wider participation. Further small domestic market and long transport distances efforts are needed to make the consultation process may also be attributable to the higher consumer more standardised and to involve the maximum price level. The Finnish aggregate price level is the number of stakeholders. In this respect, the third highest in the EU, and the consumer prices for programme Sähköinen asiointi ja demokratia (efood and non-alcoholic beverages the highest in the services and e-democracy, SADe 2009-2013) will euro area. More competition, particularly in the establish a modernised version of an interactive services sector, has become increasingly relevant participation environment. for enhancing potential economic growth and

stimulating innovation with impact on productivity. In March 2009, the Government approved an action The R&D intensity in the service sector is currently plan 2009-2012 for reducing the administrative relatively low, where 59% of companies are not

burden on businesses. The aim of the action plan is active in regular innovation activities. 130

to reduce the administrative burden by 25 % compared to 2006 level by 2012. According to the 4.25.5 Entrepreneurship and SME policy baseline estimates, the overall administrative burden on businesses in Finland is slightly under €2 Finland scores above the EU average on all billion. In terms of the eight priority areas of the indicators regarding entrepreneurship and SMEs, action plan, the greatest administrative burden is except on the share of high-growth enterprises as imposed by statutory employers’ information percentage of all enterprises. SMEs constitute the obligations and taxation amounting to over one majority of all enterprises (99.8 %), of which

billion euro every year. One of the key methods of micro-enterprises represent 93 % 131 . Although

reducing the administrative burden on business is to entrepreneurial activity in Finland is currently at an develop eGovernment and projects are under way all time high (almost 50 firms/1000 inhabitants, within all the priority areas of the action plan. The 2009), the number of high-growth enterprises is low electronic communication services for central in EU comparison and some weaknesses exist in the government are coordinated by means of the SADe conditions for entrepreneurship. For example, programme, which aims at making electronic entrepreneurship culture is not supporting highcommunication with all key services possible for growth ventures, risk taking and learning from both public and individual companies by 2013. failure. Innovative high-growth companies are a

key issue, which is addressed in several growth In 2010, Finland was one of the top performers in venture policy measures: the EU on most eGovernment benchmarks. It has considerably improved online availability, - A new financing instrument for innovative especially for enterprises (from 50 % to 88 %) and companies was launched by the Finnish leads in eGovernment usage and userfriendliness. Funding Agency for Technology and Regarding eProcurement, Finland still lags behind Innovation (Tekes) in 2008; the EU average, but has a mandatory notification

database for ongoing public tenders and is - The Vigo Start-up Accelerator for developing non-mandatory common platforms for innovative fast growing companies was

the other phases of eProcurement 128 . launched in 2009. Currently six accelerator

enterprises are active on clean technology The one-stop-shop to start-up a company (in the ventures, innovative human nutrition Trade Register of the National Board of Patents and related businesses, web and mobile, life Registration (PRH) is fully operational. sciences and telecom information

technology, media technology, B2B ICT Competition in services continues to be partly and ICT enabled growth businesses; hindered by regulations, despite some recent

loosening. 129 There are occasionally highly - Fund for Growth Funds: Joint fund of

concentrated business structures, particularly in the private pension insurance companies and Finnish Industry Investment Ltd (2008);

128 2011, 9 th eGovernment Benchmark Report,

http://ec.europa.eu/information_society/ne wsroom/cf/item-detaildae.cfm?item_id=6537.

130 Research and innovation council of 129 Commission Staff Working Paper 2011, Finland: Research and innovation

Assessment of the 2011 national reform guidelines 2011-2015.

programme and stability programme for 131 Estimate by FI Ministry of Employment

Finland. and The Economy, 2008.

• - 

  Establishment of regional evaluation order to better cater to the needs of enterprises

  service of business ideas coming from aiming at international markets 132 .

  private inventors (Foundation for Finnish Inventions, 2009); A particular challenge relates to business-transfers due to the age structure of the entrepreneur

  • - 

    Growth Avenue: A joint “one stop shop” population in Finland. About 28 % of entrepreneurs service for growth oriented-companies that are over 55 years of age and over half of them are have a clear strategy to internationalise of aged between 35 and 54 years. The current which there are five pilot projects testing estimations show that about 10 000 businesses face whether to expand the service to national a transfer of ownership every year. Action has been level. taken to raise awareness among aging entrepreneurs on the business transfer-related issues and available

  • - 

    Proposed policy measures in growth services, but sustained measures would be needed

  venture policy include: to ensure the transfer of viable businesses.

  • - 

    Possible introduction of an R&D tax Entrepreneurship is included in school curricula incentive for all enterprises to increase the both in lower secondary school curricula and in the number of start-ups with great growth upper secondary study programmes. Female potential and to promote the innovation entrepreneurship is promoted by strengthening culture among SMEs. business expertise, peer guidance and a business mentoring system. Conditions for cultural

  • - 

    Measures to improve access to equity entrepreneurship will be improved and employment financing (for example possible tax strengthened through measures in the Development incentive for business angels, increased Programme for Business Growth and risk taking by public financing institutions, Internationalisation of Creative Sectors 2007-2013, establishment of new sector specific VC and in the Creative Economy Strategy. funds (mining, forests, etc); Entrepreneurship in the sports and exercise sector

will be reinforced through a development strategy

• - 

  Reforming the technology transfer extending to 2020.

  structure and procedures of the universities. 4.25.6 Conclusion

At EU level, ERDF funding is supporting measures Overall, Finland enjoys a favourable position with in favour of enterprise development and the respect to competitiveness, however both structural innovation system (applied research and interaction change and trends within sectors (R&D intensity and cooperation between research centres and and quality upgrading) may present risks for enterprises). competitiveness in the medium term. Finland faces

a number of challenges, in particular the

Due to the structure of Finnish exports and globalisation driven restructuring, especially in the exporting industry, peripheral location and small dominant ICT sector, has made it even more home market, appropriations to promote the relevant to diversify the economy, attract FDI and internationalisation of companies have been promote high-growth companies and spin-offs that increased and services have been enhanced. The are internationalising successfully. Improving the FinNode network was expanded to India in 2011, external competitiveness of enterprises and industry internationalisation is promoted through several is also important for employment creation.

agencies (ex. Finpro, Tekes), financing instruments

(Finnvera) and through State aid for joint Although entrepreneurial activity is high, the internationalisation projects involving a minimum number of high-growth enterprises is low and of four companies. A strategic programme in the weaknesses exist in the conditions for forest industry aims to expand international entrepreneurship. The national policy measures for business in the wood products sector and to improving the business environment and increase cooperation with sector enterprises and modernising the industrial base broadly address the advocacy groups. A strategy paper on the main challenges. There are several policy initiatives internationalisation of companies and export for promoting innovative high-growth enterprises. promotion 2011-2015 was published in 2011, Regarding improvement of conditions for which concludes that the current support system is entrepreneurship, a speedy implementation of the fragmented and would benefit from streamlining in recently updated Small Business Act would be

132 http://www.tem.fi/files/29592/YKE-

linjaus_2011-2015.pdf.

important. Measures to improving attitudes towards measures would be important to reach the climate entrepreneurship and risk-taking and promoting change targets, but also to help address commodity SMEs access to public procurement, including price shocks. The mid-term review of the National implementation of the ‘European Code of Best Climate and Energy Strategy foreseen by the end of Practices’, is in this context of particular 2011 is an opportunity to assess, whether the importance. financing available for energy efficiency is

appropriate. The proposed actions in the National Finland has showed commitment to a holistic Renewable Energy Action Plan may however be development of its R&I system and is one of the insufficient for reaching the national target of 38 % EU innovation leaders. Nevertheless, there is scope of renewable energy sources in final energy for further streamlining the national innovation consumption by 2020, due to high reliance on support system and developing framework biomass. conditions for a competitive innovation environment, attracting more foreign human capital Existing business structures in the services market, and investments. The current schemes for particularly in the food, wholesale and retail trade, supporting open innovation and user-driven are occasionally highly concentrated. By innovation projects are still at an initial phase. The redesigning the regulatory framework and Strategic Centres for Science, Technology and removing restrictions, new entry to the service Innovation are innovative initiatives aiming at markets could be facilitated paving the way for leveraging Finnish competitiveness. more competition, productivity growth, and

downward pressure on prices. Finnish industry is relatively energy-intensive and implementing energy efficiency related policy

4.26 Sweden

Sweden

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2010)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2010)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009) le

s a b y CO2 intensity in industry and the energy sector -3.9 a rd in s

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w ta d u T o u

s

in Waste generated by enterprises (all NACE sectors; -4.2 a s tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

t

e n Infrastructure expenditures (euro per inhabitant; 2009)

o n

m

ir Satisfaction with quality of infrastructure (rail, road, port and airport)

n v (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11)

s E

e s % of broadband lines with speed above 10 MBps (2011)

u s

in

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M

n d

S Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip u rs Share of high-growth enterprises as % of all enterprises (2007) n e

e p re Early stage financing (% of GDP; 2009)

tr

E n Rejected loan applications, and loan offers whose conditions were deemed

unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – Sweden (2009)

Refined petroleum products Paper products; publishing and printing

Chemicals, chemical products

Wood and wood products

Textiles and textile products

Rubber and plastic products

Food products

Machinery and equipment n.e.c. Manufacturing n.e.c.

Transport equipment Other non-metallic mineral products

Basic metals and fabricated metal products Electrical and optical equipment

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.26.1 Introduction industries. By contrast, its position on quality indicators for labour-intensive industries is below Trade and industry specialisation the EU average (interestingly, just like the other Scandinavian countries). Its share of high-growth

The contribution of manufacturing to total value firms is above the EU average. Overall, within the added is marginally higher in Sweden than in the group of higher income countries specialised in EU on average (15.5 % against 14.9 %). At the knowledge-intensive industries, Sweden is more detailed manufacturing industry level, Sweden similar to countries featuring specialisation in features value added and exports specialisation in knowledge-intensive manufacturing such as capital-intensive industries (pulp and paper, first Germany, Austria and Finland, rather than in processing of iron and steel), as well as in knowledge-intensive services.

mainstream manufacturing (isolated wire and cable, general and special purpose machinery) in exports and in technology-driven industries (manufacture of

TV and radio transmitters and receivers) in value Most prominent sectors in Sweden

added. At the more aggregated sector level, Sweden

is specialised in highly innovation-intensive sectors Highest relative value added (2007) Pulp, paper and paper

(communication equipment, machinery, medical, Radio, television and communication equipment

precision, and optical instruments, R&D, software) Wood and products of wood and cork

and medium-high to medium education sectors Change in the relative value added (1999/2007) Increasing specialisation

(pulp and paper). In exports, Sweden features Renting of machinery and equipment

specialisation also in high education sectors, due to Real estate activities Wood and products of wood and cork

high relative shares in royalties and license fees, Decreasing specialisation

computer and information services and research and Air transport Motor vehicles, trailers and semi-trailers

development. Water transport

Given its industrial structure, Sweden’s R&D intensity is well above the average, as is its position on the quality ladder for technology-driven Structural change

In terms of change, Sweden has increased its Sweden being highly integrated into global relative share in labour-intensive industries (bodies markets. for motor vehicles, sawmilling) while it has decreased its relative share of technology-driven Sweden remains one of the top performers in the industries (motor vehicles, aircraft and spacecraft, world in terms of R&D spending. Total R&D radio and TV transmitters and receivers); in expenditure (BERD and public R&D spending exports, Sweden has gained relative shares in combined) is predicted to have reached 3.8 % of marketing-driven industries (prepared animal feeds, GDP in 2010, well above the EU average and not processing and preserving of fish, footwear). far from the target Sweden has set itself for 2020 of Furthermore, Sweden has increased its relative around 4.0 %. The commercialisation of research share of high education sectors and its relative results on the other hand remains a problem. In export share of high innovation sectors (computers, comparison with other countries around the world R&D, computer and information services). As a with very high R&D spending, Swedish researchers consequence Sweden has improved its R&D appear less able to turn their results into innovative intensity given its industrial structure, but has and growth-enhancing products, processes and reduced somewhat its position on the quality ladder, services (an observation known as ‘the Swedish as demonstrated in Figures 2 to 5. paradox’), so there appears to be room for

improvement in the commercialisation of research The crisis seems to have had a limited impact on results.

Sweden’s industrial structure. Swedish industrial production fell by almost 25 % during the crisis, The share of science and technology graduates bottoming out in May 2009 (seasonal variations among 20-to-29-year-olds in Sweden stayed taken into account). The recovery since then has virtually unchanged from 2007 to 2009 (the latest been strong but is still 9 % lower (April 2011) than year for which data are available) but meanwhile at its previous peak. the EU average share has increased considerably

and Sweden is now slightly below average, whereas Sweden is among the few Member States which in last year's assessment it was above average. The have experienced a depreciation of the real effective sectors of the economy in which Sweden exchange rate during the last decade (-9%, specialises require high-intermediate skills; the risk compared to an appreciation of 21% in the EU27), of skill shortages therefore needs to be taken indicating a gain in cost and price competitiveness. seriously. In this regard, the introduction of higher Nominal unit labour costs have increased by 16% vocational education through the establishment in between 2000 and 2010, compared to an increase of 2009 of the Swedish National Agency for Higher 14% in the EU27 and 20% in the Euro area. Vocational Education was timely and relevant. The Sweden's labour productivity per hour worked is introduction of ‘Teknikcolleges’ and their about 15 percentage points above the EU27 average certification by social partners represent another and 2 percentage points above the Euro area step in the right direction. average.

A recent addition to the innovation landscape in Overall, while Sweden enjoys a favourable position Sweden is the creation of innovation offices at with respect to competitiveness, its pattern of Swedish universities and equivalent institutions. A change in specialisation and sectoral upgrading is total of eight innovation offices have been set up mixed, improving in some areas while others with the aims of helping commercialise research deteriorate. results and innovations, stimulating

entrepreneurship at universities, and assisting in the 4.26.2 Towards an innovative industry creation of spin-off companies. Eleven institutions

have access to the services of the innovation offices The Innovation Union Scoreboard 2010 ranked and are legally bound to assist institutions without Sweden as one of four innovation leaders in the EU, access in their commercialisation and its innovation performance being among the highest entrepreneurship efforts. The creation of innovation of all compared countries. The Swedish national offices is a positive development which may help innovation system shows clear strengths in several address the commercialisation deficit of the areas, including a stable macroeconomic Swedish R&D and innovation system. It would environment, a well-educated workforce, a number however seem appropriate to evaluate, by 2012 and of R&D-intensive multinational corporations, on a regular basis thereafter, the activities of the appropriate infrastructures, ambitious public innovation offices in order to draw lessons from the investments in activities related to R&D and first years of operation and allow improvements to innovation, high levels of venture capital be made.

availability and state-of-the-art scientific performance. These strengths are reinforced by Another new initiative is the publicly-owned risk capital company ‘Inlandsinnovation’ which is environmental technologies and green taxes. expected to start investing in 2011. Its purpose is to make risk capital available to innovators in the The Swedish environmental technology sector interior of central and northern Sweden in order to employs around 42.000 persons and in 2009 had a stimulate growth, strengthen competitiveness and turnover of SEK 119 billion, 39 billion of which create jobs in the region. As in the case of the exported goods. According to a 2008 study the innovation offices, a timely and regular evaluation sector is highly diverse and made up of of its activities should be foreseen so as to ensure heterogeneous companies active in a wide range of its efficiency and avoid potential distortions such as industries, from knowledge-intensive and R&D- crowding out existing risk capital in the region. intensive services to traditional manufacturing

companies. Sweden's carbon dioxide tax and other The Swedish Governmental Agency for Innovation policy instruments with a similarly general scope Systems (VINNOVA) manages the ‘Research and drive sustainable development forward while at the grow’ research and innovation programme same time being important for the development of addressing SMEs and promotes eight Institute environmental technologies.

Excellence Centres creating the right conditions for research, development and innovation activity The government prioritises such development and within areas of great importance for the future in its most recent Budget Bill proposed to allocate competitiveness and growth of the Swedish more funds for environmental technology, economy: wood-based materials and products; renewable energy and energy research. controlled delivery and release of chemical

substances; advanced sensors, multi-sensors and The climate targets Sweden has set itself are to sensor networks; optical fibres; process integration reduce greenhouse gas emissions by 40 % by 2020 in steelmaking; casting technology; integrated (from their 1990 levels) for activities not covered components in imaging systems; networked by the EU emissions trading system; a 50 % share systems. of renewable energy in total energy use by 2020; at

least 10 % renewable energy in the transport sector Notwithstanding the strong Swedish R&D and by 2020 with a view to a vehicle fleet free of fossil innovation performance, a number of challenges fuels by 2030; a reduction in energy intensity by remain, primarily in converting large investments in 20 % from 2008 to 2020. The government believes R&D into growth-enhancing productive these targets, which are more ambitious than what innovations (‘the Swedish paradox’). This Sweden is committed to do at the EU level, are challenge could be addressed by facilitating within reach if the right policies are implemented entrepreneurial activity. and necessary resources made available. The

government has identified the measures for Another challenge facing Sweden will be to take a research, development and demonstration of more coherent and coordinated approach to the technology referred to above as important tools for funding of innovation. There appears to be no reaching the climate targets. In its June 2011 shortage of funds and instruments set up for that assessment of Sweden’s national reform purpose, but in some cases objectives overlap, programme 2011, the Commission considered the while in other cases there are gaps. The credibility of the foreseen reduction path difficult to

forthcoming national innovation strategy could assess due to a lack of detail in the programme. 133

introduce a more coordinated approach to the multitude of instruments and funds so as to A national strategy for greener public procurement optimise their combined efficiency and close any has been implemented, consisting of training of and gaps in the system. support to procurement officers, stricter guidelines

for government agencies and authorities, and 4.26.3 Towards a sustainable industry ensuring that local and regional decision makers are

fully involved and support the objectives. In comparison with most other industrial nations,

Sweden has low emissions, per capita as well as in Swedish enterprises continue to generate more relation to GDP, largely due to its high proportion waste per capita than enterprises in many other of hydroelectric and nuclear power production, as Member States, largely due to iron ore slag from its well as the increasing use of biofuels. mining industry. The amount of waste generated by

Swedish enterprises has however diminished Sweden places great emphasis on the transition to considerably, from 12.4 kg in 2006 to 8.9 kg per an “eco-efficient economy”, not only nationally but inhabitant in 2008. Even so, the latter figure is in the EU and worldwide. Nationally it implements almost twice the EU average. a comprehensive policy mix focused on sustainable

206

4.26.4 The business environment operate profitable passenger train services; reforming the rent control system; new licensing

Sweden continues to score better than the EU processes in the energy sector; more competition in average on all indicator categories for business animal healthcare; and giving the Competition environment, with the exception of the level of state Authority the right to take legal action. Another aid which is still above the EU average. third of the proposals are in the process of being

implemented, whereas no action has so far been The Swedish government undertook in 2006 to taken concerning the remaining third of proposals. reduce administrative burdens for businesses by

25 % by 2010. However, the latest available 4.26.5 Entrepreneurship and SME policy information points to a reduction of just over 7 %.

In addition, new legislation has meanwhile entered Swedish SMEs are even more dominated by into force (in particular in the financial area) so that microenterprises than in the EU overall – almost the actual administrative burden has remained 95 % of all Swedish SMEs are microenterprises. As relatively unchanged for many enterprises. The a consequence, small and medium-sized SMEs are government has recognised the need to continue slightly underrepresented in Sweden in comparison efforts to reduce the administrative burden for with other Member States: only 4.4 % of all enterprises and has set a new target date, 2012, for Swedish SMEs are small and less than one percent the 25 % reduction. The new Regulatory Council, medium-sized. Another aspect of the skewed size mandated with ensuring the quality of impact distribution of Swedish SMEs is that the average assessments and promoting administrative burden Swedish SME has just under three employees reduction in regulatory design, became operational whereas the average EU SME employs 4.2 persons. in 2009 and has recently had its mandate extended until 2014. Most Swedish SMEs are active in the service

sector. At 56 %, the service sector proportion is Two new websites, www.verksamt.se and higher than the average EU share of SMEs in the www.enklareregler.se, were launched in 2010. The service sector. Service sector SMEs only account former provides a one-stop shop for information for for 40 % of Swedish SME employment and 45 % of companies, the latter a forum where entrepreneurs SME value added though, suggesting that most can express their views on laws, regulations and Swedish service sector SMEs are smaller than other procedures and subsequently see how their views Swedish SMEs. are followed up.

Turning to entrepreneurship, an interesting recent eGovernment use by enterprises in 2010 was above development is the new role given to a number of the EU average. In January 2008, the Government holding companies attached to universities in order adopted an eGovernment Action Plan focused on to manage their purely commercial activities. With back-office integration and infrastructure a view to increasing the commercial activities of development. Sweden has a non-mandatory universities and strengthening their entrepreneurial national eProcurement platform. edge, a new law has been introduced giving more

capital and greater coordinating powers to six such In November 2009 the government presented a holding companies, combined with increased national broadband strategy. The objective is to responsibilities for the commercial activities of achieve at least 90 % coverage of all households universities with no such companies. and businesses having access to at least 100 Mbps broadband by 2020. Sweden has also introduced a freedom-of-choice

reform in the provision of social services and Sweden has stepped up its pace of reform in primary health care, in some places replacing increasing competition to address concerns previously existing public procurement contracts or expressed by the Commission as well as in other publicly-run services. The purposes of the reform fora. In 2008 the government instructed the are to empower service users to determine which Swedish Competition Authority to undertake a service provider to use, increase quality and broad review of the competitive situation and efficiency in the provision of services, promote a propose how to improve the situation. In 2009 the greater variety of providers and stimulate Competition Authority delivered its report, entrepreneurship in these sectors. including an assessment of the state of play and 59 proposals for the government to consider. The overall birth rate of new firms is lower in

Sweden than in other Member States and so is the The government and the parliament have since overall exit rate, meaning that business churn is low acted on around a third of the proposals, notably the and possibly indicating a lack of dynamism. While phasing-out of the exclusive rights of SJ AB to the survival rate of new businesses is higher than the EU average, relatively fewer SMEs grow to sized enterprises). There is therefore a risk that the become large companies in Sweden than in other concerns of the 95 % of SMEs which are in fact Member States. The proportion of high-growth microenterprises (up to nine employees) are not companies is also lower than the EU average. fully taken into account. The rigour of the cost and

benefit analysis contained in Swedish SME tests As the Swedish economy is coming out of the could also be strengthened. crisis, the previously existing credit rationing has been lifted and companies are increasingly having 4.26.6 Conclusion sufficient access to risk capital.

Sweden remains one of the most competitive Sweden has undertaken to implement the ten economies in the world and is identified as an principles of the Small Business Act as well as a innovation leader in the EU. Though it faces no series of actions to improve the business major challenges to competitiveness, Sweden environment of SMEs. While Sweden's should consider its long-term skills needs, performance across the ten Small Business Act especially in science, technology, engineering and principles is generally above the EU average, the mathematics (STEM) and what measures can be development since 2005 is characterised by a high taken to avoid shortages, bearing in mind negative degree of stagnation, or even deterioration in demographic developments and prevailing gender comparison with other Member States. Unlike some imbalances among STEM graduates. Secondly, other Member States, Sweden has not yet adopted a despite having high total R&D spending by plan for the national implementation of the Small international standards, Sweden has a less Business Act. Nevertheless, in 2011 the impressive record in the commercialisation of government tasked the Swedish Agency for Growth research results and innovations. It may need to Policy Analysis with evaluating the implementation consider how to align R&D and innovation closer of the Small Business Act in Sweden. to the needs of markets and of society at large.

Sweden could also take further measures to Although SME tests – an important element of the improve competition, reduce the administrative Think Small First principle of the Small Business burden to reach the national target, and establish a Act – are systematically carried out in Sweden, more coherent framework for research and current SME consultations do not include a size innovation funding. class breakdown (into micro, small and medium

4.27 United Kingdom

United Kingdom

Distance from the EU average (measured in standard deviations)

-3 -2 -1 0 1 2 3

y

tr Labour productivity per hour worked (EU27=100; 2009)

u s n d e i Labour productivity per person employed (EU27=100; 2010) ti v p e

ti

Labour productivity per person employed in manufacturing (1000 PPS; 2009)

o m n d

c

a Share of science and technology graduates (% of 20-29 years old population; 2009) e rn o d R&D performed by businesses (% of GDP; 2009)

m

s a

Share of innovating enterprises as % of all enterprises (2008)

a rd T o

w

Share of high-tech exports in total exports (2009)

Energy intensity in industry and the energy sector -3.9

(kg oil eq. / euro GVA; reference year 2000; 2009)

s a b

le

y CO2 intensity in industry and the energy sector -3.9 a rd in

tr (kg CO2 / euro GVA; reference year 2000; 2009)

w d u

s

T o u

s ta Waste generated by enterprises (all NACE sectors;

-4.2

a s

in tonnes per capita; 2008)

Exports of environmental goods as % of all exports of goods (2010)

State aid for industry and services as % of GDP (2009)

Electricity prices for medium size enterprises (euro per kWh; 2010)

e n

t

m Infrastructure expenditures (euro per inhabitant; 2009)

o n

Satisfaction with quality of infrastructure (rail, road, port and airport)

n v

ir

E (1=underdeveloped / 7=extensive and efficicient by int'l standards; 2010-11) e s

s

in % of broadband lines with speed above 10 MBps (2011)

u s

B Legal and regulatory framework (0= neg. / 10=pos.; 2011)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2010-11)

E-government usage by enterprises (%; 2010)

Time required to start a business (days; 2010)

s

E Enterprise survival rate after two years (2008)

M S

n d Business churn (enterprise entries and exits as % of existing stock; 2008)

a

h ip

rs Share of high-growth enterprises as % of all enterprises (2007) N.A.

n e

u

re

e p Early stage financing (% of GDP; 2009) E n

tr Rejected loan applications, and loan offers whose conditions were deemed unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2011)

ote : In the graph, data are presented in such a way that data bars pointing to the right (left) always indicate performance which is better (weaker) than the EU average.

Sectoral specialisation of manufacturing – United Kingdom (2005)

Paper products; publishing and printing Wood and wood products

Refined petroleum products Textiles and textile products

Chemicals, chemical products Food products

Rubber and plastic products Leather and leather products

Manufacturing n.e.c. Other non-metallic mineral products

Basic metals and fabricated metal products Transport equipment

Machinery and equipment n.e.c. Electrical and optical equipment

ote : n.e.c. (not elsewhere classified)

Source: Eurostat

4.27.1 Introduction where it is on par with the EU average. Overall, within its group of higher income countries Trade and industry specialisation specialised in knowledge-intensive industries, the UK is more similar to France, Belgium and the

Manufacturing contributes 13 % to UK's total value Netherlands with its specialisation in knowledgeadded against 14.9 % for the EU on average. At the intensive services.

detailed manufacturing industry level, United

Kingdom is specialised in technology driven industries (aircraft and spacecraft, computers, radio

and TV receivers, instruments for measuring, Most prominent sectors in United Kingdom

pharmaceuticals) both in value added and exports

terms. It is also specialised in marketing-driven Highest relative value added (2007) Research and developm ent

industries (grain mill products, publishing and Computer and related activities

printing) in value added. At the more aggregated Air transport

sector level, the UK is specialised in educationally Change in the relative value added (1999/2007) Increasing specialisation

highly intensive industries (financial services, Real estate activities

research and development, software) and in sectors Research and developm ent Tobacco products

with medium innovation intensity (air transport, Decreasing specialisation

business services). The UK achieves a high share of Office, accounting and computing machinery Other transport equipment

exports to the BRIC countries, indicating further Radio, television and communication equipment export growth potential.

The UK’s R&D intensity is below the EU average, given its industrial structure, but showing Structural change particularly high sectoral R&D intensity in pharmaceuticals and transport equipment (aircraft). In terms of structural change, the United Kingdom Its position on the quality ladder is mostly above has further increased its industry specialisation in the EU average, with the exception of the low high education sectors (R&D, business services), quality segment in technology-driven industries, but decreased its export specialisation (computers and telecommunications equipment), as well as its government has indicated that support to science relative share in labour-intensive industries and research will be a top priority. The (wooden containers, leather clothes) and in highly Comprehensive Spending Review (CSR) innovation intensive sectors (communication announced that current spending on the core equipment). It has increased relative value added in government science R&D budget will be fixed in marketing driven industries (processing of fish) and cash terms at GBP 4.6 billion per year for the next revealed comparative advantage in capital-intensive four years (2011-2015). Nevertheless science industries (nuclear fuel, coke oven products). The investment spending will be reduced by some 40 %. UK has increased its export share in the high price Moreover, some departmental R&D spending has segments of labour-intensive and technology-driven been reduced sharply e.g. on defence and it is likely industries, pointing to a favourable movement on that this will also seriously affect private sector the quality ladder. However, it has slightly R&D spending. decreased its R&D intensity, when taking into account its industrial structure. The R&D tax credit is the biggest single funding

mechanism provided by Government to support Manufacturing output fell by 15 % during the business investment in R&D. The latest R&D tax course of the crisis and has partially recovered since credit data shows that the schemes supported then, reaching in May 2011 a level 6.1 % lower almost GBP 11 billion of R&D investment in 2008- than at its previous cyclical peak. In the UK, the 09 by UK companies. An estimated crisis has clearly favoured technology-driven and GBP 980 million of support was provided to around labour-intensive industries, at the expense of the 8 350 companies undertaking qualifying R&D other industry types. activity that year. The Government published a

consultation on the schemes in November 2010, The UK is among the few Member States which and announced a number of changes to the scheme have experienced a depreciation of the real effective at Budget 2011, including increasing the SME rate exchange rate during the last decade (-13%, from 175% to 200% in 2011 and to 225% in 2012. compared to an appreciation of 21% in the EU27), In June 2011, the Government launched a further indicating a gain in cost and price competitiveness. consultation to improve the working of the scheme. Nominal unit labour costs have increased by 33% between 2000 and 2010, compared to an increase of In the Plan for Growth published in March 2011, 14% in the EU27 and 20% in the Euro area. The the UK announced measures on investment UK's labour productivity per hour worked is about incentives, support for SMEs and for the promotion 7 percentage points above the EU27 average but of skills. Other new areas of policy development about 7 percentage points below the Euro area include: average.

The announcement of a series of reductions in the Overall, the UK enjoys a favourable position with main rate of corporation tax from 28 % to 23 % by respect to competitiveness, but its pattern of financial year 2014-15 to improve incentives for structural change sends mixed signals, with some firms to invest. areas improving while others are deteriorating.

Pre-commercial public procurement through a 4.27.2 Towards an innovative industry competitive Small Business Research Initiative

(with budget GBP 20-30 million per year), where The UK's strong innovation performance is SMEs will compete for funds to undertake confirmed by its fifth rank in the Innovation Union innovation projects with high relevance for the Scoreboard, which places the UK with an above EU public sector. average performance at the top of the group of innovation followers. The British research and A review of rules and formats to facilitate access to innovation system is characterised government data (e.g. mapping data, crime

statistics) to allow the development of new business by strong performance over a range of research and opportunities. innovation indicators, such as high quality publications, high quality patents for which it In technology policy, the UK has published the obtains high licence and patent revenues from "Blueprint for Technologies" document in abroad or the high share of the population working November 2010. The Technology Strategy Board in knowledge intensive activities. On the other (TSB) will become the Government’s main channel hand, the system underperforms in terms of public to support business-led technology innovation and and private R&D investment as a share of GDP. will be provided with additional funding of over

GBP 200 million to establish a network of high Amidst significant overall expenditure cuts, the UK quality Technology and Innovation Centres. The

TSB's strategy for national business innovation GBP 3 billion of initial funding 135 . It would be the

2011-2015 was published in May 2011. The focus first such institution in the world with the mission is particularly on stimulating a range of new and to exclusively fund green projects. The Electricity emerging technologies, including high value Market Reform sets out key measures to attract manufacturing, advanced materials, investment, reduce the impact on consumer bills, nanotechnology, bioscience, electronics, photonics and create a secure mix of electricity sources. Key and electrical systems, and ICT. elements of the reform package include a carbon

floor price, a long-term Feed-in-Tariff, a Capacity The abolition of the Regional Development Mechanism, and the use of an Emissions Agencies will result in a centralisation of Performance Standard. innovation funding and some strengthening of the role of the Technology Strategy Board. In addition, To promote energy efficiency improvements the the Coalition government is putting special government is preparing the roll-out of the "Green emphasis on improving access to private sector Deal", a finance mechanism, which allows financing for highly innovative SMEs through e.g. consumers to pay back the cost of energy efficiency the bank-led Business Growth Fund and other improvements through their energy bills. It is national equity funds. designed to enable private firms to offer consumers

energy efficiency improvements to their homes, The overall research and innovation (R&I) intensity community spaces and businesses at no upfront in the UK has been relatively stagnant for some cost, and recoup payments through a charge in time and is below the EU average. This is partly instalments on the energy bill. The programme explained by the nature of the highly serviceshould be monitored on regular basis and the

intensive economic structure of the UK, but there is funding realigned if necessary 136 . The Government

nevertheless a case to increase R&D to move also uses a range of policy levers, such as the towards a more sustainable and knowledgeclimate change levy, carbon reduction commitment, intensive economy in order to preserve future and climate change agreements to incentivise growth and competitiveness. In the context of the energy efficient behaviour amongst UK businesses. current weakness in some parts of the labour market, a major opportunity is to create jobs in Under Directive 2009/28/EC i on the promotion of more R&I- and knowledge-intensive sectors. the use of energy from renewable sources, the UK

has committed to reach a target of 15 % of 4.27.3 Towards a sustainable industry renewable energy sources in final energy

consumption and a 10 % share of renewable energy The UK scores above the EU average on all in the transport sector by 2020. In 2010 the UK sustainable industry related indicators, except on submitted its National Renewable Energy Action exports of environmental goods. Plan, which outlines the current and future

measures to be used to follow the trajectory for

The UK is committed to promoting a low carbon developing renewable energy sources established in economy and has published a Low Carbon the Directive and sets sectoral targets. A step to Industrial Strategy in July 2009, which deploys a implement this plan and complete the transposition comprehensive range of policies to support the of the Directive would be to clarify the support transition to a low carbon future. A low carbon regime to be applied in both the heating and the review was also included in the Government’s Plan electricity sectors which, together with the for Growth published in March 2011, which set out Electricity Market Reform, should ensure the the key actions required to put the whole economy creation of a stable regulatory environment that on a low carbon, resource-efficient path. The UK promotes the development of new markets in green

will introduce a package of measures during 2011 goods and services 137 .

for the energy intensive setor, whose international

competitiveness is most affected by UK energy and The Government has also published a draft Carbon climate change policies. Plan, which is a cross-Government action plan on

climate change setting strict actions and deadlines In the 2011 budget the government has

strengthened its commitment to the low carbon 135 http://climatechange.cbi.org.uk/news/the-budget-and-the-loweconomy with the announcement to establish a carbon-economy

Green Investment Bank 134 in 2012 with 136 Commission Staff Working Paper 2011, Assessment of the 2011

national reform programme and convergence programme for the

UK.

137 Commission Staff Working Paper 2011, Assessment of the 2011

134 http://www.bis.gov.uk/policies/business-sectors/low-carbonnational reform programme and convergence programme for the

business-opportunities/gib UK.

over the coming 5 years 138 . The draft plan takes The ex ante impact assessment policy has been

account of the existing first three UK carbon updated. An SME Test has been integrated into the budgets covering the period from 2008 to 2022 and national decision making process whereby all new the final version will also take into account the regulatory and policy proposals require in their fourth carbon budget (for 2023-2027), which was impact assessment and explanatory memorandum set into law in June 2011. consideration of exemptions or simplified

enforcement for small businesses. A guidance document on the Small Firms Impact Test and a handbook for officials on regulating for small

4.27.4 The business environment businesses have also been published. In addition,

the introduction of a forward-looking planning tool

On business environment indicators, the UK scores has been announced to allow companies to predict above the EU average on all except on E- more clearly the effect of upcoming regulation. government usage by enterprises, and electricity Public consultation of stakeholders on new prices for medium-sized enterprises. The UK scores regulations is embedded in the Code of Practice on clearly better than the EU average concerning state Consultation. It is estimated that in 2009 only 14 % aid. of Impact Assessments in the UK included

quantified effects on SMEs. Nevertheless, the

The Government introduced a ‘one-in, one-out’ rule quality of Impact Assessments has been improving.

in the Coalition better regulation document

published on 20 May 2010. The rule requires that Despite significant improvement over the period no new domestic regulation is brought in without 2005-2009, take-up by businesses of eGovernment other regulation being cut by a greater amount. In services is still below the EU average. The UK has 2010 the Government announced the intention to implemented a decentralised eProcurement policy, reduce the costs of administrative burden by a whereby contracting authorities are free to decide further GBP 6.5 billion in 2010-15. This objective on their own procurement strategies. A nonbuilds on the previous five-year Programme on mandatory national portal “Buying solutions” is Administrative Burden Reduction ending in 2010, permitted to procure on behalf of all UK

which delivered more than GBP 3.5 billion of net contracting authorities 140 . It includes an electronic

annual savings, representing a reduction of over marketplace containing details of Public Sector 26.5 % in administrative burden placed on business supplier contracts, a Purchase to Pay solution and a by government. A periodically updated Forward pan-Public Sector data warehouse e Procurement. Regulatory Programme is implemented to improve The UK has started to implement the European regulatory outcomes with impact on UK businesses. Code of Best Practices to facilitate SMEs access to

In March 2010, the Government published an public procurement 141 , for example:

update of its first Forward Programme issued in

October 2009 139 . The Spring 2010 Forward Recent initiatives include the launch of the

Programme covers 12 months starting from April ‘Contracts Finder’ in early 2011, an online facility 2010 and includes large announced measures that for public sector contract opportunities over are expected to be implemented after April 2011, £10,000 (including a feed from the OJEU Tenders where average annual costs or benefits are greater Electronic Daily). than GBP 50 million. In addition, in the Plan for

Growth published in March 2011, the Government The UK Government has also announced a announced a moratorium on new domestic Government eMarketplace, whereby Government regulation for micro-businesses and start-ups for the Departments can raise requests for low value next 3 years. The Government also announced its projects enabling easier registration for SMEs. intention to scrap proposals for specific regulations, which would have cost business over £350m a year. The BusinessLink network operating since 2007 is The Government is also launching a public the government’s website for businesses of all thematic review to reduce the stock of regulation, sizes. By 2011 all business-related content from and the first results have led the Government to 95 % of government websites has been moved onto propose scrapping or simplifying more than 160 the BusinessLink website resulting in a single regulations from the retail sector.

138 140 “Digitizing public services in Europe: Putting ambition into

http://www.decc.gov.uk/en/content/cms/tackling/carbon_plan/car action”, 9th Benchmark Measurement, December 2010. Report

bon_plan.aspx prepared for European Commission.

139 http://www.bis.gov.uk/assets/biscore/better-regulation/docs/10- 141 http://ec.europa.eu/enterprise/policies/sme/small-businessp96a-governments-forward-regulatory-programme

act/files/sba_review_en.pdf

online government resource for businesses 142 The after taking private sector contributions

BusinessLink is primarily becoming an online into account. service and is the portal for accessing the UK's point of single contact under the Services Directive. - The Government also announced

continued support for the Enterprise Finance Guarantee (EFG) Scheme to enable over GBP 2 billion of new lending

4.27.5 Entrepreneurship and SME policy to viable SMEs, over the next 4 years.

The UK scores above the EU average in all the

entrepreneurship and SMEs related indicators, for - To help build up SME demand for equity which data is available. However SMEs access to finance and growth capital, the finance remains a significant issue for the UK. The Government announced that it will roll out economic crisis has had long lasting effects on a network of Business Coaching for access to finance for SMEs, particularly for small Growth services across England from firms. The UK banking sector was badly hit by the January 2012.

financial crisis and many banks still remain with

substantial public shareholding and/or benefit from The Plan for Growth in March 2011 also includes the UK government's asset protection scheme. action to facilitate access to finance for new and Despite recent policy efforts, the Bank of England growing businesses, including through tax recently noted that credit conditions for small measures

146

.

companies generally remain tight, both in terms of

cost and availability and that lending to SMEs As regards the internationalisation of SMEs, the continued to contract in the second half of 2010 143 . Export Credits Guarantee Department (ECGD) has The UK has recently put in place a number of implemented three new products, which share risks measures to improve SME access to finance with banks in providing financial services to including state sponsored investment vehicles and exporters: a bond support product, an export reaching an agreement with UK banks requiring working capital product and a foreign exchange them to increase their gross lending to SMEs, for credit support product. ECGD has also extended the

example: 144 . scope of its Export Insurance Policy (EXIP) to cover products other than just capital goods. It is

• - 

  The highest profile measure was project not possible to predict levels of demand for the Merlin, a deal negotiated between the UK products at the outset, but the Government will government and HSBC, RBS, Lloyds and review the new ECGD products in the light of

Barclays (plus Santander for the lending experience at the end of the year 147 . The

targets). Government is also launching the Export Enterprise Finance Guarantee (ExEFG) and promoting its use

• - 

  The Government published the Financing to SMEs. The scheme is aimed at viable SME

Business Growth green paper 145 in exporters with an annual turnover of up to

November 2010. It includes a range of GBP 25 million and which require export finance. measures to support access to finance for Under the ExEFG the Government will guarantee SMEs including an extension of the lenders to facilitate the provision of short-term Enterprise Capital Funds (ECFs) export finance lines of up to GBP 1 million to programme by GBP 200 million over the exporting SMEs. The ExEFG is being launched on

next four years, providing more than a pilot basis based on a GBP 40 million facility. GBP 300 million of investment into the equity gap for early stage innovative The Government is also introducing a package of SMEs with the highest growth potential, measures to support exporters through UK Trade and Investment (UKTI), the UK’s trade and export

142 promotion agency. UKTI will deliver a new range https://online.businesslink.gov.uk/Horizontal_Services_files/busin of support to help SMEs with an ambition to break ess_link_annual_review_0910.pdf into overseas markets. This will include promotion

143 Commission Staff Working Paper 2011 - Assessment of the 2011 of ”Passport to Export , which helps SMEs new to national reform programme and convergence programme for the exporting to build their trade capacity. Around UK 1 250 companies a year benefit from the Passport to

144 Commission Staff Working Paper 2011, Assessment of the 2011 Export programme and companies on the national reform programme and convergence programme for the programme will receive up to GBP 1 000 match UK, and UK NRP 2011. funding to carry out activities in their action plans.

145 Green Paper: Financing Business Growth:

http://www.bis.gov.uk/assets/biscore/corporate/docs/f/10-1242- 146 UK NRP 2011.

214

The Government will use the Foreign and

Commonwealth Office and UKTI to provide UK There is a commitment towards building a businesses with local intelligence on high value comprehensive policy approach to the transition to projects overseas and intensive support to win these agreen and growing economy, which requires

deals. substantial investment in key green sectors. The Green Investment Bank has potential to become a

Regarding entrepreneurship promotion, the Local key component in the transition to a green Enterprise Growth Initiative (LEGI) was economy, complementing other green policies to implemented until March 2011 and a total of allocate additional capital.

EUR 482 million was allocated to the programme

up to 2010/2011 helping the most deprived local The UK has an excellent record with respect to areas, through enterprise and investment. In better regulation and the business environment and December 2010, an independent evaluation of the has continued to give priority to making further LEGI programme 148 concluded that LEGI has had a progress. However, eGovernment and positive impact on enterprise activity, especially eProcurement still leave room for improvement start-ups, however its impact on worklessness has relative to other EU Member States. been less evident. The UK has recently put in place a number of

Moreover, to promote entrepreneurship as a viable measures to improve SME access to finance. It route off benefits, the Jobcentre Plus scheme is would be important to implement measures already delivering the New Enterprise Allowance (NEA), announced and continue to work to improve the

which will be available to individuals who have availability of bank and non-bank financing to the private sector and in particular to SMEs, while

been claiming Job Seekers Allowance (JSA) for recognising potential challenges on the demand six months or more. Following piloting in six local side. It would also be important to encourage authorities, the scheme will be available nationally competition within the banking sector and explore from autumn 2011. GBP 80 million will be made with the market ways to improve access to nonavailable for up to 40 000 JSA claimants to take up financing such as venture and risk capital and debt

NEA by the end of 2012-13. 149 issued on public markets.

The women’s enterprise ambassadors’ network involves more than 1 000 ambassadors. Moreover, an Enterprise Network works to improve the quality and quantity of entrepreneurship education in schools and colleges in England and has a sustainable network of 54 Enterprise Learning

Partnerships (ELPs). The National Council for

Graduate Entrepreneurship (NCGE) has developed its University Enterprise Networks which bring together universities, private sector businesses, and the regional agencies in projects to promote entrepreneurship to students and post graduates.

4.27.6 Conclusion

Overall, the UK enjoys a favourable position with respect to competitiveness, but its pattern of structural change sends mixed signals, with some areas improving while others are deteriorating. The

UK faces a number of challenges, in particular, its economic performance depends to a higher than average degree on the financial services industries, whilst the manufacturing base is comparatively small.

148

http://www.communities.gov.uk/publicatio ns/regeneration/lgipfinalreport

149 UK NRP 2011.

5 A NNEX : M ETHODOLOGY AND INDICATORS USED

The report uses a number of indicators and industry classifications in order to make a systematic and consistent presentation of specialisation patterns (section 2 on Structural Change and introduction of country chapters) and of developments in Member States regarding various other aspects relevant to industrial competitiveness (section 3 and indicators graph opening the country chapters). Below are the methodological details on the classifications and the indicators as well as the datasets underlying the graphs of the report.

5.1 Industry classifications and indicators used in section 2 and introductions of country chapters

5.1.1 Detail of industrial classifications

5.1.1.1 Manufacturing 3-digit classifications

Factor-input classification

The classification groups individual industries according to their typical combinations of factor inputs, in order to reveal information about differences across industries with regard to the dominant modes of creating competitive advantage in specific marketplaces. In particular, the typology is directed towards distinction between (i) exogenously given competitive advantages based on factor endowments and (ii) endogenously created advantages based on strategic investment in intangible assets such as marketing and innovation. The new

classification is based on Eurostat’s revised NACE classification at the 3-digit level 150 .

Data and the choice of variables

The clustering process is based on the following four variables, which are designed to span four orthogonal dimensions of how to spend available units of productive inputs:

• wages and salaries

• physical capital

• advertising

• research and development

Ratios to total value added have been calculated for wages and physical capital. Expenditures on advertising and R&D are represented by their ratios to total sales. The latter are derived directly from balance sheet data. All four variables have been used in their standardised form, i.e. transformed by calculating the difference to the mean divided by the standard deviation of the variables. Data sources are DEBA (labour and capital inputs) and COMPUSTAT (advertising and R&D). Since all four dimensions of input data were available only for the US, the clustering process is exclusively based on US data. Correlations between the four variables are low or non-existent.

216

Statistical clustering

Cluster analysis classifies individual observations, depending on their relative similarity or nearness to an array of different variables. The basic idea is one of dividing a specific data profile into segments by creating maximum homogeneity within and maximum distance between groups. For the current analysis one hundred NACE 3-digit manufacturing industries are taken as observations, while the four factor inputs given above determined the discriminating variables.

A two step procedure was applied. In the first step, a non-hierarchical optimisation cluster technique, based on the iterative minimisation of within group dispersion, was used to provide a more aggregate picture of typical input combinations, which resulted in 32 clusters.

In a second step, the 32 clusters from the first partition were taken as individual observations on which a hierarchical clustering algorithm was applied. In the following iterative process, clusters are formed according to the average linkage between groups, which aggregates the distances of all single pairs between an observation outside and each observation inside the cluster.

The final solution of the hierarchical clustering algorithm groups all observations into four categories, each one related to particularly high values in one of the four dimensions. After applying several variations on both (i) the measures for distance/similarity and (ii) the clustering algorithm itself no successful alternative partition to this solution emerged. Finally, a number of industries which had no particularly pronounced reliance on any of the input variables were placed in a residual category called ‘mainstream’ manufacturing. This more or less represents the input combination of a ‘typical’ 3-digit manufacturing industry.

The typology

Finally, precisely 100 NACE 3-digit manufacturing industries have been completely categorised under the following five mutually exclusive groupings of mainstream manufacturing, particularly labour-, capital-, advertising- and research intensive industries. Like any broad classification, this typology must be interpreted with care, since industries within these five categories are still heterogeneous and exhibit combinations of some or all these variables. A full list of industries is in T ABLE A.

A full list of industries is in T ABLE A. The classification of trade data can be done along the lines of the value added classification, there are only minor differences – overall, 6 value added industries are missing in the trade classification, while 2 industries are present in the trade but not in the value added classification.

T ABLE A: Industries used for 3-digit manufacturing industries

Nace Factor inputs Labour skills

151 Meat products 4 1 152 Fish and fish products 4 1 153 Fruits and vegetables 4 1 154 Vegetable and animal oils and fats 4 1 155 Dairy products; ice cream 4 1 156 Grain mill products and starches 4 1 157 Prepared animal feeds 4 1 158 Other food products 4 1 159 Beverages 4 1 160 Tobacco products 4 1 171 Textile fibres 3 1 172 Textile weaving 2 1 173 Finishing of textiles 1) 1 1 174 Made-up textile articles 2 1 175 Other textiles 1 1 176 Knitted and crocheted fabrics 1 1 177 Knitted and crocheted articles 1 1 181 Leather clothes 2 1 182 Other wearing apparel and accessories 2 1 183 Dressing and dyeing of fur; articles of fur 2 1 191 Tanning and dressing of leather 4 1 192 Luggage, handbags, saddlery and harness 4 1 193 Footwear 4 1 201 Sawmilling, planing and impregnation of wood 2 2 202 Panels and boards of wood 2 2 203 Builders' carpentry and joinery 2 2 204 Wooden containers 2 2 205 Other products of wood; articles of cork, etc. 2 2 211 Pulp, paper and paperboard 3 3 212 Articles of paper and paperboard 1 3 221 Publishing 4 3 222 Printing 4 3 223 Reproduction of recorded media 1) 4 3 231 Coke oven products 2) 3 3 232 Refined petroleum and nuclear fuel 2) 3 3 233 Nuclear fuel 2) 3 3 241 Basic chemicals 3 3 242 Pesticides, other agro-chemical products 5 3 243 Paints, coatings, printing ink 1 3 244 Pharmaceuticals 5 4 245 Detergents, cleaning and polishing, perfumes 4 3 246 Other chemical products 5 3 247 Man-made fibres 3 3 251 Rubber products 1 1 252 Plastic products 1 1 261 Glass and glass products 1 1 262 Ceramic goods 2 1 263 Ceramic tiles and flags 3 1 264 Bricks, tiles and construction products 2 1 265 Cement, lime and plaster 3 1 266 Articles of concret, plaster and cement 1 1 267 Cutting, shaping, finishing of stone 2 1 268 Other non-metallic mineral products 1 1 271 Basic iron and steel, ferro-alloys (ECSC) 3 1 272 Tubes 1 1 273 Other first processing of iron and steel 3 1 274 Basic precious and non-ferrous metals 3 1

218

Nace Factor inputs Labour skills

281 Structural metal products 2 2 282 Tanks, reservoirs, central heating radiators and boilers 4 2 283 Steam generators 2 2 284 Forging, pressing, stamping and roll forming of metal 1) 2 2 285 Treatment and coating of metals 1) 2 2 286 Cutlery, tools and general hardware 4 2 287 Other fabricated metal products 1 2 291 Machinery for production, use of mech. power 1 4 292 Other general purpose machinery 1 4 293 Agricultural and forestry machinery 1 4 294 Machine-tools 2 4 295 Other special purpose machinery 1 4 296 Weapons and ammunition 1 4 297 Domestic appliances n. e. c. 1 3 300 Office machinery and computers 5 4 311 Electric motors, generators and transformers 1 3 312 Electricity distribution and control apparatus 5 3 313 Isolated wire and cable 1 3 314 Accumulators, primary cells and primary batteries 1 3 315 Lighting equipment and electric lamps 1 3 316 Electrical equipment n. e. c. 2 3 321 Electronic valves and tubes, other electronic comp. 5 3 322 TV, and radio transmitters, apparatus for line telephony 5 3 323 TV, radio and recording apparatus 5 3 331 Medical equipment 5 3 332 Instruments for measuring, checking, testing, navigating 5 3 333 Industrial process control equipment 1) 5 3 334 Optical instruments and photographic equipment 5 3 335 Watches and clocks 4 3 341 Motor vehicles 5 2 342 Bodies for motor vehicles, trailers 2 2 343 Parts and accessories for motor vehicles 3 2 351 Ships and boats 2 2 352 Railway locomotives and rolling stock 2 2 353 Aircraft and spacecraft 5 4 354 Motorcycles and bicycles 1 2 355 Other transport equipment n. e. c. 1 2 361 Furniture 2 2 362 Jewellery and related articles 2 2 363 Musical instruments 4 2 364 Sports goods 4 2 365 Games and toys 4 2 366 Miscellaneous manufacturing n. e. c. 4 2

1..Mainstream 1..Low skill industries

2..Labour intensive 2..Medium skill/blue industries collar workers

3..Capital intensive 3..Medium skill/white

industries collar workers

4..Marketing driven 4..High skill industries industries

5..Technology driven industries

• 1) 

  Only value added. 2) Value added: only Nace 23 (2-digit) available.

5.1.1.2 Manufacturing and services 2-digit classifications

Education intensity

This taxonomy classifies forty-nine manufacturing and service industries according to their

educational workforce composition 151 . It derives from statistical cluster techniques applied to

data for the US, Germany, France, the UK and Austria. For that purpose, an industry’s workforce was segregated by the individual’s highest level of educational attainment, for which the shares in total employment, wages or hours worked were calculated. In summary, the taxonomy separates the five following mutually exclusive classes of industries:

• Low educational intensity: agriculture, food, textiles and clothing, wood and products

of wood, mineral products, basic metals and metal products, construction, sale &

repair of motor vehicles, or hotels and catering.

• Medium-low educational intensity: rubber and plastics, manufacturing of jewellery,

games and toys, furniture etc., recycling, retail trade, inland and water transport.

• Intermediate educational intensity: mining, pulp and paper (products), printing and

publishing, mechanical engineering and apparatus, electrical machinery, motor vehicles and other transport vehicles, electricity, gas and water supply, wholesale trade, communications, real estate, renting of machinery, public administration and

other services.

• Medium-high educational intensity: oil refining, chemicals, radio, TV and

communication equipment, medical, precision and optical instruments, transport

equipment, air transport.

• High educational intensity: computer and related activities, financial intermediation,

software, research and development, other business services, and education.

A full list of sectors is in T ABLE B below.

151 For the theoretical underpinnings of the taxonomy see Kegels et al., (2008, p. 20) and for the detailed

methodology see Peneder (2007).

T ABLE B: Sectors used for the 2-digit manufacturing and services education taxonomy (EDU)

ED U

Peneder EUKLEMS OEC D Eurostat 2007 S TAN SBS

7-scale 5-scale

code d esc 5-scale TOT T OT AL IND USTR IES

AtB AGRICULTUR E, HUNT ING, F ORESTRY AND F ISH ING 7 5 A AGRICULTUR E, HUNT ING AND FORESTR Y

1 Agriculture 2 Forestry

B FISH ING

C MININ G AND QUARRYING 4 3 3 10t12 MINING AND QUARRYING OF ENERGY PRODU CING MATER IAL S

10 Mining of coal and lignite; extraction o f peat 11 Extraction of cr ude petroleum and natur al gas and services

12 Mining of uranium and thorium o res 13t14 MINING AND QUARRYING E XCEPT E NERGY PRODUCING MATERIALS

13 Mining of metal ores 14 Other mining and quarrying

D T OT AL MANUFACTU RING 15t16 FOOD , BEVERAGES AND T OBAC CO 6 5 5

15 Food and beverages 5 16 Tobacco 5

17t19 TEXT ILES, TEXT ILE , LEAT HER AND FOOTWEAR 7 5 17t18 Textiles and apparel

17 Textiles 7 5 5 18 Wear ing Apparel, Dr essing And Dying Of Fur 7 5 5

19 Leather, leather and footwear 7 5 5 20 WOOD AN D PR ODUCTS OF WOOD AND CORK 7 5 5 5

21t22 PUL P, PAPER, PAPER , PR INTING AN D PU BLISHING 4 3 21 Pulp, pap er and pa per 4 3 3

22 Printing, publishing and reproduction 4 3 3 221 Publishing

22x Printing and reproduction 23t25 CH EMICAL, RUBBER, PLASTIC S AND F UEL

23 Coke, refined petroleum and nuclear fuel 3 2 2 2 24 Chem ica ls and chemical 3 2 2 2

244 Pharm aceuticals 24x Chem ica ls e xcluding pha rmaceuticals

25 Rubbe r and plastics 5 4 4 4 26 OTHER NON-METALL IC MIN ERAL 6 5 5 5

27t28 BASIC METALS AN D FABRICA TED MET AL 6 5 27 Basic metals 6 5 5

28 Fabricated metal 6 5 5 29 MACHINERY, NEC 4 3 3 3

30t33 ELECTRIC AL AND OP TIC AL EQUI PMENT 2 30 Office, accounting and computing machin ery 2 1 1

31t32 Electrical engineering 31 Electrical machiner y and apparatus, nec 4 3 3

313 Insulated wire 31x Other electrical machinery and apparatus nec

32 Radio, television a nd communication equipment 3 2 2 321 Electron ic valves and tu bes

322 Telecommunication equipment 323 Radio and television receivers

33 Medical, precision and optical instruments 3 2 2 331t3 Scientific instruments

334t5 Other instrume nts 34t35 TRANSPORT EQUIPMENT 3

34 Motor vehicles, trailers and semi-trailers 4 3 3

35 Other transport equipmen t 3 2 2 351 Building and repairing of ships and boats

353 Aircraft and spacecraft 35x Railroad equipment and transport equipment nec

36t37 MANUF AC TU RING N EC; R ECYCLING 5 4 4 36 Manufacturing nec 4

37 Recycling 4 E ELECTRIC ITY, GAS AND WATER SUPPLY 4 3

40 ELECTRIC ITY AND GAS 4 3 3 40x Electricity supply

402 Gas supply 41 WA TER SUPPL Y 4 3 3

F CONSTRU CT ION 6 5 5 5 G WH OLESALE AND RETAIL TRADE

50 Sale, maintenance and repair of motor vehicles and mo torcycles; retail sale of fuel 6 5 5 5 51 Wholesale trade and commission trade , except of motor vehicles and motorcycles 4 3 3 3

52 Retail trade, except of motor veh icles a nd motorcycles; repair of house hold goods 5 4 4 4 H HOTELS AND R ESTAURANTS 7 5 5 5

5-scale: 1. High – 2. Med-high – 3. Med – 4. Med-low – 5. Low.

7-scale: 1. Very high - 2. High - 3. Med-high - 4. Intermediate - 5. Med-low - 6. Low - 7. Very low.

T ABLE C: List of service sectors and their respective identification within the two taxonomies innovation and education intensity for trade in services data

Taxonomy EBOP S ector name Classification Innovation 262 Computer and information services High 266 Royalties and license fees High 279 Research and development High 245 Communication services M ed-high 260 Financial services M ed 210+2181 Air transport (including space transport) M ed 273-279 Other business services (273-279) M ed 253 Insurance services M ed-low 206 Sea transport, freight Low 214-2181 Other transport (without space transport) Low

Education 262 Computer and information services High 266 Royalties and license fees High 279 Research and development High 260 Financial services High 273-279 Other business services High 210+2181 Air transport (including space transport) M ed-high 253 Insurance services M ed-high 287 Personal, cultural and recreational services M ed-high 291 Government services, n.i.e. M ed-high 245 Communication services M ed 272 Operational leasing services M ed 206 Sea transport, freight M ed-low 214-2181 Other transport (without space transport) M ed-low 249 Construction services Low 236 Travel Low

5.1.2 Calculation of indicators

5.1.2.1 Domestic Economy Indicators

Value added shares (VA)

This indicator 152 measures the share of value added of an industry or a sector in total value

added of a country.

For this indicator, two databases are used, OECD STAN and EU KLEMS. OECD STAN has no EU aggregate. Aggregates of value added are built by converting sectoral nominal value added of the countries into power purchasing parity-based value added with aggregate OECD PPPs for each year of the series, then summing up over the 21 EU countries available.

As regards missing values in the databases at sectoral level, the main issue is that in some countries, not the full sectoral detail is available as in other countries and as necessary for applying our sectoral classifications. These gaps are filled by attributing the amount of the larger aggregate available to individual sectors according to the shares of the individual sectors in the same aggregate of the EU average.

Groups are weighted by value added shares.

Data for VA, summary

Country coverage EU 25 (EU KLEMS; EU 27 excl. Romania and Bulgaria); USA, Japan, South Korea

EU 21 (OECD STAN; EU 27 excl. Bulgaria, Cyprus, Malta, Latvia, Lithuania and Romania), Switzerland

Time coverage 1999-2007

Sector coverage See annex on industrial classification, manufacturing and services sectors (NACE 2-digit level)

Relative valued added (RVA)

This indicator measures the share of value added of an industry or a sector in total value added of a country, relative to the share of the same industry or sector in total value added of the EU.

Values above 1 indicate “industry specialisation”, i.e. a higher share of sector i in value added of country j than in the EU, values below 1 indicate a lower share. For the summary tables in the country annex, the logarithm is taken as for RCA to facilitate comparison between trade and industry specialisation.

The main database used for the RVA is Eurostat SBS, which includes all the EU Member States with the exception of Malta. To provide international comparison, the US was included using data from the Census Bureau (Annual Survey of Manufactures). Mapping of the North American Industry Classification System to the EU NACE grouping was not possible at the detailed industry level. For this reason the larger aggregate was split into individual industries according to the shares of the individual industries in the same aggregate of the EU average. Groups are weighted by value added shares.

152 The formulas used and more methodological details can be found in the study "Structural change and

the competitiveness of EU Member States", WIFO, forthcoming.

Data for RVA, summary

Country coverage EU 26 (EU 27 excluding Malta) (Eurostat SBS); USA (Census Bureau, Annual Survey of Manufactures)

Time coverage 1999-2007; 2008 only for the USA

Sector coverage See annex on industrial and sector classification, manufacturing and services sectors

(NACE 2-digit level) as well as manufacturing industries (NACE 3-digit level).

5.1.2.2 Foreign trade indicators

Cost Competitiveness Index

Cost competitiveness is measured as the inverse ratio of annual unit labour costs in aggregate EU27 (labour compensation per unit of output) to annual unit labour costs in 36 main trading partner countries of EU 27.

Unit labour costs are calculated with a common currency using the average annual exchange rate of the EURO against the currencies of the trading partners as measured by the nominal effective exchange rate (NEER).

A nominal effective exchange rate is the exchange rate of a currency (here the Euro) vis-à-vis

other currencies (here those of the 36 partners 153 ) weighted by their share in the country’s

international trade.

If ULC EU and ULC are respectively, the unit labour cost values for a given year for the W

EU27 and for the set of trading partners, then the cost competitiveness index is defined as:

 − 1

I =

 ULC

EU * EER 

 ULC  W 

Revealed comparative advantage

The revealed comparative advantage (RCA) indicator measures export specialisation by comparing a sector's share in total exports for a given country with that for the EU27 as a whole. The indicator can also be interpreted as a "normalised" export market share of the given country for a selected sector, as it compares the market share in total EU27 exports gained in a specific sector with the average export market share that the country reached in total exports, the sum over all sectors.

For the final indicator the logarithm of this relation is taken, therefore values above 1 signal that relative to the EU27 average, the country specialises in exports in the selected sector. The change in RCA is defined as the absolute difference of the value of the RCA indicator in time 0 and time t. The indicator is calculated for three partner regions, total exports, extra EU27 exports as well as intra-EU exports. RCA figures are considered separately for exports

153 The list of the 36 trading partners can be found on the Europa website at:

http://ec.europa.eu/economy_finance/db_indicators/competitiveness/data_section_en.htm in manufacturing goods and exports in services. The data source for the former is the Eurostat Comext database, results are presented on 2- and 3-digit NACE 2003 level as well as for the factor input taxonomy, the time period covers 1999 to 2010. The data source for the analysis of RCA indicators in service exports is the Balance of Payment (BOP) database from Eurostat. Trade in services data are much more limited referring to the disaggregation level as well as the time horizon. Results can therefore be presented just for 11 service sectors, and for the time period 2004 to 2009. Additionally the RCA indicator is computed for two new taxonomies (innovation and education type) which combine trade in goods and trade in services. However, as these two new taxonomies, rely on detailed sector information for trade in services, availability is even more restricted, therefore the results are not available for all 27 EU member states and/or all years between 2004 and 2009.

Export shares in total manufacturing as percent

This indicator refers to the share of exports by one selected sector in relation to total country exports. The indicator is again calculated for total exports, extra-EU27 exports as well as intra-EU exports; for trade in manufacturing goods (both on 2- and 3 digit NACE 2003 level as well as for the factor input taxonomy) and trade in 11 services sectors and additionally for the two new taxonomies (innovation and education type). The data source and time coverage is the same as above for the calculation of RCA indicators.

Price segments

The aim of the analysis of price segments is to identify whether individual countries focus more on high, medium or low price segments within given industries and whether this relation has changed over time. Changes in the strategies to move into the highest price segments within industries are signalling an "intra-industry" upgrading. The price segments for manufacturing exports are defined at the 6-digit NACE 2003 level for three selected time points (1999, 2007, 2009). Manufacturing exports data are taken from the Eurostat Comext database. All 27 individual EU member states are covered, for each member state all reported bilateral exports values and quantities are used. Whenever both information on export values as well as quantities were available and above a certain threshold (EUR 10 000 for values and 2 tons for quantities) export unit values are calculated as the ratio of values to quantities and

expressed in kg/€. Afterwards for each 6-digit NACE level the 33.3 and 66.7 percentile 154 of

the distribution of all bilateral export unit values of all 27 individual EU member states are defined as cutting points for the three price segments (high, medium or low). The boundaries are identical for all countries at the 6-digit level, but different for the three selected time periods (1999, 2007, 2009). These boundaries are then used to classify each bilateral export value at the d 6-digit level into one of the three price segments, for example trade values with a unit values below the 33.3 percentile threshold form therefore the low price segment category. In the end, exports values are summed up to different aggregation levels (the two taxonomies factor input and revealed quality elasticity type as well as for total country exports) for each price segment category. The resulting aggregated export values for the low, medium and high price segment are than expressed as the respective share in total exports of the analysed country. For Malta and Luxemburg a smaller set of unit values was available, therefore the result for these countries should be interpreted with caution.

World export market share

225

The figures exclude intra-EU trade values. The indicator measures for each analysed sector/taxonomy the market share of exports of the examined country/country group relative to a proxy for total worldwide exports in this sector/taxonomy. The proxy for "world export" differs for trade in goods and services. For services exports the aggregate of the following regions and countries are taken as proxy for "world export", besides all individual EU27,

EFTA, NAFTA and BRIC countries, Croatia, other OECD 155 156 as well as selected Asian ), and African 157 158 ) and Central and South American ) countries. This definition comprises

approximately 64.5 % of total world exports in services in 2004 and 65.6 % in 2009. Data source for export of services is Eurostat Balance of Payments statistics, the time period 2004 to 2009 and 11 service sectors are covered. The applied proxy for worldwide manufactured goods exports comprises approximately 90 % of total world goods exports in 1999 and 80 % in 2009. Data for goods exports are taken from the UNO Comtrade database, the years 1999 to 2009 are covered in the analysis, the indicator is calculated for trade in manufacturing goods on the 2 and 3-digit NACE 2003 level as well as for the factor input taxonomy.

5.2 Indicators used in section 3 and the introductory graph of country chapters

5.2.1 R&D decomposition

Comparison of structural and country effects of R&D intensities across countries 159

Direct comparisons of R&D expenditures relative to GDP are flawed as especially the business R&D expenditures (BERD) are heavily influenced by the industrial structure of each country. Smith and Sandven (1998) have proposed a decomposition that identifies country and sector effects in BERD, thus making it possible to compare R&D intensities in the business sector across countries. Additional manipulations permit to take into account the effect of structural change on R&D intensities.

The aim of this analysis is to present a comprehensive picture of the influence of structural change on the development of R&D intensities in the business sector in the EU 27 countries and important non-EU countries. In order to carry out this comparison data from different sources have been consolidated into one data set.

Data for R&D decomposition, summary

Data source OECD STAN Eurostat OECD Eurostat Value added Value added ANBERD BERD Country coverage AT BE CZ DE DK BG CY EE HU LT AU CA IL NZ SE BE BG EE GR JP KR (ISO 3166 country ES FI FR GR IE IS IT LV MT RO SK TR LU MT LT LV PL SK codes) LU NL NO PL PT SE CZ CY

SI AU CA IL JP KR MX NZ US

Time coverage in 1998-2005: GR consolidated data set 1998-2006: AU BG* CA ES JP* PT* UK

155 OECD34 without Australia.

156 Indonesia, Hong Kong, Kuwait, Malaysia, Singapore, Thailand.

157 Egypt, Morocco, South Africa and Tunisia.

158 Argentina, Colombia, Costa Rica, Panama and Peru.

159 Details on the decomposition methodology and on data manipulations can be found in the study

"Structural change and the competitiveness of EU Member States", WIFO, forthcoming.

1998-2007: AT BE DK FR KR NL NO SE TR* US 1998-2008: CY CZ EE FI HU IE IS LT LV PL RO SI 1998-2009: IT SK DE 1999-2005: NZ 2000-2006: IL 2002-2008: MT

Sector coverage in Larger aggregates: consolidated data set 01-99, 15-37, 50-74, 75-99, 50-99

(NACE rev. 1.1

Breakdown: 01-05, 10-14, 15-16, 17-19, 20-22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36-37, 40-41, 45, 50-52, 55, 60-64, 65-67, 70+71+74, 72, 73

5.2.2 Definitions of the indicators

Table E: Indicators

Name of Indicator Definition

Towards a modern and competitive industry

Labour productivity per Gross Domestic Product in Purchasing Power Standards

hour worked per hour worked relative to EU-27 (EU-27=100)

Source: Eurostat

Labour productivity per Gross Domestic Product in Purchasing Power Standards

person employed per person employed relative to EU-27 (EU-27=100)

Source: Eurostat

Labour productivity in Gross value added in Purchasing Power Standards per manufacturing per person person employed

employed Source: Eurostat

Unit labour costs in Development (2000=100) of the following ratio: Total manufacturing compensation of employees in manufacturing (in nominal values) divided by total valued added in manufacturing (in

constant prices).

Source: European Commission (AMECO-Database 2000- 2005) and OECD (2005-2009)

Share of science and Number of new science and technology graduates (levels 5 technology graduates and 6 of the “International Standard Classification of Education ISCED 5-6”) divided by 20-29 years old

population.

The term “science” includes the following fields of education (ISCED): life sciences, physical sciences, mathematics, statistics and computing, while technology refers to graduates in engineering, manufacturing and

construction.

The indicator includes new tertiary graduates in a calendar year from both public and private institutions completing graduate and post graduate studies compared to the age group of 20-29 years old population that corresponds to the

typical graduation age in most countries.

Source: Eurostat

R&D performed by The indicator covers all expenditures for R&D performed businesses within the business enterprise sector (BERD) on the

national territory during a given period, regardless of the

source of funds.

The data on this indicator are gathered by Eurostat which applies the guidelines laid out in the Frascati Manual, the "Proposed standard practice for surveys of research and

experimental development" (OECD, 2002).

Note: Gross domestic expenditure on R&D is composed of Business enterprise expenditure on R&D, Higher education expenditure on R&D, Government expenditure on R&D

and Private non-profit expenditure on R&D.

Source: Eurostat

Share of high-tech exports Share (in %) of intra- and extra-EU27 exports of all high technology products in total intra- and extra-EU27 exports.

High technology products cover the following: Aerospace,

Computers-office machines, Electronicstelecommunications,

Pharmacy, Scientific instruments,

Electrical machinery, Chemistry, Non-electrical

machinery, Armament.

Source: Eurostat.

Share of innovating Enterprises which have introduced during an observation companies period of three years new or significantly improved goods,

services and/or processes, marketing or organisational innovation or a combination of those, divided by the total number of active enterprises at the end of the observation

period.

Source: Community innovation surveys (CIS). Enterprises with less than 10 employees do not belong to the total

population covered by CIS.

Trade balance of goods (% Net exports (exports minus imports) of goods divided by of total exports of goods) total exports of goods (all in current prices). The aggregate

EU trade balance includes trade with third countries only.

Source: Eurostat.

Trade balance of services Net exports (exports minus imports) of services divided by (% of total exports of total exports of services (all in current prices). The services) aggregate EU trade balance includes trade with third

countries only.

Source: Eurostat.

Real effective exchange Nominal effective exchange rate deflated by nominal unit rate labour costs (total economy) relative to a panel of 36

countries (EU-27 + 9 other industrial countries: Australia, Canada, United States, Japan, Norway, New Zealand, Mexico, Switzerland, and Turkey). 1999=100 for all countries. A rise in the index suggests deterioration in competitiveness. The figure for each country is calculated against the rest of the countries belonging to the panel. The EU aggregate figure is calculated against the non-EU-27

countries belonging to the panel.

Source: European Commission (DG ECFI )

Revealed Comparative The RCA gives the share of a given sector in Advantage (RCA) manufacturing exports for a given Member State relative to

the share of the sector in manufacturing exports of 21 EU Member States; due to the lack of data Bulgaria, Cyprus, Latvia, Lithuania, Malta and Romania are not covered

here.

Towards a sustainable industry

Energy intensity in Energy consumption in kg of oil equivalent per euro of industry (including gross value-added (chain-linked volumes, reference year construction) and the 2000, at 2000 exchange rates).

energy sector Source: Eurostat (“environment and energy” and “national accounts”)

Energy consumption refers to: B_101800 - Final energy consumption in industry (including construction) + B_101600 - Final Non-energy consumption + B_101300 - Consumption in Energy Sector. GVA refers to NACE sections C: Mining and Quarrying, D: Manufacturing, E: Electricity, Gas and Water Supply and F: Construction.

CO2 intensity in industry CO2 emissions in kg per euro of gross value-added (chain(including construction) linked volumes, reference year 2000, at 2000 exchange and the energy sector rates).

Sources:

European Environment Agency for the figures on the CO2 emissions. The relevant categories are 1.A.1. (Energy Industries) + 1.A.2. (Manufacturing Industries and Construction) + 2. (Industrial Processes) + 3. (Solvent and Other Product Use).Eurostat for the figures regarding GVA. GVA refers to NACE sections C: Mining and Quarrying, D: Manufacturing, E: Electricity, Gas and Water Supply and F:

Construction.

Waste generated by The amount of hazardous and non-hazardous waste of all enterprises enterprises (all NACE sectors) divided by the number of

inhabitants.

Source: Eurostat

Exports of environmental Intra- and extra-EU27 exports of goods from "ecogoods industries" divided by total intra- and extra-EU27 exports of

goods (in nominal values).

The notion of "eco-industry" refers to sectors whose products measure, prevent, limit, minimise or correct environmental damage. The trade codes considered to cover eco-industry goods are those identified in the Ecorys study on the “Competitiveness of the EU eco-industry ” (pages

190/191) of 22 October 2009, carried out for DG ENTR.

Source: European Commission (DG E TR) calculations on

the basis of Eurostat/COMEXT data.

Business Environment

Burden of government Average mark given by business executives in a World regulation Economic Forum survey to the question "How burdensome

is it for businesses in your country to comply with governmental administrative requirements (e.g., permits, regulations, reporting)?" (1 = extremely burdensome; 7 =

not burdensome at all)

Source: Global Competitiveness Report 2008-2009 of the

World Economic Forum

Legal and regulatory Average evaluation (0 = negative; 10 = positive) of the framework statement "The legal and regulatory framework encourages

the competitiveness of enterprises" in an IMD survey of

businesspeople.

Source: World Competitiveness Yearbook 2009, IMD

(International Institute for Management Development).

E-government usage by Share of enterprises using the internet to interact with public enterprises authorities (i.e. having used the Internet for one or more of

the following activities: obtaining information, downloading forms, filling-in web-forms, full electronic case handling). Data are expressed in % of enterprises with 10 or more persons employed and belonging to the NACE categories D,

F, G, H, I, K, O.

Source: Eurostat publishing data validated by Cap Gemini

in association with the Member States.

Infrastructure Sum of investment and maintenance expenditures on rail, expenditures per road, inland waterways, maritime ports and airports inhabitant infrastructure.

Source: OECD International Transport Forum Statistics.

Satisfaction with the Average mark given by business executives in a World quality of infrastructure Economic Forum survey to the quality of rail, roads, ports

and airports (1 = underdeveloped; 7 = extensive and

efficient by international standards).

Source: Global Competitiveness Report 2008-2009 of the World Economic Forum.

Availability of high Percentage of broadband lines with speed above 10 MBps speed broadband

infrastructure Source: European Commission, DG I FSO Communications Committee Working Document

Electricity prices for Average national price in Euro per kWh excluding taxes, medium-sized enterprises applicable for the first semester of each year for mediumsized

 industrial consumers (annual consumption between 500 and 2000 MWh). The indicator does not cover small enterprises for reasons of data availability, nor large enterprises, since the latter often have individual contracts with energy providers. Until 2007 the prices refer to the

situation on 1 January.

Source: Eurostat

State aid for industry and The indicator measures state aid for industry and services as services % of GDP. State aid as defined under article 107 TFEU that

has been granted by the Member States and has been the subject of a final Commission decision, or has been granted on the basis of a block exemption regulation. Accordingly, general measures (e.g. a general tax break for expenditure on research and development), and public subsidies that have no effect on trade and do not distort or threaten to distort competition, are not covered, neither is aid compensating for

services of general economic interest.

Source: European Commission, DG COMP State aid scoreboard

Entrepreneurship and SMEs

Starting a business (days) Time needed to start a business, recorded in calendar days. It is the median duration that incorporation lawyers indicate as necessary. It is assumed that the minimum time required for each procedure is one day.

Source: World Bank Doing Business.

Enterprise survival rate Number of enterprises started in year t and which still after 2 years existed in year (t+2), divided by the total number of

enterprises that started in year t

Source: Eurostat

Business churn Sum of the number of enterprise starts and exits (“births” plus “deaths”) in the reference period (year t), divided by the total number of enterprises active in year t.

Source: Business Demography (Eurostat).

Access to loans: rejected Survey response on rejected loan applications and loan applications offers whose terms and conditions were deemed

unacceptable by the enterprise, as % of all applications for

bank loans of SMEs that applied in the past six months

Source: Flash Eurobarometer

Early stage financing The indicator measures early stage financing as % of GDP. Venture capital investment data are broken down into “early stage” (seed and start-up) and “expansion and replacement” capital. Seed capital is defined as financing provided to research, assess and develop an initial concept before a business has reached the start-up phase. Start-up is defined as financing provided for product development and initial marketing, manufacturing and sales.

Source: Eurostat, using data from the European Private

Equity and Venture Capital Association (EVCA).

Duration of payments by Effective payment duration in days.

public authorities Source: European payment Index by Intrum Justitia.

Share of high-growth Enterprises with average annualised growth greater than enterprises 20 % in the number of employees, over a three-year period, and with ten or more employees at the beginning of the observation period, divided by the total number of active

enterprises at the beginning of the three year period.

Source : Eurostat

Sectoral specialisation Gross Value Added (GVA) (ESA95, 8.11) is the net result of manufacturing of output valued at basic prices less intermediate

(GVA based) consumption valued at purchasers' prices. GVA is also available broken down by industries according to NACE

Rev. 1.1 in the breakdowns collection. GVA is calculated

before consumption of fixed capital.

Source: Eurostat ( ational Accounts)

5.2.3 Methodological note on the introductory graph in the country chapters

The graphs present, for each indicator, the distance of the respective Member State from the EU average. This distance is expressed in terms of standard deviations, which is a common measure of the spread of observations in a distribution (in this case, a measure of the variation of Member State performance around the EU average). This enhances the comparability of the presentation of indicators with different measurement units and distributions across Member States.

The data are presented in the country graphs in such a way that a bar pointing to the right always indicates a positive performance. Likewise, a bar pointing to the left always indicates a performance below average. This is straightforward for indicators, e.g. labour productivity, where high values are strived for. However, for those indicators where low values are the objective, e.g. generation of waste, the data bars in the graph have been converted so that a positive deviation from the average (bar pointing to the right) represents a lower generation of waste than the average. These conversions enable an easy reading of the country profiles, since all bars presenting positive values in the country profile suggest a level of performance of the respective Member State which is better than the EU average and all bars presenting negative values suggest a level of performance of the respective Member State which is below EU average.

The indicators for which such conversions have been carried out are: (1) energy intensity in industry in kg of oil equivalent per euro of gross value-added at constant prices; (2) carbon intensity per ton of oil equivalent of energy consumption; (3) waste generated by enterprises; (4) state aid for industry and services as percent of GDP; (5) electricity prices for mediumsized enterprises, (6) time required to start a business; (7) rejected loan applications, and loan offers whose conditions were deemed unacceptable, as percent of all loan applications; (8) duration of payments by public authorities.

The indicators presented in the above table (under 1.2) for which the distance from the EU average would not be meaningful (exchange rates and trade balances) are quoted in the text.

The EU averages used to show the respective standard deviations in the country profiles are the values for the EU as a whole and, hence, weighted averages of Member States performance. For the following nine indicators, however, unweighted arithmetic averages have been used due to missing EU totals: share of science and technology graduates, satisfaction with quality of infrastructure, legal and regulatory framework, time required to start a business, enterprise survival rate, business churn, early stage financing, duration of payments by public authorities, and share of high-growth enterprises as percent of all enterprises.

Data setserages used to show the respective standard deviations in the country profiles are the values for the EU as a whole and, hence, weighted averages of Member States performance. For the following nine indicators, however, unweighted arithmetic averages have been used due to missing EU totals: share of science and technology graduates, satisfaction with quality of infrastructure, legal and regulatory framework, time required to start a business, enterprise survival rate, business churn, early stage financing, duration of payments by public authorities, and share of high-growth enterprises as percent of all enterprises.

5.3 Data sets

5.3.1 Data tables referenced to in section 2 on Structural Change

T ABLE F: Sector specialisation of manufacturing based on Gross Value Added (2005-2009)

EU27 BE BG CZ DK DE EE IE GR ES FR IT CY LV Code Sector 2009 2009 2006 2009 2009 2008 2009 2009 2009 2009 2009 2009 2009 2009

DA Food products; beverages and tobacco 13,0% 14,5% 15,9% 12,2% 17,6% 7,2% 15,5% 17,2% 34,1% 16,9% 14,1% 11,7% 30,0% 23,8%

DB Textiles and textile products 3,4% 3,8% 14,9% 2,7% 1,2% 1,4% 6,9% 0,6% 8,7% 3,2% 2,9% 8,5% 2,5% 5,2%

DC Leather and leather products 0,8% 0,2% 1,3% 0,3% 0,0% 0,2% 0,6% 0,1% 0,7% 1,0% 0,8% 3,0% 0,4% 0,2%

DD Wood and wood products 2,1% 1,6% 2,0% 3,5% 2,1% 1,3% 12,4% 0,8% 1,4% 1,9% 1,7% 2,1% 7,5% 19,0% DE Paper products; publishing and printing 8,2% 7,7% 4,4% 5,5% 7,4% 6,3% 8,3% 12,3% 7,6% 9,2% 8,0% 6,1% 9,8% 9,1%

DF Refined petroleum products 1,5% 4,3% 6,3% 0,2% 1,0% 0,5% 3,5% 0,1% 7,4% 1,8% 1,4% 0,7% 0,1% 0,0%

DG Chemicals, chemical products 10,9% 19,8% 6,4% 4,7% 14,0% 10,6% 5,2% 40,3% 5,8% 11,1% 11,0% 7,6% 6,3% 6,4%

DH Rubber and plastic products 4,5% 3,9% 2,9% 7,1% 4,4% 4,6% 3,0% 1,6% 3,3% 4,4% 4,9% 3,7% 3,8% 2,9%

DI Other non-metallic mineral products 4,4% 6,0% 7,8% 5,6% 3,5% 3,0% 5,6% 1,9% 5,2% 7,0% 4,7% 4,8% 15,1% 4,8%

DJ Basic metals and fabricated metal products 13,9% 15,0% 17,4% 14,3% 9,8% 14,4% 10,6% 2,7% 11,5% 16,2% 15,1% 16,3% 12,4% 9,9%

DK Machinery and equipment n.e.c. 11,8% 6,8% 8,2% 11,7% 14,3% 17,2% 5,1% 2,0% 3,1% 7,5% 10,0% 14,2% 2,9% 2,8%

DL Electrical and optical equipment 11,1% 7,2% 6,1% 12,7% 18,3% 15,1% 13,4% 17,4% 3,0% 5,7% 8,8% 9,8% 2,3% 6,5% DM Transport equipment 10,1% 6,4% 2,3% 15,1% 1,3% 15,3% 3,6% 1,4% 3,6% 9,1% 12,5% 5,8% 1,3% 3,8%

DN Manufacturing n.e.c. 4,2% 2,8% 4,1% 4,4% 4,9% 2,8% 6,5% 1,5% 4,6% 4,9% 4,1% 5,7% 5,8% 5,9%

LT LU HU MT NL AT PL PT RO SI SK FI SE UK

Code Sector 2009 2009 2009 2009 2009 2007 2005 2007 2008 2009 2009 2009 2009 2005

DA Food products; beverages and tobacco 26,3% 10,6% 10,3% 14,0% 23,2% 9,7% 18,2% 13,1% 26,6% 8,4% 9,1% 9,7% 8,8% 15,2%

DB Textiles and textile products 7,9% 4,7% 1,7% 3,9% 1,4% 2,2% 4,4% 12,2% 6,7% 3,5% 3,3% 1,3% 0,9% 2,5% DC Leather and leather products 0,3% 0,0% 0,6% 0,1% 0,2% 0,4% 0,6% 3,5% 1,7% 1,1% 1,1% 0,3% : 0,2%

DD Wood and wood products 7,9% 1,6% 1,3% 0,5% 1,7% 4,7% 3,8% 5,0% 3,9% 3,3% 6,4% 3,7% 4,0% 2,1%

DE Paper products; publishing and printing 6,9% 7,4% 4,8% 10,7% 11,0% 7,4% 7,6% 8,8% 4,7% 7,4% 6,2% 15,7% 12,4% 13,1%

DF Refined petroleum products 0,0% 8,8% 0,0% 2,3% 1,3% 3,8% 2,8% 4,6% 0,0% 1,6% 2,2% 1,5% 1,9%

DG Chemicals, chemical products 11,4% 4,0% 9,5% 13,2% 14,0% 7,5% 7,2% 5,9% 4,1% 15,3% 3,8% 8,5% 14,3% 11,4%

DH Rubber and plastic products 5,3% 11,2% 5,1% 4,5% 3,3% 4,1% 6,2% 4,0% 4,0% 6,8% 5,6% 3,5% 3,0% 5,5%

DI Other non-metallic mineral products 3,6% 8,0% 3,6% 4,3% 3,7% 5,7% 6,3% 8,3% 5,4% 3,9% 5,7% 3,3% 2,6% 4,0%

DJ Basic metals and fabricated metal products 5,0% 36,1% 8,8% 3,6% 11,7% 18,4% 12,1% 10,9% 9,9% 16,7% 19,9% 12,8% 13,2% 10,7% DK Machinery and equipment n.e.c. 3,4% 7,9% 7,7% 1,3% 9,5% 14,4% 7,9% 6,2% 4,8% 11,6% 6,9% 15,2% 12,6% 8,6%

DL Electrical and optical equipment 5,4% 5,8% 22,1% 24,3% 5,8% 11,7% 7,5% 8,4% 6,9% 10,7% 13,8% 18,2% 15,0% 9,6%

DM Transport equipment 5,8% 1,4% 13,6% 7,9% 4,1% 8,0% 9,0% 5,8% 12,3% 6,6% 12,2% 3,3% 8,8% 10,7%

DN Manufacturing n.e.c. 10,9% 1,4% 2,0% 11,6% 8,1% 4,5% 5,4% 5,0% 4,4% 4,6% 4,5% 2,4% 2,8% 4,4%

Source: Eurostat (National Accounts)

T ABLE G: Value added share, 2007

Agriculture Manufacturing Mining&Energy Construction Market Services Other services

Change Change Change Change Change Change Change Change Change Change Change Change 2007- 2010*- 2007- 2010*- 2007- 2010*- 2007- 2010*- 2007- 2010*- 2007- 2010*-

Country 2007 1999 2007 2007 1999 2007 2007 1999 2007 2007 1999 2007 2007 1999 2007 2007 1999 2007

Austria 1.76 -0.36 -0.22 20.44 0.41 -1.26 2.72 -0.28 0.37 6.96 -0.87 -0.06 47.75 2.23 -0.41 20.37 -1.13 1.57 Belgium 1) 0.89 -0.41 -0.21 16.34 -2.92 -2.34 2.21 -0.65 0.11 5.24 0.22 0.15 52.26 3.32 -0.03 23.06 0.45 2.33 Bulgaria 2) 6.33 -9.97 0.96 18.51 1.62 -0.79 6.78 -0.16 -0.78 7.23 2.19 1.20 46.20 6.18 -0.89 14.95 0.15 0.30 Cyprus 1) 2.20 -1.79 0.10 7.48 -2.84 -0.56 2.46 0.30 -0.09 9.10 1.84 -0.81 55.86 1.27 -0.54 22.90 1.22 1.91 Czech Republic 1) 2.46 -1.39 -0.20 26.56 0.00 -3.01 5.47 0.22 1.32 6.42 -0.55 0.94 42.38 1.40 0.08 16.69 0.32 0.87 Denmark 1.18 -1.19 0.07 14.09 -2.45 -1.64 5.89 2.01 -0.55 5.66 0.04 -1.40 46.91 2.76 0.53 26.28 -1.17 2.98 Estonia 3.17 -1.26 0.30 16.73 0.00 0.02 3.97 -0.65 1.96 9.46 3.90 -3.77 50.53 -0.13 -1.49 16.13 -1.85 2.97 Finland 3.01 -0.47 -0.12 24.25 -1.35 -5.44 2.62 0.23 0.92 6.94 0.83 -0.32 41.88 0.88 2.01 21.30 -0.13 2.95 France 1) 2.22 -0.83 -0.47 12.53 -3.64 -1.87 1.79 -0.13 0.02 6.31 1.21 0.17 52.28 3.32 0.75 24.87 0.07 1.39 Germany 0.96 -0.27 -0.09 23.85 1.42 -3.15 2.65 0.22 0.40 4.03 -1.47 0.11 46.74 0.82 0.90 21.76 -0.72 1.84 Greece 3.47 -3.16 -0.21 9.27 -1.92 1.50 3.10 0.29 -0.03 6.56 -0.52 -2.50 54.46 3.42 -0.70 23.15 1.90 1.94 Hungary 3.97 -1.80 -0.48 22.20 -0.36 0.78 2.97 -1.15 0.79 4.61 0.06 -0.66 43.84 3.03 -0.10 22.41 0.23 -0.34 Ireland 1) 1.43 -2.18 -0.45 21.87 -12.51 2.34 2.13 0.71 -0.04 9.73 3.08 -4.12 46.16 8.37 -1.74 18.68 2.54 4.01 Italy 2.08 -0.97 -0.18 19.19 -2.10 -2.41 2.45 -0.24 0.12 6.16 1.19 -0.19 50.29 1.86 0.27 19.84 0.25 2.39 Latvia 1) 3.58 -0.36 -0.29 11.39 -2.64 -1.45 2.85 -1.45 1.23 9.01 2.59 -2.39 54.09 4.77 -0.03 19.07 -2.91 2.92 Lithuania 1) 3.94 -3.33 -0.58 18.61 0.77 -2.23 3.77 -0.94 0.41 10.24 2.66 -3.83 47.14 7.48 1.48 16.28 -6.64 4.75 Luxembourg 0.40 -0.41 -0.10 9.16 -2.33 -2.36 1.49 0.06 -0.22 5.59 -0.51 -0.68 68.39 4.50 2.10 14.97 -1.31 1.26 Malta 2.40 -0.29 -0.50 15.87 -4.28 -2.46 1.97 -0.30 0.94 3.99 0.17 -0.40 48.45 -1.45 -0.08 27.31 6.16 2.51 Netherlands 2.09 -0.59 -0.14 14.16 -1.55 -0.97 5.05 1.69 0.19 5.57 0.01 -0.27 50.06 -0.65 -1.84 23.07 1.08 3.02 Poland 4.35 -0.91 -2.82 19.02 -0.09 0.16 5.61 0.00 -2.52 7.18 -1.03 -0.28 45.78 1.55 1.57 18.06 0.47 3.89 Portugal 2.48 -1.54 1.05 14.69 -3.42 3.89 3.53 0.41 2.60 6.85 -0.51 0.10 48.88 4.08 -3.42 23.56 0.98 -4.23 Romania 2) 6.51 -7.87 0.93 23.61 1.95 -1.18 3.85 -2.43 -0.44 10.30 4.91 1.62 41.10 1.07 -1.10 14.64 2.37 0.17 Slovakia 4.06 -0.69 -0.21 23.84 -0.53 -3.23 6.37 1.04 -1.21 8.19 2.59 0.81 41.66 -1.94 1.70 15.88 -0.47 2.15 Slovenia 2.51 -0.85 -0.10 23.46 -2.27 -2.82 3.26 -0.02 0.33 7.89 0.73 -1.18 44.30 3.59 1.11 18.58 -1.18 2.66 Spain 1) 2.90 -1.62 -0.23 15.08 -3.87 -2.30 2.39 -0.24 0.29 11.96 4.02 -1.10 47.46 1.64 1.14 20.21 0.07 2.20 Sweden 1) 1.72 -0.56 0.06 19.64 -2.15 -4.11 3.27 0.54 0.65 5.33 1.01 -0.10 45.28 0.54 1.41 24.78 0.63 2.09 United Kingdom 0.69 -0.43 0.05 12.36 -6.03 -0.85 4.21 0.24 -0.04 6.45 1.30 -0.30 53.26 2.90 0.98 23.03 2.02 0.16

EU 27 1) 1.83 -0.66 -0.17 17.24 -2.44 -2.31 3.06 0.19 0.10 6.42 0.80 -0.08 49.48 2.05 0.73 21.97 0.08 1.72 USA 1) 1.13 -0.09 -0.09 13.74 -3.00 -1.04 3.20 0.77 0.01 4.99 0.10 -0.94 52.13 1.29 0.05 24.82 0.92 2.00 Korea 1) 2.88 -2.16 -0.28 27.28 0.12 0.46 2.42 -0.41 -0.37 7.43 -0.30 -0.49 39.81 -0.54 -0.36 20.18 3.28 1.05 Japan 2) 1.38 -0.40 0.05 20.57 -0.63 -1.13 2.00 -0.83 -0.18 5.93 -1.41 0.07 46.61 1.61 0.38 23.51 1.66 0.82 Switzerland 2) 1.21 -0.37 0.06 20.13 0.46 0.09 2.15 -0.77 -0.02 5.42 -0.05 0.02 52.12 0.95 -0.26 18.98 -0.22 0.11

Group 1 1.36 -0.53 -0.15 17.21 -2.35 -2.04 3.05 0.26 0.18 5.58 0.20 -0.12 49.81 2.07 0.60 22.98 0.36 1.54 Group 2 2.50 -1.41 -0.12 16.45 -2.83 -1.65 2.54 -0.15 0.33 8.37 1.97 -0.69 49.71 2.07 0.29 20.44 0.35 1.84 Group 3 3.82 -1.10 -1.63 21.49 -0.27 -0.80 5.16 -0.03 -1.06 6.77 -0.38 -0.04 44.45 1.48 1.03 18.31 0.30 2.50 Group 4 5.83 -6.95 0.66 20.91 1.35 -1.17 4.36 -1.67 -0.18 9.56 3.93 0.41 44.09 2.94 -0.73 15.25 0.40 1.02

Group 1: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Cyprus, Greece, Italy, Luxembourg, Portugal, Spain.- Group 3: Czech Republic, Hungary, Malta, Poland, Slovakia, Slovenia. - Group 4: Bulgaria, Estonia, Latvia, Lithuania, Romania. - * 2010 or latest available. - 1) 2009 against 2007. 2) 2008 against 2007. Source: Eurostat, OECD.

T ABLE H: World export market share as percent 2009, and change 2007/2009 and 1999 (2004)/2009 in percentage points

EU27 USA Japan Brasilien Russland Indien China

Change Change Change Change Change Change Change Change Change Change Change Change Change Change 2009 2007 1999 2009 2007 1999 2009 2007 1999 2009 2007 1999 2009 2007 1999 2009 2007 1999 2009 2007 1999

Total industry 22.1 0.4 2.5 12.2 -0.9 -6.6 7.6 -0.8 -4.3 1.5 0.0 0.4 1.1 -0.2 0.3 2.1 0.6 1.1 16.7 1.8 11.2

Mainstream industries 26.0 -0.3 1.8 13.6 -0.2 -5.9 9.4 -1.0 -4.1 1.0 -0.1 0.2 0.6 0.0 0.1 1.3 0.2 0.7 18.7 2.1 12.6

Labour-intensive industries 16.1 -1.7 -2.2 6.6 -0.8 -4.4 5.5 0.1 -2.3 0.7 -0.4 -0.1 0.7 -0.2 0.0 6.3 2.3 2.8 28.2 2.9 16.6

Capital-intensive industries 21.1 1.0 3.2 13.5 0.4 -5.7 8.5 0.5 -1.3 2.0 0.0 0.0 3.3 -0.8 0.3 1.8 0.2 0.9 6.9 -1.3 3.9

Marketing-driven industries 19.2 -1.2 -0.9 11.3 0.3 -3.0 2.0 -0.3 -1.9 4.8 0.3 1.9 0.9 0.2 0.4 2.0 -0.1 0.5 16.2 0.6 6.4

Technology-driven industries 23.7 1.9 5.3 13.1 -2.4 -9.2 8.7 -1.6 -6.8 0.8 -0.1 0.2 0.3 0.0 0.1 1.0 0.5 0.8 17.0 2.9 13.9

High RQE 27.5 1.1 3.0 13.4 -2.5 -7.5 8.7 -1.8 -4.5 1.1 -0.2 0.2 0.3 0.0 0.1 2.7 1.1 1.5 13.9 1.9 8.7

Medium RQE 20.0 -0.4 4.7 10.6 0.1 -7.5 6.3 0.1 -5.0 1.8 0.2 0.9 0.8 0.0 0.3 1.4 0.2 0.7 22.1 2.7 16.6

Low RQE 16.5 0.4 -0.3 12.0 0.4 -4.1 7.3 -0.1 -3.0 1.9 0.0 0.1 2.4 -0.6 0.3 1.8 0.2 0.9 15.7 0.4 9.4

Change Change Change Change Change Change Change Change Change Change Change Change Change Change 2009 2007 2004 2009 2007 2004 2009 2007 2004 2009 2007 2004 2009 2007 2004 2009 2007 2004 2009 2007 2004

Total services 29.3 -1.6 -1.8 22.2 0.6 -0.7 5.7 0.0 -0.9 1.2 0.2 0.4 1.9 0.1 0.4 4.0 0.2 1.4 5.8 0.3 1.5

Transportation 32.2 -0.4 -1.5 13.3 0.5 -0.8 6.8 -1.3 -2.6 0.9 0.8 0.7 2.7 0.4 0.4 2.4 0.6 1.1 5.1 -1.0 1.6

Travel 19.6 -1.9 -1.9 25.0 0.2 -1.1 2.1 0.2 -1.0 1.1 1.0 0.9 1.9 0.0 0.4 2.3 0.1 0.6 8.2 0.5 1.0

Communications services 30.1 -0.4 -1.6 18.8 -0.1 -0.1 1.3 0.1 -0.4 0.7 0.6 0.9 2.6 -0.2 0.8 2.8 -2.4 -1.4 2.4 -0.2 0.7

Construction services 37.5 -2.9 -1.7 10.4 -0.4 -0.4 19.1 0.5 -3.5 0.0 0.0 0.0 5.0 -1.2 -0.2 1.3 -0.1 -0.4 14.5 4.8 9.7

Insurance services 36.0 -2.8 -2.1 25.6 4.5 4.5 1.5 -1.1 -1.6 0.7 1.1 0.3 0.8 0.0 0.1 2.7 -0.3 0.2 2.8 1.0 1.7

Financial services 34.2 -2.9 -4.7 33.4 2.8 3.9 2.9 -0.2 -1.8 0.9 0.5 0.4 0.6 0.0 0.3 2.1 0.4 1.7 0.3 0.1 0.2

Computer and information services 31.4 -1.6 -4.4 10.2 -0.9 -1.7 0.7 -0.2 -1.2 0.2 0.1 0.1 1.0 0.0 0.5 35.5 0.8 6.5 5.0 0.9 2.0

Royalties and license fees 22.0 -2.0 -1.8 56.5 2.0 2.7 13.6 -1.3 -1.2 0.3 0.2 0.1 0.3 0.1 0.1 0.1 0.0 0.1 0.3 0.0 0.0

Other business services 34.1 -1.8 -2.0 15.2 0.8 -3.2 7.2 1.2 1.1 2.4 2.0 1.4 1.9 0.2 0.8 2.3 -1.5 0.0 7.7 0.4 2.2

Personal, cultural, recreational services 23.8 1.3 -7.3 50.3 0.9 15.0 0.6 0.1 0.3 0.3 0.3 0.2 1.3 0.3 0.5 1.8 0.1 1.6 0.4 -0.7 0.2

Government services. n.i.e. 22.7 -1.5 -7.8 45.8 0.0 11.2 5.1 0.7 -2.3 3.1 2.8 2.7 1.0 0.4 0.7 0.8 0.2 -0.1 2.0 0.8 0.9

Source: UNO (Comtrade), Eurostat (Comext, EBOP). – Excluding intra-EU exports, for world definition see technical appendix.

T ABLE I: RVA 2007 and absolute change 2007 against 1999, NACE 3-digit manufacturing

Mainstream Labour Capital Marketing Technology industries intensive industries intensive industries driven industries driven industries

Country 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change

Austria 1.23 0.14 1.13 0.02 1.12 -0.13 0.83 -0.07 0.68 -0.06 Belgium 0.86 -0.03 0.76 -0.04 1.71 0.10 0.94 0.01 0.97 -0.03 Bulgaria 0.95 0.09 1.27 0.05 1.49 0.05 1.16 -0.18 0.32 -0.04

Cyprus 1 ) 0.75 . 1.35 . 0.81 . 1.83 . 0.27 .

Czech Republic 1.16 0.06 1.06 -0.11 1.37 0.08 0.79 -0.14 0.70 0.07

Denmark 1.37 0.11 0.90 -0.08 0.28 -0.01 1.22 -0.16 0.90 0.14

Estonia 1 ) 0.96 . 2.20 . 0.51 . 0.96 . 0.37 .

Finland 0.93 0.07 0.88 0.05 1.34 -0.54 0.64 -0.06 1.32 0.23 France 0.92 0.05 0.92 0.03 0.69 -0.27 1.13 0.07 1.26 0.05 Germany 1.08 -0.04 0.84 -0.11 1.03 0.06 0.70 -0.12 1.33 0.21 Greece 0.69 -0.10 1.18 0.37 1.18 -0.73 1.77 0.31 0.32 -0.06 Hungary 0.95 0.14 0.78 -0.05 1.44 -0.10 0.84 -0.04 1.13 -0.04 Ireland 0.35 -0.03 0.28 0.02 1.87 -0.14 1.39 0.17 1.47 -0.03 Italy 1.18 -0.02 1.45 0.04 0.74 -0.13 0.92 0.02 0.62 0.03

Latvia 1 ) 0.70 . 2.22 . 0.27 . 1.47 . 0.32 . Lithuania 1 ) 0.77 . 1.67 . 1.00 . 1.42 . 0.24 . Luxembourg 1 ) 1.52 . 0.72 . 1.63 . 0.88 . 0.30 .

Malta . . . . . . . . . . Netherlands 0.96 0.04 0.86 -0.02 1.24 0.19 1.38 -0.04 0.63 -0.10 Poland 1.04 0.21 1.15 0.09 1.17 -0.15 1.21 -0.26 0.49 0.03 Portugal 0.85 -0.05 1.40 -0.21 1.29 0.25 1.17 0.06 0.45 -0.01 Romania 0.78 -0.03 1.57 -0.02 1.35 0.02 1.18 -0.04 0.32 0.04 Slovakia 1.19 0.15 0.92 0.03 1.70 -0.16 0.64 -0.28 0.71 0.11 Slovenia 1.17 0.05 1.32 -0.08 0.68 0.07 0.83 -0.19 0.88 0.15 Spain 0.92 -0.01 1.19 -0.03 1.21 0.04 1.22 0.06 0.56 -0.07 Sweden 0.93 -0.01 0.91 0.11 1.18 -0.01 0.67 -0.02 1.38 -0.07 United Kingdom 0.87 -0.02 0.88 -0.04 0.74 -0.01 1.33 0.10 1.12 0.00

EU 25

2

USA ) 0.79 . 0.60 . 1.15 . 1.23 . 1.29 . Korea Japan Switzerland

Group 1 0.98 0.00 0.86 -0.04 0.98 -0.04 0.97 -0.02 1.20 0.09 Group 2 1.06 -0.02 1.35 0.02 0.95 -0.08 1.06 0.05 0.58 -0.01 Group 3 1.07 0.15 1.06 0.01 1.27 -0.08 0.99 -0.19 0.68 0.04 Group 4 0.82 0.00 1.60 0.00 1.26 0.03 1.27 -0.08 0.33 0.02

Group 1: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Cyprus,

Greece, Italy, Luxembourg, Portugal, Spain. - Group 3: Czech Republic, Hungary, Poland, Slovakia, Slovenia. – Group 4: Bulgaria, Estonia,

Latvia, Lithuania, Romania. - 1) 2006. - 2) 2008.

Source: Eurostat (SBS).

T ABLE J: RVA 2007 and absolute change 2007 against 1999, NACE 2-digit manufacturing and services

INNO EDU High Med-high Med Med-low Low High Med-high Med Med-low Low

Country 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change

Austria 1.05 0.10 0.96 -0.03 0.94 0.09 0.92 -0.15 1.09 -0.12 0.72 0.13 0.87 -0.02 1.08 0.14 1.02 -0.20 1.11 -0.15 Belgium 0.70 -0.02 1.37 -0.07 1.01 0.15 1.04 -0.16 1.13 -0.16 1.01 0.18 1.47 0.12 0.96 0.03 0.93 -0.15 0.96 -0.09 Bulgaria 0.63 -0.04 1.21 -0.17 0.55 0.16 1.57 -0.59 1.34 -0.13 0.46 0.22 0.71 -0.52 1.06 0.10 0.93 -0.22 1.38 0.03 Cyprus1) 0.18 0.05 0.58 -0.06 0.63 -0.03 1.03 -0.05 1.09 -0.14 0.50 0.11 0.35 -0.16 0.92 0.11 1.08 0.00 1.56 -0.18 Czech Republic 1.14 0.12 1.38 -0.16 0.86 0.08 1.37 -0.08 1.00 -0.07 0.66 0.15 0.71 -0.15 1.14 0.10 1.10 0.13 1.04 -0.23 Denmark 1.08 0.13 0.67 -0.07 0.86 0.01 0.89 -0.27 1.26 -0.25 0.88 0.10 0.82 -0.02 1.10 0.09 1.14 -0.13 0.91 -0.11 Estonia1) 0.57 0.18 0.74 -0.14 0.93 0.16 1.07 -0.47 1.32 -0.67 0.61 0.17 0.54 0.21 1.03 -0.09 1.04 -0.28 1.30 0.14 Finland 1.89 0.25 0.84 -0.02 0.95 -0.19 0.96 -0.06 0.91 -0.14 0.73 0.10 2.06 0.29 0.93 -0.06 1.01 -0.05 0.99 0.02 France 0.86 -0.07 0.97 -0.17 1.13 0.18 0.92 -0.25 0.96 -0.09 1.18 0.21 1.11 -0.12 0.90 0.01 1.09 -0.05 0.94 -0.10 Germany 1.45 0.32 1.26 0.31 0.94 -0.11 0.94 0.11 0.88 0.21 0.88 -0.17 1.25 0.42 1.20 -0.03 0.90 0.14 0.79 -0.01 Greece 0.35 0.24 0.87 0.25 0.81 0.18 1.25 0.33 1.49 -0.29 0.77 0.10 0.65 0.26 0.94 0.06 1.39 -0.80 1.12 0.20 Hungary 1.23 0.01 1.45 -0.37 0.68 0.18 1.24 -0.50 1.14 0.01 0.67 0.18 1.42 -0.20 1.20 0.09 1.00 0.02 0.83 -0.13 Ireland 1.22 -0.33 1.23 -0.48 0.73 0.12 1.49 -0.22 0.87 0.25 0.89 -0.03 3.09 -0.61 0.79 0.11 0.77 0.08 0.92 0.06 Italy 1.07 -0.02 1.02 -0.09 1.04 0.06 0.87 -0.11 1.07 -0.14 0.85 0.06 0.82 -0.04 0.91 0.04 1.04 -0.10 1.25 -0.03 Latvia1) 0.33 0.06 0.58 -0.14 0.73 0.07 1.15 -0.46 1.53 -0.45 0.50 0.09 0.37 0.14 1.07 -0.08 1.35 0.10 1.21 -0.01 Lithuania1) 0.33 -0.06 0.75 -0.26 0.63 0.15 1.36 -0.76 1.51 -0.01 0.43 0.08 0.68 -0.10 0.94 -0.04 1.53 0.17 1.26 -0.03 Luxembourg1) 0.74 0.09 1.34 -0.07 1.38 0.37 0.47 -0.18 0.81 -0.35 1.56 0.58 0.58 -0.19 0.72 -0.08 1.05 -0.09 1.10 -0.19 Malta 2) 0.73 -0.16 1.88 0.52 0.58 0.00 0.74 -0.43 1.27 -0.12 0.65 0.20 2.04 0.38 0.71 -0.03 1.77 -0.15 1.03 -0.12 Netherlands 0.81 -0.01 0.79 0.05 1.07 0.06 1.00 -0.11 1.32 -0.10 1.15 0.03 1.00 0.07 1.02 0.04 0.95 -0.04 0.89 -0.09 Poland 0.65 -0.04 1.19 -0.06 0.75 0.07 1.56 -0.26 1.18 -0.11 0.49 -0.06 0.77 -0.27 1.14 0.18 1.20 0.20 1.10 -0.21 Portugal 0.51 0.02 0.88 -0.20 0.90 0.03 1.15 -0.03 1.25 -0.03 0.71 0.06 0.72 0.08 0.96 0.05 1.05 0.09 1.29 -0.18 Romania 0.66 0.01 1.22 -0.19 0.64 0.20 1.35 -0.55 1.32 -0.35 0.56 0.33 0.65 -0.23 1.01 -0.01 1.06 -0.18 1.34 0.00 Slovakia 1.12 0.26 1.46 -0.11 0.66 0.18 1.81 -1.09 1.15 0.11 0.59 0.24 0.71 -0.21 1.32 -0.06 1.00 0.28 0.91 -0.09 Slovenia 1.06 0.02 1.22 0.13 0.92 -0.10 0.96 -0.09 1.06 -0.20 0.64 -0.03 1.10 0.05 0.95 0.17 1.12 -0.10 1.22 -0.18 Spain 0.51 -0.03 0.86 -0.12 0.83 0.01 0.91 -0.18 0.99 -0.15 0.74 0.07 0.65 -0.08 0.90 0.03 1.02 -0.14 1.39 0.00 Sweden 1.33 -0.01 0.96 -0.10 0.99 0.00 0.85 -0.06 0.96 -0.05 0.95 0.04 1.22 0.04 1.12 -0.01 0.89 0.03 0.86 -0.01 United Kingdom 0.94 -0.09 0.77 -0.14 1.20 0.07 0.95 -0.06 0.92 -0.12 1.46 0.11 0.88 -0.22 0.89 0.02 0.96 -0.07 0.90 -0.04

EU 25 - - - - - - - - - - - - - - - - - - - - USA - - - - - - - - - - - - - - - - - - - - Korea - - - - - - - - - - - - - - - - - - - - Japan - - - - - - - - - - - - - - - - - - - - Switzerland - - - - - - - - - - - - - - - - - - - -

Group 1 1.17 0.10 1.05 0.04 1.03 0.01 0.96 -0.05 0.95 0.02 1.05 0.01 1.21 0.10 1.04 0.01 0.96 0.02 0.88 -0.04 Group 2 0.82 -0.01 0.96 -0.10 0.96 0.05 0.91 -0.12 1.07 -0.15 0.81 0.07 0.74 -0.03 0.91 0.03 1.05 -0.14 1.29 -0.02 Group 3 0.92 0.03 1.30 -0.13 0.77 0.09 1.44 -0.31 1.12 -0.07 0.58 0.05 0.88 -0.21 1.15 0.13 1.12 0.14 1.04 -0.19 Group 4 0.59 0.01 1.10 -0.19 0.65 0.18 1.37 -0.57 1.36 -0.29 0.52 0.26 0.64 -0.22 1.02 0.00 1.10 -0.14 1.33 0.01

Group 1: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Cyprus, Greece, Italy, Luxembourg, Portugal, Spain. - Group 3: Czech Republic, Hungary,

Malta, Poland, Slovakia, Slovenia. - Group 4: Bulgaria, Estonia, Latvia, Lithuania, Romania. - 1) 2006. - 2) EUKLEMS.

Source: Eurostat (SBS).

T ABLE K: Value added (VA) share, 2007, absolute change 2007 against 1999, NACE 2-digit manufacturing and services

Inno type Edu type

High Med-high Med Med-low Low High Med-high Med Med-low Low

Country 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change 2007 Change

Austria 8.22 0.11 11.89 0.30 19.31 0.99 8.12 -1.80 15.00 0.21 14.87 1.66 6.61 -0.75 38.43 2.05 11.19 -2.37 28.90 -0.60 Belgium 5.32 -0.20 14.58 -1.66 22.86 0.99 8.09 -1.72 18.26 1.47 21.59 1.95 9.08 -0.49 38.64 -0.51 10.45 -0.18 20.25 -0.77 Bulgaria Cyprus 0.50 -0.09 14.06 0.19 15.12 1.26 5.47 -2.67 14.11 -1.06 7.71 1.17 12.46 1.89 33.13 1.42 15.64 -1.08 31.07 -3.40 Czech Republic 10.36 1.28 17.88 1.20 18.37 1.53 10.06 -1.50 18.75 -0.23 13.49 1.44 5.64 -0.09 40.01 0.88 14.54 1.27 26.32 -3.50 Denmark 9.65 1.14 8.82 -1.51 19.84 1.71 9.30 -1.66 18.14 -0.63 18.39 3.15 6.89 -0.51 38.99 -2.65 14.07 0.49 21.66 -0.49 Estonia 5.22 0.93 9.60 -0.78 19.18 1.94 8.15 -2.32 20.42 -3.31 13.67 1.46 4.18 0.05 40.71 -2.62 13.33 -1.87 28.10 2.98 Finland 15.06 1.10 11.23 -0.21 18.58 -1.00 7.45 -0.83 16.14 -0.46 12.84 1.48 12.04 0.26 41.14 -2.15 11.70 -0.69 22.28 1.09 France 8.33 -1.38 9.34 -2.29 21.34 0.48 7.05 -1.04 13.21 0.19 22.30 1.06 7.22 -0.59 38.99 0.49 10.52 -0.65 20.97 -0.30 Germany 12.09 1.37 15.16 1.02 20.97 -0.40 7.33 -1.11 11.63 0.19 18.68 0.19 8.37 0.57 45.28 2.35 9.53 -0.74 18.15 -2.36 Greece 2.08 0.73 10.25 -0.32 12.63 -0.12 6.93 -1.00 15.64 0.17 10.77 0.74 5.27 0.67 32.34 -2.06 16.76 -0.30 34.86 0.96 Hungary 11.04 2.27 17.88 -0.79 17.82 2.80 8.90 -2.75 15.00 -0.18 17.69 4.07 9.37 -0.07 40.42 0.32 13.10 -0.85 19.41 -3.46 Ireland 15.37 -4.89 13.85 -3.79 14.60 4.24 19.60 -0.85 9.46 1.93 20.30 1.77 21.16 -0.90 25.52 0.80 6.20 -1.20 26.82 -0.48 Italy 8.78 0.14 10.72 -1.55 19.21 0.07 6.85 0.02 16.39 -0.64 15.90 0.51 6.29 0.43 39.23 1.49 11.83 -2.32 26.75 -0.12 Latvia 1.35 0.01 20.48 1.55 15.13 1.22 6.97 -6.52 22.69 -2.24 12.64 1.96 9.15 1.76 33.83 -0.88 18.07 -3.09 26.31 0.26 Lithuania 2.09 -0.83 16.23 3.26 11.31 2.63 11.24 -6.82 22.44 1.85 6.70 2.43 7.70 1.05 30.33 -4.88 25.41 2.92 29.87 -1.52 Luxembourg 1.44 0.00 20.33 0.63 37.78 3.24 2.69 -1.16 11.62 -0.37 13.04 3.53 33.68 3.31 24.58 -2.42 10.93 -1.80 17.76 -2.62 Malta 6.60 -0.99 23.58 5.76 12.20 0.44 6.07 -4.16 17.06 -2.39 12.50 4.56 16.24 3.05 27.77 -1.80 19.92 -2.54 23.57 -3.26 Netherlands 6.80 0.12 10.58 0.32 23.07 0.30 10.63 0.21 18.49 0.22 22.58 1.75 9.68 -0.17 37.75 1.47 10.24 -2.11 19.75 -0.94 Poland 1) 5.51 -0.26 13.35 1.82 16.85 1.01 11.65 0.85 17.19 -1.67 13.02 0.66 5.72 0.31 36.03 1.18 18.31 0.54 26.92 -2.69 Portugal 4.22 -0.36 11.80 -1.37 20.24 1.00 10.42 0.90 15.20 -1.08 17.48 2.06 5.27 0.63 34.39 -0.70 10.71 0.78 32.15 -2.76 Romania Slovakia 8.02 2.14 15.37 -1.96 16.54 4.20 13.11 0.10 16.69 -6.10 11.12 2.23 7.17 1.01 37.75 -3.60 15.66 -2.15 28.30 2.51 Slovenia 1) 9.33 0.29 15.55 1.08 22.41 1.65 8.80 -1.64 14.93 -0.14 17.63 3.23 8.06 0.00 34.91 0.55 13.65 -0.02 25.75 -3.75 Spain 4.80 -0.27 11.05 -3.34 17.59 1.09 7.24 -1.27 12.60 -1.18 14.73 1.87 4.99 -0.79 31.97 -1.45 11.15 -2.09 37.15 2.45 Sweden 13.36 1.10 12.32 -1.38 19.80 -1.10 8.48 -0.51 15.64 0.51 19.04 1.28 8.54 -1.30 41.58 -1.78 10.90 0.03 19.95 1.78 United Kingdom 7.64 -1.58 9.85 -2.95 26.38 5.39 8.15 -1.66 12.27 -1.61 27.24 6.91 7.88 -1.33 31.17 -3.98 11.71 -1.47 22.01 -0.13

EU 25 9.08 0.54 12.52 -0.58 20.88 0.85 8.22 -0.54 13.44 -0.52 19.10 1.62 7.98 0.02 38.84 -0.65 11.25 -0.44 22.83 -0.55 USA 4.06 -1.33 26.86 0.60 17.19 -0.24 5.12 -0.71 10.27 -0.02 15.94 1.35 18.19 0.81 35.33 -0.44 12.28 -0.33 18.26 -1.38 Korea 15.20 2.23 20.49 0.20 15.73 1.48 8.41 -0.52 11.06 -0.96 15.16 1.55 19.35 1.40 28.33 -0.40 11.76 -0.32 25.40 -2.23 Japan 1) 11.08 0.58 13.74 0.40 16.01 1.95 8.95 -1.00 16.54 -0.21 15.92 2.55 9.36 -0.10 41.83 0.92 11.92 -1.29 20.98 -2.07 Switzerland 12.13 0.60 11.50 1.88 24.92 -0.78 8.99 -0.94 15.09 0.81 23.40 -0.01 15.36 2.82 31.63 -0.83 10.55 -0.77 19.06 -1.21

Group 1 9.81 -0.36 11.99 -1.10 21.94 1.40 8.40 -1.14 13.17 -0.07 21.49 2.22 8.75 -0.38 38.65 0.02 10.35 -0.97 20.76 -0.89 Group 2 6.48 0.00 10.99 -2.09 18.39 0.53 7.14 -0.50 14.81 -0.81 15.13 1.15 6.01 0.05 35.62 -0.01 11.87 -1.91 31.38 0.73 Group 3 7.99 1.79 15.38 -1.25 16.79 3.58 12.55 -0.04 16.78 -4.94 11.80 2.08 7.01 0.81 37.74 -2.57 15.79 -1.56 27.65 1.24 Group 4 2.56 -0.20 16.05 1.87 14.17 2.06 9.29 -5.75 22.07 -0.50 10.00 2.07 7.36 1.04 33.64 -3.19 20.58 0.08 28.42 0.00

Group 1: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Cyprus, Greece, Italy, Luxembourg, Portugal, Spain.- Group 3: Czech Republic, Hungary,

Malta, Poland, Slovakia, Slovenia. - Group 4: Estonia, Latvia, Lithuania. - 1) 2006.

Source: OECD (STAN), EU KLEMS.

T ABLE L: RCA 2010 and absolute change 2010 against 1999 and 2007, NACE 3-digit manufacturing

Mainstream Labour Capital Marketing Technology

industries intensiv e industries intensiv e industries driv en industries driv en industries

2010 Change Change 2010 Change Change 2010 Change Change 2010 Change Change 2010 Change Change

99/10 07/10 99/10 07/10 99/10 07/10 99/10 07/10 99/10 07/10

Austria 0.260 -0.005 -0.004 0.397 0.075 0.060 -0.172 -0.144 0.037 0.043 0.112 -0.004 -0.265 0.059 -0.015

Belgium -0.367 -0.184 -0.002 -0.186 -0.259 -0.051 0.385 -0.002 0.009 -0.021 -0.073 0.033 -0.070 0.126 -0.022

Bulgaria -0.200 0.204 0.100 0.538 -0.271 -0.110 0.581 -0.075 -0.130 0.091 -0.259 0.266 -1.045 0.665 0.416

Cyprus -0.917 -0.868 -0.461 -0.718 -1.065 0.013 -0.432 -0.460 0.358 0.444 -0.261 0.166 0.441 1.126 -0.081

Czech Republic 0.174 -0.144 -0.061 0.145 -0.358 -0.062 -0.236 -0.312 -0.005 -0.265 -0.004 0.022 0.064 0.582 0.087

Denmark 0.283 0.093 0.034 0.400 0.132 0.123 -0.679 0.128 -0.034 0.671 -0.045 0.000 -0.460 -0.054 -0.090

Estonia -0.105 0.398 0.047 1.005 -0.256 0.008 0.107 0.606 0.038 0.004 0.057 -0.006 -0.655 -0.221 -0.002

Finland 0.180 0.251 0.170 0.114 -0.006 -0.032 0.620 -0.025 0.168 -1.150 0.039 0.110 -0.670 -0.443 -0.450

France -0.171 -0.001 -0.050 -0.287 0.090 0.028 -0.173 -0.051 -0.058 0.279 0.145 0.017 0.144 -0.043 0.021

Germany 0.161 0.002 0.037 -0.103 0.056 0.016 -0.198 -0.065 0.002 -0.273 0.055 -0.002 0.118 0.019 -0.025

Greece -0.212 0.284 0.040 0.200 -0.541 -0.094 0.359 -0.086 -0.076 0.617 -0.035 0.096 -0.806 0.513 0.059

Hungary -0.104 0.077 0.009 -0.235 -0.355 0.007 -0.431 0.113 0.101 -0.489 -0.265 0.042 0.409 0.109 -0.049

Ireland -1.633 -0.353 -0.046 -1.879 -0.451 -0.135 -0.121 -0.198 -0.188 -0.123 -0.094 -0.168 0.626 0.112 0.067

Italy 0.441 0.015 0.006 0.482 -0.063 0.002 -0.139 0.118 0.042 0.171 0.019 0.026 -0.708 0.015 0.012

Latv ia -0.261 0.417 0.051 1.090 -0.452 -0.101 -0.152 -0.147 0.038 0.350 0.511 0.026 -0.590 1.140 0.169

Lithuania -0.331 0.229 -0.006 0.629 -0.556 -0.157 0.515 0.156 0.245 0.212 0.163 -0.084 -0.922 0.292 -0.200

Luxembourg 0.057 -0.218 0.204 -0.780 -0.066 -0.127 0.096 -0.426 -0.148 -0.524 -0.160 0.112 0.177 0.491 -0.022

Malta -0.615 0.239 0.119 -1.089 -1.020 0.152 -0.732 0.750 1.294 0.095 0.286 -0.132 0.583 -0.027 -0.160

Netherlands -0.435 -0.017 -0.014 -0.665 -0.011 0.028 0.256 0.124 0.015 0.212 -0.164 -0.049 0.068 -0.055 -0.024

Poland 0.054 0.051 -0.054 0.560 -0.445 -0.096 -0.116 -0.135 -0.033 0.203 0.136 0.055 -0.286 0.627 0.172

Portugal -0.010 0.180 0.058 0.692 -0.206 -0.034 0.168 0.417 0.194 0.293 0.083 0.021 -0.726 -0.315 -0.253

Romania -0.049 0.354 0.025 0.921 -0.413 -0.170 0.068 -0.249 -0.230 -0.284 -0.258 -0.020 -0.403 1.700 0.861

Slov enia 0.243 -0.060 -0.004 0.405 -0.265 -0.036 -0.151 -0.086 0.049 -0.281 0.008 -0.017 -0.133 0.392 0.037

Slov akia -0.073 -0.100 0.044 0.196 -0.251 -0.072 -0.075 -0.590 -0.042 -0.421 0.081 0.012 0.154 0.658 0.029

Spain -0.140 0.050 0.039 0.046 0.144 0.078 0.162 -0.025 0.008 0.247 0.016 0.031 -0.168 -0.105 -0.085

Sweden 0.033 0.069 0.021 0.000 0.072 -0.008 0.293 -0.007 0.042 -0.609 0.275 0.082 -0.084 -0.165 -0.055

United Kingdom -0.226 -0.094 -0.098 -0.329 0.020 0.010 0.005 0.120 -0.029 -0.113 -0.033 -0.069 0.218 -0.011 0.065

Group 1 -0.068 -0.004 0.001 -0.194 0.021 0.009 0.016 0.002 -0.004 -0.032 0.005 -0.010 0.087 -0.015 -0.006

Group 2 0.248 0.007 0.013 0.358 -0.074 0.008 0.002 0.078 0.033 0.203 0.019 0.032 -0.485 0.000 -0.037

Group 3 0.058 -0.037 -0.032 0.272 -0.339 -0.064 -0.199 -0.188 0.001 -0.135 0.038 0.042 0.047 0.365 0.050

Group 4 -0.159 0.324 0.041 0.810 -0.349 -0.119 0.240 0.026 -0.057 -0.010 -0.057 0.016 -0.550 0.384 0.313

Group 1: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Greece, Italy,

Luxembourg, Portugal, Spain. - Group 3: Czech Republic, Hungary, Poland, Slovakia, Slovenia. - Group 4: Bulgaria, Cyprus, Estonia,

Latvia, Lithuania, Malta, Romania.

Source: Eurostat (Comext). – Including intra-EU exports.

T ABLE M: Share of exports to BRIC in total exports as percent 2010 and index 2010 (1999=100,

2007=100), NACE 3-digit manufacturing

Mainstream Labour Capital Marketing Technology Total industry

industries intensiv e industries intensiv e industries driv en industries driv en industries

2010 1999=100 2007=100 2010 1999=100 2007=100 2010 1999=100 2007=100 2010 1999=100 2007=100 2010 1999=100 2007=100 2010

Austria 2.26 249.1 116.4 0.85 385.9 153.5 0.69 435.1 133.3 0.45 263.6 102.2 1.91 310.3 145.1 6.16

Belgium 0.83 308.4 131.7 0.42 358.1 118.9 1.60 347.4 155.4 0.24 157.8 134.4 1.16 366.4 164.1 4.25

Bulgaria 1.02 88.0 108.6 0.33 94.0 112.8 1.64 366.4 138.6 0.41 21.4 60.9 1.72 96.6 261.8 5.12

Cyprus 0.73 59.5 263.2 0.23 140.8 106.9 1.74 1,411.3 174.8 0.21 77.4 79.8 2.33 546.0 180.7 5.23

Czech Republic 1.53 221.7 111.2 0.57 230.5 118.1 0.85 261.1 205.9 0.33 98.8 136.1 1.37 324.7 121.4 4.65

Denmark 2.09 321.7 129.5 0.28 261.0 90.9 0.42 362.9 91.3 1.23 230.4 117.4 1.23 364.0 167.7 5.27

Estonia 4.08 1,118.9 127.3 1.54 407.6 124.8 2.52 156.0 108.5 2.85 358.6 101.1 1.67 390.0 123.2 12.66

Finland 6.68 280.3 136.7 0.90 173.9 98.2 4.16 306.9 140.9 1.05 136.9 123.3 4.00 150.7 70.0 16.80

France 1.21 219.9 111.8 0.43 229.1 110.2 0.94 330.3 133.5 0.75 276.0 134.8 3.01 244.7 111.6 6.33

Germany 3.63 299.1 130.2 0.88 233.0 124.1 1.77 390.8 160.4 0.55 188.5 129.2 3.94 384.2 154.5 10.77

Greece 0.44 258.1 72.1 1.06 90.7 99.6 0.87 131.9 127.8 0.57 159.1 115.4 0.26 42.7 206.2 3.20

Hungary 1.06 354.7 151.5 0.48 722.8 296.9 0.52 341.7 143.7 0.24 46.0 78.6 3.93 585.0 114.3 6.24

Ireland 0.12 192.9 126.3 0.03 147.5 80.5 0.30 235.4 123.2 0.24 84.4 127.0 1.98 417.1 117.2 2.67

Italy 3.27 250.6 121.4 1.32 220.2 104.8 1.00 245.4 132.7 0.74 245.9 112.6 0.88 183.5 128.1 7.20

Latv ia 5.10 278.4 114.5 2.84 223.8 95.9 2.10 218.5 115.8 5.87 284.3 175.5 2.92 273.7 137.1 18.82

Lithuania 5.11 397.6 123.2 2.59 351.6 125.5 1.77 160.0 160.7 3.62 195.4 122.0 2.17 197.2 53.9 15.26

Luxembourg 1.15 127.0 108.6 0.04 231.3 38.4 0.80 233.1 88.6 0.06 198.4 285.4 0.68 1,741.8 175.9 2.73

Malta 0.45 1,235.7 236.7 0.06 143.9 96.5 0.23 11,399.6 423.1 0.02 313.9 12.9 3.25 8,227.9 261.1 4.02

Netherlands 0.93 325.7 111.9 0.11 124.6 78.8 1.15 420.7 128.4 0.50 139.8 130.2 1.41 286.1 97.2 4.10

Poland 1.68 191.1 75.5 0.60 165.3 81.6 1.32 206.7 133.0 1.21 98.6 109.7 0.93 246.9 133.1 5.74

Portugal 0.44 225.8 158.4 0.30 183.9 143.1 0.37 358.6 169.7 0.74 265.5 135.5 0.31 508.5 104.1 2.15

Romania 0.85 518.3 103.6 0.30 69.0 105.4 1.22 281.9 65.1 0.07 50.5 88.0 1.29 663.9 403.9 3.73

Slov enia 1.57 271.7 72.8 0.63 459.5 108.7 0.45 293.6 170.1 0.34 233.3 91.2 1.67 195.0 96.1 4.66

Slov akia 0.95 245.0 122.8 0.98 357.9 384.6 0.52 190.2 157.5 0.17 88.4 94.1 3.88 2,050.5 224.2 6.51

Spain 0.99 183.4 114.7 0.58 144.2 178.1 1.33 379.4 138.3 0.67 187.0 144.4 0.74 137.1 93.7 4.31

Sweden 2.32 269.7 114.8 0.37 233.4 142.8 1.96 421.7 141.8 0.19 191.9 140.9 2.51 115.5 123.8 7.35

United Kingdom 1.32 222.4 111.6 0.28 188.9 113.1 1.66 416.7 137.9 0.40 201.5 116.6 2.85 377.3 154.2 6.50

Group 1 2.16 285.4 123.9 0.53 241.2 118.9 1.47 378.8 145.4 0.52 189.5 126.3 2.77 294.6 133.3 7.45

Group 2 2.28 229.4 118.9 0.99 190.8 111.9 1.05 279.0 134.4 0.70 224.9 121.7 0.78 169.5 116.7 5.80

Group 3 1.41 233.7 94.8 0.63 273.7 130.8 0.87 250.1 153.7 0.58 97.8 109.5 2.08 427.6 132.6 5.57

Group 4 2.29 362.0 118.9 1.03 217.8 115.6 1.57 243.0 98.6 1.49 172.2 120.8 1.74 264.0 133.5 8.13

EU 27 2.11 266.9 120.2 0.63 227.7 117.7 1.34 348.2 142.5 0.57 192.1 124.0 2.37 282.9 132.4 7.02

Group 1: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Greece, Italy,

Luxembourg, Portugal, Spain. - Group 3: Czech Republic, Hungary, Poland, Slovakia, Slovenia. - Group 4: Bulgaria, Cyprus, Estonia,

Latvia, Lithuania, Malta, Romania.

Source: Eurostat (Comext). – Including intra-EU exports .

T ABLE N: RCA 2009 and absolute change 2009 against 2004 and 2007, NACE 2-digit manufacturing and services

INNO High Med-high Med Med -low Low High Med-high

2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 04/09 07/09 04/09 07/09 04/09 07/09 04/09 07/09 04/09 07/09 04/09 07/09 04/09 07/09

Austria 0.007 0.017 0.002 -0.131 -0.048 -0.029 0.203 -0.036 0.003 -0.066 0.098 -0.021 0.199 0.150 0.112 -0.391 0.050 0.052 -0.461 -0.078 0.020 0.129 Belgium -0.584 0.003 0.043 0.324 0.007 -0.020 -0.324 -0.087 0.101 0.041 -0.012 -0.003 0.105 0.166 0.030 -0.398 0.013 0.370 0.319 0.077 -0.019 -0.267 Bulgaria -0.457 0.423 0.153 0.120 0.077 -0.080 -0.310 0.003 0.064 0.158 0.307 0.325 0.778 -0.606 -0.088 -1.126 -0.032 0.162 -0.254 0.290 -0.111 -0.742 Cyprus -1.251 -0.482 -0.362 -1.681 -0.295 -0.267 1.133 0.176 0.074 -0.761 -0.351 -0.302 1.401 -0.090 0.054 1.014 0.367 0.260 -0.754 -0.265 -0.430 -2.160 Czech Republic 0.254 0.054 -0.044 -0.054 -0.036 0.012 -0.034 -0.037 0.049 -0.544 0.057 0.027 -0.307 0.107 0.115 -0.116 0.305 0.076 -0.488 -0.022 0.034 0.388 Denmark 1) -0.127 -0.015 0.019 -0.601 0.015 0.065 -0.223 0.040 0.025 0.545 -0.168 -0.068 1.355 -0.009 -0.122 -0.332 0.225 0.193 -0.315 -0.101 -0.040 -0.407 Estonia -0.323 -0.206 -0.035 -0.224 0.314 0.029 0.300 -0.070 -0.034 -0.003 0.061 -0.094 0.891 -0.235 0.036 -0.565 0.532 0.077 -0.289 -0.091 -0.023 -0.245 Finland 0.454 . 0.093 -0.404 . -0.101 0.356 . -0.038 -1.182 . -0.016 -0.826 . 0.080 . . . . . . . France -0.205 . -0.033 0.188 . 0.023 -0.309 . 0.040 0.187 . -0.050 -0.078 . -0.035 -0.665 . 0.006 0.214 . 0.022 -0.113 Germany 0.146 -0.032 -0.021 0.075 -0.002 0.003 -0.188 0.071 0.050 -0.292 0.070 0.019 -0.458 0.109 0.062 -0.300 0.053 0.086 -0.040 -0.003 0.009 0.352 Greece . . . . . . . . . . . . . . . . . . . . . . Hungary 1) 0.564 0.093 0.028 -0.222 -0.059 -0.054 -0.476 -0.001 0.078 -0.495 -0.080 0.001 -0.526 -0.171 -0.035 -0.299 -0.145 -0.162 0.187 0.106 0.081 0.214 Ireland . . . . . . . . . . . . . . . . . . . . . . Italy 0.062 0.043 0.012 -0.073 0.030 0.001 -0.064 -0.097 -0.060 -0.082 0.070 0.097 0.351 -0.128 -0.007 -0.928 -0.088 -0.109 -0.374 0.025 -0.039 0.206 Lat v ia -0.611 0.615 0.201 -0.390 0.073 -0.026 0.458 -0.299 -0.107 0.285 0.252 -0.062 1.075 -0.179 0.023 -0.336 0.239 0.045 -0.555 0.222 0.116 -0.561 Lithuania -0.872 -0.087 -0.211 0.146 0.053 0.117 -0.216 -0.030 -0.027 0.472 0.283 -0.060 0.774 -0.273 -0.138 -1.808 -0.098 -0.132 0.201 -0.014 0.160 -0.590 Luxembourg -0.458 -0.136 0.196 -0.987 -0.172 0.014 1.241 0.036 -0.093 -0.292 -0.026 0.111 -1.140 0.426 0.226 1.502 -0.075 -0.157 -0.675 0.197 0.295 -1.094 Malt a . . . . . . . . . . . . . . . . . . . . . . Netherlands 0.253 0.022 0.016 -0.165 0.026 -0.054 -0.273 -0.131 0.048 0.390 -0.049 -0.009 -0.201 0.084 0.031 0.451 -0.144 0.012 0.205 -0.024 -0.102 -0.604 Poland -0.181 0.260 0.063 0.001 -0.078 -0.011 0.119 -0.132 -0.045 0.183 0.120 -0.020 0.094 -0.080 -0.013 -0.614 0.831 0.473 -0.445 0.011 0.021 0.187 Portugal 1) -0.561 -0.075 -0.181 -0.095 -0.083 -0.005 0.365 0.140 0.076 0.175 0.134 0.053 0.655 -0.058 0.041 -0.740 0.016 0.037 -0.401 -0.033 -0.167 -0.249 Romania -0.025 0.465 0.247 -0.028 0.071 -0.036 -0.068 0.017 -0.091 -0.932 0.621 0.365 0.761 -0.692 -0.190 -0.387 0.870 0.002 -0.296 0.115 0.125 0.156 Slov akia 1) 0.253 0.340 0.166 0.033 -0.104 -0.097 -0.282 -0.076 0.004 -0.762 -0.250 -0.037 -0.118 -0.369 -0.006 -1.300 -0.395 -0.034 -0.010 0.416 0.110 0.333 Slov enia -0.141 -0.054 0.006 0.135 0.120 0.020 0.058 -0.162 -0.011 -0.446 0.346 0.143 -0.079 -0.297 -0.124 -1.143 0.255 0.273 -0.365 0.117 0.125 0.376 Spain -0.576 . 0.015 0.130 . -0.027 0.215 . 0.026 0.226 . -0.003 0.009 . 0.092 -0.104 . 0.056 -0.307 . -0.071 -0.041 Sweden 0.234 0.088 0.054 -0.203 -0.083 -0.092 0.278 -0.022 0.055 -0.722 0.076 0.032 -0.172 0.061 0.068 0.180 0.203 0.079 -0.083 -0.040 0.039 0.173 Unit ed Kingdom -0.168 -0.179 -0.048 -0.132 0.057 0.044 0.504 0.077 -0.052 -0.007 0.010 0.088 -0.343 -0.065 0.017 0.719 -0.075 -0.145 0.101 0.029 0.085 -0.363

Group 1 2) 0.014 . -0.006 0.025 . -0.001 -0.044 . 0.008 -0.003 . 0.007 -0.100 . 0.016 0.011 . -0.006 0.076 . 0.002 -0.001 Group 2 3) -0.183 . -0.001 -0.055 . -0.009 0.253 . -0.016 0.030 . 0.061 0.202 . 0.015 -0.091 . -0.035 -0.373 . -0.044 0.032 Group 3 1) 0.179 0.124 0.024 -0.039 -0.035 -0.021 -0.068 -0.074 0.010 -0.240 -0.050 0.010 -0.146 -0.095 0.011 -0.469 0.161 0.106 -0.235 0.137 0.057 0.282 Group 4 4) -0.324 0.273 0.128 -0.071 0.077 -0.025 0.116 -0.008 -0.013 -0.151 0.260 0.047 0.865 -0.471 -0.090 -0.364 0.423 0.121 -0.239 0.066 0.035 -0.253

Group 1: Austria, Belgium, Denmark, Finland, France, German, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Greece, Italy,

Luxembourg, Portugal, Spain. - Group 3: Czech Republic, Hungary, Poland, Slovakia, Slovenia. - Group 4: Bulgaria, Cyprus, Estonia,

Latvia, Lithuania, Malta, Romania. - 1) Changes against 2005. - 2) Innovation without Ireland; Education without Finland and Ireland. - 3)

Without Greece. - 4)Without Malta.

Source: Eurostat (Comext). – Including intra-EU exports.

T ABLE O: Shares of exports in low price segment as percent and change in percentage points, NACE 3-digit manufacturing

Mainstream Labour Capital Marketing Technology Total industry

industries intensiv e industries intensiv e industries driv en industries driv en industries

2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change

99/09 07/09 99/09 07/09 99/09 07/09 99/09 07/09 99/09 07/09 99/09 07/09

Austria 23.0 3.9 0.1 20.3 4.5 -4.3 30.2 -4.4 -1.8 27.4 -3.7 -2.4 11.1 3.2 2.4 21.6 1.8 -0.6

Belgium 28.0 0.1 -1.3 28.5 -6.9 -0.2 42.3 7.9 0.9 36.1 3.0 -4.2 10.3 -6.5 1.1 28.4 0.7 -1.2

Bulgaria 73.7 -1.2 -7.3 58.5 -29.7 -11.6 47.1 -20.9 -3.0 56.3 -11.5 -1.0 36.6 -36.0 -11.1 54.4 -20.1 -5.4

Cyprus 62.4 -2.0 31.1 62.1 16.9 34.2 56.4 -15.1 -8.8 32.6 2.4 11.6 31.6 9.8 10.4 38.9 -5.9 9.6

Czech Republic 51.0 -16.4 -5.5 43.5 -14.5 -4.5 41.0 -39.7 -19.3 58.7 -12.9 0.1 41.9 -13.0 1.5 46.2 -19.8 -7.5

Denmark 15.5 -4.2 -5.6 20.1 7.0 -1.0 31.5 -8.9 -5.1 28.1 11.4 3.8 10.6 2.0 -1.1 20.1 2.9 -2.1

Estonia 47.6 -5.9 -3.3 46.6 -26.1 -1.1 36.7 -22.7 -22.1 51.0 -8.9 7.0 25.0 11.5 -2.9 41.8 -12.1 -5.7

Finland 14.8 -7.3 -1.5 42.4 15.9 18.7 47.9 -4.9 -2.7 33.5 -2.5 -2.7 5.6 0.5 -1.8 28.2 -0.1 0.7

France 18.2 -1.8 -2.7 18.2 3.8 1.9 42.8 15.1 -1.3 19.4 -1.0 -1.3 9.8 -6.0 -0.9 20.9 1.8 -2.5

Germany 12.2 2.6 -1.1 14.1 5.7 0.5 28.0 0.4 -2.3 30.6 4.6 1.9 4.6 -2.9 0.0 14.4 1.4 -0.4

Greece 60.0 9.3 -4.5 36.9 10.5 -0.7 60.8 -5.5 -6.8 40.7 3.8 0.9 18.4 -4.5 5.6 46.1 2.7 -3.8

Hungary 38.6 -11.8 -1.5 32.5 -6.3 -2.9 44.6 -15.8 -0.8 47.5 4.0 2.6 25.1 -0.5 -8.8 32.4 -5.0 -5.2

Ireland 18.7 5.1 0.5 13.9 -6.0 7.3 5.2 -0.2 -0.2 27.1 12.2 11.2 6.6 -11.6 -0.4 9.3 -5.7 1.0

Italy 35.5 2.8 -0.6 16.3 4.8 -0.4 51.8 8.2 0.8 27.3 0.5 -0.1 24.5 3.4 0.1 33.0 5.9 -0.8

Latv ia 45.5 -12.1 -8.2 70.6 -15.8 0.8 66.4 8.7 -4.1 57.3 -8.2 -2.6 16.1 -10.8 -23.5 52.7 -20.0 -8.9

Lithuania 49.8 -20.6 -9.5 59.7 -15.5 -1.3 72.6 -6.9 -7.4 54.1 -21.1 9.0 46.1 -29.6 -12.5 60.1 -15.7 -3.5

Luxembourg 28.8 -11.3 -11.0 34.2 -25.6 -7.3 30.0 -0.5 -37.8 17.3 -11.6 -10.2 2.0 -19.5 -4.8 15.3 -17.2 -19.1

Malta 32.0 9.1 7.8 29.5 27.4 -19.9 33.4 -3.2 17.9 22.1 -5.8 5.7 4.5 -0.7 -0.3 11.6 -13.2 1.7

Netherlands 25.3 3.0 0.8 25.6 -1.7 5.6 55.7 6.8 9.6 32.2 1.1 -1.6 15.9 -8.6 2.3 31.2 0.2 0.3

Poland 62.9 -10.9 1.6 63.1 1.7 6.1 46.8 -28.0 -9.9 58.8 -1.3 5.6 39.8 -21.1 3.8 53.5 -12.9 0.3

Portugal 50.4 2.2 -2.5 34.2 8.6 -2.2 54.6 3.8 -3.9 29.2 -8.1 -9.6 40.3 6.3 10.4 42.1 4.7 -2.1

Romania 56.9 -20.2 -6.6 46.5 -31.3 -6.7 57.2 -21.2 -8.9 46.6 -12.6 -7.5 62.4 17.2 5.3 54.3 -19.9 -5.5

Slov enia 59.5 -9.1 0.8 37.2 6.3 0.1 50.8 -6.7 8.4 37.9 -7.7 -1.4 55.5 28.1 4.2 51.4 3.9 2.9

Slov akia 49.3 -28.4 -7.0 38.5 -18.1 -6.5 45.9 -18.3 -1.1 38.4 -27.2 -8.4 42.3 29.5 21.9 43.5 -11.6 4.7

Spain 51.9 10.1 0.8 35.6 5.8 3.4 56.5 -2.4 2.7 41.0 10.7 5.5 42.9 1.4 25.4 46.7 4.6 7.5

Sweden 19.4 4.0 2.5 35.9 16.7 20.9 32.4 11.6 4.6 21.9 4.3 1.8 8.9 2.1 0.5 21.9 7.9 4.4

United Kingdom 18.9 5.6 0.5 21.8 4.3 4.1 42.8 9.1 0.9 25.2 7.2 3.3 15.7 0.3 6.9 23.8 5.4 3.3

Group 1 17.1 1.4 -0.8 20.1 3.7 3.0 38.0 6.1 0.8 28.5 4.2 0.8 9.1 -4.2 1.6 20.7 1.8 0.3

Group 2 40.4 5.2 0.0 24.2 7.8 1.6 53.3 3.8 -0.4 32.9 4.3 1.6 32.2 2.0 11.6 38.0 5.9 1.5

Group 3 53.5 -13.5 -2.1 50.1 -3.7 0.7 45.0 -26.1 -8.5 54.1 -4.3 2.4 37.5 1.0 3.5 46.1 -10.1 -1.5

Group 4 56.5 -14.8 -6.3 52.1 -26.9 -5.0 57.1 -16.1 -6.3 50.7 -11.4 0.8 45.1 5.1 3.9 52.8 -18.3 -4.6

EU 27 25.9 3.1 -0.6 26.8 5.3 2.5 41.4 4.4 -0.3 31.9 5.1 1.2 15.0 -1.0 3.6 26.6 3.3 0.5

Group 1: Austria, Belgium, Denmark, Finland, France, German, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Greece, Italy, Luxembourg, Portugal, Spain. - Group 3: Czech Republic, Hungary, Poland, Slovakia, Slovenia. - Group 4: Bulgaria, Cyprus, Estonia, Latvia, Lithuania, Malta, Romania. Source: Eurostat (Comext). - Including intra-EU exports.

T ABLE P: Shares of exports in high price segment as percent and change in percentage points, NACE 3-digit manufacturing

Mainstream Labour Capital Marketing Technology Total industry

industries intensiv e industries intensiv e industries driv en industries driv en industries

2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change 2009 Change Change

99/09 07/09 99/09 07/09 99/09 07/09 99/09 07/09 99/09 07/09 99/09 07/09

Austria 36.5 -2.1 -0.7 39.4 -3.3 7.0 18.4 -0.9 1.6 37.9 -3.6 0.2 54.9 1.4 3.0 38.4 -1.7 2.1

Belgium 30.4 -0.5 1.1 38.4 14.6 -2.3 16.7 3.9 1.7 18.5 -10.6 -3.3 63.7 20.7 -2.6 35.0 6.2 1.1

Bulgaria 10.4 4.1 4.0 7.8 5.9 0.8 6.7 -1.1 1.4 20.2 4.4 -6.9 29.3 18.3 -2.5 45.6 20.1 5.4

Cyprus 26.1 11.5 -29.5 20.5 -5.4 -25.0 28.9 21.6 10.5 55.9 22.5 3.3 40.9 23.9 3.8 40.1 20.7 -0.9

Czech Republic 18.9 5.7 3.3 16.8 9.0 -1.7 9.4 4.2 3.7 11.6 4.1 1.9 11.2 -0.1 -9.5 13.7 4.1 -0.1

Denmark 37.6 -0.2 2.0 30.9 -1.9 2.2 19.0 -3.5 1.9 29.1 -10.4 -4.1 59.5 -0.1 -0.7 36.6 -4.1 0.4

Estonia 18.3 -2.6 -0.4 12.0 8.6 -1.3 9.1 -2.3 4.0 25.4 11.1 -6.4 25.9 -6.2 -10.9 16.4 2.0 -1.9

Finland 40.9 2.5 5.5 18.5 -1.2 -0.8 10.0 -1.0 -0.2 33.3 2.7 4.1 74.5 3.1 -2.4 34.7 -1.6 -0.6

France 35.7 3.2 4.6 52.5 13.8 -0.3 16.4 -2.1 2.7 42.1 0.4 2.1 44.7 -1.0 -3.5 37.0 -0.8 2.1

Germany 41.2 -1.9 5.7 43.0 -5.6 2.5 20.1 2.4 6.2 23.7 -6.6 -2.1 51.5 -3.0 -9.2 39.5 -3.6 -0.7

Greece 13.9 -2.7 3.7 30.8 13.7 -0.7 5.3 2.3 -2.1 25.5 9.2 1.4 37.2 -11.8 0.9 20.1 4.5 1.6

Hungary 24.8 -1.8 -6.9 18.9 -2.3 7.8 14.4 5.5 2.0 26.5 -3.2 -1.9 21.8 -20.3 -6.1 21.6 -10.2 -3.6

Ireland 58.4 -8.5 -3.1 77.4 28.2 -1.5 91.7 0.6 -0.2 42.3 -13.6 -5.1 80.2 14.0 8.8 77.4 8.0 4.1

Italy 16.5 1.7 4.1 49.4 -0.6 1.2 15.8 0.3 3.4 33.9 4.4 -1.4 42.9 8.0 -2.2 27.5 0.0 2.6

Latv ia 24.4 15.0 4.0 9.4 7.0 0.9 14.4 -18.6 3.6 20.3 1.0 0.1 31.7 26.1 8.4 19.1 8.6 3.8

Lithuania 17.2 8.7 3.4 14.0 11.3 3.7 1.6 -0.7 -2.0 14.7 2.5 -0.6 24.6 21.6 7.6 11.5 6.9 0.8

Luxembourg 35.4 0.5 1.0 34.0 14.4 -4.5 26.1 9.4 19.2 58.0 19.9 16.2 75.2 14.5 21.7 54.5 19.2 20.1

Malta 54.7 -16.3 -7.6 50.4 -27.5 35.8 56.6 46.9 12.1 46.8 -17.5 -6.7 73.6 10.7 -6.8 66.2 8.4 -5.8

Netherlands 38.1 4.6 -7.2 40.3 14.6 -7.0 10.9 0.0 0.3 24.4 -6.2 1.2 39.8 1.2 -12.2 29.4 -0.2 -1.6

Poland 7.9 1.6 -1.1 10.3 -0.6 0.5 7.0 1.4 1.4 15.0 -1.6 -2.3 16.8 -6.6 -8.3 11.5 0.2 -1.3

Portugal 11.9 -10.1 -0.2 20.5 3.8 -1.6 6.1 1.1 0.1 16.6 -12.9 -8.5 15.6 3.3 -18.2 14.1 -1.9 -4.9

Romania 18.0 8.2 7.0 11.9 9.9 1.8 13.2 6.9 0.0 32.2 2.9 8.8 17.3 -22.3 -1.2 16.5 7.3 3.3

Slov enia 13.3 7.2 3.2 30.6 1.4 1.5 11.5 0.0 0.0 15.6 -2.3 -2.3 10.5 0.9 -3.1 14.8 0.8 -0.1

Slov akia 18.2 8.4 0.7 21.6 16.5 5.1 8.4 4.2 -1.0 31.5 20.2 1.3 23.8 6.5 16.4 20.1 11.2 7.4

Spain 13.5 -3.2 -2.0 22.6 -7.1 -4.7 12.2 0.8 2.8 18.2 -13.4 -2.0 17.0 -3.2 -43.5 16.0 -4.6 -11.0

Sweden 38.9 -2.3 -0.7 29.5 -3.1 -4.2 21.1 3.3 -2.8 34.6 -12.8 -4.6 56.6 -6.8 2.1 37.7 -5.7 -1.2

United Kingdom 41.8 -3.0 -0.7 49.0 2.4 0.0 30.6 1.1 4.1 34.4 -8.7 -2.8 51.0 3.9 -3.9 42.6 -0.8 -0.8

Group 1 39.2 -0.4 2.5 42.3 2.5 0.5 21.0 0.2 2.8 29.2 -7.6 -1.6 52.8 2.2 -5.9 38.8 -1.4 -0.2

Group 2 15.9 0.0 2.5 38.4 -4.1 -2.6 13.8 0.7 3.2 26.8 -2.9 -2.6 31.6 3.3 -19.2 23.4 -1.5 -1.8

Group 3 15.6 2.9 0.0 15.6 2.7 1.5 9.2 3.0 1.6 17.3 0.2 -1.2 17.4 -10.3 -4.1 15.4 -0.5 -0.4

Group 4 17.7 7.1 4.3 11.6 9.2 1.5 8.8 0.7 0.0 24.9 2.0 0.5 27.1 2.5 -6.8 16.6 7.0 1.6

EU 27 32.0 -0.9 2.1 36.2 -1.0 -0.3 18.7 -0.1 2.7 27.7 -6.8 -1.8 46.5 -1.0 -8.0 33.6 -2.5 -0.7

Group 1: Austria, Belgium, Denmark, Finland, France, German, Ireland, Netherlands, Sweden, United Kingdom. - Group 2: Greece, Italy, Luxembourg, Portugal, Spain. - Group 3: Czech Republic, Hungary, Poland, Slovakia, Slovenia. - Group 4: Bulgaria, Cyprus, Estonia, Latvia, Lithuania, Malta, Romania.

Source: Eurostat (Comext). - Including intra-EU exports.

T ABLE Q: R&D decomposition

Change in

RD intensity Sector effect Country effect Structural sectoral Dynamic Change Change Change change R&D interaction

Country Year 2007 2004 2007 2004 2007 2004 effect intensity effect

Austria 2007 1.97 0.27 1.55 0.03 0.42 0.25 -0.05 0.25 0.07

Belgium 2007 1.48 0.04 1.39 -0.08 0.09 0.13 -0.05 0.10 -0.01

Bulgaria 2006 0.14 0.02 1.14 0.01 -1.00 0.01 0.00 0.02 0.00

Cyprus 2007 0.11 0.03 0.47 -0.03 -0.36 0.06 0.00 0.03 0.00

Czech Republic 2007 1.06 0.19 1.96 0.07 -0.90 0.12 0.07 0.12 0.00

Germany 2007 1.97 0.05 2.19 0.14 -0.21 -0.09 0.16 -0.09 -0.02

Denmark 2007 2.26 0.29 1.26 0.01 1.00 0.28 0.00 0.37 -0.08

Estonia 2007 0.63 0.23 1.09 -0.03 -0.46 0.26 0.04 0.18 0.02

Spain 2006 0.74 0.11 1.06 -0.04 -0.32 0.15 -0.02 0.13 -0.01

Finland 2007 3.08 0.09 2.78 0.17 0.30 -0.08 0.16 -0.05 -0.03

France 2007 1.50 -0.07 1.24 -0.10 0.26 0.03 -0.12 0.02 0.02

Greece 2005 0.20 0.00 0.63 -0.01 -0.42 0.01 0.00 0.01 -0.01

Hungary 2007 0.57 0.15 2.13 -0.08 -1.56 0.23 0.02 0.13 0.00

Ireland 2007 0.92 0.00 2.72 -0.39 -1.80 0.39 0.14 0.11 -0.24

Italy 2007 0.68 0.10 1.40 0.01 -0.72 0.09 0.01 0.09 0.00

Latvia 2007 0.27 0.08 1.12 -0.06 -0.86 0.14 0.03 0.06 0.00

Lithuania 2007 0.21 0.00 0.68 -0.07 -0.46 0.07 -0.02 0.02 0.00

Luxembourg 2007 - - - - - - - - -

Malta 2007 0.53 0.26 2.02 0.23 -1.49 0.03 0.15 0.12 -0.01

Netherlands 2007 1.07 -0.09 1.19 -0.04 -0.11 -0.05 -0.02 0.08 -0.15

Poland 2007 0.20 0.01 1.24 0.02 -1.05 -0.01 0.02 -0.01 0.00

Portugal 2006 0.54 0.22 0.87 -0.04 -0.33 0.26 -0.01 0.23 0.00

Romania 2007 0.23 0.00 1.38 0.10 -1.15 -0.11 0.00 0.01 -0.02

Sweden 2007 2.97 -0.01 1.95 -0.10 1.03 0.09 -0.16 0.20 -0.05

Slovakia 2007 0.21 -0.08 1.63 0.14 -1.42 -0.22 -0.03 -0.05 0.00

Slovenia 2007 0.99 -0.08 1.83 -0.12 -0.85 0.04 -0.06 0.02 -0.04

United Kingdom 2006 1.22 0.03 1.27 -0.01 -0.05 0.05 0.00 0.04 -0.01

Australia 2006 0.97 0.04 0.97 0.00 0.00 0.04 0.00 0.05 -0.01

Canada 2006 1.15 -0.10 1.11 -0.10 0.04 0.00 -0.06 -0.03 -0.01

Israel 2006 4.33 0.40 2.33 0.21 2.00 0.19 0.73 -0.15 -0.17

Island 2007 1.75 0.13 0.68 -0.17 1.07 0.30 -0.33 1.04 -0.58

Japan 2006 2.66 0.21 2.13 0.04 0.53 0.17 0.04 0.20 -0.03

Kroatia 2007 2.73 0.43 3.33 -0.13 -0.60 0.56 -0.07 0.55 -0.04

Norway 2007 1.09 0.07 1.09 0.07 0.00 0.00 0.05 0.03 -0.01

New Zealand 2005 0.47 0.01 0.97 0.00 -0.50 0.01 0.00 0.01 0.00

Turkey 2007 0.33 0.19 1.45 -0.05 -1.13 0.24 -0.01 0.19 0.00

USA 2007 1.86 0.08 1.34 0.00 0.52 0.09 0.02 0.08 -0.01

Group 1 2006 1.77 0.08 1.63 0.00 0.14 0.08 0.01 0.09 -0.01

Group 2 2005 0.59 0.04 1.17 -0.03 -0.57 0.07 -0.01 0.05 0.00

Group 3 2007 0.43 0.05 1.59 0.01 -1.16 0.04 0.02 0.03 0.00

Group 4 2006 0.27 0.05 1.23 0.04 -0.96 0.01 0.01 0.04 0.00

Source: OECD (STAN), Eurostat.

5.3.2 Data tables underlying graphs in section 3 and introduction of country chapters

The country codes used in the tables are:

Country Code

Belgium BE

Bulgaria BG

Czech Republic CZ

Denmark DK

Germany DE

Estonia EE

Ireland IE

Greece EL

Spain ES

France FR

Italy IT

Cyprus CY

Latvia LV

Lithuania LT

Luxembourg LU

Hungary HU

Malta MT

Netherlands NL

Austria AT

Poland PL

Portugal PT

Romania RO

Slovenia SI

Slovakia SK

Finland FI

Sweden SE

United Kingdom UK

Table R: Towards a modern and competitive industry

g ) l

r s e d 9

) o f y

to 0

0 ey d b

o r

k n n r

in 1 0 g y 0

) ta l ta

to

ic a w so so g

c tu 2 0 lo ; 2 e s s % u rv o f 0 1 )

n d er er

fa g e p p r

in n o ti o n e ss s a r ts fl

a te ta l

(t o e l o

f ) o f

to

/ i o

u r )

er 0 ) er c tu ) a

n u e ra c h la si n 9 ) 8 ) n

 S

s d

e

a n Q

4 2 1 0 % 0 1 0

v e h 1

0

er 2 0 st

at p 0 1 st at p 1 0 m a v D t e st at 0 0 st at p ri

se

0 0 at

io p o 9

)

st s

o v e

x 0 0 (2

st at te 0 ;

IN (2

C F a

s % (2 0

st at a

s

st at

c ti p 0 ; u ro it

y e d ; 2 it y u fa 2 0 st

at

u ro te

s o p

u

p u ro y

b u

; 2 u ro te

r

s (2 n n c h ts r

co

u ro s

ra

st a

p

1 0 d s d s ic e

s

ic e

s ro

it y 1 0 0

0 u ro ti v a n

P S ; el i

n

, Q 3 E C in 9 = G

 E o o o o u ro

 E r v rv

u E

o b

je

e: E ti

v E u c p

lo y

= 1 u c n m P e:

 E ev Q 2 e: O a

n d

d u

a ld

e: E e

d b D P e n se

e: E y

 I

n g h

-t e E g e b o

u

g a 9 9

cy ti

v 7 =

o d e m rc

e:

o d g ra r

s o r p

ri

u n

it ig p o

r

rc e: a

n

e: D o f

g f g

rc e:

d u

c

U 2 d

i s, l 1 , rc ie n

ce

ea u

rc rm o f G u rc a ti te

m f

h l ex c h l

a

ie s

(1

u rc ce ts

o rc e:

o f

se

o f

se

P o

li

r o (E

S o

u rc

p r U

2 7 o u

y e 0

0 0 st

(1 S

o u

rc

; Q S

o u sc

u r (E

S r p r 9 y S o e r fo (% S o n o v e n o m e o ta e

x n it y )

a

t o S

o u

tr S o o

r S o u ce r ts S o u

r p p

lo r co o f

1 0

0

0 -2 D

p in a ll ti v e a

l u o m

u n a

la n b e x

p

a la

n p o

o u b

o o u

e m o

u

o f e:

 C in

S h

a r in o n

L a L a

b a b = r

e

o f

2 R & c o d e b e

x

a r e u rc ff

ec

3 6 d

e

L a

b it l 0 0 5 S h

a

T ra

U n (2 (% S

h S o l

e n o

m e c

R e a T ra

BE 135 * 128 65 * 103 12.0 1.3 58.1 8.8 107 * 5 9

BG 42 42 18 137 * 10.1 0.2 30.8 4.6 150 -23 56

CZ 63 72 34 86 15.3 0.9 56.0 15.2 172 5 19

DK 119 109 54 98 15.2 2.0 51.9 12.3 118 13 18

DE 125 106 60 108 13.5 1.9 79.9 14.0 89 16 -10

EE 62 70 29 118 10.8 0.6 56.4 6.9 141 -6 63

IE 124 135 125 * 73 17.2 1.2 56.5 22.1 117 49 -10

EL 76 96 49 118 11.2 * 0.2 * 54.7 * 6.7 111 -195 87

ES 111 * 110 51 * 112 12.5 0.7 43.5 4.7 114 -28 43

FR 128 * 120 57 * 111 20.2 1.4 50.2 19.7 106 -16 11

IT 102 108 48 109 11.3 * 0.7 53.2 6.8 115 -8 -11

CY 81 89 30 121 * 4.6 0.1 56.1 20.1 117 -502 177

LV 47 55 23 182 * 9.8 0.2 24.3 5.3 132 -22 67

LT 56 63 27 * 127 * 18.5 0.2 30.3 5.8 120 -12 46

LU 190 * 178 63 107 1.8 * 1.2 64.7 42.1 : * -22 81

HU 60 71 36 101 7.5 0.7 28.9 22.3 135 8 20

MT 83 * 92 45 103 * 7.0 0.3 37.4 43.8 111 -66 55

NL 139 115 73 106 8.9 0.9 44.9 18.4 110 10 12

AT 115 113 71 101 14.0 1.9 56.2 11.7 96 -4 48

PL 54 67 32 91 14.3 0.2 27.9 5.7 103 -11 12

PT 66 77 31 * 101 * 14.6 0.8 57.8 3.6 110 -55 62

RO 42 47 26 * 134 * 20.0 0.2 33.3 8.2 203 -25 -9

SI 83 82 39 106 11.3 1.2 50.3 5.5 108 -2 32

SK 79 83 39 83 17.5 0.2 36.1 5.9 172 -2 -14

FI 111 112 66 99 19.0 2.8 52.2 13.9 107 2 13

SE 116 113 62 107 13.0 2.6 53.7 14.8 99 6 33

UK 108 * 108 58 * 117 17.5 1.2 45.6 18.2 90 -38 41

weighted

EU27 100 100 50 14.3 1.3 51.6 13.7 110 11

EU

unweighted 93 95 49 13.0 1.0 47.8 13.6

max 190 178 125 182 20.2 2.8 79.9 43.8 203 49 177

min 42 42 18 73 1.8 0.1 24.3 3.6 89 -502 -14

Standard

deviation 36 30 22 4.5 0.8 13.0 10.3

Note: Labour productivity per hour worked - BE, ES ,FR, LU, MT & UK (2009)

Labour productivity per person employed in manufacturing - BE, IE, ES, LT & UK (2009); FR & RO (2008); PT (2007)

Unit labour costs, level in manufacturing - BG, CY, LV & LT (2009); MT & RO (2008); PT (2007)

Share of science and technology graduates - EL, IT & LU (2008)

R&D performed by businesses - EL (2007)

Share of innovating enterprises as % of all enterprises - EL (2006)

Real effective exchanges rates - BE & LU values together

Table S: Towards a sustainable industry

o f

r s s a to ry a s

%

T ) n d

ic r ; 0 9 ) a n

d is e

; 0 9

)

p r ) d s 0

)

/ i d

u st to V A 2 0 r

V A 2

0 st at 0 8 o o 0 1 E X

v e i

n e c G 0 ; st

ry

st at c to ro

te r r s; 2 0

st at l g s

(2

i n d

u G 0 ;

g y

s

s e ro 0

0 E u y e n c to a ;

je c

ti

er u

ro 0 0 u ro i n u ro o d C

O M

/ e r

2 g y r 2 A , d b E e n ta

m f

g o

st at

 (

o b n

si ty e n

q . y ea e:

 E i n

er e

u

2 / y ea : E

E te E

s e

c a

p it

ra A

C er

rc e: o n ts o u ro

li cy n

te

t h

e u rc si ty

e e

n O

P o y

i o il e n ce S o te n th

g C n

ce es

u rc e

n e ll N s p n v ir o r e: E

e rg a

n d g (k 2 i

n (k (a S

o u

n n

e

f e e x

p

E n r e

fe re

C O r

e fe

re S o

st e

g

to ts o a ll u

rc

S o

Wa p o r

E x

BE 0.32 0.9 4.1 0.49

BG 0.88 7.4 37.1 0.09

CZ 0.42 2.8 2.1 1.09

DK 0.11 0.8 2.3 0.36

DE 0.18 1.0 4.1 1.25

EE 0.37 5.7 14.3 0.15

IE 0.05 0.4 5.0 0.27

EL 0.22 2.4 5.8 0.25

ES 0.22 0.9 2.8 0.83

FR 0.18 0.5 4.9 0.46

IT 0.18 0.8 2.5 0.38

CY 0.17 2.6 1.8 8.17

LV 0.34 1.3 0.4 0.15

LT 0.47 1.5 1.6 0.13

LU 0.18 0.8 19.3 1.60

HU 0.37 1.6 1.7 0.79

MT : : 3.2 0.08

NL 0.34 1.0 5.5 0.96

AT 0.18 0.5 6.3 0.76

PL 0.32 2.8 3.5 0.26

PT 0.28 1.1 3.0 0.50

RO 0.55 3.0 8.4 0.16

SI 0.19 1.0 2.2 0.90

SK 0.50 1.9 1.8 0.35

FI 0.27 0.8 15.1 0.53

SE 0.19 0.3 8.9 0.73

UK 0.14 0.8 4.9 0.61

weighted

EU27 0.20 0.9 4.8 0.76

EU

unweighted 0.29 1.7 6.4 0.83

max 0.88 7.4 37.1 8.17

min 0.05 0.3 0.4 0.08

Standard

deviation 0.17 1.7 7.6 1.52

Table T: Business Environment

r s ) d s s e

;

to 0 1 0 s 1 0

)

es d es m

s es

ic a v

ic e

s

s iz

e

en ti o

n

er d 2 0 1

m ; 2 0 re 9

) la ti

o n

f r t) e

a n ee r k

si v 2

0 en

iv n

so en

g e i n

d

d s 0 9 ) ar iu it

u cu

2 0 0 ty o ir p

o

te n d

s; iv

et it h

s p ) e w

o )

m 1

1 g u la r d e it iv sa 0 )

e / e

d p et

it

a n 2 0 k Wh st at n

d c al a li

r e 1

1

d a d

a r w it 0 1

1 O

b u p et 1 0 1

ti v re

b o

ry co r m er a

n t; st at

e n

t re o t e n t

u

s (2 st

at

D P

(

p u

ro x p

e

b it ro it h

q u c tu a n 7 = ex a n o m

p 0

-2 e s (2 F

S f r a ; 2 0

ry o s. o

m

te r m n 0

) o m 0

1

 C 0

-2

id S e s

fo

o r

t d / l st al C 1 0

d l in B p

s

G I

N

to = p d C 9 /1 n m se u

ro

o b

je c d u st

C en r

n b al 2 0 1

v e r p ri

o f

G

 A r ic u

ro e: E r e

e

h a E u w r

u

D , o n a

st

fr ,

p p e i n t' lo b o rt 2

0

a n u

la

/ 1 0 o rl o v

e e 7

=

m 2 0 0

G lo o rt o te

r rc e:

 E

li cy o r

in

% ta te y p s

(e

S o

u rc u c tu e r in

E C a

d el o

f g

P o f ev

d b 1

0 M e: D

t b

y

h e

G u rc r e g .

id a s ri se a st

r

o p O a

c ti in R ep eg D W n so h e -g R ep S o u

fr ti

sf il , ro

e r

d r o a o v

e

S o a b a

n d = n M n o

e: T o

f e b y

e n

te a rc

e: S tr ic

it

r p te In (e

u r rc e: S a

(r a ic

ie n e: T

o f

b a l (0 e: I

r d

e u r d

e

rc %

S ta S

o u E le c e n S o u = u n

d

u rc % L eg

(1 e

ff ic S o S o u

rc

B u b = S o

u

(1

BE 0.5 0.0943 296 5.9 57 3.9 2.6 77

BG 0.1 0.0639 21 3.3 74 3.7 3.2 64

CZ 0.5 0.1022 279 4.7 28 3.8 2.7 89

DK 0.9 0.0848 192 6.0 48 6.5 3.8 92

DE 0.6 0.0921 243 6.4 31 5.7 3.0 67

EE 0.1 0.0573 168 4.6 10 5.9 4.4 80

IE 0.5 0.1118 378 4.5 13 5.8 3.1 87

EL 0.7 0.0855 : 4.1 54 2.9 2.4 77

ES 0.5 0.1110 311 5.6 34 4.1 2.8 67

FR 0.6 0.0687 295 6.3 55 3.8 2.6 78

IT 0.3 0.1027 * : 4.0 9 2.9 2.2 84

CY 0.4 0.1483 : 5.4 5 : 4.0 74

LV 0.1 0.0890 90 4.3 41 : 3.1 72

LT 0.3 0.0991 110 4.5 42 4.0 2.7 95

LU 0.2 0.0956 : 5.6 27 6.2 4.0 90

HU 1.0 0.1221 * 189 4.1 41 3.9 2.2 71

MT 1.7 0.1506 * : 4.8 12 : 3.0 77

NL 0.3 0.0853 : 6.0 57 6.0 3.1 95

AT 0.4 0.0897 * : 5.6 13 * 5.4 3.6 75

PL 0.7 0.0929 159 3.0 12 4.1 2.7 89

PT 0.9 0.0896 63 5.2 73 3.5 2.5 75

RO 0.1 0.0850 178 2.9 60 4.3 2.9 50

SI 0.7 0.0917 280 4.5 26 3.1 3.5 88

SK 0.4 0.1161 165 4.0 25 3.3 2.8 88

FI 0.5 0.0667 270 6.1 33 6.7 4.3 96

SE 0.8 0.0800 317 5.9 48 6.6 4.0 90

UK 0.2 0.0947 201 5.3 45 5.0 3.1 67

weighted

EU27 0.5 0.0918 187 39 76

EU

unweighted 0.5 0.0952 210 4.9 36 4.6 3.1 80

max 1.7 0.1506 378 6.4 74 6.7 4.4 96

min 0.1 0.0573 21 2.9 5 2.9 2.2 50

Standard

deviation 0.4 0.0218 94 1.0 20 1.3 0.6 11

Note: Electricity prices for medium size enterprises - HU & MT (2009); AT (2008); IT (2007)

% of broadband lines with speed above 10 MBps - AT (2010)

Table U: Entrepreneurship and SMEs

r s 0 1

1

a rs

to ss o

n

s 2 s ) o a

n ed

es o

y e

ri se em n ) ey li

c

d ex d ic

a

u si n e

t w it

s 8 ) 0 0

7

n d

l

0 0

9 u rv

ce t In / i

n

a b u

si n

ft e

r d e

x 2 0 0

te r

p

n g s, a e

d e l o a

s (2 er

 s an y p

u b

v e r t 0 ) st

at r n a n c k ; st at e n e s

(2

st at st at w

e r

m en ia

c ti ta ro a n ci 0 9

)

ti o

n o f a

ll

E

o m

et f in ts b

ay st

it

je a

te a ) u ro

o s 2

0 1 o in

g B

c h

u

ie s w th r p r

is

u ro f in ;

2 0 u ro n

s %

S M

0 0

8 tr g s

to u

ro s

to e n e

s 1 1 )

es n

 P J u m

o b k

 D n te e: E g e G D P p li

ca

d it

io

, a

s

u ro

b ar a y m o ri

ti

s; 2

0

p ea

cy e

d t a y s; an iv a

l r (2 e:

 E

n e

ss

e n

(d B h

-g

rv se

is ti

n e: E

 E a

cc u th n tr u

S o u rc

B u

si ig s ta o f rc

e: E

n a

p

f a ll e S o

u rc o f p a ( d a

y

u ro

P o

li q u ir r ly c

o n b le s

b y

o rl

d s u r p ri o f ex S o

u rc

o a p ta ti

o n

o f

h o la

sh E s' b y

 I

e r

e se % E

a ( % S

o u h o

se

ti o

n

e: W (e

n te

a s

%

a r

e te d

l

c ce p li

ca

a s e:

 F S M r a rc e:

 E

T im rc r

p ri

S h r

s w u n a a p

u rc D

u S o u

R e je c

S o

u

E n

te o ff e S o

BE 4 : : : 0.039 5 72

BG 18 63 31 8.8 * 0.012 14 :

CZ 20 66 15 5.0 0.000 22 43

DK 6 : : 4.6 0.036 29 37

DE 15 : 19 : 0.018 26 35

EE 7 : : 6.0 : 45 24

IE 13 : : : 0.018 28 49

EL 19 : : : 0.002 36 168

ES 47 67 17 4.3 0.004 31 153

FR 7 : : : 0.019 19 64

IT 6 74 : 3.0 0.003 17 180

CY 8 : 5 : : 20 83

LV 16 61 43 13.7 : 38 32

LT 22 : : 8.2 * : 14 56

LU 19 79 : 4.6 0.102 12 :

HU 4 64 21 5.0 0.001 12 56

MT : : : : : 37 :

NL 8 62 : 3.6 0.019 54 47

AT 28 78 13 : 0.007 16 49

PL 32 : : : 0.000 25 38

PT 6 54 33 3.4 0.018 19 139

RO 10 77 27 1.3 0.000 48 :

SI 6 : : 5.0 : 19 :

SK 16 62 28 10.5 : 19 55

FI 14 70 17 2.9 * 0.033 0 24

SE 15 87 13 4.8 0.038 14 35

UK 13 : : : 0.026 20 47

weighted

EU27 23

EU

unweighted 15 69 22 5.6 0.020 24 68

max 47 87 43 13.7 0.102 54 180

min 4 54 5 1.3 0.000 0 24

Note: Share of high-growth enterprises as % of all enterprises - BG (2006), LT & FI (2005)

250