Innovation Sprint

The Western Balkans is lagging behind all Member States of the European Union in terms of innovation performance. The region needs to turn the current innovation paradigm on its head if it wants to catch up with the rest of Europe.

Some things are moving forward, but not quickly enough.

Innovation landscape in the Western Balkans

According to the latest European Innovation Scoreboard 2020 – a handy tool for countries to assess the relative strengths and weaknesses of their research and innovation systems – the region has seen some improvements.

Serbia as a “moderate innovator” and the regional leader has improved by 13.2% compared to the previous report. Similarly, North Macedonia and Montenegro have also strongly increased their performances (14.8% and 5.0%, respectively), but both are ranked as “modest innovators”.

InnovationThe remaining three economies are not covered by the Scoreboard (mainly because they failed to prived adequate data), but we are safe to conclude that Albania, Bosnia and Herzegovina and Kosovo are modest innovators.

Two economies from the Western Balkans are among the 10 best-ranked innovators by income group, according to the most recent Global Innovation Index 2020 (GII).

Montenegro ranked 49th, while Serbia scored 53rd among the top ten upper middle-income economies. Overall, North Macedonia ranked at 57th, Bosnia and Herzegovina 74th, while Albania ranked at 83rd position.

The most promising developments come from North Macedonia and Serbia that score above expectations for the level of their development.

Such results come as no surprise considering that the above two countries have their innovation funds in place. For a whole decade, Serbia’s Innovation Fund has been actively advocating for innovation and slowly rebuilding the innovation culture.

North Macedonia’s Fund for Innovation and Technology Development has become extremely active over the last couple of years. Their financial portfolio has soared 20+ fold with an increasing number of new innovation projects supported, even beyond the national borders.

The remaining three economies covered by the report, Montenegro, Bosnia and Herzegovina and Albania, scored in line with the level of development.

All in all, the Western Balkans viewed as a region is a modest innovator. Before we look into what can be done to frog leap the region’s innovation, let’s consider why the region is such a laggard.

Legacies of the past

Apart from Albania, other Western Balkans economies share the legacy of somewhat developed research and innovation ecosystem built during the former Yugoslavia. At least compared to what we have now.

However, we should bust the myth of extremely developed research and development sector in the former Yugoslavia. It is true that R&D expenditures prior to 1990 were much higher compared to the current investments, oscillating at around 1% of GDP.

The largest chunk of funding had been reserved for a few important institutes, most of which were commissioned for military programmes.

Apart from a few major companies, industry poorly cooperated with R&D sector. Only one in nine state-owned companies had created R&D units, most of which focused on small-scale research and struggled to keep their researchers motivated.

Significant sums of money could have been invested in transferring knowledge and developing genuine technologies, but the communist leadership preferred importing expensive technologies from the West.

The key innovation creators were research institutes and R&D centres at universities. With some exceptions, the same business philosophy has remained in place until the present.

Where are we now?

Most of the Western Balkans economies have adopted innovation strategies, including Smart Specialisation Strategies (S3) in Montenegro and Serbia. This is one, very formal, side of the coin.

The other side of the coin is poor implementation. Strategies are worthless without the strong and durable political commitment that translates to funds earmarked for innovation. The region’s governments overly rely on external funding, mostly from the EU.

The region’s governments utilitarian approach aimed at winning donor money from abroad for quick political wins is unsustainable.

All the region’s economies invest below 1% of GDP in innovation and research, the lowest you should invest to see the transformation of your economy. On average, the region languishes around 0,46% of GDP, almost five times that in the EU (2.19% of GDP).

Western Balkans Gross domestic expenditure on R&D

Western Balkans Gross domestic expenditure on R&D (Eurostat)

 Created by the author based on Eurostat

R&D intensity ranged in 2018 from 0.20% in Bosnia and Herzegovina to 0,92% in Serbia, compared with 2.19 % in the EU-27. The backwardness of the region is perhaps best illustrated when we compare R&D expenditure per inhabitant.

In 2018 Bosnia and Herzegovina invested a mere 10 EUR per inhabitant while Serbia invested 56 EUR. At the same time, the EU-27 average was EUR 662.

The region’s gross domestic expenditure on Research & Development in 2018 amounted to 295m EUR. To put things into perspective, the University of Cambridge’s annual research budget in 2018 amounted to about 644m EUR (£592.4m).

More than half of the EU-27’s R&D expenditure in 2018 was invested by the business sector, as opposed to the Western Balkans with less than one-third of all funds for R&D coming from the business enterprise sector.

Governments mostly pay lip service to focused innovation investments, while delivering peanuts.

The table below sourced from the OECD’s SMEs Policy Index 2019 shows the assessment scores for innovation-related dimensions. Scores range between 1 and 5, five being the most advanced level of policy development and implementation.

OECD - SMEs Policy Index 2019

The findings presented above show that some countries have improved significantly compared to others which is to be expected considering different stages of development. However, on average all lag behind more developed countries.

They leg, not necessarily because the level of Research & Innovation investment is low, but because the innovation policies tend to emulate policies in other countries, disregading various economic and political contexts.

Also, funding sources tend to prioritise supporting public research organisations whose efforts are focused on expensive creation of new technology, as opposed to raising awareness among the private sector owners to absorb technologies so as to become competitive. An increase in economic activity, in turn, can sustain investments towards developing completely new technologies.

Way forward

The innovation ecosystem in the Western Balkans is in its infancy. Developing any initiative among oft-confronted states is challenging in itself, let alone supporting schemes that usually pay off in a long run.

To start with, we need to fully understand the regional innovation needs. A mapping of the regional innovation ecosystem, gauging its strengths and weaknesses should be the first step.

We see regional innovation through a fragmented lense of various studies conducted mainly by international organisations. These efforts need to be better coordinated and focused.

Many players around the region attempt to imitate success stories from other countries, usually for the purpose of winning lucrative projects. Such initiatives mostly die when projects’ cycles end. We end up with diminishing returns.

What works best in one environment, does not necessarily translate to successful endeavour in a different setting. A number of factors contribute to turning a promising idea into a success story. Many regions in Europe had to learn this lesson hard way.

A robust regional innovation system will start developing when more private companies learn that innovative knowledge can work for their interests. Reaching this point is neither the straight upward curve nor easy.

Many more efforts are necessary towards the promotion of innovative enterprises, small and large teams that break the barriers of traditional economic models. Though some success IT stories have permeated the region in recent years, we desperately need fresh role models in other fields to encourage people to think and experiment with innovative solutions.

Firms’ inability to absorb available innovation funds calls for a different approach. The region’s governments need to design dedicated innovation financial instruments that strike the right cords with SMEs.

Another pertinent approach should be active promotion of open innovation practices with European and global suppliers. The region’s firms across the region need encouragement to seek the best solutions through the process of open innovation.

We see examples of effective support schemes through Serbia’s Innovation Fund and North Macedonia’s Fund for Innovation and Technology Development. The remaining Western Balkans economies can learn from their experiences to build robust innovation ecosystems at home.

Unfortunately, the magic wand does not exist. Policy-makers and companies must create more space for experimentation. Innovation is all about trial and error, rinse and repeat until something really works.

By admin

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