“Socio-Economic and SWOT analysis of the South Baltic Cross-border Cooperation Programme area”

Authors:

Lutz Laschewski

Manuela Peters

Carsten Schürman

Justin Sismey

Wiktor Szydarowski

Pawel Warszycki

February 2014

Content

Executive Summary ...... 4

Socio-economic Megatrends and their consequences ...... 9

The Programme Area...... 11

Society ...... 15

Population...... 16

Demographic structure and ageing society ...... 22 Culture and Identity ...... 25

Disposable Income ...... 26

Economy ...... 27

Economic Performance ...... 27

Production ...... 28 Economic Growth...... 29 Labour Market ...... 31 Economic Structures ...... 34

Employment by Economic Activity ...... 34 Value Added ...... 36 Structure of Businesses ...... 36 Tourism ...... 37 Internationalisation ...... 42

Human Resources, Knowledge Economy and Innovation ...... 45

Educational System ...... 45 Higher Education, Research and Development ...... 48

Regional Innovation Scores...... 51

Business innovation ...... 53

In-house Innovation ...... 53 Technology and Knowledge-Intensive sectors...... 54 Creative Industry ...... 55

Interim conclusions 1: Internationalisation and Innovation...... 57

Environment ...... 58

Protecting the Environment and Promoting Resource Efficiency ...... 59

2 Eutrophication ...... 59 Pollution /Hazardous substances...... 59 Biodiversity & Fish Resources ...... 60 Pressures...... 60 Low Carbon Economy...... 61

Wind Energy ...... 61 Wave Energy...... 62 Bioenergy ...... 62 Energy Grid and Storage Capacities ...... 64 Climate Change Adaptation and Risk Prevention and Management ...... 64

Interim Conclusions 2: Blue and Green Growth ...... 65

Transport and Communication Infrastructure...... 66

Accessibility ...... 66

Inland transport...... 71

Maritime transport ...... 71

Air transport ...... 72

Directions of transport investment policies ...... 72

Broadband/IT Infrastructure ...... 73

Literature ...... 75

List of Figures ...... 78

List of Tables ...... 79

SOUTH BALTIC SWOT ANALYSIS ...... 80

3 Executive Summary

The Socio-Economic Analysis of the South Baltic Cross-border Cooperation Programme area comprises six thematic areas: the Programme Area, Society, Economy, Human Resources, Knowledge Economy and Innovation, the Environment and the Transport and Communication Infrastructure.

The programme area includes the following NUTS III units:

 in Poland1 (PL): Miasto Szczecin, Szczeciński, Stargardzki, Koszaliński, Słupski, Starogardski, Gdański, Trojmiejsk (Gdańsk-Gdynia-Sopot) and Elbląski;  in Sweden (SE): Kalmar, Blekinge, Skåne and Kronoberg Counties;  in Germany (DE): districts (Landkreise) of Mecklenburg-Vorpommern: Nordwestmecklenburg, Rostock, Vorpommern-Rügen, Vorpommern-Greifswald and district-free city (kreisfreie Stadt): Rostock;  in Denmark (DK): Regional Municipality of Bornholm and Zealand (Østsjælland, Vest- og Sydsjælland); and  in Lithuania (LT): Klaipėda, Tauragė and Telšiai Counties.

(1) The programme area is rather unique. Its maritime cross-border character is strongly defined by the Baltic Sea in the centre of the programme area and determines specific conditions for cooperation.

(2) South Baltic Society is characterised by comparatively strong disparities both culturally as well as socio-economically. The population of 8.9m (about half of which live in Poland), has remained relatively constant in recent years. Where there have been decreases in some parts (LT, DK, DE) this has been counterbalanced elsewhere across the region (PL, SE). The reason for this small growth is largely due to both the natural change of population as well as net migration. A result, in the main, of the outflow of young people from rural areas seeking better education and job opportunities in large urban centres. The population is mainly concentrated in urban areas, accounting for some 70% of the total, with a population density being well below the EU average, while large parts of the SB area are rural in character. Coastal regions across the programme area reflect a general trend common for almost all coastal regions in having high levels of attractiveness as a place to work and live.

Age structures are diverse though the problems linked with an ageing society present, in themselves, many challenges that, amongst others, pose a pressing question about future supplies of labour in the region. Reductions in the working population have occurred for a variety of reasons including decreasing birth rates (prevalent in DE, PL and LT) and the “brain-drain” phenomenon. A cursory glance indicates that there is a more pronounced problem in respect of the working population decrease in the eastern parts of the region (DE, PL and LT) which appears to be less of an issue in the northern parts (DK and SE) while this is mirrored (geographically speaking), to some extent, with the ageing population increasingly an issue from North of the region (DK and SE) to the South-East (DE, PL and LT).

1 1 NUTS III area in Poland stands for sub-region, the groupings of sub-regions form NUTS II administrative units at regional level (voivodships)

4 It can be appreciated that the structure of ages also runs through to where those who have retired are located in the region. High concentrations of the over 64s are resident in coastal regions with the higher levels being evident in the North and West of the region (DK, SE and DE) with decreasingly lower concentrations apparent in the more eastern regions with the exception of the Trojmiejsk agglomeration.

In terms of its culture and identity the Programme area has 5 languages though none of these is a regional lingua franca with English having become the de facto main language in the region. Nevertheless, English language skills become increasingly weaker the further east while areas to the north (DK and SE) are both much more confident about their English language abilities.

The Baltic Sea itself is also a source of common identity for the region and with that the coastal landscapes, the wetlands and the climate as well as the region’s forests together with the associated economies and trades that were shared by the peoples, such as fishing, sea trade and forestry. With regard to the cultural heritage of the Programme area it is undoubtedly the Hanseatic League that has left its indelible imprint across the South Baltic Region.

With regard to disposable income substantial disparities can be observed. However, the region has generally experienced steady growth from 2004 to 2012 though this was not the case in Lithuanian counties where, although the data here refers to 2007-2011, more recent years (specifically 2008 to 2011) indicate that Lithuanian counties buck the regional trend. In summary, household income in the region has increased in the face of the economic downturn in 2008.

(3) The South Baltic member states and their regions differ substantially with regard to economic performance. The average value of GDP per capita in the Swedish (SE) sub-regions is more than four times the respective average values of the Polish (PL) and Lithuanian (LT) parts of the region. Although higher purchasing power in the Eastern areas is somewhat levelling the economic differences within the region, they remain substantial.

Between 2003 and 2010 the mean absolute growth of GDP per capita in the South Baltic (SB) NUTS III regions was €3,600, ranging from €1,800 (Nordwestmecklenburg) to €6,600 (Rostock). The growth is unevenly distributed within the whole region. Polish and Lithuanian sub-region growth rates remain substantially higher than the respective values of the other regions.

Before the financial crisis in 2008 the South Baltic labour market experienced substantial growth, while the economic shock that followed reduced employment. The unemployment rates in the eligible area have been increasing for all regions since 2009. The only exception is Mecklenburg- Western Pomerania, which has seen a decline since 2007. Youth unemployment remains a problem in almost all regions, with a significantly higher rate than the region’s overall unemployment rate.

Some barriers have been identified which hamper labour mobility, such as a lack of information and institutional barriers, as well as the absence of both cultural and language skills. Despite the fact that labour mobility is generally perceived as positive, a long negative migration balance may have substantial negative social effects.

The analysis of the economic structure shows that growth and higher incomes are positively correlated with the share of high qualified mostly service sector activities, while the more deprived parts of the regions show overcapacities in “old” industries and the primary sector. One of the main service activities of the South Baltic area is tourism. The economic sector is a good source of

5 employment (especially for women), however the average income generated in this economic branch relates to the lowest ones.

There is a growing consensus that internationalisation of business activities is comparatively weak in parts of the region, and that there is untapped potential for further integration of economic activities within the whole programme area.

(4) Small and micro-businesses dominate the economy in the South Baltic region. Ensuring its technological capability and power of innovation is an important prerequisite for the Baltic Sea region being able to compete with other regions in the global market in future. The extent of these factors in turn depends, among other things, on the availability of qualified labour and on research and development activities. In this context, this section explores the educational system, the Higher Education and Research & Development sector and business innovation.

The analysis shows that a solid educational base in the South Baltic area is an unused source to be utilised for knowledge and research-intensive industries. The South Baltic area has a well-developed educational infrastructure featuring a high number of universities and vocational colleges with an extensive array of curricula covering nearly all aspects of sciences and humanities. In addition, the number of graduates with a tertiary education in countries such as Denmark, Lithuania and Sweden are higher than the EU-27 average. Further, the South Baltic area records a good performance of educational systems with regard to early school leavers.

The South Baltic area has a relatively strong and fast growing creative industry, with high innovation performance of the regional economies in the north-western part and in populated urban areas. At the same time, the transition economies of the programme regions in the new EU member states demonstrate low survival rates and growth trajectories among SMEs, the innovation capacity of which is rather poor (e.g. as measured by the number of patents). Less developed business support and financing structures in the eastern South Baltic regions hamper the development of innovative products and services in the blue and green sector. Similar gaps in innovation performance exist between the urban and rural areas in all of the programme’s regions.

There are numerous Research and Technology Development (R&TD) centres in the South Baltic area that is generally characterised by rather good accessibility to the institutions dealing with R&D, not only in the main urban areas but also in the smaller towns. However, they are mainly focused on the research element without linkage to their regional context.

With regard to Regional Innovation Scores there are large differences within the SB region. SB districts are mostly situated in regions that perform poorer than the national average. It is only the Swedish region of Sydsverige and parts of the Danish SB region that perform alike. This trend is also reflected in the performance of business innovation, knowledge intensive sectors and creative industries.

(5) The main environmental issue is the eutrophication and pollution, through hazardous substances, of the Baltic Sea. The Baltic Sea Action Plan’s central theme is focussed on turning adversity into opportunity by way of defining a target state that can increase momentum toward a better future for the Baltic Sea Region and which also creates substantial commercial opportunities around “blue” and green” business models in responding to the necessary environmental challenges faced by the region. Representatives in the private sector are in a good position to aid this change; as

6 eutrophication, hazardous substances both on land and at sea and overfishing are intensifying, so is the international demand for blue and green solutions. By leveraging local capabilities and resources to specifically address the adversities the Baltic Sea faces, the region could potentially evolve into an innovation hub for blue and green technologies.

Becoming a blue and green hub and gaining global leadership could generate significant environmental benefits and a long-term competitive advantage, plus the potential to attract international companies and talent.

Many other topics (biodiversity loss, health, climate change impact) are also closely linked with the issues described elsewhere in this report. Moreover, many activities that are key to further development in the SBA (e.g. increasing transportation, tourism) may form an additional pressure in respect of Baltic Sea eutrophication and pollution. With regard to biodiversity the complete loss or fragmentation of habitats is also of great concern.

In relation to a low carbon economy there is no specific data for SBA available. However, national data shows that all SBA countries have already met or are close to meeting the 20 per cent reduction target set by the European Union. As regards renewable energies the track record is heterogeneous. While Sweden, Denmark and also Germany take a leading position with regard to renewable energy, Poland and Lithuania are lagging behind. In the SBA the main focus has been on the use of Wind Energy. Additional and perhaps even greater potentials are seen in the use of wave energy, but this still requires some technological innovations. Furthermore, connecting into the energy grid as well as energy storage remain important but, as yet, unresolved issues.

Climate change will have – in comparison to other parts of the European Union - moderate effects on the SBA. A rising water temperature is a concern, particularly in conjunction with eutrophication. In the long term rising water levels will require attention.

(6) Accessibility is a major issue in the South Baltic area. Vast parts of the area suffer from modest potential accessibility to population, with indices below the EU-27 average. This results from the scattered settlement structures and the somewhat considerable distance to the populated metropolitan areas (such as Berlin, Copenhagen-Malmö and Gdansk-Gdynia). Despite large infrastructure investments in recent years to reduce disparities in this accessibility, differences in infrastructure endowment between the programme regions remain noticeable. In addition, the transport system of the South Baltic area lacks region-to-region airborne connections, especially across the Baltic Sea (despite the overall steep growth in air passenger transport in EU-27) and more frequent railway and ferry connections to improve direct connectivity.

Despite the infrastructure deficits, there has been a significant growth of interregional travel in the South Baltic area, in both north-south and east-west directions. This is largely based on private car transportation and the use of heavy goods vehicles, particularly in the eastern part of the programme area as well as the less populated regions. The advancing car-based mobility pattern and an emerging east-west divide in modal split (as rail transport has a strong foothold in Denmark and Sweden in contrast to significantly decreasing figures in Lithuania and Poland, particularly) pose a serious challenge to the ambitions of the European Commission to shift 30% of road freight over 300 km to other modes such as rail or waterborne transport, by the year 2030.

7 Harbours and the connected logistics are an important part of the SB region’s economy. Cargo volumes transported through the South Baltic Sea waters are on the rise back towards the levels preceding the economic downturn in 2008. However, this sector is undergoing a major restructuring process.

The data on access to broadband reflects the same infrastructure disparities between Western and Eastern parts and urban and rural areas as described above.

8 Socio-economic Megatrends and their consequences

At the beginning of the 21st century, the regions worldwide faced at least four megatrends, which are historically without precedence:

Globalisation process

Although existing for a longer period, a new quality of regional development processes has been created during the last two decades. The global economy has created new challenges for regions, influencing their way of development. As a consequence, it is necessary to create new conditions for socio-economic growth at the regional level to support competitiveness of business (especially SMEs) in the international context.

Knowledge Economy

One of the most significant consequences of globalisation - is that knowledge (including education, research and development and know-how) has become a critical factor for sustaining competitiveness and development of regions. Nowadays, as economic growth is influenced by intensive global competition and rapid technological change, a well-educated, highly skilled and creative workforce (called a creative class by R Florida), becomes a key-factor for economic growth. Additionally, knowledge to be fully exploited, demands an entrepreneurial spirit and capacity to develop innovative products and services taking into account existing market opportunities.

Demographic Change

The EU, including the South Baltic regions, faces a significant problem of an ageing society with all the related consequences. Demographic change becomes one of the most important challenges (especially in non-metropolitan regions) for economic growth and social development in the future. This aspect should be considered as a crucial one in the context of a knowledge based economy as a driving force for regional development.

Clean Water

One of the largest global megatrends is the lack of clean water where about 20% (1.2bn) of the world population has no access to clean water while water scarcity and water pollution are increasing globally. At a regional level clean water is also a challenge because clean water is imperative to assure good quality future living conditions and is a linchpin for the Baltic Sea Region’s common goal, namely a cleaner, safer, more attractive and prosperous area as a whole.

The megatrends described above imply fundamental consequences:

(1) Competition about the Creative Class - global competition changed its paradigm from a competition in respect of products and services into a race for creative talents and entrepreneurial skills. (2) New Global Hierarchy of Regions - as a consequence of the change of paradigm for growth, a new distinctive hierarchy of knowledge intensive regions is emerging. At the top are the regions (predominantly urban areas) with a critical mass of knowledge-based business and

9 research clusters acting within an innovative framework. At the bottom of this hierarchy of regions are mostly less populated agricultural and old-industrial areas. (3) Innovation in Non-Metropolitan Areas - however, even in structurally weak, non- metropolitan areas an innovation, supported by regional policy based on a “smart specialisation approach” can lead to sustainable growth and development. A mix of important traditional economic sectors with creative industry and key-enabling technologies such as, for example nanotechnology, micro and nano-electronics, advanced materials, photonics, biotechnology and advanced manufacturing systems can be a success factor for development.

10 The Programme Area

The programme area includes the following NUTS III units:

 in Poland2 (PL): Miasto Szczecin, Szczeciński, Stargardzki, Koszaliński, Słupski, Starogardski, Gdański, Trojmiejsk (Gdańsk-Gdynia-Sopot) and Elbląski;  in Sweden (SE): Kalmar, Blekinge, Skåne and Kronoberg Counties;  in Germany (DE): districts (Landkreise) of Mecklenburg-Vorpommern: Nordwestmecklenburg, Rostock, Vorpommern-Rügen, Vorpommern-Greifswald and district-free city (kreisfreie Stadt): Rostock;  in Denmark (DK): Regional Municipality of Bornholm and Zealand (Østsjælland, Vest- og Sydsjælland); and  in Lithuania (LT): Klaipėda, Tauragė and Telšiai Counties.

Figure 1 Eligible area of the South Baltic Programme

Source: C. Schürmann, RRG, 2013

The programme area is rather unique in the context of cross-border cooperation programmes and is, in its socio-economic structure, strongly influenced by its geographical conditions. The whole area amounts to 118520.5 km2 (including 32905.8 km2 of adjacent regions) and differs from the previous programming period of 2007-2013. The change of the geographical structure, due to the administration reform implemented in Mecklenburg-Vorpommern (Germany) in 2011, included the former Güstrow county and Bad Doberan and, therefore, enlarged the programme area (all sub-

2 1 NUTS III area in Poland stands for sub-region, the groupings of sub-regions form NUTS II administrative units at regional level (voivodships)

11 regions covered by the programme are listed in Table 1)3. All the territorial units of the programme belong to the Baltic Sea region and are, at the same time, covered by the Baltic Sea Region Programme on the transnational, macro level.

Table 1 Total eligible area in year 2011 (Square Km2)

Country NUTS III GEO/TIME Km2 DK014 Bornholm 588.3 Denmark DK021 Østsjælland 807.8 DK022 Vest- og Sydsjælland 6,409.9 DE801 Greifswald, Kreisfreie Stadt 50.5 DE803 Rostock, Kreisfreie Stadt 181.3 DE805 Stralsund, Kreisfreie Stadt 39.1 DE806 Wismar, Kreisfreie Stadt 41.6 DE807 Bad Doberan 1,362.4 Germany DE809 Güstrow 2,058.8 DE80D Nordvorpommern 2,173.5 DE80E Nordwestmecklenburg 2,076.5 DE80F Ostvorpommern 1,911.4 DE80H Rügen 977.7 DE80I Uecker-Randow 1,624.7 LT003 Klaipedos apskritis 5,209.0 Lithuania LT007 Taurages apskritis 4,411.0 LT008 Telsiu apskritis 4,350.0 PL422 Koszalinski 10,402.0 PL423 Stargardzki 6,838.0 PL424 Miasto Szczecin 301.0 PL425 Szczecinski 5,351.0 Poland PL621 Elblaski 7,497.0 PL631 Slupski 8,184.0 PL633 Trojmiejski 414.0 PL634 Gdanski 4,444.0 PL635 Starogardzki 5,268.0 SE212 Kronobergs län 9,430.1 SE213 Kalmar län 11,694.0 Sweden SE221 Blekinge län 3,055.4 SE224 Skåne län 11,368.5 Source: EUROSTAT, Area - NUTS 3 regions [demo_r_d3area], Extracted on 18.09.13

The maritime cross-border character is strongly defined by the Baltic Sea in the centre of the programme area and determines specific conditions for cooperation, i.e. on the one hand, the Baltic Sea is a natural barrier for cooperation and on the other hand, cooperation within the region has a long tradition with it roots coming directly from the Middle Ages. The footprints of the region’s common history can be observed in many aspects (e.g. architecture or culture) and this creates a

3 The map of Programme Area for the funding period 2014-2020 presents the German sub-regions after the administrative reform entered into force in the year 2011, although for the analytical part the old administrative structure was used because of lack of access to the statistical data (EUROSTAT) for the new sub-regions (Landkreise).

12 natural platform for cooperation. However, the strong socio-economic disparities within the region require additional efforts to bring about increasing convergence, or rather, more parity across the programme area.

The South Baltic region, with its non-metropolitan, mostly rural character, reflects a strongly fragmented settlement structure. The population is concentrated in the largest urban centres, which are the main poles of social and economic development (See Figure 2 below). This population potential in Figure 2 details the spatial distribution of the population across the SBR and measures both accessibility and population densities. Thus, the more concentrated the population is around given points, the higher the surrounding population densities, and the higher the population potential.

Figure 2 South Baltic: Population potential (50km radius), 2007

Source: RRG, 2007e

The South Baltic region displays a relatively consistent landscape appearance with large green areas including forests and numerous lakes. At the same time, its sub-regions have a similar coastal character (most of the programme area is situated within 50 km of the coastline).

Although the border negatively influences cooperation within the region over the Baltic Sea and significant socio-economic disparities between eastern and western parts, the common tradition, the natural landscape, the maritime character of the whole region and the already existing networks, nevertheless create a common interest and huge potential for further development on a cross- border basis. However, the settlement structure and economic activities (e.g. maritime industry, agriculture and tourism) connected to the region’s natural resources provide something of a

13 challenge for sustainable development. This creates a strong demand for appropriate framework conditions, taking into account the rural character of the whole area and the specific challenges (social, economic, political, demographic and ecological) relating to the sustainable growth of what is a rather heterogenic region (in the socio-economic and cultural sense). Evident geographical fragmentation of economic activities with their concentration on urban centres and coastal areas (mostly connected to the tourism), may cause problems from an ecological perspective, mostly relating to the environmental protection infrastructure. A number of natural conflicts of interest between for example, coastal parts of the region and hinterland, urban and rural areas, economic activities and environmental protection as well as socio-economic disparities, create a significant need for common cross-border activities contributing to the convergence process.

14 Society

This section compromises four parts:

 Population

 Demographic Structure and Ageing Society

 Culture and Identity

 Disposable Income

In terms of population in the Programme area the key issues are that of a population of 8.9m, population levels that have remained relatively constant (an overall increase of just less than 1% since 2007) though where there have been decreases in some parts (LT, DK, DE) this has been counterbalanced elsewhere across region (PL, SE). The reason for this small growth is largely due to both the natural change of population as well as net migration. A result, in the main, of the outflow of young people seeking better education and job opportunities in large urban centres.

The population is mainly concentrated in urban areas, accounting for some 70% of the total, with a population density being well below the EU average, while coastal regions across the programme area reflect a general trend common for almost all coastal regions in having high levels of attractiveness as a place to work and live.

Age structures are diverse though the problems linked with an ageing society present, in themselves many challenges that, amongst others, pose a pressing question about future supplies of labour in the region. Reductions in the working population have occurred for a variety of reasons including decreasing birth rates (prevalent in DE, PL and LT) and the “brain-drain” phenomenon. A cursory glance indicates that there is a more pronounced problem in respect of the working population decrease in the eastern parts of the region (DE, PL and LT) which appears to be less of an issue in the northern parts (DK and SE) while this is mirrored (geographically speaking), to some extent, with the ageing population, increasingly an issue from North of the region (DK and SE) to the South-East (DE, PL and LT).

It can be appreciated that the structure of ages also runs through to where those who have retired are located in the region. High concentrations of the over 64s are resident in coastal regions with the higher levels being evident in the North and West of the region (DK, SE and DE) with decreasingly lower concentrations apparent in the more eastern regions with the exception of the Trojmiejsk agglomeration.

In terms of its culture and identity the Programme area has 5 languages though none of these is a regional lingua franca with English having become the de facto main language in the region. Nevertheless, English language skills have become increasingly diluted the further east while areas to the north (DK and SE) are both much more confident about their English language abilities.

The Baltic Sea itself is also a source of common identity for the region and with that the coastal landscapes, the wetlands and the climate as well as the region’s forests together with the associated economies and trades that were shared by the people, such as fishing, sea trade and forestry. With

15 regard to the cultural heritage of the Programme area it is undoubtedly the Hanseatic League that has left its indelible imprint across the South Baltic Region.

In more recent years the South Baltic has been able to develop cross border networks, projects and initiatives that have common aims and goals for the benefit of the South Baltic. Many of these projects have been realised through the South Baltic Programme though there have also been many other private co-operations such as town twinning activities and other euro-regional partnerships that have benefitted the Programme area’s regions, towns and people.

With regard to disposable income the region has generally experienced steady growth from 2004 to 2012 though this was not the case in Lithuanian counties where, although the data here refers to 2007-2011, more recent years (specifically 2008 to 2011) indicate that Lithuanian counties buck the regional trend. In summary, household income in the region has increased in the face of the economic downturn in 2008.

Population

The total population of the South Baltic Region was approximately 8.9 million people in 2011 with about half living in Poland (ca. 4.5m).

Table 2 Population on 1 January 2012- total Inhabitants

NUTS III GEO/TIME 2007 2008 2009 2010 2011 DK014 Bornholm 43135 42913 42659 42255 41896 DK021 Østsjælland 232200 232459 233605 234574 235519 DK022 Vest- og Sydsjælland 583918 586968 587647 585990 584244 DE801 Greifswald, Kreisfreie Stadt 53434 53845 54131 54362 54610 DE803 Rostock, Kreisfreie Stadt 199868 200413 201096 201442 202735 DE805 Stralsund, Kreisfreie Stadt 58288 58027 57866 57778 57670 DE806 Wismar, Kreisfreie Stadt 45182 45012 44730 44470 44397 DE807 Bad Doberan 119486 118677 118103 117430 117197 DE809 Güstrow 104294 102762 101150 99943 98992 DE80D Nordvorpommern 110906 109448 107963 106664 105547 DE80E Nordwestmecklenburg 119362 118677 117784 117033 116026 DE80F Ostvorpommern 109219 108138 106875 105924 105036 DE80H Rügen 70459 69716 68872 68126 67526 DE80I Uecker-Randow 76262 75392 74194 73027 72137 LT003 Klaipedos apskritis 379472 378843 378221 376549 340047 LT007 Taurages apskritis 128679 127378 126056 124755 110511 LT008 Telsiu apskritis 174573 173383 172438 171132 152594 PL422 Koszalinski 592834 591964 591693 591796 604906 PL423 Stargardzki 375778 375124 375056 374707 381295 PL424 Miasto Szczecin 409068 407811 406941 406307 410245 PL425 Szczecinski 315158 317372 319267 320388 327295 PL621 Elblaski 530616 529864 529810 529620 538474 PL631 Slupski 478187 478345 479594 480448 490173 PL633 Trojmiejski 748126 745113 743659 742910 748828 PL634 Gdanski 489826 498360 505881 514420 532663 PL635 Starogardzki 487456 489102 490378 492321 503830 SE212 Kronobergs län 179635 180787 182224 183162 183940

16 NUTS III GEO/TIME 2007 2008 2009 2010 2011 SE213 Kalmar län 233776 233834 233397 233639 233536 SE221 Blekinge län 151436 151900 152259 152591 153227 SE224 Skåne län 1184500 1199357 1214758 1231062 1243329 Source: EUROSTAT, Demographic balance and crude rates - NUTS 3 regions [demo_r_gind3], Extracted on 18.09.13

Figure 3 Population in South Baltic Region, 2011

DK; 861.659; 10% SE; 1.814.032; 20% DE; 1.041.873; 12%

LT; 603.152; 7%

PL; 4.537.709; 51%

DK DE LT PL SE

Source: own calculations based on EUROSTAT 2013.

In comparison to 2007, the total level of the population in the Programme area increased slightly from 8,785,133 up to 8,858,425 (an increase of just less than 1%) in 2011, however there were significant differences between the countries in the demographic development. Swedish and Polish regions have a positive demographic balance. Germany and Lithuania observe a permanent negative development and in Denmark a negative population balance can be observed in 2010 and 2011. There are two phenomena to be noticed: in the year 2011 there is a significant positive demographic peak to be observed in PL (1.9%) and a negative change of 10.3% in LT due to outmigration, which is, perhaps, typical for regions experiencing the effects of the last economic crisis (2008-2009).

Table 3 Percentage population change in the Programme area

Area 2008 2009 2010 2011 South Baltic total 0,18% 0,20% 0,19% 0,27% PL 0,14% 0,21% 0,24% 1,90% LT -0,46% -0,43% -0,63% -10,30% SE 0,94% 0,95% 1,00% 0,75% DK 0,36% 0,18% -0,13% -0,13% DE -0,62% -0,69% -0,62% -0,41% Source: own calculations based on EUROSTAT 2013.

17 Figure 4 Percentage population change in the Programme area per country

Source: own calculations based on EUROSTAT 2013 (*the Lithuanian data for 2011 have been excluded because it includes large statistical adjustments).

The urban population in the South Baltic area amounts to around 70% of the total population. The highest concentration rate, besides the metropolitan sub-regions of Malmö (Skåne, SE), Szczecin (PL) and Trojmiejski (PL), can be observed in the urban areas of Greifswald, Rostock, Stralsund and Wismar while the lowest are in the Taurage (LT), Kalmar and Kronobergs (SE) Stargardzki (PL), Bornholm (DK) and Uecker-Randow (DE) sub-regions (see also Figure 2). Figure 4 above shows that there is a positive population dynamic in Poland and Sweden, there is a (continuous) negative population change in Mecklenburg-Vorpommern and Lithuania, while the picture in the Danish parts of the SBR is mixed. In the Swedish SB regions population growth is slightly higher in the urban regions, while it is hovering around +/- 0 in the less populated regions of Kalmar and Blekinge. The population surplus is based on positive net migration. In the Polish regions net migration is more or less balanced but slightly negative, except in the suburban areas of two agglomerations Trojmiejski and Szczecin, but a strong natural population growth has partly compensated for rural net migration. However, in the remoter, eastern Polish rural areas the total population change is still negative.

The situation in Mecklenburg-Vorpommern is a different one. In comparison to other SBR negative population trends are neither due to its rural structure nor to poor accessibility, but mainly as a result of the German demographic phenomenon of an ever decreasing birth rate. Since the birth rates are higher in other SB regions, they show a much more even age structure than the German SB region does (see also Fig 12).

The population density is about 75 inhabitants per km2, and therewith, far below the European average of about 117 per km2 (for a comparison with the SBR and the SBR average see Figure 5 below) and varies between 20.8 inhabitants per km2 in Kalmar län and 1793.9 inhabitants per km2 in Trojmiejski metropolitan sub-region. Again, population density values differ between the countries and sub-regions. However, none of the national values is higher than the European average. Strong density concentrations in urban settlements (especially large city agglomerations) within largely rural and partly even remote rural regions (see Figure 6 and Table 4 below) determine negative effects in the socio-economic aspects for the whole South Baltic region (e.g. reduction of access to public services in the rural regions or environment/infrastructure related challenges for the urban areas) and thus, creates demand for actions towards more sustainable regional development.

18 Figure 5 Population Density SBR 2011

DK 110,4 PL 93,2 DK DE 83,4 SBR average 74,7 DE (MV) SE 69,5 LT LT 43,2 PL SE SBR average

Source: own calculations based on EUROSTAT 2013.

Figure 6 Population density in the Programme area, by NUTS III regions, 2010

Source: EUROSTAT, Extracted on 18.09.13, HIE-RO, SBR

19 Figure 7 Share of population living within 50 km from the coastline, NUTS III, 2001

Source: Eurostat GISCO database in: I. Collet, Agriculture and fisheries Statistics in focus, 38/2010

Figure 7 displays a general trend common for almost all coastal regions having high levels of attractiveness as a place both to work and live. Existing data shows a high value of the coastal area, taking into account both the standard and quality of life. This creates, on the other hand, a strong concentration effect of the socio-economic activities on what are some rather environmentally sensitive areas whilst, at the same time, this situation threatens with a socio-demographic negative impact on the local communities, e.g. there is a conflict caused by the unequal access to the workforce either because of brain-drain or a disparity of potential accessibility to the GDP between the coastal area and the immediate hinterland.

Table 4 Population density in the South Baltic region

NUTS III GEO/TIME 2010 DK014 Bornholm 71,5 DK021 Østsjælland 291,0 DK022 Vest- og Sydsjælland 90,5 DE801 Greifswald, Kreisfreie Stadt 1078,7 DE803 Rostock, Kreisfreie Stadt 1114,9 DE805 Stralsund, Kreisfreie Stadt 1478,2 DE806 Wismar, Kreisfreie Stadt 1067,3 DE807 Bad Doberan 86,1 DE809 Güstrow 48,3 DE80D Nordvorpommern 48,8 DE80E Nordwestmecklenburg 56,1 DE80F Ostvorpommern 55,2 DE80H Rügen 69,4 DE80I Uecker-Randow 44,7 LT003 Klaipedos apskritis 79,5 LT007 Taurages apskritis 28,5 LT008 Telsiu apskritis 40,0 PL422 Koszalinski 56,9 PL423 Stargardzki 54,8

20 NUTS III GEO/TIME 2010 PL424 Miasto Szczecin 1348,7 PL425 Szczecinski 60,0 PL621 Elblaski 70,6 PL631 Slupski 58,7 PL633 Trojmiejski 1793,9 PL634 Gdanski 116,7 PL635 Starogardzki 93,6 SE212 Kronobergs län 21,7 SE213 Kalmar län 20,8 SE221 Blekinge län 51,9 SE224 Skåne län 112,1 Source: EUROSTAT, Population density - NUTS 3 regions [demo_r_d3dens], Extracted on 18.09.13

Table 4 above, which provides NUTS III data in respect of population density, shows that the highest inhabitants per km² concentrations within the SBR can be found in Trojmiejski (1793.9), Stralsund (1478.2) and Miasto Szczecin (1348.7) while at the other end of the scale Kalmar län (20.8), Kronobergs län (21.7) and Taurages apskritis (28.5) are the least dense (EU average is 117. SBR, average is 74.7).

Overall, population has been growing over the last few years with surpluses both in the natural change of population as well as through net migration. However, population dynamics differ strongly between SBR countries as well as between urban and rural areas. Negative migration balance in rural areas and smaller urban centres is caused mainly by the outflow of young people seeking better education and job opportunities in large urban centres. For areas with a negative migration balance it is a challenge to preserve and create attractive jobs, also for highly qualified people, in order to stem the outflow of people. Figure 8 below details the concentrations of net migration across the South Baltic region.

Figure 8 Net migration 2005-2010, by NUTS III

Source: EUROSTAT, Extracted on 18.09.13, HIE-RO, BBR

21 Demographic structure and ageing society

Age structures within the programme area vary strongly and present the ageing society as a common challenge for the whole region. In 2012, 64.6% of the whole population was in the productive age, which indicates a negative trend, compared to the same indicator for 2005 (65.1%). However, the population structure by age groups shows a strong imbalance for the coming decades. The ageing of the population is a common challenge for the South Baltic area and makes the question of the future labour supply pressing. However, there are different factors that have determined the demographic change in the South Baltic sub-regions, e.g. in LT and PL the negative population structure is mostly determined by negative migration but also by a reduced birth rate. In Mecklenburg-Vorpommern (DE) apart from brain-drain caused by negative migration balance, population trends are neither due to its rural structure nor to poor accessibility, but is mainly the result of the German demographic phenomenon of an ever decreasing birth rate. Although the percentage of the population in productive age in the Swedish and Danish regions is lower than in PL, DE and LT, the overall structure is more balanced and therefore the problem of an ageing society in the coming decades does not appear to be as significant as in PL, LT and DE.

Figure 9 Percentage of South Baltic population in productive age, year 2012

SE

PL

LT All Ages Age 15-64 DE

DK

0 1.000.000 2.000.000 3.000.000 4.000.000 5.000.000 6.000.000

Source: own calculations based on EUROSTAT 2013.

Figure 9 above shows that, as at 2012, Polish regions have the highest indices in terms of population in productive age while the lowest is found in the German regions.

22 Figure 10 Change of the population in productive age between 2008 and 2012 in relation to the total population in South Baltic area per country

6.000.000,00

5.000.000,00

4.000.000,00 2008 Age 15-64

3.000.000,00 2012 Age 15-64 2008 All Ages 2.000.000,00 2012 All Ages

1.000.000,00

0,00 DK DE LT PL SE

Source: own calculations based on EUROSTAT 2013.

Figure 10 above indicates that there were decreases in productive age population in DE (moderate), and LT (more significant) for both ages 15-64 and All Age categories from 2008 to 2012. Increases were more apparent in Poland for both categories whilst Denmark and Sweden mirrored each other with both having relatively static indices for age 15-64 and slight increases from 2008 to 2012 for all ages. Figure 11 below shows the 5 year groupings of population per country. Of particular note, indicated by means of a curve, is the projected ageing population across respective countries (but also mirrored in the SBR) which is less pronounced in Sweden and Denmark but increasingly apparent in Lithuania while more significant in Poland and Germany.

Figure 11 Population on 1 January 2012 by five years age groups - aggregated per country

Source: own calculations based on EUROSTAT 2013.

23 Figure 12: Share of population aged 65 years and more in coastal regions

Source: Eurostat GISCO database in: I. Collet, Agriculture and fisheries Statistics in focus, 38/201

The process of demographic change appears to have an enormous impact on all economic sectors in the South Baltic region and therefore on the general social circumstances that define the attractiveness of the region for growth and jobs. Figure 12 above indicates that (within the context of the EU) SBR regions reflect variations of the share of the population aged 65 years and more. Lower levels are evident in Polish and Lithuanian regions (except for the Trojmiejsk agglomeration) while increasingly higher concentrations of this population index are found further west in German, Danish and Swedish regions.

24 Culture and Identity

While there are many studies about the transportation, economic structures and the Baltic Sea, surprisingly little information is available that reflects on differences in everyday life, worldviews, languages and identities of people living in the South Baltic area.

Although the South Baltic Region has only 8.9 million inhabitants it comprises five official languages, none of which is a regional lingua franca. Language is not only a matter of cultural diversity, but a matter of practicality. English has become the de facto main language in the SBR. However, while self-confidence about sufficient English skills is high in Denmark and Sweden, only a minority in the other BSR member states stated that they are able to communicate in English. Due to history, Russian plays an important role as a first or second other language in the regions of Lithuania, Poland and Germany (the former GDR).

In a report for the Baltic Development Forum the specific history of the Baltic Sea region was highlighted which includes the historic tales of the Hanse era and the Expansion of the Swedish Kingdom until the pre-industrial era. The Hanseatic League undoubtedly leave something of a shared footprint across the South Baltic region. In effect the League was Europe's first Economic Community where South Baltic coastal towns enjoyed a unique period of prosperity during the Middle Ages. This is reflected across the region today where large, red brick churches and housing rose up in Hanse cities symbolising their trading power and the merits of belonging to the League. Even after 600 years many still stand with some medieval town centres being particularly well preserved and protected (with UNESCO). This powerful economic alliance has left a lasting impression through its great and rich cultural and architectural heritage that is still much in evidence today.

Intuitive sources for identity are found in the experience of nature, the Baltic Sea and its coastal landscapes, the wetlands, the climate as well as the region’s forests. This nature has also contributed to cultural commonalities, such as the materials which are used for architecture, the jewels created (amber), the food eaten and the professions, which play a significant role in South Baltic life, such as the fishermen, sailors, shipbuilders and traders. As Henningsen states: “The professions of sailor and fishermen were some of the manliest and some of the most dangerous over the centuries; coastal people are united by this experience and the elemental force of wind and water” (Henningsen 2011, 47). However, focusing more on recent times, the South Baltic region has developed something of a strong network of projects between organisations and institutions, not least through the South Baltic Programme itself which has seen, in the last programming period, the establishment of over 430 cross border project partners as well as approximately 101 project networks. There are also many co-operations that have been undertaken on a private basis between the region’s countries as well as city twinning activities, euro-regional cooperation and other social and cultural initiatives. Nevertheless, there is clearly room for growth in this area - where the region’s organisations that are still not internationally active is because, to some extent, they do not have the capacity to do this. This might, for example, be because of a lack of resource or simply a lack of existing business level relationships or even an inability to communicate at a transnational level. There will certainly be other reasons for this capacity limitation that need to be explored.

25 Disposable Income

Analysis of NUTS III data for disposable income enables a comparison of state regions and, where possible, to identify trends and reach conclusions. Like for like comparisons between countries are, however, not possible because these are based on different price levels and currencies and would require harmonisation and appropriate weighting.

The following observations can, therefore, be made in respect of the analysis of household disposable incomes per capita by NUTS III Regions:

 Lithuanian regions mirror the economic downturn with all counties displaying a sharp fall in disposable income from 2008 to 2009 with previous “losses” starting to be regained by 2011. The highest disposable income across Lithuanian regions can be found in Klaipeda.  Danish counties show a more steady increase over a 7 year period with a slight reduction in disposable income in 2008 (Vest –og Sydsjaelland) and in 2009/10 (Ostsjaelland). Bornholm however, shows year on year increases although these slowed down somewhat between 2007 and 2009. Province Ostsjaelland has consistently had the highest disposable income of the 3 Danish counties.  Swedish counties appear to counter what is widely reflected elsewhere across the region, that is, a steadily rising disposable income measured from 2004 that merely slowed down to reduced increases, but increases nevertheless, in 2008-2010.  German counties, similar to the general trend above, show year on year increases from 2003 to 2009. Nevertheless, on average, German counties are significantly below the German national average. Highest disposable income is evident in the western counties (Nordwestmecklenburg) whilst the lowest can be found in the eastern counties (Vorpommern, Greifswald).

Disposable income at NUTS III level is not available for Poland and thus only average monthly wages and salary is available. On the basis of using this data, one can observe steady increases over the period of 2004-2012 it being noted that highest average earnings can be seen in Trojmiejski while the lowest are evident in Elblaski.

In summary, the data infers that most counties have, in the main, experienced steady growth in disposable income per capita between 2004 and 2012 except for Lithuanian counties. Although the data for Lithuania covers the period 2007-2011 the more recent years (specifically 2008 to 2011) indicate that Lithuanian counties go against the trend (found elsewhere across the region) with significant reductions (in comparison to increases in other regional NUTS III counties) in average disposable income per capita from 2008 to 2010. However, this trend appears to be reversing as evidenced in 2010 to 2011. Household income then, has generally been increasing across the region despite the economic downturn in 2008.

26 Economy

This section compromises the following three parts:

 Economic Performance  Economic Structures  Internationalisation

The SB member states and their regions differ substantially with regard to economic performance. The average value of the GDP per capita in the Swedish SB regions is more than four times the respective average values of the Polish and Lithuanian parts of the region. Although higher purchasing power in the Eastern areas is somewhat levelling the economic differences within the region, they remain substantial.

Between 2003 and 2010 the mean absolute growth of GDP per capita in the SBR NUTS III regions was €3,600, ranging from €1,800 (Nordwestmecklenburg) to €6,600 (Rostock). This growth is unevenly distributed across the SB region. Polish and Lithuanian SB region growth rates remain substantially higher than the respective values of the other regions.

Before the financial crisis in 2008 the South Baltic labour market experienced substantial growth, while the economic shock that followed reduced employment. The unemployment rates in the eligible area have been rising for all regions since 2009. The only exception is Mecklenburg-Western Pomerania, which has seen a decline since 2007. Youth unemployment remains a problem in almost all regions, with a significantly higher rate than the region’s overall unemployment rate.

Several barriers have been identified which hamper labour mobility, such as the lack of information, institutional barriers and the absence of both cultural and language skills. Despite the fact that labour mobility is generally perceived as positive, a long negative migration balance may have substantial negative social effects.

The analysis of the economic structure shows that growth and higher incomes are positively correlated with the share of high qualified mostly service sector activities, while the more deprived parts of the regions show overcapacities in “old” industries and the primary sector. One of the main service activities of the South Baltic area is tourism. The economic sector is a good source of employment (especially for women), however the average income generated in this economic branch belongs to the lowest ones.

The South Baltic Business sector is characterised by a significant importance of micro-businesses (less than 10 employees) and small business (10 to 49 employees).

There is a growing consensus that internationalisation of business activities is comparatively weak in parts of the region, and that there is an as of yet untapped potential for further integration of economic activities within the South Baltic region.

Economic Performance

In the following, economic performance will be measured on the basis of gross domestic production (GDP). European Statistics provide information about GDP at current market prices in € on a NUTS III

27 level for the whole SB region. However, this measure does not account for inflation and thus over- estimates the real economic performance. In order to control for inflation effect, national inflation rates are also described.

The SBR is currently split into four different currency zones (Zloty, Euro, Krona, Litas). Due to currency exchange and (regionally differentiated) inflation rates, real purchasing power may differ substantially from nominal GDP values in €. For this reason purchasing power parities (PPPs) are also compared. Purchasing power parities (PPPs) are indicators of price level differences across countries. They indicate how many currency units a particular quantity of goods and services costs in different countries eliminating the effect of price level differences across countries.

Production

According to Eurostat total, the economy of the SB region created products and services of a total value (GDP at current market prices) of €150 billion. In 2010, the Swedish part of the SBR accounted for 40 per cent of the total GDP. Skåne län alone is creating a higher share than any other member state’s SBR territory in total, accounting for about 27 per cent of the joint GDP at current market prices. The Polish parts contribute about 25 per cent, the Danish, German and Lithuanian SB regions with 17, 15 and 3 per cent respectively.

Figure 13: GDP (in Mio. €) in South Baltic Region by Country 2010

25946 17% DK 58721 D 40% 21844 LT 15% PL SE 37030 5090 25% 3%

Source: Own graph based on Eurostat [nama_r_e3gdp].

The SB member states and their regions differ substantially with regard to economic performance. In 2010, the regional GDP at current market prices per capita varied from €4,900 (Klaipedos apskritis) to €34,500 (Kronobergs Ian) between NUTS III Regions, around a mean value of €18,020 per capita. The average value of the GDP per capita in the Swedish SB regions has been €32,500 and thus more than four times the respective average values of the Polish (€7,978) and Lithuanian (€7,400) parts of the region.

However, the gap is closing when real purchasing power is addressed. The purchasing power parities (PPPs per capita) are significantly higher than the values of GDP per capita in Poland and Lithuania (in the range of +€3,300 to +€8,600) and substantially reduced in Sweden (around – €6,000) and

28 Denmark (-€7,400 and – €8,400). In Mecklenburg-Vorpommern PPP value differences between GDP and PPP are somewhat smaller, PPP values are in the range of -€800 and -€1,500 compared to GDP. The average value of PPP per capita in the Swedish SB regions is €26,325 and thus „only“ twice the respective average values of the Polish (€13,278) and Lithuanian (€12,400) parts of the region. In PPP cities in Mecklenburg-Vorpommern have a similar per capita income as their Swedish and Danish neighbours. Indeed, with the value of €28,200 PPP Rostock achieves the highest ranking, even topping the Swedish SB regions. However, although closing, the gap between West and East remains largely the same with only a few notable exceptions. PPP values for Miasto Szczecin and Trojmiejski are level or even outreach the respective values of (almost) all rural districts in the SB regions of Mecklenburg-Vorpommern.

Economic Growth

From 2003 until 2010 total GDP at current market prices of the South Baltic Region increased by about 32.6 per cent from 116.7 to 148.6 € billion. The average growth rate for this period was about 4.7 per cent. The growth is unevenly distributed within the SB region. About 44.4 per cent of the increase of GDP at current market prices was generated in Poland. While the Lithuanian SB regions in comparison to their regional share of the total GDP also contributed a higher positive to GDP, the increase in GDP is relatively lower in Denmark, Sweden and Germany. The average annual growth rates have been about 11.3 (Poland), 9.6 (Lithuania), 2.82 (Sweden), 2.42 (Denmark) and 2.06 per cent (Germany).

Table 5: GDP Growth in the South Baltics 2003 -2010.

SB region GDP in GDP GDP GDP average Average annual GDP av. in.. Market increase increase % annual inflation annual prices 2010 2003-2010 2003-2010 growth % growth % (1) (4) deflated (2) (3) (5) (4)-(5) DK 25946 € 4147 € 16,9% 2,4% 1,9% 0,5% D 21844 € 3189 € 14,4% 2,1% 1,7% 0,4% LT 5090 € 2096 € 66,8% 9,5% 4,6% 4,9% PL 37030 € 16224 € 78,8% 11,3% 3,0% 8,3% SE 58721 € 10898 € 19,8% 2,8% 1,8% 1,0% Source: Own Calculations based on Eurostat (nama_r_e3gdp).

However, GDP at current market price measure does not account for inflation effects. The inflation rates have differed substantially between the SBR member states over this timespan. Regional data is not available. National average annual inflation rates vary between 1.7 (Germany) and 4.6 per cent (Lithuania). Yet, even if average national inflation rates are deducted Polish and Lithuanian SB region growth rates (8.3 and 5 per cent respectively) remain substantially higher than the respective values of the other regions. The highest GDP (net) average growth rate is measured for Gdanski (over 12 per cent per annum).

The average annual growth rate in the Danish SB region is only close to 0.5 per cent overall, when inflation is deducted, and even negative for Bornholm. In seven of eleven German SB regions annual growth is below the average inflation rate of 1.7 per cent. Higher growth rates can only be reported for the cities of Rostock and Greifswald, Nordvorpommern and Uecker-Randow. In Sweden, Blekinge län and Skåne län performed well, while Kalmar län shows an average net growth close to zero.

29 GDP (at current market prices) per capita is impacted both by increases in production and services as well as net migration. The regional migration patterns, which have been outlined above, may substantially impact the per capita growth. Between 2003 and 2010 the mean absolute growth of GDP per capita in the SBR NUTS III regions was €3,600, ranging from €1,800 (Norwestmecklenburg) to €6,600 (Rostock). Overall the Danish SB regions show the highest average change of GDP per capita (+€4,133), while the German SB regions have the lowest average change (+€3,309). Since the GDP per capita values in 2003 also varied significantly between SB regions, relative changes are sometimes notable. In 2003, Lithuanian SB regions reported a GDP per capita of €3,900. Due to an overall good economic performance, but also strong negative net migration, the GDP per capita in the Lithuanian regions between 2003 and 2010 increased by €3,500. That means GDP per capita has almost been doubled. In the Polish SB region GDP per capita has increased from €4,589 up to €7,978, which is an increase of about 74.3 %.

If production is not measured but instead purchasing power is, than the picture is slightly different. Average absolute values of Purchasing Power Parities (PPPs) change are the highest in Lithuania (+4100) and Poland (+4044), and the lowest in the Danish (+3000) and Swedish SB regions (+3250). In relative terms the Lithuanian SB regions have experienced the highest PPP growth (+50%, 7.1 % per annum), with the Polish SB regions closely following (+44%, 6.3 %). The Swedish SB regions have experienced the lowest relative change of PPP (12.5 % in total and +1.8% p.a.).

Table 6: Purchasing Power Parities in South Baltic Regions 2003 and 2001 in € and percentage change

SB region 2003 2010 PPP Change PPP Change % Bornholm 18100 20400 2300 13% Østsjælland 19200 23100 3900 20% Vest- og Sydsjælland 19000 21800 2800 15% Greifswald, Kreisfreie Stadt 19400 23200 3800 20% Rostock, Kreisfreie Stadt 21200 28200 7000 33% Stralsund, Kreisfreie Stadt 20300 23600 3300 16% Wismar, Kreisfreie Stadt 20600 23300 2700 13% Bad Doberan 15200 17500 2300 15% Güstrow 15100 19000 3900 26% Nordvorpommern 11900 16200 4300 36% Nordwestmecklenburg 11800 13800 2000 17% Ostvorpommern 12500 14900 2400 19% Rügen 15200 18200 3000 20% Uecker-Randow 12900 18300 5400 42% Klaipedos apskritis 10900 16400 5500 50% Taurages apskritis 5400 8200 2800 52% Telsiu apskritis 8600 12600 4000 47% Koszalinski 8300 12000 3700 45% Stargardzki 6700 9800 3100 46% Miasto Szczecin 13800 18700 4900 36% Szczecinski 9200 12900 3700 40% Elblaski 7400 10700 3300 45% Slupski 7900 11500 3600 46% Trojmiejski 14400 21500 7100 49% Gdanski 7000 10700 3700 53% Starogardzki 8400 11700 3300 39% Kronobergs län 23600 28000 4400 19% Kalmar län 22600 25900 3300 15%

30 SB region 2003 2010 PPP Change PPP Change % Blekinge län 23000 25100 2100 9% Skåne län 23100 26300 3200 14% Source: Own compilation based on Eurostat [nama_r_e3gdp].

Labour Market

In the following, employment data and unemployment rates are presented for the Programme area. With regard to cross-national comparison this data has to be treated with some caution, because national definitions may vary, in particular due to the different ways of registering unemployed, differing education systems and disparate pension regulations. However, labour market data is not exact, though it still provides a general picture about general labour market characteristics and trends in the South Baltic. In addition, some data is currently not available at a NUTS III level. In these cases NUTS II data will be used as proxies to outline general trends.

In 2010 about 3.5 Mio. people were registered as employed or were self-employed in the South Baltic Region, 45 per cent of whom (about 1.6 Mio. People) were in the Polish SB regions. The Swedish SB regions hold a share of about 23 per cent of the total workforce, while the German, Danish and Lithuanian parts of the SBR all cover much less (14.1 %, 9.8 % and 7.5%). The average rate of dependent employment is about 87 per cent, varying from 65 per cent (Taurages apskritis) up to 95.6 per cent (Kalmar Iän). Overall, the rate of dependent employment is generally lower - and thus the rate of self-employment is higher - in the Polish and Lithuanian parts of the program area (81%). The highest average rate of dependent employment is achieved in the Swedish SB region (95%). The sectoral composition of the labour force will be outlined in the following section.

Before the financial crisis in 2008 the South Baltic labour market experienced substantial growth, while the economic shock that followed reduced employment. However, the development trends of employment have been heterogeneous within the program area. While the Polish labour market continued to grow, and remained stable in the German part of SBR, the Swedish, Danish and Lithuanian parts of the region experienced substantial job losses.

Table 7: Unemployment in South Baltic regions 2004 – 2012 (%)

SB Region 2004 2005 2006 2007 2008 2009 2010 2011 2012 Province Bornholm - - - 7,8 7,2 8,8 9,2 7,9 8,6 Province Østsjælland - - - 2,1 2,2 4,4 5 4,8 5 Province Vest- og Sydsjælland - - - 3,3 3,4 6,2 6,9 6,7 6,8 Kreisfreie Stadt Greifswald 21,3 21,5 19 17 14,5 13,7 11,9 Kreisfreie Stadt Rostock 19,3 19,9 18,1 15,9 13,7 13,7 13,4 Kreisfreie Stadt Stralsund 23,9 22,1 21,2 18,9 16,2 16,1 15,5 Kreisfreie Stadt Wismar 18,5 19 19,3 17,6 15,7 15,4 14,7 Landkreis Bad Doberan 16,6 16,7 14,6 11,8 9,5 9,4 9 Landkreis Güstrow 23,9 23 21,5 18,6 15,6 14,5 12,8 Landkreis Nordvorpommern 24,3 23,5 21,8 18,3 15,7 14,9 14,1 Landkreis Nordwestmecklenburg 14,9 15,8 15,7 13 11,5 11,3 10,3 Landkreis Ostvorpommern 22,7 24,4 21,5 19,7 16,3 15,9 13,7 Landkreis Rügen 20,6 19,4 18,7 15,8 13,7 12,4 11,7 Landkreis Uecker-Randow 29,3 27,6 25 21,6 18,7 17,2 16,3

31 SB Region 2004 2005 2006 2007 2008 2009 2010 2011 2012 Klaipeda county 26,1 9,4 5,7 9,1 17,1 27,9 36,1 Taurage county 11,2 10,1 7,9 7,6 4,9 21,1 35,7 Telsiai county 19,9 14,9 8,5 5,2 19,7 42,6 54,5 Koszaliński 32 29,5 25,5 20,4 16,5 19,6 20,6 20,6 21,3 Stargardzki 34,6 33,2 27,9 23 18,2 23,2 22,6 22,8 23,7 City of Szczecin 15,3 14,1 11,8 6,5 4,3 8,5 9,7 9,9 11 Szczeciński 28,7 27,1 22,3 17,2 15,4 18,5 19,4 17,9 17,7 Gdański 23,6 20,3 15,5 10,8 7,9 12 13,1 13,2 14,3 Słupski 30,2 28,1 24 17,7 14,8 18,6 19,2 19,2 19,9 Starogardzki 29 27 22,6 16,9 12,8 17,7 17,1 18,2 19,2 Trójmiejski 10,7 9 6 3,2 2,4 4,9 5,4 5,4 6,2 Elbląski 30,2 28 24,2 18,6 16,4 20,4 19,9 20,2 21,5 Kalmar ln 6 7,1 7,1 5,6 5,6 9,1 Blekinge ln 8,3 9,2 8,9 7,6 5,9 9,2 Kronobergs ln 4,7 5,3 5,2 4,1 4,7 8,2 Skane ln 7,4 8,4 8,1 7 7,6 8,6 Mean of all regions 20,5 19,0 16,6 12,7 11,6 14,8 16,8 13,9 14,6 DK mean - - - 4,4 4,3 6,5 7,0 6,5 6,8 D mean 21,4 21,2 19,7 17,1 14,6 14,0 13,0 LT mean 19,1 11,5 7,4 7,3 13,9 30,5 42,1 PL mean 26,0 24,0 20,0 14,9 12,1 15,9 16,3 16,4 17,2 SE mean 6,6 7,5 7,3 6,1 6,0 8,8 Source: Own Calculations based on different national statistics.

Unemployment and public debt were two of the key casualties of the global crisis: unemployment as the market response to a sudden drop in demand; public debt as the result of government responses to soften the impact of market forces. However, the main economic indicators show a relatively positive resistance in the area covered by the Programme on the effects of economic crisis. It is even expected that there will be a quick reduction of the unemployment rates while they should stay almost stable across the EU-15. Labour mobilisation is affected by a number of structural factors, from demographics to labour market conditions to the type of employment contracts most prevalent. Of all of these there are significant differences across the region, indicating a heterogeneous set of challenges at the country level.

The unemployment rates in the eligible area have been rising for all regions since 2009. The only exception is Mecklenburg-Western Pomerania, which has seen a decline since 2007. While all regions experienced a decline in the years from 2007 to 2009 the unemployment rate has increased since then. The Lithuanian part has especially seen the highest increase. It can be seen that the Nordic and Baltic regions have been affected the most by the financial and economic crisis since 2009. However the Nordic regions retain the lowest unemployment rate of all.

Youth unemployment remains a problem in almost all regions, with a significantly higher rate than the region’s overall unemployment rate. While Mecklenburg-Western Pomerania’s is only slightly higher, all other regions show significantly higher youth unemployment rates of about two to three times more than the overall unemployment rate. This holds true for all regions observing the period since 2007. During the period since 2007 youth unemployment has risen significantly. The increase was especially high from 2008 to 2009 and remained at these high levels with a slight increase since then. The only exception in this development can be seen in Mecklenburg-Western Pomerania,

32 which experienced an almost constant decline. While in the Danish and German regions less than 15 per cent of the youth are unemployed, in all other regions the youth unemployment rate is noticeably higher than 20 per cent and even goes up to more than 30 per cent in Zachodniopomorskie.

As for the unemployment rate the share of long term unemployed has risen, too. This is likely due to jobs lost during the financial and economic crisis, from which the regions have not yet recovered and were unable to compensate the lost jobs with new employment opportunities. The only two exceptions are Mecklenburg-Western Pomerania and Småland med öarna in which long term unemployment (share of total unemployment) remained constant. Though remaining at a constant share, Mecklenburg-Western Pomerania faces the highest share of about 50 per cent. A similar high share can be observed for Lithuanian and the Polish regions, while the problem of long term unemployment is less severe in the Danish and Swedish regions.

A few projects in the Baltic and the South Baltic programme have addressed the issues of regional labour market dynamics and cross-national labour mobility (e.g. the SB project „South Baltic Professionals - Labour Market Dynamics and Attractive Business Environments in the South Baltic Region“, as well as „The Baltic Sea Labour Forum“ or the Danish German „Pontifex - Brückenbauer - Brobygger“ Project both financed by the Baltic Sea Region Programme). All these projects provide analytical material and evidence about cross-border labour mobility. The Baltic Sea Forum has also set up an „Action Plan on Cross Border Mobility in the Baltic Sea Region.“ Overall, all of these projects point to several barriers to intra Baltic cross-border labour mobility:

 The main general problems addressed are the lack of intercultural competences, communication problems between and language skills of all actors involved (employers, employees, labour agencies, public sector institutions, employer organisations, trade unions etc.):  On the employees’ side, lacking professional language and/or missing socio-cultural competences can be a major barrier.  Job seekers and employers are confronted with huge information problems. Employment agencies, employers and media usually address national labour markets and not other regions in the Programme area.  Public Sector is often badly prepared to support cross-national labour mobility, due to lacking language skills of public officials, and inefficient formal procedures.  Lack of information about social security systems and tax regulations, missing recognition of professional qualifications, and other legal problems are also main barriers for labour mobility. Despite the fact that labour mobility is generally perceived as positive, a long term unemployment net emigration that has taken place in the Eastern parts of the South Baltic (including Mecklenburg- Vorpommern) may have substantial negative social effects in the form of a rapidly ageing society, an uneven gender composition of the declining societies and a substantial loss of the innovative capacities (brain drain). On the other hand, continuing immigration, such as in parts of the Swedish SB regions, may create a challenge to manage social tensions due to the increasing social and cultural diversity.

33 Economic Structures

In the following, the economic structure will be analysed on the basis of Eurostat and national data. This section will distinguish between economic activities and the business structure. The currently available Eurostat system for statistical classification of economic activities is called NACE Rev. 2. According to NACE Rev. 2 industrial sectors are aggregated into the following main categories:

 A Agriculture, forestry and fishing  B - E Industry (except construction, but including manufacturing)  F Construction  G - J Wholesale and retail trade; transport; accommodation and food service activities; information and communication  K - N Financial and insurance activities; real estate activities; professional, scientific and technical activities; administrative and support service activities  M - U Public administration and defence; compulsory social security; education; human health and social work activities; arts, entertainment and recreation, repair of household goods and other services

For these categories Eurostat statistics are currently available at NUTS 3 level. Further disaggregated data for subsectors are only partly accessible through Eurostat and require the analysis of national statistics.

The industrial structure can be described by measuring employment and/or by measuring the sectoral gross valued added (GVA).

Employment by Economic Activity

The following figure (14) shows the relative shares of employment by economic activity for the whole programme area:

Figure 14: Employment by Economic Activity (2010) in the South Baltic Region

A Agriculture, etc. 6,2% B - E Industry 31,1% 17,8% F Construction

8,1% G- J Wholesale etc.

11,2% K-N Financial and … 25,6% O- U Public administration etc.

Source: Own graph based Eurostat.

34 A - Agriculture, forestry and fishing

On average 6.2 per cent of the workforce is engaged in category A activities. The values range from zero (in cities) up to 31.2 per cent (Taurages apskritis). In the Lithuanian SB regions the share of category A activities is the highest (12.8%), and in Poland (8.1 %), while in Germany it is the lowest (2.8%). The share of employment in sector A activities is strongly negatively correlated with GDP per capita.

B - E Industry

The average share of employment in industry is 17.8 per cent. Industrial employment is relatively important in the Polish SB regions (22%) as well as in Lithuania (18.7%). While the Swedish districts report a 15.8 per cent share of industrial employment, the level of employment in this category is only 11.9 per cent in the Danish part and 10.6 per cent in the German part of the SBR. The share of employment in industry is also strongly negatively correlated with GDP per capita.

F - Construction

The average share of employment in construction activities is 8.1 per cent. Employment in this sector is more important in the Polish SB regions (9.2%) as well as in Lithuania (9 %), and of lesser importance in the other three countries (6-7 to 6.9 %). Again, the share of employment in sector F activities is strongly negatively correlated with GDP per capita.

G - J Wholesale and retail trade; transport; accommodation and food service activities; information and communication

This category covers the second largest group of the workforce. In 2010 it contributed to 25.6 per cent of total employment. The relative shares of employment in the SBR regions are very close, if the national levels are compared. However, between the SB regions the share of employment varies between only around 18 per cent in Kalmar Iän, Blekinge Iän and Uecker-Randow up to 30 and more in the Tourist destinations (with a maximum of 41.7% on the Island of Rügen). However, due to the heterogeneous composition of this category, there is no clear correlation between the share of employment in these group of activities and the GDP per capita.

K-N Financial and insurance activities; real estate activities; professional, scientific and technical activities; administrative and support service activities

On average 11.2 per cent of the workforce have been employed in business of this category. Between SB regions this value varies from 3.4 to 26.5 per cent. In the German SB regions the average employment is the highest of all SB member states accounting for 15.7 per cent of total employment. The lowest share of employed people in the category can be found in the Lithuanian (8.2%) and Polish (9.3%) SB regions. Employment in this sector is positively associated with GDP per capita.

O - U Public administration and defence; compulsory social security; education; human health and social work activities; arts, entertainment and recreation, repair of household goods and other services

35 The activities in this category are of great importance for the employment in all SB regions and member states. They contribute 31.1 per cent to the total employment in the SBR. However, SB regions and member states vary strongly with regard to the share of employment in these sectors. Between SB regions the share of employment ranges from 19.5 (Gdanski) up to 46.9 per cent (Uecker-Randow). In the Danish SB regions the share of employment of this category is 40.9 per cent, while it is only 25.1 respectively 25.2 in Lithuania and Poland. Employment in this category is very strongly positively associated with GPD per capita (Pearson correlation coefficient of 0.81).

Figure 15: Gross Value Added (GVA) by Economic Activity (2010) in the South Baltic Region

2,8%

A Agriculture, etc.

19,4% 26,6% B - E Industry

F Construction

6,6% G- J Wholesale etc.

K-N Financial and … 20,1% 24,6% O- U Public administration etc.

Source: Own Graph based on Eurostat.

Value Added

In 2010 a total Gross Value Added (GVA) of around €130.2 billion was generated in the SBR. The GVA is usually slightly lower than the GDP as reported above, which also includes production taxes. In the following graph the GVA per sector is shown. It is apparent that some sectors generate a higher value added per person than others. Such high value added activities are mainly the activities K-N (Financial and insurance activities; real estate activities; professional, scientific and technical activities; administrative and support service activities), which contribute to 11.2 per cent of the employment, but generate about 20.1 per cent of the Gross Value Added in the SBR. In addition, the industrial sector generates a share of GVA, which is slightly higher than its share of employment.

Structure of Businesses

The South Baltic Business sector is characterised by a significant importance of micro-businesses (less than 10 employees) and small business (10 to 49 employees).

36 Table 8: Workplaces by region and size 2010 (Sweden 2012)

50 - 249 Country GEO/TIME 0 - 9 10 - 49 50-99 100 - 249 250+ Denmark Bornholm 1830 317 33 18 Østsjælland 9750 1651 191 108 Vest- og Sydsjælland 25122 3916 458 230 Germany Greifswald, Kreisfreie 1697 166 54 9 Stadt Rostock, Kreisfreie Stadt 6996 556 137 35 Stralsund, Kreisfreie Stadt 1901 162 56 8 Wismar, Kreisfreie Stadt 1525 135 45 8 Bad Doberan 4986 427 75 6 Güstrow 3341 290 57 7 Nordvorpommern 4191 291 47 2 Nordwestmecklenburg 3970 278 57 6 Ostvorpommern 4212 277 55 7 Rügen 3630 214 33 5 Uecker-Randow 2270 177 25 7 Lithuania Klaipedos apskritis 7833 1889 311 164 57 Taurages apskritis 1430 400 95 42 6 Telsiu apskritis 2376 647 149 67 17 Poland Koszalinski 73046 2196 435 51 Stargardzki 36500 1375 259 20 Miasto Szczecin 63286 1998 407 70 Szczecinski 39140 1343 257 21 Elblaski 53413 2203 349 21 Slupski 48645 1895 395 44 Trojmiejski 41920 1920 344 40 Gdanski 103758 4321 789 145 Starogardzki 38607 1996 407 48 Sweden Kronobergs län 25834 1318 198 114 Kalmar län 29166 1639 184 122 Blekinge län 15168 939 109 69 Skåne län 137522 7872 1173 685 Source: Own Calculations based on different national statistics.

Businesses of this size account for almost 99% of all businesses. Microbusinesses play a particularly strong role in the largest economies, the Polish and Swedish in the region, and to a slightly lesser degree in the rural districts of Mecklenburg-Vorpommern. The Danish and Lithuanian business structures deviate from this business profile. Here, micro-businesses have a significantly smaller share, while the proportion of small businesses with 10 – 49 employees is significantly larger. While in the Danish districts of the programming area the overall share of businesses with less than 50 employees deviates only slightly from the regional average, in the Lithuanian part of the South Baltic, medium sized businesses take a much greater share of the number of workplaces.

Tourism

One of the main service activities of the South Baltic area is tourism. This sector is particularly important as an export-oriented one and from a territorial cohesion point of view as the main factor of economic viability in a range of small settlements or rural areas beyond commuting distance from main town and cities. The economic sector is a good source of employment (especially for women),

37 however the average income generated in this economic branch belongs to the lowest ones. The main challenge however lies in the seasonality of activities, which implies that tourism often needs to be regarded as being complementary to other types of activities.

The South Baltic area appears to be becoming increasingly attractive as a tourism destination. Topics or items identified as typically Baltic and which describe the tourist attractiveness of the region refer mostly to either the scope of culture or else nature and maritime related including outdoor activities, but also culinary and spa as well as health. Concerning nature the maritime elements including islands are very important. Many tourists seek a close relationship with one specific place or region, a feeling of “belonging” and an experience of “authenticity”. Visitors who experience this type of proximity will even sometimes tend to make this place or a region their regular destination, second home or even main place of abode. In this process, access to personal relations and especially informal services are not only a part of rural life, but also provide authenticity and connectivity between tourists/second home owners and the regular population. The rural character of the South Baltic tourism (excluding big urban agglomerations) tends to become a strong element for the economy in the future, however it requires a creation by business and regional authorities of a common vision/strategy using, on the other hand, the cultural heterogeneity as an important element in its portfolio. Tourists are not only expecting to get access to locally produced handicrafts when visiting rural areas or small towns and villages. Meeting the craftsmen themselves, seeing how the pieces are produced, how the fish is caught and dried for example – all these elements contribute to the sense of relating to the place in a way which becomes an increasingly important part of the touristic experience, and thereby becomes a major attraction.

The number of over-night stays have continuously been increasing in recent years, with a temporary decline in 2009 and 2011 following the financial market crisis in 2008. This crisis has affected almost all destinations - in particular Lithuanian and Polish ones – with the exception of the German parts of the South Baltic. However, since 2010 numbers again show and upwards trend. In recent years, as the data shows, MV regions drove the growth in South Baltic tourism. In 2010, from about 37.5 million over-night stays in the region, more than 60 per cent were counted in that part of the SB region. The Swedish part accounts for about another quarter of all over-night stays, while the Polish, Danish and Lithuanian part of the South Baltic contribute only small shares (7.3 %, 5.2% 3.1 %) to this statistic.

38

Table 9: Overnight stays in the South Baltic Regions 2005 - 2012

SB regions 2005 2006 2007 2008 2009 2010 2011 2012 Bornholm 568937 604318 569713 523384 484836 463380 Østsjælland 235056 254482 258947 231671 177743 182709 Vest- og Sydsjælland 1681363 1787450 1708300 1655514 1395259 1301548 Greifswald, t 195874 197552 208047 213144 214456 221801 213436 Rostock 1195913 1371915 1441241 1396170 1426507 1530961 1535327 Stralsund 267971 283723 321960 369378 378386 396741 407741 Wismar 180951 195347 226477 234555 251759 237185 239189 Bad Doberan 2675254 2665971 2890663 3046110 3722107 3554731 3637360 Güstrow 888350 926207 967460 924160 961151 910992 913775 Nordvor- pommern 2091904 2039495 2208597 2278022 2899917 2814779 2692621 Nordwest- mecklenburg 1214149 1216015 1237718 1406933 1776963 1719451 1701801 Ostvorpommern 3794212 3933391 4201792 4363843 5204869 5045789 5023264 Rügen 5028168 4897478 5363896 5574186 6220987 6120800 6117334 Uecker-Randow 173078 178002 198234 224426 250525 258089 260429 Klaipedos 1372236 1467516 1559700 1518962 1150049 1147666 apskritis 1327229 1382132 Taurages 16289 24335 37753 39933 22161 24780 35590 24197 apskritis Telsiu apskritis 44393 57104 108793 66312 37595 44331 54431 67592 Koszalinski 1219928 1120830 1137576 1078298 1098310 1082087 1227567 1283727 Stargardzki 169953 169571 157851 174605 158709 155584 162481 180978 Miasto Szczecin 358518 320808 303714 267222 256232 221269 230895 226856 Szczecinski 511982 505578 506720 527398 500664 549127 613998 832060 Elblaski 66676 84976 66821 55986 51820 47050 54937 65317 Slupski 103403 92523 91700 85597 69615 69105 77544 81248 Trojmiejski 30386 27534 33708 30248 25956 29945 29850 40138 Gdanski 519613 534614 546349 459188 473175 494016 557839 703557 Starogardzki 93624 82255 83341 84808 87390 77865 67650 74436 Kronobergs län 709319 734468 755081 777994 815005 Kalmar län 2536693 2800214 2586894 2512739 2604634 Blekinge län 825523 867989 898447 908984 887677 Skåne län 4410787 4584451 4532988 4636198 4593672 Total 24.698.181 25.038.990 26.437.071 35.312.375 38.284.263 37.475.191 DK 2.485.356 2.646.250 2.536.960 2.410.569 2.057.838 1.947.637 0 0 D 17.705.824 17.905.096 19.266.085 20.030.927 23.307.627 22.811.319 22.742.277 0 LT 1.432.918 1.548.955 1.706.246 1.625.207 1.209.805 1.216.777 1.417.250 1.473.921 PL 3.074.083 2.938.689 2.927.780 2.763.350 2.721.871 2.726.048 3.022.761 3.488.317 SE 8.482.322 8.987.122 8.773.410 8.835.915 8.900.988 Source: Own compilation based on different national statistics.

These differences are also reflected in the actual numbers of both bed places in collective tourist establishments and the number of collective tourist establishments that show that the highest concentrations are located in Polish, German and Swedish counties, while less density is found in Danish and Lithuanian counties. Yet, the overall conclusion has to be qualified, since this statistic does not report small entities such as privately offered holiday homes or micro-businesses with only

39 a view rooms. Thus, real numbers could substantially deviate from the official statistics in some regions.

After 2010, the Polish SB regions reported a substantial increase of overnight stays, and seem to have taken over the leading role for growth in this sector. While it is now unclear if the German South Baltic will return to the growth path, there is still additional growth potential for this sector, in particular in the Eastern South Baltic area.

Figure 16 South Baltic: Tourism accommodation (number of beds and number of collective tourist establishments, NUTS III regions, 2013

Source: own calculation based on the EUROSTAT data, Extracted on 18.09.13

Tourism in coastal regions has also significantly expanded in recent decades, and the future growth potential—which is considered high—would result in increased exploitation of coastal regions. Tourism is an economically important industry in the South Baltic area. In 2012 most revenue was generated in the coastal regions. Despite the recent economic downturn, coastal tourism has risen annually since 2009 (The Boston Consulting Group 2013) with the strongest boost being observed in Sweden. This growth of coastal tourism is being driven mainly by beach tourism, recreational boating, cruise tourism, and recreational fishing. Coastal tourism in the Baltic Sea region is still more or less unaffected by growing environmental concerns, and the demand continues to exceed supply in many coastal regions. Marine environmental issues have been and are being addressed to such an extent that they no longer pose a threat to the tourism industry. The industry’s already strong growth has been maintained without extending the ecological footprint, and coastal tourism in the Baltic Sea region has continued to grow. Some segments have seen particularly strong gains; ecotourism is booming, and recreational fishing is advancing, the value it generates surpassing that of the region’s previously heavily subsidised commercial fishing industry. Productivity has seen a significant rise, but total employment has also increased. With continued degradation of the marine environment, tourism in the region has been unable to sustain the previously high growth rates and is advancing only nominally at the rate of inflation. The most apparent problems can be observed in beach tourism, where flourishing algal blooms in some areas have resulted in empty beaches, and in recreational fishing, where toxic substances and reproductive disorders in sea life have forced

40 fishermen to visit other marine areas that are not facing the same problems as the Baltic Sea. Coastal tourism generates high value added, but is characterised by mounting environmental problems.

A benchmark study with established cross-border destinations, which was undertaken in the context of the „Enjoy South Baltic Project“, illustrates a further future potential of the South Baltic region maintaining a growth region among more or less stagnating or even decreasing competitors ((Möller/Heinsen/Deckert 2012). However, the South Baltic region has lost its market share in the wider Baltic Sea Region. According to the report, eastern partner regions seem to still be in a consolidation process concerning accommodation infrastructure and hospitality industry. In general, a low but steady increase on the supply side is a signal of lasting attractiveness for investors. Only Scandinavian parts in this intraregional benchmark show - according to the report - slight tendencies to over-capacities and decline in prices in the medium term, while for partners in Poland and Lithuania in the next five to ten years the closing of gaps in central tourism segments seems relevant.

The study highlights some challenges for the marketing of the South Baltic region:

 lack of common identity/image of the region and a low international profile/the regional profile is interfering with other strong touristic brands (e.g. Scandinavian) (see section on cultural identity).  missing language competences to attract international customers.  lacking marketing (resources) and low co-operation.  Insufficient international accessibility (see section transport and infrastructure).  different (low) service and quality standards.

These challenges have to be addressed in a changing context of a globalised tourism industry, which is characterised by an increasing number of booked „packages“, more, but shorter stays, an increasing demand for quality, growing internationalisation as well as the increasing use of the internet for travel search and planning, booking and also reporting during holiday trips.

Thus, the guiding lines for Tourism development are seen in:

 a qualitative before quantitative growth: that is a focus on service quality, improvement of language skills (including training of low skilled and also migrant workers, who are often employed in this sector), barrier free tourism  the internationalisation of (cooperative) marketing, e.g. through multilingual joint communication and marketing (web pages, events etc.)  the improvement of accessibility, e.g. through cooperation with transport carriers

Such an approach would therefore help to maintain a sustainable growth path.

There are three topics defined as those having the strongest potential: „maritime, health/spa/rehabilitation and culture“. In general the analysis based on online surveys, expert interviews, analysis of national and regional tourism websites as well as the evaluation of available marketing concepts showed all three topics as important marketing themes. Associated with this there are some interesting matters of note:

• It is not always the most important market segment which is expected to also show the most growth in the near future: Although Summer/Beach/Recreation is the most important

41 market segment among questioned companies and marketing associations, it was only ranked in the middle concerning future growth perspectives. • Concerning growth perspectives and recent market share, active tourism seems to be the most promising segment and travel topic. It is closely followed by maritime tourism. • Health/Rehabilitation indicates a slightly higher growth potential than the Spa/Beauty/Anti- ageing sector. This could be due to the expected ageing of European societies opening more growth opportunities in medically based and acknowledged prevention services for older customers with specific individual conditions. • Culture and events are third important among companies and destinations, but growth perspectives seem to be judged a little lower than among the other segments. City and cultural round trips being only a smaller niche among the respondents with limited growth expectations. • Other segments were as follows: Accommodation (holiday homes, flats), Cruise ships, main travel topics depend on the season, Education and study tours, Golf, Group tours, School trips, Gourmet Tourism, Weddings, Gourmets, Music group travel, Beach Holiday

Internationalisation

Internationalisation of the economy means the degree to which businesses provide services and goods for an international market, but also make use of international markets for inputs and business services. In the case of tourism, internationalisation means the provision of services for international visitors. Partly, export and import statistics may provide some information about the degree of internationalisation. However, this data is not available for the South Baltic regions. Also, export and important statistics would be misleading, since on the one hand SB regions that are part of larger countries have by definition smaller export and import shares. The same applies to the shares of overnight stays by international visitors in tourist statistics. On the other hand, export and import statistics focus on the value of goods, rather than on the number of businesses involved. So, a single business that creates high value export goods (such as ship building) may have a strong influence on export statistics, without influencing the internationalisation of the businesses sectors as a whole.

A growing internationalisation of the business sector is an expression of the increased openness of the global economy. In the case of the South Baltic region, tighter economic integration is directly linked with the internationalisation of businesses. Further, there is general knowledge that internationally oriented businesses generate higher turnover, income and employment growth than other locally oriented businesses (Landesarbeitsgemeinschaft der IHKs 2010). Thus, internationalisation has to be an element of a growth and employment oriented economic development strategy. This is reflected in research studies, but also strategic documents in the regions. However, since internationalisation requires additional knowledge and also can be a risk, intermediary support is required (Landesarbeitsgemeinschaft der IHKs 2010).

A study of the level of involvement of the 116 firms located in Kalmar (carried out by the University of Kalmar) highlighted that trading with the emerging markets of Baltic Sea Region (BSR) varies (Johanson & Sandberg 2008). These firms are generally experienced, having an active involvement or a committed involvement, in international trade. There were classified 35 companies that conduct both exports and imports as highly committed traders. Among the companies having either exports or imports, 56 companies conducted only export. Roughly one third of them have an active involvement in international business, meaning that a limited share of their turnover is exported to

42 few regions. For most of these firms, regional internationalisation in the emerging markets of BSR is part of the firm's on-going global internationalisation process. Eighty per cent of the firms have less than 10% of their exports to these countries. Less than ten firms focus on the BSR, by having more than 50% of their exports to this region.

Radical changes and fast development of the Baltic Sea region have spurred SME trade with this region. The majority of the firms studied operate in traditional industries, and their international business is an expansion of domestic business activities. Relationships are a critical part of entries made into emerging country markets. A surprisingly large share of the international trade is direct between customers and suppliers via the entry node the dyad. Few subsidiaries are involved in the dyads and this implies a low degree of FDI (Foreign Direct Investment) by the SMEs in the BSR. This is consistent with the point that SMEs seldom enter by FDI because of their lack of resources.

Also, indirect relationships through distributors and agents (the entry node triad) are vital for the SMEs. This observation demonstrates the importance of building strong business networks to be successful in a host country market. It is also consistent with earlier research on SME international business activities in high-risk and complex countries. A further consequence is that SMEs (e.g. in Southern Sweden) lack resources to obtain knowledge on these markets, which resulted in less trade with the remote countries of Russia and China.

The Kalmar study also showed relationships to be critical for doing business in the East Baltic countries; finding contacts, maintaining and developing them either directly or indirectly through own companies or middlemen. Consequently, those companies having such relationships saw them as strengths, while companies not having them considered this to be a weakness. Other relationship- linked strengths, on which the competitiveness of the company rest, were experience and reputation, market presence, a good assortment of unique high-quality products built on a high technical competence, and flexibility. Among the weaknesses noted were high prices that were too high, lack of resources, knowledge and time.

Among the institutional factors in the local markets that influence internationalisation processes, the economic and political environment was still important as well as infrastructure, particularly communication. Key barriers existed, such as culture (mainly language) and corruption. Although the short geographical distances prevailing in the Baltic Sea area would benefit trade, this potential seemed to be hard to take advantage of, especially by resource poor SMEs acting in an environment characterised by large differences in business environments.

Polish and Lithuanian companies continuously develop their international activities, nevertheless, only a small percentage of the SMEs are active internationally. The majority of them still compete on the international market with still relatively low labour costs as a main element to compete with. The development of the cooperation within the South Baltic area (especially over the sea) did not develop beyond the early stage or the development stage. The reason for this lack of development was that it was hard to compensate for a lack of customer contact that comes with a strong relationship through the agent/distributor. Another reason was the low control of the intermediary, originating from the fact that not enough knowledge about the market is gained in this kind of arrangement.

Concerning the determinants of the low level of internationalisation of the SMEs in the Zachodniopomorskie Voivodship, the Innovation Strategy for the region published in 2005 underlines

43 the low level of the performance of the intermediary institutions, highlighting that only a third of them have been undertaking any kind of international relations. Thus, the internationalisation process of the regional economy is already hampered on the level of Business Development Organisations (Zachodniopomorska Agencja Rozwoju Regionalnego 2005). In addition, the regional strategy for tourism development 2015 for the Zachodniopomorskie Region underlines the importance of the internationalisation aspect of tourism, including development of joint cross-border tourism products as one of the driving forces for the future development (Zachodniopomorska Agencja Rozwoju Regionalnego 2010).

The survey undertaken by the Pomerania Development Agency Co. in 2013 shows that only 26 per cent of SMEs in the Pomerania region have declared that their company is currently involved in exports. About 56 per cent of companies do not export and do not intend to export in the next two years. Additionally, exporters look at the influence of the current situation of the company more optimistically than other SMEs. More exporters (about 7 percentage points) believe that the current situation brings opportunities of development for their business. Entrepreneurs were then asked whether they expect support in the field of export. A positive answer was given by 61% of respondents. Among the expectations for export support entrepreneurs pointed first to the tax relief (46%) and financing their participation in fairs (42%). Then the expectations indicated support for a co-operation offer (39%) and in the preparation of grant applications (37%). Thirty-one percent of respondents believe that the region can support the promotion of exports, and 22% expect information and advisory services (Dominiak et al. 2013).

There is a common understanding in Mecklenburg–Vorpommern that further internationalisation of the SME sector is a necessary and strategic element of the region’s economic development. A recent German wide study has shown that the degree of internationalisation of the business sector in Mecklenburg-Vorpommern is the lowest in Germany (Commerzbank 2013). According to this study, SMEs in Mecklenburg-Vorpommern are less engaged in international activities and more reluctant to develop international business relations. This is partly due to the low degree of industrialisation. However, even in those sectors, in which Mecklenburg-Vorpommern is strong, the degree of internationalisation is low.

A strategic tourism concept paper issued by the Ministry for the Economy states that special services for the specific interests of international visitors are only rudimentarily available, and comes to the conclusion that “the internationalisation of the touristic infrastructure, products, information and services is practically not yet developed” (Minister für Wirtschaft, Arbeit und Tourismus Mecklenburg-Vorpommern 2004, p. 27). This observation has been repeated in a more recent update of this strategic paper (Minister für Wirtschaft, Arbeit und Tourismus Mecklenburg-Vorpommern 2010). In November 2013, the current Minister for the economy issued a statement that the internationalisation of Health sectors is required. Therefore, a stronger integration into the Baltic regions in the sense of „Baltic Sea Health Region“ is understood as a crucial element (Minister für Wirtschaft, Bau und Tourismus Mecklenburg-Vorpommern 2013). Moreover, in 2013 an Expert Commission issued a strategic document for the future development of the regional agro-food sector. This report also stressed the need for internationalisation, and it calls for an export strategy and increasing efforts in international marketing.

44 Human Resources, Knowledge Economy and Innovation

Small and micro-businesses dominate the economy in the SBR. Ensuring its technological capability and power of innovation is an important prerequisite for the Baltic Sea region being able to compete with other regions in the global market in future. The extent of these factors in turn depends, among other things, on the availability of qualified labour and on research and development activities. In this context, this section explores the educational system, the Higher Education and Research & Development sector and business innovation.

The analysis shows that a solid educational base in the South Baltic area is an untapped source to be utilised for knowledge- and research-intensive industries. The South Baltic area has a well-developed educational infrastructure featuring a high number of universities and vocational colleges with an extensive array of curricula covering nearly all aspects of sciences and humanities. Also, the numbers of graduates with a tertiary education in countries such as Denmark, Lithuania and Sweden are higher than the EU-27 average. Further, the South Baltic area records a good performance of educational systems with regard to early school leaving.

The South Baltic area has a relatively strong and fast growing creative industry, with high innovation performance of the regional economies in the north-western part and in populated urban areas. At the same time, the transition economies of the programme regions in the new EU member states demonstrate low survival rates and growth trajectories among SMEs, the innovation capacity of which is rather poor (e.g. measured by the number of patents). Less developed business support and financing structures in the eastern South Baltic regions hamper the development of innovative products and services in the blue and green sector. A similar gap in innovation performance exists between the urban and rural areas in all programme regions.

There are numerous Research and Technology Development (R&TD) centres in the South Baltic area that is generally characterised by rather good accessibility to the institutions dealing with R&D, not only in the main urban areas but also in the smaller towns. However, they fairly often focus on the research element without linkage to their regional context.

With regard to Regional Innovation Scores there are huge differences within the SB region. SB districts are mostly situated in regions that perform poorer than the national average. It is only the Swedish region of Sydsverige and parts of the Danish SB region that perform alike. This trend is also reflected in the performance of business innovation, knowledge intensive sectors and creative industries.

Educational System

With regard to the performance of the educational system two statistics are of primary interest. Firstly, the data concerning early school leavers, since this group will face huge difficulties integrating in the labour market and – from the perspective of society – is perceived as a presumably unused economic and social potential. Secondly, the rate of people who have obtained a tertiary educational degree, as it is argued that the knowledge economy needs more highly educated employees. The European 2020 targets are to reduce the rate of early school leavers to below a threshold of 10 per cent, and to increase the rate of the Tertiary educational attainment of the age group 30-34 to beyond 40 per cent as detailed in Figures 17 and 18 below.

45 In Swedish counties the number of early school leavers has been reducing during the period 2006 – 2012 though there is a clear disparity (that is nevertheless also present across the EU) between males and females. The “leaving school early” rate for Swedish counties is between 6 and 7 per cent, which is well below the EU target indicated above. Tertiary education in Swedish counties for the period since 2006 indicates a steady rise in the number of those undertaking post-secondary education from 2-3 years for both male and female. However, there is no available data for the 30-34 age grouping.

Figure 17 Early School Leaving Rates by Country - percentage 2012

Early School Leaving Rates by 14 Country - Percentage in 2012

12 Territorial Unit Percentage 10

Denmark 9.1 8 Germany 10.5 6 Lithuania 6.5 Poland 5.7 Percentage 4

Sweden 7.5 2 EU 12.8 0 Denmark Germany Lithuania Poland Sweden EU

Figure 18 Tertiary Education Attainment or equivalent aged 30-34

Tertiary education attainment or equivalent among those aged 60 30-34 by Country - Percentage in 2012 50

40

Territorial Unit Percentage Denmark 43 30 Germany 31.9

Lithuania 48.7 20 Percentage

Poland 39.1 10 Sweden 47.9 EU 35.8 0 Denmark Germany Lithuania Poland Sweden EU

Source: European Commission – Education and Training

As regards Danish counties, no figures are available in respect of early school leavers though the national rate should be noted as 9.1%. However, an average of around 40% of inhabitants across Danish regions do possess vocational education though this reduces somewhat to about an average of 13% for those who have medium cycle higher education. Higher education data (age group 30-34) from 2006-2011 indicates a peak in 2009 which has not yet been recovered from this previous high. For example, in 2009 approximately 58% of 30-34 year olds had acquired higher education, up from an average of 50% in 2006. As at 2011 this had reduced to an average of 55%. Of note is that between 2008 and 2012 tertiary education (as opposed to simply Higher Education) in Bornholm increased from 21.6 % (2008) to 24.1 % (2012) though this still falls well short of the EU target of 40%.

For the South Baltic Region both sets of statistics are available at national level only, although this is not as comprehensive across all countries, so the analysis that follows provides relevant observations

46 together with any noticeable trends at national level covering the period from approximately 2006 to 2012

For Polish counties there is no data available which indicates the rate for early school leavers though it should be noted that the national rate as at 2012 was 5.7%. With regard to tertiary attainment for 30-34 year olds (as at 2010), there are wide ranging rates from the lowest of 23.7% in Starogardski to 48.79% in Szczecin.

In Germany available data (from 2004-2009) of note shows that, in Wismar (Nordwestmecklenburg), there is a mix in respect of early school leavers. For example, Wismar had a rate of 19.3% in 2004, which reduced to its lowest rate of 11.7% in 2007 to up to 21.1% in 2009. Presently, with the exceptions of Greifswald and Stralsund (Vorpommern-Rügen) all German counties are over the EU target of 10% with most notable increases taking place between 2008 and 2009. (There is no available data in respect of Lithuania counties relating to early school leavers or tertiary education for 30-34 year olds.)

Figure 19 South Baltic: Accessibility of Universities, 2012

Source: C. Schürmann, RRG, 2008

A wide network of higher education institutions covers the Baltic Sea region (See Fig 16 above). In most parts of the region, places of higher education can be reached in less than an hour. However, again access from remoter rural places – in particular in Poland, but also in other countries - is sometimes poor. This is even more evident when it is considered that students regularly rely on public transportation, which is often poorly developed. It should be noted that better collective transport and secure commuting is important in South Baltic regions struggling with demographical and environmental problems. Especially, in sparsely populated and remote areas it seems that

47 young people either leave or hesitate moving permanently even if good job prospects or study opportunities exist elsewhere.

Differences within member states might seem to reflect urban-rural differences; this is certainly the case in Poland where cities and more urban areas outperform the more rural ones. This is not surprising since many high skilled professions (in the private as well in the public sectors) are concentrated in urban agglomerations. Thus, the data reflects national specifics of the educational system and labour market structure in the area.

While the comparison of one year’s statistic provides an inconclusive picture, the trend information is less ambiguous; most regions show an upward trend where this data is available.

Two more developments have to be mentioned. Firstly, the number of students has been declining in the region as a consequence of negative net migration and the declining birth rates. These students will enter the system of higher vocational education with a time lag of 10 – 15 years. Thus, these trends are a good early indication of the trends for higher education and employment demands in the years to come. Overall, these developments largely reflect the demographic trends in the South Baltic region described above, with Lithuania and some Polish regions suffering from population decline. However, it is interesting to note that Mecklenburg-Vorpommern reached its bottom line in 2003/04 and that numbers of students have stabilised since, although on a much lower level than 20 years previously.

With regard to tertiary educational attainment (as detailed above) we find more of a mixed picture where this data is available. In 2012 the European average for this indicator was 35.8 per cent. We find differences both between countries as well as within BSR member states. Again, differences of the educational system might have a strong effect. For instance, in German vocational education the so-called “dual system” plays an important role, which leads to highly qualified, but non-academic vocational certificates. Thus, traditionally tertiary educational attainment is lower than in countries with school based vocational education, though this is not always the case.

Higher Education, Research and Development

Ensuring its technological capability and power of innovation is an important prerequisite for being able to compete with other regions in the global market in future. The extent of these factors in turn depends, among other things, on the availability of qualified labour and on research and development activities. The broad availability of quality higher education as a foundation for gaining key vocational competencies is a crucial factor for the successful participation of young people in society.

The number of people with a tertiary education (higher level professional and vocational training, higher level technical schools, universities of applied sciences, universities and colleges) in Denmark and Sweden is higher than the EU average. Poland has the greatest proportion of inhabitants, who have completed their (upper) secondary education. At 82.1%, Lithuania shows the greatest proportion of inhabitants who have completed either their (upper) secondary education or their post-secondary non-tertiary education.

However, one of the main challenges of the higher education policy of the South Baltic region is ensuring that the current curricula offered by higher education institutions reflects the needs of employers and that young people are prepared to perform successfully in the labour market. An

48 analysis of maritime sector higher education in the context of the South Baltic „Generation BALT“ project has identified gaps in educational offers for the maritime industry in an exemplary way. They conclude that maritime educational offers in the SBR „are diversified but do not entirely cover the needs of the labour market. This misalignment is especially noticeable when it comes to innovative technologies, innovative solutions within existing industries and legislative aspects of maritime activities.” (Generation BALT n.y)

Most of the South Baltic region is characterised by good accessibility to higher education facilities. Car travel time does not exceed around 1.5 hours, which, compared to the northern part of Denmark or Sweden, still remains significantly below average. This creates enormous potential when considered from different aspects, e.g. opportunities for studying or cooperation between business and scientific institutions.

Innovation, on which productivity growth is based, stretches from academic invention to new patents and indicators of new types of business activity. While many of the indicators used to track innovation are biased towards academic research, they still contribute to the understanding of the competitiveness profile of a location.

There are numerous Research and Technology Development (R&TD) centres in the South Baltic area that is generally characterised by rather good accessibility to the institutions dealing with R&D, not only in the main urban areas but also in the smaller towns. In spite of the small size of the research environments, many have managed to position themselves as world leading within specific niches. As such, they are highly relevant for the development of their local environment.

Figure 20 South Baltic: Human resources in science and technology, 2012

Source: own calculation based on the EUROSTAT data, Extracted on 18.09.13

There is a need to emphasise the importance of these small research environments at the European levels, where they tend to be ignored because of their size. This challenge is especially faced by the organisations that are not public institutions but rather those having non-governmental and non- profit character. Although there are relatively many scientific or R&D organisations (including higher education level) in the Programme area, they fairly often focus on the research without linkage to

49 their regional context. Special attention that is still not as intensive as it could be, should be put on the socio-economic issues relevant for the Programme area and the applicable character of the R&D activities, particularly by the cooperation between business and science.

Figure 21: Public R&D expenditures (% of regional GDP)

Source: UNU-MERIT/JRC Maps generated by Region Map Generator in Regional Innovation Scoreboard 2012

In the development towards a post-industrial era, science and technology oriented businesses can provide a viable foundation for future development and ensure competitiveness of regions.

At present, success in innovation varies considerably among the Baltic Sea states. Sweden, Denmark and Germany are among the leading “inventors” in Europe and file more patents than the EU average of 11.7 per 100,000 inhabitants. However, this indicator is still under discussion about its relevance in the sense of the impact on the real market-oriented innovation, as the patent itself still does not necessarily have to result in a real product to be placed on the market.

50 Figure 22 Patent applications to the EPO, by NUTS III region per million inhabitants in 2008

Source: Eurostat (online data code: pat_ep_rtot)

Regional Innovation Scores

The “Innovation Union” is one of the flagship initiatives and at the core of the Europe 2020 strategy. It aims to improve conditions and access to finance for research and innovation, to ensure that innovative ideas can be turned into products and services that create growth and jobs (EU COM 2010). The main objectives are to increase the spending for research and development up to 3% of EU GDP and to improve the effectiveness of research with regard to marketed innovations. Therefore, barriers for entrepreneurs to bring "ideas to market", such as financial resources, affordable property rights or bureaucratic regulations, will be removed.

To compare the performance of European regions the EU Commission has set up the EU as well as the Regional Innovation Scoreboard. Both comprise a set of indicators which are weighted and combined into a national regional innovation score. This data is currently available only on NUTS II level and thus covers territory outside of the eligible area. For the purpose of this study this is justifiable for at least two reasons. Firstly, the South Baltic region covers large parts of the NUTS II

51 regions in question and in some countries (Poland, Sweden and Germany) the largest share of the population as well as most (public) Research and Development institutions. Secondly, it would be a rather narrow understanding of knowledge networks and regional innovation processes to break them down to small administrative units, without taking neighbouring districts into account. Thus, the following sections outline the innovation context in which South Baltic regions are embedded. For this reason data is included for the Danish as well as the Lithuanian parts of the region, which is covering, to a large extent, a non-eligible area. The region of Hovedstaden, of which the island is only a small and distinctive part, is included since the main part of this region is neighbouring and densely entwined both with the Swedish South Baltic as well as the Sjælland area. In the Lithuanian case the same rationale applies. Here, only national data is available. However, the South Baltic territory covers about 29% of the total Lithuanian population, and includes some of the country’s most important academic and research institutions, so it is justified to assume that regional performance will not deviate to any extreme degree from the national average.

The Regional Innovation Scoreboard ranks the regional innovation performance based on a Summary Innovation Index. Regions are grouped into four categories Innovation leaders, Innovation followers, Moderate innovators and Modest innovators. The 2012 Regional Innovation Scoreboard replicates the methodology used at national level in the Innovation Union Scoreboard (IUS), using 12 of the 24 indicators used in the IUS for 190 regions across Europe.4 This score also highlights regional performance differences even within member states.

Table 10 shows that most SB Regions perform poorer than the national average. It is only the Swedish region of Sydsverige and parts of the Danish SB region that remain innovation leaders while the rural parts of both countries and Mecklenburg-Vorpommern fall behind the national average classified as “innovation followers.”

Table 10 Regional innovation performance group membership

Region Performance Group Hovedstaden Leader - high Sjælland Follower - high Mecklenburg-Vorpommern Follower – medium Lietuva* Modest Zachodniopomorskie Modest - low Warminsko-Mazurskie Modest - low Pomorskie Modest - high Småland med öarna Follower – medium Sydsverige Leader - high Source: Own compilation from Hollanders (2012: 42f.). * Since Lithuania has not been included in RIS, information from the Eu ropean wide Innovation Scoreboard has been used.

4 The indicators are: Percentage population aged 25-64 having completed tertiary education, R&D expenditure in the public sector as % of regional GDP, R&D expenditure in the business sector as % of regional GDP, Public-private co-publications per million population, EPO patents applications per billion regional GDP (in PPS€), Non-R&D innovation expenditures as % of turnover, SMEs innovating in-house as % of SMEs, Innovative SMEs collaborating with others as % of SMEs, Employment in knowledge-intensive services + Employment in medium- high/high-tech manufacturing as % of total workforce, SMEs introducing product or process innovations as % of SMEs, SMEs introducing marketing or organisational innovations as % of SMEs, Sales of new to market and new to firm innovations as % of turnover.

52 Overall, the Regional Innovation Scoreboard adds to the Northwest-Eastern divide in the South Baltic Area. At the same time the differences within countries also add a further dimension to the urban- rural divide.

Business innovation

In-house Innovation

The data presented in the Regional Innovation Scoreboard 2012 shows a significant disparity in the in-house innovation activities of SMEs. The imbalance between west and east parts of the South Baltic area have even increased since last time. This can be, on the one hand, an effect of the last economic crisis, on the other hand this confirms the ongoing weak position and capacity of the SMEs in PL and LT for competing by innovative products and services instead of by low labour costs.

Figure 23 SMEs innovating in-house (% of all SMEs)

Source: UNU-MERIT/JRC (maps partially based on imputed data). Maps generated by Region Map Generator in: Regional Innovation Scoreboard 2012

53 Technology and Knowledge-Intensive sectors

The Technology and Knowledge-Intensive sectors are essential to the South Baltic area economy and they account for a substantial number of people employed across the area.

Table 11 Employment in technology and knowledge-intensive sectors by NUTS 2 regions, Thousands, Total

GEO/TIME 2007 Hovedstaden 871,417 Sjælland 414,436 Mecklenburg-Vorpommern 754,013 Lietuva 1.531,919 Zachodniopomorskie 540,520 Warminsko-Mazurskie 538,072 Pomorskie 763,516 Småland med öarna 407,399 Sydsverige 645,556

Source: own calculation based on the EUROSTAT data (NACE Rev. 1.1) [htec_emp_reg], Extracted on 18.09.13

Since 2007 all regions, but Lietuva, have seen an increase in employment in Science and Technology areas. The highest increase in total employment can be observed in Pomorskie and Sydsverige. Hoevestaden is included for informative reasons. The data Region of Bornholm will most likely deviate from the data of Hoevestaden as a whole. However, it also shows the gap which all South Baltic regions have to fill.

Table 12 Percentage change of employment in technology and knowledge-intensive sectors by NUTS II regions

GEO/TIME 2002 2003 2004 2005 2006 2007 2008 Hovedstaden ------2,71% Sjælland ------1,07% Mecklenburg-Vorpommern -1,69% -1,31% -3,64% 5,91% 2,77% 0,39% 3,73% Lietuva 3,65% 3,46% -2,25% 2,60% 1,62% 2,31% -0,90% Zachodniopomorskie -5,86% -0,44% -0,08% 2,62% -2,46% 0,58% - Warminsko-Mazurskie -13,80% 3,44% -1,91% 11,47% 4,94% 6,23% - Pomorskie 6,89% -3,20% -5,92% 2,78% -1,23% 11,50% - Småland med öarna 0,15% 0,74% 0,22% -1,09% 2,75% 1,94% - Sydsverige 0,82% 0,23% -1,54% 1,86% 1,97% 3,65% - Source: own calculation based on the EUROSTAT data, Extracted on 18.09.13

Apart from minor recent aberrations (2008) the change in the percentage of those employed within the Technology and Knowledge intensive sector within the South Baltic has increased, noticeably somewhat substantially in the region of Pomorskie in 2007 (11.5%). Although minimal, the changes across the region in 2007 were all in terms of an increase following modest increases/decreases in 2006.

54 Table 13 High-technology sectors (high-technology manufacturing and knowledge-intensive high-technology services),

GEO/TIME Percentage of total Percentage of employment Employment in Services Hovedstaden 7,82 83,00 Sjælland 4,62 73,30 Mecklenburg- 4,37 69,95 Vorpommern Lietuva 2,54 58,95 Zachodniopomorskie 3,54 63,92 Warminsko-Mazurskie 2,02 54,13 Pomorskie 4,85 58,56 Småland med öarna 3,41 65,35 Sydsverige 5,90 76,76 Source: own calculation based on the EUROSTAT data, Extracted on 18.09.13

Those employed within services of the high technology sector account for between 54% (Warminsko- Mazurskie) to 83% (Hovedstaden) of the total. This demonstrates that this sector makes an essential contribution to employment across the region. The lowest percentages of those employed are drawn from Lithuania and Poland (from 54% to 63%) while the higher percentages are attributed to Denmark and Sweden (65% to 83%).

The high-technology manufacturing and knowledge intensive high technology services accounts, in contrast, for significantly lower employment figures. There is a more or less high to low percentage correlation across the region (west to east) with Hovenstaden reflecting the highest percentage with 7.82% and the lowest being Warminsko-Mazurskie with 2.02%.

Creative Industry

Companies and organisations included in the creative sector have enjoyed, in recent years, much interest as the economic activities that bring significant added value to other sectors. The growing share of GDP and the economic importance of generating interest not only in businesses but also Public Authorities interested in accelerating economic growth. The innovative potential of these industries is the result of creativity, but also the relationships and interactions of an inter branch. Apart from that, companies in the creative industries are among the most innovative global business representatives.

According to research conducted by KEA, as much as 32% of companies in the creative industries declared introducing product innovations (compared to 21 % recorded in other areas of the economy), a 16% implementation of process innovation (other sectors - 11%). Cities and regions in the South Baltic Region notice the potential of the creative economy and invest in its development at both the strategic and political development level (e.g. including as a key sector for smart specialisation in the Western Pomerania region), urban development strategy (creative city Gdańsk) and supporting grassroots initiatives cluster (such as Swedish TelecomCity established by regional authorities of Karlskrona). Not only business benefits from creation of the cluster, but also Blekinge University of Technology (BTH) and the region as such. The BTH is now very well known as the centre of education in the fields of IT and telecommunications, educating twice as many students as in other parts of Sweden and 15 times more than in the Stockholm region.

55 The South Baltic regions support a number of centres such as, for example, Gdynia Design Centre, which works to support comprehensive development and promotion of creative industries in the city and offers support to creative business organising, for example, Business Gdynia Design Days. Also other cities such as Szczecin promotes Culture and Creative Industry (CCI) sector, financing e.g. Culture Incubator which works for the promotion and development of creative sector. There are many events organised to promote CCI for example, the city of Malmö has established an annual award “Stads Näringslivspris inom Kreativa näringar" which highlights companies or individual persons that significantly contribute to strengthening Malmo's position as an important European player in the creative industry sector. Because of its unique potential and already strong position in CCI, the South Baltic region can play an important role in the dynamically growing market of creative economy.

56 Interim conclusions 1: Internationalisation and Innovation

The above analysis reveals that economic development strategy will have to target SMEs, and will have to seek both to improve regional innovation dynamics as well as to encourage the internationalisation of SMEs.

This implies that SMEs from the South Baltic region face two major challenges. First, they have to restructure their knowledge platform further from a domestic market focus to an international one. The initial internationalisation step of an inexperienced firm is a difficult and critical strategic move, since it involves a transformation of business practices to a new theory-in-use based on a learning platform concerning international instead of domestic business. Second, this restructuring is even more challenging as the SMEs expand from mature markets in Western Europe to emerging markets in Eastern Europe and China. More experienced companies are able to overcome these challenges since they have accumulated experiential network knowledge and institutional knowledge and therefore perceive less distance and less uncertainty.

The structure of business in the South Baltic region can play the role of a benchmark model for collaboration on microeconomic issues such as innovation and infrastructure, taking into account that individual countries in the region take highly heterogeneous positions towards the EU’s fiscal and monetary policy structures. This situation strongly influences the survival and development of SMEs. Among the many firms started, only some survive and very few become large businesses. In transition economies, survival rates and growth trajectories tend to be even lower. Less developed financial markets fail to provide the necessary tools to support SME growth, in particular the commercialisation of new innovative technologies. Creating new products, services or business models to provide them to consumers is critical for future value generation, increasingly so as countries become more prosperous and move closer to the global knowledge frontier.

57 Environment

This section focuses on three areas:

 Environmental protection and efficient use of natural resources  Low Carbon Economy  Climate Change Adaptation and Risk Prevention and Management

The main environmental issue is the eutrophication and the pollution through hazardous substances5 of the Baltic Sea. The Baltic Sea Action Plan’s (HELCOM 2007, 77) central theme is focussed on turning adversity into opportunity by way of defining a target state that can increase momentum toward a better future for the Baltic Sea Region and which also creates substantial commercial opportunities around “blue” and green” business models in responding to the necessary environmental challenges faced by the region. Representatives in the private sector are in a good position to aid this change; as eutrophication, hazardous substances both on land and at sea and overfishing are intensifying, so is the international demand for blue and green solutions. By leveraging local capabilities and resources to specifically address the adversities the Baltic Sea faces, the region could potentially evolve into an innovation hub for blue and green technologies. Becoming a blue and green hub and gaining global leadership could generate significant environmental benefits and a long-term competitive advantage, plus the potential to attract international companies and talent.

Many other topics (biodiversity loss, health, climate change impact) are also closely linked with the issues described elsewhere in this report. Moreover, many activities that are key to further development in the SBA (e.g. increasing transportation, tourism) may form an additional pressure in respect of Baltic Sea eutrophication and pollution. With regard to biodiversity the complete loss or fragmentation of habitats is also of great concern.

In relation to a low carbon economy there is no specific data for SBA available. However, national data shows that all SBA countries have already met or are close to meeting the 20 per cent reduction target set by the European Union. As regards renewable energies the track record is heterogeneous. While Sweden, Denmark and also Germany take a leading position with regard to renewable energy, Poland and Lithuania are lagging behind. In the SBA the main focus has been on the use of Wind Energy. Additional and even greater potentials are seen in the use of wave energy, but this still requires some technological innovations. Furthermore, connecting into the energy grid as well as energy storage remain important but as yet unresolved issues.

Climate change will have – in comparison to other parts of the European Union - moderate effects on the SBA. A rising water temperature is a concern, particularly in conjunction with eutrophication. In the long term rising water levels require attention.

5 The Baltic Sea Action plan (HELCOM 2007, 77) lists 11 substances or substance groups as hazardous substances of specific concern for the Baltic Sea such as Dioxins (PCDD), furans (PCDF) & dioxin-like polychlorinated biphenyls, Tributyltin compounds (TBT), Triphenyltin compounds (TPhT), Pentabromodiphenyl ether (pentaBDE), Endosulfan, Mercury or Cadmium.

58 Protecting the Environment and Promoting Resource Efficiency

In the following only environmental issues with regard to the Baltic Sea and Coastlines are reviewed, since these will be at the core of South Baltic Regional Cooperation. Despite the fact that land use and land use changes are important and also directly contribute to the environmental problems of the Baltic Sea (e.g. through diffuse emissions from agricultural production) these issues will have to be targetted by other policy measures (in particular within the context of the European Agricultural Funds for Rural Development (EAFRD)).

The Southern Baltic Sea is the Common Pool Resource of the South Baltic Region. It is the basis for all marine economic activities (Transportation, Fisheries, Energy provision) as well as coastal services (harbours) and tourism. The environmental quality of the Southern Baltic Sea has thus a direct impact on life quality as well as on economic development. The South Baltic Region also shares the experience of coastal life. Coastal settlement structures and development have a direct impact on coastal eco-systems and nature protection plays a role with risk management considerations of coastal communities (storms).

Eutrophication

Eutrophication is a severe issue in the Southern Baltic Sea. According to HELCOM surveys the eutrophication status in the Southern Baltic Sea is generally 'poor' or 'bad' with only a few exceptions. Conditions in coastal zones are usually worse than in open water. Eutrophication is connected with some negative effects, in particular on biodiversity, but it also poses a threat to coastal tourism and public health, since it stimulates intense algal growth and excess of filamentous algae and phytoplankton blooms (IOW (n.d.), HELCOM 2009a).

While eutrophication of the Baltic Sea is a severe problem in the SBA, it can only partly be solved in the SBA itself, since eutrophication is based on nutrient loads of a large catchment area (HELCOM 2007). While nitrogen surpluses predominantly are caused by diffuse sources of agricultural production, phosphorus surpluses stem from urban destinations (households & industries). In the SBA only the latter may be sufficiently targeted. Issues which can be targeted are nitrogen loads to the Baltic Sea originating from ship sewage discharges and communal/industrial waste water in the SBR (HELCOM 2010a).

Pollution /Hazardous substances

Pollution with hazardous substances is another major concern in the Southern Baltic Sea. The traditional classification of the sources of pollution according to point sources, land-based diffuse sources, and atmospheric deposition is fully applicable to the Baltic Sea (HELCOM 2010b). Point sources situated either on the coast or inland in the catchment area have historically contributed significant amounts of heavy metals and persistent organic pollutants (POPs) to the Baltic Sea surface waters. HELCOM reports considerable progress with regard to the cleaning of pollution “hot spots” with listing some remaining hotspots in the SBR in Poland, and the Russian Kaliningrad area (HELCOM 2013). The most important point sources remain in the highly populated industrial areas in Poland, Latvia, Belarus and Ukraine, which are outside of the South Baltic Region and cannot be targetted within the framework of this programme.

There are several contaminant groups which originate mainly from minor industrial sources, agriculture with its use of pesticides, pharmaceuticals and fertilisers, households with their use of a

59 great number of consumer products, sludge, dump sites and waste deposition in landfills. Agricultural runoff hotspots inside the SBR are located in Poland and Lithuania (ibid.).

Atmospheric emissions from traffic, shipping, energy production, incineration of waste and even small- scale household combustion are important sources of hazardous substances. It is important to note that some of the atmospheric emissions of hazardous substances that ultimately are deposited in the Baltic Sea originate from sources outside the Baltic Sea catchment area and these substances have been transported long distances in the atmosphere. In the SBR shipping is a major source of hazardous substances by accident or illegal pollution.

Biodiversity & Fish Resources

Baltic Sea habitats and species are threatened by eutrophication, elevated amounts of hazardous substances entering the sea as a result of long-lasting human activities in the surrounding catchment area and at sea. In addition, biodiversity is affected by socio-economic activities such as fishing and shipping. Fish management has helped to stabilise the population of important marketed fish species, such as cod and herring. However, eutrophication means a substantial threat for these populations (HELCOM 2009b).

The vast majority of the marine and coastal biotopes around the Baltic Sea are, to some degree, threatened and many of them are important for rare or endangered species. Invasive species pose an increasing threat to ecosystems and the region’s biodiversity (BfN 2009, HELCOM 2007). The network of marine and coastal Baltic Sea Protected Areas is still not fully implemented. In many cases the Contracting Parties have not yet managed to demarcate Baltic Sea Protected Areas (BSPAs) or prepare management plans, and few concrete steps have been taken to include the 24 proposed offshore BSPAs in the network.

Pressures

Transport

The transport sector contributes between 40-80% of the total emissions of nitrogen oxides. Emissions of nitrogen oxides from the transport sector have not decreased markedly in any of the countries around the Baltic. Shipping poses another potential hazard. Oil tankers carry over 100 million tons of oil and oil products each year. Spills can release large amounts of oil into the marine ecosystem, often with devastating results. A great number of oil spills are detected in the Baltic Sea area every year either due to accidents or illegal operational discharges. The increasing number of illegal operational oil spills can be explained by increased shipping, the increased number of sub- standard ships, and outdated oil and waste reception facilities in a number of countries (BRISK 2011).

Tourism

While pressure through transportation, and primary and secondary sector activities are well documented, pressure on the environment through tourism has not yet been described in detail. However, Baltic tourist destinations are frequently situated in areas of scenic beauty which, at the same time, constitute a significant proportion of the most valuable biotopes, thus the development of tourism infrastructure, forms of touristic land (beaches) and water uses (sailing, water sports) and housing (waste management) may be in conflict with environmental protection objectives.

60 Urban agglomerations

Substantial environmental pressures in the South Baltic area may result from the concentration of economic activities in the urban centres (e.g. industry, households and increasing transportation) and coastal areas (e.g. related with tourism). In the densely populated zones, the untreated runoff of storm-water from paved surfaces and consequent sewage overflow cases may cause severe health problems, potentially resulting from excessive nitrate flows in drinking water. Nutrient remediation measures are also necessary in land reclamation after heavy industrial activities (e.g. mining or refineries) and land development.

Low Carbon Economy

Data about Carbon dioxide emissions are only available on the national level. The data in table 14 shows that all SBA member states already achieved or are close to achieving the 20 per cent reduction target, which has been set by the European Union. However, part of the “success” in the former socialist societies (including East Germany) is largely due to the economic crisis and the industrial decline post 1990.

Table 14 National Levels 2011 (in relation to 1990=100)/reduction required (%)

Country 2011 20% target 30% target Lithuania 44.31 ✔ ✔ Poland 87,56 -8,63% -20,05% Germany 74,48 ✔ -6,01% Denmark 83,39 -4,07% -16,05% Sweden 86,03 -7,01 -18,63% Source: Eurostat (n.d.)

With regard to renewable energy the record is divided between Denmark, Sweden and Germany on the one hand and Poland and Lithuania on the other.

Wind Energy

Wind Energy has been at the core of renewable energy policies for many years. There has been substantial growth in the number of, in particular, on shore installations as well as wind energy capacities. Installations of onshore, as well as offshore, wind capacities are hugely differentiated between member states in the South Baltic region following different national energy policy priorities. Exact numbers are not available for the South Baltic region alone, but it is reasonable to say that the regional picture in the South Baltic reflects the national differences in seeing a large number of installations in Denmark, Germany and Sweden while Poland and Lithuania lag behind.

For the future, offshore wind is of particular interest for the programme area, since the region is perceived to have a competitive advantage for this type of energy production. However, as a report of one SB project highlights, the development process of this type of renewable energy production is still in its early stages (Tonderski and Jedrzejewska 2013). In some of the regions (DE, DK, SE), offshore wind farms are already operating, but even here the industry is immature, while other regions (PL, LT) are still at an early stage of Offshore Wind Energy development.

The total installed offshore wind capacity has been growing since the early 1990s (Denmark and Sweden), but the most significant development took place after the year 2000 in Denmark, Sweden

61 and Germany. Off-shore wind farms have also been planned in Poland and Lithuania, but by the end of 2012 there had not been any turbines erected in the eastern part of the South Baltic Region. The total Wind Energy capacity is about 1325 MW (Tonderski and Jedrzejewska 2013). Inefficient absorption processes, related to existing technical and administrative burdens, hamper the strong positive trend in the use of renewable resources in the energy production.

The report suggested that Polish and Lithuania regions may benefit from the transfer of know-how from the more experienced partners and associated organisations in the other SB regions, while an emerging Offshore Wind Industry in Poland and Lithuania will, in turn, create new business opportunities, and prospects to create new networks and cooperative structures for actors from Germany, Denmark and Sweden. Thus, the development of these renewable energy sectors may result in a win-win situation for the benefit of the whole South Baltic Region.

Wave Energy

As a semi-enclosed basin, the Baltic Sea is an area with comparatively low wave energy potential. Nevertheless, in comparison to wind power density, wave power potential is considerably more attractive. Waves in the Baltic Sea are basically wind induced. As the predominant wind direction in the Baltic Sea is westerly, naturally the highest energy density is found in the eastern part of the Baltic Sea, with relative high density also in the south-central part. Studies show that wave energy electric conversion "is an option that needs more attention and which has several advantages compared to conventional renewable sources. Sound engineering, in combination with producer, consumer and broad societal perspective is advised for a sustainable development of wave energy conversion." (Henfridsson et al. 2007)

The Baltic Sea, as a relatively low wave energy area, can serve as a pilot region for a break-through in small-scale wave energy converting systems. Given the pressures for using space in the Baltic Sea Region, combined wave energy converters are particularly attractive (Schultz-Zehden and Matczak 2012)

Bioenergy

The use of biomasses for energy production covers a wide range of activities such as the generation of biofuels of farm products or biogas from waste and other sources, the direct use of wood and its by-products or farming by-products etc. Biomasses are renewable, but its use for energy purposes is limited either through competing uses of these resources, for instance as food, or as industrial material. Thus Biomass is considered as a renewable but limited resource.

Bioenergy production and consumption is not always and automatically sustainable. Some forms of bioenergy production, for instance if these are connected with intensive forms of agricultural production, may show only minimal positive effects on the reduction of carbon emissions, and even may have negative effects on other environmental and societal goals such as reduction of emissions, biodiversity or the perceived attractiveness of landscape. Sometimes such downsides may result in low public acceptance. Thus, bioenergy promotion has to be performed with a sense of proportion.

Bioenergy production has been the subject of some projects in the Baltic Region as well as the South Baltic Region Programme (e.g. Bioenergy Promotion, RES-Chains). These projects have generated rich case study material that compare potentials for bioenergy production, national strategies as successful as well as sustainable applications. Precise data about bioenergy production is only

62 available on the national level and not for the South Baltic region. However, the published results (reports and conference proceedings) provide some general conclusions for further development of this sector.

• There is already intensive biomass trade among the countries of the BSR for some goods (e.g. wood pellets);

• The South Baltic regions shows considerable differences regarding resource potential, market structure, pricing, technology, political and public awareness;

• The most promising pathways, both with regard to environmental objectives as well as public acceptance, are those that use locally available residues and by-products as well as biogenic waste streams and which employ highly efficient conversion processes;

• The SBR countries provide multiple examples for the realisation of such pathways and partly serve as showcases for a low carbon, resource efficient, and energy efficient, as well as socially integrative use of bio-energy;

• However, according to the National renewable energy action plans biomass imports are expected to grow, particularly in SE, DK, DE. This might also include imports from non EU countries (e.g. CDA, RUS, UKR, other countries). Thus, quality management, as well as environmental impact assessment procedures, have to be applied to maintain product quality and security as well as sustainability risks;

• Certain sustainability risks are associated with increased energy uses of domestic biomass from forestry and agriculture (e.g. whole tree harvesting, dead wood removal, stump harvesting, conversion of permanent pasture for energy crops, shortened crop rotations, etc.).

According to these projects documents see growth in terms of quantity in the Eastern parts of the SBR, while the meeting of qualitative requirements and careful planning and implementation of bioenergy production facilities are becoming increasingly important. Thus,

• There is need for knowledge exchange inside SBR. This includes the mentoring and exchange of good practices between the (sub)-regions and countries;

• Sustainable production and use of bioenergy requires an integrated, cross-sector and multi- functional perspective when developing bioenergy systems taking into account interactions, environmental dependencies and opportunities. Thus, qualitative and quantitative growth of energy use is only partly a matter of technological innovation, but rather a problem of a careful development of business models and locally adapted solutions, it is therefore as much a matter of planning and public communication.

• Product standards (certifications) are becoming increasingly relevant. However, such standards are potentially effective, but not of sufficient measure to promote sustainable development of bioenergy. Thus, actions should be taken to progressively develop a coherent and ambitious set of sustainability criteria for all biomass uses across heat, electricity, and transport but also for food and industrial use of biomass.

63 Energy Grid and Storage Capacities

While there are some studies about the energy potential of wind and waves, also for the South Baltic Region, comparatively little information is available about energy grid connections and storage capacities. A study of the Baltic Sea Region Energy Cooperation suggests that if offshore wind farm development in any of these areas looks attractive, the possibilities for combining wind farm connections with transmission interconnections should be given serious consideration (BASREC 2012).

Climate Change Adaptation and Risk Prevention and Management

Climate Change impacts on the Baltic Sea area have been widely studied in the context of the BALTEX research programme, the BALTADAPT project and some nationally funded research projects (e.g. RADOST in Germany). In short, the main findings of this research are that the Baltic region will most likely experience moderate impacts of climate change (CC)6.

In the medium term a rise of sea temperature, changing rainfall patterns (droughts in the SBA), and longer vegetation periods are expected. This will mean opportunities for transportation (shorter ice coverage, easier shipping in winter) and agriculture as well as the tourism sector (longer seasons). Main threats are a potential biodiversity loss and, in conjunction with eutrophication, an increasing occurrence of cyano blooms, harmful algae and loss of biodiversity due to the release of nutrients from anoxic sediments. This may also have negative impacts on tourism and recreational activities. In addition, there may be a decline in important fish stocks (cod, herring, sprat), and an increasing lower value and higher volatility of fish catchment. In the long run, rising water levels and extreme weather events, floods and droughts are expected.

Firstly, the strategic focus – on the one hand – has to be on eutrophication. Secondly, regions differ in their adaptive capacity to cope with negative CC impacts (vulnerability) and to exploit positive CC impacts. The adaptive capacity is mainly determined by socio-economic and cultural conditions towards potential changes. At present, access to assessments of adaptive capacity and vulnerability across the BSR is low. It is proposed to support assessments of the need for adaptation that are based on integrated analyses of change in a wider perspective than climate. It also needs to be emphasised that adaptation is needed not only to meet environmental, social and economic obstacles, but also to take advantage of opportunities that might come with CC, thereby increasing the prosperity of the region (Baltadapt 2013).

6 For further details and literature see respective project webpages http://www.baltex-research.eu, http://www.baltadapt.eu, http://klimzug-radost.de.

64 Interim Conclusions 2: Blue and Green Growth

Currently the Baltic Sea is in a critical condition. There is a growing consensus on the primary threats facing the region: eutrophication, hazardous substances, and overfishing. Despite efforts to address these issues, deterioration continues. The region, which is financially strong and whose residents are highly educated, is still better positioned than most to address these global issues. However, an integrated cross-sectoral and cross-governmental approach is needed to achieve change and reduce the coordination difficulties present in the broad and complex network of stakeholders. Therefore, a shared vision is crucial in steering the region toward a desired target state (Boston Consulting Group 2013).

Such an approach means investing in order to develop the region into a blue and green technology hub. Many of the more mature economies around the Baltic Sea face a systemic challenge in growing small- and medium-sized enterprises into larger enterprises. By raising the rate of innovation and of commercialisation of ideas in the region, this challenge can be addressed and a successful technology hub can be built. Elements of such a strategy may be to (see also Boston Consulting Group 2013, Schmidt & Thelle 2010):

 Create vibrant markets by combining strong commitment and strategic investments from all national governments with cutting-edge research and commercial activities from both multinational companies and innovative start-ups.

 Explore private-public partnerships for leveraging financial resources and knowledge while sharing the risks. Find ways to support commercialisation of research and promote venture capital involvement.

 Use public procurement to stimulate innovation by specifying levels of performance or functionality that are not achievable with non-customised solutions and by including impact on the Baltic Sea as a parameter in general procurement.

 Explore commercial opportunities to develop new products or services addressing environmental challenges by ensuring both efficient use of national expertise and cross- border sharing of ideas and best practices.

 Capture knowledge gained from other regions that have succeeded in creating blue or green technology hubs.

65 Transport and Communication Infrastructure

This section focuses on accessibility, the transport infrastructure and changing mobility patterns as well as the broadband and IT infrastructure and internet usage.

Accessibility is a major issue in the South Baltic area. Vast parts of the area suffer from modest potential accessibility to population, with indices below the EU-27 average. This results from the scattered settlement structures and the somewhat considerable distance to the populated metropolitan areas (such as Berlin, Copenhagen-Malmö and Gdansk-Gdynia). Despite large infrastructure investments in recent years to reduce disparities in this accessibility, differences in infrastructure endowment between the programme regions remain noticeable. In addition, the transport system of the South Baltic area lacks region-to-region airborne connections, especially across the Baltic Sea (despite the overall steep growth in air passenger transport in EU-27) and more frequent railway and ferry connections to improve the direct connectivity.

Despite the infrastructure deficits, there has been significant growth of interregional travel in the South Baltic area, in both north-south and east-west direction. This is largely based on private car transportation and the use of heavy goods vehicles, particularly in the eastern part of the programme area and less populated regions. The advancing car-based mobility pattern and an emerging east-west divide in modal split (as rail transport has a strong foothold in Denmark and Sweden in contrast to significantly decreasing figures in Lithuania and Poland, particularly) pose a serious challenge to the ambitions by the European Commission to shift 30% of road freight over 300 km to other modes such as rail or waterborne transport, by the year 2030.

Harbours and the connected logistics are an important part of the SB region’s economy. Cargo volumes transported through the South Baltic Sea waters are on the rise back towards the levels preceding the economic downturn in 2008. However, this sector is undergoing a major restructuring process.

The data on access to broadband reflects the same infrastructure disparities between Western and Eastern parts and urban and rural areas as described above.

Accessibility

Potential accessibility in the SBR, as indicated in Figure 24 that follows, reflects the potential access to GDP by air transport, the potential accessibility to population by road or rail and a combined index of accessibility by multimodal transport; the lower the indices the lower the potential access. Thus, in general terms across the South Baltic Region, regions that score lower are largely those that are furthest from urban areas as aptly reflected, for example, in Trojmiejsk and Klaipeda counties.

Vast parts of the South Baltic area feature modest potential accessibility to population, with indices below the EU-27 average. This results from the rather scattered settlement structures and a distance to the populated metropolitan areas (such as Berlin, Copenhagen-Malmö and Trojmiejski).

66 Figure 24 South Baltic: potential accessibility to population

Source: own Graph, RRG, 2007c,d

This shortcoming has, to a large extent, been compensated by private car transportation and the use of heavy goods vehicles (including ro-ro ferry services) in freight logistics as the latter are most capable of providing door-to-door deliveries. However, the advancing car-based mobility pattern poses a serious challenge to the ambitions promoted by the European Commission in the White Paper on Transport 2011, including a commitment to shift 30% of road freight over 300 km to other modes such as rail or waterborne transport, by the year 2030.

In passenger traffic, one of the reasons behind such a situation is an insufficient quality of public intermodal services when moving across the borders, as exemplified by: incompatible ticketing systems, lack of combi-tickets, lack of harmonised timetables, unavailability of information on public transport offer in transfer sites or lack of shuttle services between a passenger terminal and a city centre or a railway station. Similar harmonisation and compatibility challenges occur in the rail/intermodal freight sector.

67 Figure 25 TEN-T core network corridors

Source: Trans-European Transport Network (2013).

The Baltic Sea remains as a barrier to the connectivity of the Programme’s coastal territories. The two TEN-T core network corridors traversing north-south either begin on land (Gdynia/Gdańsk and Szczecin/Świnoujście) or are traced through the fixed links and ports of the western part of the programme area (e.g. Rostock, Trelleborg).

In the east-west direction, the dynamic trade exchange along transnational transport corridors is not reflected in the layout of the TEN-T network as seen above in Figure 25, as the south-eastern part of Sweden has been left short of any European-level freight railway links and its ports are qualified in the best case to the comprehensive network despite the quickly growing freight volumes on the Karlshamn-Klaipeda and Karlskrona-Gdynia ferry connections. In turn, the road/railway link along the southern Baltic Sea coast has, in the TEN-T plans, barely a status of a comprehensive network component, although it bears critical importance for the area’s territorial cohesion, and requires substantial quality improvements (e.g. single rail track in some sections).

68 Figure 26 South Baltic: Rail and inland waterways network

Source: http://ec.europa.eu/transport/infrastructure/tentec/tentec-portal/site/en/maps.html

Figure 27 South Baltic: rail network by link category, 2012

Source: C.Schürmann, RRG (2013).

The transport system of the programme area, in addition to the above deficiencies, lacks region-to- region railway connections, airborne connections across the Baltic Sea and more frequent ferry connections heading south from the island of Bornholm.

69 Figure 28 South Baltic: Ferry routes, 2012

Source: C.Schürmann, RRG (2013).

The accessibility of many territories in the South Baltic area may also be further impacted by the International Maritime Organisation (IMO) sulphur regulation (setting stricter sulphur content limits in ship fuel in some sea basins around Europe from 2015), which – alongside the modal backshift - is predicted to cause changes in the routing of international freight flows. The potential decision of supply chain players to bypass sea basins under the SECA regime, due to higher operational costs, may pose a threat to several short-sea ferry connections conveying ro-ro and container traffic across the southern Baltic Sea.

70 Inland transport

The Eurostat data shows a significant increase in the use of passenger cars among many of the Member States that joined the EU in 2004 or 2007 (Eurostat 2013a). In countries such as Lithuania and Poland, the reliance on cars has become particularly high, accounting for respectively 91% and 88% of total inland passenger-kilometres in 2010, as compared with the share figures of 82% and 73% in 2000. This trend has evolved at the expense of other inland modes, with passenger rail-borne transport in both countries falling to critically low shares from 3.2% to 0.7% for Lithuania and from 11.7% to 5.2% for Poland across a ten year time span. It is noteworthy that in the same 2000-2010 period the share of passenger rail-borne transport rose in the other South Baltic area countries (Germany, Denmark, Sweden) reaching 8-9% in the total volume.

Eurostat’s capture on modal split of inland freight transport highlights a pattern with much contrasting development paths between the countries concerned (Eurostat 2013b). Poland features a dramatic drop in a share of rail freight transport (from 43% in 2000 to barely 19% in 2010), with a reverse trend for road haulage (from 58% to 81%). The same direction of change is seen in Lithuania, although rail freight still records high figures (41% of share, more than twice the EU-27 average). The other three South Baltic area countries have managed to break the overall rail freight decline trend marked at the EU-27 level as the share in each case grew by a small percentage in the period of 2000-2010.

Figure 29 South Baltic TEN-T road network by road type (2012)

Source: C.Schürmann, RRG (2013).

Maritime transport

Cargo volumes transported through the South Baltic Sea waters are on the rise back towards the levels preceding the economic downturn in 2008. Liquid bulk remains the pre-dominant cargo commodity in the Baltic maritime transport, while both ro-ro and, notably, container traffic have gained in shares. Recent years have seen a changing geography of flows within the Baltic Sea with dynamically growing east-west flows served by eastern shore ports (e.g. Klaipeda), and a rising role

71 of the port of Gdansk as a prospective Baltic hub serving ultra-large container vessels and developing its own feeder services to other Baltic Sea ports. However, an anticipated significant increase of maritime transport costs in the Baltic Sea in effect of the IMO sulphur regulation may reduce competitiveness of the short-sea shipping and lead to a modal backshift from sea to road in the South Baltic Sea area.

In contrast to the recent developments in maritime transport of goods, the seaborne transport of passengers in the South Baltic area countries showed a somewhat stable (e.g. Germany, Poland) or even declining trend (e.g. Denmark), with the exception of Lithuania (although rising from a lower base) (Eurostat 2013a).

Air transport

Among the different modes of transport, air transport has experienced the fastest growth. The year 2009 to 2010 increase in passenger air transport volumes in the South Baltic area countries was much higher than the EU average, peaking for Lithuania at the level of over 20%, and at over 15% for Denmark (Eurostat 2013d).

Nevertheless, as mentioned above, the South Baltic region has been characterised by high levels of depopulation and weak socio-economic conditions, and being aware of the link between socio- economic development and accessibility, South Baltic Global Access, a project under the South Baltic Programme which is based in Rostock, Bornholm, Växjö, Palanga, Klaipeda and Szczecin (the purpose of which is to “exchange and jointly design feasible response strategies to safeguard and develop sustainable and competitive levels of accessibility by air”), has identified that, within the South Baltic region, air transport has “become increasingly crucial to surmount long distances and barriers respectively crossing waters, to improve time sensitive internal and external transport links”. One of the key tasks then has been to enable additional airline routes, hub connections and frequency, not only between regional airports, but also outside the programme area. Of note, in 2013, new summer routes connecting the region with other key airport hubs within Europe were reintroduced:

- Moscow - Palanga - Dusseldorf - Rostock - Rostock - Fuerteventura - Bristol - Szczecin - Edinburgh Szczecin - Oslo/Torp - Szczecin - Stavanger - Szczecin

However, an ongoing key challenge for the development of air transport in the region depends on the continuing development and modernisation of regional airports as well as improving interconnectivity between both regional/internal airports and external ones (those outside the Programme area). Directions of transport investment policies

Following the EU accession, large transport infrastructure investment programmes have been carried out in Lithuania and Poland, in an effort to reduce endowment disparities in comparison to the western EU neighbours. Some of the infrastructure projects tackle cross-border deficiencies (e.g. Rail Baltica between Lithuania and Poland or modernisation of the Szczecin-Berlin rail route. It should be

72 noted however, that Rail Baltica remains at a proposal stage due to the present lack of crucial investment). The new TEN-T guidelines, which will define a long-term strategy for the TEN-T policy up to 2030/2050, address the challenge of fragmented transport infrastructure, both geographically and between and within transport modes in the EU. A dual-layer approach will be taken for the development of a complete and integrated Trans-European transport network (core and comprehensive network) with specific implementation instruments promoted (e.g. the concept of core network corridors). The context of modal integration, interoperability, transport greening, reliability, limited congestion, low operating and administrative costs as well as coordinated development and management will determine the orientation of upcoming transport investments implemented by the public authorities with the use of EU funds.

Two north-south aligned TEN-T core network corridors cross the South Baltic area: the Scandinavian- Mediterranean Corridor (en route from Stockholm via Malmö - Copenhagen towards Hamburg and via Rostock towards Berlin) and the Baltic-Adriatic Corridor (from Gdansk-Gdynia towards Łódź and Warszawa and from Szczecin/Świnoujście towards Poznań). Both these corridors and the elsewhere located infrastructure components of the core network layer (designated roads, railways, seaports and inland navigation ports, airports, railroad terminals), are likely to concentrate a vast majority of public and private funding in the 2014-2020 perspective.

Broadband/IT Infrastructure

The European Union has acknowledged the importance of bridging the digital divide. Offering everyone equal access to Information and Communication Technology (ICT) is one of the main objectives in the digital agenda for Europe 2020 (European Commission 2010a). Although there would appear to be a clear link between IT infrastructure/the provision of broadband with transport and communication, there is very little available information pertaining to this for the South Baltic region.

Table 15 Percentage of households with access to the Internet at home by NUTS II regions7

GEO/TIME 2009 2012 Sjælland 79 90 Mecklenburg-Vorpommern 68 75 Lietuva 60 62 Region Pólnocno-Zachodni 63 70 Region Pólnocny 59 69 Småland med öarna 84 90 Sydsverige 85 93 Source: EUROSTAT, Households with access to the Internet at home by NUTS 2 regions [isoc_r_iacc_h], Extracted on 18.09.13

Nevertheless, in general, the South Baltic area continues to develop according to the fixed targets of the EU strategy. The Swedish counties already exceed the average European level, concerning access to the Internet at home as well as to broadband. Thus, ICT development in Sweden is growing

7 For PL and DE data on NUTS I Level was used (Data on NUTS II level is not available)

73 dynamically and is close to fulfilling the targets for 2020. On the contrary, Klaipeda County stagnates on the level of Internet access at home, whereas broadband increases. Currently, nearly every household connected to the Internet is equipped with broadband. This trend indicates that households in structurally weaker regions either show sensitivity to technological progress in ICT or are not connected to the Internet at all. In those regions, catching up with the EU average requires further investments in the expansion of ICT, particularly in sparsely populated areas.

Figure 30 Percentage of households with access to the Internet at home by NUTS II regions

Sydsverige Småland med öarna Region Pólnocny Region Pólnocno-Zachodni 2012 Lietuva 2009 Mecklenburg-Vorpommern Sjælland Hovedstaden

0 20 40 60 80 100

Source: Own calculation. EUROSTAT, Households with access to the Internet at home by NUTS 2 regions [isoc_r_iacc_h], Extracted on 18.09.13

The ever-increasing importance of ICT in the global competition demands an efficient operating IT sector in the South Baltic area. Access and fast connection to the Internet (on PCs and mobile devices) as well as knowledge of relevant skills facilitate growing E-commerce as an important part of trade. Swedish and German regions achieve significantly higher E-commerce than the Polish regions and Klaipeda County. An increasing demand in the latter regions is required to strengthen the participation in a web-based market of enterprises.

Nevertheless, the impacts of a developed broadband infrastructure across the South Baltic region are potentially numerous and advantageous in terms of transport impacts and this needs further analysis and development. This could include for example, teleconferencing replacing travel to meetings (as is already the case within business and learning fields generally), the obvious impacts in this regards are both environmental and cost based. Other examples might typically include using IT to raise awareness of environmentally friendly transport solutions such as car sharing and car pools or upgrading of timetables and adapting them to target group needs etc. There is also a related aspect of connecting learning and training which could counter the weaknesses identified earlier with the more rural areas having less easily available access to education facilities.

74 Literature

Andersson, L. (2013): BaltAdapt Strategy for adaptation to Climate Change in the Baltic Sea Region. A proposal preparing the ground for political endorsement throughout the Baltic Sea Region. Danish Meteorological Institute, Copenhagen Baltic Sea Academy (o.J.): Agenda 2020: Educational Policy Strategies and Objectives for the Baltic Sea Region, BASREC (2012): Conditions for Deployment of Wind Power in the Baltic Sea Region. Baltic Sea Region Energy Cooperation, http://www.basrec.net/files/basrecdocs/Projects/BASREC-wind%201_enabling%20studies_120424.pdf (accessed 06.10.13). BfN (2009): Ecologically sound and sustainable fisheries. Bundesamt für Naturschutz Bonn. BRSIK (2011): Sub-regional risk of Spill of oil and Hazardous Substances in the Baltic Sea. http://brisk.helcom.fi/publications/en_GB/publications/_files/87683053169279181/default/Summary%20report. pdf. (accessed 18.09.13). Commerzbank (2013): Neue Märkte, neue Chancen – Wachstumsmotor Internationalisierung. https://www.unternehmerperspektiven.de/media/up/studien/13studie/2013_04_09_FL_UP_13_studie_Ansicht_ B.pdf (12.01.2014) European Commission (2006): Europeans and their Languages. Special Eurobarometer 243. http://ec.europa.eu/public_opinion/archives/ebs/ebs_243_en.pdf (12.09.2013) European Commission (2010): Communication from the commission to the European Parliament, the Council, the European, Economic and Social Committee and the Committee of the regions. Europe 2020 Flagship Initiative Innovation Union SEC(2010) 1161, European Commission, Brussels. European Commission (2010): Special Eurobarometer 341 BIOTECHNOLOGY http://ec.europa.eu/public_opinion/archives/ebs/ebs_341_en.pdf. (12.09.2013) European Commission (2010a): Communication from the commission to the European Parliament, the Council, the European, Economic and Social Committee and the Committee of the regions. A Digital Agenda for Europe. COM(2010) 245 final/2. European Commission, Brussels. Eurostat (2013): Eurostat Statistical Database. http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database Eurostat (2013a): Passenger transport statistics. http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Passenger_transport_statistics (09.09.13) Eurostat (2013b): Freight transport statistics. http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Freight_transport_statistics (09.09.13) Eurostat (2013c): Maritime ports freight and passenger statistics. http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Maritime_ports_freight_and_passenger_statisti cs (09.09.13) Eurostat (2013d): Air transport statistics. http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Air_transport_statistics Eurostat (n.d,): Greenhouse gas emissions, base year 1990. Generation BALT (n.y.): FORECAST FOR THE SOUTH BALTIC MARITIME LABOUR MARKET IN 2017. http://www.generationbalt.eu/data/user/documents/Foresight_Maritime_Labour_Market_SouthBalt.pdf (02.01.14). Gløersen, E. (2009): Strong, Specific and Promising: Towards a Vision for the NSPA in 2020 NORDREGIO Nordregio Report: 2009:2 Gløersen, E., A. Dubois, J. Roto, R. O. Rasmussen, J. Sterling (2009): Development perspectives for the NSPA: Opportunities and Challenges NORDREGIO EWP 2009:3 Hedin, S. (ed.) (2009). Higher education institutions as drivers of regional development in the Nordic countries. Nordregio Working Paper 2009:3 (http://www.nordregio.se/Global/Publications/Publications%202009/WP2009_3.pdf). HELCOM (2007): HELCOM Baltic Sea Action Plan, Helsinki Commission, Helsinki. HELCOM (2009a): Eutrophication in the Baltic Sea. Helsinki Commission, Helsinki.

75 HELCOM (2009b): Biodiversity in the Baltic Sea. An integrated thematic assessment on biodiversity and nature conservation in the Baltic Sea. Baltic Sea Environment Proceedings No. 116B. Helsinki Commission, Helsinki. HELCOM (2010a): Maritime Activities in the Baltic Sea. An integrated thematic assessment on maritime activities and response to pollution at sea in the Baltic Sea region. Baltic Sea Environment Proceedings No. 123. Helsinki Commission, Helsinki. HELCOM (2010b): Hazardous substances in the Baltic Sea. An integrated thematic assessment of hazardous substances in the Baltic Sea. Baltic Sea Environment Proceedings No. 120B. Helsinki Commission, Helsinki. HELCOM (2013): Active pollutions Hot spots by type as of June 2013. http://helcom.fi/Documents/ActiveHSJUNE2013.pdf (18.09.2013) Henningsen (2011) On Identity – No Identity An Essay on the Constructions, Possibilities and Necessities for Understanding a European Macro Region: The Baltic Sea. Published by Baltic Development Forum. http://www.bdforum.org/cmsystem/wp-content/uploads/BDF_SoRR_Identity_2011_08.pdf Hollanders, Hugo (2012): Regional Innovation Scoreboard 2012. European Union, Brussels. Hollanders, Hugo and Nordine Es-Sadki (2013): Innovation Union Scoreboard 2013. European Union, Brussels 2013. IOW (n.d.): Faktenblatt zur Eutrophierung, Institut für Ostseeforschung, Institut für Ostseeforschung, http://www.io- warnemuende.de/eutrophierung.html Jansson, H., S. Sandberg, Internationalization of small and medium sized enterprises in the Baltic Sea Region, Journal of International Management 14 (2008) 65–77. Ketels, Ch. (Lead author), STATE OF THE REGION REPORT 2013, Baltic Development Forum (S. 6-7) Landesarbeitsgemeinschaft der Industrie- und Handelskammern in Mecklenburg Voropmmern (2010). Internationalisierung der Wirtschaft gemeinsam fördern. http://www.ihkzuschwerin.de/ihksn/Medien/Publikationen/downloads/2010_11_AuWi_Positionen.pdf (10.01.2014). Minister für Wirtschaft, Arbeit und Tourismus Mecklenburg-Vorpommern (2010) Landestourismuskonzeption 2010. Mecklenburg-Vorpommern. http://service.mvnet.de/_php/download.php?datei_id=796 (02.01.2014) Minister für Wirtschaft, Arbeit und Tourismus Mecklenburg-Vorpommern (2010). Fortschreibung der Landestourismuskonzeption 2010. Mecklenburg-Vorpommern. http://service.mvnet.de/_php/download.php?datei_id=27585 (17.01.2014). Minister für Wirtschaft, Bau und Tourismus Mecklenburg-Vorpommern (2010). Internationalisierung der Gesundheitswirtschaft nötighttp://www.regierung- mv.de/cms2/Regierungsportal_prod/Regierungsportal/de/wm/_Service/Presse/Aktuelle_Pressemitteilungen/ind ex.jsp?&pid=61988 (01.02.2014) Möller; A., K. Heinsohn and M. Deckert (2012). Market Research Study „Enjoy South Baltic“ – Final Report. http://www.balticsea.travel/esbp/publications/downloads/?sideid=2&download=Final_Report_Market_Researc_ Study_ESB_.pdf&did=2. RRG (2007a): RRG - RRG Spatial Planning and Geoinformation (2007): RRG Accessibility model: Potential Accessibility to GDP, NUTS-2/3 regions. Oldenburg i.H.: RRG. RRG (2007b): RRG - RRG Spatial Planning and Geoinformation (2007): RRG Accessibility model: Potential Accessibility to GDP, Raster level. Oldenburg i.H.: RRG. RRG (2007c): RRG - RRG Spatial Planning and Geoinformation (2007): RRG Accessibility model: Potential Accessibility to population, NUTS-2/3 regions. Oldenburg i.H.: RRG. RRG (2007d): RRG - RRG Spatial Planning and Geoinformation (2007): RRG Accessibility model: Potential Accessibility to population, Raster level. Oldenburg i.H.: RRG. RRG (2007e): RRG - RRG Spatial Planning and Geoinformation (2007): RRG Accessibility model: Population potential within 50 km, Raster level. Oldenburg i.H.: RRG. RRG (2008): RRG - RRG Spatial Planning and Geoinformation (2008): RRG Accessibility model: Car travel times to higher education facilities, Raster level. Oldenburg i.H.: RRG. Schultz-Zehden, A. and M Matczak (2012): Submariner compendium. An Assessment of Innovative and Sustainable Uses of Baltic Marine Resources. Maritime Institute, Gdansk. Schürmann, Carsten and Klaus Spiekermann (2006): Accessibility Analysis of the Baltic Sea Region. Study for the BSR INTERREG IIIB Joint Secretariat within the framework of the preparatory process for the BSR Transnational Programme 2007-2013. Dortmund/Oldenburg.

76 Stiller, S., J. Wedemeier, The future of the Baltic Sea region: Potentials and challenges; HWWI Policy Report No. 16. Næss-Schmidt, Helge Sigurd and Martin Hvidt Thelle (2010): GOING FOR GREEN GROWTH IN THE BALTIC SEA REGION – Policy Re-commendations for Regional Cooperation. Baltic Development Forum. http://www.bdforum.org/cmsystem/wp- content/uploads/files/thematic_reports_going_green_growth_bsr_2010.pdf (01.12.2013) The Boston Consulting Group, Inc., Turning adversity into opportunity - A business plan for the Baltic Sea, 2013. Tonderski, A. and A. drzejewska (2013): Offshore wind energy in the South Baltic Region - challenges & opportunities. Drukarnia WL, Gdansk. Trans-European Transport Network (2013). TEN-T core network corridors. http://ec.europa.eu/transport/infrastructure/tentec/tentec- portal/site/maps_upload/01_10_2013SchematicA0_EUcorridor_map.pdf (20.01.14) Urban Henfridsson, Viktoria Neimane, Kerstin Strand et al. (2007) Wave energy potential in the Baltic Sea and the Danish part of the North Sea, with reflections on the Skagerrak. Renewable Energy 32 (2007), pp. 2069–2084. Zachodniopomorska Agencja Rozwoju Regionalnego S.A., Regional Innovation Strategy for the Zachodniopomorskie Voivodship (Regionalna Strategia Innowacyjności w Województwie Zachodniopomorskim), 2005 Zachodniopomorska Regionalna Organizacja Turystyczna, Strategia Rozwoju Turystyki W Województwie Zachodniomorskim Do 2015 Roku, 2005/2006 (updated in August 2010)

77 List of Figures

Figure 1 Eligible area of the South Baltic Programme ...... 11 Figure 2 South Baltic: Population potential (50km radius), 2007 ...... 13 Figure 3 Population in South Baltic Region, 2011 ...... 17 Figure 4 Percentage population change in the Programme area per country ...... 18 Figure 5 Population Density SBR 2011 ...... 19 Figure 6 Population density in the Programme area, by NUTS III regions, 2010...... 19 Figure 7 Share of population living within 50 km from the coastline, NUTS III, 2001...... 20 Figure 8 Net migration 2005-2010, by NUTS III...... 21 Figure 9 Percentage of South Baltic population in productive age, year 2012...... 22 Figure 10 Change of the population in productive age between 2008 and 2012 in relation to the total population in South Baltic area per country...... 23 Figure 11 Population on 1 January 2012 by five years age groups - aggregated per country ...... 23 Figure 12: Share of population aged 65 years and more in coastal regions ...... 24 Figure 13: GDP (in Mio. €) in South Baltic Region by Country 2010 ...... 28 Figure 14: Employment by Economic Activity (2010) in the South Baltic Region...... 34 Figure 15: Gross Value Added (GVA) by Economic Activity (2010) in the South Baltic Region ...... 36 Figure 16 South Baltic: Tourism accommodation (number of beds and number of collective tourist establishments, NUTS III regions, 2013...... 40 Figure 17 Early School Leaving Rates by Country - percentage 2012 ...... 46 Figure 18 Tertiary Education Attainment or equivalent aged 30-34 ...... 46 Figure 19 South Baltic: Accessibility of Universities, 2012 ...... 47 Figure 20 South Baltic: Human resources in science and technology, 2012...... 49 Figure 21: Public R&D expenditures (% of regional GDP)...... 50 Figure 22 Patent applications to the EPO, by NUTS III region per million inhabitants in 2008 ...... 51 Figure 23 SMEs innovating in-house (% of all SMEs) ...... 53 Figure 24 South Baltic: potential accessibility to population ...... 67 Figure 25 TEN-T core network corridors...... 68 Figure 26 South Baltic: Rail and inland waterways network ...... 69 Figure 27 South Baltic: rail network by link category, 2012 ...... 69 Figure 28 South Baltic: Ferry routes, 2012 ...... 70 Figure 29 South Baltic TEN-T road network by road type (2012) ...... 71 Figure 30 Percentage of households with access to the Internet at home by NUTS II regions...... 74

78 List of Tables

Table 1 Total eligible area in year 2011 (Square Km2) 12 Table 2 Population on 1 January 2012- total Inhabitants 16 Table 3 Percentage population change in the Programme area 17 Table 4 Population density in the South Baltic region 20 Table 5: GDP Growth in the South Baltics 2003 -2010. 29 Table 6: Purchasing Power Parities in South Baltic Regions 2003 and 2001 in € and percentage change 30 Table 7: Unemployment in South Baltic regions 2004 – 2012 (%) 31 Table 8: Workplaces by region and size 2010 (Sweden 2012) 37 Table 9: Overnight stays in the South Baltic Regions 2005 - 2012 39 Table 10 Regional innovation performance group membership 52 Table 11 Employment in technology and knowledge-intensive sectors by NUTS 2 regions, Thousands, Total 54 Table 12 Percentage change of employment in technology and knowledge-intensive sectors by NUTS II regions 54 Table 13 High-technology sectors (high-technology manufacturing and knowledge-intensive high-technology services), 55 Table 14 National Levels 2011 (in relation to 1990=100)/reduction required (%) 61 Table 15 Percentage of households with access to the Internet at home by NUTS II regions 73

79 SOUTH BALTIC SWOT ANALYSIS

The following SWOT analysis is a result of the (baseline) report prepared within the programming process of the South Baltic Programme and presenting the socio-economic situation of the programme area. The document considers both: the current situation in a static view and dynamic of the changes including overall trends in the macro perspective. Although the baseline analysis consists of the thematic chapters presenting specific socio-economic aspects, the results were adapted for the SWOT in a manner to cope with bridging the findings with the thematic priority axis of the Operational Programme and therefore the SWOT is divided into five tables as follows:

PRIORITY AXIS 1: Strengthening international activeness and innovation capacity of the South Baltic blue & green economy

STRENGTHS WEAKNESSES

 a mix of traditional (mostly service)  the South Baltic area economy is over sectors, relatively environmentally reliant on small and medium size enterprises neutral industry and so called “future” with low capacity growth opportunities (knowledge-based) sectors with high added value (such as renewable energy,  presence of economic players on external or creative industry). (third) markets remains too weak in the context of pursuing the blue and green  well-developed educational growth path in the South Baltic area infrastructure with high number of towards a knowledge based and innovative universities and high schools as a economy resource and knowledge incubators for entrepreneurship and innovation  significant socio-economic disparities between west and east part of the region as  high number of people with tertiary well as between urban and rural areas education especially in Denmark, Lithuania, Poland and Sweden  South Baltic SMEs, in particular in rural areas, tend to operate on local markets,  several South Baltic regions in the upper with very low numbers (only a few per cent) quartile of the Regional European Union of the companies active within international Innovation Scoreboard, mainly arenas and involved in trade with third concentrated on urban centres countries, e.g. Russia and China in substantial networking (mostly caused by low capacities by SMEs)

 weak and undefined common identity in South Baltic Region in the economic profiling context

 low level of innovation and R+D investment and cooperation between science and business (especially in the south-eastern part of the area) which causes low SME survival rates and growth trajectories

STRENGTHS WEAKNESSES

 strong unbalanced GDP per capita within the region (above EU average in northern part of the SB region and below in southern part)  there are significant differences in economic sectoral composition and company size distribution in the South Baltic Region  current economic framework structures

(including intermediaries and financing institutions) remain underdeveloped to reach broader academic, R&D and business communities in order to create cross- sectoral and cross-border synergies (including non-technological innovation processes such as knowledge access on international markets)  lack of learning and networking platforms (cross-border clusters and networks) for SMEs to refocus from a domestic to an international market

OPPORTUNITIES THREATS

 further regional economic profiling as a  strong geographical fragmentation of green and blue one, would foster economic activities concentrated on urban economic sectors with high-added value centres and coastal areas (mostly connected (e.g. creative industry, green economy) to tourism) may cause a cost-benefit imbalance  reorientation of EU transport development policies (incl. transport  ageing society processes decreasing access greening) creates a demand for to labour force innovative transport solutions  stagnation of collaborative processes among  more flexible (re-)integration of women micro- and SMEs with low capacity for and seniors into employment that innovation contributes to business  over-reliance on natural resources in the internationalisation and innovation export portfolio of the region processes  regional disparities in the level of  complementary tourism activities with employment in the knowledge- intensive other sectors e.g. through creative sectors within the South Baltic area industry or technology-based sectors contributes to brain-drain effects

81 OPPORTUNITIES THREATS

 the South Baltic area economy is reliant  the territorial disparity in SME innovation on a wide variety of sectors, with a capacity between the north-western and strong role of maritime branches, south-eastern parts of the programme area tourism and food production that may be weakens convergence processes between classified as a driver towards blue and the regional economies green economies  unreduced disparities in the economic  relatively strong and fast growing standings between South Baltic urban and creative industry (developed especially in rural areas would severely hamper the the northern part of South Baltic area convergence process and metropolitan areas), with a high innovation performance of the regional economies but as yet, unexploited potential for innovation transfer through cross-border networking and clustering  common actions fostering transfer of innovation between the more and less advanced regions in the South Baltic area to develop competences of R&D and intermediary institutions aimed at exploiting the innovation and synergy potential of combining knowledge-based and creative industries with traditional economic sectors (e.g. tourism)  high indices of population with upper- secondary and tertiary education level across the South Baltic area can be regarded as a significant driver for cross- border innovation ventures  inadequate renewable energy storage capacities and absence of appropriate storage facilities create demand for innovative solutions

82 PRIORITY AXIS 2: Exploiting the environmental and cultural potential of the region for the blue and green growth

STRENGTHS WEAKNESSES

 the Baltic Sea as a common historical  lack of consistent sustainable economic element of cooperation activities approaches in placing the region as a leader in eco-tourism  the South Baltic region (especially coastal  increasing water temperature together with areas) possesses attractive assets eutrophication is detrimental to the region necessary for sustainable tourism as a leader in eco-tourism activities  lack of commitment to implement neither  relatively strong and growing creative the Baltic Sea Protected Areas (BSPAs) nor industry (especially in DK and SE regions) prepare management plans for protection of as an opportunity to promote the regional marine and coastal biotopes; lack of creative economy common regional tourism carrying capacity  strong tourism economic sector in the assessment systems and strategies whole South Baltic region  average income generated in tourism sector  strong existing marine management is among the lowest, resulting from a policy has stabilised marine life seasonal pattern of the conventional,  numerous and diversified natural and sojourn tourism along the sea coast  cultural heritage sites in the South Baltic the tourist use intensity in the South Baltic area (national and landscape parks, area is considerably unbalanced in respect of both: high indices along the coast and low nature reserves, UNESCO World Biosphere Reserves and NATURA 2000 tourist stay figures in the hinterland areas as sites, historical sites etc.) well between seasons  lack of innovative solutions for promotion of

ecotourism services and products regarding the management of natural and cultural heritage sites that may involve other economic spheres (e.g. creative industry, information and communication

technologies etc.) on the cross-border level  nutrients (nitrogen and phosphorus) discharged in the South Baltic catchment area via communal infrastructures lead to a higher eutrophication of Baltic Sea waters as well as fragmentation and losses in biodiversity  inadequate renewable energy storage

capacities and absence of appropriate storage facilities create demand for innovative solutions

83 OPPORTUNITIES THREATS

 high potential for cross-border ecotourism  conflict of interest between regions and sub- services and products (e.g. cross-border regions in respect of tourism carrying tourist trails, joint packages etc.) capacities (e.g. coastal areas – hinterland)  cultural diversity as a source for common  Remaining pollution and eutrophication of economic activities the Baltic Sea through emissions from  hinterland areas provide unlocked increasing shipping activities, diffuse sources potential for complementary (coast/ (agriculture) and industrial centres outside hinterland) tourism activities the region threatening tourism sector  South Baltic marinas offer as of yet,  Increasing pressure from transportation, unexploited potential for tourism activities (coastal) tourism development and  extensive and relatively unspoiled green renewable energy installations on wildlife areas in the South Baltic territory are able and Baltic Ecosystem as the whole to provide opportunities for active holiday  lack of cross-border strategic waste and leisure activities that could extend the management initiatives tourist season and diversify the currently  eutrophication, in turn, poses a threat for prevailing standard (mass) tourism, while coastal tourism and life quality for both not compromising the environmental residents and visitors in the South Baltic protection needs area  the South Baltic region comprises a consistently attractive landscape with large green areas which enable more evenly distributed benefits from tourism economy to be unlocked  further economic profiling of the region as a green and blue one, focused towards strengthening eco-tourism  green and blue character of the region and current networks create a common platform for fostering cross-border eco- tourism cooperation  competitiveness of South Baltic tourism could be further strengthened through complementary interactions with other economic sectors such as creative industry or technology-based products  implementing innovative advanced green solutions as an opportunity to harness energy from waste  South Baltic as a model region in the field of blue and green technologies and eco- tourism  the South Baltic area boasts a high potential to develop green technology branches based on the local natural resources and responding to energy efficiency large potentials of renewable energy, in particular in the eastern parts of

84 OPPORTUNITIES THREATS

the region, can still be explored and used by public entities as an additional source of revenue  further regional economic profiling as a green and blue one, would foster economic sectors with high-added value (e.g. creative industry, green economy)  reorientation of EU transport development policies (incl. transport greening) creates a demand for innovative transport solutions  more flexible (re-)integration of women and seniors into employment that contributes to business internationalisation and innovation processes  complementing tourism activities with other sectors e.g. through creative industry or technology-based sectors  the South Baltic area economy is reliant on a wide variety of sectors, with a strong role of maritime branches, tourism and food production that may be classified as a driver towards blue and green economy  relatively strong and fast growing creative industry (developed especially in the northern part of South Baltic area and metropolitan areas), with a high innovation performance of the regional economies but as yet, unexploited potential for innovation transfer through cross-border networking and clustering  common actions fostering transfer of innovation between the more and less advanced regions in the South Baltic area to develop competences of R&D and intermediary institutions aimed at exploiting the innovation and synergy potential of combining knowledge-based and creative industries with traditional economic sectors (e.g. tourism)  high indices of population with upper- secondary and tertiary education level across the South Baltic area could be regarded a significant driver for cross- border innovation ventures

85 PRIORITY AXIS 3: Improving cross-border connectivity for a functional blue and green transport area

STRENGTHS WEAKNESSES

 the South Baltic area is a place with  significant disparities in the population strong national and regional transport density between urban and rural areas networks negatively affecting public transport policy  several important multimodal hubs  the Baltic Sea as a connectivity barrier (combining sea, land and air transport) requiring a change of transport mode are located in the region  East-West divide in modal split tendencies  strong foothold of rail transport in parts (road vs. rail transport) of South Baltic area  insufficient sea and air passenger  well-developed short-sea ferry connections between the South Baltic Sea connections regions  unused potential of inland navigation  distant location of some programme area territories to the TEN-T core network corridors  insufficient quality of public intermodal services when moving across the borders (e.g. incompatible ticketing systems, lack of combi-tickets, lack of harmonised timetables, unavailability of information on public transport offer in transfer sites or lack of shuttle services); similar harmonisation

and compatibility challenges occur in the rail/intermodal freight sector  lack of operators and appropriate framework conditions to sustain new and improved existing maritime and air passenger services contributing to direct connectivity

86 OPPORTUNITIES THREATS

 new transport solutions can improve  remaining pollution and eutrophication of accessibility in the whole area with the the Baltic Sea through emissions from South Baltic as a model region for user- increasing shipping activities, diffuse sources friendliness for all (agriculture) and industrial centres outside  dynamically growing east-west freight the region flows  increasing pollution from land transport due  fast growth in air passenger transport to increase of regional transport volume and lack of inland shipping development  better communication and cooperation  in the management of sea accidents and increasing disparities between transport disaster management minimise negative system of west and east regions impacts on the sea and therefore  increasing pressure from transportation, preserves the attraction of the region as ecosystem in the South Baltic region whole  further increases of car-based mobility pattern, poor public transport connections from rural areas into urban centres.

87

PRIORITY AXIS 4: Boosting human resource capacities for the region’s blue and green economy

STRENGTHS WEAKNESSES

 the South Baltic region is an attractive  significant disparities in the population place to work and live density between urban and rural areas leads to depopulation of rural parts of the region  unemployment rates dropped in the SBR and therefore a smaller labour market pool in 2011, while they continued to rise in the rest of Europe  in southern parts of the South Baltic region the fertility rates remain at low levels  positive economic growth and labour market development increasing in the  strongly unbalanced structure of the whole region after 2009 crisis compared population in Germany, Poland and to the EU average Lithuania  recent increasing household incomes in  there are considerable differences in the all parts of the Region employment rates between men and women in the southern part of the region  well-developed educational infrastructure with high numbers of  negative net migration balance in Germany, universities and high schools with an Poland (except big city agglomerations) and extensive offer of education for youth Lithuania  good performance of educational  diversity of vocational educational systems systems with regard to early school leads to difficulties in recognition and leavers acceptance of certificates  number of young people that will enter the labour market in the future has steadily declined over the past two decades

 labour market is segmented across five regions with both different languages and legal regulations  unemployment growth tendencies vary

between the programme regions, with a shared problem of high youth unemployment figures

 lack of common cross-border training, qualification courses and advice services delivered by the labour and business support organisations

88

OPPORTUNITIES THREATS

  cross-border commuting unlocks complex disparities between vocational education systems hamper integration of potential to balance the lack of a skilled labour force and remedy a regional the common labour market mismatch in the labour market  the lack of flexible employment policies  common cross-border initiatives continue to prevent young women from contribute to a higher share of entering the labour market employment in knowledge intensive and  long term unbalanced labour markets have high value added sectors negative social effects such as brain drain,  more focused policies to increase the negative gender and age composition coherence between education systems  lack of a well-educated labour force and an and labour market that contribute to intake of young graduates block the growth reducing emigration of high qualified of a blue and green economy young men and women

 common actions between the labour markets in the South Baltic area may serve as a means to mitigate negative tendencies, offer better employment opportunities and match the educational skills and workplaces for the young

generation, in order to increase youth employment

89 PRIORITY AXIS 5: Strengthen cross-border cooperation between local actors in the South Baltic area to increase their institutional capacity

STRENGTHS WEAKNESSES

 the South Baltic area has a reputation for  communication barriers due to lack of a strong network of projects, English language skills, lack of competences organisations and institutions, including and capacities for project development and city twinning activities, euro-regional implementation by small local actors cooperation and social/cultural initiatives, which promote contacts  low involvement of SMEs as end- between local communities across the beneficiaries in cross-border cooperations borders  the low-level international activity of small  positive attitudes of regional actors actors results from the lack of organisational towards cross-border cooperations capacity and know-how in engaging in cross- border initiatives  positive past cooperation experiences within the South Baltic Programme  high awareness among regional decision- makers of necessity to cooperate on the cross-border level  young generation with improved English skills and willingness to engage in European cooperation  large number of academic and other higher education institutions in all member states as source for project ideas and fields of cooperation

90 OPPORTUNITIES THREATS

 improvement of cross-national  local community actors hesitate in administrative procedures and reduction participating in cross-border cooperation of barriers caused by different legislation projects and to engage in more strategic approaches to cooperation as an instrument  development and improvement of a joint for local policy development; this, in and collaborative management of the particular, applies to small municipalities, Baltic Sea natural resources, ecosystems NGOs, schools, cultural institutions etc. and cultural heritage  a failure to increase the organisational capacity of small local communities in the  increased transfer of knowledge across the region South Baltic area will hamper newcomers entering cross-border cooperation networks

 development, expansion and strengthening of a new South Baltic Identity, which is built on the joint responsibility for the natural and cultural heritage, and grounded in a positive experience of successful joint problem solving, collaboration, mutual respect and trust

 strengthening of a cross-border civil society

 better Integration of SMEs in cross- border civil society

 cooperation and therewith increasing economic effectiveness

91