Version 14 January 2014

Regional Innovation Monitor Plus

Regional Innovation Report North East Region (Severoiztochen)

To the European Commission Enterprise and Industry Directorate-General Directorate B – Sustainable Growth and EU 2020

www.technopolis-group.com

Regional Innovation Monitor Plus

Regional Innovation Report North East Region (Severoiztochen)

technopolis |group| in cooperation with

Plamen Shalafov, Ruslan Stefanov ARC Consulting EOOD / Applied Research and Communications Fund

Table of Contents

1. Main Trends and Challenges in the Regional Innovation System 5 1.1 Recent trends in economic performance 5 1.2 Recent trends in regional innovation performance 8 1.3 Identified challenges 15 2. Innovation Policy Governance 16 3. Innovation Policy Instruments and Orientations 25 3.1 The Regional Innovation Policy Mix 25 3.2 Appraisal of Regional Innovation Policies 28 3.3 Good practice case 31 3.4 Towards Smart Specialisation Policies 31 3.5 Possible Future Orientations and Opportunities 33 Appendix A Bibliography 35 Appendix B Stakeholders consulted 37 Appendix C Statistical Data 38

Table of Figures

Figure 1 GDP (nominal annual change) 5 Figure 2 GDP million PPS 6 Figure 3 Economic performance indicators 7 Figure 4 Share of R&D expenditure per sector of performance 8 Figure 5 Innovation Performance Indicators 10 Figure 6 GERD and GDP trends 11 Figure 7 Technological and non-technological innovators 11 Figure 8 R&D expenditure per sector of performance 12 Figure 9 GERD versus employment in 2000 and 2010 14

Tables

Table 1 Innovation Policy Governance 19 Table 2 Innovation Policy Institutional Set-Up and Available Human Resources 21 Table 3 Existing regional innovation support measures 28

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PREFACE Launched in 2010, the Regional Innovation Monitor1 continues to be one of the flagship initiatives of DG Enterprise and Industry of the European Commission. From the outset, it aimed at supporting sharing of intelligence on innovation policies in some 200 regions across EU20 Member States. RIM Plus aims to help regions to improve their innovation policies based on better and harmonised policy intelligence. The new contract aims to contribute to the development of more effective regional innovation policies and promote policy learning. Building upon the experience gained and results obtained during the implementation of the RIM in the period 2010-2012, the RIM Plus service evolves towards providing practical guidance to regions on how to use the collected information, establishing a network of regional experts with thematic specialisation, and organising specialised workshops taking into account the relevance and potential interest among the regional innovation policy makers. RIM Plus covers EU-20 Member States: Austria, Belgium, Bulgaria, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, the Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and the United Kingdom. This means that RIM will not concentrate on Member States where the Nomenclature of territorial units for statistics NUTS 1 and 2 levels are identical with the entire country (Estonia, Latvia, and Lithuania), Malta which only has NUTS 3 regions, Slovenia which has a national innovation policy or Cyprus and Luxembourg which are countries without NUTS regions. The main aim of 30 regional reports is to provide a description and analysis of contemporary developments of regional innovation policy, taking into account the specific context of the region as well as general trends. All regional innovation reports are produced in a standardised way using a common methodological and conceptual framework, in order to allow for horizontal analysis, with a view to preparing the Annual EU Regional Innovation Monitor Plus report. European Commission official responsible for the project is Alberto Licciardello ([email protected]). The present report was prepared by Plamen Shalafov ([email protected]) and reviewed by Ruslan Stefanov ([email protected]). The contents and views expressed in this report do not necessarily reflect the opinions or policies of the Regions, Member States or the European Commission. The Regional Innovation Access Point and Knowledge Hub presenting further details of the regional innovation measures, policy documents and regional organisations in Severoiztochen is accessible through the RIM Plus online inventory of policy measures here: http://ec.europa.eu/enterprise/policies/innovation/policy/regional- innovation/monitor/region/select Copyright of the document belongs to the European Commission. Neither the European Commission, nor any person acting on its behalf, may be held responsible for the use to which information contained in this document may be put, or for any errors which, despite careful preparation and checking, may appear.

1 http://ec.europa.eu/enterprise/policies/innovation/policy/regional-innovation/monitor/

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Executive Summary

1. Main Trends and Challenges in the Regional Innovation System Severoiztochen (the North East Planning Region, NUTS code BG 33) generates the second largest GDP in Bulgaria after Yugozapaden, where the capital city of Sofia is located. Although GDP and labour productivity over the period 2000-2010 grew considerably faster than the EU27 average, with €3,900 GDP per capita in 2010 (latest available data) Severoiztochen still ranks among the poorest regions in the EU. In 2012, unemployment was 18.1%, the highest level among Bulgarian NUTS 2 regions. Socio-demographic analyses of the region have revealed strong outward migration, especially among younger people, and rigid labour market incapable of attracting highly qualified personnel. Major economic sectors with long traditions in the region include chemicals, transport manufacturing, food processing, clothing, tourism and construction. Most economic activities are concentrated in the Varna agglomeration area, which has traditionally functioned as the single most important growth pole in Severoiztochen, largely due to its appeal as a tourist and logistical centre on the Bulgarian Black Sea coast. Most R&D institutions and 5 out of the 6 universities of the region are located in the city of Varna and account for the bulk of R&D expenditures in the region. In terms of digital development, Varna district (NUTS 3) has kept abreast with national trends and has featured 40.1% of households with broadband connection in 2011. The other three NUTS 3 districts all trailed behind. The region registers Gross Expenditure on R&D per GDP equal to 0.18%, which is five times less than the best performing Bulgarian region Yugozapaden and 9 times less compared to EU27 average. In view of the sharp drop in R&D expenditures in the region in 2010, it is very unlikely that Severoiztochen will be able to meet the goal it has set itself for 2020 of 2% of GDP R&D expenditures, which is a half percentage point above the national goal. Central government subsidies to universities and R&D institutions are responsible for almost all investments in research and innovation in the region. The lack of private enterprise R&D investment explains the sharp drop in overall R&D expenditure in 2010. The current analysis has revealed that the following are the three major challenges to the innovation development of Severoiztochen: Challenge 1: Expand the innovation potential of the region Existing assessments of the regional economy, as well as its underperformance against almost all research and business indicators compared to EU averages suggest that the innovation potential of the region is very limited. An immediate challenge in changing this performance is the creation of genuine regional innovation governance and management capacity in the public administration, which can help the regional research organisations and businesses increase and better leverage their R&D expenditures. Challenge 2: Strengthen cooperation between Triple Helix actors The small share of innovative SMEs collaborating with other companies and the lack of interaction between the public and the private R&D sectors indicates severed links between Triple Helix actors. One possible approach for the region to handle this deficiency is to create a functioning coordination mechanism for political, business, science and civil society stakeholders and focus on levering EU funds, in order to create more innovation intermediary structures. Challenge 3: Improve human capital

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The capacity of universities and research institutions for training R&D specialists can be better utilised in order to supply the region with the necessary human resources to diversify the economy into high technology sectors. Existing pockets of technology entrepreneurship, especially in the Varna agglomeration area, can be used to spark innovations in some of the best-positioned sectors identified in the Regional Innovation Strategy from 2008, such as ICT, logistics, and maritime industry. 2. Innovation Policy Governance Innovation policy in Bulgaria is designed, coordinated and financed at the national level by multiple ministries and governmental agencies. The institutional framework is organised in a hierarchical, control-oriented way, thus allowing for no regional component in implementing innovation policies. Even though Regional Development Councils (RDC) formally exist as governance structures at NUTS 2 level, by law the six Bulgarian regions do not constitute administrative-territorial units and RDCs do not have their own budget and administration. They hold meetings twice a year in the premises of the presiding district administration and have primarily coordination functions. The RDCs are equally distant from both central and local government powers and budget resources, which makes them incapable of formulating or even coordinating regional innovation policies. 3. Innovation Policy Instruments The mechanism for implementing regional innovation policy is characterised by fragmentation of functions between two ministries, duplication of processes and idle- running. The Ministry of Regional Development (MRD), in coordination with NUTS 3 and LAU1 (districts and municipalities) levels of governance in the respective NUTS 2 region, plans and prioritises regional development projects, including in the area of innovation. Seven-year strategic programming documents called Regional Development Plans are then endorsed by the RDC. However, they remain largely on paper as the only source of funding in the area of innovation is Operational Programme (OP) Competitiveness, which is managed centrally by the Ministry of Economy and Energy (MEE) without any regional dimension. As a result, regional allocation of innovation support reflects the ability of regional enterprises as main eligible beneficiaries under the OP to attract and absorb available funds. Within the current institutional set-up, RDCs largely act as non-participating observers as they have no authority to manage innovation support mechanisms or fine-tune. The institutional split between the processes of programming of regional innovation measures and financing does not allow the setting and implementation of regional innovation targets. 4. Conclusions: future actions and opportunities for innovation policy In terms of future orientation, no independent assessments, stakeholders’ opinions or other available evidence provide reasonable ground to expect that the current regional innovation policy system will overcome its deficiencies in the years to come. Severoiztochen, similar to all other Bulgarian regions, faces the following main future opportunities: • Strengthening the role of RDCs The National Reform Programme for 2011-2015 states the strengthening of regional authorities at NUTS 2 level and the adoption of a more regionalised model as a main goal of the Bulgarian government. This should allow the gradual building up of regional innovation capacity and the exploitation of emerging innovation opportunities and regional capacities. • Increasing municipal autonomy Municipalities as the main bodies of self-government at sub-national level will most likely see their political autonomy and independent financial sources increase further in line with Bulgaria’s Decentralisation Strategy 2006-2015. Well-organised in a

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national and a number of regional associations they could push for reforms and progress in the area of regional innovation policy. • Making the best use of the next programming period 2014-2020 The new Regional Development Plan for 2014-2020 features an indicative list with the most important innovation-related projects in Severoiztochen, such as establishing clusters, applied research and business centres; expanding public e-services for businesses; and launching innovation awareness-raising campaigns. Even though they account for a minor share of the total number of planned interventions in the field of economic development, their implementation could provide an impetus for future development of the innovation potential of the region. The implementation of innovation measures will continue to hinge largely on the ability of regional stakeholders to cooperate and absorb money under OP Competitiveness and Innovation in 2014 - 2020.

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1. Main Trends and Challenges in the Regional Innovation System

1.1 Recent trends in economic performance Severoiztochen (North East Planning Region, NUTS code BG 33), the smallest planning region in Bulgaria in terms of territory and the fourth most populous, generates the second largest GDP in the country. When Yugozapaden region, where the capital city of Sofia is located, is sampled out as an outlier, Severoiztochen ranks best or second best under a number of economic indicators among the remaining five Bulgarian regions. According to Eurostat data, in 2010 the Severoiztochen regional economy equalled €3.8bln or 11% of national GDP. Characterised by similarly high inter-regional economic disparities as the other Bulgarian regions, most economic activity in Severoiztochen is concentrated in the Varna agglomeration area, which has traditionally been its single most important growth pole. The economic and financial crisis has hit the region disproportionately hard. In 2009, the GDP growth rate plummeted to minus 6.8%, а much steeper decline than the country average. With €3,900 per capita GDP in 2010, or less than 16% of the EU27 average in nominal terms, Severoiztochen needs to generate a sustained catch-up growth rate in order to narrow the gap with more economically advanced regions. In the period 2000-2010, GDP and labour productivity grew much faster than the EU27 average (see detailed statistics in Appendix D). Figure 1 GDP (nominal annual change)

GDP (nominal) - BG33 Severoiztochen 20,0% 15,0% 10,0% 5,0% 0,0% year -5,0% -10,0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 percentage change on previous BG33 BG EU27

Source: Eurostat

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Figure 2 GDP million PPS

GDP million PPS - BG33 Severoiztochen

100.000

80.000

60.000

40.000

20.000

GDP millions PPS 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

BG33 BG

Source: Eurostat The regional labour market proved highly vulnerable to economic shocks. In 2012, unemployment reached 18.1%, the highest value among all Bulgarian regions. At the same time, the employment rate of 44.4% (364,000 people) is below average national values of 46.6%, indicating a very high dependence of the region on summer tourism work, often involving high levels of undeclared work (National Statistical Institute – NSI, 2012). The socio-demographic analysis of the Regional Development Plan for the new programming period 2014-2020 points at the high levels of outward migration, especially among young people, and at a rigid labour market incapable of attracting highly qualified personnel. In terms of the sectoral structure of employment, regional statistics mirror closely the national distribution. In comparison to EU27, however, Severoiztochen features one third less employees in science and technology and a somewhat larger agriculture sector (see Figure 3 Economic performance indicators). According to the latest available data, in 2011 almost two thirds of the regional gross value added (GVA) of €3,3b was attributable to the services sector, followed by the industry with 31% and agriculture with 8% (NSI 2011). Major economic sectors with long traditions in Severoiztochen include chemicals, transport manufacturing, food processing, clothing, construction and tourism. Moving away from urban agglomeration areas into the periphery, agriculture contributes an increasingly higher share to local gross value added. Benefitting from favourable natural endowments, the dynamic tourist industry traditionally provides plenty of seasonal work places during the summer. It also had a strong pull effect on construction during the pre-crisis boom years. With few exceptions, most of the industry sector is concentrated in the Varna- Devnya agglomeration area which hosts the key chemical, food processing and logistics enterprises of Severoiztochen (Updated Regional Development Plan for Severoiztochen 2011-2013, 2010). The region is characterised by large inter-regional economic disparities. The most advanced Varna district, located together with Dobrich district at the Black Sea coast, accounts for half of the regional population (474,344) and more than two thirds of total regional: turnover (€7.6m), FDIs (€1.5m, cumulatively since 2006), and overnight hotel stays (4.8m) (NSI, 2011). Most of the R&D institutions and four out of the total of six universities in Severoiztcochen are located in the city of Varna, and are responsible for the bulk of R&D expenditures in the region. In terms of digital development, only the Varna district keeps abreast with national trends and featured 40.1% of households with broadband access in 2011 (NSI). Shumen and Targoviste districts lag considerably behind the national and EU levels, as is the fourth district of Severoiztochen - Dobrich. Worn-out water infrastructure and dilapidated roads demand substantial improvements in less developed urban and rural areas.

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According to 'Regions 2020', a prospective analysis of DG Regional and Urban Policy published in November 2008, Severoiztochen falls into the group of the most vulnerable EU regions in terms of all four challenges facing Europe: globalisation, demographic change, climate change, and the energy supply. Its SMEs and workforce are threatened by the adverse effects from globalisation due to the low knowledge intensity of the regional economy, poor specialisation and education in science and technology, as well as low employment mobility. Figure 3 Economic performance indicators

BG33 Severoiztochen

ECONOMIC INDICATORS

GDP per capita

GDP growth rate (2000-2010)

Long term unemployment rate

Labour producvity growth

Regional Compeveness Index 2013

Employment in agriculture (%)

Employment in industry (%)

Employment in business sector (%)

Employment in public sector (%)

Employment in Science & Technology (%)

LABOUR PRODUCTIVITY

B-E Industry (except construcon)

C Manufacturing

F Construcon G-I Wholesale and retail trade, transport, accomodaon and food service acvies J Informaon and communicaon

L Real estate acvies M_N Professional, scienfic and technical acvies; administrave and support service acvies 0 50 100 150 200 250 300 350 Performance relave to BG Performance relave to EU

Source: Eurostat The insights gathered from evaluations, strategic policy documents and interviews with regional stakeholders allow the following summary of regional strengths and factors that can potentially neutralise the aforementioned risks and reinstate growth: • strategic geographic position on the way of three main trans-European transport corridors;

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• international water and airport in the city of Varna, conditions for intermodal transport, as well as traditions in transport manufacturing and logistics; • presence of higher education and research institutions; and • well-developed service sector and emerging high-tech industries such as ICT and electronics.

1.2 Recent trends in regional innovation performance According to the most recent Eurostat data from 2010, Severoiztochen features Gross Expenditure on R&D per GDP (GERD) equal to 0.18%. This is more than 9 times less than the EU average and five times less than the best performing Yugozapaden region in Bulgaria, which performance drives up average national values. Although the 2010 figure for the private sector GERD contribution is still missing, it could be assumed that the traditional pattern of manifold higher government expenditures on R&D will persist. These numbers should be interpreted with caution as there are indications that enterprises tend to underreport R&D investments in the absence of incentives and a comprehensive data gathering procedures. Independent estimations suggest that enterprises in the IT sector, for example, make three to ten times more investments in R&D than reported by the official statistics (Inovation.bg, 2010). In view of the sharp drop in 2010 (see Figure 6), it is unlikely that Severoiztochen will meet its R&D goal of 2% R&D expenditures of GDP by 2020, a whole half percentage point above the average national goal (Regional Development Plan of Severoiztochen 2014-2020). By far the biggest source of R&D expenditures in the region is the institutional subsidies for R&D institutes and universities provided by the Bulgarian government (see Figure 4). It should be noted that R&D subsidies from the government are generally lower for Severoiztochen than for the other regions, based on the lower number of public R&D institutes located in the region. The main sources of project-based R&D funding are the ERDF-funded OP Competitiveness and, to a much lower scale, the National Innovation Fund (NIF) and the National Science Fund (NSF). Figure 4 Share of R&D expenditure per sector of performance

Share of R&D expenditures (% GDP) - BG33 Severoiztochen 0,30%

0,25%

0,20%

0,15%

0,10%

0,05%

0,00% 2006 2007 2008 2009 2010 Business R&D Government R&D Higher Educaon R&D

Source: Eurostat The research and innovation potential of the region is concentrated in the city of Varna, which hosts five tertiary education institutions: Medical University, Technical University, University of Economics, Naval Academy and Varna Free University. Applied research in agriculture and fishery is carried out in three research institutes of the National Academy of Agricultural Sciences. Two institutes of the Bulgarian

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Academy of Sciences specialise in ocean studies and hydro-and aerodynamics. With 185,009 educated students in 2011 (NSI), the region ranks third in the country after the Yugoiztochen and Yuzhen Tsentralen. The human capital potential of the Community Innovation Survey from 2008 (CIS) established that less than 10% of innovative SMEs in Severoiztochen collaborate with other entities (see Figure 7). In this respect the role of private sector-led business intermediary organisations in the region for creating new or strengthening the existing weak linkages between regional innovation stakeholders can be better exploited to deliver more results. The most active regional players in the pro-innovative business infrastructure are the Regional Agency for Entrepreneurship and Innovations - Varna, the Business Incubator and Innovation and Technology Transfer Centre in Varna, the Chamber of Commerce and Industry in Dobrich (Enterprise Europe Network Member), as well as the Varna Economic Development Agency. Since on average Severoiztochen SMEs are innovating more in-house but less in cooperation than the Bulgarian average, it can be assumed that increased innovation cooperation in the region can bring about innovation synergies without much effort. The limited overall innovation potential of regional SMEs is illustrated by the low share of technological innovators, 21 % of all SMEs (see Figure 7).

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Figure 5 Innovation Performance Indicators

BG33 Severoiztochen

RESEARCH & TECHNOLOGY INDICATORS

Employees with ISCED 5-6 (%)

Business R&D (% GDP)

Government R&D (% GDP)

Higher Educaon R&D (% GDP)

EPO patent applicaons (per mln pop)

Empl. in medium-high/high-tech manufacturing (%)

Employment in knowledge-intensive services (%)

Total R&D personnel (%)

Structural funds on business innovaons (per mln pop)

Structural funds on core RTDI (per mln pop)

BUSINESS INNOVATION INDICATORS

Product or process innovators (%)

Markeng or organisaonal innovators (%)

Innovave SMEs collaborang with others (%)

SMEs innovang in-house (%)

0 20 40 60 80 100 120 140 Performance relave to BG Performance relave to EU

Source: Eurostat

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Figure 6 GERD and GDP trends

GERD (% change) - BG33 Severoiztochen 40,0% 30,0% 20,0% 10,0% 0,0% -10,0% -20,0% -30,0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 percentage change on previous year

BG33 BG EU27

Source: Eurostat Figure 7 Technological and non-technological innovators

SMEs innovation data - CIS2008 45% Technological 40% innovators 35% Non-technological 30% innovators 25% Innovave SMEs 20% collaborang with others 15% SMEs innovang 10% in-house % of all SMEs, normalised data 5% 0% BG33 BG EU27 Source: Eurostat The only institutional sector in Bulgaria which in 2010 experienced an increase in R&D expenditures, both as percentage of GDP and in absolute terms, is the business sector (see Figures 8-13). Even though there is still no publicly available data on business R&D expenditures at NUTS 2 level, given the twofold increase at the national level it can be assumed that a similar, yet not so pronounced, trend will also be observed in Severoiztochen. Independent studies suggest that the increase is largely attributable to project co-funding provided by innovative enterprises under European programmes (Innovation.bg, 2013).

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Figure 8 R&D expenditure per sector of performance

Business R&D (Euro per inhabitant) 350 300 250 200

Euros 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 BG33 BG EU27

Government R&D (Euro per inhabitant)

70 60 50 40

Euros 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 BG33 BG EU27

Higher Education R&D (Euro per inhabitant) 140 120 100 80

Euros 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 BG33 BG EU27

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Business R&D (% GDP) 1,40% 1,20% 1,00% 0,80% 0,60% 0,40% 0,20% 0,00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 BG33 BG EU27

Government R&D (% GDP) 0,40% 0,35% 0,30% 0,25% 0,20% 0,15% 0,10% 0,05% 0,00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 BG33 BG EU27

Higher Education R&D (% GDP) 0,60%

0,50%

0,40%

0,30%

0,20%

0,10%

0,00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 BG33 BG EU27

Source: Eurostat

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In the period 2000-2010, Severoiztochen region has failed to embark on a sustainable growth path and catch up with other European regions in terms of GERD and employment levels (see Figures 14-15). While regional innovation has increasingly been identified as the cornerstone of economic development throughout the EU and various support measures have been launched, Severoiztochen remained one of the laggards in terms of innovation spending. The lack of progress in the analysed decade and the comparatively slow recovery from the economic crisis raises questions about the capacity of its innovative enterprises and the effectiveness of its innovation governance system. Figure 9 GERD versus employment in 2000 and 2010

GERD vs. employment - year 2000 75% se23 nl42 70% pt11 fi19 cz06 65% dea fr62

60% dee pl41 be3 el14

Employment - % 55% es41

50% bg33 45% 0 200 400 600 800 1.000 1.200 1.400 1.600 GERD per capita

GERD vs. employment - year 2010 75% dk04 se23 dee nl42 70% ith5 dea fr62 fi19 cz06 65% pt11

Employment - % pl41 es41 60% be3 bg33 55% 0 200 400 600 800 1.000 1.200 GERD per capita

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1.3 Identified challenges According to a number of analyses, as well as interviews with regional stakeholders, innovation policy faces a plethora of challenges at various fronts. Notably, it performs worse in innovation than the EU average on all indicators. Next to the poor innovation performance and negative trends captured by statistical data and EU-wide rankings, Severoiztochen, similar to all Bulgarian regions, has to deal with fundamental deficiencies such as: no traditions of regional self-government; regional authorities with limited autonomy and no administrative capacity of their own; lack of funds for innovation support measures dedicated to and/or coordinated at the regional level; and, as a consequence, no incentives for cooperation of regional stakeholders. Challenge 1: Expand the innovation potential of the region In view of the slow progress in achieving regional goals related to innovation and competitiveness, the mid-term evaluation of the Regional Development Plan of Severoiztochen 2007-2014 concludes that the innovation potential of the region is limited. In fact, there is no independent administrative capacity for formulating and implementing innovation policy at the regional level. This is reflected in the underperformance of the region against EU averages under almost all research and business indicators. As far as it is available, the regional level uses the administrative capacity of the lower levels of governance – at municipal and district administrations. At this backdrop, it is important for the region to start building up its capacity for coordinating policy initiatives of the lower levels and to help increase innovation networking in the region and R&D expenditures, in particular from the private sector. Challenge 2: Strengthen cooperation between Triple Helix actors The small share of innovative SMEs collaborating with other companies and the lack of interaction between the public and the private R&D sectors indicate severed links between Triple Helix actors. It is telling that the region has lower than the country’s average cooperation between SMEs in innovation. One possible approach for the region to handle this deficiency is to create a functioning coordination mechanism for regional political, business, science and civil society stakeholders and focus on leveraging EU funds during the next programming period 2014 - 2020, in order to create more innovation intermediaries such as technology parks, technology-transfer offices and business incubators. Challenge 3: Improve human capital Severoiztochen features a good concentration of universities and R&D institutions. Their capacity for training can be better utilised in order to supply the region with the necessary human resources to upgrade the leading sectors - tourism and agriculture into more value-added activities. Furthermore, existing pockets of technology entrepreneurship, especially in Varna agglomeration area, could be used to spark innovations in some of the best-positioned sectors identified in the first Regional Innovation Strategy, such as ICT, logistics, and maritime industry.

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2. Innovation Policy Governance

Innovation policy in Bulgaria is formulated, implemented and financed at national level by multiple ministries and governmental agencies. The institutional framework is organised in a way, which allows limited or no regional component in implementing policies, including with regards to innovation. As a result, the existing innovation support delivery system is targeted directly at beneficiaries, and not at regions as an intermediate level of governance. Centrally managed funding mechanisms apply one- size-fits-all policies to all regions, thus taking no account of regional diversity and specificities. The highest policy-making bodies for research and innovation are the Standing Committee on Education, Science, Children, Youth and Sports and the Standing Committee on Economic Policy, Energy and Tourism at the National Assembly. However, in practice, the powers to design and carry out innovation policies are concentrated in the executive, in particular in Ministry of Education and Science (MES) and the Ministry of Economy and Energy (MEE). In addition, the Ministry of Regional Development (MRD) is in charge of elaborating strategic regional development documents, which, among diverse integrated measures for reducing regional disparities, also include priorities in the field of innovations. All research and innovation-related strategic documents are endorsed by the Council of Ministers. There are a number of consultative councils at the different ministries and at the Council of Ministers that exert some influence on the national research and innovation policies (e.g., the National Council on Innovation chaired by the Minister of Economy and Energy, the National Council on Science and Innovation chaired by the Minister of Education and Science, the Council on the Protection of Intellectual Property Rights chaired by the Minister of Culture, etc.). The management of public funds for innovation, including for regional projects and initiatives, is also concentrated at the national level. The funds earmarked for innovation measures are allocated on a competitive basis with no regional component. In general, most research programmes are formulated by the MES and are implemented by the National Science Fund (NSF). On the other hand, most business innovation programs are formulated by the MEE and implemented by the Bulgarian Small and Medium Enterprises Promotion Agency through the National Innovation Fund (NIF). In the years since Bulgaria became an EU member-state, innovation financing was increased substantially through EU funds. During the country’s first EU programming 2007 – 2013 there were three Operational Programmes funding R&D and innovation. OP Competitiveness managed by the MEE is central to funding innovation in the private enterprises. OP Human Resources managed by the Ministry of Labour and Social Policy contains a section on developing research potential, implemented by the Ministry of Education and Science. And the Ministry of Regional Development manages the OP Regional Development, which contains measures for supporting innovative actions at the local level in Bulgaria. Each of these funding sources is described in further details: • Established in 1990 as a fundamental research funding body, the NSF was one of the first steps in the introduction of project financing in Bulgaria. After a major surge in R&D funding until the economic crisis in 2009, in more recent years the functioning of the fund has been negatively affected by budget cuts and mismanagement. There are ideas of merging the NSF with NIF and of transferring its management to an entirely new agency. • The NIF was established in 2006 as the main financing tool of the first National Innovation Strategy adopted in 2004. It is governed by the Bulgarian Small and Medium-sized Enterprises Promotion Agency under MEE. Apart from the last sixth funding session announced in end-2012, there have been no calls for projects

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since the outburst of the economic crisis in 2008. Since its establishment, the fund has allocated more than €21.3m, whereby as much as 65% of this amount has been absorbed by the most economically advanced region – Yugozapaden. Structural Funds play a key role in R&D funding in Bulgaria. OP Competitiveness has earmarked €1127m for innovation-related measures. This indicative budget dwarfs the support provided by the NIF. Furthermore, as the bulk of the state budget for research and innovation is spent for institutional support of public research organisations (Bulgarian Academy of Sciences, Agricultural Academy and universities), innovation development depends mainly on the country’s capacity to manage and absorb OP funds. OP Human Resources has been used to stimulate mobility of researchers between the private sector and academia. OP Regional Development has so far not supported any regional specific innovation projects. In effect, there is no clear-cut complementarity between the different sources of research and innovation funds. The fragmented nature of the institutional set-up has resulted in separate measures being implemented by separate institutions with no regional dimension whatsoever. Assessments of the national innovation system have concluded that the institutional fragmentation has led to a number of systemic problems such as ineffective coordination, lower rate of public expenditures on research and innovation, limited horizontal and temporal coherence in policy making and implementation (Smart Specialization Strategy Report, 2013). Weaknesses in the country’s innovation structure have been attributed, among other things, to the fact that Bulgarian innovation policy itself is still in its infancy (Erawatch Mini Country Report, 2011). The Law on Regional Development (in force since 2008) establishes the boundaries of six “planning regions” in Bulgaria (NUTS 2) and stipulates the functions of Regional Development Councils (RDC), the governance structures at this level. The law was conceived to achieve a higher degree of harmonisation of Bulgarian and European law and provide governance structures capable of implementing the EU Cohesion Policy. Within the existing framework, the MRD prepares the National Regional Development Strategy and, on its foundations, the Regional Development Plans for the six NUTS 2 regions in Bulgaria. The Ministry also provides methodological guidelines for the development of District Development Strategies (NUTS 3) and technical and informational support for their monitoring through its territorial units. The MRD territorial units also perform the functions of secretariats of the respective RDC. Although policy making in the area of innovation is centralised, RDCs at NUTS 2 level have some formal functions related to the delivery of innovation support. However, interviewed MRD experts highlighted that despite the participation in planning of regional innovation measures RDCs have largely assumed a role of non-participating observers. This is due to the split between the regional strategic planning and implementation of strategies and programmes. Even though RDCs assist in developing and endorse strategic documents containing innovation measures, they lack the political autonomy and funding to implement them because OP Competitiveness, the single most important funding mechanism in the field, is managed centrally by the MEE. Table one provides an overview of regional innovation policy governance in Bulgaria. The main entities of local self-government in Bulgaria are municipalities (LAU 1), which are the only sub-national governance structures in Bulgaria disposing of their own revenue streams. In 2007, Constitutional amendments granted them for the first time limited tax autonomy. Municipal Councils received discretionary power to implement independent tax policy, i.e. to annually define the amount of local taxes and fees within certain limits defined by law. According to the provisions of the Law on Local Taxes and Fees, municipal administration officers have the rights and obligations of revenue authorities and they follow the methodological directions issued by the National Revenue Agency. The following local taxes accrue to the municipal budgets: real estate tax, inheritance tax, gift tax, property sales tax, vehicle tax, patent tax, and tourism tax. As part of the country’s Decentralisation Strategy for the period

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2006-2015, municipal tax autonomy has been gradually increased. As concerns related to tax competition among municipalities have faded away, the minimal tax rates have been reduced to allow for a more diversified local tax policy. In addition, in 2011 municipalities were granted for the first time the right to levy a tourism tax. Despite recent noticeable improvements, local autonomy in Bulgaria can still be considered relatively limited (Local and Regional Democracy in Bulgaria, 2011). It is reserved for the biggest municipalities with the highest own revenues. The remaining municipalities are highly dependent on central government funding to implement their policies. In the light of the scarce own revenue streams, municipalities generally lack resources to fund innovation projects and initiatives and to conduct an independent innovation policy.

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Table 1 Innovation Policy Governance Description Comment Degree of general Regions forming NUTS 2 level do not constitute administrative-territorial units. Although regional authorities on both NUTS 2 and NUTS 3 level have regional autonomy They serve as a basis for determining the territorial scope of the EU funding formally mandated rights and responsibilities in the process of planning, programmes targeted at fostering convergence and fulfil mainly statistical purposes. programming and monitoring of regional development, in practice their Regional Development Councils possess no real competencies to perform regional functioning is dominated by central government decision-making since: policies. Their functions consist in endorsing and monitoring the implementation of • District governors, appointed by the central government, sit in and chair the Regional Development Plan, as well as in fulfilling coordination activities. RDCs; Districts constitute administrative-territorial units on NUTS 3 level. District • Regional Development Plans are prepared by the MRD; Development Councils fulfil on NUTS 3 level similar functions as Regional Development Councils. District governors are appointed by a decision of the Council • MRD territorial units provide the necessary technical and informational of Ministers to implement state policy at the local level and ensure correspondence support for the elaboration of strategic documents, plans and monitoring of national and local interests in the implementation of regional policy. reports; Municipalities on LAU 1 level are the main entities of self-government in Bulgaria. MRD territorial units serve as secretariats of the RDCs. Their representatives outnumber district governors in RDCs. A slow shift towards decentralisation can be observed only on LAU 1 level. The beginning of the process can be traced back to Bulgaria’s pre-accession period, when it was initiated largely as a response to EU Commission’s requirements. Degree of autonomy Regional governance structures possess no autonomy for conducting innovation As a result of the lack of autonomy and independent administrative capacity, with regard to policy. It is designed, coordinated, funded and implemented on the national level. regional authorities implement no measures in support of innovations. The innovation policy District and municipal administrations (NUTS 3 and LAU 1) carry out innovation only exceptions are individual projects, in which regional authorities related measures on a project base. Most common sources of financing are EU- participate. These are generally funded by EU sources. Their innovative funded national OPs and Cross-border Cooperation Programmes. Innovation component comprises new and/or improved services for citizens and support provided to companies and R&D institutions in the regions takes the form of businesses, better governance, awareness raising campaigns, etc. In general, nationally coordinated competitive funding mechanisms. Resources are allocated on support for innovations at the regional level in Bulgaria is sporadic and the basis of excellence and demand with no geographical dimension. fragmented. Set-up of regional The regional governance system set-up is centralised and at the same time Institutional fragmentation can be observed on a national level with governance system fragmented. innovation governance system compartmentalised and segmented along (centralised/de- sectoral lines. Regional authorities on both NUTS 2 and NUTS 3 level have centralised/fragme the autonomy to design innovation policies but lack their own revenue nted) sources and administrative capacity to implement these. Hence, they usually follow sectoral national policies, along which funding streams are organised, including EU funding. Nature of the Although on paper and by law the process of strategy development is supposed to be Two different sets of strategic policy documents outline research and process of strategy participatory and bottom-up, in effect it is top-down, driven by central government innovation-related measures. On the one hand, Regional Development Plans development (top- ministries. The reason for this situation is the lack of policy initiative and are elaborated by MRD experts within the framework of a top-down process down/bottom-up/ administrative capacity to formulate and implement policies at regional level. with participatory elements via RDCs. On the other, a round of Regional participatory Innovation Strategies was prepared with direct involvement of all relevant regional stakeholders at the beginning of the programming period 2007-

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2013, which however, were never implemented. Intra- and inter- RDCs and DDCs provide districts and municipalities with an institutional RDCs and Regional Coordination Committees lack effective policy levers to regional co- framework for discussing and coordinating innovation projects. With the purpose of directly influence the implementation of centrally coordinated support operation ensuring regional coordination and interaction in the implementation of OPs co- measures. Their role is limited to discussing the outcomes of OPs’ financed by EU funds, Regional Coordination Committees are set up under RDCs. implementation against the priorities defined in Regional Development Plans They consist of: and drawing up summarised fact sheets in support of the assessment of their the representatives of the RDC in the monitoring committees of the National impact on regional development. Strategic Reference Framework and of the OPs; the representatives from OP managing bodies and of the central coordination unit in the Ministry of Finance; the district governors within the respective NUTS 2 region. Source: ARC Consulting

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Table 2 Innovation Policy Institutional Set-up and Available Human Resources Policy stage Primary Number of Total Change Summary assessment organisation personnel number of over the directly in employees last five charge (2013) years (2013)

Strategy MRD, Strategies 6 8 -1 • The responsible MRD department develops in collaboration with Severoiztochen’s RDC the development and Plans for seven-year Regional Development Plan; Regional • Regional Development Plan is an integrated strategic document not explicitly devoted to Development and innovation; Territorial Coordination • Envisaged funds for innovation projects and measures at regional level stem primarily from Department the nationally coordinated OP Competitiveness. Programming MEE, 11 11 n/a* • Most of the employees in the responsible department work on innovation policy. However, Programming employees neither have an explicit specialisation in this field, nor design specific measures Department, OP only for Severoiztochen. Competitive-ness • For example, activities include developing application guidelines for innovation grants or Managing programing the new OP Innovations and Competitiveness 2014-2020; Authority • There is no cooperation with the MRD or Severoiztochen’s RDC to ensure consistency between the regional development needs in the field of innovation and funding schemes’ priorities. Implementation MEE, Project 33 33 n/a* • Most of the employees in the responsible department work on innovation policy. However, Selection and employees neither have an explicit specialisation in this field, nor focus on implementing Contracting measures only in Severoiztochen. Department, OP • There is no cooperation with the MRD or or Severoiztochen’s RDC. Competitive-ness Managing Authority Monitoring and MEE, Monitoring 104 104 n/a* • The Managing Authority produces Annual Implementation Reports and contracts external evaluation and Control evaluators to carry out independent assessments. The analysis of the regional dimension of the Department, OP programme’s implementation is not a central topic and concern. Competitiveness • 70 employees work in regional offices across the country and carry out monitoring of Managing individual projects. Authority 3 3 -1 SeveroiztochenMR • Severoiztochen’s MRD Territorial Unit prepares the Annual Implementation Reports of the D Territorial Unit 22 22 No changes Regional Development Plan. As all resources for implementing innovation-related projects stem from OP Competitiveness, the report focuses on the regional distribution of funds and

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Severoiztochen contracts. RDC • Severoiztochen’s RDC participates in the monitoring of regional innovation development by discussing and approving the Annual Implementation Reports prepared by the MRD Territorial Unit. * Due to restructuring of the OPC Managing Authority in May 2012, no precise data can be provided per departments. The overall number of employees has remained roughly unchanged.

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Two different sets of strategic policy documents define research and innovation- related initiatives at the regional level in Bulgaria. On the one hand, the Law on Regional Development stipulates the process of development and adoption of the National and District Development Strategies, as well as Regional and Municipal Development Plans. Fostering innovation is an integral part of these documents encompassing diverse development policies and measures. On the other hand, external consultants elaborated a round of Regional Innovation Strategies (RIS) for all NUTS 2 regions for the start of the current programming period 2007-2014. Following a bottom-up approach, strategic priorities were identified and a series of measures to improve the operation of the innovation system and encourage the development of innovation in the region. These pilot exercises were financed under EU Commission’s Sixth Framework Programme. Regional development strategic documents are developed within the framework of a top-down process with participatory elements guaranteed by the involvement of RDCs. The MRD prepared all Regional Development Plans, including the one of Severoiztochen, with the support of external consultants. Before being submitted for endorsement by the Council of Ministers, the draft underwent several rounds of discussion in the RDC and a broad public consultation. RIS, on the contrary, were fully prepared by and in dialogue with relevant regional stakeholders. Thus, it can be claimed that they have more closely identified the specificities of the regional industrial fabric, innovation culture, and political institutions. However, interviewed stakeholders in Severoiztochen highlighted that, as the two policy documents were developed in parallel, no coherence between them could be achieved. As a result, the innovation support priorities selected in the RIS were not incorporated in the Regional Development Plan. Both policy documents suffered from the same weakness - they proposed measures for promoting regional development, including innovation and research, without knowing the funding instruments that would support their implementation. Later on, OP Competitiveness emerged as the main source of funding for innovation and research in the regions, without having any regional dimension in its planning or implementation. This rendered the whole strategy development process on regional innovation obsolete. The Impact Evaluation of the Law on Regional Development and the Rules for Applying the Law on Regional Development, prepared by a consortium of independent evaluators and published in August 2012, concludes that the functions of the national and regional governance bodies are defined and implemented properly. In terms of improving the institutional set-up, the report discusses a scenario under which the current high degree of political and financial centralisation is reduced by shifting more competencies to lower governance levels. Elaborated policy options include: • strengthening the functions of RDCs, especially in terms of enhancing their competencies to collaborate with the Managing Authorities of OPs in the next programming period 2014-2020; • clarifying the currently ill-defined functions, structure and scope of the territorial units of central government; • enhancing the capacity of district governors to coordinate regional sectoral policies; • removing functional, organisational and financial factors impeding the proactive role of DDCs for coordinating municipal initiatives and projects and overcoming economic disparities among municipalities. The central constraints in front of regional and local authorities (NUTS 2, NUTS 3 and LAU 1) are the lacking autonomy and resources for designing and conducting regional policies, including on innovation. District administrations and RDCs expend the bulk of available financial resources on preparing, updating, monitoring and assessing strategic planning and programming instruments, as well as on information and public-awareness campaigns. On these two levels of governance, regional administration staff dedicates efforts mainly on the coordination activities laid down

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by law. Although municipalities and district administrations are eligible beneficiaries under EU-funded national and territorial cooperation programmes, in practice human and financial resources are rarely channelled to the application and implementation of projects associated with innovations. Another factor limiting the capacity of regional authorities to act as a driving force for regional innovation activities is the lack of sufficient organisational and administrative capacity on all levels of regional governance. Under the current institutional set-up, there are no effective governance structures in place to implement the innovation measures envisaged in strategic documents. The importance of reducing the high degree of centralisation is reflected by its prioritisation in the National Reform Programme for 2011-2015. It is considered that the strengthening of the second level of government ranks among the main goal of the Bulgarian government to be achieved before the launch of the next programming period 2014 – 2020. So far, little progress in this respect can be reported. Interviewed MRD representatives expressed concerns that Regional Development Plans for the next programming period 2014-2020, including the one for Severoiztochen, will most probably share the fate of their predecessors and remain largely on paper.

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3. Innovation Policy Instruments and Orientations

3.1 The Regional Innovation Policy Mix Regional administrations in Bulgaria, similar to the ones in other Member States in Central and Eastern Europe, are characterised by a lack of autonomy and capacity for policy formulation and implementation, in particular in the field of innovation. Historically, measures in support of R&D and innovation have been coordinated at national level and recent first steps towards decentralisation were initiated as part of the county’s EU integration process. Regional governance and innovation policymaking is in its infancy and therefore it is difficult to discern a regional innovation policy mix. The allocation of resources is driven not by strategic policy mix considerations but rather by the capacity of private and public sector operators to develop and submit viable projects for funding. The main sources of funding for such projects in Bulgaria are the EU programmes, centrally managed by the European Commission, as well as nationally run EU funds. In the context of the lack of regionally specific innovation and research activities support, potential beneficiaries adjust their behaviour in response to existing funding opportunities. This pattern is best exemplified by the shifting interest away from Cross-border Cooperation and other EU programmes (FP7 and CIP) towards nationally managed EU funds, such as OP Competitiveness. The Regional Development Plan of Severoiztochen Planning Region 2007- 2013 was the first official strategic document analysing the innovation and R&D potential of the regional economy and putting forward a set of innovation policies best suited to generate knowledge-intensive growth. It was developed and adopted by the MRD in end-2005 pursuant to the requirements of the EU Commission related to laying down regional strategic development priorities prior to the beginning of the country’s first EU programming period. The first of the seven priorities spelled out in the Regional Development Plan 2007-2013 aimed at developing a dynamic economy based on competitiveness and innovations. The overall objective was broken down into the following specific goals and corresponding measures: 1. Developing an attractive business environment: i) Attracting investments in support of the regional enterprises; ii) Investing in business services and business infrastructure; and iii) Developing clusters and strategic sectors; 2. Developing the region’s innovation potential and promoting R&D: iv) Pro-innovative and technological infrastructure; v) R&D and innovations in manufacturing. 3. Developing of the business infrastructure underlying competitiveness: vi) Maritime and river transport infrastructure; vii) Road infrastructure; viii) Information society and regional ICT networks; ix) Water economy and renewable energy sources. Some of the concrete activities under the envisaged measures included the establishment of high-tech parks and incubators, the introduction of simplified and transparent administrative procedures for investors and more e-services for regional enterprises, the provision of financial support for marketing campaigns, the promotion of quality certificates and entrepreneurship, modernisation of ports, roads

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and railroads, and the promotion of broadband internet. The socio-economic analysis accompanying the Regional Development Plan asserted that Severoiztochen endowment was conductive to the development of the following clusters: chemistry, glass, bio-, high and maritime technologies, transport manufacturing, silk, ceramic, shoes, foods and wine. Individual measures under different strategic priorities aimed at increasing the quality of human capital, improving the technological base of educational institutions and promoting life-long learning. However, available financing, mainly under the nationally coordinated OP Development of Human Resources and OP Regional Development, has been largely channelled to improving accessibility, attractiveness and energy efficiency of kindergartens, schools and universities, as well as basic training courses. No support measures were targeted directly at enhancing, attracting and retaining R&D personnel. The Regional Innovation Strategy of Severoiztochen Planning Region 2008 – 2020 was elaborated under the coordination of the Regional Agency for Entrepreneurship and Innovations – Varna (RAPIV) in the period 2005-2008 as a one-off effort, financed by FP6. Regional actors involved in its development and targeted by the envisaged innovation policies cover the whole range of stakeholders involved in innovation on a territory of Severoiztochen: innovative enterprises, universities, research performing organisations, start-ups, regional and national government or administration, business intermediaries and networks. On the basis of an in-depth regional economic analysis, survey results and stakeholders consultations, the consortium of consultants prioritised the following 10 sectors with highest significance and potential for enhancing the innovative performance of the region: energy and environment; ICT; machine building and electronic; maritime industry; processing industries; agriculture; construction and tourism; services (financial, logistic, etc.); chemistry, biotechnology and pharmaceuticals. Three strategic priorities and a number of concrete innovation support measures were formulated: 1. Development of the regional innovative potential, involving support for: innovation and technological upgrading; cooperation between regional innovation stakeholders; applied research in SMEs and research performing institutions; and international collaboration and technology transfer; 2. Development of existing and establishment of new pro-innovative infrastructure, involving support for a Regional Innovation Council; intermediary organisations such as incubators, entrepreneurship centres, technology parks, industrial zones; cooperation between local and central government in support of innovations (tax breaks, regional guarantee funds); regional funding mechanisms (micro- financing, seed, risk capital funds, business angels networks); public and private innovation services; and 3. Development of human capital and innovation culture, involving support for regional forums, fairs and competitions; updating of educational curriculums and fostering for life-long learning; enhancing managerial innovation-related qualifications and overcoming the shortage of qualified employees. The Action Plan of Severoiztochen RIS foresaw a three-phase implementation of a total of 43 projects for the duration of the strategy by 2020. Seven key pilot projects were planned to create the foundation of the regional innovation system and guarantee commitment by regional public and private stakeholders through quick implementation. Most importantly, they included the set-up of a Regional Innovation Council and a Regional Innovation Fund. No targeted funding was earmarked and secured for the envisaged support measures in Severoiztochen RIS. No evaluation on the achieved results has been carried out since its adoption in 2008. As pilot support measures failed to materialise public and private commitment waned. The results of the strategic intelligence amassed during

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the strategy development and consultation phase were incorporated neither in the Regional Development Plan nor in OP Competitiveness. The central weakness of both strategic documents stems from the fact that innovation policy measures were not matched by corresponding funding sources and instruments at disposal of regional administrations. The innovation-related measures envisaged in the Regional Development Plan and those in the RIS display only partial coherence. Most importantly, key RIS pilot measures such as the establishment of a Regional Innovation Council and a Regional Innovation Fund remained outside the Regional Development Plan. OP Competitiveness As a result of fiscal consolidation since the outbreak of the economic crisis, the EU funds have emerged as the main source of public financing available for fostering innovation in Bulgaria. The EU Structural Funds’ OPs relevant to R&D and innovation are OP Competitiveness, and, to some extent OP Human Resources Development. The former has an indicative budget of €1127m for innovation-related measures (see Table 3 for more details), while the latter dedicates around 5% of its total budget, or €60m to the same policy area, supporting training measures (ERAWATCH Mini Country Report Bulgaria). Even though the National Strategic Reference Framework 2007- 2013, which provides guidelines for the use of EU Structural Funds through the seven Bulgarian OPs, was adopted in March 2007, it was not until 2010 that first schemes were effectively launched. Benchmarked against the other Bulgarian NUTS 2 regions, Severoiztochen ranks at an average level in terms of contracted funds. Since OP Competitiveness targets beneficiaries and not regions, this performance illustrates the capacity of regional stakeholders to attract financing for innovation measures in a competitive national environment. The centralised programming and management of OP Competitiveness fail to take into account the regional characteristics and specific challenges of the regional innovation system and stakeholders in Severoiztochen. The regulatory and policy changes foreseen for the next programming period 2014-2020 will not resolve the disconnect between the need of targeted regional funding and the opportunities offered by nationally coordinated innovation support programmes. The Ministry of Education and Science has proposed an Operational Programme on Science and Education for Smart Growth, which would add additional resources for research and innovation. However, the planned re-organisation of the innovation support system will not resolve the problem of the lacking regional dimension. Furthermore, there is still uncertainty about how big the new OP would be and what would be the focus of provided support. The draft of the successor of OP Competitiveness, called Innovation and Competitiveness, does not envisage the introduction of a regional component in the innovation support delivery system either. Some regional entities in Severoiztochen have implemented projects related to public, social, and demand-side innovation, as well as to design for innovation. But these have been individual projects, which do not amount to policy initiatives. They do not form a critical mass to be noted as policy developments. Innovation projects currently implemented by regional and local authorities sometimes display a demand-side dimension. Examples of such projects include IMAGINE, RECOMMEND and Health4Growth implemented respectively by Regional Administration Dobrich, the Union of Bulgarian Black Sea Local Authorities and Regional Administration Varna. Their areas of intervention include energy efficiency, eco-management and health care (for detailed information visit the online RIM repository). Such, and other similar initiatives, however, are unlikely to have an impact on regional innovation policies and innovative SMEs’ performance as envisaged activities are limited to awareness raising campaigns and interregional exchanges of knowledge and experience with an outreach to a small circle of beneficiaries.

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Table 3 Existing regional innovation support measures Title Duratio Policy priorities Budget Organisation More n responsible information Priority Axis 1: 2007- 4.1. Direct funding Total budget: Ministry of http://www.opco Development of 2013 to business R&D €210m Economy and mpetitiveness.bg knowledge-based and innovation Sub-priority Axis Energy, DG /images/filerepo economy and 4.2.Organisational 1.1: €135m European sitory/2046_OP innovations , process and other Sub-priority Axis Funds for Competitiveness 1.1. Supporting creation non-R&D 1.2: €75m Competitivenes _En_2012.pdf and commercialization innovation (EU and national s (OPC of innovations in 4.3. Fostering funding, private co- Managing enterprises and start-ups and funding not Authority) protection of industrial gazelles included) property rights. 4.4. IPR protection 1.2 Improving the pro- and exploitation innovative 5.2. Science-, infrastructure technology parks and incubators Priority Axis 2 2007- 4.1. Direct funding Total budget: Ministry of http://www.opco Enhancing the 2013 to business R&D €529m Economy and mpetitiveness.bg efficiency in and innovation Sub-priority Axis Energy, DG /images/filerepo enterprises and 4.5. Knowledge 2.1: €258m European sitory/2046_OP creating a pro-busi- transfer and Sub-priority Axis Funds for Competitiveness ness environment cooperation 2.2: €18m Competitivenes _En_2012.pdf 2.1. Improving between firms Sub-priority Axis s (OPC technologies and (incl. technology 2.3: €238m Managing management acquisition) Sub-priority Axis Authority) 2.2. Creating business 5.2. Science-, 2.4: €15m support infrastructure technology parks (EU and national 2.3. Promoting and incubators funding, private co- business networking funding not and clustering included) 2.4. Promoting business networking and clustering Priority Axis 3 2007- 4.3. Fostering Total budget: Ministry of http://www.opco Financial resources 2013 start-ups and €350m Economy and mpetitiveness.bg for developing gazelles Sub-priority Axis Energy, DG /images/filerepo enterprises 5.5. Seed and 3.1: €349m European sitory/2046_OP 3.1. Improving early-stage capital Sub-priority Axis Funds for Competitiveness access to finance vehicles, business 3.2: €1m Competitivenes _En_2012.pdf through FEIs angel networks s (OPC 3.2. Supporting seed 5.6. Support to Managing fund initiatives venture capital Authority funds Priority Axis 4 2007- 5.3. Innovation Total budget: €38m Ministry of http://www.opco Strengthening the 2013 awareness-raising Sub-priority Axis Economy and mpetitiveness.bg international 7.1. Public sector 4.3: €13m Energy, DG /images/filerepo market positions of innovation (EU and national European sitory/2046_OP Bulgarian economy initiatives funding, private co- Funds for Competitiveness 4.3. Improving the funding not Competitivenes _En_2012.pdf national certification included) s (OPC infrastructure Managing Authority) Source: Operational Programme “Development of the Competitiveness of the Bulgarian Economy 2007-2013”, last version from 2012

3.2 Appraisal of Regional Innovation Policies The existing approach to innovation policy appears unsuitable to match the innovation needs and challenges of Severoiztochen as outlined in section 1.3. Such conclusion can be substantiated by the following key findings from conducted evaluations and stakeholder interviews: • current initiatives in support of innovation are private sector driven, project-based and sporadic in nature; • there is a missing link between regional innovation policy planning and nationally managed funding mechanisms;

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• RDC have no powers to influence the allocation and management of centrally- coordinated funding mechanisms; • regional public and private stakeholders have little incentive to coordinate efforts for implementing strategic regional priorities as they have limited political and financial leverage. The remainder of the section presents the findings and recommendations of the only available public assessment of regional development policies in Severoiztochen and a commentary on the synergies and complementarities of existing innovation support measures. Mid-term Evaluation of the Implementation of the Regional Development Plan of Severoiztochen 2007-2013 Pursuant to the requirements of the Law on Regional Development, an external mid- term evaluation of the Regional Development Plan of Severoiztochen 2007-2013 was carried out by independent evaluators and published in the end of 2010. The main purpose of the report was to assess the first outcomes achieved in the period 2007- 2009, the effectiveness and efficiency of allocated resources, the institutional set-up and to put forward policy recommendations for updating the Regional Development Plan. One of the key findings was that the economic and social characteristics of Severoiztochen needed to be better incorporated in the programming and implementation of innovation policies. With regards to innovation, the following two main obstacles were identified to faster and smarter absorption of available resources: (i) the achievement of pre-set targets has been sought only with the help of nationally coordinated EU Cohesion policy instruments; (ii) the RDC has lacked the powers to influence the allocation of resources to strategic priority areas, including innovations and competitiveness. In view of the slow or missing progress under key indicators such as GDP per capita, R&D investment, rate of internet access, income and employment levels, the report concluded that there was a low probability for achieving the goals under Priority 1 ‘Developing a dynamic economy based on competitiveness and innovations’. Among all indicative measures, the implementation of the ones related to technology and innovation experienced considerable delays and poses the greatest policy challenge. The mid-term evaluation used publicly available statistical data from official sources such as NSI and Eurostat, but mainly from the Annual Reports for the Implementation of the Regional Development Plan. No attempt has been made to distinguish the effects of the interventions, including the EU-financed innovation-related ones, from other national and regional factors. The recommendations which were put forward for the remainder of the period (2011- 2013) include: • setting up support mechanisms for regional initiatives and projects financed through the state budget; • identifying and combining all possible national and European sources of funding; • improving the existing horizontal and vertical coordination mechanisms with regards to programming, implementation, control and monitoring; • strengthening the analytical capacity on NUTS 2 level for identifying regional challenges and addressing them with the help of available financing instruments; and • enhancing the rights and resource base of MRD territorial units. Annual Report for the Implementation of the Updated Regional Development Plan of Severoiztochen 2011-2013 Five out of six Regional Development Plans, including the one for Severoiztochen, were updated in 2007 as territorial boundaries were redefined after it was established that several NUTS 2 regions do not comply with Eurostat’s minimal requirements for

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inhabitants. Furthermore, since the adoption of the programming document in 2005 significant changes in the economic environment of the country and Severoiztochen occurred. The outburst of the economic crisis made necessary the actualisation of the pre-set targets and shifts in indicative planning of resources. According to the Law on Regional Development, RDCs are the governance body mandated to monitoring the implementation of Regional Development Plans. Due to lack of technical capacity, however, their role consists only of discussing and endorsing the draft, which is prepared by MRD territorial units. The monitoring document analyses: • the changes in the regional socio-economic environment and development policies; • the achieved progress under the pre-defined monitoring indicators; and • the activities undertaken by RDCs to secure effective implementation. The most recent Annual Report for the Implementation of the Updated Regional Development Plan of Severoiztochen from 2013 provides a detailed overview of the number of contracts, total amount of contracted funds and payments under each strategic priority by the end-2012. As EU-funded programmes are the primary source of funding for regional development the report collates monitoring data from the Managing Authorities of all national OPs, FP7, as well as a number of cross-border cooperation programmes (Bulgaria-Romania, South-East Europe, INTERREG IVC, URBACT II, Black Sea Basin). By end-2012, beneficiaries located in Severoiztochen have attracted €111.5m or 12% of total contracted funds at national level under OP Competitiveness. The most economically advanced Varna district accounted for more than 60% of contracts, 174 in total, followed by Shoumen, Dobrich and Turgovishte districts. Almost the entire progress in contracted funds has been achieved under Priority Axis 2, which is targeted at upgrading the technological base of Bulgarian enterprises. With regards to the coordination functions of the RDC of Severoiztochen, the report concludes that in 2012 for a consecutive year the lack of secured national co-funding remained the main obstacle to strengthening its capacity and role. Due to the on-going economic and financial crisis, limited budget subsidies hamper the efforts of district administrations to implement regional initiatives, including in the field of innovations. In view of these constraints, the report recommended policy-makers to: • broaden the functions of the RDC with an explicit emphasis on sectoral policies coordination; • enhance the RDC’s administrative and technical capacity to enable dedicated working groups to support the preparation of OP-funded projects with regional significance; and • secure sufficient funding for implementing the measures envisaged in the Annual Indicative Working Programmes; Synergies and complementarities of innovation support measures The assessment of synergies between the national and regional innovation support measures in Bulgaria is not possible as there is no stand-alone innovation policy at sub-national level. So far, no evaluation has been carried out to assess the synergies and complementarities between the national and EU-funded instruments supporting innovation. The negligible size of funds allocated through the national instruments - NSF and NIF in comparison to OP Competitiveness puts the value of such evaluation exercise under question. National instruments have been used mostly to prepare projects under EU instruments, both nationally and Brussels managed. It is worth mentioning that there is plenty of room for improving synergies between national and EU-funded innovation support mechanisms as they: • overlap in terms of eligible beneficiaries and activities;

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• lack common programming periods and temporal synchronisation; • have no harmonisation of cost eligibility rules and administrative procedures; and • do not allow the possibility to combine funding in same project for different expenditure items.

3.3 Good practice case As a result of the current review, no particular regional initiative can be identified as a good practice case. Screened regional innovation measures do not possess necessary characteristics such as degree of innovativeness, strategic orientation, longevity, popularity and user-feedback. Moreover, none of them has been independently evaluated. In terms of longevity and potential for future development, the Business Incubator at the Regional Agency for Entrepreneurship and Innovations –Varna stands out in the context of Severoiztochen. The incubator, which is fully operational since June 2005, provides high-tech SMEs with adequate infrastructure, useful information and technology environment, business services and access to local research and innovation networks. On the ground of a feasibility study carried out during the development of the RIS, the incubator hosts and nurtures companies only from the identified economic sectors with highest development potential in the region. In 2012, an extension of the incubator was funded as part of a three-year grant under OP Competitiveness with a total budget of €165,600. The initiative can be characterised as a positive example because it: • offers comprehensive business consulting services, adequate environment and infrastructure to innovative regional start-ups; • aids high-tech SMEs find international research and business partners, commercialise inventions and enter foreign markets • supports highly qualified workers and stimulates the development of young professionals and researchers; • stimulates partnership between incubated firms and regional research institutions; • has strong potential due to support at the regional level; and • stimulates private R&D expenditures in priority innovation areas. The manager of the Business Incubator Varna highlighted in an interview that the weak innovation capacity of the region is reflected in the relatively high rates of incubation of applying firms in comparison to EU averages. According to the available statistics for the period 2005-2010, almost half of the companies that applied for incubation were approved by the Advisory Council. Incubated companies report as one of the major constraints for growing an innovative business the missing access to financing for risky high-technology ventures. Entrepreneurs face an underdeveloped venture capital sector, conservative banking practices and overcomplicated administrative procedures under OP Competitiveness.

3.4 Towards Smart Specialisation Policies Smart specialisation requires sophisticated policy development and implementation structures, which allow for effective communication between stakeholders within the region as well as between the different governance levels (European, national, regional and local). As the analysis of the institutional set-up shows Bulgarian regions, including Severoiztochen, still do not possess such governance mechanisms, which can deliver smart specialisation policy solutions. The only policy initiative so far that has come closest to designing and implementing smart specialisation in Severoiztochen is the development of the Regional Innovation

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Strategy in the period 2005-2008. An international consortium of partners coming from Bulgaria, Greece and Italy undertook the development of the strategy and invited in the Steering Committee all district governors of Severoiztochen, representatives of universities and R&D institutions, business intermediary organisations and associations. The process involved an economic analysis of the region, a representative business survey, numerous stakeholder meetings and SWOT analysis of the regional innovation system. As already outlined in more details in section 3.1, envisaged regional innovation support measures failed to materialise as no targeted public funding was made available. The lack of viable governance structures and mechanisms at regional level that can deliver smart specialisation policy solutions is reflected in the process of elaborating RIS3 in Bulgaria. The initiative is coordinated at central government level by the Ministry of Economy and Energy and the analytical efforts for generating the necessary information input for a fact-based policy orientation is entrusted to World Bank experts. Thus, the priority-setting process performed in such a way in Bulgaria is not embedded in regional competences and does not ensure participation and ownership on the part of industry, education and research institutions, relevant non- profit organisations and entrepreneurial actors at regional level. The elaboration of RIS3, which started in August 2012 is in its concluding phase as of November 2013 with the final draft of the strategy pending discussions at the National Council on Innovation. The prevailing top-down approach of strategy development was combined with participatory elements, most notably under the form of intelligence gathering exercise, which included a round of interviews with relevant stakeholders throughout the country. The members of the Steering Committee and intra-government working groups in charge of designing the strategy include representatives from private sector, business associations, research institutions, universities, NGOs, as well as experts from relevant ministries and representatives from RDCs. An interview with an expert from the Regional Administration of Sofia District revealed that there has been limited coordination between the central government and lower governance levels in preparing RIS3. Not only are regional experts not involved in the design of the innovation and research strategy for smart specialisation, there is also no information flow on the achieved progress and anticipated finalisation date. Regional stakeholders from Varna District expressed concerns that RIS3 would suffer from a similar lack of coordination with national OPs like the Regional Innovation Strategy of Severoiztochen. The new OP Innovation and Competitiveness, the main funding source for innovation-related measures for the next programming period 2014-2020, and RIS3 are being currently developed simultaneously. In summary, there is strong evidence that the process of identifying emerging areas of specialisation is not based on bottom-up initiatives. Given the very short period of time available for the adoption of RIS3, it is unlikely that the opinions of regional and local stakeholders can be incorporated in a credible manner. The latest draft of the national RIS3 present three priorities, which translate into the following more concrete sub-priorities: • achieving more effective and coordinated innovation governance; • strengthening the innovation system via developing modern innovation and research infrastructure, enhancing the quality of human capital and introducing specific financial support instruments; • supporting digital growth and e-government; • introducing sustainable manufacturing and production models in harmony with regenerative capacity of eco-systems; • introducing innovative renewable methods and ideas.

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Designed as core components of the strategy, mechanisms of evaluation and monitoring are already integrated in the document. The state of implementation of activities will be verified on a yearly basis through Annual Implementation Reports prepared by MEE, discussed at the National Council on Innovation and endorsed by the Council of Ministers. In addition, external evaluations will carry out an innovation policy impact assessment twice during the programming period, in 2017 and 2020. Finally, the draft text of RIS3 also foresees two independent international evaluations of the strategy. At the current stage of RIS3 development it is not possible to assess its adequacy to address national and regional innovation challenges as no Action Plan featuring concrete measures and the amount and source of necessary resources is yet elaborated and presented. Even though the development of Bulgarian regions on the basis of their own strengths is part of the vision formulated in the RIS3 for the next programming period 2014-2020, the envisaged support measures will most probably continue to be mainly financed by EU-funded programmes and managed at national level. Therefore, the pattern of resources allocation will continue to be determined by the ability of regional stakeholders to compete at national level. The evaluation and monitoring section of the strategy needs to be further elaborated. So far, neither the objectives have been clearly defined in measurable terms, nor the monitoring indicators and target values for each of them have been established. The MEE has not yet provided an official timeframe for the finalisation of RIS3. Details on the components of the strategy are also still due.

3.5 Possible Future Orientations and Opportunities Considering the analysis of the institutional set-up, the strategic documents and available funding mechanisms, it can be claimed that Severoiztochen, similar to all NUTS 2 regions in Bulgaria, has no independent regional innovation policy. Even though there are clearly defined goals and measures, elaborated with the participation of regional stakeholders and spelled out in the Regional Development Plan, necessary funding and autonomy at the regional level are missing. With the new OP Innovation and Competitiveness and Smart Specialisation Strategy developed independently from the Regional Development Plans for the next programming period 2014-2020 the current structural weaknesses of regional innovation policy governance will most likely persist. Regional and national stakeholders in charge of innovation policy missed the opportunity to use the experience gathered so far and lay the foundations for an effective regional innovation policy in the next programming period. • Strengthening the role of RDCs The National Reform Programme for 2011-2015 states the strengthening of regional authorities at NUTS 2 level and the adoption of a more regionalised model as a main goal of the Bulgarian government. However, no significant progress has been reported so far and decisive actions are yet to come. • Increasing municipal autonomy Municipalities as bodies of self-government at sub-national level will most likely see their political autonomy and independent financial sources further increase. Partially autonomous and well-organised in a national and a number of regional associations, they have stronger bargaining power in front of the central government than RDCs. Although it is unlikely that a single or a group of municipalities could have a systemic impact on regional innovation activities, they could also have a strong influence in RDCs where they outnumber the district and central government representatives. • Next programming period 2014-2020 The new Regional Development Plan for 2014-2020 features an indicative list with the most important projects in Severoiztochen proposed or approved by regional stakeholders. By policy areas, transport infrastructure shows the greatest demand for

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support with more than 150 project proposals, followed closely by ecology. Projects supporting innovations represent a minor share of the 80 interventions in the field of economic development. They include establishing clusters, applied research and business centres; introducing public e-services for businesses; and innovation awareness-raising campaigns. Due to repeated lack of interconnection between planning and financing innovation measures, their implementation will continue to hinge on the ability of regional stakeholders to cooperate and absorb money under OP Competitiveness. Besides, the small proportion of innovation-related measures in the new Regional Development Plan indicates that (i) developing and rehabilitating basic transport, communication, energy and water infrastructure is still the major preoccupation of regional and local authorities and (ii) innovation activities are not perceived as an important driving force of economic development. The recent shift away from competitive and towards direct contracting under OP Regional Development and OP Environment shows continuing difficulties in meeting even basic regional development needs of Bulgarian regions. Hence, it is highly unlikely that more complex innovation potential development projects will emerge in the region before the end of the second half of the 2014 – 2020 programming period.

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Appendix A Bibliography

1. Applied Research and Communications Fund, Innovation.bg 2010 and Innovation.bg 2013. Available at: http://www.arcfund.net/arcartShowbg.php?id=4737 2. Council of Ministers (2005), Decentralisation Strategy 2006-2015. Available at: http://www.strategy.bg/StrategicDocuments/View.aspx?lang=bg-BG&Id=616 3. Council of Ministers (2010), Annual Report for the Implementation of the Decentralisation Strategy and the Action Plan of the Strategy. Available at: http://www.strategy.bg/StrategicDocuments/View.aspx?lang=bg-BG&Id=616 4. F&D Consult (2012), Impact Evaluation of the Law on Regional Development and the Rules and Procedures of the Law on Regional Development. Available at: www.mrrb.government.bg/docs/29f1fc40949e8732a8a83b1cc0e4930e.doc 5. Ministry of Economy and Energy (2012), Operational Program Competitiveness 2007 – 2013, amended version. Available at: http://www.opcompetitiveness.bg/images/module3/163_OPC_amendment_2011 .pdf 6. Ministry of Economy and Energy (2013), Operational Program Innovations and Competitiveness 2014 – 2020, draft version. Available at: http://www.opcompetitiveness.bg/images/module3/1114_OPIC_Concept_July_2 013_ENG.pdf 7. Ministry of Regional Development (2005), Regional Development Plan of Severoiztochen 2011-2013, , Available at: http://www.strategy.bg/StrategicDocuments/View.aspx?lang=bg-BG&Id=404 8. Ministry of Regional Development (2010), Updated Document for the Implementation of the Regional Development Plan of Severoiztochen 2011-2013, Available at: http://www.strategy.bg/StrategicDocuments/View.aspx?lang=bg- BG&Id=404 9. Ministry of Regional Development (2012), Annual Report for the Implementation of the Regional Development Plan of Severoiztochen 2011-2013. Available at: www.mrrb.government.bg/docs/47e45bc248bb2d1fe5748ad924022b8c.doc 10. Ministry of Regional Development (2012), National Regional Development Strategy 2012-2022. Available at: www.strategy.bg/FileHandler.ashx?fileId=2343 11. Ministry of Regional Development (2013), Regional Development Plan of Severoiztochen 2014-2020. Available at: www.mrrb.government.bg/docs/f3badb4c9f06f434e04ff73039799048.doc 12. National Association of Municipalities in the Republic of Bulgaria (2010), Analysis of the Application of the Principles of Good Democratic Governance, Laid Down in the European Strategy on Innovation and Good Governance at Local Level, Evaluation of the Situation in Bulgaria. Available at: https://wcd.coe.int/ViewDoc.jsp?id=1724449&Site=COE&BackColorInternet=DB DCF2&BackColorIntranet=FDC864&BackColorLogged=FDC864 13. Stefanov, R., Mantcheva, D. (2011), ERAWATCH Mini Country Report (Bulgaria). Available at: http://ec.europa.eu/enterprise/policies/innovation/files/countryreports/bulgaria _en.pdf

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14. Stefanov, R., Mineva, D. (2012), Regional Innovation Report (Yugozapaden). Available at: http://ec.europa.eu/enterprise/policies/innovation/policy/regional- innovation/monitor/index.cfm?q=p.file&r=e6eb44ca1524760e308a27d031fbc74d 15. Strategema Agency OOD (2010, Mid-term Evaluation of the Regional Development Plan of Severoiztochen 2007-2013). Available at: http://www.mrrb.government.bg/?controller=articles&id=336 16. Shalafov, P, Stefanov, R. (2013), Country Report on Achievements of Cohesion Policy. Available at: http://ec.europa.eu/regional_policy/information/evaluations/index_en.cfm#1 17. The World Bank Bulgaria (2013), Input for Bulgaria’s Research and Innovation Strategies for Smart Specialization. Available at: http://www.mi.government.bg/files/useruploads/files/innovations/ris3reportaug 2013en.pdf 18. Regional Agency for Entrepreneurship and Innovations – Varna (2008), Regional Innovation Strategy of North-East Region 2008-2020. Available at: http://www.rapiv.org/eng/Default.aspx?alias=www.rapiv.org/eng/bg

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Appendix B Stakeholders consulted

4. Irina Zaharieva-Shopova, Director, Strategies and Regional Development Plans and Territorial Coordination Department, Ministry of Regional Development (06.11.2013) 5. Valeri Naidenov, State Expert, Strategies and Regional Development Plans and Territorial Coordination Department, Ministry of Regional Development (06.11.2013) 6. Lyudmila Tozeva, Head of Department, DG European Funds for Competitiveness (OPC), Programming, Monitoring and Evaluation Department, Ministry of Economy and Energy (04.11.2013) 7. Nedko Marchev, Governor, Dobrich District Administration (04.11.2013) 8. Antonina Doncheva, Head of Department, Strategies and Regional Development Plans and Territorial Coordination Department, Territorial unit at NUTS 2 level, Ministry of Regional Development (05.11.2013) 9. Dimitar Radev, Executive Director, Regional Agency for Entrepreneurship and Innovations – Varna (13.09.2013) 10. Irina Kircheva, Project Specialist, Regional Agency for Entrepreneurship and Innovations – Varna (13.09.2013) 11. Irena Petkova, Head of Department, Programme and Project Management Department, District Administration Sofia (05.04.2013)

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Appendix C Statistical Data

BG33 Severoiztochen Country EU27 Year Performance Performance relative to relative to BG33 BG EU27 EU27 BG ECONOMIC INDICATORS GDP per capita (Euros) 3900 4800 24500 2010 15,9 81,3 2000- GDP growth rate - (2000-2010) 8,61 9,89 2,93 2010 293,9 87,0 Long term unemployment rate 8,17 6,30 4,14 2011 50,7 77,1 2000- Labour productivity growth (%) 6,46 5,55 2,20 2010 294,2 116,4 RCI 2013 -1,29 -1,25 0,00 2013 13,9 81,7 Share of employment in agriculture 0,07 0,07 0,05 2011 150,9 110,2 Share of employment in industry (including construction) 0,28 0,31 0,25 2011 112,8 89,7 Share of employment in business 0,34 0,30 2011 100,0 100,0 Share of employment in public sector 0,19 0,19 0,25 2011 75,3 98,4 Share of employment in S&T 0,06 0,06 0,09 2011 63,9 103,4

RESEARCH & TECHNOLOGY INDICATORS Employees with ISCED 5-6 (% all employees) 26,9 28,1 30,4 2011 88,3 95,8 Business R&D (% GDP) 14,3 304,3 2010 100,0 100,0 Government R&D (% GDP) 0,13 0,2 0,26 2010 50,0 65,0 Higher Education R&D (% GDP) 0,03 0,06 0,49 2010 6,1 50,0 EPO patent applications (per mln population) 1,68 2,48 114,99 2008 1,5 67,5

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BG33 Severoiztochen Country EU27 Year Performance Performance relative to relative to Employment in medium-high & high-tech manufacturing (% total employment) 5,20 4,36 6,39 2011 81,4 119,3 Employment in knowledge-intensive services (% total employment) 21,14 23,03 35,32 2011 59,9 91,8 Total R&D personnel (% active population) - numerator in head count - all 0,49 0,61 1,53 2010 sectors 32,0 80,3 2007- Structural funds on business innovations (Euros per mln population) 67,45 67,97 77,74 2013 86,8 99,2 2007- Structural funds on core RTDI (Euros per mln population) 27,36 27,74 63,01 2013 43,4 98,7

LABOUR PRODUCTIVITY B-E - Industry (except construction) 10 799 10 981 71 853 2010 15,0 98,3 C - Manufacturing 8 251 8 396 56 378 2010 14,6 98,3 F - Construction 43 792 2010 100,0 100,0 G-I - Wholesale and retail trade, transport, accomodation and food service activities 7 234 7 946 37 843 2010 19,1 91,0 J - Information and communication 12 394 26 004 79 994 2010 15,5 47,7 L - Real estate activities 76 006 85 123 387 941 2010 19,6 89,3 M_N - Professional, scientific and technical activities; administrative and support service activities 7 583 9 123 39 717 2010 19,1 83,1

BUSINESS INNOVATION INDICATORS Technological (product or process) innovators (% of all SMEs) 0,21 0,22 0,40 2008 52,7 97,7 Non-technological (marketing or organisational) innovators (% of all SMEs) 0,13 0,11 0,38 2008 34,4 123,8 Innovative SMEs collaborating with others (% of all SMEs) 0,09 0,12 0,37 2008 24,2 75,0 SMEs innovating in-house (% of all SMEs) 0,19 0,18 0,39 2008 48,9 108,6

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