NATIONAL INNOVATION SYSTEM IN LEBANON A SYSTEM APPROACH FOR GAP ANALYSIS AND PRELIMINARY RECOMMENDATIONS October 2016 Beirut Research and Innovation Center (BRIC) | A department of the Lebanese Center for Studies and Research (LCSR) | Al-Salam Building, 11th Floor, Père Chanteur Street, Ras El Nabeh, Beirut 2052 6703, Lebanon | Tel: +961 1 653177 1 Contents Abbreviations ......................................................................................................................................................... 5 1. Preliminary Statements ....................................................................................................................................... 7 1.1. Terms of Reference .................................................................................................................................... 7 1.2. Interim Report Overview .......................................................................................................................... 7 2. Executive Summary ............................................................................................................................................ 8 1. Strengthening the Knowledge Generation and Technologies Production (KTGP)......................................... 9 2. Support for Demand Side Innovation ........................................................................................................... 10 3. Enhancing Linkages between Supply and Demand-Knowledge and Technology Transfer ......................... 11 4. Financial Ecosystem ..................................................................................................................................... 12 5. Systemic Measures-State Level .................................................................................................................... 12 3. Definitions and Concepts .................................................................................................................................. 21 4. Innovation Policy .............................................................................................................................................. 22 5. Methodology-The System Approach ................................................................................................................ 23 5.1. The 5 Pillars of the National Innovation System (NIS) ........................................................................ 24 5.2. The Innovation Actors - Who is Involved in the NIS? .......................................................................... 25 5.3. The Innovation Supply Side - Knowledge Generation and Technologies Production (KGTP) ........ 25 5.4. The Innovation Demand Side - Knowledge Diffusion and Market Absorption ................................. 26 5.5. The Linking Intermediaries- Knowledge and Technologies Transfer ................................................ 26 5.6. The Funding Process ............................................................................................................................... 28 5.6.1. Breakdown of Funding Rounds .......................................................................................................... 29 5.7. Policy Framework - Government Role and Interventions ................................................................... 30 5.8. The Integrated NIS Model .................................................................................................................... 31 6. Lebanon’s Innovation Profile: What the Indices Tell about the LNIS ............................................................. 33 6.1. Market Failure ........................................................................................................................................... 33 6.2. System Failure ........................................................................................................................................... 33 6.3. Failures in the Lebanese Context ............................................................................................................... 34 6.4. The Metric Approach - Innovation and Competitiveness Indices .............................................................. 34 6.4.1. Main Indices ....................................................................................................................................... 35 6.4.2. Additional Indices ............................................................................................................................... 39 7. The Innovation Supply Side - Policies to Enhance the Knowledge Generation and Technologies Production Capabilities ........................................................................................................................................................... 50 7.1. Spending on R&D...................................................................................................................................... 50 7.2. Human Capital Formation ......................................................................................................................... 51 7.3. Structure of the Innovation Landscape – Supply Side ............................................................................... 51 7.3.1. The Current Role of CNRS ................................................................................................................. 51 7.3.2. Achievements to Date ....................................................................................................................... 52 7.3.3. Funding CNRS ................................................................................................................................... 53 7.4. Higher Education Law and the Regulatory Instruments for R&D ............................................................. 53 7.5. Enhancing Knowledge Generation and Technology Production Capabilities (KGTP) ............................. 53 7.5.1. The Metric Approach - Innovation and Competitiveness Indices ....................................................... 53 7.6. Policy Measures to Enhance KGTP ........................................................................................................... 58 2 7.6.1. KTG Policies at the Level of the Government: The Role of MoEHE and CNRS .............................. 58 7.6.2. Strengthening the Pivotal Role of CNRS ............................................................................................ 58 7.6.3. KGTP Policies at the Level of Universities ........................................................................................ 59 7.6.4. Policies to Enhance the Ecosystem Supporting KGTP ....................................................................... 61 8. Strengthening the Business Climate - Support of the Innovation Demand Side............................................... 61 8.1. The Business Climate and Access to Finance: Are the SMEs the Main Innovation Driver? ............. 61 8.2. Entrepreneurship as a New Economic Sector ....................................................................................... 62 8.3. The National Authorities and their Potential Role: The Central Role of IDAL ................................ 63 8.3.1. Regulatory Authorities in Lebanon ..................................................................................................... 65 8.4. The Legal Framework to Support SMEs ............................................................................................... 66 8.4.1. Customs in Lebanon ........................................................................................................................... 66 8.4.2. Exemptions within Customs Proceedings ........................................................................................... 68 8.6. International Best Practices to Stimulate Demand for Innovation ............................................................. 69 8.6.1. Types of Tax Incentives ...................................................................................................................... 70 8.6.2. Controversies Related to Tax Incentives ............................................................................................ 70 8.6.3. Examples of Tax Incentive Implementation ....................................................................................... 74 8.7. Rationales of Demand - Side Innovation Policies in Lebanon ............................................................. 76 9. The Linkages between the Innovation Supply and Demand Sides: Knowledge and Technology Transfer (KTT) .................................................................................................................................................................... 78 9.1. How Technology Transfer is Practiced Internationally ....................................................................... 78 9.2. Why is TT Important for the NIS? ........................................................................................................ 79 9.3. What are the Enabling Conditions for Universities to Engage in TT? ............................................... 79 9.4. Technology Transfer Units in Lebanon: The AUB Case ...................................................................... 80 9.5. The IPR Situation in Lebanon. To What Extent is The Rule of Law Protecting Intellectual Properties? .....................................................................................................................................................