PRIVATE SECTOR DEVELOPMENT Project Insights Key contact: Key contact: Assessment of the National Mr Alan Paic Mr Alan Paic Innovation System of the Former Head of Programme Head of Programme OECD Investment Compact for OECD Investment Compact for Yugoslav Republic of Macedonia South East Europe South East Europe [email protected] [email protected] Report in support of the formulation of a National Innovation Strategy www.investmentcompact.org www.investmentcompact.org www.investmentcompact.org This project is funded by the European Union RCI Covers [3].indd 4 RCI Covers [3].indd 4 23/05/2013 19:40 23/05/2013 19:40 Assessment of the National Innovation System of the Former Yugoslav Republic of Macedonia Report in support of the formulation of a National Innovation Strategy December 2013 This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union. The information included in this report, and in particular the denomination of territories used in this document, do not imply any judgement on the part of the OECD on the legal status of territories mentioned in this publication. FOREWORD Between 2000 and 2008, the Western Balkan economies experienced rapid growth, modest inflation, and increased macro-economic stability. The onset of the global economic crisis, however, saw a sharp drop in external trade and industrial production across the region. The crisis underscored the fact that buoyant growth prior to 2008 relied, to a large extent, on external financial flows – particularly FDI flows and international capital transfers that offset large and unsustainable trade and current account deficits. The economic crisis is prompting governments in the region to make policy choices that will have implications for their long-term competitiveness. To assist Western Balkan governments in the design and implementation of those policies, the OECD Investment Compact for South East Europe (OECD IC) implemented a three-year, EU-financed project called the Regional Competitiveness Initiative (RCI). The RCI’s goal is to help governments in the region with the design of sustainable economic policies to support innovation and human capital development. Between 2010 and 2013, the RCI led pilot projects in seven Western Balkan economies: Albania, Bosnia and Herzegovina, Croatia, The Former Yugoslav Republic of Macedonia, Kosovo*, Montenegro, and Serbia. Within the framework of its RCI pilot project, the Former Yugoslav Republic of Macedonia requested assistance with the preparation of an innovation strategy. The decision to seek OECD support came as a result of a roundtable meeting on 5 October 2010 in Skopje between members of the business community, researchers, government officials and the OECD IC. This paper outlines the results of this RCI project. * This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence. 3 4 ACKNOWLEDGEMENTS This Review of the National Innovation System of the Former Yugoslav Republic of Macedonia has been prepared as part of a pilot project of the European Commission-sponsored Regional Competitiveness Initiative (RCI) conducted by the OECD Investment Compact for South East Europe. The objective of the RCI is to strengthen the competitiveness of the economies in the Western Balkans through human capital development, innovation, and sector specific policy reforms. The report was written by the OECD Investment Compact for South East Europe under the supervision of Alan Paic, Head of the Investment Compact for South East Europe. The sections on research organisations, linkages and the role of the government were partly drafted by Ricardo Pinto from Pinto Consulting GmbH. Prof. Radmil Polenakovik from the National Center for Development of Innovation and Entrepreneurial Learning provided some initial analysis of the results from a business survey. Valuable administrative support was provided by Karen Crombie, Liz Zachary and Laurent Rota. The final report was edited and prepared by Vanessa Vallée. The review could not have been done without the precious input of the Science, Technology and Industry Directorate, OECD, and more particularly Michael Keenan. Much gratitude is also due to the entire support team in the Former Yugoslav Republic of Macedonia, all members of the project team and Steering Committee of the project as well the SME Department and more particularly Suzana Kostadinova and Imerali Baftijari. Wolfgang Polt also provided valuable advice on policy options. Field research for this report was conducted by Nicolas Philiponet and Aleksandra Terzieva. The Working Group on Innovation in the Former Yugoslav Republic of Macedonia assisted the OECD with data collection. Furthermore, Gesellschaft für Konsumforschung (GfK) Skopje conducted a survey, designed by the OECD, on the innovation activities in private companies that was used as a basis for the analysis of the innovative activities of the private sector. Without the financial support of the European Union this work would not have been possible and its contribution is gratefully acknowledged. 5 6 TABLE OF CONTENTS FOREWORD ................................................................................................................................................... 3 ABBREVIATIONS ......................................................................................................................................... 9 EXECUTIVE SUMMARY ........................................................................................................................... 11 CHAPTER 1: ECONOMIC PERFORMANCE AND FRAMEWORK CONDITIONS ............................. 14 1.1 Macroeconomic performance and productivity growth .................................................................. 15 1.2 Economic structure: International trade, investment and production .............................................. 19 1.2.1 International trade ......................................................................................................................... 19 1.2.2 Foreign direct investment .............................................................................................................. 23 1.2.3 Firm demographics ........................................................................................................................ 26 1.3 Framework conditions ......................................................................................................................... 27 Bibliography .............................................................................................................................................. 33 CHAPTER 2: INNOVATION PERFORMANCE ........................................................................................ 37 2.1 Innovation inputs ................................................................................................................................. 37 2.2 Innovation outputs ............................................................................................................................... 43 2.3 Innovation indices ................................................................................................................................ 45 Bibliography .............................................................................................................................................. 48 CHAPTER 3: INNOVATION ACTORS ...................................................................................................... 49 3.1 Business sector ..................................................................................................................................... 49 3.1.1 Innovation activity ......................................................................................................................... 49 3.1.2 Resources dedicated to innovation ................................................................................................ 52 3.1.3 Sources of innovation .................................................................................................................... 53 3.1.4 Barriers to innovation .................................................................................................................... 54 3.1.5 Public support for business innovation ......................................................................................... 55 3.1.6 Policy needs ................................................................................................................................... 56 3.2 Research sector .................................................................................................................................... 57 3.2.1 Public research institutions ............................................................................................................ 57 3.2.2 Funding for research ...................................................................................................................... 58 3.2.3 Outputs from research institutions ................................................................................................ 59 3.2.4 Commercialisation of research output ........................................................................................... 61 3.3 Linkages ..............................................................................................................................................