Business Environment and Knowledge for Private Sector Growth: Setting the Stage

Transcription

1 Business Environment and Knowledge for Private Sector Growth: Setting the Stage Fernando Montes-Negret Sector Director Private and Financial Sector Development Department, Europe and Central Asia (ECA) The World Bank Advancing Innovation ECA 2007, Yerevan, Armenia

2 Outline: Opening Remarks Innovation & Entrepreneurship: Key challenges for Armenia and ECA in a Globalized World Business environment: Overcoming Constraints Innovation & Competition Skills for the Knowledge Economy Looking ahead: Policies for private sector growth 2

3 The world is moving fast..with or without you! Increasing globalization: reduction of transportation & communication costs, increasing global information, increasingly mobile FDI. Rapid pace of technological change and innovation. Increasing competition: driven by trade liberalization and increasingly larger players (e.g., China, Korea, India) Demographic pressures: ECA faces declining and aging populations. Tighter regional integration: Joining a regional club (EU, NAFTA, ASEAN +3) is useful, but not a panacea. EU Membership opportunity, but not a guarantee for success. 3

4 Trillions of 1995 international $ 16 India China Brazil Canada France Germany 14 The world is moving fast with or without you! Real GDP (PPP): Projections (Using Average Growth Rates) Italy Japan Mexico Russian Federation United Kingdom United States China 12 United States 10 India 8 6 Japan Canada Germany Italy Brazil United Kingdom France Mexico Russian Federation

5 Creating conditions for sustainable growth is key Productivity and growth: firms perspective Reduce Costs & Improve Quality of Supply Simplify interactions with the Government Access to credit for start up and operation Infrastructure and Logistics costs Labor costs Information costs Technology absorption, adaptation and innovation Skills of the labor force Business Environment Knowledge 5

6 Key constraints in the business environment in developing and transition economies Key constraints to growth Business Environment Costs as % of Sales Contract enforcem ent difficulties Regulation Bribes Crim e U n re lia b le in fra s tru c tu re 20% 27% Percent of sales % 13% 15% 5 World-wide surveys 0 Poland China Brazil Indonesia Tanzania Policy uncertainty is the dominant concern. Improving predictability can increase likelihood of investment by over 30%. Business environment constraints are costly: (>8% of sales) 6

7 Policy-Related Barriers to Competition Stifle Innovation and productivity 7

8 Armenia-Doing Business Indicators: 2006 Ease of doing business: ranked 46 out of 155 countries. BUT still costly (65% of income per capita) and slow (176 days) to obtain licenses. Labor markets still not flexible enough. Relatively high taxation (54% of gross profits), too many taxes (50), and too time consuming (1120 hours per year). Takes time to enforce contracts (185 days). 8

9 A better Investment Climate for all Policies to reduce regulatory barriers: simplification leading to a better investment climate for all, reducing business risks, costs, and barriers to competition (benefiting consumers through lower prices and more innovative products); Improving predictability of laws, regulations and interpretation of norms, drastically reducing legal/regulatory uncertainty; Provision of a policy basic framework ensuring: stability & security, sensible regulation & tax regime, good infrastructure & logistics, access to finance, and a flexible and fair labor market. Persistence, not perfection in fostering reforms. 9

10 ECA has a Strong Scientific Tradition that does not Translate into Innovation Large S&T base, well-educated workforce, culture of science but limited R&D, innovation and entrepreneurship EU Target = 3% Average new EU member states (EU10) = 0.8% How can we move from science to innovation? Technology absorption: get it from abroad Commercialization of local S&T: develop it in-house Increase access to finance for innovation o 10

11 Technology Absorption: Attracting FDI, Rooting MNCs Locally and Promoting Linkages Most R&D and technology in non-oecd countries comes from MNCs, but their investment goes mainly to South & East Asia. ECA should become more integrated in the global production network by attracting and retaining FDI, creating linkages between foreign and local firms. Cheap unskilled labor and protected markets not an option Good investment climate; skills; training; quality standards and technology; suppliers networks; logistics and ICT; FDI promotion, including targeting of foreign firms; selected incentives. (Ireland, Malaysia and Singapore cases). Improve capacity of local suppliers with MNCs assistance looking for long term viability Governments have a role to play: matchmaking and information dissemination and financing. 11

12 Commercialization of Local S&T: Get the Scientists Out of Their Ivory Towers! Key to local innovation: strengthen university-firm collaboration and commercialize university research. Requirements: Changes in the IP policy framework: giving IP rights to universities. Change in policies and in the culture of the academic and business worlds: policy makers need to agree on quantity and type of spending in R&D; researchers need to select R&D themes that serve economic growth; the business community has to engage scientists in problem solving. Technoparks and incubators are not enough without skilled management with links to global markets, they may turn into real estate development projects. 12

13 Finance for Innovation: Governments Have a Careful Role to Play Getting the sequence right: On Finance for innovation: Matching grants Government risk sharing in private risk capital funds (US, UK, Israel) Make R&D expenditures tax deductible But: Avoid rent-seeking, capture and moral hazard. Risk Capital Markets / Venture Capital Grants, Credit, Technical Assistance Innovative Skills Protection of Intellectual Property Rights Financial Markets and Financial Information Infrastructure. VC as a new financial industry. Business Environment (Broad) 13

14 Venture Capital is not the only way to finance innovation in ECA. Realities of VC: need a significant number of bankable projects. VC is highly selective: 1/200 firms in non-oecd countries get funds. Financing innovation w/o VC: the Go Forward Plan Build on your comparative advantages. Remember that technology can be embedded in very traditional products and processes. All sectors can be hightech! Characterize the deal flow quality and performance. Go after corporate investors (not financial investors) that do business in your country and have a long-term perspective. Create industry consortia: multinationals and private-public local funds. 14

15 Human Capital Crude Oil of the 21 st Century Requirements of Knowledge-intensive economies 21 st century jobs demand new skills and competencies Employment security, not job security: LLL and flexibility Without education innovation will not occur Status Quo Education and training systems are not meeting demands High unemployment despite generally high enrollment and high growth Mismatch of skills and knowledge for future jobs Lack of dynamic private sector (particularly SMEs) to generate employment 15

16 Complementary roles of Government and Private Sector in skills development Provision of relevant quality secondary education Curricula for flexible and transferable core skills Certification to facilitate the transferability and portability of skills and competencies and recognition of prior learning Quality Assurance and Accreditation for all forms of Lifelong Learning Result: Broader participation and increase labor market relevance Provide Learner-Friendly Highperformance Work Environments: Team-based learning Access to Formal and Informal learning opportunities (e-learning) Incentives for employees In-company and external knowledge networks Recognition of prior learning Lifelong Learning 16

17 Looking ahead: Key policies for private sector growth Stabilize policy environment Implement microeconomic reforms for a better business environment Absorb technology by attracting and retaining FDI and creating linkages between foreign and local firms Improve local innovation by strengthening university-firm collaboration and commercializing university research Governments have a role to play in facilitating access to finance and promoting technology start-ups. Public-private industry consortia are a viable alternative to VC in very early stages. Enable application of knowledge by teaching practical skills Align general and vocational education to improve the skills of the labor force 17

18 Factors contributing to the success of high-technology based incubators (I) International experience shows that success requires appropriate governance and skills: proactive supervisory board define objectives from the outset, adopting a marketoriented governance mechanism careful screening and monitoring of tenants, emphasizing market potential select management team with business experience to ensure quality of services leverage resources with networks of external professional service providers 18

19 Factors contributing to the success of high-technology based incubators (II) With the aim of developing economically-independent incubators, government funding agencies should: monitor performance of the incubator and its tenants and take remedial actions when necessary establish a process to transfer funding and supervision responsibilities progressively to private sector agents and/or other stakeholders 19

20 Factors contributing to the success of high-technology based incubators (III) Success of entrepreneurial ventures in BIs depends critically on the environment, possibly requiring simultaneous development in: scientific research and technology capacity framework for university-industry cooperation engineering and management services technical education and continuous learning transport and communications infrastructure sources of credit and risk capital for tenants 20

21 Resources on Innovation and Technology Adoption 21