EUROPE 2020 TARGETS: RESEARCH AND DEVELOPMENT

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1 EUROPE 2020 TARGETS: RESEARCH AND DEVELOPMENT Research, development and innovation are key policy components of the EU strategy for economic growth: Europe By fostering market take-up of new, innovative products and services, they contribute to smart growth and jobs and to addressing societal challenges. By paving the way towards increased labour productivity, industrial competitiveness and the development of green and efficient resources, they are also at the heart of sustainable growth. 1. Key statistical indicators R&D intensity (R&D expenditure as a percentage of GDP) reflects the extent of research and innovation activities undertaken in a given country in terms of resources input. The Europe 2020 strategy sets a 3% objective for R&D intensity and most Member States have adopted their national R&D intensity target for Total R&D expenditure is split between public and private funding: a) Public R&D funding shows the commitment of a government to promoting research, development and innovation activities both directly and through the leverage effect on business R&D expenditure. In several cohesion countries, Structural Funds have become a significant if not the main source of public R&D funding (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia and Slovakia) 1. b) Private R&D funding is the main component of total R&D expenditure in the more advanced knowledge economies. Its level reflects the attractiveness of the national research and innovation system for business investments as well as the structure of the economy. Private R&D funding is strongly concentrated in a few research-intensive sectors categorised as High-Tech and Medium-High-Tech Manufacturing and High-Tech Knowledge Intensive Services. The share of the value added of these sectors in the total value added is a good indication of the research absorption capacity of an economy (see annexed table). R&D intensities in 2011 and targets for 2020 Data: Eurostat, Member States Notes: * EL: **CZ: A target (of 1%) is available only for the public sector. **UK: A target for 2020 is not available. 1 In Bulgaria, Hungary and Slovakia the mobilisation of ERDF (project selection rate) is significantly lower than the EU average (70%) 1

2 **IE: The target is 2.5% of GNP which is estimated to be equivalent to 2.0% of GDP. **LU: The target is between 2.30% and 2.60% (2.45% was assumed). Progress required to meet 2020 R&D intensity targets (as % of current R&D intensity value) Data: Eurostat, Member States Notes: (1) LU: The target is between 2.30% and 2.60% (2.45% was assumed). (2) IE: The target is 2.5% of GNP which is estimated to be equivalent to 2.0% of GDP. (3) CZ: A target (of 1%) is available only for the public sector. (4) UK: A targets for 2020 is not available. When assessing a Member State s performance, the level of R&D intensity should be complemented by data on trends over the last decade, progress required to meet the national target set by the Member State and the share of research-intensive sectors (such as life sciences) in the economy (see annexed table). 2. Assessment of the main challenges in the Member States The size of the challenge In terms of absolute level of, and recent trends in, R&D intensity, the following groups of Member States (MS) can be identified: (1) Member States which have already reached or will soon achieve their national target: Finland, Denmark, Germany, Malta and Cyprus. This group includes both MS with high R&D intensities (Finland, Denmark and Germany) and MS with very low R&D intensity (Malta and Cyprus). All of these MS had set their target at a level which was well within their reach given their national context. (2) Member States which are on track to reach their target based on their average rate of progress over the period : Austria, Estonia, Greece, Hungary, Ireland, Italy and Slovenia. This group includes MS with relatively ambitious targets (Austria and Hungary) having regard to their current position, as well as MS whose targets could be seen as easier to reach (Estonia, Greece, Ireland, Italy and Slovenia). In all cases, reaching the national target will require continued public support. (3) Member States which need to raise their rate of increase in R&D intensity to reach their target: Belgium, France, the Netherlands, Spain and Sweden. While these MS are currently 2

3 not on track to reach their national target, their required effort (i.e. difference between the rate of increase required and their long-term trend) is lower than or comparable to the EU average (3.6 %). (4) Member States which need to substantially raise their rate of increase in R&D intensity to reach their target and whose required efforts exceed the EU average: Bulgaria, Latvia, Lithuania, Luxembourg, Poland, Portugal, Romania and Slovakia. In this group, MS have set very ambitious national targets with regard both to starting levels and past trends. As a result, the required rates of increase far exceed the EU average. (5) Member States which have not set an R&D intensity target: UK and the Czech Republic. The latter has set a public R&D intensity target at just 1 % of GDP. Finally, several Member States e.g. Denmark, Germany and Italy have set a national target which seems to be not very ambitious in view of their starting point and recent trends. 3. Horizontal issues While there are many context-specific factors that influence the level of R&D intensity in a given Member States, the main causes of policy failure can be categorised as follows 2 : (1) Insufficient or inadequate public funding of the science base and higher education system leading (in the medium to long run) to decreasing quality of the science and technology (S&T) output (in terms of high impact publications and patenting activities); loss of attractiveness for domestic and foreign talent resulting eventually in brain drain; a diminishing pool of science and engineering graduates relative to the needs of the business sector; and loss of capacity to engage in effective cooperation with the business sector. Typical situations include sub-critical public funding spread over too many public researchers or priorities, wrong scientific prioritisation with regard to industrial specialisation and inefficient research evaluation and/or funding allocation mechanisms. (2) Inefficient public incentives to stimulate business R&D (e.g. grants, R&D tax incentives, measures to facilitate access to private funding). Another key aim of public R&D funding and indirect support measures is to give the business sector incentives to engage in more R&D activities. Wherever such incentives selectively support specific sectors or types of firms, they constitute state aid. A typical policy failure consists in piling up new, hastily designed measures without having first properly evaluated the impact of the policy mix in place or assessed possible substitution or crowding-out effects. This results in added complexity, red tape and eventually a lack of systemic impact on business R&D. (3) Poor match between supply- and demand-side measures, leading to loss of efficiency of the national innovation system as a whole. Public efforts to fund research and higher education institutions and to stimulate business R&D will fail to bring the expected socio-economic benefits if policies are not in place to stimulate the demand for innovative products and solutions. Such demand-side policies (e.g. product market regulation, innovative and pre-commercial procurement) must be closely matched with supply-side measures as part of an integrated and comprehensive policy approach including joint or coordinated implementation and evaluation. In most 2 Europe 2020 flagship initiative Innovation Union, SEC(2020)1161, Annex 1: Self assesment tool. 3

4 Member States, the lack of appropriate structures for overall governance of the national innovation system remains an issue. (4) Need to identify and address the bottlenecks that restrict the growth of firms in innovative sectors, leading to a slow rate of economic renewal and inefficient transformation of S&T assets into economic growth and fiscal revenues. Innovation has the potential to rapidly change whole sectors of the economy and to bring enormous economic, social and fiscal benefits to the countries that create the right environment for it. A surprisingly small number of the firms starting up in any given year are responsible for the majority of jobs created 10 years down the line. Only a very few Member States have so far adopted a truly systemic approach to reviewing their research and innovation policies and identifying the obstacles that need to be overcome to create a business environment in which innovative firms are more likely to grow. 4

5 Annex: Additional statistical indicators Situation of each Member State with regard to its R&D intensity target R&D Intensity Value Added 2011 (1) Target Average Average R&D 2020 annual annual intensive growth (%) growth (%) sectors (2) required as % of to meet all sectors the (4) target (3) Finland 3,78 4,00 +1,1 0,6 15,7 Sweden 3,37 4,00-1,0 1,9 13,8 Denmark 3,09 3,00 +4,6 none 11,1 Germany 2,84 3,00 +1,3 0,6 17,1 Austria 2,75 3,76 +3,3 3,5 11,9 Slovenia 2,47 3,00 +12,5 2,2 13,8 Estonia 2,38 3,00 +13,3 2,6 9,2 France 2,25 3,00 +1,0 3,2 10,2 Belgium 2,04 3,00 +0,4 4,4 10,8 Netherlands 2,04 2,50-0,5 2,3 9,8 EU 2,03 3,00 +0,8 4,4 12,1 Czech Republic 1,84 na (5) +4,2-15,7 United Kingdom 1,77 na -0,2-11,3 Ireland 1, (6) +4,1 1, (10) Portugal 1,50 3,00-0,2 8,0 7,6 Luxembourg 1, ,3 5.5 (9) 7,7 Spain 1,33 2,00 +3,6 4,6 8,4 Italy 1,25 1,53 +1,7 2,3 10,9 Hungary 1,21 1,80 +4,6 4,5 16,5 Lithuania 0,92 1,90 +4,1 8,4 7,9 Poland 0,77 1,70 +1,6 9, (10) Croatia 0,75 1,40-2,7 7,2 na Malta 0,73 0,67 +4,7 none 13,8 Latvia 0,70 1,50 +4,2 8,9 5,4 Slovakia 0,68 1,20 +0,4 6,6 13,1 Greece 0,60 0,67 +0,6 0,8 5,5 Bulgaria 0,57 1,50 +1,1 11,3 na Romania 0,48 2,00 +2,5 17,1 10,7 Cyprus 0,48 0,50 +6,2 0,5 4,4 South Korea 3, (7) +5,2 15,7 20,2 Japan 3,26 4,00-3,1 2,1 14,8 United States 2, (8) +0,4 1,0 9.9 (11) China 1,76 2,50 +6,9 3,6 na Data: Eurostat, OECD Notes: (1) EL: 2007; JP, CN, KR: (2) NL, CN: ; EL: ; HR: ; FR: ; HU, MT: ; SE: ; KR: ; DK, US: ; SI, JP: ; PT: (3) EL: ; KR: ; JP, CN: (4) PT: 2006; PL, UK, JP: (5) CZ: A target (of 1%) is available only for the public sector. (6) IE: The national target of 2.5% of GNP has been estimated to equal 2.0% of GDP. (7) KR: The R&D Intensity target of 5.00% refers to (8) US: The R&D Intensity target of 3.00% does not have a deadline. (9) LU: Calculation made on the basis of the lower target. (10) IE, PL: Value estimated by DG Research and Innovation. (11) US: Research and Development in Knowledge Intensive Services is not included. (12) Values in italics are estimated or provisional. na = not available 5

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