82010 w x rv Oveof ie x the Research and Innovation Sector x in the Western Balkans October 2013 WESTERN BALKANS REGIONAL R&D STRATEGY FOR INNOVATION Overview of the Research and Innovation Sector in the Western Balkans World Bank Technical Assistance Project (P123211) October, 2013 This Paper was prepared under the Western Balkans Regional R&D Strategy for Innovation – World Bank Technical Assistance Project funded by the European Commission (DG ENLARG – TF011064). This paper syn- thesizes the analysis of the research and innovation sector that underlies the strategy. This Overview of the Research and Innovation Sector in the Western Balkans was prepared by the World Bank team led by Paulo Correa (Lead Economist, World Bank) and Pluvia Zuniga (Senior Economist, World Bank) and com- prised of Donato De Rosa (Sr. Economist, World Bank), Dusan Vujovic, Qursum Qasim, Andrew Myburgh, Petter Lundkvist, and Hari Subhash (World Bank Consultants). The Paper was prepared under the guidance of Ellen A. Goldstein (Country Director, ECCU4), Mamta Murthi (Country Director, ECCU5), Gerardo Corrochano (Sector Director, ECSPF and Innovation, Technology and Entrepreneurship Global Practice), and Lalit Raina (Sector Manager, ECSF3). The note was prepared during January 2012–June 2013 and relied upon data available until December, 2012. Contact Person: Paulo Correa (pcorrea@worldbank.org) The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the International Bank for Reconstruction and Development/World Bank and its affiliate organizations, or those of the Executive Directors of the World Bank or the governments they represent. CONTENTS Acronyms and Abbreviations..........................................................................................................................................v 1.  Introduction................................................................................................................................................................1 2.  Framework ..................................................................................................................................................................3 3.  Research Sector............................................................................................................................................................5 Human Resources............................................................................................................................................................... 7 Research Funding .............................................................................................................................................................. 8 Research Facilities.............................................................................................................................................................10 4.  Technology Transfer System.....................................................................................................................................11 5.  Enterprise Sector.......................................................................................................................................................15 6.  Institutional and Policy Framework.........................................................................................................................17 Research Career Policy......................................................................................................................................................18 Allocation of Research Funds............................................................................................................................................18 Policy Coordination and Institution Building.................................................................................................................19 Regional Cooperation........................................................................................................................................................19 7.  Conclusion ................................................................................................................................................................21 References ......................................................................................................................................................................23 Boxes Box 1: The Brain Drain in the Research Sector...................................................................................................................... 7 Box 2: The Legal Framework for Technology Transfer: Recent Developments................................................................11 Box 3: The Competition Environment in the Western Balkans..........................................................................................15 Box 4: Public Research Organizations....................................................................................................................................17 Figures Figure 1: Research and Innovation in the Western Balkans................................................................................................ 3 Figure 2: Scientific Output Papers Produced per 10,000 Population in the Western Balkans, Adjusted for Quality, 2003–10.......................................................................................................................................... 6 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION iii Figure 3: Quality and Quantity of Scientific Output in the Western Balkans and Comparator Countries, 2003–10...................................................................................................................................... 6 Figure 4: Tertiary Enrollment Rate, 2009............................................................................................................................... 8 Figure 5: R&D Expenditures per Capita (Predicted and Actual), 2007–11........................................................................ 9 Figure 6: Gross Expenditures on R&D per US Registered Patent in Selected Countries................................................. 9 iv WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION ACRONYMS AND ABBREVIATIONS BICRO Business Innovation Center of Croatia GDP gross domestic product CARDS Community Assistance for GERD gross expenditure on R&D Reconstruction, Development and IP intellectual property Stabilisation IPR intellectual property rights COST European Cooperation in Science and PROs public research organizations Technology QS Quacquarelli Symonds CREST Scientific and. Technical Research STI Strategy for the Development of Science Committee UNESCO United Nations Educational Scientific and EC European Commission Cultural Organization EDIF Enterprise Development and Innovation USPTO United States Patent and Trademark Office Facility R&D research and development ERA European Research Area R&I research and innovation EU European Union UNESCO United Nations Educational, Scientific, FDI foreign direct investment and Cultural Organization FITD Fund for Innovation and Technological WBRIS-TA Western Balkans Regional R&D Strategy Development for Innovation Technical Assistance FP7 Framework Program 7 WISE Western Balkans Research and Innovation FTE Full time equivalent Strategy Exercise WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION v 1 INTRODUCTION This Overview of the research sector in the Western strategy can be found in the companion document Western Balkans is a companion piece to the Western Balkans Balkans Regional R&D Strategy for Innovation. Regional R&D Strategy for Innovation. The strategy aims to strengthen the region’s research capacity, enhance intra- This Overview provides the background and analysis that regional cooperation, promote collaboration with business informed the development of the strategy. It is informed sectors, explore possibilities for financing R&D from EU by consultations with the Advisory Board, as well as by the funding schemes and other external sources, and help inte- research commissioned for the preparation of the strategy. grate the region into the European Research Area (ERA) The background work includes four studies on the different and Innovation Union. components of the research sector, a policy questionnaire, and seven country studies reviewing key policies, institu- The strategy has been developed through a coordinated tions, and performance of the national research sectors. effort launched by the Joint Statement of Sarajevo, signed on April 24, 2009, by ministers from the Western Balkans This overview outlines the performance of the research responsible for science and research, the EU commis- and innovation sector, and describes the major drivers of sioner for Science and Research, and the Czech Republic this performance. It starts by presenting a framework of Presidency of the Council of the European Union, under the different components of research and innovation in the the auspices of the Regional Cooperation Council secretary Western Balkans. This leads into Section 2 discussing the general. In June 2011, the World Bank signed an agreement performance of the research sector, which has been improv- with the European Commission (EC) to provide techni- ing, but still lags international benchmarks. This reflects a cal assistance for the development of a Western Balkans number of challenges facing the sector, including the effects Regional R&D Strategy for Innovation. of a substantial brain drain, insufficient funding and a mis- match between research facilities and economic needs. That regional R&D strategy was prepared between December 2011 and October 2013 under the joint aus- Section 3 discusses the technology transfer system and pices of the Regional Cooperation Council, the European its important role in the performance of the research and Commission, and government officials from Albania, innovation sector as a whole. The contribution of technol- Bosnia and Herzegovina, Croatia, Kosovo,1 FYR Macedonia, ogy transfer in the region is limited, as reflected for exam- Montenegro, and Serbia (the Project Steering Committee). ple in the limited interaction between the research and enterprise sectors. The enterprise sector is discussed in This core team was joined by representatives of leading Section 4. This sector’s involvement in R&D has declined universities, research institutes, and the business sector (Advisory Board) and met on four different occasions to 1 This designation is without prejudice to positions on status and is discuss and develop the strategy and its corresponding in line with UNSC 1244 and the ICJ Opinion on the Kosovo Declara- Action Plan for Regional Cooperation. More detail on the tion of Independence WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 1 since the 1990s as economies shifted out of research inten- strengthened. This includes improving the career path for sive sectors. This has left a core set of firms that are engaged researchers, providing more funding through competitive in research and development. There is scope to implement a processes as opposed to block grants, and continuing to number of policies that could strengthen this core, includ- strengthen policy co-ordination. Strengthening regional ing increased fiscal support for research and development, co-operation, especially in co-ordination with the EU, is and increased support for start-ups. important in order to reinforce the research and innova- tion sector. In doing this, the region can build off a fairly Section 5 describes the policy and institutional frame- long history of bilateral cooperation with the European work, pointing out a number of areas where this could be Union. The final section concludes. 2 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 2 FRAMEWORK For analytical purposes, the research and innovation sec- • The enterprise sector is made up of the public and pri- tor in the Western Balkans can be considered in four parts, vate firms that improve processes, adopt new technol- as illustrated in Figure 1: ogies and innovations and introduce them into the economy. A vibrant enterprise sector has an impor- • The research sector consists of universities public tant role to play driving the demand for knowledge research organizations (PROs) and private institutes. from the research sector, as well as a source of new These institutions invest in R&D and the development ideas through research and innovation. Drivers of the of academic knowledge. The quality of their perfor- sector’s vibrancy include levels of competition, and mance has a major impact on development as these the presence of startups. The enterprise sector absorbs institutions are a major source of ideas and knowledge knowledge from the research sector and from a range for the economy. of other sources, such as the import of capital goods, • The technology transfer system is the set of institutions foreign direct investment (FDI), and the adoption of that transfer know-how, technical knowledge, or tech- product and process standards. nology from the research sector to the enterprise sector. • The institutional and policy framework encompasses This often does not happen since substantial transac- the policies on issues that affect the performance of the tion costs beset the transfer of knowledge. Mechanisms different components, such as the approaches to fund- to overcome transaction costs include patenting inven- ing, research, and the development of human resources. tions, facilitating collaboration on R&D, and knowl- edge sharing.2 2 Correa and Zuniga 2013 FIGURE 1:  Research and Innovation in the Western Balkans Technology Enterprise sector Research sector transfer system Feedback Institutional policy framework Source: Own elaborations. WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 3 The scheme proposed in Figure 1 is simplification of the innovating enterprise sector can improve the performance complex reality of research and innovation. For instance, of the research sector. Therefore, it does not aim to repre- the boundaries between the different components are not sent the process through which research is transformed clearly defined. There are important feedback effects: an into innovations nor imply that the innovation process effective research sector can strengthen innovation in can be represented by a “linear model”. the enterprise sector, but, at the same time, a successfully 4 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 3 RESEARCH SECTOR The research sector in the Western Balkans is character- Figure 3 compares the quantity and quality of papers pro- ized by lagging scientific performance, resulting from the duced by countries in the Western Balkans to the average insufficient supply of inputs—human resources, research for the region and to countries in Eastern and Central funding, and facilities—and a regulatory regime that does Europe. not encourage performance. • Despite the progress over the 2000s, the average nor- While scientific performance has been improving, it still malized number of citations per document for coun- lags behind the EU-27 and Eastern Europe in both quan- tries in the Western Balkans (0.67) in 2003–10 was less tity (absolute and relative terms, per inhabitant or gross than the world average (1) and about half the EU-27 domestic product) and quality (normalized impact of pub- average (1.27). lications, number of citations, and h-index).3 • Albania, a country with a relatively small volume of scientific publications, has high-quality publications The number of scientific publications during 2006–10 relative to the rest of the region. With 4.03 cites per increased significantly, led by a sharp surge in the per- document, it is the leader in the Western Balkans in formance of Croatia and Serbia. There was an increase in the 2003–10. While Serbia holds the highest normal- the number of papers published, as well as an improve- ized impact average for the period (0.74), followed by ment in their quality (as measured by normalized impact). Albania (0.72). This trend can be seen in Figure 2, which shows the num- • Croatia has the largest quantity of publications per ber of quality-adjusted papers produced by countries in population, but their quality is below the average for the region. Nevertheless, despite this strong improvement the region. That said, the quality has improved dra- during the late 2000s, the Western Balkans still trail the matically over the 2000s, increasing from a normal- rest of Eastern and Central Europe. ized citation score of 0.52 in 2003 to 0.71 in 2010. There are other positive indicators, according to the Scientific publications are concentrated in Croatia and Innovation Union 2013 report; Croatia, for instance, Serbia and in the universities. Croatia and Serbia published has a higher number of international scientific co- more than 10,000 documents during the period 2003–10, publications per million population than the EU compared to less than 2,500 publications in total for the average.4 rest of the region, amounting to less than 100 publications per country annually. Publication activity from universi- ties represents 60 percent of total publications and cita- 3 The distinction between quantity and quality is essential: medicine tions in the region. In contrast, governmental and health by far is the main area of publication activity but ranks lower in im- pact. SCIMAGO Research Group 2012.European Commission 2009. institutions (hospitals) produce less than 20 percent of 4 Innovation Union Scoreboard 2013, http://ec.europa.eu/enterprise/ the regional total. policies/innovation/files/ius-2013_en.pdf. WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 5 Scientific Output Papers Produced per 10,000 Population in the Western Balkans, Adjusted FIGURE 2:  for Quality, 2003–10* 9 8 quality /10,000 population Papers adjusted for their 7 6 5 4 3 2 1 0 2003 2004 2005 2006 2007 2008 2009 2010 Albania Croatia Montenegro Western Balkans Bosnia and Herzegovina Macedonia, FYR Serbia Eastern and Central Europe Source: SCIMAGO Research Group 2012; World Development Indicators. * The countries included in Eastern and Central Europe are Albania, Bulgaria, Bosnia and Herzegovina, Czech Republic, Estonia, Croatia, Hungary, Kosovo*, Lithuania, Latvia, FYR Macedonia, Montenegro, Poland, Romania, Serbia, Slovak Republic, and Slovenia. Quality and Quantity of Scientific Output in the Western Balkans and Comparator Countries, FIGURE 3:  2003–10 100 A. Below average quality, B. Above average quality, above 90 above average papers produced average papers produced 80 Quantity: Publications per Czech Republic 70 Croatia 10,000 population 60 Hungary 50 Simple average for the Western Balkans Poland Lithuania 40 Bulgaria 30 Romania 20 Serbia Latvia C. Below average quality, Macedonia, FYR D. Above average quality, 10 below average papers Bosnia and Montenegro produced Herzegovina Albania below average papers produced 0 0.4 0.5 0.6 0.7 0.8 0.9 1 Quality: Normalized cites per document Source: SCIMAGO Research Group 2012; World Development Indicators. 6 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION Human Resources relative to their level of income. Another positive indicator The migration of large numbers of scientists, engineers, and is that the share of graduates in the fields of engineering technicians during the 1990s was one of the dramatic events and, to some extent, science is similar to the EU-27 average. for the research sector in the region. Systematic and compa- rable data on the scientific diaspora in the Western Balkans There are a number of top researchers in the Western remain scarce.5 As discussed in Box 1, brain drain affected Balkans. Around 150 researchers in the region pub- the region significantly. With the exception of Croatia and lished more than 25 documents in the 2003–2010 period. Serbia, where these trends recently seem to be reversing, Of these, fourteen researchers have received more than brain drain is likely to affect generations of young research- one thousand citations: nine in Croatia, two in Serbia ers, compromising research capacity in the years to come. and Montenegro respectively, and one in Bosnia and Herzegovina. A number of top researchers focus on On the positive side, enrollment rates in higher education science, with publications in the fields of Genetics, have increased significantly in recent years. Tertiary enroll- Nuclear and High Energy Physics, Applied Mathematics, ment in Croatia and Serbia are at the same level as Bulgaria Chemistry, Physics and Astronomy, and Medicine.6 (around 50 percent). As can be seen in Figure 4, tertiary enrollment in the region is above the regression line, sug- Governments in the region are aware of the challenges stem- gesting that these countries are performing relatively well ming from the brain drain and have recently undertaken a number of initiatives to address the issue. These include sev- eral of the traditional measures, from creation of directory Box 1:  The Brain Drain in the Research Sector databases, “knowledge networks,” and discussion forums to the provision of visiting and post-doctorate fellowships, • In Albania, according to a survey of over 40 research installation grants, and direct repatriation support. Croatia institutions and 10 public universities, more than 50 percent of all lecturers and research workers emigrated during the opted for developing a narrower program targeted to fund- period 1991–2005.a ing joint research between the local scientific community and • In Bosnia and Herzegovina, 23.9 percent of highly educated the scientific diaspora (the Unity through Knowledge Fund). individuals emigrate, including 11 percent of medical doctors, one of the world’s largest skilled emigration rates.b • In FYR Macedonia, data show a decrease of more than 70 Current levels of international collaboration, which could percent in the number of researchers and scientists, mainly help leverage the region’s research capacity, are compar- due to the emigration of highly skilled professionals between atively low, as illustrated by the limited involvement of 1995 and 2000.c the Western Balkans in the European Research Area. The • In Kosovo*, 46 percent of emigrants, corresponding to 17 percent of the population, have achieved secondary participation of foreign scientists in local research orga- education and about 10 percent have obtained higher nizations is also limited, demonstrating the difficulties education.d that face the region in research mobility and in attract- • In Serbia, an estimated 30,000 graduates left the country in ing new foreign researchers. Obstacles to regional mobil- 1990–2000, while 2,000 graduates went abroad in the following decade (most of them are professionals in information and ity and mobility from other countries include visas, work communication technology and natural sciences).e permits, taxation, and social benefits.7 Interuniversity Source: UNDP (2006); MIDWEB (2012); Torbakov (2012); Mustafa et.al. (2007); and Kutlaca (2012). a   UNDP 2006. 5 Available statistics, however, indicate that migrants from the West- b  As presented by Mrs. Ana Judi, chief of section, Sector for Diaspora, ern Balkans are more educated than the world average emigrant. Ministry for Human Rights and Refugees, in MIDWEB 2012. 6 SCIMAGO Research Group 2012. c   Torbakov 2012. 7 Only short-term visits (up to three months) are exempted from d   Mustafa et al. 2007. visas; a work permit is necessary whenever any payment is involved; e   Kutlaca 2010. and the current visa policy often gives priority to security issues and does not distinguish between researchers and economic migrants. Research Sector 7 FIGURE 4:  Tertiary Enrollment Rate, 2009 100 School enrollment, tertiary (% gross) 90 80 70 60 50 Serbia Montenegro Croatia 40 Macedonia, FYR Western Balkans Bosnia and Herzegovina 30 Albania 20 10 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 GDP per capita, PPP (constant 2005 international US dollar) Source: World Development Indicators. Note: To better illustrate the performance of countries in the Western Balkans, the axis has been cut at the values shown. The regression line is derived from on all of the data not just the data shown. mobility is difficult due to rigid programs and limited same period, other emerging economies, such as China funding. A positive development is the extension of the and Turkey, have systematically increased investments in Erasmus program to the Western Balkans through the the sector. Current levels are insufficient to have a mean- establishment of ERAWEB which provides funding for ingful impact on the current growth model: the region is students and teachers to study, teach and research abroad investing approximately €495 million in R&D per year, in Albania, Bosnia and Herzegovina, FYR Macedonia, about the same as the second-largest U.S. research uni- Kosovo*, Montenegro, and Serbia.8 versity in 2011. In some cases, immigration laws have been revised or spe- The Western Balkans is investing less in R&D than would cific measures have been adopted to accelerate validation have been expected at its level of development. The region’s of foreign-earned diplomas. Removing some legal barri- R&D intensity, 0.33 percent of gross domestic product ers to mobility, as proposed by Albania’s Action Plan on (GDP), is much lower than that of Bulgaria and Romania Mobility of Researchers (2011–12), is a positive example. when they joined the EU in 2007 (at about 0.5 percent). Furthermore, researchers lack incentives and motivation The level of R&D investment in the Western Balkans is to engage in quality research as exemplified by Kosovo*’s compared to income in Figure 6. This graph shows that Institute of Public Health and Hydro Meteorological in the Western Balkans, as in the region as a whole, the Institute, where low salaries and lack of funding inhibit actual value of R&D per capita falls below the predicted engagement in substantive research initiatives. value, based on a regression of R&D per capita on GDP per capita. For example, regression analysis predicts that, based on its level of income, Albania should be spending Research Funding Gross expenditures on R&D in the Western Balkans have declined dramatically in the past two decades. In the 8 http://erasmus-westernbalkans.eu/. 8 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION FIGURE 5:  R&D Expenditures per Capita (Predicted and Actual), 2007–11 140.0 Lithuania Malaysia Croatia 120.0 Poland R&D per capita (PPP 2005 USD) 100.0 Brazil China Turkey Predicted value: 209.9 Predicted value: 53.4 South Africa Actual value: 135.5 80.0 Actual value: 45.9 Predicted value: 76.4 60.0 Romania Actual value: 48.1 Predicted value: 42.7 Bulgaria Mexico Actual value: 17.6 Western Balkans 40.0 Serbia Predicted value: 41.0 Actual value: 8.5 India Macedonia, FYR Kazakhstan 20.0 Predicted value: 42.3 Pakistan Albania Bosnia Actual value: 1.6 0.0 0 2,000 4,000 6,000 8,000 10,000 GDP per capita, (PPP 2005 USD) All values in PPP 2005 USD and averages of available data points between 2007-11. Source: UNESCO Statistics; World Development Indicators. $41 per person. Even though Croatia spends fifteen times FIGURE 6:  Gross Expenditures on R&D per US more than Albania, it should be spending 60 percent more Registered Patent in Selected Countries than its current level of $135. 70 The difference between Croatia and Albania is an illustra- 60 One patent in Serbia requires tion of the significant variance of R&D intensity within the eight times more R&D 50 investment than in Germany. region. The differences between the largest R&D intensities In Croatia, it costs four times as 40 $ Millions much. (Croatia, Serbia) and the smallest (Bosnia and Herzegovina) 30 are in the order of magnitude of almost 30.9 Comparable data does not exist for Kosovo*. However, the data that 20 does exist suggests that relatively little is spent on R&D. It 10 is estimated that the country only spends 0.1 percent of its 0 budget on scientific research; despite the Law on Scientific Serbia Croatia Finland Germany United Research Activity stating that up to 0.7 percent can be spent. States Source: USPTO, and UNESCO. While several BRIC countries and rapidly emerging economies in Asia have made a strong push in the field of R&D, transition economies are lagging behind. Bosnia and Herzegovina is a case in point. With investments 9 Data limitations affect the assessment of the situation in the R&D sector, including in terms of comparability and information update. in R&D considered less important during the country’s Standard R&D statistics for Kosovo* are not available. In Bosnia transition to independence and despite a near quadru- and Herzegovina, FYR Macedonia, and Montenegro, data are often limited to a very short period. There are still implementation issues pling of GDP per capita from 1998 to 2008, GERD has related to the harmonization of data generation in Croatia and Serbia. seen a fall from 1.85% of GDP in the late 1980s, to less While firm-level data from different sources may be available for the region, the EU Community Innovation Survey is available only for than 0.1% in recent years. Similar trends are found in Croatia. The main challenges for the development of a sound statistics the rest of the region. While Croatia is at the other end system for the research sector are discussed in the report. Research Sector 9 of the scale (both in terms of GDP and GERD per cap- A significant diversification of the science base further ita), its spending on R&D as a proportion of GDP fell by deepens the fragmentation of already scarce resources. 30 percent during the 2000s. At 0.75 percent of GDP the Moreover, research infrastructure is, in most cases, poorly country now trails other recent EU members: Slovenia shared across institutions. (2.45 percent), the Czech Republic (1.84 percent), Estonia (2.38 percent), and Hungary (1.21 percent). In contrast to Following the substantial EU experience over the past Croatia’s experience, these countries’ spending as a per- few decades, governments in the Western Balkans have centage of GDP increased by between 50 and 300 per- been developing, or planning to develop, “centers of cent over the 2000s. excellence” as a way to pool a critical mass of expertise and resources in selected fields. For instance, Kosovo*, is planning to implement competitive funding of five Research Facilities national Centers of Excellence in priority research areas. Declining and unstable R&D funds have caused obsoles- As part of the Serbian R&D Infrastructure Investment cence and depreciation of research infrastructure in the Initiative 2011–15 (€400 million), the country is investing Western Balkans over the past decade. In addition, infra- in a center of excellence in nanoscience and new materi- structure facilities designed to serve the former Yugoslavia als, an area of interest across the region. Albania’s 2010– are sometimes too large for the new national market they 15 strategy proposes the creation of four or five Centers are supposed to serve, while also being too expensive to of Excellence in Science. Croatia, FYR Macedonia, and maintain with the limited resources available in national Montenegro are currently investing in similar initiatives. budgets. With the support of the United Nations Educational, Scientific, and Cultural Organization (UNESCO) On broad measures of the academic environment, even the Venice Office, other networks in southeastern Europe leading universities in the Western Balkans have been fall- have been created, including the Southeast European ing behind their peers. On the Quacquarelli Symonds (QS) Astronomical Research Network, the Human Genetics World University Rankings,10 the University of Zagreb fell and Biotechnology Network, and the Network for Risk from the top 501–550 universities in the world bracket in Assessment and Mitigation. 2011 to the top 601–650 bracket in 2013. The University of Belgrade fell from 601+ in 2012 to 701+ in 2013. These falls suggests that the overall environment for research is http://www.topuniversities.com/university-rankings/world- 10 not keeping up with other universities. university-rankings 10 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 4 TECHNOLOGY TRANSFER SYSTEM Technology transfer is a particular challenge in the resulting from research, has historically been low. The Western Balkans, and collaboration between public Western Balkans applied for 38 patents in the United States research organizations and industry tends to happen on in 2012, compared to an average of 25 patents for the lead- an ad hoc basis, driven by occasional opportunities and ing U.S. research universities and institutions.11 Licensing short-term objectives. Robust industry-science interac- revenues and fees received by the Western Balkans from tions are essentially missing. foreign countries are estimated at 0.09 percent of GDP, compared to 0.42 percent in the EU-27. Patenting activity, which can be used to gauge the level of effort put into protecting intellectual property rights 11 AUTM 2012. Box 2:  The Legal Framework for Technology Transfer: Recent Developments • The 2013 Law on Innovation Activity in FYR Macedonia created the Fund for Innovation and Technological Development, (FITD) which finances the government’s interventions in technology transfer and commercialization, thus connecting research and the market. • In its Innovation Law of 2010, Serbia made meaningful steps in strategic planning for innovation and technology transfer. The law enables the formation of organizations that support innovation activities and technology transfer centers, provides rights to inventors to participate in revenues, and makes provisions for IPR creation by research organizations. According to Article 32 of the law, ownership rights of IPR resulting from publicly funded research belong to the organization where the IPR was created. It also requires that inventors be compensated with at least 50 percent of the profits derived from exploitation of patents. In the rest of the region, there is no legal framework that defines ownership and commercialization rights for IPR generated at research institutions. In its Strategy for the Development of Science (STI Strategy) for 201015, Bosnia and Herzegovina proposed an action plan for development of innovation and technology transfer, intellectual property rights, commercialization, and use of scientific patents. The strategy encourages the protection of IPRs through appropriate legal acts and the provision of funds for these purposes. • Croatia has no special legal regulations for IPRs and technology commercialization in universities, although there are ongoing efforts to create a national policy and strategy for IPR creation and management at research institutions. Based on this project as well as several TEMPUS programs such as the project Fostering Entrepreneurship in Higher Education, offices for technology transfer and the Rudjer Boskovic Institute, have been established across Croatia (WBC-Inco.net, 2011).The first steps were taken within the Community Assistance for Reconstruction, Development and Stabilisation (CARDS) 2003 project entitled “Intellectual Property Infrastructure for the R&D Sector.” The new strategy on innovation, currently being drafted, will define principles for technology creation and commercialization: • Common law applies to ownership of IPRs. The Labor Act defines ownership principles in the relations between inventors (employee) and employers. The law gives the rights of appropriation to the employers. • There is no explicit legal framework, however, for spin-off creation by scientists (public servants or researchers) and participation in licensing revenues. Several universities have started to develop their own institutional IPR policies and guidelines. Examples are the University of Zagreb, University of Rijeka, and University of Split.a Source: UNDP (2006); MIDWEB (2012); Torbakov (2012); Mustafa et.al. (2007); and Kutlaca (2012). a   http://technology.unizg.hr/_download/repository/Pravilnik_o_Uredu_za_transfer_tehnologije.pdf WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 11 Another structural limitation of the research and inno- The inadequate management of intellectual property (IP) vation sector in the Western Balkans is its economic effi- and of the relationship between science and industry is ciency, that is, its ability to create wealth from knowledge. one prominent reason for the poor performance of the As an illustration, consider the ratio between R&D expen- Western Balkans’ research sector in technology transfer. ditures and patents: a unit of Serbia’s or Croatia’s US reg- Half the entities surveyed by the World Bank could not istered patents has required over four times more R&D provide data on their research outputs. A total of 45 orga- expenditures than a German patent (Figure 6). This out- nizations stated that they do not have a unit for knowl- come, in turn, results from weak academic and technol- edge transfer or commercialization, and only four stated ogy transfer performances. that they employ staff with this specific responsibility.13 The lack of skills for technology transfer management is Public research organizations are fairly active in collab- also an important handicap, despite a number of recent oration, as revealed by a survey of more than 85 organi- efforts to build capacity in this area, as in the support the zations.12 In a science-industry collaboration ranking of EU Tempus Project provides to technology transfer offices 144 countries provided by the World Economic Forum, in institutions of higher education. the Western Balkans’ average stands at the 88th position, compared to the 40th of the EU-27. The ability of research institutions to engage in technology transfer is often limited by the lack of a regulatory frame- On the positive side, patent applications from residents of work that encourages public research organizations and the Western Balkans in the United States have increased in researchers to own and exploit results from government- the past decade, primarily due to increased activity from funded research. Fundamental elements of such a frame- Croatia. Patenting activity in domestic jurisdictions, a work are the incentives for researchers to participate in proxy for technological catch-up, has shown more dyna- technology transfer activities, which involve economic or mism. For example, FYR Macedonia kept a relatively sta- career-related benefits, and assignment of responsibility for ble volume of applications (averaging 50 per year) in 2000– IP management to the research organization. For exam- 2012. In addition, examples of technology transfer have ple, in Kosovo*’s INKOS, a private R&D institute estab- emerged, of which the most significant are the spin-off lished by the Kosovo* Energy Corporation, the institute’s process around the University of Novi Sad in Serbia and a unclear legal status prevents its management from mak- handful of cases in the Rudjer Boskovic Institute, Croatia’s ing the long-term plans necessary for the institute’s future, largest research organization. A sizable number of public from investing in advanced research equipment, and from research organizations (9 out of the 21 that provided infor- engaging in knowledge transfer activities. mation on the topic for the “State of R&D Infrastructure and Technology Transfer Study”) reported that they finance Several initiatives to improve the legal framework for more than half their budgets from internal sources. commercialization and technology transfer of intellectual property rights (IPR) have been undertaken in Albania, Measures have been adopted to improve conditions for Bosnia and Herzegovina, Croatia, and Serbia, as can be technology transfer from research institutes and universi- seen in Box 2. Yet policy and legal frameworks for the ties. In Serbia, changes in the higher education law and the ownership and commercialization of results from pub- Innovation Law of 2010 have been implemented to stimu- licly funded research are weak or unclear, with resulting late the creation of university spin-offs and intermediary uncertainty over the expected benefits to institutions and organizations for the support of innovation activities and technology transfer. Investments in the development of technology transfer offices have been a priority in Croatia 12 See World Bank 2012. but are less common in the rest of the region. 13 See World Bank 2012. 12 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION researchers (for example, revenue and royalty sharing) efforts to build capacity in this area, as the support the EU from engaging in technology transfer activities. Most of Tempus Project provides to technology transfer offices in the public research organizations in the Western Balkans institutions of higher education. (56 percent) stated that they had no clear IP ownership pol- icy in place, and a clear policy for the distribution of roy- The provision of incubation services has recently increased, alties derived from commercialization activities is miss- in part due to support from bilateral donors. Bosnia and ing in most cases (70 percent of respondents). Herzegovina, for example, has more than 10 organizations involved in the provision of entrepreneurship and small Overall, public research organizations still lack a consistent business services, as illustrated by the Innovation Center institutional approach for technology transfer. Support for Banja Luka and the Innovation Center Mostar. The latter the development of “soft instruments” (financing instru- project, funded by the Norwegian government, seeks to ments, nurturing services for knowledge-based start-ups, combine a business development facility and innovation and technology transfer offices) is scarce. center with elements of a technology park at the southern industrial zone of the city of Mostar. Kosovo*’s Innovation FYR Macedonia’s open calls for joint projects consti- Center currently hosts eight companies, including sev- tute one example of public support for the collaboration eral university spin-offs, and is planning to launch a vir- between business and academia. The Business Innovation tual incubator soon. Center of Croatia (BICRO) has been providing matching grants to support the collaboration between science and The distribution of science and technology parks, infra- industry and the development of proofs of concept for the structure that can sometimes enable collaboration between past five years. Evidence suggests these programs have science and industry, is uneven. In addition, the need for achieved positive results. these campuses is often questionable, as is their success. The lack of skills for technology transfer management is another important handicap, despite a number of recent Technology Transfer System 13 5 ENTERPRISE SECTOR The enterprise sector that emerged from the transition to attract FDI in the manufacturing sector. In the case of has a low propensity to invest in research and inno- Serbia, this effort focused on the automotive sector and vation. This shortfall affects firm performance (sales resulted in the investment in a new plant from Italy’s growth, labor productivity, and the like) and reduces the Fiat. While these initiatives can generate some immediate demand for knowledge from public research organiza- tions, contributing to the sluggish technology transfer described previously. In addition, the development of a vibrant sector of knowledge-based start-ups, one of the The Competition Environment in the Box 3:  core elements of dynamism in modern economies, has Western Balkans yet to occur. Most Western Balkan economies have adopted measures to improve competition and promote a market-based economy The economic liberalization of the 1990s shifted the under the aegis of the Stabilization and Association Process aimed at promoting policies similar to the rest of the EU. productive structure of the Western Balkans away from However, the legacies of a state-led economy coupled with manufacturing sectors—especially those more likely to smaller market sizes have caused the region to continue to lag invest in R&D, such as metal mechanics and pharma- behind other economies in competition, not just in the EU but ceuticals—and toward services. Overall, the share of around the world. the manufacturing sector in GDP decreased until 2008, • All Western Balkan economies ranked outside the top 100 characterizing what some observers called a “de-indus- countries on the World Economic Forum’s indicator on “local trialization” process. In addition, firms in the region competition intensity” in 2012–13. seem much less integrated into global value chains than • More worrisome, the level of competition also seems to have decreased in the past few years, as reflected by a drop Central Europe. in ranking from 2008–09 for all the Western Balkans, with Croatia experiencing the sharpest fall, from 93 in 2008–09 The decreasing propensity to invest in research can be to 120 in 2012–13. inferred from the declining trends in the employment of • Except for Serbia, most of the countries in the region have not experienced drastic drops in their rankings on “the researchers by the business sector in the total pool of full- effectiveness of competition policy,” indicating government time equivalent (FTE) researchers between 1989 and 2011. willingness to promote competition. However, these For instance, in FYR Macedonia and Serbia, the share of policies have not yet translated into improvement in local FTE researchers fell to less than 2 percent in 2011. Croatia competition. • For instance, Bosnia and Herzegovina has made leaps in was an exception, with the share of FTE researchers in the the effectiveness of antimonopoly policy, as shown by business sector increasing almost four times (from less its improvement in ranking, from 133 in 2008–09 to 86 in than 5 percent to about 19 percent). 2012–13. However, it still ranks a paltry 138 on intensity of local competition. More recently, some governments in the region, notably Source: UNDP (2006); MIDWEB (2012); Torbakov. FYR Macedonia and Serbia, have made significant efforts WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 15 results, the general declining trend of FDI in the region of a company during 2006–10. Such an approach does not indicates the limitations of this instrument for promot- differentiate between R&D and other investments but ing modernization and innovation. encourages all profit-oriented companies to re-invest the profit into their development, where R&D may be included. The supply of risk capital in the early stages of enterprise development is absent or at an embryonic stage. Markets in Governments have also tried to create a business envi- the Western Balkans are relatively better supplied with later- ronment that is more conducive to innovation. Yet, stage and expansion financing. However, given the charac- as suggested by the World Bank ’s Doing Business teristics of the equity industry, it is unlikely that those funds Indicators and the European Bank for Reconstruction will trickle down to earlier stages of the innovation chain. and Development’s Structural Reform Index, the Western Balkan region still has to advance reforms in areas that are With the exception of initiatives in Croatia and Serbia, important to innovation, such as contract enforcement, innovation financing is almost nonexistent and repre- competition, access to finance, and labor market regula- sents an obstacle to the development of a solid deal flow tion. FYR Macedonia is an outlier, having made vigor- in the region. Yet schemes to promote finance for innova- ous progress in addressing the cost of doing business. As tion have been introduced in recent years: discussed in Box 3 countries in the region have histori- cally had low levels of competition, these have not been • Albania, through its Investment Development Agency, improved by competition policy reforms (2012); Mustafa has established a Business Relay Innovation Center, a et.al. (2007); and Kutlaca (2012). new grant program promoting innovation in private businesses. Yet, there are significant positive impacts of investment in • BICRO programs have been providing conditional research and innovation on firm performance:14 loans to prototype and product development in Croatia. • The recently created Science and Innovation Investment • Innovative firms grow 15 percent faster in sales and Fund will finance knowledge-based start-ups in Serbia. 8 percent faster in labor productivity than non-inno- • At the regional level, the recent creation of the Enterprise vative firms. Development Innovation Facility (EDIF), with three • Firm R&D expenditures contribute significantly to financial instruments (a venture capital fund, a guar- sales (14 percent) and growth in labor productivity antee mechanism, and an equity fund to finance the (7 percent). expansion of companies) is another important initiative. • When firm R&D, training, and infrastructure services are compared, R&D is shown to have the highest cor- Only Croatia and Serbia provide fiscal incentives for the relation with sales growth. acquisition of scientific equipment or business expendi- tures in R&D. In FYR Macedonia, there was a policy of zero corporate tax on all profits re-invested in the development 14 Seker 2012. 16 WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 6 INSTITUTIONAL AND POLICY FRAMEWORK The transition of the research and innovation sector in the finances applied research, technology transfer, training, Western Balkans had two important consequences for the and advisory services for farmers. Elsewhere, a command- sector’s institutional and policy framework. First, it left and-control type of regulation is still in place, with little the process of restructuring and consolidation of pub- delegation to managers; this situation is exacerbated by lic research organizations unfinished. Second, it did not unclear distribution of responsibilities and scarce use of change critical aspects of the research and innovation pol- performance-based instruments. icy framework, including how public funds and policy on research careers are managed. This legacy adds substan- Research institutes also lack the legal framework needed tial complexity to the challenges of improving governance to efficiently manage intellectual property, including spin- in national innovation policies. off companies. As a result, the region is at odds with mod- ern public management practices adopted by sister orga- One of the key aspects of the restructuring of public nizations in the EU. research organizations in the Western Balkans is the shift in researchers’ employment from research institutes to institu- The Western Balkan countries are still working to consol- tions of higher education. Distribution of R&D funds also idate universities as single entities, both legally and insti- showed a change in the same direction, although this was tutionally, and to define appropriate legal frameworks. of much smaller magnitude. In addition, research facilities are often under the control and ownership of research insti- tutes, which has an important impact on the distinctions Box 4:  Public Research Organizations these organizations make between research and education. • The share of research institutes in the employment of FTE The partial restructuring of the research sector has also researchers in the Western Balkans decreased by half, from 50 to 25 percent of the total, in 1989–2011. resulted in an unsustainable fragmentation of the research • Meanwhile, the share of higher education institutions in institutes, with negative effects on research infrastructure the employment of FTE researchers increased from 43 to and fund allocation. For instance, in Croatia there are more 64 percent of the total in the same period. than 30 research institutes, compared to fewer than 5 in • While R&D ac tivities are financed and per formed predominantly by research institutes, this has been gradually most Scandinavian countries. The process of restructur- changing, with an increasing share being performed by ing research institutes has been going on for some time institutions of higher education. but has proven to be technically and politically complex. • In Bosnia and Herzegovina and Montenegro, institutions of higher education currently account for the largest share (around 80 and 65 percent of total gross expenditures on One positive experience seems to be the restructur- R&D, respectively) in 2011. ing of the agricultural research and extension services Source: UNDP (2006); MIDWEB (2012); Torbakov (2012); Mustafa et.al. (2007); in Albania, where the Ministry of Agriculture, through and Kutlaca (2012). the Department for Extension Service and Information, WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 17 Educational systems represent a mixture of the stan- standards and a formal system of international peer review, dard system inherited from the Socialist past and highly instead following other methods that have been preferred diverse policies and institutional frameworks established traditionally. Yet there is visible progress. For example, more recently. Overall, universities in most of the region Montenegro has recently instituted a system of external act in a setting far less secure than those in EU countries. evaluation of performance and scientific projects when researchers apply for funds. Many new higher education laws try to create a modern, integrated environment that also promotes well-devel- A related issue is priority setting in the use of funds. The oped management structures and processes. Yet admin- first consideration is the distribution of resources between istrative offices have limited managerial responsibilities basic and applied research.15 While aggregate data are because these continue to lie exclusively within univer- unavailable, preliminary evidence suggests that the region sity departments. Universities that have been integrated emphasizes basic research.16 In Bosnia and Herzegovina, by law are nonetheless still struggling with the tradition of however, research activity seems to focus more on prepro- strong faculties, which used to operate autonomously and duction development. By comparison, leading economies, have been full legal entities since the mid-1960s. such as Denmark, Israel, Japan, the Republic of Korea, and the United States, have kept their recent funding alloca- The region has entered the Bologna Process and is cur- tions for basic research at or below 15 percent. rently implementing reforms in that direction. Albania, Croatia, and Serbia have advanced in this respect. Yet there The need for broad reforms has inspired some Western is some difficulty in implementing reforms. Balkan countries to adopt wholesale reform through new sci- ence laws, an approach that has been hard to sell politically. Research Career Policy A second issue is the sector allocation of research funds. A common problem of public research organizations lies When scientific performance is taken into account, the in the incentives that current policies for research careers region shows an emphasis on four areas: agricultural and provide for research excellence and technology transfer. biological sciences, environmental sciences, physics and Structures, job classifications, and promotion rules are still astronomy, and chemistry. Yet medicine is by far the main overly rigid and do not sufficiently reward scientific per- area of publication activity in the Western Balkan coun- formance, diverting the attention of researchers to objec- tries, although it ranks low in impact compared to other tives other than research excellence and knowledge trans- areas. This speaks to the need to increase research efforts fer. In particular, promotion is often based solely on the where there is science of high quality.17 In addition, the EC number of publications rather than on their impact fac- has advocated the application of research funds to pro- tors and number of citations worldwide. There is essen- mote a “smart specialization” by regions and countries.18 tially no proper encouragement for researchers to partic- ipate in technology transfer activities. 15 See,for example, Arnold and Giarracca (2012). 16 See the Policy Questionnaire for details. 17 Applied research is less risky, likely to bring fewer results (less spillover). But in the shorter term, while basic research is riskier, it is Allocation of Research Funds more likely to yield results (spillovers) in the long run. In developing Block or institutional funding continues to be the dom- economies, discount rates tend to be higher, placing a higher value on short-term results. In addition, as capital is expensive, emphasis inant mechanism for allocation of research funds in the on activities that are less risky is recommended. region, although competitive funding has gained some 18 Research and innovation for smart specialization strategies (RIS3) has been established by the European Commission as one of the traction in recent years. Funding does not always adhere ex anteconditionalities for the accession to structural funds in the to the use of merit-driven criteria following international 20014–20 period (COM 2011, 615). Concentrating efforts in fields related to the economic • One exception is Serbia, which has been functioning needs and potential of a country or region could bring well in evaluation since the inception of the Innovation development dividends in the short term. Fund.19 • Another exception is Croatia, which has evaluated the BICRO program and the Unity through Knowledge Policy Coordination and Institution Building Fund, with the findings supporting behavioral addi- The Western Balkan countries have been very active in tionally of the programs. efforts to coordinate policies and establish organizations with implementation capacity. However, policy coordi- Regional Cooperation nation and institution building remain a key challenge The European Union and the Western Balkans have a fairly in the region: long history of bilateral cooperation in R&D. Cooperation in R&D has been part of the Stabilization and Association • FYR Macedonia has established a national council to Agreements negotiated by the EU and the Western Balkans coordinate the country’s innovation policy, which has within the framework of the Stabilization and Association been very active. The country has approved a national Process that followed the peace negotiations in the region. innovation strategy and has enacted new legislation Cooperation with the EU has achieved many important to allow for public support to innovation financing. results: • In Albania, reforms have been undertaken to improve the strategic governance of research and innovation • The implementation of t he Stabi lization a nd policies. A coordinating agency under the Council of Association Agreements provides a natural frame- Ministers has been created to support, monitor, and work for the progressive compliance with the EU assess science, technology, and innovation programs Acquis Communautaire in the field of R&D (chapter and projects, using funds from the state budget, inter- 25, “Science and Research”). national programs, and the private sector intended for • The region participates in the FP7 and is actively R&D and innovation. involved in the European Cooperation in Science and • In 2012, the government of Montenegro established a Technology (COST) and Eureka programs. new Council for Scientific and Research Activity that • The association status also entitles participants to includes representatives from the public and private nominate representatives as observers in the corre- sectors, research institutes, and academics. A new law sponding FP7 committees as well as in the Scientific governing scientific research activity was adopted in and Technical Research Committee (CREST) and December 2010, setting out conditions for state funding other ERA governing bodies. Through association for both public and private institutions in priority areas with the FP7, the region gained access to the EU’s in line with the Seventh Framework Program (FP7). Joint Research Center and can take advantage of • The region has made less progress in designing, mon- the capacity building and training on EU-related itoring, and evaluating research and innovation poli- policies. cies and programs. The simple monitoring of program inputs and outputs is undertaken only occasionally and The experience of regional cooperation on R&D in the on an ad hoc basis. The result is that very little is known Western Balkans is limited and needs to be strengthened. about the disbursement of budgetary resources. There Between 2005 and 2010, governments in the Western is a generally low level of awareness of the importance Balkans were supported by EU funds, predominantly of systematic assessment and rigorous impact evalua- through the Framework Program coordination and support tion. The regional capacity to implement such evalua- tions urgently needs improvement. 19 Radas et al. 2011. Institutional and Policy Framework 19 actions, in their efforts to integrate into the ERA and 20 Two examples are the FP6 Southern European Research Area (SEE-ERA.NET) project, a networking project aimed at integrating rebuild the once-strong cooperation in R&D.20 EU member states and southeast European countries into the ERA by linking research activities to existing national, bilateral, and regional research, technology, and development programs, and the FP7 WBC-INCO.NET, a project aimed at coordinating research policies within the Western Balkans. 7 CONCLUSION The contribution that the “knowledge factor” can make to • Improve the research base and conditions for research the region’s economic growth is being hindered by a com- excellence bination of unfinished reforms and incomplete develop- • Promote science-industry collaboration and technol- ment of overall framework conditions, key institutions, ogy transfer policies, and programs: • Enable business innovation and innovative start-ups • Strengthen the governance of national research and • Reforms and policies have been essentially partial, innovation policies small in scale, and short-lived due either to a lack of second-round financing for the projects or political In working to achieve these objectives, there is value from changes following elections. taking a regional approach. Apart from the region’s com- • Reform initiatives, even when supported by interna- mon history and heritage, economic factors favor a deeper tional organizations, have thus far failed to alter the collaboration among. The small size of the regional econ- structural deficiencies of the research and innovation omies limits individual research and innovative potential. sector in the Western Balkans. This suggests that pooling regional resources to create crit- • Several interventions, however, have had a similar ical mass might pay major economic dividends. focus, duplicating the services provided. • Fragmentation and limited coherence are sometimes A regional approach is proposed in the Regional Research observed even among initiatives supported by inter- and Development (R&D) Strategy for Innovation. The strat- national donors. egy proposes a number of programs that build on the recent experience on regional cooperation in the area of To unleash the innovative potential of the region and research and innovation among the Western Balkan coun- address the EU-related opportunities and requirements tries through bilateral agreements and initiatives funded in research and innovation, the region needs to invest in by the EU. The comprehensive, sector-wide approach more and better research and innovation. This requires a adopted by the Strategy complements the treatment of two-pronged approach, namely, advancing institutional other regional initiatives, notably the Danube and Adriatic and policy reforms and undertaking strategic invest- Ionic Strategies. ments that will: WESTERN BALKANS REGIONAL R&D – STRATEGY FOR INNOVATION 21 REFERENCES Arnold, E., and F. 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