Conducting TrendChart and EIS research exercises in

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Conducting TrendChart and EIS research exercises
in Armenia, Azerbaijan and Georgia Implications
for Innovation Policy Development Giles Brandon,
Tigran Arzumanyan, Siyavush Azakov and Shalva
Machavariani
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• Agenda
• National Innovation Performance
• Analysis and benchmarking of Armenia, Azerbaijan
  and Georgia
• National Innovation System of Armenia
• Innovation governance and trends in innovation
  policy
• Major innovation challenges and policy responses
• Conclusions and recommendations
• National Innovation System of Azerbaijan
• Innovation governance and trends in innovation
  policy
• Major innovation challenges and policy responses
• Conclusions and recommendations
• National Innovation System of Georgia
• Innovation governance and trends in innovation
  policy
• Major innovation challenges and policy responses
• Conclusions and recommendations

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• National Innovation Performance
• Measure using INNO Metrics also known as European
  Innovation Scoreboard (EIS) indicators
• 25 indicators based on range of science,
  technology and innovation statistics

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• National Innovation Performance
• Relatively poor availability of indicators across
  Armenia, Azerbaijan and Georgia

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• National Innovation Performance - Armenia
• Good potential absorptive capacity
• Relatively high share of population with tertiary
  education (102)
• High share of young population with completed
  upper secondary education (113)
• But hindered by a very low rate of broadband
  penetration (7)
• Poor knowledge generation capacity
• Very low share of BERD in GDP (8)
• Very low share of public RD expenditure (17)
• Industry structure
• No data available

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• National Innovation Performance - Azerbaijan
• Poor potential absorptive capacity
• Low share of population with tertiary education
  (64) and the lowest of the six NIS countries
• Low rate of broadband penetration (12)
• Poor knowledge generation capacity
• Very low share of BERD in GDP (6)
• Low share of public RD expenditure (46)
• Favourable industry structure
• Very high share of employment in medium-high/high
  tech manufacturing (285)
• However, this is only nominally technology
  intensive sectors
• Low share of employment in high-tech services
  (29)

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• National Innovation Performance - Georgia
• Good potential absorptive capacity
• High share of population with tertiary education
  (128)
• High share of youth with upper secondary
  education (115)
• But hindered by a very low rate of broadband
  penetration (4)
• Poor knowledge generation capacity
• Very low share of BERD in GDP (7)
• Low share of public RD expenditure (15)
• Possibly unfavourable industry structure
• Low share of medium-high/high tech RD (25)

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• National Innovation System of Armenia -
  Innovation Governance

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• National Innovation System of Armenia
  Innovation Policy Trends (1)
• 2000 - government adopted an array of legal acts
  and decisions directed towards regulation and
  promotion of ST and innovation policy in the
  country
• April 2001 - government approved the concept on
  development of science in Armenia, which
  identified ST development as a priority task for
  the state, and necessitated implementation of
  profound reforms in this field
• May 2001 - government approved the concept on
  development of the information technology
  industry in Armenia. It emphasizes the existence
  of adequate potential in the country for
  development of the IT sector, and need for
  further improvement of infrastructure and
  legislation supporting development of the IT
  industry
• August 2002 - government issued a resolution on
  Science and Technology Development Priorities in
  the country, incorporating 8 areas, including
  information technologies, advanced technologies
  (biotechnology, nanotechnology), new energy
  sources and materials, and risk factors and human
  health
• January 2005 - government approved the concept of
  innovation activity in the Republic of Armenia,
  aiming at formulation of general approaches and
  principles of the state policy directed towards
  consistent creation and development of a national
  innovation system

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• National Innovation System of Armenia
  Innovation Policy Trends (2)
• November 2005 - government approved the action
  plan 2005-2010 directed towards the creation and
  development of the innovation system in Armenia,
  which suggests around 20 measures to be
  implemented during the stated period.
• May 2006 - Law on State Support to Innovation
  Activity was adopted, which was one of the
  measures of the Action Plan 2005-2010
• But all these conceptual and legislative measures
  need to be supported by adequate concrete actions
  and programmes directed towards forming the
  national innovation system.
• Meanwhile, successful sector-specific initiatives
  of recent years
• Enterprise Incubator Foundation (EIF) created in
  2002 within framework of the World Banks
  Enterprise Incubator project and 5m Learning
  and Innovation loan, to improve competitiveness
  of Armenian IT companies
• Small and Medium Entrepreneurship Development
  National Centre of Armenia (SME DNC of Armenia)
  in 2002. First national body created to implement
  state support to small and medium-sized
  enterprises (SME)

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• National Innovation System of Armenia Major
  Innovation Challenges
• Challenge 1 Increase significantly RD
  expenditure and the share from business
• RD intensity (GERD/GDP ratio) has decreased
  dramatically in Armenia since the collapse of the
  former Soviet Union, dropping from 2,5 in 1990
  to 0,12 in 2006
• Decline is reflected also in the number of
  researchers and research institutes, which
  decreased nearly four-fold and two-fold,
  respectively
• Official documents adopted by Armenian government
  relating to RD and innovation do not set
  concrete quantitative targets for increasing RD
  expenditure
• Law on Scientific and Technological Activity of
  2000 initially contained an article obliging the
  government to increase RD financing up to 3 of
  budget expenditure, but, later, this article was
  removed from the Law
• Currently no reliable statistical data are
  available on business expenditure on RD in
  Armenia
• Presentation of the President of the National
  Academy of Sciences of Armenia in 2006, mentions
  business expenditure on RD to be around 10 ,
  though this figure reflects non-budget
  expenditure on RD, including contract works and
  international sources
• Estimated that the real business expenditure rate
  is much less and probably insignificant

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• National Innovation System of Armenia Major
  Innovation Challenges
• Challenge 2 Reform RD and innovation
  statistical data collection methodology and
  harmonize it with international standards (OECD
  and EU)
• Process of collecting data on EIS Indicators for
  Armenia revealed the unavailability of most of
  the innovation and entrepreneurship input and
  output indicators
• No major changes have been introduced in RD and
  innovation (RDI) data collection used by the
  national statistical service since Soviet era
• Need for reform of RDI statistical data
  collection methodology in compliance with
  international standards (Frascati and Oslo
  Manuals).
• Enable an objective picture of the state of
  innovation performance in Armenia, make
  international comparisons, and identify strengths
  and weaknesses of the system
• Enable policy measures with concrete quantitative
  targets directed to tackle identified weaknesses

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• National Innovation System of Armenia Major
  Innovation Challenges
• Challenge 3 Reformation of the RD sector in
  line with general economic development trends and
  real industrial needs
• Dramatic downsizing of RD intensity and
  innovation input indicators in last 15 years
• Process mostly affected the branch/ministerial
  and enterprise RD institutes which were mainly
  involved in applied research connected with
  certain industries and ministries
• RD sector has continued to exist or survive in
  the country thanks to inertia
• Very few links exist with the private sector and
  there is hardly any contribution to the economic
  development of the country.
• National Academy of Sciences (NAS RA), with
  around 35 research institutions, exists without
  any major systemic and functional changes and is
  the main basic RD performer in the country
• Recently government adopted a resolution to
  optimize the Academy infrastructure and
  restructure some of its institutes through
  amalgamation and creation of scientific and
  technological centres and promoting
  commercialization of research outcomes
• Process should be continued through the
  development of a long-term RDI development
  strategy in line with the current state and
  trends of economic development

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• National Innovation System of Armenia Major
  Innovation Challenges
• Policy response ranking scored from 1 to 5 1. No
  specific measures addressing the challenge
  (possibly a debate but no evidence of any real
  policy development) 2. Policy development under
  way to respond to challenge (policy debate or
  design launched, e.g. announced in National
  Lisbon Reform Plan, etc.) 5. A comprehensive
  set of measures which potentially responds fully
  to the challenge.
• Evidence of impact scored from 1 to 5 1. Trend
  for indicators has worsened since measure(s)
  introduced 2. No observable change in trend
  since measure(s) introduced 5. Evaluation or
  study indicates measure(s) has clearly
  contributed to improving performance of country.

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• National Innovation System of Armenia
  Conclusions
• After long neglect in 1990s, ST and innovation
  policy issues have regained attention of Armenian
  policy-makers starting from the early 2000s. This
  is reflected in several conceptual and
  legislative acts adopted by the government
  between 2000-2006. Also, financing of RD has
  stabilized with the implementation of three
  budget financing mechanisms.
• But, level of RD financing as a proportion of
  GDP remains extremely low. Less than 0,15 for
  the last 10 years, which is one of the lowest
  among EECA countries.
• Meanwhile, main statistical data on innovation
  are not available, which makes it impossible to
  evaluate in depth the innovation performance of
  the country
• New prospects for closer EU-Armenia cooperation
  were opened after the inclusion of Armenia in the
  European New Neighbourhood Policy (ENP)
  Initiative and further development of the ENP
  Action Plan
• ENP Action Plan includes an article on measures
  in the field of ST incorporating points towards
  assisting in development of adequate ST and
  innovation policy system. Also an article stating
  the need for closer integration of Armenia in the
  European Research Area through more active
  participation of Armenian research organizations
  in the EUs Framework Programmes.
• Innovation policy measures proposed by the
  Armenian government need to be reinforced with
  concrete quantitative targets and adequate
  effective implementation
• increase RD budget financing in accordance with
  the real growth rate of GDP and reformation of
  the state RD sector
• adequate enforcement of adopted laws and
  initiatives in the sphere of innovation and clear
  financial commitments for their implementation
• introduction of real incentives to increase
  business involvement in RD and innovation
  activities.

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• National Innovation System of Azerbaijan
  Innovation Policy Trends (1)
• Azerbaijan does not currently have a formal
  national RD and innovation strategy plan or a
  formal national innovation policy framework.
• Innovation policy has not been formally debated
  at all by the Azeri government
• Have been some government sponsored gatherings to
  encourage innovation activity but they are
  carried out sporadically
• E.g., in 2005, the conference Role of Azeri
  scientists in the countrys social and economic
  development took place in the Azerbaijan
  National Academy of Sciences involving 100
  entrepreneurs and businessmen. The results of
  500 completed RD projects with commercialial
  potential were presented
• No think tanks, lobby groups, political bodies,
  trade associations, or employers associations to
  champion innovation
• Different government organisations which should
  be involved in the innovation process, but they
  tend to operate in relative isolation without a
  clear and shared policy vision
• The government does not encourage a more active
  role of lower levels of government in promoting
  innovation in local industries, to promote mutual
  policy learning and networking between
  policy-making at regional and national levels

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• National Innovation System of Azerbaijan
  Innovation Policy Trends (2)
• However, in some sense, innovation issues are
  included into a large number of State Programmes
  which have been accepted during last 10 years
• These programmes have their own objectives and
  targets and some of them could be interpreted as
  objectives of innovation policy of the
  government.
• Unfortunately, in many cases, these objectives
  are not quantified and specific targets are not
  set
• Governments attempts to increase the role of
  innovation implicitly as opposed to explicitly
  - are expressed in the following governmental
  legal documents
• National Information and Communication
  Technologies Strategy for the Development of the
  Republic of Azerbaijan (2003-2012)
• State Programme on Development of ICT in
  Azerbaijan Republic in 2005-2008 (Electronic
  Azerbaijan)
• Creation of Regional Innovation Zone in
  Azerbaijan, State Programme on Development of
  Fuel and Energy Complex of the Azerbaijan
  Republic (2005-2015)
• State Programme on Using Alternative and
  Renewable Energy Sources in the Azerbaijan
  Republic, Establishment of  "Azerbaijan
  Investment Company
• Scholarship Programme for Azerbaijani Youth to
  Study Abroad
• Unfortunately, all documents mentioned contain
  only qualitative description of the objectives
  but lack concrete quantitative targets and
  indications of the appropriate budget allocations

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• National Innovation System of Azerbaijan Major
  Innovation Challenges
• Challenge 1 Elaboration of the State RTD and
  innovation strategy
• Studies show that in developed countries up to
  40 of productivity increase is related to RD
  investments
• In Azerbaijan, no official RD and innovation
  policy has been defined yet
• Also, no concrete body that determines the
  priorities of scientific and technological policy
  for the country
• Vital to develop clear economic, scientific, and
  technical policy in which innovations related
  with advanced processing of natural resources
  will accompany all the stages of the production
  process for products and services

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• National Innovation System of Azerbaijan Major
  Innovation Challenges
• Challenge 2 Renewal of the knowledge basis,
  including improvement of research quality and
  capacity for innovation
• Quality of results obtained by Azeri researchers
  significantly lags behind world standards
• Research results have a weak link with
  Azerbaijans socio-economic objectives (including
  cooperation with business)
• In order to develop a knowledge-based society and
  economy, Azerbaijan needs researchers and
  engineers of high qualification and expertise,
  who will ensure the sustainability and
  competitiveness of public sector RD and of the
  higher education system, while at the same time
  constituting to the quality of human resources
  for innovative entrepreneurship.
• Policy measures must be taken to halt
  brain-drain
• To make research and engineering careers more
  attractive for young people and experienced
  specialists
• To guarantee that enough specialists receive
  doctoral degrees at universities and academic
  institutes
• To improve the possibilities for embarking on
  successful research careers

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• National Innovation System of Azerbaijan Major
  Innovation Challenges
• Challenge 3 Increase the competitiveness of
  traditional industries by introduction of new
  technologies
• Latest research shows that 0.01 of Azerbaijans
  enterprises have brought new or significantly
  improved products (goods/services) to the market
  or introduced new or significantly improved
  processes
• In most of the enterprises expenses on innovation
  are still used for the purchase of machines and
  equipment
• Azerbaijan was ranked 64th in the World
  Competitiveness Scoreboard in 2006, while the
  Global Competitiveness Report placed Azerbaijan
  in 66th position in 2007
• In this light, the current economic policy debate
  shows some concern about Azerbaijans ability to
  retain its long-term competitiveness and
  productivity growth rates in an environment of
  increasing costs (incl. e.g. labour, energy,
  etc.)
• The share of high-technology production in
  Azerbaijan is significantly lower than in EU
  countries

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• National Innovation System of Azerbaijan Major
  Innovation Challenges
• Policy response ranking scored from 1 to 5 1. No
  specific measures addressing the challenge
  (possibly a debate but no evidence of any real
  policy development) 2. Policy development under
  way to respond to challenge (policy debate or
  design launched, e.g. announced in National
  Lisbon Reform Plan, etc.) 3. Specific measures
  existing for some time but insufficient to
  respond fully to challenge 4. Existing measure
  plus one or more newly launched measures (during
  last 18 months) 5. A comprehensive set of
  measures which potentially responds fully to the
  challenge.
• Evidence of impact scored from 1 to 5 1. Trend
  for indicators has worsened since measure(s)
  introduced 2. No observable change in trend
  since measure(s) introduced 3. Too early to
  appraise (measures introduced in last 24 months),
  4. Trend for indicators has improved since
  measure(s) introduced, 5. Evaluation or study
  indicates measure(s) has clearly contributed to
  improving performance of country.

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• National Innovation System of Azerbaijan
  Conclusions
• Based on an analysis of the available EIS
  indicators relative to EU25 averages, Azerbaijan
  has a poor potential absorptive capacity, poor
  knowledge generation capacity but favourable
  industry structure
• Azerbaijan does not currently have a formal
  national RD and innovation strategy plan which
  is a primary innovation challenge - or a formal
  national innovation policy framework
• Innovation policy has not been formally debated
  at all by the Azeri government
• However, in some sense, innovation issues are
  included into a large number of State Programmes
  which have been accepted during last 10 years
• Governments attempts to increase the role of
  innovation implicitly as opposed to explicitly
  - are expressed in several governmental legal
  documents
• Unfortunately, all documents mentioned contain
  only qualitative description of the objectives
  but lack concrete quantitative targets and
  indications of the appropriate budget allocations

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• National Innovation System of Georgia -
  Innovation Governance

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• National Innovation System of Georgia
  Innovation Policy Trends
• Georgia does not currently have a formal national
  RD and innovation strategy plan or a formal
  national innovation policy framework.
• However, Georgia does possess certain elements of
  a national innovation system and does have a
  number of innovation policy measures.
• Also, innovation policy has begun to be
  discussed and is gradually rising up political
  agenda.
• Three recent RD and innovation studies carried
  out in Georgia
• i) INTAS SCRIPTS project this one
• ii) EU funded project Creating an effective
  model of science administration review of EU
  best practices and elaboration of policy
  recommendations with the Ministry of Education
  and Science of Georgia (2007)
• iii) GTZ funded project Formulating a National
  and Regional Innovative System (2008).
• Georgia has a two new/updated laws concerning
  innovation activities On Science and technology
  and their development (2005) and Law of Georgia
  on Higher Education (2004).
• During past 3-5 years, increasing number of
  innovation policy measures to support technology
  transfer and commercialisation implemented by
  Georgian public organisations with the support of
  international development organisations (e.g.
  World Bank, CRDF, EBRD and USAID).

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• National Innovation System of Georgia Major
  Innovation Challenges
• Challenge 1 Lack of a national RD and
  innovation strategy plan
• Decline experienced by the RD system during the
  transition years has been only partially reversed
  in recent years, as a result of policy
  initiatives and increase in the public funding
  for RD starting from 2003
• Nevertheless, low performance scores in terms of
  most RDI indicators and gap with EU25 member
  states is still very significant in many areas
• After several years of reorganisation and
  reforms, an RD and innovation policy debate is
  to a large extent still missing
• No official RD policy has been articulated yet.
  There is no concrete body that determines the
  priorities of scientific and technological policy
  for the country

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• National Innovation System of Georgia Major
  Innovation Challenges
• Challenge 2 Reform RD and innovation
  statistical data collection methodology and
  harmonize it with international standards (OECD
  and EU)
• Process of collecting data on EIS Indicators for
  Georgia revealed the unavailability of most of
  the innovation and entrepreneurship input and
  output indicators
• No major changes have been introduced in RD and
  innovation (RDI) data collection used by the
  national statistical service since Soviet era
• Need for reform of RDI statistical data
  collection methodology in compliance with
  international standards (Frascati and Oslo
  Manuals).
• Enable an objective picture of the state of
  innovation performance in Georgia, make
  international comparisons, and identify strengths
  and weaknesses of the system
• Enable policy measures with concrete quantitative
  targets directed to tackle identified weaknesses

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• National Innovation System of Georgia Major
  Innovation Challenges
• Challenge 3 Creating widespread technology
  transfer links between the public and private
  sector
• Getting small, medium and large companies to
  increase their innovation activities in order to
  create a sustainable economic advantage is at the
  heart of innovation policy
• One common way is to implement policy measures
  that encourage technology transfer between public
  research organisations, universities and private
  industry
• With the support of several international
  development organisations (CRDF, ISTC and STCU),
  a number of technology transfer measures have
  been introduced in recent years.
• This is an encouraging development as it helps to
  raise awareness of the importance of technology
  transfer and commercialisation in Georgia
• But the budgets for the grant programmes are
  quite modest
• Size of grant schemes must grow substantially, if
  Georgia is to improve EIS indicators such as
  business RD expenditure (BERD), share of
  medium-high-tech and high-tech RD ( of
  manufacturing RD expenditures), and share of
  enterprises receiving public funding for
  innovation

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• National Innovation System of Georgia Major
  Innovation Challenges
• Policy response ranking scored from 1 to 5 1. No
  specific measures addressing the challenge
  (possibly a debate but no evidence of any real
  policy development) 2. Policy development under
  way to respond to challenge (policy debate or
  design launched, e.g. announced in National
  Lisbon Reform Plan, etc.) 5. A comprehensive
  set of measures which potentially responds fully
  to the challenge.
• Evidence of impact scored from 1 to 5 1. Trend
  for indicators has worsened since measure(s)
  introduced 2. No observable change in trend
  since measure(s) introduced 5. Evaluation or
  study indicates measure(s) has clearly
  contributed to improving performance of country.

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• National Innovation System of Georgia
  Conclusions
• Georgia does not currently have a formal national
  RD and innovation strategy plan which is a
  primary innovation challenge - or a formal
  national innovation policy framework.
• However, Georgia does possess certain elements of
  a national innovation system (e.g. legislative
  framework components, public RD organisations,
  researchers, nascent business incubators and
  technoparks, etc) and does have a number of
  innovation policy measures (e.g. to support
  technology transfer, to provide commercialisation
  training, etc).
• 2007 is first year that socio-economic
  statistical data has been collected for Georgia
  to determine its European Innovation Scoreboard
  (EIS) indicators. However, availability of
  appropriate statistical data is very poor and so
  only 10 of the 25 indicators could be calculated.
  
• Based on an analysis of the available EIS
  indicators relative to EU25 averages, Georgia has
  a good potential absorptive capacity but poor
  knowledge generation capacity.
• Georgian Department of Statistics requires
  specific practical training and support in
  implementing the Community Innovation Survey
  (CIS) according to the Oslo manual and the RD
  survey according to the Frascati manual.
• With the support of several international
  development organisations (CRDF, ISTC and STCU),
  a number of technology transfer measures have
  been introduced in recent years.
• This is an encouraging development as it helps to
  raise awareness of the importance of technology
  transfer and commercialisation in Georgia
• But budgets for the grant programmes are
  relatively modest much more needs to be
  allocated

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• For more information about the National
• Innovation Performance and National Innovation
  Systems of Armenia, Azerbaijan and Georgia,
• please visit www.intas-scripts.eu