World Bank Group: Spurring Job Growth in the Western Balkans – Research and Innovation

By Paulo Correa and Christopher Colford

Promoting economic growth and job creation requires innovative industries that can make imaginative use of business opportunities springing from new technologies and research and development (R&D) activities. But not every economy can develop a Silicon Valley or a Silicon Roundabout – and some countries and regions have been slower than others in fostering an economic ecosystem that can inspire innovation and enliven economic growth.

Yet a newly agreed-upon strategy for R&D investment and scientific collaboration – uniting the innovative resources of most of the post-Yugoslav countries and some of their nearby neighbours – holds the promise of strengthening technology investment and boosting employment in the Western Balkans.

The region desperately needs new sources of growth and job creation. The global economic crisis hit the Western Balkans especially hard, revealing the structural limitations of a model based on the expansion of domestic demand with little trade integration and stagnant productivity. Youth unemployment is particularly dire – often more than double the overall national rates.

Seven nations of the Western Balkans marked a milestone moment on October 25, 2013: An imaginative pro-growth, pro-innovation agreement was signed in Zagreb, Croatia by the seven governments’ ministers responsible for science and education. For the first time, the countries adopted a common strategy on how to jointly address the challenges of the region’s potentially powerful science, research and innovation sectors.

The economic momentum generated by the new Western Balkans Regional R&D Strategy for Innovation could prove to be transformative for a region that, in recent times, has been fragmented into small and sometimes warring territories. The seven countries that adopted the strategy – Albania, Bosnia and Herzegovina, Croatia, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro and Serbia – are now poised to jointly increase their investments in R&D and science, and to create closer connections among their universities, private-sector research facilities and entrepreneurial start-up companies.

“The R&D strategy will improve both the research base and the conditions for research excellence in the Western Balkans.”

“The R&D strategy will improve both the research base and the conditions for research excellence in the Western Balkans – thus slowing the brain drain and supporting the brain gain; promote the research-industry collaboration and technology transfer; enable business investments in research and innovation; and, strengthen the governance of national policies with appropriate regional technical assistance facilities,” said Goran Svilanović, secretary general of the Regional Cooperation Council, at the signing ceremony in Zagreb.

The Zagreb event marked the culmination of a two-year process of consultations and negotiations, as the seven countries considered the innovation initiative – developed with technical assistance from the World Bank and the financial support of the European Commission. The innovation strategy gives new impetus to the efforts of young companies and ambitious entrepreneurs who have already started building a different economic landscape for the region – helping liberate the economic energies that have long been restrained by regional fragmentation.

The region’s difficult post-Yugoslav transition to a market economy has severely impacted the research and innovation sectors of the Western Balkans. Research capacity narrowed, and its links to the productive sector of the economy withered. Industry suffered from lower investment in research, while the business environment offered little promise of profitable investments in innovation. Efforts to revamp the research sector were often halting and short-lived.

The emigration of large numbers of scientists and engineers during the 1990s was one of the dramatic events for the region’s research sector. For example, according to a survey of more than forty research institutions and ten public universities in Albania, about half of all lecturers and researchers left the country between 1991 and 2005. With the exception of Croatia and Serbia, where these trends seem to be reversing, this brain drain may seriously damage the future of the Western Balkans’ research and innovation capacity.

Stark numbers illustrate the region’s plight. In recent years, the entire region’s level of investment in R&D has been roughly equal to that of just a single major university in the United States. Figure 1 plots the current and expected per capita levels of research and development in the Western Balkans, illustrating the region’s research gap. At the same time, very few investments have effectively generated wealth: For each invention in the Western Balkans that received a patent, the region had to spend, on average, three times more in R&D resources than the United States does.

Building on a continuing series of efforts to reform their national innovation systems, the Western Balkan countries in 2009 began developing their joint approach to a research and innovation strategy. The Sarajevo Ministerial Declaration of 2009 was the basis of the strategy signed in Zagreb in 2013.

After wide-ranging consultations among the region’s leading universities, research institutes, private-sector firms and government agencies, the seven participating countries have now, in effect, undertaken a science and research reform and investment programme that will unite the innovative resources of the entire region.

The programme’s primary objectives are raising research excellence and productivity; reinforcing the bonds between science and industry; encouraging investments in science from the private sector; and promoting better governance of sector policies and programs.

The ultimate goal is to spur growth and the creation of job opportunities – thus boosting shared prosperity, which is one of the central goals of the World Bank Group in its work with developing countries worldwide.

The vision for the Western Balkans initiative is not just to spend wisely on science, research and innovation, but also – simply – to spend more. The seven countries have committed to a regional target of committing 1.5% of GDP on R&D by 2020.

“The ultimate goal is to spur growth and the creation of job opportunities – thus boosting shared prosperity, which is one of the central goals of the World Bank Group.”

That target may be too ambitious for some of the region’s smaller and more fragile economies, individually; however, increased investment by the larger economies will help achieve the region-wide 1.5% target. Yet all seven countries are convinced that more and better investments in research and innovation will be critical to the region’s future economic strength.

This comprehensive approach to research and innovation will also bring the sector closer to the European Union, easing the accession process in which most of the countries are still involved. It will spur the development of new, dynamic and globally oriented firms like the young companies UXPassion, Pet Minuta, Strawberry Energy and Teleskin – all technology-based start-ups founded by young researchers who became entrepreneurs. These businesses are now starting to change the Western Balkan’s economic landscape.

Croatia, the latest country to complete the accession process, joined the EU on July 1, 2013.

“Fostering regional cooperation is the greatest contribution that the Republic of Croatia can provide to the policies on which the European Union was founded,” said Željko Jovanović, Croatia’s Minister of Science, Education and Sports at the October ceremony in Zagreb.

“Croatia sees this cooperation – as well as that of European Union membership of all countries in the region, once the relevant criteria are met – in its national interest for the long term and as a foundation for its own security and development. We believe that we can be constructive in this regard, and that we can be true friends to all who are oriented toward promoting the values of the great project of European unity.”

Initially, the Western Balkans countries will jointly pursue four programs:

• A research excellence fund to promote collaboration among Balkans-born scientists who have migrated overseas – as well as those who remain in the region. The fund will also support young researchers;
• A programme to develop networks of excellence that promote the rationalization of research infrastructure and foster the concentration of resources in areas consistent with regional ‘smart specialization’;
• A programme to help the countries promote collaboration between science and industry and to foster technology transfer; and
• A start-up programme to provide financing and mentoring services at the early stage of the innovation process.

As both a practical venue and a historically symbolic centre for the regional effort, the programme will create a platform – the Western Balkans Innovation Strategy Exercise (WISE) facility – to promote continued policy dialogue, training and assistance on the oversight of its projects. In a poignant symbol of the past and future unity of Europe, the WISE facility will be located in the coastal Croatian city of Split – and will be housed within a UNESCO cultural heritage site: The renovated palace of the Roman Emperor Diocletian, the economic and administrative reformer who reigned from 284 to 305 AD and who retired to Split (then called Spalatum) after becoming the only Emperor ever to voluntarily retire from office.

By working together, the seven Western Balkan countries expect to benefit from the synergies of their shared history, heritage and geography. They also expect to serve as a sort of regional advocacy coalition to encourage the advancement of pro-growth reforms at the national level. The countries have pledged to mobilize EUR200 million over the next seven years to finance the implementation of the initiative.

Economic growth and job creation are the immediate goals of the Western Balkans initiative – and one of its outcomes may be greater stability and stronger security in that once-war-torn region. Envisioning shared prosperity, the scientists and entrepreneurs of the Western Balkans – backed by supportive governments in a new partnership reaching across national boundaries – are ready to build a thriving new Balkan future, based on the region’s historic strengths in science, innovation, enterprise and entrepreneurship.

About the Authors

Paulo Correa is a lead economist in the Financial and Private Sector Department of the Europe and Central Asia Region of the World Bank. Prior to joining the bank, Mr Correa served for four years as deputy secretary of state at the Ministry of Finance in Brazil.

Christopher Colford is a communications officer at the World Bank’s Financial and Private Sector Development Network. Mr Colford was previously a consultant at Hill & Knowlton Public Affairs Worldwide and a senior editor at McKinsey & Company.