Research, Innovation Can Help Unlock Bulgaria's Smart Growth Potential

February 7, 2012

SOFIA, February 7, 2012 - Bulgaria's global competitiveness has improved during the last decade, but more needs to be done for the country to compare favorably with its EU peers and with emerging economies in Asia and Latin America. Investing more and investing more effectively in research and development (R&D) is critical to strengthening Bulgaria's economy and unlocking smart growth, according to a new World Bank report, "Going for Smart Growth: Making Research and Innovation Work for Bulgaria."

The benefits of greater R&D investments have a strong economic logic, according to international research. For example, according to the European Commission, if EU member states spent 3 percent of GDP on R&D - the target in the European Union's "Europe 2020" Strategy - then 5.4 percentage points of GDP (€795 billion) could be generated by 2025, creating 3.7 million jobs.

The latest World Bank report, which was publicly presented in Sofia today, provides an assessment of Bulgaria's innovation capacity in the context of the Europe 2020 agenda. The report offers ideas on how to upgrade national institutions, policies and legislation.

The public presentation and discussion of the report brought together high-level Bulgarian government officials, including Minister of Education, Youth and Science Sergei Ignatov, Deputy Minister of Economy, Energy and Tourism Zhulieta Hubenova and, and senior representatives from the private sector, academia and think tanks. The World Bank's Group Vice President for Financial and Private Sector Development and Vice President of the International Finance Corporation, Janamitra Devan, opened the event together with Ministers Ignatov and Hubenova. Renaldo Mandmets, Head of Unit at DG Regio in the European Commission was one of the keynote speakers. Gerardo Corrochano, Director of the Innovation, Technology and Entrepreneurship Practice at the World Bank, moderated the discussion.

Bulgaria's exports increased in absolute and in per capita terms throughout the last decade, the report notes, and exports represent about 60 percent of the country's GDP. Yet the country's exports continue to be dominated by products from traditional and mature industries. Today, only 3 percent of Bulgaria's exports are high-technology products - substantially below the EU-27 average of 16 percent. Innovation within the industries in which Bulgaria has a comparative advantage will be critical if Bulgaria is to move up the value chain.

Bulgaria today spends about half a percent of its GDP on R&D, compared to about 2 percent EU-27 average. Investments in research and development have been identified as core contributors to Bulgaria's global competitiveness in the Government's National Reform Program (NRP) 2011-2015. To meet the national target of 1.5 percent R&D/GPD by 2020, Bulgaria would need to greatly increase the absorption of EU funds and boost public R&D spending, while maintaining a prudent fiscal position. Business as usual will not deliver the needed increase in R&D investments, the report asserts.

"Bulgaria has a unique opportunity to bring the economy onto a smart and sustainable growth path, where science, technology and innovation can play a central role, while making the best use of EU funding," said Devan, the World Bank's Vice President. "International experience shows that wise public policy can help shape the conditions that promote successful innovation. The surest way to promote innovation and growth is to foster an active partnership between the public sector and the private sector, allowing their strengths to complement each other."

Data from recent enterprise surveys indicates that Bulgarian firms that innovate tend to grow one-and-a-half times faster than non-innovating firms. Innovative firms also tend to create more jobs: in recent years, innovative companies have enjoyed an 8% annual increase in employment, whereas job growth in non-innovative companies has been stagnant. The report found that one in five firms in Bulgaria said that they do not have access to the external finance they need to make long-term R&D investments.

In order for new ideas to be transformed into innovation, investments are needed, both from the public and the private sector, the report said. Public investment should be channeled effectively, focusing on the best performers among businesses, research institutes and universities. Private-sector R&D investments are equally important: European countries recognized as the most innovative - such as Germany, Finland and Sweden - have the highest share of private R&D spending, with about 65 percent of their total R&D funded by the private sector. With a private-to-public R&D ratio of 30 percent to 70 percent, according to the report, Bulgaria is now in an unfavorable position compared to these countries.

"The World Bank has been an active partner with Bulgaria on strengthening innovation and improving the country's business environment. In its recently signed Memorandum of Understanding on partnership and support in the implementation of the EU Structural Instruments, Bulgaria's Government identified innovation as an area for stepping up its knowledge and advisory partnership with the World Bank," said Markus Repnik, Country Manager for Bulgaria, Czech Republic and Slovakia.



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