1. The World Bank
Europe and Central Asia Region
Finance and Private Sector Development
“The €10 billion question”:
How to most effectively support enterprise
innovation in Poland
Dr. Marcin Piątkowski
Senior Economist
The World Bank
EU - Israel Seminar on Technology Transfer
Tel Aviv, November 25-26, 2012
1

2. Poland has been growing much faster than
peers, also during the crisis…
Figure: Real GDP per capita growth 1990-2010, (1990 = 100) Figure: EU27 output level in 2Q2011, 2007=100
220 Czech Republic Hungary Poland
115
200
110
180 105
100
160
95
140
90
120 85
80
100
75
LV
PT
SI
FI
CY
BE
IE
CZ
IT
FR
BG
MT
LT
LU
AT
SK
PL
GR
DK
UK
SE
DE
HU
EE
ES
RO
NL
80
Source: IBS based on OECD
Source: EC Autumn Forecasts 2011, World Bank
2

3. Despite stagnant R&D expenditures…
Private sector R&D spending
% of GDP Germany
2.0
1.5
Total R&D spending Slovenia
% of GDP Czech Rep.
1.0 Hungary
3.0 Germany Slovakia
Poland
0.5
2.5 Romania
Bulgaria
Slovenia
2.0 Czech Rep. 0.0
2000 2002 2004 2006 2008 2010
Hungary
1.5 Public and scientific sector R&D spending
Bulgaria % of GDP
1.0
1.0 Slovakia Germany
0.9
Poland Romania
0.8
0.5 Slovenia
0.7 Czech Rep.
0.6 Poland
0.0
0.5 Hungary
2000 2002 2004 2006 2008 2010
0.4 Bulgaria
0.3 Slovakia
0.2 Romania
0.1
0.0
3
2000 2002 2004 2006 2008 2010
Source: Eurostat

4. And low public innovation outputs
Figure: Assessment of the Amount and Quality of Public R&D Spending in EU-27
Source: Economic Papers 382, DG Economic & Financial Affairs, July 2009. 2
Source: European Commission (2010)

5. Poland has an elaborate public support system…..
Figure: Public support instruments, 2007-2013
Source: IBS 5

6. … that distributes almost €10 billion euro of EU
and national funds
Figure: Total budget for public support instruments, 2007-2013, in PLN
Source: IBS 6

7. However, most spending on low-tech rather than high-
tech and on capital investments in large companies
Share of public support for private R&D Structure of public support to innovation
and capital investment under OP IE in total (OP IE only) with respect to intervention
type and firm size
expenditures, 2008-2010
25%
100%
Private R&D 90%
20% Capital investment 80%
70%
15% 60%
50%
10% 40%
30%
5% 20%
10%
0% 0%
Low and medium-low tech manufacturing Medium-high and high tech manufacturing Private R&D Capital investment
Source: IBS Big Medium Small Micro
7

8. Capital acquisition (i.e. technology absorption) is higher
than in peers and more developed economies
Structure of innovative activities of enterprises in Poland and comparator countries (in 2008, by expenditure)
Poland
Acquisition of Central Europe Acquisition of
other external other external
knowledge knowledge
2% 3%
Acquisition of
machinery,
equipment and
software
Acquisition of
87%
machinery,
Intramural R&D equipment and
8% software Intramural R&D
59% 23%
Extramural R&D Extramural R&D
3% 15%
France
Czech Republic Acquisition of
other external Acquisition of
knowledge other external
2% knowledge
6%
Acquisition of
machinery,
equipment and
software
60% Intramural R&D
23% Acquisition of
machinery,
Intramural R&D
equipment and
60%
software
18%
Extramural R&D
15% Extramural R&D
16%
8
Source: IBS based on the EU CIS

9. Support systems needs to change to allow
higher spending on innovation
Figure: GDP per capita and total R&D spending, in % of GDP, 2008
4
3.5
3
2.5
EU15
2
1.5
1
0.5
POLAND
0
10 15 20 25 30 35 40
Notes: Horizontal axis – GDP per capita in thousands of PPS (Purchasing Power Standard) in 2008 in a sample of 35 countries (EU-27, EFTA, US, Japan and
Korea). Vertical axis – total expenditure on R&D as percentage of GDP in 2008.
Source: IBS

10. Our recommendations
10

11. Polands needs to…
• Start moving from supporting absorption to supporting innovation:
– Re-focus matching grants on early stages of the innovation process
(R&D, proof of concept and prototyping, mentoring) rather than
capital investment
• Scale down absorption grants in favor of market-based instruments:
– Revolving financial instruments, technology credit for creditworthy
companies and first loss guarantees for less creditworthy firms.
• Strenghten institutional capacity:
– Re-assingn responsibility within public implementation agencies with
regards to technology absorption, innovation, R&D
finance, entrepreneurship support.
• Reduce public sector’s risk aversion:
– change incentives to allow for commercial failure, involve the private
sector

12. And …
• Shift the focus of incubation services:
– the scaling-up stage rather than the pre-incubation stage. Incubators
to take an equity stake in the start-ups.
• Change the selection process in public/EU funding:
– focus on project innovativeness, eliminate irrelevant criteria, introduce
selection committees, use ex ante impact evaluation to test new
approaches, accept failure
• Improve monitoring and impact evaluation:
– design selection processes with impact evaluation in mind, set clear
objectives, assign clear responsibility to policymakers
• Enhance incentive systems for researchers to collaborate with business:
– promote success, increase private share in IP ownership rights, show
leadership in “naming and shaming”; subsidize R&D trainee programs

13. And finally…
• Promote international flow of talent:
– expand scholarships for researchers to study abroad and to return
home, expand the role of foreign experts, promote highly qualified
immigration
• Support human capital development in the private sector:
– cost-share training expanses with the private sector (PPP).
• Increase competition:
– promote single EU market, improve the business environment to
lower entry barriers to startups
• Promote R&D intensive FDI:
– increase the budget of PAIIZ, focus on R&D, enhance diplomatic
support
• Stimulate international knowledge-sharing:
– support participation in technology conferences, study tours and
workshops abroad
• Keep the real exchange rate at a competitive level

14. THANK YOU!
14

15. Inefficient public support for private R&D
Figure: Structure of R&D financing in Poland, by sectors, 2008
100%
5,5% 6,3% 4,5% 0,1%
0,3%
90% 6,3%
17,8%
80%
3,3%
70%
60%
83,2%
50%
87,9%
40%
72,6%
30%
20%
10%
12,3%
0%
Government sector Higher education sector Business enterprise sector
Government Business enterprise Higher education sector Abroad
Source: IBS 15

16. Mostly funded by EU funds
Figure: Public innovation-related spending, billion PLN
6 EU National government Percentage of GDP 0,50%
0,45%
5
0,40%
0,35%
4
0,30%
3 0,25%
0,20%
2
0,15%
0,10%
1
0,05%
0 0,00%
2004 2005 2006 2007 2008 2009 2010
16
Source: IBS