COMMISSION STAFF WORKING DOCUMENT Member States competitiveness performance and policies  Accompanying document to the  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS  An integrated Industrial Policy for the Globalisation Era Putting Competitiveness and Sustainability at Front Stage   {COM(2010) 614} {SEC(2010) 1276}
Date: 2010-10-28
Institutions: European Commission
Subjects: competition, industrial policy, intellectual property, single market, sustainable development

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EUROPEAN COMMISSION 

Brussels, 28.10.2010 
SEC(2010) 1272 final 

COMMISSION STAFF WORKING DOCUMENT 

Member States competitiveness performance and policies 

Accompanying document to the 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

An integrated Industrial Policy for the Globalisation Era 
Putting Competitiveness and Sustainability at Front Stage 

{COM(2010) 614} 
{SEC(2010) 1276} 

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TABLE OF CONTENTS 

1. 

1.1. 

1.2. 

2. 

2.1. 

2.2. 

2.3. 

Introduction ................................................................................................................ 10 

Background and Conceptual Framework................................................................... 10 

Key trends regarding macroeconomic variables related to competitiveness ............. 13 

Overview of Progress by Broad Policy Area ............................................................. 18 

Towards an innovative industry ................................................................................. 20 

Towards a sustainable industry .................................................................................. 23 

The business environment.......................................................................................... 26 

2.3.1. 

Introduction ................................................................................................................ 26 

2.3.2.  Overview of the situation and of policy measures in Member States 2009/2010...... 27 

2.4. 

2.5. 

3. 

Entrepreneurship and SME policy ............................................................................. 30 

Summary .................................................................................................................... 34 

Country chapters ........................................................................................................ 36 

3.1. 

Belgium ...................................................................................................................... 36 

3.1.1. 

Indicators graph.......................................................................................................... 36 

3.1.2. 

Introduction ................................................................................................................ 37 

3.1.3.  Towards an innovative industry ................................................................................. 38 

3.1.4.  Towards a sustainable industry .................................................................................. 39 

3.1.5.  The business environment.......................................................................................... 39 

3.1.6.  Entrepreneurship and SME policy ............................................................................. 40 

3.1.7.  Conclusions ................................................................................................................ 41 

3.2. 

Bulgaria ...................................................................................................................... 42 

3.2.1. 

Indicators graph.......................................................................................................... 42 

3.2.2. 

Introduction ................................................................................................................ 43 

3.2.3.  Towards an innovative industry ................................................................................. 44 

3.2.4.  Towards a sustainable industry .................................................................................. 44 

3.2.5.  The business environment.......................................................................................... 45 

3.2.6.  Entrepreneurship and SME policy ............................................................................. 46 

3.2.7.  Conclusions ................................................................................................................ 47 

3.3. 

Czech Republic .......................................................................................................... 48 

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3.3.1. 

Indicators graph.......................................................................................................... 48 

3.3.2. 

Introduction ................................................................................................................ 49 

3.3.3.  Towards an innovative industry ................................................................................. 50 

3.3.4.  Towards a sustainable industry .................................................................................. 50 

3.3.5.  The business environment.......................................................................................... 51 

3.3.6.  Entrepreneurship and SME policy ............................................................................. 52 

3.3.7.  Conclusions ................................................................................................................ 53 

3.4. 

Denmark..................................................................................................................... 54 

3.4.1. 

Indicators graph.......................................................................................................... 54 

3.4.2. 

Introduction ................................................................................................................ 55 

3.4.3.  Towards an innovative industry ................................................................................. 56 

3.4.4.  Towards a sustainable industry .................................................................................. 56 

3.4.5.  The business environment.......................................................................................... 57 

3.4.6.  Entrepreneurship and SME policy ............................................................................. 58 

3.4.7.  Conclusions ................................................................................................................ 58 

3.5. 

Germany..................................................................................................................... 60 

3.5.1. 

Indicators graph.......................................................................................................... 60 

3.5.2. 

Introduction ................................................................................................................ 61 

3.5.3.  Towards an innovative industry ................................................................................. 62 

3.5.4.  Towards a sustainable industry .................................................................................. 63 

3.5.5.  The business environment.......................................................................................... 64 

3.5.6.  Entrepreneurship and SME policy ............................................................................. 65 

3.5.7.  Conclusions ................................................................................................................ 66 

3.6. 

Estonia........................................................................................................................ 67 

3.6.1. 

Indicators graph.......................................................................................................... 67 

3.6.2. 

Introduction ................................................................................................................ 68 

3.6.3.  Towards an innovative industry ................................................................................. 69 

3.6.4.  Towards a sustainable industry .................................................................................. 69 

3.6.5.  The business environment.......................................................................................... 70 

3.6.6.  Entrepreneurship and SME policy ............................................................................. 70 

3.6.7.  Conclusions ................................................................................................................ 71 

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3.7. 

Ireland ........................................................................................................................ 72 

3.7.1. 

Indicators graph.......................................................................................................... 72 

3.7.2. 

Introduction ................................................................................................................ 73 

3.7.3.  Towards an innovative industry ................................................................................. 74 

3.7.4.  Towards a sustainable industry .................................................................................. 75 

3.7.5.  The business environment.......................................................................................... 75 

3.7.6.  Entrepreneurship and SME policy ............................................................................. 76 

3.7.7.  Conclusions ................................................................................................................ 77 

3.8. 

Greece ........................................................................................................................ 78 

3.8.1. 

Indicators graph.......................................................................................................... 78 

3.8.2. 

Introduction ................................................................................................................ 79 

3.8.3.  Towards an innovative industry ................................................................................. 80 

3.8.4.  Towards a sustainable industry .................................................................................. 81 

3.8.5.  The business environment.......................................................................................... 81 

3.8.6.  Entrepreneurship and SME policy ............................................................................. 82 

3.8.7.  Conclusions ................................................................................................................ 83 

3.9. 

Spain........................................................................................................................... 85 

3.9.1. 

Indicators graph.......................................................................................................... 85 

3.9.2. 

Introduction ................................................................................................................ 86 

3.9.3.  Towards an innovative industry ................................................................................. 87 

3.9.4.  Towards a sustainable industry .................................................................................. 88 

3.9.5.  The business environment.......................................................................................... 88 

3.9.6.  Entrepreneurship and SME policy ............................................................................. 89 

3.9.7.  Conclusions ................................................................................................................ 90 

3.10. 

France......................................................................................................................... 91 

3.10.1.  Indicators graph.......................................................................................................... 91 

3.10.2.  Introduction ................................................................................................................ 92 

3.10.3.  Towards an innovative industry ................................................................................. 93 

3.10.4.  Towards a sustainable industry .................................................................................. 94 

3.10.5.  The business environment.......................................................................................... 95 

3.10.6.  Entrepreneurship and SME policy ............................................................................. 96 

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3.10.7.  Conclusion.................................................................................................................. 97 

3.11. 

Italy ............................................................................................................................ 98 

3.11.1.  Indicators graph.......................................................................................................... 98 

3.11.2.  Introduction ................................................................................................................ 99 

3.11.3.  Towards an innovative industry ............................................................................... 100 

3.11.4.  Towards a sustainable industry ................................................................................ 101 

3.11.5.  The business environment........................................................................................ 102 

3.11.6.  Entrepreneurship and SME policy ........................................................................... 103 

3.11.7.  Conclusions .............................................................................................................. 104 

3.12.  Cyprus ...................................................................................................................... 106 

3.12.1.  Indicators graph........................................................................................................ 106 

3.12.2.  Introduction .............................................................................................................. 107 

3.12.3.  Towards an innovative industry ............................................................................... 108 

3.12.4.  Towards a sustainable industry ................................................................................ 109 

3.12.5.  The business environment........................................................................................ 109 

3.12.6.  Entrepreneurship and SME policy ........................................................................... 110 

3.12.7.  Conclusions .............................................................................................................. 110 

3.13. 

Latvia........................................................................................................................ 112 

3.13.1.  Indicators graph........................................................................................................ 112 

3.13.2.  Introduction .............................................................................................................. 113 

3.13.3.  Towards an innovative industry ............................................................................... 115 

3.13.4.  Towards a sustainable industry ................................................................................ 116 

3.13.5.  The business environment........................................................................................ 116 

3.13.6.  Entrepreneurship and SME policy ........................................................................... 117 

3.13.7.  Conclusions .............................................................................................................. 118 

3.14. 

Lithuania .................................................................................................................. 119 

3.14.1.  Indicators graph........................................................................................................ 119 

3.14.2.  Introduction .............................................................................................................. 120 

3.14.3.  Towards an innovative industry ............................................................................... 121 

3.14.4.  Towards a sustainable industry ................................................................................ 121 

3.14.5.  The business environment........................................................................................ 122 

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3.14.6.  Entrepreneurship and SME policy ........................................................................... 123 

3.14.7.  Conclusions .............................................................................................................. 123 

3.15. 

Luxembourg ............................................................................................................. 125 

3.15.1.  Indicators graph........................................................................................................ 125 

3.15.2.  Introduction .............................................................................................................. 126 

3.15.3.  Towards an innovative industry ............................................................................... 126 

3.15.4.  Towards a sustainable industry ................................................................................ 127 

3.15.5.  The business environment........................................................................................ 127 

3.15.6.  Entrepreneurship and SME policy ........................................................................... 128 

3.15.7.  Conclusions .............................................................................................................. 128 

3.16.  Hungary.................................................................................................................... 129 

3.16.1.  Indicators graph........................................................................................................ 129 

3.16.2.  Introduction .............................................................................................................. 130 

3.16.3.  Towards an innovative industry ............................................................................... 131 

3.16.4.  Towards a sustainable industry ................................................................................ 132 

3.16.5.  The business environment........................................................................................ 132 

3.16.6.  Entrepreneurship and SME policy ........................................................................... 133 

3.16.7.  Conclusions .............................................................................................................. 134 

3.17.  Malta ........................................................................................................................ 135 

3.17.1.  Indicators graph........................................................................................................ 135 

3.17.2.  Introduction .............................................................................................................. 136 

3.17.3.  Towards an innovative industry ............................................................................... 137 

3.17.4.  Towards a sustainable industry ................................................................................ 137 

3.17.5.  The business environment........................................................................................ 138 

3.17.6.  Entrepreneurship and SME policy ........................................................................... 139 

3.17.7.  Conclusions .............................................................................................................. 139 

3.18. 

The Netherlands ....................................................................................................... 140 

3.18.1.  Indicators graph........................................................................................................ 140 

3.18.2.  Introduction .............................................................................................................. 141 

3.18.3.  Towards an innovative industry ............................................................................... 142 

3.18.4.  Towards a sustainable industry ................................................................................ 143 

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3.18.5.  The business environment........................................................................................ 143 

3.18.6.  Entrepreneurship and SME policy ........................................................................... 144 

3.18.7.  Conclusions .............................................................................................................. 145 

3.19.  Austria ...................................................................................................................... 146 

3.19.1.  Indicators graph........................................................................................................ 146 

3.19.2.  Introduction .............................................................................................................. 147 

3.19.3.  Towards an innovative industry ............................................................................... 148 

3.19.4.  Towards a sustainable industry ................................................................................ 149 

3.19.5.  The business environment........................................................................................ 150 

3.19.6.  Entrepreneurship and SME policy ........................................................................... 150 

3.19.7.  Conclusions .............................................................................................................. 151 

3.20. 

Poland....................................................................................................................... 152 

3.20.1.  Indicators graph........................................................................................................ 152 

3.20.2.  Introduction .............................................................................................................. 153 

3.20.3.  Towards an innovative industry ............................................................................... 153 

3.20.4.  Towards a sustainable industry ................................................................................ 154 

3.20.5.  The business environment........................................................................................ 155 

3.20.6.  Entrepreneurship and SME policy ........................................................................... 156 

3.20.7.  Conclusions .............................................................................................................. 157 

3.21. 

Portugal .................................................................................................................... 158 

3.21.1.  Indicators graph........................................................................................................ 158 

3.21.2.  Introduction .............................................................................................................. 159 

3.21.3.  Towards an innovative industry ............................................................................... 160 

3.21.4.  Towards a sustainable industry ................................................................................ 161 

3.21.5.  The business environment........................................................................................ 161 

3.21.6.  Entrepreneurship and SME policy ........................................................................... 162 

3.21.7.  Conclusions .............................................................................................................. 163 

3.22.  Romania ................................................................................................................... 165 

3.22.1.  Indicators graph........................................................................................................ 165 

3.22.2.  Introduction .............................................................................................................. 166 

3.22.3.  Towards an innovative industry ............................................................................... 167 

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3.22.4.  Towards a sustainable industry ................................................................................ 168 

3.22.5.  The business environment........................................................................................ 169 

3.22.6.  Entrepreneurship and SME policy ........................................................................... 170 

3.22.7.  Conclusions .............................................................................................................. 172 

3.23. 

Slovenia.................................................................................................................... 173 

3.23.1.  Indicators graph........................................................................................................ 173 

3.23.2.  Introduction .............................................................................................................. 174 

3.23.3.  Towards a sustainable industry ................................................................................ 176 

3.23.4.  The business environment........................................................................................ 177 

3.23.5.  Entrepreneurship and SME policy ........................................................................... 178 

3.23.6.  Conclusions .............................................................................................................. 179 

3.24. 

Slovakia.................................................................................................................... 181 

3.24.1.  Indicators graph........................................................................................................ 181 

3.24.2.  Introduction .............................................................................................................. 182 

3.24.3.  Towards an innovative industry ............................................................................... 183 

3.24.4.  Towards a sustainable industry ................................................................................ 184 

3.24.5.  The business environment........................................................................................ 185 

3.24.6.  Entrepreneurship and SME policy ........................................................................... 186 

3.24.7.  Conclusions .............................................................................................................. 187 

3.25. 

Finland...................................................................................................................... 188 

3.25.1.  Indicators graph........................................................................................................ 188 

3.25.2.  Introduction .............................................................................................................. 189 

3.25.3.  Towards an innovative industry ............................................................................... 190 

3.25.4.  Towards a sustainable industry ................................................................................ 190 

3.25.5.  The business environment........................................................................................ 191 

3.25.6.  Entrepreneurship and SME policy ........................................................................... 192 

3.25.7.  Conclusions .............................................................................................................. 192 

3.26. 

Sweden ..................................................................................................................... 194 

3.26.1.  Indicators graph........................................................................................................ 194 

3.26.2.  Introduction .............................................................................................................. 195 

3.26.3.  Towards an innovative industry ............................................................................... 196 

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1.1.1.  Towards a sustainable industry ................................................................................ 197 

3.26.4.  The business environment........................................................................................ 198 

3.26.5.  Entrepreneurship and SME policy ........................................................................... 199 

3.26.6.  Conclusions .............................................................................................................. 200 

3.27. 

The United Kingdom................................................................................................ 201 

3.27.1.  Indicators graph........................................................................................................ 201 

3.27.2.  Introduction .............................................................................................................. 202 

3.27.3.  Towards an innovative industry ............................................................................... 203 

3.27.4.  Towards a sustainable industry ................................................................................ 203 

3.27.5.  The business environment........................................................................................ 204 

3.27.6   Entrepreneurship and SME policy ........................................................................... 205 

3.27.6.  Conclusions .............................................................................................................. 205 

4. 

Methodological ANNEX ......................................................................................... 206 

4.1. 

Main Sources............................................................................................................ 206 

4.1.1.  General ..................................................................................................................... 206 

4.1.2.  Towards an innovative industry ............................................................................... 207 

4.1.3.  Towards a sustainable industry ................................................................................ 207 

4.1.4.  The business environment........................................................................................ 207 

4.1.5.  Entrepreneurship and SME Policy ........................................................................... 208 

4.2. 

Data set and methodological approach .................................................................... 208 

4.2.1.  Data set..................................................................................................................... 208 

4.2.2.  Definitions of the indicators..................................................................................... 213 

4.2.3.  MICREF................................................................................................................... 218 

4.2.4. 

Indicators graphs in the country chapters................................................................. 218 

4.2.5.  Methodological remarks to the introductory sections of the country chapters ........ 219 

4.2.5.1.  Taxonomy by labour skill intensity.......................................................................... 219 

4.2.5.2.  Taxonomy by technology intensity.......................................................................... 220 

4.2.5.3.  Taxonomy by growth intensity ................................................................................ 220 

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1. 

INTRODUCTION 

1.1. 

Background and Conceptual Framework 

The  Communication  on  the  Europe  2020  Strategy1,  formally  adopted  by  the  European 
Council in June 2010, puts forward as a key priority for the Union the promotion of a more 
resource  efficient,  greener  and  more  competitive  economy.  More  specifically,  the  Strategy 
proposes  seven  flagship  initiatives,  four  of  which  –  “Innovation  Union”,  “A  Resource 
Efficient Europe”, “An Industrial Policy for the Globalisation Era” and “An Agenda for New 
Skills and Jobs” – relate directly to industrial competitiveness. 

The  main  objective  of  the  present  report  is  to  analyse  industrial  competitiveness  across  the 
Union and to present the measures Member States carry out to improve their competitiveness 
and,  by  implication,  the  competitiveness  of  Europe  as  a  whole.  It  aims  to  provide  an 
information basis for a process of dissemination of best practice and policy advice regarding 
competitiveness in the context of Europe 2020. The report is factual in nature and is published 
as  part  of  the  Industrial  Policy  package.  The  key  messages  drawn  from  the  report  and 
proposals on a framework for annual Member State monitoring and for the exchange of best 
practice are presented in the Communication on the new Industrial Policy. 

The  report  starts  with  a  discussion  of  the  analytical  approach  and  some  stylised  facts.  The 
following horizontal section gives an overview on progress by broad policy area: innovation, 
transition to a sustainable economy, business environment, and entrepreneurship policies. The 
third section consists of country chapters, which give a more detailed picture of the situation 
in  individual  Member  States.  A  technical  annex  provides  more  detailed  information  on 
indicators, concepts and sources used. 

The  report  is  based  on  article  173  of  the  Treaty  on  the  Functioning  of  the  European  Union 
(TFEU) which provides for regular monitoring of Member State actions. The economic and 
financial crisis forcefully demonstrated the interdependence of our economies, and the need 
for  stronger  economic  policy  coordination  has  been  recognised  by  the  Heads  of  State  or 
Government. The Commission will use the full range of available instruments to strengthen 
policy coordination, and this across a wide range of existing Community policies. 

Conceptual Approach: How competitiveness is understood in the present report 

Article  173  TFEU  stipulates  that  “[t]he  Union  and  the  Member  States  shall  ensure  that  the 
conditions  necessary  for  the  competitiveness  of  the  Union's  industry  exist.”  Article  173 
further  specifies  a  number  of  objectives  concurring  to  this  end,  such  as  speeding  up  the 
adjustment of industry to structural changes, a favourable business environment, particularly 
for SMEs, and fostering better exploitation of the industrial potential of policies of innovation, 
research  and  technological  development.  The  Commission  is  invited  to  take  any  useful 
initiative  to  promote  coordination,  in  particular  initiatives  aiming  at  the  establishment  of 
guidelines and indicators, the organisation of exchange of best practice, and the preparation of 
the  necessary  elements  for  periodic  monitoring  and  evaluation.  Article  173  further  specifies 

1 
sustainable, and inclusive growth, COM(2010) 2020 from 3 March 2010. 

Communication  from  the  Commission,  Europe  2020  –  A  strategy  for  smart, 

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that the action by the Union and the Member States shall be undertaken in accordance with a 
system of open and competitive markets. 

Article 173 TFEU acknowledges that industrial competitiveness is a multifaceted concept. As 
such,  it  touches  for  instance  upon  the  ability  to  adjust  to  structural  changes  or  on  the 
framework  conditions  for  innovation.  This  suggests  already  that  a  single  indicator  does  not 
suffice to measure competitiveness in a comprehensive and operational manner, but that the 
various  dimensions  of  competitiveness  alluded  to  in  Article  173  have  to  be  captured  by 
separate  and  distinctive  means.  This  is  the  approach  which  the  present  report  has  adopted. 
However,  to  allow  for  the  identification  of  a  suitable  set  of  competitiveness  measures  and 
indicators, the notion of competitiveness has to be further clarified. 

For this purpose, competitiveness has to be understood in a way, which remains economically 
meaningful for that a sector of activity and which is closely related to the policies designed to 
improve its performance. In other words, competitiveness so conceived should be responsive 
to  policy  action  with  a  view  to  guide  the  design  of  policies  and  to  allow  their  ex-post 
evaluation. Accordingly, a macroeconomic approach focusing as it does on  output-variables 
such  as  GDP  growth  may  be  too  broad  and  hence  may  provide  little  added  value  if  the 
performance  of,  and  policies  for,  a  specific  sector  such  as  industry  are  to  be  assessed. 
Moreover,  the  financial  and  economic  crisis  has  shown  that  high  growth  rates  can,  at  least 
temporarily,  go  hand  in  hand  with  decreasing  shares  on  foreign  markets  and  increasing 
external deficits. Hence, from this perspective too, GDP growth is poorly suited to serve as a 
proxy for competitiveness. 

At the same time, there are reasons to suggest that a sub-sector-based microeconomic notion 
of  competitiveness  such  as  Revealed  Comparative  Advantage  (defined  as  a  measure  of  the 
share of a given industry’s exports relative to the average exports in the rest of the world) is in 
turn  too  narrow  since,  by  construction,  RCA  cannot  be  applied  to  industry  as  a  whole. 
Therefore,  RCA  cannot  capture,  in  particular  in  the  context  of  EMU,  the  underlying 
determinants  of  sector-wide  competitiveness  concerns  and,  ultimately,  economy-wide 
imbalances.  Such  determinants  may  for  instance  result  from  the  institutional  set-up  and  the 
functioning of the labour market. They are then likely to affect a sector horizontally without 
being  rooted  in  that  sector  and  thus  without  being  in  the  purview  of  traditional  industrial 
policy  for  that  matter.  In  addition,  the  concept  cannot  be  applied  for  industry  as  a  whole 
because an improvement for one industrial sub-sector must be mirrored by a deterioration for 
another sub-sector. That is, if the (relative) share of sub-sector i increases then the (relative) 
share of at least one sub-sector has to decline to compensate for the increase. Note moreover 
that  export-shares  are  also  influenced  by,  for  instance,  exchange  rate-misalignments.  RCA 
may therefore give a distorted picture of an industry's competitive position. 

In  a  globalised  economic  setting  where  markets  often  span  over  continents  and  where  the 
division  of  labour  has  reached  unprecedented  levels,  Europe’s  future  welfare  and  growth 
depend crucially on its capacity to compete successfully on these markets and on its aptness to 
participate  profitably  in  the  international  division  of  labour.  On  this  background,  then, 
Europe’s industrial competitiveness will be understood in the present report more concretely 
as the ability of its industrial sector to maintain and strengthen its competitive position in the 
world market relative to that of other countries, focusing on price and cost developments of 
production and other parameters potentially affecting the growth performance, market shares, 
and investment and location decisions of firms in the industrial sector. 

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Obviously, it is essential for Europe to draw on its strengths and to build on the advantages 
which are at the root of the current pattern of industrial specialisation and which have helped 
Europe  to  erect  its  impressive  industrial  base.  Therefore,  these  have  to  be  captured 
appropriately.  Yet  it  is  equally  important  to  recognise  that  comparative  advantages  do  not 
only stem from different factor endowments as in traditional trade theory. They follow from a 
variety  of  sources,  many  of  which  can  be  summarised  under  the  heading  of  framework 
conditions  and  many  of  which  are  novel  in  the  sense  that  they  are  motivated  by,  and 
conditioned upon, the economic and environmental challenges Europe is currently facing. 

is 

less  significant 

the  removal  of  bottlenecks 

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innovation  and 
entrepreneurship. Innovation is crucial in order to create high added value and spearhead the 
development of new markets. Yet Europe often failed in the past to turn excellent ideas into 
marketable  products  and  thus  create  new  markets.  This  suggest  the  need  to  have  a 
comprehensive approach to innovation which covers all steps from the first inspiration to the 
final  product,  from  knowledge  foundations  and breakthrough  ideas  to  access  to  finance  and 
the creation of a single innovation market.  

to  broad-based 

Last  but  not  least,  the  transition  towards  a  low  carbon  and  resource  efficient  economy  is 
crucial for raising Europe’s competitiveness, as increasingly scarce resources present greater 
risks of political and economic shocks to their supply. It is significant challenge for the EU 
economy  and,  in  particular,  industrial  sectors  which,  for  technological  reasons,  will  remain 
energy intensive. 

Another  clarification  regards  the  notion  of  industry  used  throughout  this  report.  While  the 
primary focus is on manufacturing as a main engine for productivity growth and innovation, 
the framework conditions that determine its competitiveness also apply to the service sector, 
which grows faster and provides the overwhelming majority of jobs and incomes in modern 
economies. Moreover, the competitiveness of business services is an important determinant of 
the competitiveness of the industry. Subsequently, the presentation of policy measures and the 
discussion on challenges that follow cover in fact the whole of the (private) enterprise sector. 

The report reviews the competitive position of the Member States' industry based on statistics 
(external  performance  and  specialisation)  and  a  graphic  presentation  of  a  common  set  of 
indicators. In the light of the foregoing considerations, two considerations have inspired the 
final selection of indicators.  

First,  macroeconomic  variables  such  as  unit  labour  costs  or  the  real  effective  exchange  rate 
have to be included in order to put industrial competitiveness developments into perspective. 
Although these variables are not within the purview of traditional industrial policy, they are 
crucial  for  determining  price  competitiveness  and  hence  the  degrees  to  which  comparative 
advantages are translated into lower prices for specific goods. Moreover, unit labour costs are 
in the absence of exchange rates a key reason for prices differences within EMU and thus can 
contribute to the emergence of imbalances. 

Second, indicators should give a comprehensive picture of the determinants of price and non-
price competitiveness and of the policies that try to foster them. That is why indicators have 
been selected with a view to shed light on important features of the business environment and 
the framework conditions under which European enterprises operate. In addition to the set of 
indicators, the present report will draw on both qualitative and quantitative information from 
various  sources  within  and  without  the  Commission.  Key  among  these  are  the  European 
Innovation Scoreboard, the National Energy Efficiency Action Plans (NEEAPs), the SBA Fact 

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12 

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Sheets  and  the  MICREF  data  base  which  has  been  developed  in  order  to  monitor  reform 
policies in Member States2.  

The natural starting point for assessing competitiveness performance and policies is to look at 
what  other  Member  States  are  doing  and  how  well  they  perform  –  either  as  a  group  or 
individually. That is why this report will mostly use the EU27 average as a first benchmark. 
Evidently, however, the global challenges and the tasks Europe is confronted with cannot be 
met successfully if Europe does not aspire to more than improving the performance of those 
countries  that  are  trailing  behind.  Hence,  where  data  allows,  Europe  should  compare  itself 
with  those  countries  that  are  world  leaders  no  matter  whether  they  are  located  within  or 
outside the Union.  

1.2. 

Key trends regarding macroeconomic variables related to competitiveness 

The development of some key macroeconomic variables at EU level, also in relation to trends 
in other industrialised countries, is instructive for putting Europe's industrial competitiveness 
into perspective. The real effective exchange rate of the EU (REER) (Graph I) appreciated by 
about 25 percentage points between 2000 and 2005 while appreciating much slower thereafter 
and even depreciating slightly in 2009. Overall, this implies a net deterioration of EU’s price 
competitiveness  against  its  main  trading  partners.  To  some  extent,  a  mirror  image  of  this 
development  is  the  depreciation  of  the  REER  of  both  the  US  and  Japan  during  the  same 
decade. Thus, both countries have gained in price competitiveness, not least vis-à-vis Europe. 
Switzerland’s REER by contrast has only shown a slight upward trend implying that its price 
competitiveness has not deteriorated significantly. 

2 
report. 

EN 

For a detailed presentation of main sources please refer to the Technical Annex of this 

13 

   EN 

 
                                                 
Graph I: Real effective exchanges rates deflated by nominal unit labour costs (total 
economy) against a panel of 36 countries (1999=100) 

EU 27

Euro Area (16 Member States)

USA

JP

140

130

120

110

100

90

80

70

60

50

40

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: European Commission, Directorate-General for Economic and Financial Affaires, 2010 

Despite the appreciation of EU's REER, overall trade performance, as measured by the trade 
balance, has remained virtually unchanged since 2005 (Graph II). This is in stark contrast to 
the considerable US deficit and the sizable surplus of China and suggests that the EU has been 
able to compensate for the appreciation of its REER  by  relying increasingly on elements of 
non-price competitiveness.  

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14 

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Graph II: Trade balance of goods and services as a % of GDP 

2005

2009

35

30

25

20

15

10

5

0

-5

-10

-15

-20

EU27 BE

BG

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

LU

HU MT

NL

AT

PL

PT

RO

SI

SK

FI

SE

UK 

Source: Eurostat, 2009  

While the real effective exchange rate (REER) is influenced by a number of factors such as 
exogenous  exchange  rate  movements,  which  are  by  and  large  beyond  the  purview  of 
economic policy, it is the combination into a single indicator of labour cost and productivity, 
which is commonly seen as an important target of economic policy making. Via its impact on 
unit labour costs, labour productivity influences international price competitiveness. Over the 
last decade, European labour productivity has increased steadily up until 2007/2008 when the 
economic crisis led even to an absolute decline (Graph III), most likely due to labour hoarding 
in  the  wake  of  mounting  overcapacities  during  the  financial  crisis.  However,  the  initial 
increase  did  not  suffice  to  close  the  gap  with  the  US,  which  remains  the  benchmark  in  this 
respect.  

EN 

15 

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Graph III: Labour productivity per person employed in Purchasing Power Standards 
(PPS) 

EU 27

USA

S
P
P
d
n
a
s
u
o
h
T

80

70

60

50

40

30

20

10

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: Eurostat, 2010  

However,  these  observations  should  not  be  taken  to  suggest  that  Europe’s  macroeconomic 
landscape  is  flat  and  that  macroeconomic  developments  within  the  European  Union  do  not 
raise significant issues. Regarding labour productivity per hour worked (Graph IV), there are 
still  huge  differences  between  Member  States,  ranging  from  less  than  40%  of  the  EU27 
average  to  almost  140%  of  the  EU  average  in  Belgium  and  the  Netherlands  and  even  more 
than  180%  of  the  EU  average  in  Luxembourg.  However,  as  Graph  IV  illustrates  labour 
productivity has improved measurably in virtually all the new Member States also relative to 
the EU average, which is bound to increase, while labour productivity in many old Member 
States has declined relative to the EU average. This means that the productivity gap between 
old and new Member States is closing, albeit not across the board. 

EN 

16 

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Graph IV: Labour productivity per hour worked (EU27=100) 

2005

2008

200

180

160

140

120

100

80

60

40

20

0

BE

BG

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

LU

HU MT

NL

AT

PL

PT

RO

SI

SK

FI

SE

UK

Source: Eurostat, 2010  
Note: The second columns for Bulgaria and France relate to 2007 (not to 2008). 

In  particular  in  the  context  of  the  Economic  and  Monetary  Union  and  in  the  absence  of 
flexible exchange rates between Member States, nominal unit labour costs impact prices and 
thus  price  competitiveness.  Significantly  diverging  nominal  unit  labour  costs  may  therefore 
contribute to macroeconomic imbalances. Nominal unit labour costs in manufacturing are of 
particular relevance in this context (Graph V) since manufactured goods are mostly tradables 
while many services are not. 

EN 

17 

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Graph V: Change in Nominal Unit Labour Costs in Manufacturing 

70

60

50

40

30

%

20

10

0

-10

-20

-30

BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU NL AT PL PT RO SI SK FI SE UK

2000-2005 (2000=100)

2005-2009 (2000=100)

2000-2009 (2000=100)

Weighted EU-Average  2000-2009

Source: European Commission (2000-2005) and OECD (2005-2009) 

Graph  V  indicates  that  nominal  unit  labour  cost  trends  diverged  significantly  across  the 
Member  States  during  the  last  decade,  both  within  and  outside  the  euro  zone.  While  the 
highest increases could be observed in several new Member States, nominal unit labour cost 
growth  went  also  markedly  beyond  the  weighted  EU  average  (which  is  slightly  below  the 
ECB inflation target of 2% p.a.) in some of the old Member States. By contrast, nominal unit 
labour  costs  grew  at  rates  significantly  below  the  EU  average  in  Germany,  France,  Ireland, 
Sweden, Austria Finland and the Czech Republic and even substantially decreased in some of 
the  new  Member  States  (Poland,  Slovakia).  These  countries  therefore  experienced  an 
improvement  of  their  price  competitiveness.  Although  the  analysis  does  not  hold  across  the 
board, some of the trade surpluses and deficits depicted in Graph II can therefore be attributed 
to diverging nominal unit labour costs and their impact on price competitiveness. Moreover, 
unit labour costs in the EU as a whole increased by almost 20 % over the last decade, thereby 
contributing also to an appreciation of Europe’s REER. 

2. 

OVERVIEW OF PROGRESS BY BROAD POLICY AREA 

Reform  profiles  of  individual  Member  States  (calculated  as  share  of  reforms  in  a  specific 
policy  area)  differed  considerably  during  the  last  five  years  (Table  I)3.  In  most  Member 

3 
Table  I  and  graph  VI  are  based  on  data  from  MICREF,  a  data-base  that  the 
Commission  has  developed  to  provide  a  systematic  record  of  the  actual  implementation  of 

EN 

18 

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States, reforms aimed predominantly at improving the business environment and at fostering 
R&D  and  innovation.  The  only  exception  was  Greece  where  reforms  in  sector  specific 
regulation took prominence with more than 30% of all reforms.  

Table I: Reform Profiles by Country (date of adoption 2005-2009) 

Improving 
the (small) 
business 
environment
40% 
31% 
42% 
22% 
25% 
43% 
6% 
16% 
23% 
34% 
31% 
42% 
28% 
26% 
26% 
30% 
24% 
19% 
22% 
15% 
46% 
15% 
29% 
33% 
27% 
34% 
61% 
29% 

Start-up 
conditions 
2% 
8% 
3% 
6% 
14% 
10% 
6% 
14% 
5% 
10% 
8% 
19% 
7% 
6% 
8% 
3% 
7% 
11% 
4% 
6% 
9% 
5% 
6% 
2% 
7% 
7% 
10% 
7% 

Source: MICREF 

AT 
BE 
BG 
CY 
CZ 
DE 
DK 
EE 
EL 
ES 
FI 
FR 
HU 
IE 
IT 
LT 
LU 
LV 
MT 
NL 
PL 
PT 
RO 
SE 
SI 
SK 
UK 
Average 

R&D and 
Innovation Education

34% 
40% 
24% 
34% 
35% 
18% 
36% 
30% 
15% 
23% 
42% 
11% 
29% 
27% 
33% 
33% 
45% 
40% 
27% 
60% 
18% 
30% 
25% 
31% 
23% 
29% 
14% 
30% 

4% 
6% 
24% 
20% 
16% 
4% 
17% 
32% 
15% 
14% 
12% 
13% 
13% 
5% 
6% 
30% 
7% 
13% 
22% 
10% 
0% 
28% 
10% 
13% 
11% 
17% 
12% 
14% 

Competition 
policy 
8% 
3% 
3% 
4% 
0% 
4% 
2% 
3% 
5% 
3% 
0% 
3% 
1% 
5% 
3% 
0% 
0% 
4% 
4% 
2% 
2% 
3% 
8% 
4% 
1% 
2% 
0% 
3% 

Market 
integration 
10% 
0% 
0% 
8% 
2% 
5% 
11% 
0% 
5% 
3% 
6% 
0% 
5% 
11% 
7% 
5% 
10% 
4% 
0% 
2% 
3% 
3% 
0% 
9% 
4% 
2% 
0% 
4% 

Sector 
specific 
regulation
2% 
13% 
3% 
6% 
8% 
15% 
21% 
5% 
31% 
14% 
2% 
13% 
16% 
19% 
18% 
0% 
7% 
9% 
22% 
6% 
22% 
15% 
23% 
9% 
27% 
7% 
3% 
12% 

On average (calculated as the unweighted average of the percentage shares), almost 60% of 
Member States’ reforms aimed at improving the business environment and at fostering R&D 
and  innovation.  Sector  specific  regulation  and  education  came  next  with  12%  and  13% 
respectively.  Reform  profiles  did  not  differ  significantly  between  "old"  and  "new"  Member 
States.  

microeconomic reform measures in the EU. MICREF covers microeconomic reform measures 
in the 27 EU Member States which were implemented between 2004 and 2009 (EU15: 2000-
2009). The database also provides information on the design and scope of reforms undertaken. 

EN 

19 

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The evolution of reforms over time in the EU shows several interesting aspects (Graph VI). 
First, the share of reforms addressing sector specific regulation decreased considerably during 
the  first  half  of  the  last  decade  from  an  initial  share  of  50%  to  roughly  15%.  This  clearly 
reflects the results of market opening initiatives. By contrast, the share of reforms that aim at 
improving the business environment has increased trendwise from slightly above 10% in 2000 
to almost 50% in 2010. The share of R&D increased in the mid 2000s and then remained at a 
somewhat higher level for several years. For the remaining policy areas, reform shares have 
not changed much over time.  

Graph VI: Reform profile over time (date of adoption of the measure) 

60%

50%

40%

30%

20%

10%

0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Education

Start-up conditions

Market integration

Source: MICREF 

R&D and Innovation

Competition policy

Improving the (small) business environment

Sector specific regulation

2.1. 

Towards an innovative industry 

The  main  instrument  for  measuring  Member  States'  innovation  performance,  the  European 
Innovation Scoreboard (EIS) 2009, includes innovation indicators and trend analyses for the 
EU  Member  States.  On  this  base,  four  groups  of  countries  emerge:  Innovation  Leaders, 
Innovation Followers, Moderate Innovators, and Catching-up Countries. 

Denmark, Finland, Germany, Sweden and the UK are the Innovation Leaders, with innovation 
performance  well  above  the  EU27  average.  Of  these  countries,  Germany  and  Finland  are 
improving their performance fastest while Denmark and the UK show less progress. 

Austria,  Belgium,  Cyprus,  Estonia,  France,  Ireland,  Luxembourg,  the  Netherlands  and 
Slovenia  are  the  Innovation  Followers,  with  innovation  performance  below  those  of  the 
Innovation  leaders  but  close  to  or  above  that  of  the  EU27  average.  Cyprus,  Estonia  and 
Slovenia have shown a strong improvement compared to 2008, providing an explanation why 

EN 

20 

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these countries have moved from the Moderate Innovators in the EIS 2008 to the Innovation 
Followers. 

Czech  Republic,  Greece,  Hungary,  Italy,  Lithuania,  Malta,  Poland,  Portugal,  Slovakia  and 
Spain  are  the  Moderate  Innovators,  with  innovation  performance  below  the  EU27  average. 
The  EIS  2009  Moderate  innovators  are  a  mix  of  five  Member  States  which  were  Moderate 
innovators in the EIS 2008 and five Member States which were Catching-up Countries in the 
EIS 2008. 

Bulgaria,  Latvia  and  Romania  are  the  Catching-up  Countries  with  innovation  performance 
well below the EU27 average. All three countries are rapidly closing their gap to the average 
performance  level  of  the  EU27,  and  Bulgaria  and  Romania  have  been  improving  their 
performance the fastest of all Member States. 

The economic and financial crisis led companies and entire sectors to face declining demand 
both in domestic and global markets. R&D spending by businesses had increased in almost all 
Member States in the period preceding the crisis (Graph  VII). The  most  common  effects of 
the  crisis  was  the  severe  decline  in  economic  activity  further  aggravated  by  difficulties  in 
access to external private finance in almost all the sectors across Europe. Financing of R&D 
and  innovation  activities  has  hence  become  more  difficult.  Preliminary  evidence  does  not 
seem to suggest a massive decline of innovation expenditure s a result of the crisis. In some 
cases virtually no crisis impact has been noted (e.g. Finnish ICT sector or biotechnology and 
pharmaceuticals  in  Hungary  and  Ireland).  However,  firms'  investment  in  R&D  generally 
displays  a  lag  with  respect  to  the  business  cycle  and  therefore  a  further  decline  in  business 
R&D cannot be excluded. 

EN 

21 

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Graph VII: Business R&D expenditure (% of GDP) 

2005

2008

Unweighted average 2005

Unweighted average 2009

3

2,5

2

1,5

1

0,5

0

EU 27 BE

BG

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

LU

HU MT

NL

AT

PL

PT

RO

SI

SK

FI

SE

UK

Source: Eurostat, 2010  

Member  States  reacted  to  the  challenge  of  preventing  a  decline  in  private  R&D  and 
innovation  expenditure  in  various  ways,  spanning  from  a  forward-looking  and  proactive 
approach to a short-term defensive approach. The European Innovation Progress Report 20094 
identified four types of Member States' anti-crisis responses in terms of type and speed.  

Finland,  Germany,  Luxembourg  and  the  Netherlands  form  the  group  of  proactive  and 
forward-looking  countries.  Their  crisis  response  comprised  not  only  the  present  access  to 
finance  challenge  but  also  potential  or  future  challenges  across  various  areas  (e.g.  eco-
innovation).  

Adequate  and  timely  responses  were  recorded  in  Belgium,  Cyprus,  the  Czech  Republic, 
Denmark,  France,  Ireland,  Italy,  Malta,  Poland, Spain,  Sweden  and  the  UK.  These  Member 
States implemented crisis measures in a timely manner albeit less focused on innovation than 
the first group of countries. 

4 
It  should  be  kept  in  mind  that  the  conclusions  of  The  European  Innovation  Progress 
Report 2009 are drawn from country reports covering a limited time period (mid-2008 to mid-
2009)  and  that  it  is  certainly  too  early  to  draw  any  definite  conclusions  about  effectiveness 
and  efficiency  of  the  introduced  policy  measures,  or  estimations  about  innovation 
performance following the crisis.  

EN 

22 

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The reaction of the third Member State group was defensive and often delayed. The anti-crisis 
interventions in Austria, Bulgaria, Estonia, Greece, Hungary, Portugal and Slovakia contained 
only a few additional innovation-specific initiatives or reinforcements of existing instruments. 

The  remaining  Member  States  Latvia,  Lithuania,  Romania  and  Slovenia  did  not  introduce 
innovation-specific  measures  to  mitigate  the  effects  of  the  crisis  on  R&D  and  innovation 
spending. 

According to the preliminary conclusions of the European Innovation Progress Report 2009, it 
is not surprising that Member States which are classified as Innovation Leaders and Followers 
have in general reacted in a proactive or timely manner to the challenges of the effects of the 
economic  and  financial  crisis  in  the  innovation  field.  In  contrast,  Moderate  Innovators  and 
Catching-up  Countries  largely  reacted  defensively  or  even  failed  to  address  innovation 
problems  resulting  of  the  crisis.  The  way  in  which  Member  States  reacted  may  induce  a 
reopening of the funding gap between the Innovation Leaders and the Catching-up Countries 
that has recently narrowed to some extent. 

Access  to  finance  and  funding  of  innovation  is,  however,  only  one  element  of  a  successful 
innovation policy. The European Innovation Progress report concludes, based on a decade of 
monitoring of innovation policies across Europe that sustained good innovation performance 
is  based  also  on  a  good  governance  structure.  Good  governance  includes  certain  common 
elements  of  a  policy  cycle  including  coordination,  priority  setting,  stakeholder  involvement 
and evaluation. Most Member States demonstrate increasing efforts to follow such principles; 
changes are however slow and evolutionary due to path dependency. 

The  current  financial  crisis  is  likely  to  be  only  a  prologue  of  a  need  for  greater  policy 
innovation with climate change, finite natural resources, demographic change or globalisation 
as much larger societal challenges ahead.  

2.2. 

Towards a sustainable industry 

The  policy  response  of  the  majority  of  Member  States  in  making  their  industries  more 
sustainable  is  generally  framed  by  two  main  instruments:  the  National  Energy  Efficiency 
Action Plan (NEEAP)5 and some sort of a  broader sustainable development strategy to turn 
the challenges related to climate change and degradation of environmental assets into business 
opportunities.  Almost  all  Member  States  have  introduced  energy  savings  targets  of  9%  for 
2016 as part of their NEEAPs, whilst some have committed to higher ones. For a number of 
Member States, the NEEAPs form part of their strategy to reach the 20% reduction in primary 
energy demand by 2020, including Austria, Ireland and Sweden.  

The  NEEAPs  of  Hungary,  Malta  and  the  Slovak  Republic  place  a  strong  focus  on  energy 
efficiency  in  industry,  and  expect  the  highest  share  of  savings  to  come  from  industry 
measures. A number of NEEAPs introduce subsidised energy audit schemes in the industrial 

5 
Member States are required to submit the National Energy Efficiency Action Plans in 
accordance with Article 14(2) of the Directive 2006/32/EC on energy end-use efficiency and 
energy  services.  The  NEEAP  is  the  EU-wide  instrument  to  improve  energy  efficiency  in 
sectors outside the EU Emissions Trading Scheme while the national allocation plans (NAPs) 
promote  resource  efficiency  and  climate  change  mitigation  within  the  heavy  industry  of 
Member States. 

EN 

23 

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sector, including Bulgaria, the region of Flanders (audit covenant scheme), Finland, Germany 
(SMEs),  Portugal  (mandatory  audits  for  large  users)  and  Slovakia  (SMEs).  In  the  Czech 
Republic, mandatory audits combined with support for the preparation of projects that lead to 
energy  services  are  an  example  of  a  well-integrated  initiative  in  the  industrial  sector. 
Mandatory  energy  audits  are  also  featured  in  Portugal  where  they  are  related  to  a  plan  for 
rational use of energy where biannual implementation and progress reports are required.  

Voluntary  agreements  (VAs)  with  industries  are  a  key  policy  instrument  used  in  Denmark, 
Finland, Greece, the Netherlands, Portugal, Slovenia, Sweden, and the UK. Both Finland and 
the Netherlands have a long tradition of using VAs, gradually extending their coverage. Some 
Member States envisage making use of energy management measures and standards, as well 
as  energy  reporting  and  benchmarking  in  industry  (e.g.  Ireland,  Denmark,  Greece  and 
Hungary).  

The  UK  combines  voluntary  agreements  (Vas)  and  tax  breaks  in  its  Climate  Change 
Agreements  (CCAs)  introduced  as  part  of  the  Climate  Change  Levy  package.  Similarly, 
Slovenia grants exemptions from its CO2 tax to industrial installations that enter into VAs to 
reduce  their  total  annual  emissions.  Portugal  provides  tax  incentives  and  audit  subsidies  for 
industrial  operators  under  VAs.  The  UK  has  also  notified  a  so-called  Carbon  Reduction 
Commitment  –  a  mandatory  emission  trading  scheme  for  the  large  non-energy  intensive 
sectors, covering both the private and the public sector. France has introduced an innovative 
system of state-issued carbon credits to encourage the reduction of greenhouse gas emissions, 
particularly  through  reducing  the  domestic  use  of  fossil  fuels.  Any  project  in  the  non-ETS 
sectors that saves carbon compared with a reference baseline may benefit from credit system. 

In  most  Member  States,  energy  intensity  in  industry  had  decreased  before  the  crisis  (Graph 
VIII).  More  recently,  almost  all  Member  States  implemented  measures  to  enhance  energy 
efficiency also as part of their anti-crisis plans. In most cases, the anti-crisis measures aimed 
at improving the energy efficiency of buildings (private, business or public), with their main 
aim  was  to  support  the  construction  sector  rather  than  improve  the  general  energy 
performance  of  industry.  Some  of  these  programmes  were  particularly  successful.  For 
example,  it  was  estimated  that  the  funding  of  €100  million  through  low-interest  loans  in 
Austria led to a seven-fold increase in total investment and to a reduction of 5.3 million tons 
of CO2 emissions. Other initiatives comprised acceleration of EU-funded projects to increase 
energy efficiency (e.g. Estonia) and installation of intelligent metering (e.g. Portugal).  

EN 

24 

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Graph  VIII:  Energy  intensity  in  industry  in  kg  of  oil  equivalent  per  euro  of 
gross value-added at constant prices 

2005

2008

EU 26 Unweighted average 2005

EU 26 Unweighted average 2008

1

0,75

0,5

0,25

0

EU 27 BE

BG

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

LU

HU

NL

AT

PL

PT

RO

SI

SK

FI

SE

UK

Source: Eurostat, 2009  

Many  Member  States  aimed  specifically  at  the  development  of  renewable  energy  sources, 
mainly solar (e.g. Italy, Malta and Portugal), wind (e.g. Denmark, Estonia, Finland, Hungary 
and the UK) or biomass (Slovakia). Practically all the Member States have recently increased 
public  investments  in  infrastructure,  also  often  in  the  context  of  the  greening  the  economy. 
For  example,  Denmark  frontloaded  5%  of  its  long-term  Green  Transport  Infrastructure 
Investment Plan (2009-2020).  

Most  recovery  plans  included  measures  to  encourage  eco-innovation,  e.g.  to  promote  fuel 
efficiency  or  electrical  and  hybrid  cars  via  the  specific  design  of  temporary  car  scrapping 
schemes.  Finally,  more  than  half  of  the  Member  States  have  come  forward  with  new  fiscal 
instruments,  including  taxes  on  environmentally  harmful  activities  and  fiscal  incentives  for 
"green" behaviour. At the same time, very few Member States have promoted "green" public 
procurement.  

Decreasing  further  the  energy  intensity  of  industry,  as  well  as  increasing  the  share  of 
renewable  energy  sources  and  ensuring  their  successful  integration  into  the  existing  energy 
systems  remain  the  two  principal  challenges  facing  the  EU.  Many  measures  outlined  in  the 
NEEAPs are still awaiting implementation, with their latest status to be reported in the second 
generation of the NEEAPs expected by 30 June 2011. The new NEEAPs are also expected to 
set  out  plans  for  further  steps  in  increasing  energy  efficiency.  According  to  a  study  on  the 

EN 

25 

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competitiveness of the EU eco-industry6, the EU12 are lagging behind the EU15 in terms of 
development  of  the  various  subsectors  of  the  eco-industry.  However,  the  EU12  market  is 
expected  to  develop  strongly  and  provide  many  investment  opportunities.  As  the 
consequence, the availability of financing for investment in industrial sustainability is getting 
more important. 

2.3. 

The business environment 

2.3.1. 

Introduction 

Despite progress made over the last decade, companies that operate in the EU still perceive 
weaknesses  in  the  business  environment,  such  as  fragmentation  of  the  internal  market7, 
unnecessarily high administrative burdens and burdensome procedures for dealing with public 
administrations. Such weaknesses can lead to unnecessarily high costs to businesses or even 
inhibit  business  activity.  They  also  reduce  the  attractiveness  of  the  EU  as  a  location  for 
international investment. 

Existing studies8 point to large differences among the Member States in terms of the quality 
of  the  business  environment  and  the  modernisation  of  public  administrations.  The  cross-
country differences suggest that there is scope for further improvements in many areas.  

The  Europe  2020  strategy  contains  two  flagship  initiatives  which  directly  concern  the 
business environment: "An Industrial Policy for the Globalisation Era" and "An Agenda for 
New  Skills  and  Jobs".  The  latter  draws  attention  to  the  fact  that  the  availability  of  a  well-
educated  and  well-skilled  workforce  is  an  essential  element  of  a  favourable  business 
environment. Both initiatives foresee actions at the EU level, but also increased efforts at the 
national level to promote a good business environment. For the business environment the new 
Broad Economic Policy Guidelines9, this guideline foresees that Member States should ensure 
that  markets  work  for  businesses,  put  in  place  predictable  framework  conditions  and  ensure 
well-functioning, open and competitive markets for goods and services. In particular, Member 
States  should  develop  the  necessary  physical  infrastructure,  also  with  a  view  of  reducing 
regional  disparities,  modernize  public  administrations,  eliminate  unnecessary  administrative 
burdens  and  avoid  unnecessary  new  burdens  by  applying  smart  regulation  instruments, 
including  by  developing  further  inter-operable  e-government  services,  support  small  and 
medium-sized  enterprises  (SMEs),  improving  their  access  to  the  Single  Market  in  line  with 
the ‘Small Business Act for Europe’ and the ‘Think Small First’ principle, remove remaining 
barriers to the internal market, facilitate access to finance, and support the internationalisation 

Study on the Competitiveness of the EU eco-industry, ECORYS, October 9, 2009. 
Commission Communication on a Single Market Act COM(2010) 608. 
European 

6 
7 
8 
http://ec.europa.eu/archives/growthandjobs_2009/pdf/lisbon_strategy_evaluation_en.pdf 
COM(2009) 
– 
act/implementation/files/sba_imp_en.pdf  
World Bank, Doing Business - http://www.doingbusiness.org 
OECD, Better Regulation in Europe - The EU 15 project  
9 

– 
2.2.2010 
http://ec.europa.eu/enterprise/policies/sme/small-business-

http://register.consilium.europa.eu/pdf/en/10/st11/st11646.en10.pdf 

Commission, 

SEC(2010) 

114 
of 

680 

e.g. 

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26 

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of SMEs. A further reference point for Member States' action on the business environment is 
the Small Business Act for Europe (SBA)10, which is discussed below. 

2.3.2.  Overview of the situation and of policy measures in Member States 2009/2010 

Infrastructure  

The  quality  and  availability  of  infrastructure  varies  significantly  across  the  EU,  and  major 
new  investments  are  still  needed  in  particular  in  the  Southern  and  Eastern  Member  States. 
Maintenance  projects  need  to  be  financed  also  in  the  current  front-runner  countries. 
Moreover,  energy  grids  with  neighbouring  countries  could  be  reinforced  in  many  Member 
States.  

Reducing administrative burden and improving the quality of legislation  

Ernst & Young estimated in 2010 that: “Western Europe is still perceived as the second most 
popular destination for FDI but in 2010 investors rank China the world’s most attractive FDI 
destination,  repeating  its  2008  distinction.  […]  China  has  proved  that  political  stability, 
advancing infrastructure and a vast internal market can co-exist with rapid growth, earning it 
.an attractiveness rating of 39%, a point ahead of Western Europe. […] In the past three years, 
international  investors  responded  to  trends  in  the  global  marketplace,  recognizing  that  their 
return on investment could be as stable — and possibly more profitable — in emerging — or 
high growth markets, while their risks there could be made manageable. This partly explains 
why Western Europe’s appeal as the most attractive destination for FDI collapsed from 68% 
of votes in 2006 to 38% in 2010. Enthusiasm for North America fell from 48% to 22% over 
the  same  period,  while  China’s  attractiveness  ranking  hovered  at  40%  and  India’s  grew 
steadily during the years 2006-2010.”11 

Setting a target for the reduction of administrative burdens can act as a driver for reform in 
this  sector.  All  Member  States  have  adopted  national  targets  for  reducing  administrative 
burden,  normally  by  about  25%  between  2008  and  2012.  But  not  all  Member  States  have 
effectively started to measure the current administrative burden which is needed as a baseline 
against  which  its  reduction  can  be  monitored.  The  Netherlands  is  an  interesting  example  of 
successful reduction of administrative burden; the Dutch model has been replicated in other 
countries.  Denmark  but  also  other  Nordic  counties  are  also  implementing  ambitious 
programmes of reduction of administrative burdens. 

Almost  all  Member  States  have  administrative  simplification  programmes  in  place.  An 
interesting  example  is  Belgium  where  citizens  and  companies  can  submit  ideas  for 
simplification to a “Kafka contact point”. The Czech Republic concentrates on the ten most 
burdensome  legal  acts.  In  Italy,  a  promising  motto  is  “cutting  laws,  cutting  burdens  and 
cutting organisational bodies”; it will be important to follow its implementation closely. 

COM(2008)  394 

-  http://ec.europa.eu/enterprise/entrepreneurship/sba_en.htm  of 

10 
26.06.2008 
11 
2010, 
http://www.ey.com/Publication/vwLUAssets/Attractiveness_survey_2010_EU/$FILE/A
ttractiveness_survey_2010_EU.pdf, pages 5-12. 

Ernst  &  Young:  Waking  up  to  the  new  Economy,  European  Attractiveness  Survey 

EN 

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Substantive  progress  has  been  made  in  the  implementation  of  the  Services  Directive 
(Directive 2006/123/EC), which lead Member States to take a broad range of simplification 
measures, such as the reduction and lightening of authorisation schemes, the abolishment of 
excessive  formalities  (such  as  certified  translations  and  certified  copies),  the  removal  of 
discriminatory  or  disproportionate  conditions  and  the  setting-up  of  Points  of  Single  Contact 
(see below). Good progress has been made in most Member States but work still needs to be 
finalised  in  those  countries  that  have  accumulated  delays  in  the  implementation  of  the 
Directive. 

implementing 

impact  assessment  systems  remains 

Use of impact assessment in preparing legislation can also be an important tool in preventing 
that new legislation complicates conditions in the business environment. However, progress in 
developing  and 
limited.  Impact 
assessments  for  new  legislative  proposals  are  mandatory  in  a  number  of  Member  States; 
however,  they  are  often  only  partial  and  superficial.  Full  impact  assessments  to  analyse  all 
significant economic, social and environmental impacts should be carried out. France has now 
enshrined  impact  assessments  into  its  constitution.  Some  more  countries  (e.g.  Spain)  have 
recently made significant progress in making their assessments more relevant. Transparency 
can  be  further  improved  by  making  all  impact  assessments  publicly  available,  which  is 
currently the case only in a few Member States (e.g. Czech Republic, Denmark, France, and 
United Kingdom). 

The role of stakeholders in designing legislation is equally important For consultation to have 
a  significant  impact  on  the  quality  of  new  legislation,  early  involvement  of  stakeholders 
remains  crucial.  A  formal  requirement  to  consult  stakeholders  exists  in  almost  all  Member 
States; however, implementation modes differ. Member States still not consulting interested 
parties  on  a  regular  basis  would  gain  from  introducing  minimum  consultation  requirements 
for major policy proposals. 

Modernising public administration 

A  highly  performing  and  innovative  public  sector,  enabling  the  delivery  of  sustainable, 
modern and quality public services, is a prerequisite for economic competitiveness. Given the 
deteriorating  public  finances,  many  Member  States  see  only  limited  room  for  manoeuvre in 
delivering  good  public  services.  At  the  same  time,  public  services  need  to  respond  to 
changing  citizens'  and  businesses'  needs  in  an  evolving  society.  Thus,  improving  the 
efficiency and effectiveness of public spending has to feature high on the political agenda. 

High-quality,  reliable  public  services  and  legal  certainty  were  historically  a  major  pre-
condition for the economic success of today’s front-runner countries. An interesting example 
for  considerable  progress  in  the  quality  of  legislation  and  administrative  burden  reduction 
over the last decade is Estonia which now scores considerably above the EU average in these 
two categories. 

The general reform of public administration is high on the agenda of several Member States 
(e.g.  Bulgaria,  Greece,  Hungary,  Portugal,  Romania)  for  which  weak  administrative  and 
judicial  capacity  as  well  as  legal  uncertainty  constitute  key  impediments  in  addressing 
economic development challenges. 

Electronic  commerce  offers  new  EU-wide  business  opportunities  for  SMEs,  especially  with 
the electronic payment market's integration into a Single Euro Payment Area (SEPA) and the 
resulting  potential  for  innovation  at  European  level  in  areas  such  as  electronic  invoicing  or 

EN 

28 

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internet  payments.  Yet  e-commerce  figures  demonstrate  that  these  opportunities  are  not  yet 
fully exploited. Also, further developing e-government could permit SMEs spending less time 
on  administrative  procedures  and  gain  new  business  opportunities.  In  particular,  fully 
implementing  EU 
legislation  on  e-procurement,  practical  e-Identification  and  e-
Authentication for cross-border services would open up numerous new business opportunities 
across borders. 

Usage of fully available online e-government basic services12 by businesses was 71% in 2009 
for  the  EU-27  (up  from  57%  in  2005;  Graph  IX).  Usage  by  business  was  above  60%  in  all 
Member  States,  with  the  exception  of  Romania  (41%).  Almost  half  of  the  Member  States 
have  usage  rates  above  80%,  while  some  of  them  approach  saturation  (Denmark,  Finland, 
Lithuania and Slovakia), with rates above 90%. 

In order to implement the Services Directive all Member States had to set up "Points of Single 
Contact"  (PSCs),  which  are  e-government  portals  allowing  businesses  to  get  all  relevant 
information and complete procedures online. Such portals are now operational in 22 Member 
States. In 17 MS it is already possible to complete procedures online. Availability and user-
friendliness of the PSCs will need to be improved in the future (in particular aspects such as 
cross-border accessibility and translation of information content). 

Graph IX: E-government usage by enterprises (%) 

2005

2009

Unweighted average 2005

Unweighted average 2009

100

90

80

70

60

50

40

30

20

10

0

EU 27 BE

BG

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

LU

HU MT

NL

AT

PL

PT

RO

SI

SK

FI

SE

UK

Source: Eurostat, 2010 

Note: The second column for Belgium relates to 2008 (not to 2009). 

Source:  Smarter,  Faster,  Better  eGovernment:  8th  Benchmark  Measurement', 

12 
Capgemini, 2009 

EN 

29 

   EN 

 
 
 
                                                 
Market functioning and competition policy 

A  well  functioning  Internal  Market  results  in  increased  opportunities  for  business  and 
ultimately  improves  competitiveness  of  European  industry.  In  order  to  exploit  the  Internal 
Market's full potential the legislation needs to be timely and correctly transposed into national 
law and properly applied by all Member States.  

In May 2010, the EU average transposition deficit of Internal Market directives stood at 0.9%, 
which is still in line with but very close to the interim target of 1% set by Heads of State and 
Government.  18  Member  States  achieved  the  1%  target.  Belgium,  Denmark,  Italy,  Malta, 
Slovakia, Finland and the U.K made the strongest progress in reducing their deficits. Most of 
the outstanding directives were in the areas transport and environment. 

The number of infringement procedures remains high. Belgium records the highest number of 
infringement procedures (111 open procedures) in the EU, increasing its number of cases by 
68% since November 2007. Greece, Belgium, Italy and Spain have more than 80 infringement 
procedures each, which compares to the EU average of 47 pending cases. 

The level and quality of state aid granted by national governments has a significant impact on 
the  functioning  of  the  Internal  Market.  State  aid  should  not  distort  competition  and  trade 
inside the Internal Market. To this end, Member States committed to reduce the general level 
of state aid and to shift the emphasis from supporting individual companies or sectors towards 
tackling horizontal objectives, environment, SMEs or training.  

Between 2002 and 2007, the level of state aid to industry and services decreased annually on 
average  by  2%  and  stood  at  0.5%  of  EU  GDP  in  2007.  The  economic  and  financial  crisis 
abruptly ended low levels of state aid. The overall level of State aid almost quintupled in 2008 
compared  to  2007  and  increased  to  2.2%  of  GDP  because  of  aid  granted  to  the  financial 
sector. Crisis aid to the real economy granted through the  Temporary State Aid  Framework 
started  only  in  2009  and  data  are  not  yet  available  for  all  Member  States.  When  excluding 
crisis  measures,  the  largest  grantors  of  aid  to  industry  and  services  in  2008  are  Germany, 
France,  Italy  and  Spain.  In  relative  terms,  Hungary,  Malta  and  Portugal  grant  the  highest 
shares of state aid to industry and services in relation to their GDP in the EU. 

2.4. 

Entrepreneurship and SME policy 

Many  Member  States  have  introduced  entrepreneurship  programmes  to  make  young  people 
aware of the possibility to start an enterprise, either by integrating it into school and university 
curricula  or  by  setting  up  extra  projects.  Interesting  examples  are  Slovenia,  Lithuania  and 
Sweden  where  all  stages  of  the  educational  system  are  covered  and  teachers  receive  extra 
training. In Latvia, hundreds of students can submit business plans annually in the context of a 
competition.  The  Netherlands  established  a  programme  for  young  entrepreneurs  to  do 
networking  in  the  United  States.  Some  countries  are  involved  in  programmes  encouraging 
female entrepreneurship (e.g. Cyprus, Denmark, Greece, Finland, France, Germany, Iceland, 
Ireland,  Italy,  Norway,  Poland,  Slovakia  and  Sweden).  Several  Member  States  use 
considerable amounts of the Structural Funds for these programmes. 

EN 

30 

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In  all  Member  States,  although  with  considerable  variation13access  to  finance  became  more 
difficult during the financial and economic crisis. SMEs in particular experienced tightening 
credit conditions. Most governments have therefore introduced or expanded public guarantee 
schemes or provided direct state aid. In the meantime, the situation has slightly improved, but 
access to finance remains a critical bottleneck for future growth.  

Most  Member  States  benefited  from  the  temporary  framework  for  State  aid  measures14  to 
support access to finance in the current financial and economic crisis increase in allowed state 
aid  during  the  crisis  to  provide  considerable  financial  support  to  business.  These  measures 
will need to be phased out again15.  

The  April  2010  Bank  Lending  Survey  of  the  European  Central  Bank  indicated  that  the  net 
tightening of credit standards on loans to SMEs in the euro zone remained almost unchanged, 
since 83% of surveyed banks kept their tight conditions. The survey also pointed to a weaker 
net  demand  for  loans  in  the  first  quarter  of  2010.  Net  demand  for  loans  to  enterprises  was 
negative (-13%, as against -8% in the fourth quarter of 2009). 

Some governments have permanently reduced or abolished the minimum capital requirements 
to  set  up  a  company  (e.g.  Germany,  Netherlands,  Latvia,  Luxembourg),  others  relaxed  the 
rules  for  business  angels  (e.g.  Netherlands).  Germany  is  an  interesting  example  because  it 
now allows a limited company to be set up with very small start capital. Many simplifications 
in legislation (including on issues such as legal form requirements, fixed tariffs or territorial 
restrictions) were made as a result of implementing the Services Directive. 

Generally,  not  much  progress  has  been  made  to  reduce  late  payments  (Graph  XI).  The 
situation only improved for Portugal and, to a lesser extent, Italy; both remain on a very high 
level. Worryingly, payment delays increased in several Member States, particularly in Spain 
and Germany. The shortening of payment terms and delays remains of particular importance 
for SMEs active in Greece, Italy, Portugal and Spain. These Member States have the largest 
scope for improvement in terms of payment period by public authorities (about 140 days on 
average). 

13 
Comparing  the  change  in  stock  of  outstanding  loans  to  non-financial  companies  by 
Member  State  before  and  after  the  beginning  of  the  crisis  reveals  that  some  countries  have 
been more seriously hit than others. 
14 
OJ C 83, 7.4.2009, p.1 
15 
The Temporary Framework has been extended until 2011, with reinforced conditions. 

EN 

31 

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Graph XI: Duration of payments by public authorities (days) 

2004

2009

Unweighted average 2004

Unweighted average 2009

180

160

140

120

100

80

60

40

20

0

BE

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

HU

NL

AT

PL

PT

SK

FI

SE

UK

Source: Eurostat, 2010  

Many  governments  support  the  internationalisation  of  SMEs,  e.g.  by  financial  support  for 
export  promotion,  market  access  strategies,  participation  in  trade  fairs,  etc.  (e.g.  Belgium, 
Bulgaria, Czech Republic, Estonia, Italy, Hungary, Lithuania, Austria, Portugal and Sweden). 
Some  of  them  (e.g.  Denmark,  Slovenia)  focus  on  high-growth  companies  willing  to 
internationalise,  some  others  have  established  new  export  promotion  agencies  (e.g. 
Luxembourg).  Others  have  stepped  up  efforts  to  increase  foreign  direct  investment  to 
disadvantaged regions (e.g. Hungary). 

As part of their recovery measures a majority of Member States reinforced their export credit 
schemes (Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Luxembourg, Latvia, 
Lithuania, the Netherlands, Austria, Poland, Portugal and Sweden). 

Implementing the Small Business Act (SBA) 

The Small Business Act (SBA) was adopted by the Heads of State and Government in 2008. 
It consists of ten principles which should guide the conception and implementation of policies 
both at EU and national level. The aim is to create a level playing field for SMEs throughout 
the EU and to improve the administrative and legal environment so that these enterprises can 
realize their full potential. 

All Member States have acknowledged the importance of a rapid implementation of actions 
agreed in the Small Business Act (SBA) at the end of 2008, but the approaches taken and the 
results achieved vary considerably between Member States. The overall assessment by major 

EN 

32 

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SME stakeholder organisations points to a slow uptake of the SBA in a number of Member 
States16. 

Member  States  are  increasingly  integrating  the  "Think  Small  First"  principle  in  policy-
making. Only few Member States (e.g. Belgium, Denmark, Finland, Germany, Slovenia and 
Sweden) have integrated an SME Test into their national decision making approach. 

Several  Member  States  consult  SMEs  representatives,  in  some  cases  in  the  framework  of 
SME councils or fora (e.g. Spain, Estonia, Hungary, Ireland and Lithuania). Specific bodies 
such as SME agencies have been  established to promote SME  interests e.g. in Portugal and 
Bulgaria. 

Considerable  progress  has  been  made  to  reduce  the  average  time  and  cost  to  start  up  a 
company (Graph X). The average time to start-up a company was 15 days in 2009 according 
to the World Bank17.  

Graph X: Time needed to start a business (days) 

2005

2009

Unweighted average 2005

Unweighted average 2009

70

60

50

40

30

20

10

0

BE

BG

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

LU

HU

NL

AT

PL

PT

RO

SI

SK

FI

SE

UK

Source: World Bank Doing business, 2010  

Some twenty Member States have set up an operational physical one-stop-shop which is able 
to serve the creation of private limited companies and has developed pre-defined procedures 

16 

COM(2009) 680 –  
http://ec.europa.eu/enterprise/policies/sme/small-business-

act/implementation/files/sba_imp_en.pdf 
17 

Word Bank, Doing Business project, see http://www.doingbusiness.org/ 

EN 

33 

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(company registration, tax registration, etc). Denmark is a good example, may provide one of 
the  best  services.  At  the  same  time,  only  a  few  countries  (e.g.  Cyprus,  Netherlands,  Spain, 
Malta) have a one-stop-shop system that can take care of recruitments (especially concerning 
the first employee). A few countries have procedures that are so simple that only one contact 
with  a  public  administration  is  required  (e.g.  France,  Ireland,  Latvia,  Sweden,  Belgium). 
Some Member States aim at a zero-stop shop with a simple online registration (e.g. Poland). 
Another  good  example  is  Hungary  where  online  registration  of  a  company  is  now  possible 
within one hour. 

There is still scope to shorten the time needed to wind up a business in case of non-fraudulent 
bankruptcy.  So  far,  only  a  few  countries  (e.g.  Belgium,  Estonia,  Finland,  Ireland,  Latvia, 
Spain and the United Kingdom), have approached this issue. Estonia aims at a procedure that 
can  be  concluded  within  3  months.  Some  countries  have  taken  measures  to  facilitate 
restructuring instead of winding up companies (e.g. Czech Republic). 

A  “European  Code  of  Best  Practices”  to  facilitate  SMEs’  access  to  public  procurement 
contracts  was  adopted  as  a  part  of  the  SBA;  some  of  the  countries  which  have  started  to 
promote  it  effectively  are  France,  Hungary,  Ireland,  Lithuania,  Poland  and  Sweden.  In  the 
overwhelming majority of Member States, SMEs’ access to public procurement is not subject 
to a specific strategy or policy. The most widespread SME friendly measures remain cutting 
tenders  into  lots  and  facilitating  access  to  information  through  centralised  websites, 
interactive  web  pages,  and  other  e-procurement  developments.  An  important  measure  to 
encourage the participation of innovative SMEs is to define technical specifications in terms 
of  performance  or  functional  requirements.  Some  countries  (e.g.  the  Netherlands)  provide 
specific training and support for public officials drafting innovative tender documents. 

Some Member States have explicitly reported on how they are implementing the SBA in their 
2009 National Progress Reports for growth and jobs (e.g. Belgium, Finland, France, Ireland, 
the  Netherlands,  Romania  and  the  United  Kingdom).  However,  several  Member  States  (i.e. 
Germany,  Italy  and  Sweden)  have  already  started  separate  SBA  monitoring  exercises  and 
others may follow. To avoid fragmentation, it would be preferable to closely coordinate the 
regular monitoring of the SBA implementation with the National Reform Programmes under 
the Europe 2020 strategy. 

2.5. 

Summary 

Member States' industries are recovering, at various speeds, from their worst post war crisis. 
The  national  economic  recovery  measures  taken  in  2008-2009  have  been  effective  in 
stabilising  the  situation.  One  can  expect  an  acceleration  of  structural  change  because  of  the 
crisis  but  measuring  and  describing  the  main  features  of  the  changes  will  take  more  time, 
especially since the effects of the crisis are still felt acutely, particularly as concerns access to 
finance.  Indeed,  with  very  few  exceptions,  conditions  for  business  bank  loans  remain  tight 
and constitute a bottleneck on the way to faster recovery. 

Only  a  limited  number  of  Member  States  is  not  facing  notable  and  identifiable  challenges 
regarding  their  business  environment  especially  for  SMEs.  Clearly,  efforts  to  reduce 
administrative  burden,  to  introduce  better  regulation  and  e-government,  to  apply  the  think 
small  first  principle  and  to  simplify  support  schemes  could  be  more  systematic  and  more 
intense.  This  is  an  area  where  exchange  of  best  practice  can  make  the  difference  more 
efficiently as it provides the real life demonstration that the same objectives can be achieved 
in less burdensome ways. 

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34 

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Business  environment  has  more  aspects  than  lengthy  and  cumbersome  procedures.  In  many 
Member States, increasing competition in the services sector (mainly retail and professional 
services  but  also  network  industries  in  some  instances)  remains  a  challenge,  even  if  its 
visibility has  become lower due  to the  crisis. Infrastructures (mainly road transport but also 
energy  interconnections  and  generation)  and  public  administration  constitute  important 
bottlenecks to growth in a limited number of cases. 

A  striking  finding  is  that  the  innovation  leaders  and  their  immediate  followers  reacted  in  a 
positive  and  proactive  way  to  the  crisis  by  adding  new  temporary  actions  encouraging 
research  and  innovation  to  those  already  existing.  This  is  not  generally  the  case  for  the 
countries below the EU average, indicating the possibility of a widening gap. Yet, the need to 
strengthen the structures of their production basis by increasing the share of technology- and 
skill-intensive  activities  is  even  more  compelling  in  their  case.  Access  to  finance  is  an 
important  bottleneck  also  with  respect  to  innovation  but  is  often  combined  with  a  lack  of 
complementary  skills.  Many  countries  face  additional  challenges  of  a  more  institutional 
nature such as rethinking their strategy and priorities (not trying to do everything at the same 
time) and simplifying and consolidating their support-delivery mechanisms. 

Above average energy intensity can be explained to some degree by the specialisation of the 
country's  manufacturing  sector,  but  not  entirely;  room  for  improvement  generally  exists.  It 
represents  a  potential  risk  factor  by  exposing  these  sectors  to  sudden  energy  and  CO2  price 
variations.  At  policy  level,  whilst  actions  to  assist  enterprises  in  reducing  their  energy 
intensity exist everywhere, the same cannot be said for measures improving the efficiency of 
other  resource  use.  Explicit  strategies,  together  with  corresponding  concrete  action  plans, 
aiming at greening existing industries and encouraging the development of eco-industries are 
not numerous; in many cases, actions are isolated or fragmented.  

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3. 

COUNTRY CHAPTERS 

3.1. 

Belgium 

3.1.1. 

Indicators graph 

Belgium

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2004)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

NA

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Business Environment

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2008)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

NA

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

NA

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.1.2. 

Introduction18 

Belgium’s  labour  productivity,  measured  either  per  person  occupied  or  per  hour  worked,  is 
significantly  above  the  EU  average.  Belgium’s  real  effective  exchange  rate  appreciated 
moderately  since  1999,  albeit  less  than  for  most  other  EU  countries,  indicating  a  slightly 
decreased  competitiveness.  In  parallel,  nominal  unit  labour  costs  in  Belgian  manufacturing 
increased by 11% between 2000 and 2009 with a remarkable acceleration during the second 
half of the decade. However, the overall increase remained below the EU average of 19%. 

Belgium  is  specialised  in  sectors  demanding  high  skills  and,  decreasingly,  in  high-
intermediate  skill  sectors.  The  role  of  low-intermediate  skill  sectors  has  been  stable  on  a 
below average  level from 1995 to 2005 while low skill sectors lost ground from an already 
low  level.  Nevertheless,  Belgium  shows  a  decreasing  specialisation  towards  sectors  with 
medium high technology intensity and an increase for medium low-technology sectors. There 
is a moderate specialisation towards sectors with above average growth in the EU. 

Manufacturing  plays  a  similar  role  for  Belgium  than  for  the  EU  in  total  (16%  vs.  17%  of 
value  added  in  2008).  The  only  sub-sectors  with  clear  above  EU  average  importance  are 
chemicals  and  refined  petroleum.  There  is  some  specialisation  in  the  service  sector  for 
education  as  well  as  for  transport  and  communication  and,  in  earlier  years  for  financial 
intermediation.  Employment  figures  also  show  the  slowly  decreasing  importance  of 
manufacturing  over  time  and  a  growing  importance  of  “real  estate  and  business  activities”. 
Forecasts until 2020 expect an increase in employment in business and other services by some 
9% while employment in manufacturing might drop further by some 12%. 

Belgium’s  balance  in  the  trade  of  goods  showed,  relative  to  the  total  volume  of  exports,  a 
moderate surplus in 2005 and 2009. The trade surplus in manufacturing mainly resulted from 
surpluses in chemicals, basic metal products and food/drinks/tobacco while mainly electrical 
and  optical  equipment,  transport  equipment  and  other  manufacturing  showed  noteworthy 
trade deficits. The Revealed Comparative Advantage (RCA), measured relative to the EU and 
concentrating on manufacturing, shows particular strengths for Belgium in 2008 in chemicals 
and refined petroleum. 

Exit from the crisis 

In  Belgium  production  in  manufacturing sectors decreased by more  than 20% as a  result of 
the economic crisis; in June 2010, it reached again  87% of the pre-crisis level. 

In  response  to  the  economic  and  financial  crisis  Belgium  set  up  a  major  guarantee  scheme 
under the Temporary State aid Framework with a total budget of EUR 1.5 billion. The use of 
the  scheme  by  businesses  was,  however,  not  very  intensive.  The  Belgium  state  also  made 
export  credits  available  with  a  total  budget  of  EUR 300 million.  For  this  purpose  a  new 
complementary  export  credit  insurance  scheme  (Belgacap)  has  been  introduced  to  secure 
inter-enterprise  credit  and  help  companies  in  their  business  transactions.  It  will  remain  into 
force  until  the  end  of  2010.  On  top  of  this,  the  9.25%  tax  on  insurance  contracts  covering 
commercial and country risks linked to exports has been suppressed.  

18 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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The Federal Government introduced a reduction of the VAT rate for residential construction 
to soften the impact of the crisis on the construction sector. Although it was initially planned 
only to remain in force until the end of 2009, it was later extended to the end of 2010. The 
budgetary cost of this measure is estimated at EUR 300 million in 2009 (0.1% of GDP) and 
EUR 150 million in 2010 (less than 0.1% of GDP)19. 

Moreover  companies  were  allowed  to  postpone  certain  tax  payments  during  2009,  in 
particular VAT and income tax, to ease their liquidity constraints. 

3.1.3.  Towards an innovative industry 

Belgium's  research  and  innovation  performance  is  characterised  by  high  investments  by  the 
business  sector,  off-setting  a  relative  under-investment  by  the  public  sector.  These 
investments are precarious due to the dominance of a few large and foreign firms in the total 
expenditure.  Belgium  has  a  relatively  well-educated  population  but  is  losing  ground  in  the 
area  of  new  science  and  technology  (S&T)  graduates;  a  situation  worsened  by  the 
uncompetitive  net  wages  paid  to  researchers  and  engineers.  Finally,  the  low  propensity  to 
become an entrepreneur remains a cause for concern. 

The extensive Belgian public support systems offer a large variety of measures focusing on 
R&D  cooperation  and  promoting  entrepreneurship  and  can  be  considered  as  complete.  The 
structuring  of  public-private  research  efforts  in  the  form  of  strategic  research  centres, 
competitiveness poles etc. is attractive for large, foreign R&D players. The high tax burden 
and  relatively  high  labour  costs  remain,  nonetheless,  a  negative  element  for  conducting 
research in Belgium. Federal tax incentives are meant to decrease the burden, but are not at 
such a level that total costs for R&D are lower than in neighbouring countries with lower tax 
levels. 

Industrial Policy is mainly implemented at the regional level through clusters and technology 
centres:  In  Flanders,  after  an  evaluation  of  existing  initiatives  in  2008–2009,  two  new 
technological  centres  have  been  set  up.  In  the  Walloon  region,  networking  between  the  14 
existing clusters is promoted (73% of the participating enterprises are SMEs) and greening the 
general orientation of the clusters and "pôles de compétitivité" is intended.  

As regards the Belgian innovation system in particular, among the three major challenges is, 
first, the innovation skills mismatch. There is a low share of new S&T graduates, as well as a 
growing under-utilisation of lifelong learning. These two elements are essential to maintain an 
upsurge  of  skills  and  qualifications  and,  thus,  to  enhance  the  country's  competitiveness. 
Second,  creating  and  growing  knowledge-intensive  enterprises  is  essential.  To  achieve  this, 
there is a need to boost the attractiveness of starting up innovative businesses, and to foster 
new  businesses.  The  reliance  on  a  few  large  and  foreign  firms  is  a  risk,  especially  in  the 
current economic context, and finally it seems necessary to create a favourable environment 
for  the  exploitation  of  research  results  in  Belgium.  R&D  and  innovation  efforts  do  not  yet 
bring sufficient results that ensure economic development.  

19 

The legality of this measure is questioned by the European Commission. 

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3.1.4.  Towards a sustainable industry 

The main policy orientations concern increased energy efficiency in buildings (with financial 
public  incentives)  and  research  activities  (new  clusters  on  materials,  buildings,  eco 
innovation, renewable energies). Green investments in the federal Recovery Plan represented 
0.3%  of  GDP.  The  Federal  Government  has  introduced  a  system  of  "Eco  cheques"  that  has 
been  included  in  the  2009-2010  general  salary  agreement  allowing  the  purchase  of  green 
consumer products. 

There  is  a  wide  variety  of  actions  put  forward  by  the  three  Belgian  regions.  Flanders 
encourages existing enterprise reducing their environmental impact through investment grants 
(reinforced for SMEs) allocated through an annual call for projects scheme. In addition, there 
is  public  support  for  the  establishment  of  collaborative  networks  around  eco-innovation 
themes  that  can  generate  concrete  proposals  and  pilot  experiments.  Their  utility  resides  in 
identifying opportunities and barriers of new business models and policy concepts. In parallel, 
after an evaluation of existing initiatives in 2008 – 2009, two new technological centres have 
been set up in Flanders: Flanders Synergy and Flanders Plastic Vision. In the light of the Opel 
crisis,  the  scope  of  the  Flanders  Drive  cluster  has  been  extended  to  cover  all  aspects  of  the 
"car of the future". 

Investment grants, networking, covering environmental issues in R&D and innovation support 
are  also  used  in  the  Walloon  region.  In  addition,  the  region  pursues  sectoral  agreements 
(commitments  to  reduce  CO²  emissions  against  various  advantages)  and  intends  to  use 
systematically  environmental  clauses  in  regional  public  procurement.  The  Region  also 
supports  the  greening  of  industry  via  clustering  policy:  a  dedicated  call  in  2008  focused  on 
projects in relation with sustainable development and climate change, and the creation of a 6th 
competitiveness pole in the field of eco-technologies is planned in 2010. 

The  Brussels  region  uses  as  well  investment  grants,  networking  facilitation  and  support  to 
research  and  innovation  to  promote  environmental  objectives  (e.g.  the  implementation  of  a 
strategic  plan  for  developing  environmental  value  chains,  the  Brussels  Greenbiz  business 
incubator, Bruxelles-Ecopôle etc). 

The  higher  energy  intensity  is  to  some  extent  explained  by  the  industrial  structure  of  the 
country. Nevertheless it represents a potential disadvantage due to overexposure to energy and 
CO² price volatility. 

3.1.5.  The business environment 

Belgium presents a mixed picture regarding the business environment as negative perceptions 
about the legal and regulatory framework and administrative burden coincide with rather good 
performance  on  specific  issues  such  as  regulation  of  business  start-up.  Infrastructure  has  a 
positive contribution to the business environment. 

Belgium  has  pursued  a  range  of  initiatives  in  recent  years  to  consolidate  or  simplify  the 
regulatory  stock,  to  reduce  administrative  burdens  for  businesses  and  to  promote 
eGovernment and impact assessment. Policies range from projects shared between the federal 
and regional levels, to projects specific to each level within its area of competence, but these 
initiatives are not explicitly developed within the framework of an overarching policy strategy 
for  Better  Regulation.  Shared  projects  include  initiatives  such  as  the  Kafka  contact  point 
where citizens, businesses and public servants can propose ideas for cutting red tape and the 

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39 

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Business Cross Roads Bank, which is a register of business identification aimed at connecting 
different databanks of the administration and allowing re-use of data across administration.  

Different  approaches  have  been  engaged  to  reduce  administrative  burdens:  the  federal 
government,  the  Walloon  Region  and,  since  2009,  the  Brussels  Capital  Region  have  used  a 
selective  approach,  based  on  testing  and  favouring  a  gradual  evolution;  the  Flemish  Region 
has  taken  a  more  systematic  approach.  Belgium  has  adopted  in  2009  the  target  of  25% 
reduction of the administrative burden by 2012. The biannual surveys of the Federal Planning 
Bureau indicate that administrative burdens on business decreased from an estimated 3.5% of 
GDP in 2000 to 1.72% of GDP in 2010.  

Belgium  has  taken  steps  to  integrate  ex  ante  impact  assessment  in  the  development  of  new 
regulations.  At  the  Federal  level,  two  tests  exist:  the  Kafka  Test  to  assess  administrative 
burdens in new regulation (obligatory since October 2004) and the Sustainable Development 
Impact  Assessment  (SDIA,  introduced  in  2007).  The  Flemish  Region  introduced  guidelines 
for regulatory impact assessments (RIA), including consultation. The Walloon Region focuses 
on  the  Kafka  test  (since  May  2007)  and  pursues  a  general  approach  to  encourage  self-
regulation. Consultation of stakeholders on new regulations is comprehensive in coverage and 
is based on institutionalised bodies per policy area.] 

eGovernment  in  Belgium  is  an  instrument  helping  the  back  office  coordination  and 
integration of different levels of governments and departments. It supports a range of Better 
Regulation initiatives, including databases on the stock of regulations and specific data banks 
such as the Cross Roads Bank for Enterprises, the Cross Roads Bank of Social Security, the 
data bank on vehicles (DIV), the data bank for VAT and Tax on the web. An e-ID for every 
Belgian has been introduced to simplify and modernise interaction with the administration for 
businesses  and  citizens.  However,  the  business  utilisation  of  public  services  online  stands 
below  the  EU  average.  Belgium  has  a  non-mandatory  public  eProcurement  platform,  that 
serves as a knowledge base for all public procurement related aspects and which is also the 
point  of  entrance  towards  e-Procurement  tools  such  as  e-Notification  and  e-Catalogue  for 
public administration.  

The one-stop-shop to start-up an enterprise (Guichet d'entreprises agréés) is fully operational.  

Belgium  scores  above  the  EU  average  concerning  the  availability  of  high-speed  broadband 
lines. However, electricity prices for medium size industry over the past years rose faster than 
in  neighbouring  countries  and  were  higher  than  EU  average  in  2009  for  the  first  time, 
indicating that the competition framework may not be strong enough. The market share of the 
dominant players is eroding slowly.  

Belgium's business environment is characterized by a high administrative burden at different 
levels of administration. In spite of sustained efforts in this area, the reduction of burden of 
government regulation remains a challenge.  

3.1.6.  Entrepreneurship and SME policy 

The  SME  sector  in  Belgium  has  a  similar  structure  to  that  of  the  EU:  the  percentages  of 
micro, small and medium sized enterprises and their contributions to employment and value 
added are on a par with the European averages. Concerning general SME policy, the federal 
government adopted in 2008 an action plan inspired by the European "Small Business Act" 
comprising 40 measures. An "SME test" is also in preparation.  

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40 

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In 2009, at federal level, a new legal entity for start-ups was introduced: the BVBA-starter. A 
Flemish Agency for Entrepreneurship was created in 2009. In 2007, the Walloon government 
introduced  a  program  for  entrepreneurship  aimed  at  making  young  people  aware  of  the 
possibility to start an enterprise. It followed a similar 'Ondernemend Onderwijs' plan that the 
Flemish government approved in 2006. 

Concerning access to credits, in particular for SMEs, federal and regional governments have 
taken measures to reinforce the capital of SMEs and other structural or short-term measures: 
for  instance  creation  of  a  credit  ombudsman,  the  export  guaranty  scheme  Belgacap  and  a 
reduction of public payment delays. 

The  Regions  support  private  investments  through  the  Participatie  Maatschappij  in  Flanders 
and  the  SOWALFIN  (“Coupole  wallonne  des  PME”).  Public  investments  projects,  in 
particular for transport, energy or telecoms infrastructures, are ongoing.  

3.1.7.  Conclusions 

Apart  from  the  short-term  concerns  related  to  the  economic  crisis,  such  as  getting  easier 
access  to  bank  financing,  the  main  challenge  facing  industry  is  the  Belgium's  business 
environment  which  is  characterized  by  high  administrative  burden  and  heavy  legal  and 
regulatory framework. 

Moreover,  the  innovation  system  which  has  a  low  share  of  new  science  and  technology 
graduates  and  a  low  share  of  high-tech  exports  in  total  exports,  needs  structural 
improvements,  for  example  better  international  orientation  of  clusters  and  poles  –  general 
support measures for private research, in particular for SMEs. 

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41 

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3.2. 

Bulgaria 

3.2.1. 

Indicators graph 

Bulgaria

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2007)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

-4,0

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

-3,8

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Towards a modern and 
competitive industry

Towards a sustainable industry

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2005)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.2.2. 

Introduction20 

Bulgaria’s  labour  productivity  did  not  improve  significantly  since  2005.  It  was  quite  stable 
and did only reach some 40% of the EU average in 2008/9, measured per hour and per person. 
Bulgaria’s  real  effective  exchange  rate  depreciated  slightly  from  its  1999  level  to  2005  but 
appreciated  very  strong 
indicating  significantly  decreased 
competitiveness.  Concomitantly,  nominal  unit  labour  costs  in  Bulgarian  manufacturing 
decreased between 2000 and 2005 and then sharply increased resulting in an overall increase 
of 26%, which was significantly above the EU average of 19%. 

from  2005 

to  2009, 

Bulgaria had a deficit in the trade of goods in 2005 and 2009. After the significant economic 
slowdown in 2009, the currently expanding share of exports is a sign of a slight improvement 
of the Bulgarian competitiveness position. 

Manufacturing plays a slightly bigger role for Bulgaria than for the EU in total (19% versus 
17%  of  value  added  in  2008).  This  is  mainly  due  to  specialisation  in  textiles  and  clothing, 
refined  petroleum,  non-metallic  mineral  products  and  leather  and  footwear.  In  the  service 
sector, only “transport and communication”  and  “electricity,  gas and water supply” have an 
above EU average weight. The primary sector is larger than for the EU in whole due to the 
highest share of agriculture. In general, the Bulgarian economy is dominated by sectors with 
low and medium-low technology intensity. Sectors, with a total negative growth rate for the 
EU,  play  a  strong  and  growing  role  in  Bulgaria.  Export  growth  is  high  in  industries 
specialised in labour-intensive manufacturing, processing of natural resources and agriculture. 

Employment  figures  show  a  low  level  of  productivity  in  agriculture.  Forecasts  until  2020 
expect  an  increase  in  employment  in  business  and  other  services  by  some  40%  while 
employment in the primary sector and in manufacturing might decrease by 25 to 30%. 

Exit from the crisis 

Bulgaria  was  confronted  with  one  of  the  biggest  drops  of  manufacturing  output  in  the 
European Union. It fell by almost 35%, but regained 17% up to July 2010. Bulgaria did not 
introduce  specific  business  and  financial  support  measures  under  the  Temporary  State  Aid 
Framework until 2010. 

In reaction to the economic and financial crisis, Bulgaria introduced a limited number of other 
measures.  The  measures  to  support  product  markets  mainly  aim  to  improve  the  business 
environment (e.g. reduction of the initial capital required for the establishment of a company 
to 1 EUR, accelerated reimbursement of VAT), facilitate market entry, and enhance effective 
competition  through  strengthening  the  powers  of  the  regulatory  authorities.  The  effective 
implementation of the Energy Efficiency Act of 2007 will promote the use of energy saving 
technologies and higher energy efficiency in both production and consumption. 

To ease access to financing for SMEs, the capital of the state-owned Bulgarian Development 
Bank was increased (0.75% of GDP) as well as that of the FLAG (Fund for Local Authorities 
and Governments) fund to support municipalities to absorb EU funding. Moreover, raising the 

20 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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credit  limit  of  the  Bulgarian  Export  Insurance  Agency  is  expected  to  boost  private  sector 
exports. 

3.2.3.  Towards an innovative industry 

According  to  the  European  Innovation  Scoreboard  (EIS)  2008,  Bulgaria  is  one  of  the 
catching-up  countries  with  an  innovation  performance  well  below  the  EU  average.  The 
relative  strengths  are 
in 
entrepreneurship.  Although  research  and  development  (R&D)  expenditures  in  Bulgaria  are 
increasing,  they  are  still  much  lower  than  the  EU  average  level.  The  structure  of  R&D 
expenditure remains strongly imbalanced. The share of public sector financing is double that 
of businesses. The percentage of SMEs with innovation activities and the share of innovative 
SMEs co-operating with others are below the EU average. 

the  relative  weaknesses  are 

in  human  resources,  while 

the 

Measures  have  been  proposed  within  the  framework  of  the  National  Innovation  Strategy  in 
2008  and  2009  aimed  at  strengthening  the  links  between  research  and  business  (technology 
in 
transfer  centres),  building 
entrepreneurship and innovation (entrepreneurship centres in universities), supporting existing 
clusters,  developing  new  financial  support  schemes  for  innovation  (Bulgarian  Development 
Bank,  business  angels),  etc.  The  Innovation  Strategy  is  complemented  by  one  major 
instrument  –  the  Operational  Programme  “Competitiveness  2007-2013”  funded  by  the 
European  Regional  Development  Fund.  However,  only  2%  of  EU  funding  is  dedicated  to 
innovation and R&D. 

infrastructure,  strengthening 

innovation 

the  skills 

Despite the above mentioned measures, no substantial changes took place in 2008 and 2009 in 
the research and innovation policy of the country. The  lack of  clear priorities at the highest 
levels of governance continues to be the major problem in the implementation of Bulgaria’s 
innovation  policy.  The  development  of  innovation  policy  is  not  accompanied  by  discussion 
between policy-makers and society and there is no monitoring and assessment of the measures 
which  have  been  implemented.  A  prerequisite  for  the  success  of  investments  in  new 
technologies is the implementation of a coordinated national policy in science, technology and 
innovation. The currently fragmented and uncoordinated policy support system is unsuited to 
the  implementation  of  the  unified  research,  technological  and  innovation  policy  that  is 
needed. 

3.2.4.  Towards a sustainable industry 

The  robust  economic  growth  in  Bulgaria  during  the  past  decade  is  mainly  explained  by  the 
investment boom in construction, real estate and the financial sector. Although, sustainability 
indicators  are  continually  improving  in  the  past  years,  the  Bulgarian  industry  still  remains 
several times more energy-intensive than the EU average. It also lags behind the EU average 
in  terms  of  carbon  intensity,  waste  generation  by  enterprises  and  exports  of  environmental 
goods. 

Bulgaria  has  set  an  ambitious  target  of  improving  energy  efficiency  by  50%  by  2020.  The 
National  Energy  Efficiency  Action  Plan  will  need  to  be  reinforced  to  meet  this  target. 
Legislation  has  been  revised  in  view  of  encouraging  introduction  of  energy-saving 
technologies  in  manufacturing  and  households.  Increased  energy  efficiency  is  the  main 
priority of the government, with the aim to reduce the energy intensity by 20% by the end of 
its mandate. Various possibilities for supporting these policies, including financial stimuli and 
regulatory  measures  will  be  sought.  A  second  priority  is  to  increase  the  share  of  local 

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renewable energy sources (RES) to 12% of total final energy consumption by the end of its 
mandate,  and  to  at  least  16%  by  2020.  In  this  regard,  projections  are  being  analysed  to  put 
forward  an  optimal  RES  technologies  mix  at  the  lowest  public  cost  for  achieving  the 
objectives, as well as the necessary mechanisms and financial stimuli. 

The  absence  of  clearly  defined  national  strategies  in  key  areas  such  as  resource  efficiency, 
access to raw materials and development of environmental industries, constitutes a weakness 
in this area. The Operational Program "Environment 2007-2013" provides important funding 
resources for the development of "environmental" infrastructure. Timely implementation and 
the  design  of  quality  projects  may  prove  challenging  but  they  are  essential  for  fostering  the 
development of related industries, mainly in the field of water and waste management. 

The Energy Strategy 2020 sets ambitious goals, whose completion will be very demanding in 
terms of new legislation, increased private investment and public acceptance. This implies the 
development and the adoption of a detailed plan for R&D, infrastructure and energy market 
regulation in light with EU developments in the field.  

3.2.5.  The business environment 

Financing of SMEs and credit conditions have deteriorated during the past two years due to 
the financial crisis. But, despite the crisis, Bulgaria managed to leave tax rates at low levels 
(below  the  EU  average).  Bulgaria  performs  clearly  better  the  EU  average  concerning 
electricity prices for medium size enterprises and the take-up  of high-speed broadband lines, 
but it performs worse concerning infrastructure expenditures and satisfaction with the quality 
of infrastructure.  

Bulgaria  adopted  in  2008  its  Better  Regulation  Programme  2008-2010  with  concrete 
objectives  as  regards  simplification  of  more  than  30  regulations,  new  centralised  ex-ante 
impact assessments system for new laws, new more comprehensive scheme for consultation 
with  stakeholders  and  screening  of  local  authority  regulations  to  eliminate  non-legal 
municipal regulations and trade licence fees. Bulgaria adopted in 2009 the target of reduction 
of administrative burdens by 20% until 2012. The Action Plan for the implementation of the 
national  target  was  finalised  in  April  2010  and  includes  136  reduction  proposals  of 
information  obligations  such  as  submission  of  data  and  documents  electronically  and  data 
collection  by  state  authorities  rather  than  business.  If  implemented,  these  measures  could 
generate savings for businesses of up to EUR 13 million. 

All  eGovernment  activities  are  now  coordinated  by  the  Ministry  of  Transport,  Information 
Technology  and  Communications  and  have  been  developed  within  the  framework  of  the 
Information society strategy (2008) and the Law on eGovernance (2008). In 2009, the usage 
by enterprises of eGovernment services still stands below the EU average, despite significant 
progress  since  2005.  Bulgaria  introduced  a  web-based  Public  Procurement  Register  where 
contracting  authorities  are  obliged  to  publish  their  tender  notices  (alongside  with  the 
Bulgarian State Gazette and the European Journal). The one stop shop to start-up a company 
is also fully operational.  

In  April  2010,  the  Government  adopted  a  Strategy  for  development  of  transport  system  in 
Bulgaria by 2020. It defines the main priorities and measures that need to be implemented by 
2020 in order to transform the transport system into a modern, safe, and secure system highly 
integrated  into  the  European  transport  system.  The  current  efforts  to  accelerate  the 
construction  of  important  infrastructural  projects  (e.g.  Trakia  highway,  Sofia  subway)  will 

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have  positive  effects  on  the  business  environment  in  terms  of  putting  in  place  new  key 
transport infrastructure and an anti-crisis measure stimulating local businesses. 

A  major  challenge  for  Bulgaria  is  to  undertake  important  reforms  to  improve  the  business 
environment  in the  country. The actions, in the spheres of improving  the functioning of the 
judicial  system  and  fighting  against  corruption  and  organised  crime,  could  be  strengthened 
further. 

Meanwhile, providing stability and predictability in the policy and regulatory environment is 
essential  for  the  investment  plans  and  business  development  of  the  enterprises  operating  in 
Bulgaria. It will also be an important challenge to take steps to encourage further competition, 
simplify  licensing  and  authorisation  procedures,  optimise  tax  administration  and  develop 
professional skills/competency in the workforce as well as in the administration. 

After  implementing  the  law  on  Protection  of  Competition  in  2009,  the  Commission  on 
Protection of Competition needs to continue improving its supervision on the functioning of 
national  markets.  It  has  to  effectively  prevent  concerted  practices,  abuses  of  monopoly 
position,  and  harmful  concentrations  which  negatively  affect  the  business  environment  (e.g. 
energy sector).  

The  modernisation  of  the  transport  infrastructure  is  a  major  challenge  after  years  of 
underinvestment in important core areas such as highways, ports, and rail. The better usage of 
European structural funds will be a prerequisite for the successful completion of these projects 
as Bulgarian public funding is limited. The development and effective management of public-
private partnerships could accelerate and attract the investment needed.  

3.2.6.  Entrepreneurship and SME policy 

The  contribution  of  SMEs  to  the  overall  economy,  as  measured  by  the  value  added,  is 
somewhat lower in Bulgaria than in the EU (54 vs. 58%). However, in the period 2002-2008, 
employment  growth  of  Bulgarian  SMEs  showed  an  overall  increase  of  41%,  which  is  well 
above the EU average (12%). 

In  2009,  a  National  Export  Strategy  was  developed.  It  includes  measures  to  increase  the 
efficiency of the SMEs' export through activities in the field of marketing, information, and 
promotion and through support for SMEs' participation in international exhibitions and fairs, 
organisations of business fora and missions. 

The  Operational  Programme  "Competitiveness  2007-2013"  envisages  special  support  to 
export  oriented  SMEs.  The  support  includes  encouragement  of  SMEs  to  benefit  from  the 
growth of the markets, support for participation in international economic, trade, investment 
and innovation events, creation of electronic portals and increase of export training. 

Regarding  entrepreneurship,  in  2008/2009,  Bulgaria  supported  young  entrepreneurs  from 
universities  willing  to  start their  own  businesses. The project, named ‘Technostart’, had 
a budget of EUR 100 000. 

Weaknesses exist in contract enforcement and lengthy administrative procedures. SMEs face 
severe  credit  conditions  with  excessive  interest  rates  and  requirements  for  collateral. 
Moreover, the number of government unpaid obligations to SMEs is a concern.  

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Concerning  the  field  of  innovation  in  SMEs,  the  available  figures  show  that  Bulgaria 
performs  significantly  below  the  EU  average.  This  is  a  serious  challenge  for  the  Bulgarian 
SME policy as the overall result is mainly due to the relatively small share of SMEs that have 
new  products  or  income  from  new  products  (37%  as  opposed  to  64%  of  EU  SMEs  on 
average). 

3.2.7.  Conclusions 

Bulgaria has to undertake important structural reforms to improve its competitiveness such as: 
cutting  red  tape  at  different  levels  of  the  state  and  local  authorities,  fostering  innovation  in 
view  of  increasing  productivity,  improving  the  energy  efficiency  across  all  sectors  of  the 
economy  and  developing  the  transport  infrastructure.  In  the  short  term,  absorption  of 
structural funds which is crucial in supporting these undertakings remains dramatically low. 
Hence, it has been urgent to ensure the proper mechanism for management and control of the 
funds. 

There are still weak cooperation and coordination between research institutions and business. 
Attribution  of  patents  is  rather  slow  and  the  same  applies  to  the  implementation  of  the 
measures  being  part  of  the  existing  innovation  and  R&D  programmes.  Bulgaria  needs  to 
improve  its  administrative  capacity  and  simplify  existing  rules  and  procedures  in  order  to 
accelerate the absorption of funding in all sectors. 

In  the  short  term,  excessive  interest  rates,  required  collateral  and  securities  and  government 
arrears remain a significant burden to business. 

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3.3. 

Czech Republic 

3.3.1. 

Indicators graph 

Czech Republic

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Towards a modern and 
competitive industry

Towards a sustainable industry

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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48 

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3.3.2. 

Introduction21 

The Czech Republic’s labour productivity was, measured per hour, at around 60% of the EU 
average in 2005 and 2008; measured per person, labour productivity reached some 70% of the 
EU  average  in  2009.  Nominal  unit  labour  costs  in  Czech  manufacturing  remained  broadly 
stable  between  2000  and  2009,  underlying  a  solid  competitiveness  position  of  the  Czech 
manufacturing  sector.  At  the  same  time,  the  Czech  Republic  showed  one  of  the  strongest 
appreciations in the real effective exchange rate from its 1999 level to 2005 and 2009.  

The  Czech  Republic  remains  specialised  mainly  in  sectors  demanding  low  and  low-
intermediate skills. The importance of high-intermediate skill sectors has been  stable at the 
average  level  from  1997  to  2007  and  high  skill  sectors  are  clearly  underrepresented.  This 
picture  is  supported  by  a  rather  low  and  declining  share  of  high  technology  sectors,  while 
there is a clear specialisation in medium low  technology categories. Sectors with a negative 
growth rate for the EU in total are still important, although medium-high growth sectors are 
becoming more prominent. 

Manufacturing plays a much bigger role for the Czech Republic than for the EU in total (25% 
vs. 17% of value added in 2008). This is mainly due to specialisation on transport equipment, 
electrical  and  optical  equipment,  non-metallic  minerals,  basic  metal  products,  rubber  and 
plastics and wood products. In the service sector, only the “transport and communication” has 
an  above  average  weight.  The  primary  sector  is  larger  than  for  the  EU  in  total  due  to 
agriculture  and  to  mining  and  quarrying.  Employment  figures  show  a  low  level  of 
productivity in agriculture and manufacturing and a slow shift to services over time. Forecasts 
until 2020 expect an increase in employment in business and other services and in non-market 
services by almost 10% while employment in manufacturing might decrease moderately. 

The  Czech  Republic’s  shows  a  small  trade  surplus.  The  positive  trade  balance  in 
manufacturing  mainly  resulted  from  a  surplus  in  transport  equipment  while  only  chemicals 
showed a noteworthy trade deficit. The Revealed Comparative Advantage (RCA), measured 
relative  to  the  EU  and  concentrating  on  manufacturing,  shows  particular  strengths  for  the 
Czech  Republic  in  2008  in  non-metallic  mineral  products,  electrical  and  optical  equipment 
and rubber and plastics. 

Exit from the crisis 

Czech manufacturing output fell by 23% but it stands in July 2010 again at 85% of pre-crisis 
level.  The  crisis  hit  the  Czech  Republic  relatively  late  and  economic  recovery  is  expected 
within the next two years. Its speed will depend on the recovery abroad and particularly of the 
main trading partners22.The government adopted various temporary measures to ease financial 
constraints in the business sector, SMEs and exporters in particular, presented more in detail 
in the SME section.  

For main sources used see the methodological annex. The cut-off date for all data and 

21 
qualitative information is 31 August 2010. 
22 
the 
http://www.mpo.cz/dokument66054.html 

Analysis 

2009 

of 

Czech 

Economy 

and 

Sectors: 

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3.3.3.  Towards an innovative industry 

The innovation performance of the Czech Republic has been improving and it is slowly but 
steadily  converging  to  the  EU-27  average.  The  strong  inflows  of  FDI  led  to  an  important 
technology and knowledge transfer, in particular in the manufacturing and automotive sector. 

Regarding  research  and  innovation  policy  in  general,  a  revision  of  the  law  on  support  for 
R&D  from  public  funds  became  effective  as  of  1  July  2009.  Based  on  this  law,  the  Czech 
Technological Agency was established with the task of allocating most of the public funds for 
the  support  of  applied  research  and  innovation.  This  should  result  in  a  significantly  simpler 
and more transparent system of public support for research and innovation.  

Another  milestone was the approval of  the  new ‘National Policy of  Research, Development 
and Innovation of the CR for 2009-15’ in June 2009. This policy focuses on nine areas of the 
national innovation system for which it sets partial targets and a set of associated measures. 

Its  main  objectives  are:  to  implement  strategic  management  at  all  levels;  to  focus  public 
support on sustainable development; to enhance effectiveness of the system of public support 
for R&D; to use R&D results in innovation and improve the cooperation of public and private 
sector  in  R&D;  to  improve  the  participation  of  the  Czech  Republic  in  international 
cooperation  in  research  and  innovation;  to  ensure  quality  human  resources  for  research  and 
innovation;  to  create  in  the  Czech  Republic  an  environment  stimulating  research  and 
innovation;  to  ensure  links  to  other  policies;  and  finally  to  thoroughly  evaluate  the  research 
and innovation system.  

A specific programme supporting industrial R&D, called "TIP"23, is operational since 2009. 
Its  budget  for  the  5-years  period  reaches  up  to  11  billion  CZK  (EUR  433  million  in  2009 
exchange rates). 

A  number  of  challenges  can  be  identified:  first,  cooperation  between  research  sector  and 
industry  could  be  strengthened  to  tackle  insufficient  linkages  in  the  process  of  creation, 
transfer  and  utilization  of  new  knowledge;  second,  researchers  and  S&E  graduates  are 
lacking,  which  can  negatively  influence  the  further  development  of  a  knowledge-based 
economy in the Czech Republic. The lack of qualified research staff has already become an 
essential  limiting  factor  in  further  development  of  industrial  R&D.  Third,  IPR  are 
insufficiently  protected,  which  hinders 
the  commercialisation  of  R&D  results  and 
transformation  of  new  knowledge  into  innovation.  And  fourth,  there  is  a  persistent  lack  of 
financial resources in the form of venture capital or other forms of risk capital. 

3.3.4.  Towards a sustainable industry 

The Czech industry is one of the most energy intensive ones in the EU. On the other hand, the 
share of environmental goods in the exports of Czech enterprises is high and they generate a 
relatively low volume of waste. 

Sustainable  industrial  development  is  defined  as  a  horizontal  priority  in  the  Operational 
Programme  Enterprise  and  Innovation  (OPEI),  co-financed  by  the  Structural  Funds,  in  the 
current  period  2007  -  2013.  In  manufacturing,  the  emphasis  lies  on  material  and  energy-
intensive segments, as well as on preferential use of secondary raw materials.  

23 

http://www.mpo.cz/dokument73229.html 

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An update of the State Programme in Support of Energy Savings and the Usage of Renewable 
Energy  Sources,  the  EFECT  Programme,  was  adopted  in  July  2009.  The  aim  of  the 
programme is to support energy saving and renewable energy as well as further development 
and commercial use of technological innovations.  

As  of  2010,  the  Czech  Republic  is  involved  in  the  pilot  project  of  the  Environmental 
Technologies  Verification  system  (ETV).  Its  aim  is  to  verify  the  effectiveness  and  potential 
impact of new technologies on the environment. 

In  June  2010,  he  Government  adopted  'Rules  of  the  application  of  environmental  criteria  in 
public  procurement  and  purchases  of  government  and  public  administration'.  These  rules 
contain a binding procedure for two selected product groups (office and computer equipment 
and office furniture) and five product groups for which the requirement to use the procedure is 
binding  by  30  June  2011.  For  another  12  product  groups  the  procedure  will  be  used  in 
response to developments at the international level.  

The  increase  of  energy  efficiency  and  the  use  of  renewable  energy  remains  the  main 
challenge. The level of ambition of the ongoing revision of the waste management policy will 
be  a  decisive  factor  stimulating  reduction  and  recycling  of  the  produced  industrial  waste. 
Implementation of the new 'green' public procurement rules will require close scrutiny. 

3.3.5.  The business environment 

Although the Czech Republic scores above the EU average concerning  the take-up of  high-
speed  broadband  lines,  only  78%  of  business  have  broadband  fixed  access  compared  to  the 
83% of EU average. The Czech Republic  provides relatively higher levels of state aid and has 
higher  electricity  prices  for  medium-size  enterprises  than  the  EU  average.  The  score 
concerning  the  legal  and  regulatory  framework  as  well  as  the  burden  of  government 
regulation  is  also  below  EU  average,  as  well  as  the  usage  of  eGovernment  services  by 
enterprises. 

The  Czech  Republic  has  made  significant  progress  in  bringing  the  better  regulation  agenda 
forward  over  the  period  2007-2009.  Several  initiatives  were  launched,  in  particular  the 
adoption of the Smart Administration Strategy, the Action Plan for Reducing Red Tape and 
guidance documents on impact assessments and consultation of stakeholders.  

In 2007, the Czech Republic adopted the target to reduce the administrative burdens by 20% 
until 2010. The Action Plan for the reduction of administrative burden for entrepreneurs was 
launched in 2008. Until the end of 2008, approximately 8% reduction was already achieved 
(this corresponds to some CZK24 6.1 billion – EUR 0.24 billion in 2009 exchange rates). The 
Report on the implementation of the 2010 Action Plan published in 2009 proposed inter alia 
to  speed  up  the  whole  process  by  focusing  on  10  acts  generating  the  highest  administrative 
burden  (CZK 55 billion/EUR  2.2  billion  in  2009  exchange  rates  each  year).  By  the  end  of 
2010 the reduction of administrative burden is expected to reach 20.05%. 

A  comprehensive  review  of  the  impact  assessment  system  conducted  in  2009  resulted  in 
several  proposals  as  regards  reducing  assessments’  formalism,  extending  its  scope  also  to 
strategic  and  concept  documents,  promoting  its  application  to  non-Governmental  draft 

24 

1 EUR = 25,42 CZK 

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regulation and its possible application during the phase of formulating national positions on 
EC legislation under preparation. 

The Czech Republic has an ambitious eGovernment strategy but its implementation is being 
delayed. The data boxes (electronic delivery system destined for the sending and receiving of 
documents relating to the public authorities) were launched on 1 November 2009 and are still 
in a start phase. The system of electronic national registries is yet to be launched. The number 
of  Czech  POINTs  (public  administration  contact  points)  reached  6000  in  June  2010.  The 
national eProcurement platform is mandatory for the publication of tenders above the national 
threshold, which remains rather high and does not bring about the desired transparency of the 
public procurement system. 

A  revision  and  simplification  of  the  existing  regulatory  framework  will  be  needed  to  create 
conditions  conducive  to  economic  growth.  In  this  respect,  full  implementation  of  the 
administrative burden reduction programme and its continuation is a key for further progress. 
Similarly, recommendations on the improvement of the impact assessment are still awaiting 
implementation. Launch of the e-government remains slow and rather limited and awareness 
is low. Full benefits of the eProcurement platform are still to be reaped, also depending on its 
future scope.  

3.3.6.  Entrepreneurship and SME policy 

The  Czech  Republic  has  adopted  several  measures  recently  to  support  entrepreneurship  and 
its  SMEs.  For  example,  curricula  in  general  secondary  education  include  economic 
background  education  and  essential  competences  for  entrepreneurship  since  2009.  The 
approach  is  to  introduce  entrepreneurship  education  into  the  school  curriculum  via 
General  Education  Programmes  (GEPs)  within  the  overall  framework  of  the  national 
Lifelong  Learning  Strategy,  which  is  designed  to  establish  a  "new  approach  to 
education".  Entrepreneurial  activities  are  included  as  components  of  the  new  key 
competences within the National Curriculum. Other measures concern financing conditions 
where  the  Czech  Republic  scores  clearly  above  the  EU  average  concerning  the  payments 
duration by public authorities, but below concerning early stage financing.  

The  Marketing  Programme  is  focused  on  the  development  of  the  activities  of  Czech 
exporters  on foreign  markets  and  on  increasing  the  exploitation  of export  opportunities 
that  exist  on  the  global  market.  This  Programme  is  also  part  of  the  Operational 
Programme  Enterprise  and  Innovation  2007-2013,  co-financed  by  the  Structural  Funds. 
Measures  included  are  e.g.  acquisition  of  marketing  information,  conducting  studies  of 
entry  into  these  markets,  presentations  and  participation  of  companies  at  trade  fairs  and 
exhibitions abroad and the creation of promotional materials.  

Regarding access to finance, the Operational Programme includes new measures focusing on 
the use of venture capital funds and business angels to support innovative projects of young 
and high growth enterprises. In addition, financial support for SMEs is foreseen in the form of 
interest-free and advantageous subordinated loans. 

Several  temporary  measures  to  support  businesses,  in  particular  by  easing  the  financial 
constraints  during  the  crisis  and  stimulating  investment,  were  implemented  in  the  course  of 
2009.  These  include  faster  write-offs  of  investment  goods,  faster  VAT  refunds  and 
cancellation of advance payments of personal and corporate income tax for small businesses 
with up to 5 employees.  

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Guarantee and support schemes for lending to SMEs amounting to CZK 2.1 billion (0.05% of 
GDP, EUR 83 million in 2009 exchange rates) were provided in 2009 to ease the access to 
finance during the crisis period. Additional funds from the state budget were provided to the 
Czech-Moravian Guarantee and Development Bank as a one-off measure. The Bank used the 
resources to provide additional credit and guarantees for SMEs.  

In  order  to  facilitate  trade  and  export  financing,  the  Czech  authorities  decided  to  provide  a 
one-off  increase  in  capital  of  the  Czech  Export  Bank,  the  Export  Guarantee  and  Insurance 
Corporation (EGAP) and the Czech-Moravian Guarantee and Development Bank. Overall, the 
capital  injections  amounted  to  more  than  CZK 3 billion/EUR  118  million  in  2009  exchange 
rates  (0.1%  of  GDP).  Additional  capital  was  aimed  at  increasing  the  capacity  to  provide 
credits  to  Czech  exporters  in  a  situation  when  commercial  banks  tightened  conditions  for 
export credits. At the same time, the EGAP decided to temporary increase insurance cover of 
risks related to export credits, Letters of Credits and bank guarantees. 

The  Act  on  Insolvency  and  its  Resolution  was  amended  with  the  aim  to  ease  the 
restructuration rather than the bankruptcy of insolvent companies.  

Access  to  finance  remains  extremely  difficult  for  small  and  medium  sized  enterprises.  The 
situation  has  considerably  deteriorated  during  the  economic  crisis.  The  impact  of  anti-crisis 
measures  is  still  to  be  evaluated  and  the  most  efficient  measures  identified.  On  this  basis, 
follow-up measures of a more structural nature will need to be designed in a comprehensive 
manner.  

3.3.7.  Conclusions 

Despite the relatively low labour costs which have been clearly below the EU average in 2005 
and 2009 and strong inflows of FDI bringing about an important technology and knowledge 
transfer,  the  Czech  Republic  faces  one  of  the  strongest  appreciations  of  its  real  effective 
exchange  rate.  Moreover,  the  Czech  Republic  remains  mainly  specialised  in  sectors 
demanding  low  and  low-intermediate  skills  and  its  business  regulatory  environment  is  still 
relatively  burdensome.  In  the  light  of  these  trends,  a  number  of  challenges  will  need  to  be 
addressed to facilitate a transition of the Czech economy to an innovation-driven economy.  

The lack of cooperation between research sector and industry hinders the process of creation, 
transfer and utilization of new knowledge. Moreover, the lack of qualified research staff has 
already  become  an  essential  limiting  factor  in  further  development  of  industrial  R&D. 
Positive  developments  of  2009  in  this  regard  are  the  establishment  of  the  Czech 
Technological Agency and the launch of the programme supporting industrial R&D. There is 
a considerable potential for the increase of energy efficiency and the use of renewable energy.  

The  existing  regulatory  framework  does  not  sufficiently  create  conditions  conducive  to 
economic growth and its revision and simplification has become a necessity. In this respect, 
continuation of the administrative burden reduction programme implementation is a key.  

E-government  services  and  e-procurement  are  yet  to  be  widely  disseminated  and  extended. 
Access to finance remains extremely difficult for small and medium sized enterprises. 

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3.4. 

Denmark  

3.4.1. 

Indicators graph 

Denmark

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

NA

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2007)

Entrepreneurship and SMEs

Share of high-growth enterprises as % of all enterprises (2006)

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.4.2. 

Introduction25 

Denmark's labour productivity was, measured per hour, clearly above the EU average in 2005 
and  2008  and  approaching  the  average  from  above  measured  per  person.  However,  Danish 
labour productivity growth has lagged behind most OECD countries for a decade and a half 
and labour costs have increased more than in the main trading partner countries, leading to a 
deterioration  of  the  competitive  position,  particularly  accentuated  in  the  years  after  2004. 
Denmark’s  real  effective  exchange  rate  appreciated  since  1999,  indicating  decreased 
competitiveness. Concomitantly, nominal unit labour costs in Danish manufacturing increased 
by 27% between 2000 and 2009, thus 8 percentage points faster than the EU average of 19%. 
However, during the first half of 2010 the real exchange rate of the DKK has depreciated. 

Manufacturing  plays  a  smaller  role  for  Denmark  than  for  the  EU  in  total  (15%  vs.  17%  of 
value added in 2008). Denmark is specialised in sectors demanding high-intermediate skills. 
While  specialisation  on  high  and  low-intermediate  skill  sectors  remained  stable  at  the  EU 
average, low skill sectors gained some ground at a low level. Denmark tends to be specialised 
on sectors that have a growth rate below the average for the EU in total.  

Compared to the EU, the Danish manufacturing sector is specialised to some degree in other 
machinery  and  in  other  manufacturing  (notably  furniture).  Regarding  services  industries 
Denmark  is  specialised  in  services  providing  transport  and  communication,  and  health  and 
social  work.  In  the  primary  sector,  Denmark  shows  a  strong  specialisation  in  mining  and 
quarrying and fishing.  

Denmark’s  balance  in  the  trade  of  goods  shows  a  surplus;  relative  to  the  total  volume  of 
exports it was the third-largest in the EU in 2009. The positive trade balance mainly resulted 
from  surpluses  in  mining  and  quarrying  for  the  primary  sector,  and  from  food,  drinks  and 
tobacco  for  manufacturing.  The  manufacturing  industries  producing  chemicals,  including 
pharmaceuticals,  and  other  machinery  also  generated  significant  trade  surpluses.  Imports  of 
transport equipment, basic metals and metal products were considerably larger than exports of 
these products, generating significant trade deficits. High technology manufacturing industries 
accounted  for  50%  of  both  exports  and  imports.  The  Revealed  Comparative  Advantage 
(RCA),  measured  relative  to  the  EU  and  concentrating  on  manufacturing,  shows  particular 
strengths for Denmark in 2008 in foods, drinks and tobacco, other manufacturing and textiles 
and clothing. 

Exit from the crisis 

Relative to the peak before the crises, Danish manufacturing output at the trough had dropped 
by 26%. In July 2010, 16% were regained which means that output remains at 90% of the pre-
crisis  level.  In  reaction  to  the  economic  and  financial  crisis  the  Danish  Export  Credit  Fund 
(Eksport  Kredit  Fonden,  EKF)  was  significantly  increased.  Funding  for  the  EKF  was 
increased  by  DKK 20 billion  (EUR 2.7 billion)  and  EKF  has  been  given  the  possibility  to 
provide  re-insurance  agreements  of  up  to  DKK 10 billion  pr.  year  with  private  insurance 
companies.  

25 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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Although  interest  rates  are  at  a  five  year  low  a  substantial  number  of  companies  face 
difficulties  in  access  to  finance.  Bottlenecks  also  remain  in  short  term  credit  insurance 
markets. 

3.4.3.  Towards an innovative industry 

The European Innovation Scoreboard (EIS) indicators continue to place Denmark among the 
top  performing  EU  countries  with  an  innovation  performance  well  above  the  EU  average. 
Furthermore, the country has been labelled an 'innovation leader' in the EIS 2008 along with 
Sweden, Switzerland, Finland, Germany, and UK. However, together with Sweden and UK, 
Denmark  is  in  the  sub  group  of  ‘slow  growers’  on  innovation  performance.  The  Danish 
Government's  Globalisation  Strategy  and  corresponding  and  matching  national  policies  in 
areas  including  innovation,  education,  energy  and  the  environment,  indicate  how  Denmark 
aims at being a country with industries able to be highly competitive.  

The  Danish  government  has  reformed  and  reorganised  more  or  less  all  aspects  of  the 
innovation  system  over  the  last  eight  years.  The  most  important  reforms  have  targeted 
universities,  public  research  institutions,  the  technology  service  system,  the  advisory  and 
funding structures and the regional innovation system. At the same time, new strategies and 
action  plans  have  been  formulated  regarding  national  and  regional  growth,  collaboration 
between the public and private spheres, knowledge development, strategic research, etc.  

It  seems  there  is  no  reason  for  dramatic  or  radical  changes  to  the  Danish  innovation  policy 
system.  A  number  of  challenges  nevertheless  remain.  Indeed,  despite  the  growth-friendly 
business environment, there are concerns about the relatively limited innovation capacity and 
relatively  high  price  levels,  especially  in  the  service  sector  and  especially  the  sectors  not 
exposed  to  international  competition.  This  is  partly  due  to  insufficient  competition  which 
discourages  the  uptake  of  new  technologies  and  productivity.  In  the  medium  term,  further 
expansion of R&D is at risk of being limited by increased scarcity of science and technology 
graduates. 

3.4.4.  Towards a sustainable industry 

On  the  basis  of  existing  indicators  the  performance  of  the  Danish  industry  can  be 
characterised  as  rather  strong.  This  relates  to,  for  example,  the  relatively  low  energy  and 
carbon intensity in the industry. 

The  Government  has  set  a  target  of  additional  1.5%  in  annual  savings  in  the  end  use  of 
energy, with energy companies expected to deliver considerable proportion of these savings. 
A  climate  commission  has  been  set  up  to  devise  comprehensive  policy  proposals  for 
significantly  reducing  greenhouse  gas  emissions,  and  eventually  make  the  Danish  energy 
systems  independent  from  fossil  fuels.  In  March  2009,  the  Government  published  its  new 
strategy  on  sustainable  development.  It  forms  the  basis  of  strategic  nature  and  environment 
policy by focusing on targets and resources to be promoted. The strategy also deals with ways 
in which environmental, economic and social targets can support each other in an integrated 
strategy for sustainability. In April 2009, new catalogues have been published on grants and 
funding possibilities, and the competencies of the various Danish research institutions in the 
environment  sector.  In  June  2009,  the  Government  agreed  on  a  'Green  Growth'  initiative, 
which includes a strategy for a green agriculture and food production industry. 

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In October 2009, the Government launched a Business Strategy on Climate Change with the 
aim of transforming the challenges of climate change into opportunities for Danish companies 
for  new  business,  exports  and  jobs.  The  green  part  of  the  Danish  tax  reform  in  the  Spring 
Package  2.0  will  contribute  to  reducing  emissions  of  greenhouse  gases.  The  reform  will 
account for almost two percentage points of the total Danish reduction target of 20 per cent up 
to  2020  for  sectors  outside  the  EU  emission  trading  system  (ETS).  A  Secretariat  for  Eco-
efficient  Technologies  was  established  in  the  Environmental  Protection  Agency  to  offer 
advice to businesses and entrepreneurs on environment focus areas, upcoming legislation and 
finance  opportunities.  A  new  website  was  also  launched  (www.ecoinnovation.dk)  to  follow 
development in environmental technology. 

Based on an analysis of 639 COMEXT trade codes, Danish exports of energy technology and 
energy equipment grew by 400% between 1995 and 2008 compared with 200% for EU as a 
whole.  Looking  at  export  trends  in  specific  sub-areas  of  energy  technology  and  energy 
equipment, Denmark has a clear position of strength in the field of wind-turbine components 
and insulation materials. 

3.4.5.  The business environment 

Denmark scores clearly above the EU average in all indicator categories with the exception of 
the  level  of  state  aid.  Denmark  ranks  among  Member  States  with  the  lowest  burden  of 
government  regulation,  with  a  legal  and  regulatory  environment  that  highly  encourages  the 
competitiveness of enterprises. 

Regulatory  reform  has  been  on  the  agenda  of  the  Danish  government  for  over  two  decades 
with  the  aim  of  modernising  the  public  sector  and  promoting  an  efficient  business 
environment. Denmark has launched a range of initiatives to ensure continued focus on better 
regulation, multi-level regulatory governance, reduction of administrative burden for business 
and strengthening impact assessment procedures.  

As  regards  the  reduction  of  the  administrative  burdens  for  businesses,  the  Government's 
objective is to achieve the target of 25% reduction in 2010 relative to the 2001 level. Over the 
period 2001-2009, 20% of the 25% target has been achieved. If all of the 37 initiatives of the 
plan were implemented, the total administrative costs would be reduced by 25%.  

The  third  strategic  programme  to  develop  eGovernment  is  focused  on  improving  digital 
services,  efficiency  and  collaboration  across  all  levels  of  governments.  It  includes  the 
ambitious  objective  of  digitalising  all  relevant  communication  between  government  and 
business by 2012. In 2009, the online availability of public services was 100% for enterprises 
and eGovernment usage by business one of the highest in the EU.  

Denmark  is  one  of  the  best  performing  countries  regarding  the  one-stop-shop  (Danish 
Commerce  and  Companies  Agency,  DCCA)  which  is  fully  operational  and  web  based. 
Denmark was the first Member State to implement the new public procurement directives. As 
far  as  public  service  contracts  below  the  EU  threshold  value  are  concerned,  Denmark  also 
revised the Danish Public Tender Act, increasing competition and reducing the administrative 
burden. 

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3.4.6.  Entrepreneurship and SME policy 

The SME sector in Denmark contributes almost the same as in the EU in total employment 
(66% vs. 67.4%) but significantly more in terms of value added (67.8% vs. 57.9%). SMEs in 
Denmark  tend  to  be  larger,  as  the  small  and  medium  size  classes  are  markedly  larger. 
Denmark  scores  clearly  above  the  EU  average  concerning  time  required  to  start  a  business, 
business churn, early stage financing and payments duration by public authorities. However, it 
performs  below  average  concerning  the  share  of  high-growth  enterprises  and  bank  loan 
conditions. 

Denmark launched a national strategy for education and training in entrepreneurship in 2009 
with objectives for each education level for how supply pupils and students with the ability to 
think  innovatively,  see  opportunities  and  turn  ideas  into  value.  To  strengthen  and  create  a 
coherent national commitment a Foundation for Entrepreneurship was established to become 
a national knowledge centre for education and training in entrepreneurship. 

The  Gazelle  Growth  Programme  was  set  up  in  2007  a i mi n g   a t  strengthening innovation 
and growth among growth-oriented  SMEs.  The  programme  is  an  action-orientated  business 
development  process  that  provides  hands-on  support  and  know-how  to  businesses  with 
strong growth potential. 'Erhvervspakken' which was launched by the Government in the autumn 
of 2009 encompassed a number of initiatives aiming at supporting SMEs by increasing possibilities 
to  get  access  to  finance,  financing  export  projects,  and  developing  markets  within  the  Danish 
welfare system, e.g. health-care services.  

Two  SME  programmes,  coordinated  by  the  Trade  Council  of Denmark, support the export 
activities  of  SMEs.  The  programme  ‘export  preparation’  provides  SMEs  with  individual 
concrete  advice  on  export  opportunities.  Secondly,  the programme  ‘export  start’  offers 
concrete  information  to  SMEs  on  export  markets,  e.g.  market  studies,  partner  search, 
competitor  analysis,  etc.  In  addition,  a  closer  coordination  between  the  regional  Business 
Links  and  the  Trade  Council  of  Denmark  has  been  established.  The  aim  is  to  provide 
to  SMEs  with  growth  potential  on  export  opportunities  and 
specific  advice 
internationalization. 

The  Export  Credit  Fund  (Eksport  Kredit  Fonden)  finances  export  projects  in  uncertain 
markets.  By  the  end  of  2008,  the  overall  engagement  funded  by  this  Fund  was  of 
EUR 494 million  (DKK 31 billion).  In  September  2010  the  Government  extended  the 
programme for financing export projects until 2011.  

The low share of high-growth enterprises may have negative consequences for future growth 
of  the  Danish  economy.  Since  the  relatively  high  level  of  early  stage  financing  does  not 
constitute  an  obstacle,  there  might  be  other  factors  in  play.  Their  identification  should  give 
hints as to the policy measures needed to address this issue.  

3.4.7.  Conclusions 

Apart from the short-term concerns related to the financial crisis, such as unfavourable bank 
loan  conditions,  the  main  challenges  facing  the  Danish  industry  are  the  low  shares  of 
innovating  enterprises,  high-tech  exports  and  high-growth  enterprises.  Despite  impressive 
efforts to increase R&D and innovation, the results in terms of the variables mentioned above 
are below EU average. The limited innovation performance is partly due to weak competition 
especially in the services sector.  

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Further policy actions aiming at fostering competition could also spur innovation and increase 
the share of innovating enterprises. An especially important area is the services sector where 
there are a large number of SMEs who would benefit from more competitive service markets. 
Policies addressing the increasing shortage of science graduates could lower the risk of future 
lower R&D and high-growth firms. 

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3.5. 

Germany 

3.5.1. 

Indicators graph 

Germany

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Early stage financing (% of GDP; 2008)

Entrepreneurship and SMEs

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

NA

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.5.2. 

Introduction26 

Germany’s labour productivity, measured either per hour worked or per person employed, is 
clearly above the EU average. Germany is one of the very few EU members where the real 
effective  exchange  rate  depreciated  between  1999  and  2009,  indicating  increased  price  and 
cost  competitiveness.  Concomitantly,  nominal  unit  labour  costs  in  German  manufacturing 
first declined somewhat and then increased again, resulting in an overall increase of 7%, thus 
12 percentage points below the EU average of 19%. The overall high competiveness (driven 
by  productivity,  price  and  cost,  quality  and  specialisation  factors)  is  reflected  in  the  high 
surplus in the trade of goods.  

Germany  is  increasingly  specialised  in  high-intermediate  and  low  skill  sectors.  While  the 
importance of high skill sectors has remained constant from 1997 to 2007, low-intermediate 
skill  sectors  are  clearly  losing  ground.  Germany  is  specialised  in  medium  high  technology, 
whereas specialisation in high technology has decreased significantly from 1997 to 2007. This 
picture  is  completed  by  a  clear  trend  towards  sectors  with  a  growth  rate  above  the  EU 
average. 

Manufacturing plays a much bigger role for Germany than for the EU in total (24% vs. 17% 
of  value  added  in  2008).  This  is  mainly  due  to  specialisation  on  transport  equipment27, 
electrical and optical equipment and other machinery as well as, to a lesser extent, chemicals. 
In  the  service  sector,  only  the  (important)  sector  “real  estate  and  business  activities”  and 
“other services” have an above average weight. The primary sector is much smaller than for 
the EU in total. Employment figures show the high level of productivity in manufacturing but 
also  its  decreasing  importance  over  time.  Forecasts  until  2020  expect  an  increase  in 
employment  in  business  and  other  services  by  almost  10%  while  employment  in 
manufacturing might drop by some 6%. 

Germany’s surplus in the trade of goods is, relative to the total volume of exports, the second-
largest in the EU. The positive trade balance in manufacturing mainly resulted from surpluses 
in  transport  equipment,  other  machinery  and  chemicals  while  only  textiles  and  to  a  lesser 
degree  leather/footwear  and  refined  petroleum  showed  a  noteworthy  trade  deficit.  The 
Revealed Comparative Advantage (RCA), measured relative to the EU and concentrating on 
manufacturing,  shows  particular  strengths  for  Germany  in  2008  in  transport  equipment  and 
other machinery. 

Exit from the crisis 

In the peak of the economic and financial crisis output in manufacturing dropped by almost 
25%.  In  July  2010,  output  was  still  10%  below  pre-crisis  levels.  In  reaction  to  the  crisis, 
Germany  introduced  a  wide  range  of  measures  targeting  the  real  economy.  A  car  scrapping 
premium  for  private  households  with  a  total  volume  of  EUR 5 billion  ended  in  September 
2009. Under the Temporary State aid Framework Germany set up guarantee, subsidised loans 
and  export  credit  insurance  programmes  with  a  total  amount  of  EUR 115 billion.  The 

For main sources used see the methodological annex. The cut-off date for all data and 

26 
qualitative information is 31 August 2010. 
27 
the  manufacture  of  motor  vehicles, 
shipbuilding,  railway  rolling  stock,  aerospace  equipment,  motorcycles  and  bicycles,  and  a 
residual category of other transport equipment. 

transport  equipment  covers 

The  sector 

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programmes are operated by the Kreditanstalt für Wiederaufbau (KfW), with SMEs as major 
beneficiaries  (EUR  90  billion).  In  addition,  Germany  temporarily  introduced  declining-
balance depreciation rules for moveable fixed assets and a relaxation of VAT rules for small 
companies.  The  measures  ensured  access  to  finance.  Nevertheless,  credit  conditions 
temporarily  tightened  and  the  availability  of  private  equity  clearly  declined  since  the 
beginning  of  the  crisis.  In  combination  with  a  rising  demand  for  financing  in  the  face  of 
economic recovery and a parallel downgrade in many companies’ ratings based on their 2009 
business  figures,  this  might  lead  to  increasing  rejection  rates.  However,  a  credit  crunch  has 
not  been  observed  and  is  not  to  be  expected.  Demand  for  insurance  cover  of  exports  is 
constantly high in the absence of private supply, in particular by SMEs.. 

3.5.3.  Towards an innovative industry 

Germany has a large and diversified science and knowledge base. It belongs to those world 
nations with the biggest research and development (R&D) capital stock. The output of R&D 
and  innovation  activities  in  terms  of  patents,  new  products  and  high  productivity  is 
remarkable. From a global perspective, however, Germany is only at the lower end of leading 
countries in terms of innovation performance. The availability of new science and technology 
graduates is below EU average.  

Education and knowledge is the only area that has got increased budget allocations between 
2007 and 2010 and which was not subject to budgetary cuts in the context of the budgetary 
consolidation  package  of  the  Federal  Government  presented  in  June  2010.  Relevant  policy 
developments  to  support  innovation  are  notably  taking  place  under  the  continued 
implementation  of  the  "High-Tech  Strategy",  which  is  an  overarching  strategy  to  boost 
research  and  innovation  until  2011  and  focuses  on  17  thematic  areas.  This  includes  the 
implementation  of  nine  innovation  alliances  which  constitute  publicly  supported  strategic 
cooperation between industry and public research in key  technology areas  and  lead  markets 
(e.g. in the areas of ICT, mobility and climate protection). They have mobilised EUR 3 billion 
in  private  resources.  The  strategy  also  comprises  the  Top  Cluster  Programme  which  funds 
regional  thematic  clusters  that  bring  together  public  research  and  enterprises  to  further 
develop high technologies in various areas. Finally, the strategy covers SME funding via the 
Central Innovation Programme for SMEs (ZIM), totalling EUR 2.4 billion for 2009 and 2010, 
and the programme Innovative SMEs which attempts to ease the access of SMEs to thematic 
R&D programmes by simplifying and accelerating application procedures. A renewed “High-
Tech  Strategy  2020”  has  been  published  in  July  2010.  Continuing  the  initiatives  mentioned 
above, there will be stronger emphasis on the “major societal challenges”, i.e. climate, health, 
mobility,  security  und  communication.  The  Federal  Government  decided  to  invest  an 
additional EUR 12 billion in education and R&D until 2013. 

In  the  short-term,  the  main  challenge  will  be  to  ensure  the  financing  of  innovation  in  the 
context  of  tight  and  potentially  further  tightening  credit  conditions.  A  timely  limited  and  in 
substance restricted (e.g. to SMEs) continuation of the “Wirtschaftsfonds Deutschland” could 
constitute a remedy in this respect. 

In the long-term, the main challenge is to avoid the shortage of high-skilled labour force in the 
context of the demographical challenge of the country (low birth rates and ageing society) and 
its relative low availability of new science and technology graduates. Germany’s initiatives in 
this respect, such as the “Exzellenzinitiative” of the universities, go into the right direction, but 
might be complemented by further measures, if evaluations show that they do not suffice. 

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3.5.4.  Towards a sustainable industry  

The  environmental  performances  of  Germany’s  industry  can  be  characterised  as  good.  The 
energy intensity in manufacturing is below the EU average. The carbon intensity in the non-
energy  supplying  industry  is  close  to  EU  average  and  in  terms  of  waste  generated  by 
enterprises and exports of environmental goods Germany scores better than the EU average. 
Additionally,  the  support  to  environmentally  friendly  technologies  has  been  a  focus  of  both 
Germany’s structural reform agenda and its economic recovery packages. 

Public  funds for  improving energy  efficiency of buildings have been significantly  increased 
(by  ca.  EUR 3 billion)  in  the  period  2009-2011.  As  part  of  its  comprehensive  “Integrated 
Energy and Climate Programme”, Germany is inter alia implementing: a support programme 
“Special  Fund  for  Energy  Efficiency  in  SMEs“,  covering  up  to  80%  of  costs  for  SMEs  to 
receive  professional  advice  in  the  area  of  energy  efficiency  and  offering  low-interest  loans 
from  the  KfW  to  implement  the  recommended  measures;  an  energy  efficiency  export 
initiative;  the  Eco-Design  Directive  for  19  product  groups;    various  measures  to  implement 
Directive  2006/32/EC  of  5  April  2006  on  energy  end-use  efficiency  and  energy  services;  a 
funding  programme  for  micro  combined  heat  power  plants;  funding  programme  for 
commercial  refrigeration  systems;  a  national  “Electric  Mobility“  development  plan. 
Importantly,  this  energy  and  climate  programme  also  includes  the  implementation  of  the 
“Renewable Energy Law”, whose aim is to contribute to the target of at least 30% electricity 
from  renewable  energy  sources  by  2020.  The  renewable  energy  law,  amended  in  2010, 
regulates the feed-in tariffs to be paid by network providers to producers of renewable energy. 
These tariffs are differentiated by type of renewable energy. The law also stipulates the tariffs 
for  renewable  energy  which  can  be  passed  on  to  the  final  customers.  In  view  of  significant 
efficiency  improvements  of  photovoltaic  appliances,  the  recent  amendment  stipulates 
significant  reductions  in  the  level  of  the  degressive  feed-in  tariffs  for  appliances  with 
commissioning  dates  after  June  2010,  which  will  further  decrease,  if  the  market  volume  of 
photovoltaic electricity exceeds a certain threshold. However, since the feed-in tariffs for both 
old  and  new  appliances  are  significantly  above  the  average  electricity  prices  and  the 
photovoltaic  electricity  which  is  not  inserted  into  electricity  networks  but  directly  used  by 
households  or  small  enterprises  with  photovoltaic  appliances  is  similarly  subsidised  (via  a 
“Direktverbrauchsvergütung”),  the  current  contribution  of  final  customers  to  financing 
photovoltaic electricity is significant and likely to increase. It is also noteworthy that the 2010 
amendment  of  the  “Renewable  Energy  Law”  includes  reduced  renewable  energy  tariffs  for 
electricity  intensive  enterprises  and  railway  companies.  The  entire  support  system  for 
renewable energy will be reviewed in the context of the next amendment of the law, foreseen 
for 2012. 

Germany’s interregional and international energy grids need to be developed to allow a wide 
distribution  of  energy  produced  with  renewable  sources.  Several  regulatory  and  non-
regulatory measures, such as the “Energieleitungsausbaugesetz”, are addressing this issue. An 
effective  implementation  is  required  to  ensure  the  intended  progress.  Given  the  high 
importance  of  the  automotive  sector  for  Germany,  progress  regarding  the  promotion  of 
electric  mobility  (which  needs  to  be  coupled  with  the  use  of  renewable  energy  in  order  to 
have a significant positive environmental impact) will be crucial for the competitiveness of its 
industry. 

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3.5.5.  The business environment 

The quality of Germany’s business environment is altogether average. It scores clearly above 
the  EU  average  concerning  the  satisfaction  with  the  quality  of  infrastructure  and  around 
average  regarding  the  regulatory  framework  and  administrative  burden.  The  German  public 
procurement  system  is  still  complex  and  lacks  transparency.  The  degree  of  competition  in 
services is relatively low, especially with regard to the energy market and regulated services 
including  crafts.  The  current  federal  policy  on  Better  Regulation  is  structured  around  the 
"Bureaucracy  Reduction  and  Better  Regulation  Programme  of  the  federal  government" 
adopted  in  2006  whose  flagship  initiatives  are  the  programme  to  reduce  administrative 
burdens for businesses and a range of initiatives to take forward eGovernment.  In June 2010, 
the German government submitted an implementation plan listing the measures under way or 
planned  for  reaching  the  25%  net  reduction  target  of  administrative  costs  stemming  from 
information  obligations  by  the  end  of  2011.  A  full  baseline  measurement  on  information 
obligations  embedded  in  federal  legislation  was  carried  out  in  September  2006,  revealing 
administrative  costs  to  business  in  Germany  amounting  to  EUR 48 billion,  out  of  which 
EUR 25 billion  would  result  from  EU  legislation  and  EUR 23 billion  from  national 
legislation. A net reduction of more than EUR 6 billion has already been achieved so far. In 
this respect, the “Drittes Mittelstandsentlastungsgesetz”, in force since March 2009, includes 
23 measures reducing administrative burdens notably for SMEs, such as regarding statistical 
reporting. Furthermore, in selected legal fields and “areas of life”, the total measurable effort 
necessary  for  fulfilling  administrative  requirements,  i.e.  the  compliance  costs,  will  be  taken 
into account and additional possibilities for reducing this overall effort shall be identified. It is 
also  intended  to  examine  the  total  measurable  effort  of  all  new  federal  legislation.  Other 
recent  developments  include  pilot  projects  of  the  Länder  to  introduce  the  Standard  Cost 
Model, which would also cover regulatory costs for citizens.  

Ex ante impact assessments are mandatory for initiatives of the federal government, not for 
those emanating from Bundestag or Bundesrat, but the latter would rather be exceptions. The 
Länder use increasingly impact assessments. An SME specific impact assessment as part of 
the general impact assessment is foreseen at the federal level, to be verified together with the 
stakeholders and the Ministry of Economy (BMWi). The BMWi has also issued a supporting 
'check list' that shall help federal ministries in their assessment of costs to business and prices. 
The Länder and local levels which have legal competency in many policy areas are not bound 
by these developments. 

Public  consultation  by  the  federal  government  is  formally  regulated  by  the  Joint  Rules  of 
Procedures  which  specifies  that  ministries  must  consult  early  with  an  extensive  range  of 
stakeholders, but there are no binding rules at federal level beyond the common rules of the 
GGO.  Consultations  take  place  in  so-called  “Arbeitskreise”  (working  groups)  composed  of 
representatives of the Ministries and stakeholders. Informal pre-consultation rounds involving 
the Länder, municipalities and associations are conducted at an early stage in the regulatory 
process.  E-consultation,  seen  as  a  tool  to  increase  the  transparency  of  the  decision-making 
process,  is at an early stage of implementation. 

Germany has a comprehensive eGovernment programme, which is evolving towards the new 
Web  2.0  for  eParticipation  and  administrative  innovation.  The  national  eProcurement 
platform is not mandatory.  

Given  the  Länder  competencies,  a  federal  unique  one-stop-shop  cannot  be  envisaged,  but 
some Länder, such as North Rhine Westphalia and Rhineland Palatinate are front-runners in 

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setting up regional one-stop-shops. There is also a project to ensure that data from companies 
are pooled to be used at all public authority levels (federal, regional and local). The project to 
pool data from employees in order to reduce admin burden for employers (ELENA) has been 
frozen due to data security reasons. Länder have also set up points of single contact (PSC) for 
the Services Directive.  

The  company  law  governing  private  limited  companies  was  revised  in  2008  to  simplify 
registration procedures for start-ups and create a new legal form called “haftungsbeschränkte 
Unternehmergesellschaft (UG)” for very low budget start-ups.  

Some  measures  have  been  undertaken  to  strengthen  competition  in  regulated  trades  and 
services  (specifically  regarding  tax  advisers,  notaries  and  lawyers).  In  the  area  of  public 
procurement the government has announced that it will present in 2010 a draft law to make 
the public procurement system more transparent and simple. Given that such reform attempts 
were to a large extent postponed in the course of the last years, a reform backlog in this area 
can  be  noticed,  despite  some  revisions  of  the  system  in  2009.  For  energy  networks,  the 
comprehensive incentive regulation (Anreizregulierung) has been completely implemented in 
early 2009. By imposing to all network providers individual revenue caps which are geared to 
the most cost efficient provider, and by  reducing gradually  these caps  (sectoral productivity 
growth:  requirements  to  enhance  efficiency),  the  regulation  provides  for  each  provider  the 
incentive to reduce the costs and fees of its network. 

While  regulation  has  strengthened  competition  in  energy  networks,  the  production  and 
provision of energy at regional level still characterised by oligopolies or monopolies. It is the 
task of the competition authority to monitor closely the situation and to intervene in case of 
potential  market  abuse.  The  increasing  interregional  interconnection  might  improve 
competition  in  the  future.  In  the  area  of  railway  transport  and  infrastructure,  various 
bottlenecks  to  competition  persist,  as  analysed  by  the  Monopolkommission  in  September 
2009. Further progress could also be achieved in the area of regulated trades and services. 

3.5.6.  Entrepreneurship and SME policy 

SMEs  in  Germany  tend  to  be,  comparatively,  large:  the  shares  of  small  and  medium-sized 
enterprises  in  the  total  number  are  approximately  twice  the  European  averages  while  the 
contribution  of  micro  firms  to  employment  is in  Germany  lower  than  the  European  average 
(19% vs.30%). German SMEs score well as regards innovation activities; the share of SMEs 
with innovation activities in general is for instance significantly higher than on average in the 
EU. In the area of skills, however, the results are more mixed, as indicated by the relatively 
low share of SME staff that has tertiary education. In 2010 the Federal Ministry of Economics 
and  Technology  launched  a  start-up  initiative  “Gründerland  Deutschland”  with  several 
programmes  and  activities.  The  aim  is  to  raise  awareness  of  entrepreneurship  and  self-
employment throughout Germany. The “German Entrepreneurship Week” in November 2010 
shall  spur  the  entrepreneurial  spirit  of  pupils,  apprentices,  students  and  young  adults. 
Furthermore, the initiative “Entrepreneurial spirit in schools” led by the Federal Ministry of 
Economics  and  Technology  shall  be  extended.  Finally,  a  new  excellence  competition  for 
universities in Germany is launched: the three universities with the best concept for a strategy 
fostering  entrepreneurship  culture  throughout  the  university  will  receive  money  for 
developing the strategy and win the title “Die Gründerhochschule”.  

Since 2007, the federal government has supported financially young entrepreneurs with up to 
EUR 4,500 for consulting on organisational, financial or management aspects within the first 

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five years after the start-up. The programme has an overall budget of EUR 260 million until 
2013.  It  has  comprised  since  2008  a  special  support  for  start-ups  by  formerly  unemployed 
persons.  Private  pension  provisions  of  self-employed  have  been  benefiting  since  2007  from 
the same protection as those of employees against garnishment. The inheritance tax rates were 
reduced  in  2009  and  2010  in  order  to  facilitate  the  transfer  of  businesses,  if  the  aggregated 
wage  sum  of  the  business  remains  unchanged  for  seven  years.  Other  deductions  apply  in 
further specified cases.  

A  new  law  (Arbeitsmigrationssteuerungsgesetz)  which  eases  the  access  of  highly  qualified 
migrants  from  non-EU  countries  by  lowering  the  required  minimum  investments  for 
entrepreneurs seeking residence permit entered in force in January 2009.  

The main challenges are in the short- and medium-term to secure access to finance and in the 
long-term to avoid a shortage of high-skilled labour. 

3.5.7.  Conclusions 

Germany’s  economy  and  industry  is  highly  competitive  and  benefits  from  framework 
conditions  which  are  conducive  to  R&D  and  innovation  and  to  the  deployment  of 
environmental  technologies.  The  business  environment  is  overall  also  favourable  for 
entrepreneurial activities. There remain some weaknesses though, such as the framework for 
competition in services (such as railways) and the need to overhaul public procurement. Over 
the long term, the main risk is to face a lack of qualified labour if the education system is not 
adapted rapidly enough to changing requirements of technology and innovation. 

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3.6. 

Estonia 

3.6.1. 

Indicators graph 

Estonia

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Towards a modern and 
competitive industry

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

NA

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.6.2. 

Introduction28 

Estonia’s labour productivity was, measured both per hour and per person, very much below 
the EU average in 2005 and 2008/2009. However, it showed a slight increase over time, both 
per hour and per person. Estonia is one of the EU members with the highest appreciation of 
the real effective exchange rate between 2009 and 1999, indicating a significantly decreased 
competitiveness. In parallel, nominal unit labour costs in Estonian manufacturing increased by 
44%  between  2000  and  2009  with  a  remarkable  acceleration  during  the  second  half  of  the 
decade. As a result, the overall increase was more than twice the EU average of 19%. 

Manufacturing  plays  for  Estonia  as  a  big  role  as  it  does  for  the  EU  in  total  (17%  in  2008). 
Even  though  decreasingly,  Estonia  is  still  specialised  in  sectors  demanding  low  skills  and, 
increasingly  in  low-intermediate  skill  sectors.  This  picture  is  confirmed  by  an  increased 
specialisation on sectors with low and medium-low technology intensity. 

Compared to the EU, the manufacturing sector is particularly specialised on wood and wood 
products  and  textile  and  clothing.  In  the  service  sector,  electricity,  gas  and  water  supply, 
construction,  wholesale  and  retail  and  transport  and  communication  had  an  above  average 
weight in 2008. The primary sector, fishing in particular, is more important than for the EU in 
total. Employment figures show a decreasing importance over time of the primary sector and 
a  clear  change  towards  the  service  sector.  Forecasts  until  2020  expect  an  increase  in 
employment in business and other services (16%), in distribution and transport (12%) as well 
as  in  manufacturing  (20%),  while  a  continued  clear  decline  in  the  primary  sector  (-30%)  is 
expected. 

Estonia  showed  a  deficit  in  the  trade  of  goods  in  2009.  The  negative  trade  balance  in 
manufacturing mainly resulted from deficits in refined petroleum and chemicals, while only 
wood  and  wood  products  showed  a  noteworthy  trade  surplus.  The  Revealed  Comparative 
Advantage  (RCA),  measured  relative  to  the EU and concentrating on  manufacturing, shows 
particular  strengths  for  Estonia  in  2008  in  wood  and  wood  products,  refined  petroleum  and 
textiles and clothing. 

Exit from the crisis 

Estonia saw the biggest reduction of manufacturing output in the European Union. It fell by 
over 38% in the course of the crisis. Production increased to 81% of pre-crisis level in July 
2010.  Estonia  implemented  a  de  minimis  aid  scheme  under  the  Temporary  State  aid 
Framework. The scheme provided loans and guarantees to SME in the manufacturing sector. 
Other existing state aid instruments were also used to tackle the effects of the economic and 
financial crisis. The situation on the financial markets will continue to be difficult during 2010 
and micro enterprises  are particularly  affected. Most vulnerable sectors during the crisis are 
transport, textiles and timber. 

The  key  recovery  measures  focus  on  lending  support  and  loan  guarantees  to  enterprises  in 
particular 
to  approximately 
EUR 390 million  (2.8%  of  GDP),  with  only  EUR 109 million  of  state  co-financing.  These 
measures are, however, neutral in terms of short-term budgetary impact. 

to  exporting  companies.  These  measures  amounted 

28 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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The objective of the programme is to support exporting companies as well as the innovation 
and  growth  capacity  of  enterprises.  Depending  on  the  type  of  support  considered,  the 
measures are directed at small, medium or large enterprises. Loans and guarantees are issued 
for  a  maximum  period  of  3-5  years.  The  issuing  period  covers  the  years  2009-2010  only. 
However,  the  total  duration  of  the  programme  depends  on  the  actual  rhythm  of  the  loans 
servicing and repayments. The limit to  the issuing period (end-2010) constitutes an implicit 
sunset clause and broadly corresponds to the expected resumption in private lending activity. 
Moreover, a new state-owned insurance company, whose role is to provide credit insurance as 
a guarantee for exports became operational in July 2010 ensuring further support to exporting 
companies. 

3.6.3.  Towards an innovative industry 

Since  2007,  Estonia  has  been  catching  up  to  the  EU27  average  in  terms  of  innovation 
performance.  Estonia  displayed  also  extraordinary  progress  over  several  years  in  increasing 
total  expenditure  on  R&D  in  relation  to  GDP,  reaching  1.14%  at  the  onset  of  the  crisis. 
However,  the  crisis  is  likely  to  lead  to  more  effort  being  put  into  solving  the  underlying 
structural problems in the Estonian innovation system, in particular the low productivity in the 
manufacturing industry. As a consequence of the end of the real-estate boom, it can also be 
expected  that  various  types  of  non-R&D  related  investments  in  finance  and  real  estate  will 
lose some attraction thereby allowing a window of opportunity for renewed interest in R&D 
in high-tech and medium-high-tech investments.  

One  of  the  largest  innovation  support  measure  so  far  was  renewed,  namely  the  funding  of 
Competence  Centres  in  health,  food,  electronics,  ICT,  and  nanotechnology.  It  nevertheless 
remains a great challenge to maintain the high level of R&D and Innovation expenditure that 
was  scheduled  in  the  national  reform  programme  for  the  period  2008-2010  including  the 
important  investment  programme  to  update  the  infrastructure  of  research  and  development 
institutions.  

Notwithstanding the fact that public support for innovation in Estonia has corresponded rather 
well  with  the  main  identified  bottlenecks  in  the  Estonian  innovation  system,  a  number  of 
bottlenecks  remain:  (a)  below-average  productivity  of  industry;  (b)  the  difficulties  in 
developing smooth cooperation between business and academia; (c) Strengthening the export 
position of Estonian producers of knowledge-intensive goods and services. 

3.6.4.  Towards a sustainable industry 

Estonia is doing relatively well in terms of renewable energy provision. The energy intensity 
of  the  industry  remains  high.  Moreover,  there  is  still  a  considerable  environmental  burden 
from Estonian energy production because the energy is mostly produced on the basis of fossil 
fuels, i.e. oil shale.  

In  2009,  the  Government  has  in  cooperation  with  the  Parliament  strengthened  the  policy  to 
support  energy  efficiency  and  renewable  energy  use.  The  Government  has  initiated  the 
preparations for an action plan for renewable energy. In the next years, the Government plans 
to design a broader policy of green growth of the economy. In addition to energy efficiency 
and renewable energy, an important part of it will be improving the environmental technology 
innovation. An Energy and Climate Agency has been established to improve the co-ordination 
of the energy saving and renewable energy programmes and to provide options for additional 
measures. 

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It  can  be  concluded  that  energy  efficiency  and  the  sustainability  of  energy  provision  in 
particular  the  production  of  electricity  through  oil  shale  remain  important  challenges.  The 
potential for improving energy efficiency has not been utilised in Estonia. Increasing energy 
efficiency is not only likely to have a positive impact on inflation but also on the environment 
and on the security of energy supply. 

3.6.5.  The business environment 

Estonia  scores  clearly  above  the  EU  average  in  most  indicator  categories  presented  in  the 
indicator  graph.  In  particular,  the  legal  and  regulatory  framework  and  the  burden  of 
government  regulation  appear  as  good.  However,  the  country  scores  slightly  below  EU 
average  concerning  infrastructure  expenditures  and  the  satisfaction  with  the  quality  of 
infrastructure.  

Since  2007,  Estonia  has  been  working  on  a  better  regulation  programme  consisting  of  two 
parts:  codification  (administrative  burden  reduction  and  simplification)  and  effective 
structures  (impact  assessment  framework).  An  overarching  better  regulation  strategy 
combining these two factors has been developed The simplification programme, scheduled to 
last  until  2013,  included  four  main  sectors  over  the  period  2007-2009:  environmental  law, 
construction  law,  social  law,  permits  and  licences.  In  order  to  reduce  the  administrative 
burden for businesses further, these four sectors  have been  screened in order to identify the 
most  burdensome  obligations.  A  database  is  currently  developed  to  centralise  information 
related to the administrative burden in Estonian regulations. 

Ex  ante  impact  assessment  is  a  relatively  new  policy  in  Estonia,  and  still  work  in  progress. 
The reform of the ex ante impact assessment system conducted in 2009 extended the scope of 
impact  assessments  to  aspects  of  policy  analysis  beyond  budgeting,  including  economic, 
social and environmental impacts. Usage by enterprises of eGovernment services is above the 
EU  average  and  one  of  the  highest  in  Central  and  Eastern  Europe.  Estonia  has  a  national 
eProcurement platform mandatory for the publication of contract notices and contract award 
notices.  The  one-stop-shop  to  start-up  a  company  is  fully  operational  and  further 
developments  to  facilitate  business  activities  include  e-invoicing  in  order  to  accelerate  the 
payment procedure.  

As  shown  by  the  indicator  on  infrastructure  investment,  the  Estonian  business  environment 
would benefit from more investments oriented towards the mobility of goods and factors. A 
renewed  focus  on  public  infrastructure  (transport  and  information  technologies)  with  the 
support  of  EU  structural  funds),  both  cross-border  and  internal,  would  contribute  to 
investment, product and labour mobility within Estonia and the EU. 

Indicators  show  that  Estonia  performs  relatively  well  in  terms  of  regulatory  framework  and 
the burden of government regulation. However, there remains an important challenge in terms 
of infrastructure investment both in terms of quantity and quality. 

3.6.6.  Entrepreneurship and SME policy 

Estonia's SME sector is characterised by marked differences from the EU as a whole. Estonia 
scores clearly above the EU average concerning time required to start a business, the business 
churn,  the  share  of  high-growth  enterprises  and  the  payment  duration  by  public  authorities. 
However,  it  scores  clearly  below  the  EU  average  concerning  bank  loan  conditions  deemed 
acceptable by companies and concerning the enterprise survival rate after two years. 

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In  2009,  a  concept  for  fostering  entrepreneurship  education  in  higher  education  was 
developed  which  is  now  under  discussion.  EU  Structural  Funds  are  used  to  foster 
entrepreneurship among Estonians, for instance via the ‘SPIRIT’ programme which includes 
an entrepreneurship award, entrepreneurship week and a competition of business ideas among 
young people.  

Regarding  the  SME-friendly  business  environment,  the  so-called  Reorganisation  Act  should 
make the winding-up of non fraudulent businesses possible in 3-4 months and so companies 
in  financially  difficult  situation  could  restart  their  activities.  As  an  extra-ordinary  recovery 
measure, Estonia devised a support package for exporting companies (see also above) which 
mainly targets SMEs. The main elements of the measure consist in offering lending support 
and loan guarantees. 

The immediate  challenge for  the business sector  and  in  particular  SMEs  is  to  overcome  the 
crisis.  The  export  support  package  can  play  an  important  role  in  this  regard.  Labour  skills 
could  be  improved  through  skill-matching,  training  and  qualification.  The  introduction  of 
entrepreneurship  education  in  higher  education  without  further  delay  would  also  be  an 
important step. 

3.6.7.  Conclusions 

Estonia  has  been  considerably  affected  by  the  crisis  with  the  biggest  reduction  of 
manufacturing output in the European Union. As wage growth outpaced productivity growth, 
competitiveness eroded resulting in increasing trade deficits. After a period of overinvestment 
in  booming  sectors  such  as  construction  and  real  estate,  resources  need  to  be  reallocated 
towards the tradable goods sectors. In order to increase productivity, labour skills need to be 
improved and productive investments to be ensured including in R&D and innovation. While 
the  business  environment  is  relatively  good,  infrastructure  investments  oriented  towards 
mobility  of  goods  and  factors  will  further  improve  the  business  environment  and  support 
growth.  Energy  efficiency  and  the  sustainability  of  energy  provision  remain  important 
challenges. 

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3.7. 

Ireland 

3.7.1. 

Indicators graph 

Ireland

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

3,5

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2004)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Towards a sustainable industry

Business Environment

Enterprise survival rate after two years (2007)

-3,5

NA

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

NA

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.7.2. 

Introduction29 

Ireland's  labour  productivity  was,  measured  both  per  hour  and  per  person,  constantly  above 
the  EU  average  in  2005  and  2008/2009.  Ireland’s  overall  price  competitiveness  has  been 
deteriorating  during  the  last  decade,  as  reflected  by  the  significant  appreciation  of  the  real 
effective  exchange  rate,  thereby  contributing  to  an  increasing  current  account  deficit.  This 
was mainly due to strong wage increases, which not only fuelled consumption, but led also to 
one  of  the  strongest  increases  in  unit  labour  costs  in  the  euro  zone  since  concurrent 
overinvestment  in  non-productive  housing  resulted  in  a  marked  decline  in  productivity 
growth. 

Nominal  unit  labour  costs  in  Irish  manufacturing  declined  slightly  between  2000  and  2009, 
resulting in a more than 20 percentage point gap compared to the EU average increase of 19% 
but  by  and  large  in  line  with  developments  in  other  major  export-oriented  countries  of  the 
euro zone. As a result, the relative position of Irish manufacturing has not changed markedly 
in this respect. 

Net exports of goods are positive and so the current account deficit is largely driven by high 
outflows of investment income and, to a lesser extent, by negative net services exports. The 
services  deficit  is  somewhat  lower  now  than  in  the  early  2000s,  but  whether  this  reflects 
already a successful shift towards stronger services exports remains to be seen. 

Going forward, wage moderation in the private and the public sector has already contributed 
to improving Ireland’s price competitiveness in 2009 and is expected to continue doing so in 
2010.  This  suggests  that  the  current  account  deficit  is  likely  to  improve  although  much 
depends on the global and European economic context. In fact, from its peak at just above 5% 
of GDP in 2007, the deficit has already narrowed to some 3% of GDP in 2009, mainly due to 
a strong decline of imports. 

Ireland shows no clear specialisation with regard to skills intensity. The importance of low-
skill  sectors  has  decreased  from  1997  to  2007.  There  is  a  high  degree  of  specialisation  in 
sectors  with  high  technology  and  low  technology  intensity.  Moreover,  Ireland  tends  to 
specialise in sectors with a high growth rate compared to the EU average. Nevertheless, low 
growth sectors continue to play an important role. 

Manufacturing plays a bigger role for Ireland than for the EU in total (22% vs. 17% of value 
added in 2008), although the share has been declining since the mid 1990s. Compared to the 
EU  average,  the  manufacturing  sector  is particularly specialised in chemicals, electrical  and 
optical  equipment  and  pulp,  paper  and  publishing.  In  the  service  sector,  only  financial 
intermediation  and  construction  show  a  clear above  average  weight,  although  the  latter  was 
clearly  driven  by  the  housing  boom  and  is  therefore  likely  to  decline.  Employment  figures 
confirm  the  relevance  of  the  manufacturing  sector,  but  also  its  decreasing  importance  over 
time.  

Ireland’s  surplus  in  the  trade  of  goods  is,  relative  to  the  total  volume  of  goods  exports,  the 
largest  in  the  EU.  The  positive  trade  balance  in  manufacturing  mainly  resulted  from  a  very 
high surplus in the chemicals sector and, to a lesser extent, in electrical and optical equipment, 

29 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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with food, drinks and tobacco also showing a strong surplus. Transport equipment and other 
manufacturing  are  the  sectors  with  the  most  noteworthy  trade  deficit.  The  Revealed 
Comparative  Advantage  (RCA),  measured  relative  to  the  EU  and  concentrating  on 
manufacturing,  shows  particular  strengths  for  Ireland  in  2008  in  chemicals,  electrical  and 
optical equipment and food, drinks and tobacco. 

Exit from the crisis 

Ireland has faced a reduction of manufacturing production of up to 24% during the crisis. Up 
to July 2010 output regained to 100% of pre-crisis level. 

Due to budget constraints, the response to the crisis was mainly geared towards mitigating its 
effects on companies’ access to finance and facilitating structural change. Thus Ireland put in 
place two schemes to help companies in difficulties as a result of the economic and financial 
crisis  –  the  Enterprise  Stabilisation  Fund  (ESF)  to  ease  financing  constraints  of  viable  but 
vulnerable companies in the manufacturing and internationally traded services sectors, and the 
Employment  Subsidy  Scheme  (ESS)  to  support  restructuring  measures  with  a  budget  of 
EUR 100 million and EUR 133 million respectively.  

In the longer run, the main challenge for Ireland is to return to a balanced growth path and to 
pursue a sustainable growth and development strategy, which takes account of the changing 
circumstances under which the Irish economy is likely to operate. This implies in particular 
that resources, which until recently have been tied up in construction, have to be reallocated to 
other sectors of the economy or to the upgrading of the existing housing stock rather than to 
its extension. 

3.7.3.  Towards an innovative industry 

With the labour-cost advantage of traditional Irish exports diminishing, Ireland is committed 
to use R&D and innovation as key drivers of future economic growth for both manufacturing 
and  services.  The  aim  is  in  particular  to  improve  the  competitiveness  of  indigenous 
enterprises  and  to  attract  new  knowledge  intensive  investment.  Ireland's  innovation 
performance has already been increasing fastest within the group of Innovation Followers, i.e. 
countries  with  innovation  performance  above  that  of  the  EU-27  average  but  below  those  of 
the  innovation  leaders.  A  key  task  in  the  years  to  come  is  therefore  to  further  upgrade 
Ireland’s innovation record. 

The Irish government recognizes the importance of innovation in services for export growth 
and  has  therefore  proposed  further  actions  in  its  Services  Strategy  to  ensure  the  continued 
development  of  the  services  sector.  These  actions  include  integrated  inter-disciplinary 
education for service activities, dedicated business support measure to promote R&D and the 
use of public procurement to stimulate innovation in services.  

Concrete measures have also been taken to further promote R&D and innovation in general. 
Together with the tax exemption for small start-up companies, the R&D Tax Credit has been 
increased  to  boost  R&D  and  innovation  expenditures.  The  latter  had  already  contributed  to 
fostering R&D in the past and thus is likely to have similar effects now. 

Among the main challenges for the Irish innovation system is the higher education sector. The 
sector has received significant research funds since the year 2000. The focus must now be on 
the deliverables from this investment while maintaining adequate funding levels in the future. 

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Another important challenge is to help medium-sized indigenous companies to increase their 
financial  and  managerial  capacity  to  innovate  and  undertake  R&D.  On  top  of  the 
aforementioned  tax  measures,  a  key  element  in  this  regard  would  be  to  promote  closer 
cooperation with third-level institutions. 

3.7.4.  Towards a sustainable industry 

The  environmental  performance  of  the  Irish  industry  is  broadly  in  line  with  EU  trends.  If 
anything, energy intensity is somewhat lower than on average in the EU. The relatively low 
share of environmental goods in total goods exports indicates though that Ireland does not yet 
fully benefit from the emergence of green markets.  

Moreover,  buoyant  economic  growth  has  led  to  significantly  increasing  CO2  emissions,  in 
particular  from  transport,  and  the  existing  housing  stock  often  suffers  from  poor  thermal 
efficiency. These challenges do not affect industry as such, but they provide an opportunity to 
mitigate the necessary reallocation of resources from the construction sector through sustained 
investment  in  transport  infrastructure,  to  provide  new  markets  for  domestic  appliances  and 
building materials, and thus, to help achieving a more balanced growth path.  

Ireland has taken a number of policy measures and initiative to improve sustainability and to 
foster  the  development  of  a  genuine  environmental  products  and  services  sector.  The 
Environment  and  Green  Technologies  Department  of  Enterprise  Ireland  offers  a  GreenTech 
Support scheme to its clients, particularly in the SME sector. The scheme is designed to help 
these companies take advantage of the opportunities presented  by integrating environmental 
sustainability into their business. Enterprise Ireland has a Cleantech Department dedicated to 
business in this sector. It supports Irish companies to capitalise on the economic opportunities 
arising  in  the  Environmental  Products  and  Services  sector.  The  Dublin  Airport  Authority  is 
pursuing  the  establishment  of  a  specialist  'Cleantech  Incubation  Facility'  at  the  airport.  It  is 
intended to house up to 20 high potential start-ups’ in a concentrated environment allowing 
research  synergies,  shared  services  and  access  to  trade  services  to  take  place.  The  re-
capitalised banks have given a commitment to increasing their lending capacity to SMEs by 
10%  and  have  established  a  EUR 100 million  Environmental  and  Clean  Energy  Innovation 
fund.  Capital  allowances  of  100%  of  the  cost  are  available  as  of  2009  to  those  companies 
investing  in  high  energy-efficient  equipment.  The  Home  Energy  Savings  Scheme  provides 
grants of up to 30% of the cost of retro-fitting insulation and other energy efficiency measures 
to  housing  stock  built  before  2006.  The  measure  is  likely  to  help  the  construction  sector  to 
reallocate resources towards more sustainable purposes. The National Action Plan on Green 
Public  Procurement  which  is  currently  subject to  public  consultation  aims  to  harness  public 
procurement to move the market in favour of eco-efficient goods and services.  

The main issue for Ireland in the years to come is to grasp the opportunities a comprehensive 
greening of the economy is likely to offer. Existing initiatives in this context will bear all the 
more  fruit  if  efforts  to  strengthen  R&D  and  innovation  do  not  run  in  parallel  but  are  also 
harnessed to foster sustainability. 

3.7.5.  The business environment 

Ireland is generally perceived as one of the most attractive business locations. For instance, it 
ranks 7th in the World Bank’s Doing Business index, in Europe surpassed only by Denmark 
and the UK. Together with being an English-language location and due to historically close 

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ties  with  the  US,  these  factors  have  contributed  to  attracting  a  considerable  amount  of 
overseas FDI. 

Going  more  into  detail,  Ireland  scores  significantly  above  the  EU  average  concerning 
infrastructure  expenditures  and  clearly  above  average  concerning  the  legal  and  regulatory 
framework  and  e-government  usage  by  enterprises.  However,  Ireland  still  scores  below  the 
EU  average  concerning  satisfaction  with  the  quality  of  infrastructure  and  the  availability  of 
high-speed broadband lines. Electricity prices for medium size enterprises are equally a matter 
of concern.  

Ireland has taken a number of policy measures to further improve the business environment. 
The government has initiated  in 2010 the construction of  a smart broadband network called 
the Exemplar Network that makes use of multiple colours of fibre to dramatically boost the 
speed  of  fibre-based  communications.  The  ambitious  Transport  21  programme  is  currently 
being implemented and foresees major investment projects for all transport modes, although 
the  budgetary  situation  led  to  some  reassessment  of  investment  priorities.  Transport  21  is 
complemented  by  Ireland's  new  transport  policy,  which  contains  ambitious  targets  with 
respect to modal shift, fuel efficiency and planning. As regards simplification, several major 
consolidation  projects  have  been  initiated  in  recent  years  in  sectors  such  as  Land  Law, 
Planning  Law,  Health  and  Safety  and  Company  Law.  The  five  main  areas  of  regulation 
identified as the most burdensome for business are taxation, statistical returns, environmental 
regulation,  health  and  safety  regulation,  and  employment  and  company  law.  Revised 
guidelines for Regulatory Impact Analyses (RIAs) were published by the government in June 
2009. They include guidance on the measurement of potential administrative and compliance 
costs, especially on entrepreneurship and on enterprise development. 

In particular infrastructure development did not always keep pace with high growth in recent 
years  and  may  therefore  lead  to  bottlenecks  once  growth  picks  up  again.  Against  this 
background,  the  relatively  high  level  of  infrastructure  expenditures  for  both  transport  and 
communications must be seen as an attempt to compensate for insufficient outlays in the past. 
It  is  essential  therefore  that  infrastructure  investment  in  real  terms  is  maintained  at  an 
adequate level. 

As to electricity prices for medium size enterprises, their current level is a drag on Ireland’s 
attractiveness  as  the  domicile  of  choice  for  investment.  Further  action  appears  therefore 
necessary  to  foster  competition  among  suppliers  with  a  view  to  reduce  prices  to  the  level 
encountered in other countries. 

3.7.6.  Entrepreneurship and SME policy 

The economic significance of SMEs in Ireland is broadly in line with the European average. 
In  terms  of  employment,  the  contribution  of  SMEs  is  slightly  higher  than  the  European 
average  (69%  instead  of  67%)  whereas  in  terms  of  value-added  the  share  of  SMEs  is 
somewhat lower than the European average (52% instead of 58%).  

The economic crisis had a measurable impact on business creation. Numbers for 2009 showed 
a  9%  decrease  when  compared  to  2008,  a  year  which  had  already  witnessed  a  decrease  of 
21%. 

In terms of the specific framework conditions for SMEs, Ireland scores slightly above the EU 
average  for  the  payment  duration  by  public  authorities.  Nevertheless,  there  is  mounting 

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criticism  from  businesses  complaining  about  lengthening  payment  periods.  As  to  financing, 
Ireland  scores  slightly  below  average  concerning  the  rate  of  business  bank  loan  demands 
rejected  by  banks  or  bank  loan  offers  to  companies  that  were  rejected  by  the  latter.  As  a 
consequence  of  the  economic  and  financial  crisis,  however,  there  is  now  even  more 
widespread concern about access to finance. 

Ireland  has  taken  a  number  of  policy  measures  which  are  of  particular  relevance  for 
entrepreneurship  and  SMEs  and  which  also  address  some  of  the  aforementioned  issues.  As 
part  of  the  anti-crisis  measures,  the  government  has  announced  that  the  payment  period  by 
central  government  departments  to  their  business  suppliers  is  to  be  reduced  from  30  to  15 
calendar  days.  However,  to  date,  no  concrete  action  has  been  identified.  A  credit  review 
system  has  been  set  up  to  ensure  that  SMEs,  sole  traders  and  farm  enterprises  will  have 
recourse  to  an  independent,  external  review  of  bank’s  credit  refusal  decisions.  A  new  pilot 
initiative  called  ‘Going  for  Growth’  develops  training  for  female  entrepreneurs.  A  3  year 
corporate  tax  and  capital  exemption  for  start-up  companies  was  introduced  in  2009  and  has 
been  extended  in  2010.  New  guidelines  for  public  procurement  are  currently  in  the 
implementation  phase.  They  aim  to  encourage  greater  SME  participation  in  tendering  for 
public  contracts.  A  nation-wide  one-stop  shop  allowing  entrepreneurs  to  carry  out  all  the 
necessary procedures – including registration, tax, VAT and social security – at once and at 
one  administrative  point  had  been  announced  for  December  2009  but  is  not  yet  fully 
functional. 

Ireland  does  not  face  major  challenges  with  respect  to  entrepreneurship  and  SME  policies. 
However, to facilitate business creation and growth once economic growth picks up again, a 
timely  and  comprehensive  implementation  of  the  broad  range  of  initiatives  and  measures 
which are currently on the agenda would be helpful. 

3.7.7.  Conclusions 

The  main  challenge  for  Ireland  is  to  return  to  a  balanced  growth  path  and  to  restore  the 
competitiveness of its export sector where this had deteriorated in recent years. At the same 
time,  the  undisputed  need  to  consolidate  public  finances  necessitates  a  careful  review  of 
spending and taxation priorities with a view to avoid the emergence of future bottlenecks to 
growth, in particular with regard to infrastructure.  

Ireland’s  efforts  to  shift  growth  from  traditional  labour  cost-driven  FDI  and,  more  recently, 
construction to  more  innovative sectors  and  services had already born some  fruit  before  the 
onset  of  the  current  crisis.  Recent  efforts  to  provide  incentives  for  more  sustainable  growth 
also go in the right direction. In addition, Ireland scores significantly above the EU average 
concerning  many  aspects  of  the  business  environment  and  the  work  force.  The  country  is 
therefore  relatively  well-placed  to  overcome  the  crisis  although  some  challenges  remain.  In 
particular  the  capacity  of  indigenous  firms  to  innovate  could  be  stepped-up  further, 
capitalising  as  much  as  possible  on  the  increased  investment  in  public  R&D  and  the 
development of a Green Tech sector. 

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3.8. 

Greece 

3.8.1. 

Indicators graph 

Greece 

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2007)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Towards a modern and 
competitive industry

Towards a sustainable industry

Infrastructure expenditures (euro per inhabitant; 2007)

NA

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

Business Environment

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

NA

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.8.2. 

Introduction30 

Greece’s labour productivity per person employed is slightly above the EU average, but on a 
per  hour  basis  stands  at  around  80%  of  the  EU  average.  Greece  faces  a  serious  problem  of 
competitiveness, which is reflected in a large deficit in goods trade. While services trade is in 
surplus,  mainly  due  to  tourism  and  shipping,  the  deficit  in  goods  trade  has  led  to  a  current 
account deficit of around 11% of GDP in 2009. 

The real effective exchange rate appreciated moderately over the past ten years, indicating a 
slight weakening in price and cost competitiveness. In parallel, nominal unit labour costs in 
Greek  manufacturing  increased  by  21%  between  2000  and  2009,  thus  2  percentage  points 
more  than  the  EU  average  of  19%.  These  developments  suggest  that  among  the  main 
determinants of the trade deficit are also non-price factors, such as quality and specialisation. 
However, price competitiveness may have hampered the development of the tourism sector. 
Overall, the increase in the current account deficit over the past decade reflects the weakness 
and  misalignment  of  the  productive  basis  at  large  in  comparison  to  domestic  and  external 
demand. 

Manufacturing  plays  a  much  smaller  role  in  the  Greek  economy  than  in  the  EU  on  average 
(11% vs. 17% of value added in 2008). Greece is specialised in sectors demanding low skills 
and,  increasingly,  in  low-intermediate  skill  sectors.  The  importance  of  high  and  high-
intermediate  skill  sectors  has  remained  at  a  low  level  from  1997  to  2007.  This  picture  is 
confirmed by the dominance of sectors with medium-low or low technology intensity and a 
very limited role of higher technology sectors. In addition, Greece tends to specialise in low-
growth sectors (as measured by the average growth rate within the EU). 

to 

the  EU, 

the  manufacturing  sector 

Compared 
is  particularly  specialised  on 
food/drinks/tobacco  and  on  refined  petroleum.  Greek  manufacturing  exports  specialise  in 
textiles,  basic  metals  and  chemicals  with  refined  petroleum  and  food  also  being  important 
exporting  sectors.  No  manufacturing  sub-sector  showed  a  trade  surplus.  The  Revealed 
Comparative  Advantage  (RCA),  measured  relative  to  the  EU  and  concentrating  on 
manufacturing, shows particular strengths for Greece in 2008 in textiles and clothing, refined 
petroleum  and  food,  drinks  and  tobacco.  In  the  service  sector,  hotels  and  restaurants, 
wholesale  and  retail,  transport  and  communication  as  well  as  public  administration  have  a 
larger weight than EU in total. The same applies for agriculture and fishing. 

Exit from the crisis 

Greece entered the crisis later than the other euro area members. Manufacturing output is still 
in a continuous downward trend hitting -23% of pre-crisis levels in July 2010. Construction 
mining  and  quarrying,  capital  goods,  clothing  and  shoes  and  consumer  durables  are  hit  the 
hardest.  

Given  the  lack  of  room  for  fiscal  manoeuvre,  the  Greek  government  did  not  adopt  a 
comprehensive stimulus package in response to the economic slowdown but opted instead for 
targeted support for disadvantaged groups and sectors of the economy hit hardest. The Greek 
authorities put forward a number of temporary measures to support the sectors mostly hit by 

30 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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the  economic  crisis,  such  as  the  tourism  sector,  automotive  retailers  and  the  construction 
industry.  Providing  loan  guarantees  to  small  and  very  small  enterprises  has  been  the  main 
instrument for alleviating the impact of the crisis on the business sector and it has been used 
massively  (more  detail  in  SME  section  below).  In  general,  there  were  not  many  recovery 
measures  that  addressed  long  term  structural  weaknesses,  with  the  possible  exception  of 
actions taken in the area of energy efficiency. 

In the memorandum of understanding (MoU) between Greece on one part and the European 
Commission, the European Central Bank and the International Monetary Fund on the other, 
which  was  concluded  in  May  2010  amidst  a  public  finance  crisis,  the  Greek  government 
committed  itself  to  a  number  of  important  reforms  relating  to  product  markets  which 
accompany the actions relating to public finance and the labour market. 

3.8.3.  Towards an innovative industry 

The  structure  of  the  Greek  economy  (specialisation  in  low  to  intermediate  low  skills  and 
technology  sectors  in  manufacturing,  predominance  of  services  and  micro  to  small,  family 
owned  enterprises)  is  not  conducive  to  a  strong  R&D  activity.  Consequently,  R&D 
investments in relation to GDP, particularly in the private  sector, are  amongst  the  lowest in 
EU  and  the  innovativeness  of  the  Greek  economy  depends  heavily  on  imported  technology 
and know-how. It flourishes thanks to organisational and marketing innovations and very little 
on  the  production  and  exploitation  of  new  knowledge.  EU  programmes  (the  Research 
Framework  Programme  and  the  Structural  Funds)  play  a  major  role  in  both  R&D  and 
innovation activity in Greece. 

Public  financial  support  to  R&D  investments  is  expected  to  triple  in  the  present  Structural 
Funds  programming  period  (2007-2013)  in  comparison  with  the  previous  one.  The  main 
infrastructures for innovation, such as incubators, innovation poles, clusters, etc were already 
created  in  the  previous  period.  The  following  actions  were  launched  in  2009:  Innovation 
vouchers  for  SMEs  (EUR 8.4 million);  creation  and  support  of  new  innovative  and 
knowledge-intensive  enterprises  (spin-off  and  spin-out)  (EUR 25 million);  support  to  R&D 
activities  of  young  enterprises  (EUR 11.280 million);  support  of  R&D  activities  of  SMEs 
acting  jointly  (in  groups)  (EUR 23.730 million)  and  support  to  collaborative  R&D  projects 
bringing together enterprises and research institutions (EUR 76.1 million). 

The law adopted in 2008 to overhaul the institutional framework governing research did not 
enter into force on 1.1.2009 as planned. Instead, the new government has attached R&D and 
innovation policy to the ministry of education, and it is likely that policy in this area will be 
redesigned. 

In the context of the MoU, Greece committed to carry-out an in depth evaluation of all R&D 
and  innovation  actions,  including  in  various  Operational  Programmes  under  the  Structural 
Funds,  in  order  to  adjust  the  national  strategy,  and  to  create  an  external  advisory  council 
financed through the 7th R&D Framework Programme, to consider how to foster innovation, 
how to strengthen links between public research and Greek industries and the development of 
regional industrial clusters. 

Producing new technology and transferring it to the market are both problematic. Bottlenecks 
are  funding  (R&D  investments  and  early  venture  capital  are  too  low)  but  also  structural 
issues, since  existing instruments do  not seem to  be very effective. This points to a need to 
improve  innovation  policy  design  and  implementation,  notably  through  evaluating  and 

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drawing  lessons  from  past  experience.  However,  improving  drastically  the  business 
environment  would  probably  do  more  for  improving  innovation  performance  as  new 
investments will help bring about new process and product innovation. 

3.8.4.  Towards a sustainable industry 

On the basis of existing indicators the environmental performance of the Greek industry can 
be  characterised  as  rather  poor.  This  relates  to  weaknesses  in  the  regulatory  and 
administrative environment (inspection and enforcement, absence of land-use codes, delays in 
delivering environmental permits and licensing renewable energy projects) and to the absence 
of basic infrastructures (waste treatment facilities, but also organised industrial zones). 

The main current funding instrument for environmental policy is the Operational Programme 
Environment  and  sustainable  development  with  a  total  envelop  of  EUR 2550 million 
(EUR 1800 million Community funds and EUR 450 million national participation) over 2007-
2013.  Some  targeted  actions  focusing  on  businesses  are  also  funded  by  the  OP 
Competitiveness and entrepreneurship. 

The main recent initiatives in this area with direct relevance to industry are the action Green 
Enterprise  2010,  subsidising  investments  of  SMEs  in  the  manufacturing  sector  aiming  at 
reducing  their  environmental  impact  (total  budget  of  EUR 30 million),  the  action  Green 
Infrastructures  2010,  subsidising  investments  of  SMEs  active  in  recycling,  collection, 
treatment  and  disposal  of  waste  and  rehabilitation  (total  budget  of  EUR 30 million), 
preparatory actions in identifying projects for the treatment of dangerous industrial waste, and 
preparatory actions on the draft new development law (national scheme for investment grants) 
which will prioritise "green" economic activities. 

At  institutional  level,  the  main  developments  were  the  passing  in  2010  of  the  law 
implementing Directive 2006/32 on energy efficiency at final use and energy services, which 
included provisions for establishing the framework for Green Procurement, and of the law on 
accelerating the development of renewable energy sources against climate change. The latter 
law  simplifies  the  licensing  of  renewable  energy  projects  and  exempts  from  licensing  the 
smaller  ones  and  adapts  tariffs  so  as  to  make  them  attractive.  Finally,  the  government 
launched  a  consultation  to  prepare  the  application  of  environmental  responsibility  (i.e. 
obligatory insurance against environmental damage). 

Steps  are  being  taken  to  adapt  the  regulatory  framework  and  reinforce  incentives  towards 
bringing  about  a  more  sustainable  industry.  Timely  and  effective  implementation,  including 
through overhauling enforcement, will be crucial in order to improve the situation in existing 
enterprises and to create a viable market for eco-industries. 

3.8.5.  The business environment 

Greece emerges from the various international benchmarking exercises as among the weakest 
EU  countries.  Also,  the  very  low  level  of  inward  FDI  bears  testimony  to  its  lack  of 
attractiveness as a business location. In comparison with other EU or OECD countries, Greece 
displays a higher number of procedures and a higher cost –monetary or in time- in carrying 
out  routine  business  operations  while  basic  instruments,  such  as  land  use  codes,  are  not 
operational.  Moreover,  slow  (energy,  port  services)  or  inexistent  liberalisation  in  some  key 
markets (road haulage, professional services) contributes to higher costs. 

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The  reform  of  the  public  administration  has  been  recognised  as  high  priority  and  a  specific 
Operational  Programme  "Administrative  Reform  2007-2013"  has  been  set  up  to  prepare  it. 
Among  its  main  objectives  are  the  adoption  of  better  regulation  practices  and  cutting  down 
administrative  burden  to  enterprises.  However,  only  preparatory  actions  have  been 
implemented so far. 

Few  new  developments  took  place  in  this  area  in  2009  due  to  the  economic  crisis  and  the 
national  elections.  The  most  significant  were  the  privatisation  of  Olympic  Airlines  and  the 
partial privatisation of the Piraeus port. 

In  the  context  of  the  MoU  the  government  has  committed  itself  to  introducing  a  number  of 
important reforms by the end of 2010 that should contribute towards improving the business 
environment. These include to simplify the start up of new businesses and make the General 
Commercial Registry (GEMI) fully operational (new law published on 17/6/2010), to simplify 
and  accelerate  the  process  of  licensing  enterprises,  industrial  activities  and  professions 
through  legislation  and  by  making  the  spatial  plans  operational,  to  introduce  a  fast  track 
procedure for authorising large scale FDI projects (already in application), to liberalise road 
freight  transport,  to  legislate  on  a  Better  Regulation  agenda,  and  to  reinforce  the  Hellenic 
Competition Commission. 

The  effective  implementation  of  the  services  directive  in  some  key  sectors  (horizontal 
legislation has already been adopted), the professional qualification directive in 2010, and the 
completion of the liberalisation of the domestic energy market (2010-2011) are also covered 
in the MoU and should contribute towards opening-up the Greek economy and increasing its 
efficiency.  The  Structural  Funds  also  play  an  important  role  in  improving  and  modernising 
network infrastructures that increase economic efficiency. 

Regarding public  administration, an independent  review  of  the  organisation  and  functioning 
of the central administration will be launched in 2010 to prepare future reforms. Among the 
actions  foreseen  for  2010  is  the  adoption  through  legislation  of  a  Better  Regulation  agenda 
and unifying the public procurement system for all sectors and levels of government, together 
with a introducing an electronic platform supporting the use of e-auctioning.  

The measures being planned address some business environment bottlenecks identified over 
the  years  in  Greece,  such  as  excessive  red  tape  and  insufficient  competition  in  the  services 
sector. The reform of the Greek public administration remains a crucial undertaking, not only 
because it can raise the productivity of the public sector but also, and even more importantly, 
because  it  can  contribute  to  raising  the  overall  efficiency  of  the  economy  by  improving  the 
state's  capacity  to  deliver  the  necessary  policies  and  by  reducing  its  burden  on  the  business 
sector.  Indeed,  the  main  challenge  in  the  immediate  future  is  the  effective  design  and 
implementation of the planned measures. 

Over  the  longer  term,  it  would  be  useful  to  address  also  other  determinants  of  the  business 
environment,  including  reducing  excessive  delays  in  the  judiciary  and  restoring  stability  in 
business taxation. 

3.8.6.  Entrepreneurship and SME policy 

The SME sector in Greece is more prominent than in the EU as a whole, and dominated by 
micro enterprises, which account for 58% of total employment or twice as much as in the EU 
on  average.  Entrepreneurship  activity  is  more  intense  than  the  EU  average,  with  a  business 

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ownership rate double the EU average. The economic crisis has put Greek enterprises under 
considerable  stress  both  through  a  credit  squeeze  and,  more  recently,  an  internal  demand 
shock. 

The  national  scheme  of  investment  support  (through  grants,  tax  breaks  and  subsidisation  of 
long-term  loans)  is  being  redesigned  and  its  basic  principles  have  been  put  in  public 
consultation. The other measures to be mentioned here are of a more temporary nature, either 
because  they  are  linked  to  the  crisis  or  because  they  are  initiatives  financed  by  the  EU 
structural funds. 

Providing  loan  guarantees  to  small  and  very  small  enterprises  through  the  Guarantee  Fund 
(TEMΠMΕ) for small and very small enterprises has been the main instrument for alleviating 
the impact of the crisis on the business sector and it has been used massively. A first phase 
(January-March  2009)  included  interest  rate  subsidisation  in  addition  to  guaranteeing  the 
principal. The second phase used more relaxed eligibility criteria and is still running. In total, 
the amount of loans covered is of around EUR 5.2 billion for about 57000  enterprises. Two 
new  actions  were  launched  by  TEMΠMΕ  in  2010,  one  to  pay-out  debts  to  suppliers  (total 
covered of EUR 1.25 billion), also covering new enterprises, and one to pay-out tax and social 
security  debts  (total  covered  of  EUR 1.25 billion).  Another  temporary  measure  in  the  same 
area has been a law freezing bank debt of enterprises hard hit by the crisis and providing for 
debt-rescheduling. 

Regarding support to new investments there are several actions running financed by the OP 
Competitiveness and entrepreneurship. In addition to those already presented above, one can 
mention the actions targeting investments by micro (less than 10 employees) and small (less 
than 50 employees) active in manufacturing, tourism, commerce and services (total budget of 
EUR 650 million);  the  tertiary  sector  –  tourism  and  commerce  (EUR 668 million)  and 
professionals  (EUR 70 million),  in  the  clothing  and  shoes  sector  (EUR 15 million)  and 
women and young entrepreneurship projects (EUR 70 million). 

The  immediate  challenge  for  the  business  sector  is  to  survive  the  crisis,  and  the  policy 
response to restore liquidity through massive loan guarantees seems adequate. Over the longer 
term,  the  real  challenge  will  be  to  strengthen  the  structure  of  the  productive  base  towards 
higher  value-added  and  high-growth  activities.  This  is  a  task  mainly  for  the  individual 
entrepreneurs  but  policy  can  help  by  facilitating  structural  change,  providing  the  right 
incentives and removing the numerous obstacles to growth. 

3.8.7.  Conclusions 

Apart  from  the  short-term  concerns related to the economic crisis, such as getting access to 
finance  and  adjusting  to  the  internal  demand  shock,  the  main  challenge  facing  industry,  but 
also  the  real  economy  overall  in  Greece  is  a  business  environment  that  is  not  delivering 
optimally. 

Addressing the public finances crisis should alleviate the liquidity problems in the economy in 
the  medium  term  and  restore  expectations  at  a  level  conducive  to  growth.  Improving  the 
business  environment  through  actions  such  as  those  planned  in  the  Memorandum  of 
Understanding  (MoU)  will  contribute  to  this  by  reducing  the  costs  of  doing  business  in 
Greece  across  the  board.  However,  there  remains  the  structural  problem  of  specialisation  in 
low-skills, low technology and low growth sectors. The policy response to this problem calls 
for actions to facilitate structural change, some of which, such as increasing maximum rates 

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of collective dismissals, or making mergers and acquisitions easier are included in the MoU, 
and  to  adjust  incentives  so  as  to  induce  sustainable  growth.  This  implies  product  market 
reforms  to  eliminate  rent  seeking  behaviour  and  to  permit  a  more  rational  allocation  of 
resources as well as actions to raise the knowledge base. 

The public administration constitutes an important bottleneck to economic growth, through its 
huge cost to the rest of the economy, both through its size and through its way of functioning, 
through  regulatory  capture,  low  quality  of  services  and  ineffective  enforcement  that  puts  at 
disadvantage those playing by the rules. We note, however, that the efforts undertaken by the 
Greek government, also within the context of the MoU, are expected to redress the situation 
within a reasonable amount of time. 

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3.9. 

Spain 

3.9.1. 

Indicators graph 

Spain

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2004)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

-3,2

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Towards a modern and 
competitive industry

Towards a sustainable industry

Business Environment

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.9.2. 

Introduction31 

Productivity growth has been slow during the last decade, with high allocation of investment 
to low productivity sectors, especially construction and low-productivity services. However, 
equipment investment had been also increasing steadily until the beginning of the crisis, with 
rates of real change in terms of national accounts, more than 9% in 2005, 2006 and 2007. 

Spain  has  a  labour  productivity  above  the  EU  average,  by  around  6%  if  measured  per  hour 
worked and 11% per person employed. There was a notable increase between 2008 and 2009 
in  this  last  indicator,  attributable  more  to  the  sharp  contraction  of  the  construction  sector 
rather than to improvements in the structural drivers of total factor productivity. 

The  real  effective  exchange  has  appreciated  markedly  between  1999  and  2009  indicating  a 
loss  of  competitiveness  to  third  countries.  This  conclusion  is  underpinned  by  the  fact  that 
nominal  unit  labour  costs  in  Spanish  manufacturing  increased  by  31%  between  2000  and 
2009, thus 12 percentage points above the EU average of 19%. 

Spain is specialised in low and in low-intermediate skill sectors. The importance of high skill 
and high-intermediate sectors has been stable on a low level from 1997 to 2007. This picture 
is confirmed by a clear trend towards sectors with medium-low technology intensity, a stable 
specialisation  on  low  technology  sectors  and  a  quite  low  and  decreasing  share  of  high 
technology  sectors.  Spain  tends  to  specialise  in  sectors  with  a  growth  rate  below  the  EU 
average.  

Manufacturing  plays  a  smaller  role  for  Spain  than  for  the  EU  in  total  (15,1%  vs.  18,1%  of 
value  added  in  2009).  Compared  to  the  EU,  the  manufacturing  sector  shows  some 
specialisation  on  non-metallic  mineral  products,  basic  metal  products,  food,  textiles,  other 
machinery and leather and footwear. In the service sector, hotels and restaurants have a clear 
above average weight. A relevant fact is the high share of the construction sector (11.50% in 
2008). This is the result of a large increase in the last decade. Agriculture and, in particular, 
fishing are much more important than for the EU in total. Employment figures show the low 
level  of  productivity  in  agriculture  but  also  its  decreasing  importance  over  time  and  a 
structural change towards service sectors. Spain has a deficit in the trade of goods; relative to 
the  total  volume  of  exports,  it  decreased  markedly  from  2005  to  2009.  The  negative  trade 
balance  in  manufacturing  mainly  resulted  from  deficits  in  electrical  and  optical  equipment 
chemicals and textiles and clothing while only transport equipment and non-metallic mineral 
products  showing  a  trade  surplus.  The  Revealed  Comparative  Advantage  (RCA),  measured 
relative to the EU and concentrating on manufacturing, shows particular strengths for Spain in 
2008  in  non-metallic  mineral  products,  transport  equipment,  leather  and  footwear  and  food, 
drinks and tobacco. 

Exit from the crisis 

The  economic  and  financial  crisis  hit  Spain  hard.  The  oversized  construction  sector  and  its 
supplying  sectors  (e.g.  cement,  bricks,  ceramics,  iron  and  steel,  furniture)  as  well  as 
automotive were hit the hardest. Manufacturing output decreased by 27%. In July 2010, the 
production is still 24% below pre-crisis level. New and less competitive companies are most 

31 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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affected by  the  crisis and  still face  problems in access  to  finance.  Direct  grants  of  less  than 
EUR 500  000  were  granted  to  over  8000  enterprises  mostly  SMEs  in  the  tourism,  road 
transport, services, car supplier and manufacturing sectors.  

In addition, there have been numerous credit lines either set up or enlarged in 2009 and often 
renewed for 2010, managed by the Official Credit Institute (ICO), which target in particular 
SMEs.  

There have been several initiatives to provide temporary relief for the car industry including 
funds  to  maintain  and  enhance  competition  in  the  automobile  industry  from  the  Central 
Government's special fund to vitalise the economy and employment, industrial measures and 
support  for  demand  (including  a  car  scrapping  scheme),  labour  measures,  support  for  the 
logistic sector, support for R+D+I and financial measures with the endowment of credit lines. 
These measures are temporary and either have already been phased out at the end of 2009 or 
they are expected to disappear in 2010. 

3.9.3.  Towards an innovative industry 

Spain’s total R&D expenditure increased from 0.95% of its GDP in 2001 to 1.35% in 2008, 
with  a  private  participation  of  56.1%.  This  trend  is  based  on  a  substantial  increase  in  both 
private and public expenditures. EU Structural Funds have made a significant contribution to 
such  progress.  Thus,  for  the  ERDF  2007-2013  programming  period,  almost  €9  billion  were 
allocated to R&D and innovation.  

The authorities have been adopting measures to catch up in terms of innovation, especially for 
the  private-sector.  Measures  have  been  adopted  to  stimulate  business  creation  and  facilitate 
funding  and  incentives,  and  efforts  are  ongoing  to  reduce  those  labour-market  rigidities  to 
provide a more favourable environment and stimuli to the different agents of the innovation 
system at national and regional levels. The INGENIO 2010 Programme, which represents the 
main  programme  within  the  National  Reform  Program  regarding  the  R&D&I  issues, 
continues  being  particularly  detailed  and  generously  funded.  It  proposes  a  number  of 
instruments to increase the focus and funding of government  research, stimulate technology 
transfers  by  encouraging  public/private  partnerships  and  enhance  the  incentives  for  private-
sector research and the diffusion of new technologies.  

The  National  Strategy  for  Innovation  (e2i),  recently  adopted  intends  to  accelerate  the 
transformation  of  the  Spanish  productive  model  and  increase  the  economy’s  innovative 
capacity. 
finance,  markets, 
internationalisation, regional cooperation and human resources. 

focuses  on  5  axes  around  knowledge 

transfer: 

It 

General  Guidelines  of  the  Integral  Plan  on  Industrial  Policy  2020  (PIN-2020)  have  recently 
been  approved,  aimed  at  orienting  structural  change  in  industry  towards  higher  value  and 
knowledge intensive activities.  

At  the  same  time,  Spain  continues  applying  reindustrialization  programmes  on  certain 
territories, according to the Guidelines on National Regional Aid for 2007-2013. Their target 
is to create sustainable development through the deployment of new industry, or regeneration 
of the old one. 

Spain would gain from continuing efforts to improve the quality and excellence of research, to 
absorb knowledge spill-over from other countries and to connect to the expanding European 

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research system. A number of challenges remain. Firstly, the research sector, developed in a 
wide net of researching centres and universities, is not adequately oriented to enterprises. It 
will be important to increase public-private cooperation and incentivise enterprises and public 
centres to learn to work together. Secondly, business R&D expenditures are low and efforts to 
encourage their rise should continue. Thirdly, the availability of qualified RDI human capital, 
for example PhDs, is an issue of concern. 

3.9.4.  Towards a sustainable industry 

Energy  intensity  is  still  higher  than  the  EU  average,  but  improved  by  4.6%  in  2008. 
Promoting  renewable  energies  continues  to  be  a  priority  of  the  Government.  A  new 
Renewable Energy Plan (PER) 2011-2020 is being drafted and will include new technologies 
such as geothermal and wave power. Both are in response to commitments assumed by Spain 
in  the  Energy  and  Climate  Change  Package  for  2020.The  Government  implemented  the 
Energy Saving and Efficiency Plan 2008-2011 comprising 31 measures. The part of the Plan 
implemented  to  date  would provide about 75% of the annual target saving.  These  measures 
include notably a new incentive mechanism to reduce losses in the distribution network. The 
Plan  for  Energy  Saving  and  Efficiency  will  be  reviewed  and  updated  for  the  period  2013-
2020. In addition, a plan to foster internationalisation of Spanish enterprises in sectors related 
to  climate  change  (such  as  renewables  and  environmental  technologies)  was  approved  in 
March 2009. 

In  2008,  the  State  General  Administration  Green  Procurement  Plan  set  a  goal  of  achieving 
50%  green  public  procurement  by  the  administration  by  2010.  The  measures  defined  in  the 
plan are being put into practice, including training courses for procurement personnel and the 
drawing up of good practice codes for product groups. There has also been progress in the use 
of  EU  Eco-Management  and  Auditing  Scheme  (EMAS)  and  the  EU  eco-label  system. 
Significant progress has also been made in the development of eco-design guidelines. 

3.9.5.  The business environment 

The  legal  and  regulatory  framework  in  Spain  is  seen  as  being  less  favourable  to  businesses 
than the EU average and the country's rank in the last Doing Business report lost 10 places, 
not  because  the  situation  worsened  in  Spain  in  absolute  terms  (it  even  improved  in  some 
cases)  but  because  other  countries  progressed  much  faster.  Procedures  regarding  business 
start-up are particularly numerous, resulting in lengthy delays. 

Spain has put a high priority on improving infrastructure as corresponding expenditures and 
user satisfaction indicate. 

Spain  has  established  in  2007  the  target  of  reducing  by  30%  by  2012  the  administrative 
burden  on  businesses.  In  the  framework  of  the  Plan  to  Reduce  Red  Tape,  the  Cabinet 
approved  over  the  period  June  2008  -  April  2009  three  packages  to  reduce  administrative 
burden involving a total of 159 measures.  

A Royal Decree (RD) regulating the report on the analysis of regulatory impact was approved 
in  July  2009,  with  the  aim  of  facilitating  and  strengthening  the  assessment  of  the  legal, 
economic, budgetary, gender and social impacts that the new regulations may have, including 
the impact on the resulting administrative burden. The publication of the impact assessments 
is  non-mandatory.  This  RD  does  not  apply  to  regional  legal  procedures,  but  regions  are 
developing their own impact assessment regulations (their scope is more limited). According 

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to the new RD, consultation of stakeholders would be done before starting the legal procedure 
proper. A public internet consultation tool is not yet available.  

eGovernment usage by enterprises is below the EU average but is increasing fast (from 58 to 
65% in the last 3 years). eGovernment policy is part of the overall in the Spain's Information 
Society policy dating from 2007 and renewed in 2010 through the Plan Avanza 2.  Identified 
measures are being introduced timely. The National eProcurement Platform is mandatory only 
for the central government procurement authorities.  

With a view to improving the business environment and increase competition in professional 
services, the Spanish authorities implemented the ambitious "Omnibus" and Umbrella Laws, 
which  aim  at  transposing  the  general  principles  of  the  Services  Directive  in  sector-specific 
laws and also include a number  of certain measures to reduce the administrative burden for 
start-ups. The system will be supported by an integrated virtual one-stop-shop. In addition, the 
draft law on Sustainable Economy of March 2010 included additional measures in this field 
such  as  a  further  reduction  in  time  and  administrative  costs  for  in  setting  up  businesses.  A 
reform  of  the  Bankruptcy  Act  is  planned  in  order  to  simplify  procedures  and  reduce  costs. 
Measures to modernise the Justice administration will also be introduced in the next 3 years. 

Regulated tariffs for electricity were abolished in 2009 and the progressive elimination of the 
tariff deficit is planned, although a freeze in electricity prices was announced recently in order 
to help households and businesses cope better with the crisis. The operations proceedings to 
reinforce the electric interconnections with France and Portugal have been approved. 

The  Strategy  for  Sustainable  Economic  Growth  approved  in  the  end  of  2009  includes 
measures to streamline bureaucracy, improve education and encourage companies to have a 
more  international  focus  as  well  as  tax  breaks for  firms  that  innovate  and  the  promotion  of 
investment  in  the  renewable  energy  sector  and  high-tech  industries.  The  law  on  Sustainable 
economy also includes measures to help the reorientation of the construction sector towards 
rehabilitation and urban renovation. 

Continue improving the conditions for the creation of new companies is a key challenge in the 
current  context  of  change  in  the  productive  structure  of  the  Spanish  economy.  Moreover, 
professional  services  need  to  keep  on  moving  away  from  the  traditional  anti-competitive 
regulation  with  the  use  of  recommended  tariffs  (which  often  exceed  the  cost  of  the  service 
provided),  or  a  number  of  prior  administrative  authorisations  to  deliver  certain  services. 
Restrictive regulations in the retail sector have resulted in higher prices for the consumers and 
limited productivity increases and efforts to increase. 

3.9.6.  Entrepreneurship and SME policy 

The contribution of the total SME sector to employment (78%) is in Spain higher than in the 
EU on average (67%), particularly in micro firms (38%). The cost to close a business’ is also 
above average. The share of population that already started a business or see entrepreneurship 
as  an  opportunity  is  only  49%  in  Spain  as  opposed  to  almost  58%  in  the  EU).  The  attitude 
towards allowing people a second chance with a new business is the least positive within the 
entire EU. 

Regarding access to finance, although new extraordinary credit lines have been introduced in 
order  to  help  the  liquidity  of  SMEs,  the  efficiency  of  the  system  is  not  optimal,  since  the 

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Official Credit Institute (ICO) does not have its own network to operate directly with SMEs, 
independent workers or families and needs to go through banks. 

Spain is the second worse performer in the EU regarding payment duration. The shortening of 
payment terms remains of particular importance for SMEs, which often have a weak equity 
position,  which  is  further  undermined  by  the  late  payment.  Improving  the  cash  flow  is 
particularly important in times of crisis.  

Since  2006/2007,  the  programme  ‘Emprendemos  juntos’  aims  at  promoting  the  social 
recognition of entrepreneurs and developing a positive image of business people. One of the 
main  actions  is  the  organisation  of  an  ‘Entrepreneur  Day  and  similar  activities  at  regional 
level.  Regarding  entrepreneur  skills,  a  law  introducing  entrepreneurship  into  the  school 
curriculum was adopted in 2006 and started to be implemented in 2009 at local level by the 
autonomous  regions.  Since  2008,  the  capitalisation  percentage  of  unemployment  aids  was 
increased to enhance the chances of the unemployed to become self-employed. 

The ‘Local Investment Fund', part of the 'E-Plan' aimed at increasing public investments at a 
local  level  by  financing  newly  planned  public  works  in  2009.  Its  aim  was  to  favour  the 
viability  and  involvement  of  enterprises  (especially  SMEs)  carrying  out  activities  related  to 
the construction sector, while improving public local infrastructures.  

A  law  laying  down  measures  to  combat  late  payment  has  been  passed  in  July  2010,  which 
should  reduce  the  time  of  payment  by  the  public  sector  to  30  days,  60  days  for  payments 
between companies.  There are also new measures in place to support exports. 

It  is  relevant  to  note  the  substantial  financial  contribution  of  the  European  Regional 
Development Fund (ERDF) to the above activities: 3,5 billion to SMEs and entrepreneurship 
and 1,1 billion for ICT. Also the new Technology Fund, devoted to Innovation by and for the 
benefit of Enterprises, mainly SMEs, received a special allocation of about €2 billion.  

Furthermore, in the last few years Spain has launched three JEREMIES (venture capital funds 
co-funded  by  the  ERDF),  holding  funds  amounting  over  EUR  430  million.  These  financial 
instruments  are  targeted  to  enterprises  needs  by  providing  guarantees,  loans,  equity 
participations and/or venture capital for innovative enterprises. 

Spain  continues  to  lag  behind  on  entrepreneurial  culture.  Liquidity  problems  continue  to  be 
acute  and  further  measures  will  be  necessary  to  ensure  sufficient  access  to  finance,  in 
particular  for  SMEs.  In  terms  of  late  payment,  despite  some  recent  measures  there  is  still 
room for improvement. 

3.9.7.  Conclusions 

The crisis has taken in Spain a heavy toll on competitiveness, jobs and public finances. The 
expansionary  fiscal measures  taken  in 2009 will be  discontinued,  reducing relief to hard hit 
sectors. Under these circumstances, having access to finance will be particularly important for 
SMEs. 

Spain  would  benefit  from  continuing  to  facilitate  structural  change  towards  a  more 
knowledge-intensive  economy.  The  challenge  is  therefore  to  enhance  productivity  and 
facilitate wage and price adjustments. Improving innovation and investment by firms, making 
the  regulatory  framework  more  favourable  for  business  creation  and  growth,  training 

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(including permanent training of workers) and encouraging competition, especially in services 
are also crucial for achieving this objective. 

3.10. 

France 

3.10.1.  Indicators graph 

France

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2007)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2004)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

Business Environment

% of broadband lines with speed above 10 MBps (2009)

NA

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

NA

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

NA

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.10.2.  Introduction32 

France’s  overall  competitiveness  position  is  shown  in  its  labour  productivity  which  is, 
measured  both  per  hour  and  per  person,  clearly  above  the  EU  average.  The  real  effective 
exchange  rate  has  appreciated  moderately  between  1999  and  2009,  indicating  a  slightly 
decreased price-competitiveness; however, this decrease was less pronounced than for the EU 
in  total.  Moreover,  while  nominal  unit  labour  costs  in  French  manufacturing  first  declined 
somewhat  and  then  increased  again  resulting  in  an  overall  increase  of  5%,  this  increase 
remains 14 percentage points below the EU average of 19%. 

France  is  specialised  in  sectors  demanding  high  skills  while  the  specialisation  of  the  other 
sectors  is  slightly  below  the  EU  average.  Nevertheless,  France  shows  a  decreasing 
specialisation towards sectors with high technology intensity and an increasing specialisation 
in the medium-low technology sectors from 1997 to 2007. There is no clear profile regarding 
sectoral growth intensity as both sectors with relatively high and relatively low growth play 
an important role. 

Manufacturing plays a significantly smaller role for France than for the EU in total (12% vs. 
17%  of  value  added  in  2008).  The  only  sub-sector  which  is  approaching  an  EU  average 
importance  is  food/drinks/tobacco  (actually  tobacco's  share  is  negligible).  Above  average 
values can be found in the service sector for “real estate and business activities”, “health and 
social  work”  and  public  administration  as  well  as  for  agriculture  and  fishing.  Figures  for 
earlier years showed a sub-sectoral structure for manufacturing which was somewhat more in 
line with the EU average. Employment figures also show the slowly decreasing importance of 
manufacturing over time. Forecasts until 2020 expect an increase in employment in business 
and other services by almost 10% while employment in manufacturing might drop further by 
some 8%. 

France shows a moderate deficit in the trade of goods, relative to the total volume of exports. 
The  negative  trade  balance  in  manufacturing  mainly  resulted  from  deficits  in  electrical  and 
optical  equipment,  textiles  and  clothing  and  basic  metal  products  while  mainly  transport 
equipment,  chemicals  and  food/drinks/tobacco  showed  noteworthy  trade  surpluses.  The 
Revealed Comparative Advantage (RCA), measured relative to the EU and concentrating on 
manufacturing, shows particular strengths for France in 2008 in food, drinks and tobacco and 
transport equipment. 

Exit from the crisis 

French  manufacturing  output  dropped  by  20%  during  the  economic  and  financial  crisis. 
Production increased by 9% in July 2010 compared to the bottom of the crisis.  

The anti-crisis measures mainly focused on easing the access to finance for companies (for an 
amount of EUR 15.9 billion out of EUR 33 billion spent under the Recovery Plan by March 
2010). This primarily included early reimbursement of fiscal  debts, such as VAT, corporate 
tax or Research Credit Tax, and combined with higher pre-financing in public procurement, 
fiscal relief for job creation in very small enterprises, loan guarantees to small and mid-size 
enterprises as well as more than EUR 1.5 billion of direct investment in various companies by 

32 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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the  Fonds  Strategique  d’Investissement.  Such  measures  were  characterised  by  very  rapid 
implementation, and their combination with support to the banking sector contributed to avoid 
a credit crunch and prevented short-term liquidity disruption for most enterprises. 

Additional  anti-crisis  measures  were  largely  based  on  public  investments  in  transport, 
research and building infrastructures (for an amount of EUR 9.8 billion out of EUR 33 billion 
spent under the Recovery Plan in March 2010) from public undertakings, local authorities and 
central  government.  Such  investment  was  slower  to  implement  but  had  some  multiplying 
effect on economic activity. 

Other  notable  budgetary  measures  regard  sectoral  aids  to  the  automotive  industry  (car 
scrapping  scheme,  which  benefited  more  than  700,000  individuals  so  far,  and  state  aids 
including a 5-year ‘green’ loan of EUR 6 billion to the car builders PSA and Renault, aimed 
at supporting the development of cleaner vehicles).  

The  recovery  measures,  which  were  targeted,  timely  and  temporary,  contributed  to  sustain 
domestic demand and to avoid a deeper recession.  

3.10.3.  Towards an innovative industry 

In  terms  of  innovation  performance,  France  remains  among  'innovation  followers',  as 
measured  by  the  European  Innovation  Scoreboard.  While  public  sector  investment  is 
significant, France’s main weakness lies in a relatively low private investment in R&D and a 
low innovative behaviour of companies, notably SMEs. 

In  2008-2009,  in  a  context  of  economic  crisis,  public  funding  to  encourage  business 
expenditures in research and innovation was increased and focused on a few key instruments, 
namely  the  Research  Tax  Credit  (CIR),  the  innovative  start-up  scheme  (Jeunes  Entreprises 
Innovantes), financing by the Innovation Agency OSEO and support to competitive clusters 
(pôles  de  compétitivité).  In  2009,  an  evaluation  demonstrated  the  effectiveness  of  the 
innovative start-up scheme.  

EUR 7 billion out of the EUR 35 billion dedicated to ‘investments for the future’ (financed by 
the Grand Emprunt launched in December 2009) were allocated so far, out of which EUR 4.5 
billion  directly  relate  to  innovation,  including  EUR 1.8  billion  for  eco-innovation.  Fund 
allocation  is  consistent  with  the  priorities  set  in  the  National  Strategy  for  Research  and 
Innovation (2009).  

Most  Regional  Innovation  Strategies  were  adopted  in  2009,  which  can  contribute  to  the 
consistent  implementation  of  the  principles  and  priorities  of  the  National  Strategy  for 
Research and Innovation, based on the strengths and weaknesses of the competitive situation 
and  of  the  ‘innovation  ecosystem’  identified  at  local  level,  and  through  coherent  use  of 
existing policy tools.  

In  2010-2011,  in  a  context  of  constrained  public  finances,  it  is  expected  that  a  systematic 
evaluation of the added value and effectiveness of existing financial schemes and state aids in 
promoting additional business investment in R&D&I based on performance indicators would 
allow refocusing public spending on key innovators (such as innovative SMEs). This could be 
combined  with  a  reflection  on  the  insufficient  private  funding  of  innovation  (e.g.  venture 
capital  and  bank  loans),  for  example  as  regards  possible  substitution  effects  from  public 
intervention or lack of competition in the financial sector.  

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Technological  but  also  non-technological  innovation  (including  product  differentiation 
through design or branding and innovation in services and processes) can play a key role in 
strengthening  the  non-price  competitiveness  of  export-oriented  production  (goods  and 
services).  To  this  end,  several  possibilities  exist  to  further  improve  the  ‘innovation 
environment’, e.g. pursuing efforts to improve the governance of the pôles de compétitivité; 
improving the efficiency of public structures in research and innovation and higher education 
(e.g.  mergers  of  institutions  to  reach  ‘critical  mass’);  strengthening  incentives  to  public-
private  cooperation  including  through  ‘valorisation’  of  public  research  findings;  through 
public procurement etc. Efforts to strengthen the cooperation between secondary and higher 
education and the business community may be usefully pursued and amplified, as well as the 
development  of  vocationally-oriented  curricula  with  technical  or  engineering  background 
(notably at regional scale).  

3.10.4.  Towards a sustainable industry 

Greenhouse gas emissions in 2008 decreased by 6.4% overall compared to 1990. Emissions 
from  electricity  generation  are  low  compared  to  most  developed  countries  due  to  nuclear 
power, but emissions from transports and buildings  increased until 2008 compared to 1990, 
and energy consumption from buildings increased by 4.8% between 2000 and 2007. This is to 
be  compared  with  the  targets  of  the  Grenelle  de  l’Environnement  (-38%  in  energy 
consumption from buildings and stabilisation of greenhouse gas emissions from transport by 
2020).  The  share  of  renewable  energy  in  gross  inland  consumption  is  7%  in  2007,  to  be 
compared to a target of 23% by 2020, and mainly comes from biomass (for heat and power) 
and hydropower. Two French producers of biomass heating are in the world top 10, but there 
is  no  significant  French  manufacturer  in  the  sector  of  solar  and  wind  energy,  where  France 
seems to have lost the competitive race so far. 

Energy  intensity  decreased  by  15%  between  1991  and  2006  and  energy  efficiency  is  high 
compared to most developed countries. Electricity prices (including for industrial customers) 
are relatively low and energy dependency remains below the EU average.  

The Recovery Plan did not contradict with long-term environmental targets. “Green” recovery 
measures  in  rail,  waterways,  ports,  energy  efficiency  in  agriculture,  thermal  renovation  of 
buildings, car scrapping  scheme,  green R&D and energy infrastructures  accounted  for  more 
than 15% of the Recovery Plan.  

2009-2010  measures  for  the  energy  performance  of  buildings  consistently  address  the  main 
market  failures  by  encompassing  regulation,  audit  and  certification,  tax  and  financial 
incentives,  consumer  information  and  training  of  professionals.  Installation  of  plug-and-ride 
terminals,  combined  with  ‘green’  loans  to  car  manufacturers  and  public  procurement,  is 
expected to allow selling of electrical vehicles as of 2011. Heavy transport will be charged on 
free  roads  as  of  2011.  But  the  consistency  between  Grenelle  I  targets  and  Grenelle  II 
provisions  is  less  obvious  in  the  field  of  renewable  energy,  notably  as  regards  the 
development  of  solar  and  wind  energy  at  industrial  scale.  A  draft  ‘national  strategy  for 
sustainable  development  2009-2013’,  consistent  with  EU  targets  and  policies,  is  being 
discussed.  In  January  2010,  a  national  conference  on  ‘green  growth  jobs’  identified  future 
skill needs in 11 ‘green’ sectors.  

Promoting  export-oriented  specialisation  areas  in  the  ‘green’  sectors  through  integrated 
sectoral  strategies  is  reported  as  a  means  to  strengthen  France’s  industrial  competitiveness 
while  contributing  to  the  ‘greening’  of  its  overall  economy  and  the  achievement  of  its 

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environmental  targets.  This  may  include  environmental  industries  (e.g.  air,  water  and  waste 
treatment)  and  eco-technologies  (e.g.  new  technologies  in  renewable  energy),  transportation 
(e.g.  rail,  electrical  and  hybrid  cars),  energy  (e.g.  biomass  heating),  ‘sustainable  cities’  (e.g. 
sustainable urban mobility & urban planning), sustainable agriculture, ‘green’ chemicals etc, 
and  may  be  connected  with  the  priorities  set  in  the  National  Strategy  for  Research  and 
Innovation (2009) and the future National Strategy for Sustainable Development.  

3.10.5.  The business environment 

France  scores  significantly  better  than  the  EU  average  concerning  electricity  prices  for 
medium  size  enterprises,  infrastructure  expenditures  and  satisfaction  with  the  quality  of 
infrastructure.  eGovernment  usage  by  enterprises  in  2009  is  slightly  below  the  EU  average. 
France scores clearly below the EU average concerning the burden of government regulation 
and the legal and regulatory framework. The latter indicates some potential for clarifying the 
business environment (e.g. corporate law and corporate taxation), streamlining administrative 
structures (e.g. Balladur report, duplication of services) and systematically reviewing state aid 
and financial support schemes (e.g. 6000 support schemes for enterprises, including 120 for 
creating a new firm).  

Since  2008,  France  has  undertaken  a  set  of  initiatives  in  order  to  improve  the  regulatory 
quality.  Since  1st  September  2009,  impact  assessment  has  been  a  constitutional  requirement 
and  any  bill  proposed  by  the  government  must  be  accompanied  by  an  impact  assessment 
made public online. Impact assessments have a significant scope, but no recommendation is 
made concerning SMEs. The streamlining of permanent consultation bodies (abolishment of 
40%  of  the  advisory  boards)  in  2009  and  the  increased  use  of  temporary  consultation 
mechanisms  such  as  the  ‘Grenelle’  method  and  ‘Etats  généraux’  and  of  publicly  available 
consultation documents are positive.  

The most recent simplification law (May 2009) includes few provisions for enterprises. The 
initial  national  objective  was  to  reduce  the  burden  of  the  most  burdensome  or  ‘irritating’ 
procedures  by  25%  before  end  2011.  700  administrative  obligations  or  procedures  were 
analysed so far, and 250 simplified. Besides, the measurement methodology was enlarged to 
“users’  expectations”  (including  private  individuals).  Following  ‘Etats  Généraux  de 
l’Industrie’, a new initiative was launched in May 2010 to “simplify the legal and regulatory 
environment of businesses for their competitiveness”, including all administrative procedures 
and laws applicable to enterprises, and to reduce corresponding costs and delays.  

In 2009, the transposition of the Services Directive strengthened one-stop-shops for creating, 
modifying or closing a company. New e-Government services allow enterprises to pay their 
taxes and social contributions online. 

The ongoing State Modernisation Programme (RGPP) implies huge efforts  for streamlining 
the state’s organisation to improve public finances. There are obvious synergies between this 
exercise and  a systematic review of  the business legal and regulatory environment from the 
‘competitiveness’ angle, as proposed following ‘Etats Généraux de l’Industrie’. The  overall 
business environment would also benefit from enhanced domestic competition (e.g. banking 
sector; business and other services). 

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3.10.6.  Entrepreneurship and SME policy 

The SME sector in France employs, in total, relatively less people than in the EU (61.7% vs. 
67.4%).  France  scores  above  the  EU  average  concerning  the  time  required  to  start-up  a 
business  and  slightly  above  the  average  concerning  early  stage  financing  and  bank  loan 
conditions  deemed  acceptable  by  companies,  despite  deteriorated  access  to  venture  capital 
and  payment  delays  in  2009.  France  scores  slightly  below  the  EU  average  concerning  the 
business churn.  

The  rate  of  SMEs  which  import,  export  and  invest  abroad  and  the  rate  of  SMEs  which 
innovate  internally  and  place  new  products  on  the  market  remain  below  the  EU  average 
(according to the SBA fact sheet 2009). This might be correlated to the lower share of high-
growth  SMEs  and  to  an  overall  insufficient  growth  of  SMEs.  To  enhance  their  innovation 
capacity, non innovative SMEs primarily need information and contacts (e.g. through OSEO, 
chambers of commerce, regional authorities, competitive clusters etc.) while innovative SMEs 
need financing, especially in the expansion stage (including from venture capital). Both need 
enhanced access to skilled workforce.  

320,000 enterprises were created under the new statute of ‘auto-entrepreneur’ in 2009 (against 
260,000 creations with other statutes), mainly by employees and unemployed benefiting from 
the new programme for business creation and takeover (employment policy). Annual sales by 
‘auto-entrepreneurs’  are  low  (EUR 6 300  on  average)  and  the  conversion  rate  into  ‘normal’ 
companies is unknown, but this measure certainly promotes entrepreneurial spirit. Assessment 
in the mid term is necessary.  

The  OSEO  financing  capacity  (guarantees)  was  significantly  increased  in  2008  within  the 
Recovery  Plan,  and  EUR 2.5 billion  were  added  in  2009,  including  EUR 1 billion  for 
innovative  SMEs.  The  introduction  of  the  Credit  Ombudsman  can  be  considered  as  a  good 
practice. The deterioration in payment delays in 2009 due to the crisis was partially offset by 
the positive impact of the Loi de Modernisation de l’Economie on the duration of payments; 
the  early  reimbursement  of  the  Research  Tax  Credit  contributed  to  relieve  short-term 
financing constrains for key innovators (i.e. innovative start-ups and high-growth SMEs).  

In  2010,  the  creation  of  regional  “single  contact  points”  providing  SMEs  with  overall 
information about all administrative procedures and obligations (including taxation and state 
aids) was decided following the ‘Etats Généraux de l’Industrie’.  

Easier  access  to  bank  loans  (through  support  to  mutual  guarantee  mechanisms)  and  private 
funding  (including  venture  capital),  simplification  of  the  regulatory  environment,  enhanced 
domestic competition (e.g. in business services) and a more dynamic and open research and 
innovation system are key levers to set the right conditions to promote the growth, export and 
innovation capacity of SMEs.  

Efforts  to  improve  reduced  payment  delays  from  public  undertakings  should  be  pursued. 
Derogations to the rule on payment delays should be suppressed by 2012.  

Efforts  to  improve  the  efficiency  of  public  support  to  exporting  firms  (e.g.  avoiding 
duplication  and  overlaps  of  efforts  by  various  structures),  especially  in  emerging  countries 
such as India and China, should be pursued.  

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3.10.7.  Conclusion 

Challenges for France are to improve its external competitiveness and to facilitate structural 
change.  To  this  end,  efforts  should  continue  to  improve  the  overall  research  and  innovation 
environment,  including  through  stronger  links  between  the  business  community,  higher 
education  and  vocationally-oriented  curricula,  and  to  implement  the  Regional  Innovation 
Strategies which are more accessible to SMEs. 

The legal and regulatory environment for businesses, including administrative procedures and 
financial schemes such as state aids, needs further simplifying to reduce associated costs and 
delays;  improving  the  competition  framework  would  also  benefit  the  overall  business 
environment. Easier access to finance and human capital, information and networking within 
an ‘open’ innovation system, simplified business environment for SMEs, and efficient support 
to exporting firms would also contribute to the growth of SMEs. 

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3.11. 

Italy 

3.11.1.  Indicators graph 

Italy

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2004)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (Euro per kWh; 2007)

Infrastructure expenditures (euro per inhabitant; 2007)

NA

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Business Environment

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.11.2.  Introduction33 

Italy’s labour productivity, measured per hour, was slightly above the EU average in 2005 and 
2008; measured per person, it was stable at some 110% of the EU average. Real and nominal 
unit  labour  costs  increased  more  than  in  the  EU  as  a  whole  between  2005  and  2009. 
Moreover, nominal unit labour costs in Italian manufacturing increased by 45% between 2000 
and 2009, thus more than in any other EU-15 Member State except Luxembourg. As a result, 
the  overall  increase  was  more  than  twice  the  EU  average  of  19%.  Italy's  real  effective 
exchange  rate  has  appreciated  markedly  in  the  past  ten  years,  indicating  decreased 
competitiveness against third countries. 

Italy  is  specialised  in  sectors  demanding  low-intermediate  labour  skills  and  in  low  skill 
sectors though the importance of the latter is decreasing from 1997 to 2007. The share of high 
skill  sectors  remains  slightly  below  the  EU  average.  The  sectoral  structure  by  technology 
category  remained  partly  stable  with  a  low  weight  of  sectors  with  high  and  medium-high 
technology intensity.  

Manufacturing  accounts  for  a  larger  share  in  the  Italian  economy  than  in  the  EU  in  total 
(18.5% vs. 17% of value added in 2008). This is mainly due to specialisation on leather and 
footwear and textiles and clothing as well as, to a lesser extent, other machinery, basic metal 
products and non-metallic mineral products. In services, Italy’s sectoral structure follows the 
broad  picture  of  the  EU  in  total;  only  the  hotels  and  restaurants  sector  has  a  clearly  higher 
weight. Agriculture and, in particular, fishing are more important than in the EU as a whole. 
Employment  figures  point  to  a  below-average  level  of  productivity  in  manufacturing;  the 
share  of  manufacturing  in  total  employment  has  decreased  over  time.  Forecasts  until  2020 
predict an 18% increase in employment in business and other services, while employment in 
the primary sector might decline by almost 30%. 

Italy’s trade in goods has been in balance. Its strengths relate to the export of a wide range of 
medium-technology  consumer  and  investment  goods.  The  rapidly  growing  high-technology 
information and communications sectors play a smaller role in exports. Transport equipment, 
other  machinery,  and  chemicals  showed  a  strong  export  performance,  with  also  basic  metal 
products, electrical and optical equipment, and textiles and clothing being important exporting 
sectors.  The  trade  balance  in  manufacturing  resulted  from  surpluses  in,  above  all,  other 
machinery;  textiles  and  clothing;  and  other  manufacturing.  Electrical  and  optical  equipment 
and  chemicals  showed  a  noteworthy  trade  deficit.  The  Revealed  Comparative  Advantage 
(RCA),  measured  relative  to  the  EU  and  concentrating  on  manufacturing,  shows  particular 
strengths  for  Italy  in  2008  in  leather  and  footwear,  textiles  and  clothing  and  other 
manufacturing. 

Exit from the crisis 

Italian industry has been hit hard by the crisis. Production in the manufacturing sector in July 
2010  stands  at  80%  of  the  pre-crisis  level.  Most  industrial  sectors  are  in  difficulty.  Those 
which  suffered  first  from  the  contraction  of  the  international  demand  were  the  metal-
mechanic  and  textile  industries.  Since  September  2008,  also  sectors  such  as  agro-food, 
construction, commerce, and chemical industry have been hit. 

33 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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Given the high public debt, the Italian fiscal stimulus and support to the real economy were 
prudent  and  focused  on  targeted  support  measures.  On  the  product  market,  the  government 
has temporarily subsidised the purchase of durable goods – such as domestic energy efficient 
appliances  and  furniture,  and  energy-efficient  and  innovative  cars  with  low-environmental 
impact  –  while,  at  the  same  time,  fostering  environmental  goals  through  energy  saving  and 
emissions  reduction.  Measures  were  also  taken  to  foster  industrial  innovation,  reduce 
administrative burden and accelerate investment in priority infrastructure such as railways and 
public works. Italy has also taken a number of measures for alleviating the impact of the crisis 
on the business sector (more detail in SME section below). 

In  general,  measures  taken  to  mitigate  the  impact  of  the  crisis  have  relied  mainly  on 
reallocation  of  funds,  trying  to  shift  them  towards  action  with  high  growth  multipliers  and 
future-oriented areas, such as environmentally friendly technologies, resource efficiency and 
renewable energy, as well as smart infrastructure. 

3.11.3.  Towards an innovative industry 

In terms of innovation performance, Italy is below the EU average and its relative position has 
not  significantly  improved  over  the  past  five  years.  According  to  the  European  Innovation 
Scoreboard  (EIS),  Italy  positions  itself  in  the  group  of  'moderate  innovators',  showing  slow 
progress  and  registering  a  below-average  annual  growth  rate.  Italy  is  behind  its  main 
European partners in many indicators of technology and innovation such as lifelong learning, 
tertiary  education,  patents,  and  business  R&D  expenditure.  Expenditure  on  R&D  was  only 
1.2% of GDP in 2008, with the private sector accounting for less than half of the total. This 
low  performance  reflects  the  prevalence  in  the  productive  sector  of  SMEs,  which  are 
specialised in manufacturing with a medium high-technology output, as well as of small firms 
such as family businesses. Although they have traditionally been a source of dynamism, their 
limited financial resources hamper the ability to invest in research activities and innovation.  

In the area of innovation, a number of relevant measures were taken, including the creation of 
public-private  joint-labs  in  strategic  sectors  to  sustain  new  high-tech  industries,  the 
establishment  of  eleven  Technology  Districts,  the  promotion  of  the  Italian  participation  in 
Technology  Platforms  set  up  by  the  European  Union  and  the  establishment  of  incentive 
schemes that target sectors or activities identified as priority investment areas and that foster 
linkages between SMEs and research institutions.  

Funding  mechanisms  in  support  of  innovation  include  a  mix  of  direct  and  indirect 
instruments. Although direct public support to companies through grants and loans has been 
the traditional approach to finance research and innovation activities, the system has changed 
since  2006,  with  the  reform  of  the  public  incentive  system  and  the  transition  from  capital 
subsidies to risk-taking by banks.  

The  main  initiatives  launched  between  July  2008  and  July  2009  include:  the  National  Fund 
for  Innovation,  to  promote  innovative  projects  based  on  strengthening  and  exploitation  of 
industrial property (total budget EUR 60 million); a risk capital fund for SMEs, to favour the 
influx  of  risk  capital  in  southern  Italy  and  support  the  creation  and  development  of  SMEs 
involved in investment programmes related to product and process innovation through the use 
of digital technologies (total budget EUR 160 million, of which EUR 80 million from public 
funds);  a  tax  exemption  on  capital  gains  from  start-ups,  to  reinforce  the  role  of  private 
investors, especially business angels; funds dedicated to finance innovation projects proposed 
by start-ups operating in medium/high-technology sectors in biotech, ICT, materials, robotics 

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and  energy  (total  budget  EUR 55 million);  funds  for  research  and  innovation  in  the  energy 
sector  (total  budget  EUR 210 million)  and  a  'Brain  return'  measure  to  counteract  the  brain 
drain  phenomenon  and  to  attract  Italian  researchers  living  abroad  through  a  tax  incentive 
(10% tax applied to personal income) during the first five years of fiscal residence in Italy as 
of January 2009. 

Measures  were  also  envisaged  to  strengthen  industrial  competitiveness  by  enhancing  patent 
and  trademarks  institutions  and  procedures  and  reinforcing  protection  against  fraud  and 
counterfeiting.  

Under  the  shortage  of  finance  both  from  public  and  private  sources  and  the  tightening  of 
credit  conditions  which  limits  the  firms'  access  to  funds,  the  main  outstanding  challenge  is 
innovation financing, including through a more efficient allocation of resources via the capital 
market.  Related  to  this,  a  major  weakness  is  the  high  degree  of  fragmentation  of  the 
institutions  and  actors  that  support  new  firms  and  innovation  as  well  as  a  high  number  of 
instruments and measures at national and regional level. Thus, efforts to avoid fragmentation 
and overlapping between initiatives at national and regional levels, as well as to improve the 
current policy mix through an increased focus on key technology innovation areas would be 
useful. Another challenge relates to improving technology transfer mechanisms to reduce the 
existing  gap  between  research  and  the  market,  especially  through  systemic  public-private 
partnerships,  and  cooperation  among  companies.  Furthermore,  the  shortage  of  high-skilled 
labour  force  and  the  brain  drain  phenomenon  are  concerns  for  Italy.  Finally,  the  low 
propensity  of  companies  to  invest  in  innovative  technologies  and  undertake  organisational 
change is also due to strict regulations affecting certain sectors (e.g. entry barriers, price and 
quantity restrictions). 

3.11.4.  Towards a sustainable industry 

Italy's  environmental  performances  as  regard  the  energy  intensity  of  the  economy  and  the 
carbon intensity of energy consumption in industry can be characterised as good. This reflects 
Italy's significant efforts to support the modernisation of the industrial base and to implement 
energy efficient technologies in order to reduce the need for energy imports. By contrast, Italy 
scores  below  the  EU  average  concerning  waste  generated  by  enterprises  and  exports  of 
environmental goods.  

The development  and the competitiveness of the  Italian  productive  system  are embedded in 
the  Industria  2015  Strategy.  Its  main  instrument,  the  Industrial  Innovation  Projects  (IIP), 
supports  the  implementation  of  specific  projects  in  energy  efficiency,  sustainable  mobility, 
new  technologies  for  "made  in  Italy"  products,  new  technologies  for  cultural  and  tourism 
properties, and new life technologies. All three calls already issued in this framework contain 
measures  focused  on  the  environmental  impact,  energy  efficiency  and  spread  of  clean 
technologies.  

In  the  framework  of  its  recovery  measures,  Italy  has  supported  investments  in  greening  the 
economy, with emphasis on energy efficiency and use of renewable energies. The main recent 
initiatives  in  this  area  with  direct  relevance  to  industry  included  projects  to  sustain  the 
diffusion  of  renewable  sources  and  energy  saving  in  SMEs,  public  buildings,  secondary 
schools,  sport  centres,  penitentiaries,  small  islands,  and  protected  areas  (total  budget 
EUR 74 million for 2009) as well as a fund to develop and enhance the use of high-efficiency 
industrial  motors  and  the  production  of  electricity,  heat  and  refrigeration  via  small  co-
generators  (budget  EUR 200 million  per  year  over  the  period  2007-2009).  In  addition,  Italy 

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introduced  a  tax  break  between  July  2009  and  July  2010  for  investment  in  new  machinery, 
incentives introduced by the February 2009 stimulus package to purchase low-emission motor 
vehicles (including some categories of commercial ones) in exchange for scrapping old ones 
(estimated  budgetary  cost  of  the  incentives  for  2009  was  around  EUR 1.1 billion,  0.07%  of 
GDP),  and  funds  allocated  by  the  February  2010  incentive  scheme  to  stimulate  sales  for 
motorbikes,  including  electric  and  hybrid  models,  home  appliances  and  modular  kitchens, 
energy-saving  homes,  alternative  energy  inventers  and  marine  engines  (total  budget 
EUR 216 million). 

At  institutional  level,  the  main  development  consisted  in  the  reform  of  monitoring  of  waste 
from  industrial  activities  adopted  and  implemented  in  2009.  The  latter  introduces  an 
electronic Industrial  Waste  Monitoring  System (SISTRI)  to which enterprises  are  obliged to 
adhere.  

Other  relevant  initiatives  in  this  area  are  the  adoption  in  2008  of  the  Action  Plan  for  green 
public  procurement,  which  defines  minimum  standards  for  every  category  of  goods  and 
services purchased by the administration, and the establishment of a working group on green 
chemistry (a working group on green cars is also foreseen).  

Italy's productive structure is heavily dependent on imported energy and the policy response 
to  encourage  a  greater  diversification  of  energy  sources  and  suppliers  seems  adequate. 
Moreover,  Italy  has  channelled  resources 
towards  future-oriented  areas,  such  as 
environmentally  friendly technologies, resource efficiency and renewable energy, as well as 
smart  infrastructure.  Building  on  the  achievements  of  the  first  National  Energy  Efficiency 
Action  Plan,  Italy  could  develop  further  a  more  comprehensive  energy  efficiency  strategy. 
The shortage of skills in science and technology also needs to be addressed if Italy wants to be 
competitive in innovation and the development of low-carbon technologies. 

3.11.5.  The business environment 

Italian regulatory environment is characterised by lengthy and costly procedures for enforcing 
contracts and dealing with licences and, in general, high administrative burden on firms. The 
degree  of  competition  in  services  is  relatively  low,  especially  with  regard  to  energy  market 
and  financial  and  professional  services.  The  quality  of  infrastructure  lags  behind  other 
Eurogroup countries and despite massive public investment over last decades, large disparities 
persist between the north and the south of the country. In this light, Italy scores clearly below 
the  EU  average  concerning  the  satisfaction  with  the  quality  of  infrastructure,  the  legal  and 
regulatory  framework,  the  burden  of  government  regulation  and  electricity  prices  for 
enterprises.  By  contrast,  Italy  scores  significantly  above  the  EU  average  concerning  the  e-
government usage by enterprises and slightly above average concerning the level of state aid 
to industry and services.  

Italy  adopted  in  2008  a  law  on  urgent  arrangements  for  economic  development, 
simplification,  competitiveness,  stabilisation  of  public  finances  as  well  as  tax  equalisation. 
This  law  is  structured  around  three  main  instruments:  'cutting  laws',  'cutting-burden'  and 
'cutting bodies'. In this context, a target to reduce the administrative burden on businesses by 
25% until 2012 has been set, with over EUR 4 billion of annual savings for businesses already 
achieved. In addition, a new simplified regulatory impact assessment system was elaborated, 
focusing on the impacts on enterprises, citizens and public administration. The law has also 
introduced the one-stop-shop (Sportello unico), which allows a business to be opened directly 
via Internet by sending a single communication. 

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Italy plans to extend administrative simplification measures to regions. Provisions annexed to 
the  2010  budget  law  indicate  that  this  undertaking  would  imply  for  SMEs  savings  up  to 
EUR 5 billion per year. 

The reform of the public administration is ongoing. Its structuring principles are better linking 
pay  with  performance,  increasing  mobility  and  introducing  further  competitive  elements  in 
the appointment of public managers. Furthermore, the e-Government 2012 Plan, launched in 
2009,  aims  to  modernise  the  public  administration  and  to  promote  innovation  through  ICT. 
The Plan is expected to generate important savings (circa EUR 40 billion in 4-5 years) from 
the increase in productivity in the public sector.  

Other recent institutional developments aiming at creating a responsive administration are the 
law  regulating  the  ‘delegation  to  the  government  on  mediation  and  conciliation  of  civil 
disputes and trade’, which aims at saving SMEs time and costs in case of a dispute, and the 
law providing an option for cooperative societies to submit an annual communication instead 
of requiring full annual accounts (both adopted in 2009).  

In  order  to  improve  infrastructure,  a  part  of  the  Funds  for  Underutilised  Areas  (FAS)  was 
committed  to  design  and  construction  of  new  infrastructure.  With  the  2010-2013  Economic 
and  Financial  Planning  Document  (DPEF),  the  Italian  government  approved  measures 
entailing approximately EUR 30 billion of investments in infrastructures. By the end of 2009, 
new construction sites were opened for works with a value of roughly EUR 14 billion. 

With regard to deregulation, an important law was adopted in 2009, whose aim is to remove 
obstacles  that  hinders  opening  up  of  markets,  promote  the  development  of  competition  and 
ensure  consumer  protection  through  a  closer  cooperation  between  the  government  and  the 
Competition Authority. The law was designed to overcome anti-competitive regulations often 
established at regional and local levels. 

Italy  has  made  efforts  to  improve  its  business  environment,  especially  with  regard  at  the 
quality of existing regulations though abolishing a high number of obsolete laws. Improving 
further the quality of new regulations, including by making better use of tools such as ex ante 
impact assessment and consultation, remains an important undertaking in this area. Moreover, 
an  overarching  strategy  for  regulatory  reform  would  help  to  keep  the  focus  on  reducing 
implementation  and  better 
further 
coordinating national and regional governments. Progress has been made towards improving 
the efficiency of public administration by adopting the law reforming this sector, but its effect 
will  depend  on  the  effective  implementation.  Furthermore,  strengthening  competition  in  the 
service sector remains an important undertaking to improving the business environment and 
competitiveness. 

the  operating  costs  for  businesses,  streamlining 

3.11.6.  Entrepreneurship and SME policy 

The  business  sector  in  Italy  is  characterised  by  a  large  number  of  small  and  medium-sized 
firms specialised in products that require high-quality design and engineering. Their average 
size  in  terms  of  number  of  employees  is  significantly  lower  than  in  the  EU.  Italy  scores 
clearly  above  the  EU  average  concerning  the  share  of  high-growth  enterprises  and  slightly 
above average concerning time required to start a business, the enterprise survival rate after 
two years and bank loan conditions deemed acceptable by companies. However, it scores very 
badly  concerning  the  payment  duration  by  public  authorities  and  clearly  below  the  average 
concerning early stage financing and the business churn.  

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Italy has taken a number of measures for alleviating the impact of the crisis on the business 
sector:  a  permanent  partial  deductibility  of  the  regional  tax  on  economic  activities  (IRAP) 
from  corporate  income  tax  (IRES);  the  postponement  of  two  deadlines  for  business  tax 
payments;  a  tax  deduction  equal  to  50%  of  the  cost  between  June  2009  and  July  2010  for 
reinvested profits in industrial machinery; and the acceleration of late payments by the state to 
business for goods and services. 

Italy also made largely use of the possibility to grant state aid up to EUR 500 000 under the 
Temporary  State  aid  Framework.  Over  EUR 1 billion  was  made  available  to  SMEs  in 
manufacturing,  services,  automobile  and  transport  sectors.  Moreover,  Italy  provided 
guarantees with a budget of EUR 40 million under the Framework.  

To  foster  skills  and  innovation  potential,  apart  from  measures  presented  above  (section  on 
knowledge-intensive  production),  three  other  initiatives  launched  in  2009  are  relevant  with 
regard to SMEs. These include the Biennial National Plan for the commercial exploitation of 
intangible  assets  by  small  and  medium  enterprises,  to  stimulate  innovation  and  economic 
growth  though  use  of  intellectual  property,  the  Italian  Network  for  Innovation  and 
Technology  Transfer  to  SMEs  (RIDITT),  conceived  as  an  information  hub  and  a  reference 
point  for  centres  for  innovation  and  technology  transfer,  and  a  call  for  proposals  providing 
grants,  to  support  start-ups  in  the  high  and  medium-high  technology,  launched  in  the 
framework  of  the  National  Operational  Programme  Research  and  Competitiveness  for  the 
period 2007-2013.  

A major undertaking to support the Italian firms specialised in the production of high-quality 
goods  on  the  global  market  is  the  approval  in  March  2010  of  the  law  on  a  Made  in  Italy 
stamp. According to this law, the 'made in Italy' label will be assigned only to those finished 
products  whose  manufacturing  stages  for  the  most  part  took  place  in  Italy,  in  textile,  home 
furniture, shoes, leather and clothes.  

Regarding  the  internationalisation  of  SMEs,  financial  support  for  programmes  improving 
access to foreign markets, development of feasibility studies and technical assistance related 
to  Italian  investments  abroad  is  provided  under  a  law  adopted  in  2008.  In  addition,  a  law 
adopted  in  2009  charges  the  government  with  coordinating  all  legislative  arrangements 
related  to  internationalisation,  including  exports,  promotion  of  investments,  agreements 
the  bank  system  using  foreign  bank  services. 
between  public  organisations  and 
Furthermore, an anti-crisis export promotion plan has been introduced in the framework of the 
recovery measures, with an overall budget of EUR 185 million for 2009.  

Despite measures taken to alleviate the impact of the crisis, the business sector is confronted 
with difficulties in accessing finance and is suffering the shrink of both global and domestic 
markets.  Facilitating  the  access  of  companies  to  international  markets  could  help  offset  the 
decline in demand. The policy response through the export promotion plan, together with the 
other export supportive measures, seems adequate in this regard. Furthermore, enhancing the 
capacity of enterprises, particularly SMEs, to grasp global economic changes and respond to 
global challenges and risks are a concern.  

3.11.7.  Conclusions 

Whilst  Italy's  short-term  priority  is  to  consolidate  public  finances,  a  gradual  shift  of  the 
productive  structure  towards  more  high-technology  and  innovative  activities  would  enhance 
the country's competitiveness in the medium to long-term.  

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A number of measures have been adopted with regard to knowledge, innovation and industry. 
Increasing enterprises' innovation potential, encouraging a higher level of private expenditure 
on research and innovation activities, as well as an increased focus on key innovation areas 
and  better  governance  to  avoid  fragmentation  and  overlapping  between  various  initiatives 
could all be useful approaches for Italy.  

Considerable efforts have been made to improve the business environment, especially through 
a range of measures addressing the regulatory quality. Developing an overarching strategy for 
regulatory  reform  would  help  to  keep  the  focus  on  reducing  further  the  operating  costs  for 
businesses,  streamlining  implementation  and  better  coordinating  national  and  regional 
governments.  In  addition,  important  cross-cutting  issues  are  the  shortage  of  high-skilled 
labour  force,  the  efficiency  and  the  effectiveness  of  the  public  administration  at  central  and 
local level, the competition framework as well as the efficiency of local public services. 

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3.12.  Cyprus 

3.12.1.  Indicators graph 

Cyprus

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2007)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

-3,5

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a modern and 
competitive industry

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

4,8

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

Business Environment

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

NA

NA

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.12.2.  Introduction34 

Cyprus’  hourly  labour  productivity  per  hour  worked  reached  about  80%  of  the  EU  average 
while it reached 90% per person employed. However, nominal unit labour costs in Cypriote 
manufacturing  increased  almost  twice  as  fast  as  the  EU  average  of  19%,  resulting  in  an 
overall increase of 36% between 2000 and 2009. 

Cyprus  faces  a  chronic  competitiveness  problem,  which  is  reflected  in  its  large  goods  trade 
deficit.  Cyprus'  real  effective  exchange  rate  clearly  appreciated  between  1999  and  2009 
indicating  decreased  competitiveness.  However,  this  decrease  was  less  pronounced  than  for 
the EU on average. Cyprus’ trade deficit in goods is by far the largest in the EU if measured 
as a share in total exports. These developments suggest that the main determinants of the trade 
deficit  are  due  to  structural  reasons  such  as  specialisation  and  linked  to  low  productivity 
growth.  On  the  other  hand,  services  (73.8%  of  GDP  in  2008)  exhibit  strong  dynamism, 
reflected in high rates of growth and an expansion of global market share. However, they do 
not compensate the deficit in the trade of goods.  

Cyprus  is  characterised  by  a  marked  but  declining  specialisation  in  low  skill  sectors,  while 
high-intermediate  and  low-intermediate  skill  sectors  are  stable  at  the  average  from  1997  to 
2007. Cyprus is specialised in low and medium-low technology sectors, and high technology 
sectors have been growing gradually, from a very low level. Generally speaking Cyprus tends 
to  specialise  in  sectors  having  low  growth  and  productivity  rates  with  respect  to  the  EU 
average. 

Manufacturing represents a significantly smaller portion of the economy compared to the EU 
(8 vs.17% of value added in 2008), specialising in non-metal mineral products, wood products 
and  increasingly  food/drinks/tobacco.  In  the  service  sector,  hotels  and  restaurants,  public 
administration,  financial  intermediation  and  construction  are  above  the  EU  average  (2008 
figures). 

Employment figures show structural changes taking place in the service sector. Forecasts up 
to 2020 indicate strong increases in construction, business and other services as well as non-
marketed services and stable employment in all other sectors. 

Exit from the crisis 

Cyprus was affected be the crisis later than most EU members. Manufacturing output in June 
2010 was 15% below its pre-crisis level and only 3% higher than at the bottom of the crisis. 
While in 2008 no problems were reported regarding access to finance, both in 2009 and 2010 
domestic  credit  growth  dropped  due  to  the  more  restrictive  lending  policies  of  financial 
institutions. Sectors most affected by the credit squeeze are manufacturing, construction and 
tourism. The Cypriot government did not implement specific measures under the Temporary 
State aid Framework and relies on regular State aid rules.  

Specific  support  measures  were  introduced  to  help  the  tourism  and  construction  industries, 
consisting of the: 

34 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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•  Increase  of  the  government  grant  provided  to  the  Cyprus  Tourism  Organisation 
(CTO)  by  EUR 12 million  (0.07%  of  GDP)  enabling  the  CTO  to  adopt  a  more 
extrovert and aggressive strategy to stimulate demand and mitigate the effects of 
the crisis on tourism. 

•  Reduction of VAT from 8% to 5% for the hotel industry for the period 1.5.2009 – 

30.4.2010 (EUR 15 million). 

•  Support scheme for domestic (social) tourism, i.e. increase of the available budget 
provided  to  low  income  families,  pensioners,  welfare  recipients  and  people  with 
disabilities  for  subsidizing  vacations  at  local  destinations  during  the  summer 
period of 2009 (EUR 10 million). 

•  Reduction  of  landing  fees  at  airports  levied  on  airline  companies  for  the  period 

1.4.2009 – 31.12.2009 (EUR 16 million). 

•  Cancellation of overnight stay fees levied by local authorities on hoteliers for the 

period 1.4.2009 – 31.12.2009 (EUR 10 million). 

3.12.3.  Towards an innovative industry 

The  European  Innovation  Scoreboard  2008  classifies  Cyprus  among  'Moderate  innovators'. 
R&D spending and businesses R&D remain at particularly low levels in comparison to GDP 
in  spite  of  rapid  growth  in  absolute  terms;  due  to  the  structure  of  the  productive  sector,  a 
significant increase of business R&D expenditures is unlikely in the near future.  

The  government  has  introduced  a  series  of  measures  to  encourage  stronger  industry 
participation  in  R&D  and  innovation  activities  and  has  reinforced  the  role  of  the  Research 
Promotion Foundation. The latter's 2009-2010 programme for calls includes a separate section 
on  research  and  innovation  in  the  business  sector  that  supports  specific  research  projects, 
networking, technology transfer and innovation in SMEs. The annual budget for these actions 
is EUR 8.3 million. The most important action (new products and services) targets the phase 
of development of existing research.  

Innovation policy focuses on the utilisation of R&D results, diffusion of new technology and 
entrepreneurship.  It  almost  exclusively  takes  the  form  of  direct  support;  fiscal  incentives 
would  not  be  effective  since  tax  rates  are  very  low  anyway.  The  creation  of  the  ‘Mediation 
Centres  for  Research  and  Innovation’  targets  the  design  of  the  intermediation  mechanism 
between  SMEs  and  research  organisations,  while  'Thematic  Innovation  Networks'  aims 
directly at the creation of the cooperation networks between enterprises, research institutions 
and  intermediate  bodies.  Important  actions  such  as  the  launch  of  the  high-tech  business 
incubator  programme  and  the  establishment  of  the  Science  and  Technology  Park  are  under 
way.  

A  parallel  scheme  under  the  authority  of  the  ministry  for  Commerce  and  Industry  aims  at 
upgrading  labour  productivity  by  subsidising  training  and  consulting  expenditures  by 
businesses having more than 10 employees. 

While  public  research  capabilities  and  innovation  policy  have  been  considerably  improved 
over  the  last  decade,  the  business  sector  is  still  considerably  under-investing  in  R&D  and 
innovation. Innovation policy has evolved rapidly but in a rather fragmented way. 

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3.12.4.  Towards a sustainable industry 

The energy intensity and the CO2 intensity of the business sector in Cyprus are both high.  

Cyprus  being  heavily  dependant  on  imported  oil  for  its  energy  supply  and  having  a  small  and 
isolated  energy  grid  has  set  energy  efficiency  as  a  top  priority  alongside  addressing  climate 
change. For this purpose, an energy centre that would enable the importation of natural gas to the 
island is under construction and expected to commence its operation by 2013. The New Support 
Scheme for electricity generation from large scale units from renewable energy sources (wind 
and photovoltaic systems, concentrate solar power systems, biomass and biogas installations) 
was  approved  by  the  Council  of  Ministers  in  December  2009.  The  first  wind  park  is  being 
built in the Paphos area, with a capacity of 82MW, amounting to about a third of the targeted 
energy to be produced from renewable sources by 2015.  

Additional  incentives  schemes  encourage  energy  saving  investments  in  SMEs  and 
households. 

The  high  energy  and  CO2  intensity  of  the  Cypriot  business  sector,  in  combination  with  the 
heavy dependence on imported oil for energy generation and a small and isolated energy grid 
represent a potential risk in case  of high volatility in oil and CO2 prices. Promoting energy 
efficiency  and  the  generation  of  energy  from  renewable  sources  clearly  remain  strategic 
priorities for Cyprus. 

3.12.5.  The business environment 

Cyprus  offers  a  generally  favourable  business  environment.  Satisfaction  with  the  regulatory 
burden  and  the  quality  of  infrastructure  is  above  the  EU  average.  The  small  size  and  the 
relative  isolation  of  the  economy  pose  some  challenges  regarding  the  functioning  of 
competition. 

In  order  to  strengthen  administrative  capacity,  Cyprus  initiated  over  the  period  2008-2009 
several  initiatives  including  i.a.  the  project  "Re-organisation  and  improvement  of  the 
administrative  capacity  of  the  Public  Administration  and  Personnel  Department"  (PAPD). 
The Action Plan to facilitate the dissemination of the Performance Assessment System (CAF) 
in  the  public  sector  together  with  a  new  Code  of  Conduct  for  civil  servants  is  being 
developed. The new Management Information System (MIS) for the Structural Funds, which 
went  into  operation  in  September  2009,  is  expected  to  increase  the  efficiency  of  EU  funds 
management and their absorption rate.  

The national Action Plan to promote Better Regulation in Cyprus, approved by the Council of 
Ministers  in  July  2007  and  revised  in  April  2009,  is  structured  around  three  pillars:  the 
simplification of the legislation, the reduction of administrative burden and the introduction of 
an impact assessment which will be realised by a simplified mechanism based on a standard 
questionnaire and supported by a consultation guide addressed to civil servants. This will help 
the establishment of a more structural approach towards consultation of stakeholders. Cyprus 
adopted  in  2008  the  target  of  reducing  by  20%  the  administrative  burden  on  businesses  by 
2012. It is planned to acquire consulting services for the implementation of a pilot project to 
reduce the administrative burden in the real estate market, especially for planning permissions 
and building permits. 

Usage of eGovernment services by enterprises is still below the EU average in 2009, despite 
significant progress over the period 2005-2009. The eGovernment policy is embedded in the 

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National Information Society strategy (revised in 2009). The national eProcurement Platform, 
completed  in  February  2009,  covers  all  the  phases  of  the  process  from  eNotification  to 
eInvoicing and is mandatory for all Contracting Authorities. The one-stop-shop to start-up a 
company started its operation in 2007 and is currently upgraded to serve as the point of single 
contact  foreseen  in  the  Services  Directive.  The  eFiling  project,  which  allows  a  complete 
online registration of a new company, started in April 2008 but is not yet completed.  

The  new  strategy  to  promote  ICT  uptake  by  upgrading  ICT-infrastructure  and  expanding 
broad-band coverage will contribute to the improvement both of the diffusion of information 
and the functioning of the business environment. 

The results of an independent study on the degree of competition in the sector of Professional 
Services  are  examined  by  the  Commission  for  the  Protection  of  Competition  (CPC),  which 
will consequently proceed with the necessary actions. 

The liberalisation of the energy market is continuing; it is anticipated to be fully liberalised by 
2014. 

3.12.6.  Entrepreneurship and SME policy 

The contribution of Cypriot SMEs to the overall economy compared to that of large firms is 
significantly higher than for the EU average. In particular, the contribution of micro firms to 
employment is in Cyprus (39%) higher than the European average (30%) and the contribution 
of the total SME sector to employment (84%) is in Cyprus higher than in the EU on average 
(67%). 

Cyprus  continued  its  efforts  to  set  up  a  Loan  Guarantee  Granting  Facility  to  support  SMEs 
that are not able to provide sufficient collateral. In April 2009, the government entered into a 
Financing Agreement with the European Investment Fund for an amount of EUR 20 million, 
with a view of providing funds to SMEs. The financial products offered in the Agreement are: 
a)  Micro-loans  with  co-funding  and  b)  Micro-loans  Cash  Deposits.  In  addition,  Cyprus 
introduced  schemes  (co-financed  by  ESF)  to  promote  women  and  youth  entrepreneurship 
through  facilitation  of  access  to  finance,  fostering  an  entrepreneurship  culture  and 
encouraging them to create their own business. The schemes have been amended and included 
in  the  new  programming  period  2007-2013  with  total  budgets  of  EUR 5 million  and 
EUR 6 million  respectively.  An  additional  scheme  (EUR 23 million)  supports  investments 
and acquisition of know-how in SMEs active in manufacturing and business services. Finally, 
one-stop-shops for business registration are operational and cover the recruitment of the first 
employee. 

The main challenge for both general and SME specific measures is the promotion of highly 
skilled, high productivity SMEs that will increase the economy's competitiveness and promote 
its diversification. 

3.12.7.  Conclusions 

Cyprus  faces  a  chronic  competitiveness  problem  linked  to  its  structural  problem  of 
specialisation in low-skills, low technology and low growth sectors, which is reflected in its 
current  account  deficit.  The  policy  priority  therefore  remains  to  adjust  the  structure  of  the 
economy towards high skill, high growth activities, primarily in services and tourism, through 

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investing in education, R&D and innovation and encouraging entrepreneurial activity in high 
value added sectors.  

The high energy and CO2 intensity of the Cypriot business sector, in combination the heavy 
dependence  on  imported  oil  for  energy  generation  and  a  small  and  isolated  energy  grid 
represent a potential risk in case  of high volatility in oil and CO2 prices. Promoting energy 
efficiency  and  the  generation  of  energy  from  renewable  sources  clearly  remain  strategic 
priorities for Cyprus. 

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3.13.  Latvia 

3.13.1.  Indicators graph 

Latvia

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Towards a modern and 
competitive industry

Business Environment

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

NA

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

NA

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2005)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

NA

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) 
always indicate performance which is better (weaker) than the EU average.

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3.13.2.  Introduction35 

Measured both per hour and per person, Latvia's labour productivity is below the EU average 
albeit showing a slight improvement. Labour shortages, aggravated by significant emigration, 
contributed  to  the  emergence  of  a  wage-price  spiral,  with  increasingly  rapid  wage  growth 
outstripping productivity in 2005-2007. Inflation rose to very high levels, peaking at 15.4% in 
2008. Concomitantly, nominal unit labour costs in Latvian manufacturing increased by 85% 
between 2000 and 2009 with virtually all of the increase occurring during the second half of 
the decade. As a result, the overall increase was more than four times the EU average of 19%. 
As  a  result,  Latvia's  competitiveness  has  seriously  suffered.  This  is  confirmed  by  the  real 
effective  exchange  rate  which  by  2009  had  appreciated  sharply,  also  compared  to  the  EU 
average, indicating a significant loss of competitiveness. 

In  the  four  years  up  to  2007,  Latvia's  real  GDP  growth  averaged  over  10%  p.a.,  driven 
primarily by a credit boom that fed private consumption and real estate investment. Equally, 
the  inflows  of  FDI,  which  increased  considerably  after  EU  accession,  went  mainly  into  the 
domestic-demand-oriented  sectors  and  the  share  of  manufacturing  within  total  FDI  inflows 
remained  tiny.  On  the  other  hand,  investment  by  domestic  companies  in  the  manufacturing 
sector  was  significant  over  the  past  decade.  This  has  been  driving  the  restructuring  of  the 
to  more  capital-intensive  production. 
manufacturing  sector 
Accordingly,  the  changes  within  the  composition  of  manufacturing  output  have  been 
substantial, with significant shifts taking place among its different branches. 

labour-intensive 

from 

Latvia  has  now  embarked  on  a  strategy  of  significant  fiscal  consolidation  and  increase  in 
competitiveness,  based  on  the  retention  of  the  current  exchange  rate  and  the  restoration  of 
competitiveness through structural reforms and internal devaluation. This strategy is reflected 
in the January 2009 Memorandum of Understanding between the Latvian authorities and the 
Commission  in  support  of  Latvia's  programme  to  maintain  domestic  and  international 
confidence in the financial system, contribute to the reversal of the cost competitiveness and 
inflationary trends, as well as to strengthen the economy’s growth potential.  

In  2008,  Latvia  had  a  trade  deficit  in  all  major  groups  of  goods,  except  wood  and  articles 
thereof. This partly reflects the consequences of the recent domestic demand boom, but is also 
a  result  of  the  high  share  of  services  in  the  country's  economy  and  exports.  The  wood  and 
textile industries, historically the most important export sectors along with the metal industry, 
were  hit  by  large  domestic  cost  increases  between  2004  and  2008.  At  the  same  time,  the 
deficit in goods relative to total exports has been decreasing significantly from 2005 to 2009.  

The previously high current account deficit was due to a large deficit in trade in goods (spread 
widely across product categories), traditionally partly counterbalanced by a surplus in trade in 
services. Despite the deteriorating cost competitiveness, Latvian export performance has been 
very dynamic: its share in total exports of the EU-27 and the world doubled between 1999 and 
2007. This gain has been continuous and widespread across product categories. A number of 
factors  can  explain  the  increase  in  Latvia's  market  shares  despite  the  strong  cost  pressures: 
better  market  access  and  deepening  regional  trade  integration,  the  high  growth  of  the  CIS 
economies, the still very low level of wages (at around only a quarter of the EU average in 

35 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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2008)  and  the  recent  productivity  increase,  as  well  as  the  increase  in  prices  of  commodity 
exports. 

The share of manufacturing in Latvia has been considerably below the EU average level (for 
example, 11% vs. 17% of value added in 2008). Latvia is increasingly specialised in sectors 
requiring  low-intermediate  skills,  while  there  has  been  a  decrease  in  specialisation  for  the 
high-intermediate and low skills sectors. There is an increase in specialisation on medium-low 
technology sectors, and a high degree of specialisation in the low technology sectors. Latvia 
tends to specialise in sectors, which in the EU as a whole have recorded above average growth 
over the last ten years. The sectoral specialisation indices of 2000 and 2006 show particular 
focus  on  wood  and  wood  products,  textiles  and  clothing,  food  processing  and  other 
manufacturing.  In  the  service  sector,  wholesale  and  retail,  transport  and  communication  as 
well as construction had a clear above average weight in 2008. Agriculture and forestry are 
much more important than for the EU in total. Employment figures for the period 1996-2006 
show  the  decreasing  importance of  the  primary  sector  as  well  as  manufacturing,  and  a  shift 
towards service sectors, especially in real estate and other business activities. Forecasts until 
2020 expect a further employment increase in business and other services (+32%), as well as 
continued  decline  in  the  primary  sector  (-15%)  and  manufacturing  (-11%),  but  also  in 
construction (-28%) and non-marketed services (-9%). 

The  export  product  structure  of  Latvia  has  become  more  diversified  over  the  past  decade. 
Latvian exports are still characterised by raw material and labour intensive products, but there 
has been a favourable shift towards capital and technology intensive products, especially since 
2005.  Even  though  the  share  of  low-tech  and  medium-to-low-tech  goods  in  total  exports  is 
still high compared to the other new Member States, exports of capital intensive and easy-to-
imitate  research  intensive  goods  have  increased  very  rapidly.  While  the  shares  of  wood, 
mineral  products  and  textiles  in  total  exports  declined,  more  capital  and  research  intensive 
segments,  such  as  chemicals,  base  metals,  machinery,  and  transportation  equipment  gained 
share36.  This  observation  may  suggest  that  the  cost  pressures,  stemming  from  rapid  wage 
growth and labour shortage in the previous years of rapid growth, forced Latvian exports in 
goods to shift towards research and capital intensive segments.  

Latvia  has  an  established  tradition  in  services  due  to  its  geographic  position  and  a  well-
developed  transit  infrastructure.  It  is  interesting  to  note  the  relative  resilience  of  Latvian 
services exports during the economic crisis, despite the high inflation and the appreciation of 
the lats against some regional currencies. Services exports have been increasing by about 19% 
p.a. since Latvia joined the EU. Amidst the very severe recession in the first nine months of 
2009, the value of services exports reached 56% of that of exports in goods. This was mainly 
due  to  the  value  of  services  exports  dropping  only  by  some  10%  y-o-y,  whilst  the  goods 
exports  fell  by  around  21%.  However,  even  in  2008  the  value  of  services  exports  was 
comparable  to  almost  half  of  the  goods  exports.  Around  half  of  all  services  exports  is  in 
transportation,  some  18-19%  in  tourism  and  the  rest  mainly  in  financial  and  other  business 
services.  

Exit from the crisis 

36 
The quality of trade data might be influenced by the difficulty to exclude transit trade. 
Furthermore, caution is needed in interpreting this data, since the broad classifications do not 
always capture the true nature of the activity performed in the country. 

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Manufacturing production fell by 27% between February 2008 and February 2009 as a result 
of  the  economic  and  financial  crisis.  By  July  2010,  output  had  recovered  by  20%  from  the 
trough. In 2009, mainly due to the rapid correction of the trade deficit and the improvement in 
the services balance, the current account balance turned into a 9.6% of GDP surplus and it is 
expected to remain at comparable levels in 2010. 

In view of the crisis, the Latvian government introduced de minimis aid under the Temporary 
State aid Framework. More than EUR 80 million was made available to over 120 businesses, 
mainly  SMEs.  The  beneficiary  enterprises  are  mainly  active  in  manufacturing,  services  and 
transport.  One  individual  guarantee  case  concerned  the  metal  sector.  The  main  problem  for 
business  remains  access  to  finance  due  to  the  very  high  collateral  requirements.  Moreover, 
there is limited availability of short-term export credit insurance.  

In  November  2009,  the  Government  approved  the  report  by  the  Ministry  of  Economy  on 
Policy Directions for  Economic Recovery over  the  Medium Term.  This report  proposed the 
identification  of  priorities  for  public  support  programmes  on  the  basis  of  the  following 
criteria:  competitive  enterprises  with  high  growth  and  export  capacity;  processing  industry 
sectors  with  significant  contribution  to  value-added  and  exports  or  potential  for  high  future 
growth  and  export  (food  industry;  wood  industry;  chemical  industry  and  pharmaceuticals; 
electric and optical equipment, machinery and metal processing) and export-oriented service 
sectors (transport and logistics, tourism and ICT). 

3.13.3.  Towards an innovative industry 

The  financial  and  economic  crisis  of  the  country  has  a  profound  impact  on  public  policies. 
The  substantial  reduction  of  all  public  expenditures  in  2009  has  considerably  endangered 
implementation of a range of R&D and innovation support measures and further advancement 
of innovation policy as a whole. The European Innovation Scoreboard 2009 identified Latvia 
as  one  of  the  three  countries  in  the  catching-up  group,  with  an  innovation  performance 
considerably below the EU-27 average, but an above average rate of improvement.  

A range of support measures addressing the identified challenges have also been launched in 
the new planning period of the EU structural funds for 2007–2013. Those include such state 
aid schemes as ‘Investments in development of micro, small and medium-sized companies in 
specially  supported  territories’,  ‘Liaison  offices  for  technology  transfer’,  ‘Development  of 
new  products  and  technologies’,  ‘Support  for  bringing  new  products  and  technologies  into 
production’, and ‘High value added investments’. A new nationally funded pre-seed support 
instrument  for  innovative  business  ideas  has  also  been  launched.  A  range  of  other  state  aid 
programmes  crucial  for  the  promotion  of  innovation  have  been  elaborated,  yet  these  are 
currently on halt due to the budgetary restrictions. 

Latvia has so far not leveraged public procurement to boost innovation. 

The main remaining challenge is the poor innovation activity of the majority of SMEs, which 
makes  enhancing  the  innovation  capacity  and  performance  of  the  enterprise  sector  a  clear 
priority. Latvian companies take almost no advantage of the research potential at universities 
and  state  research  institutes  and  science-industry  cooperation  has  been  one  of  the  most 
pressing and persisting challenges in the national innovation system. Given the generally low 
level of technological development in the private sector, additional emphasis could be put on 
the promotion of skills and resources that enable application of existing technologies. 

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3.13.4.  Towards a sustainable industry 

Latvia's economy is characterised by below average performance in terms of energy intensity 
of  its  industry.  The  measure  of  exports  of  environmental  goods  as  a  percentage  of  total 
exports is also lagging behind. 

During  the  period  2008–2009,  Latvia  implemented  the  Environmental  Policy  Integration 
Programme,  using  the  EEA  financial  instrument  via  two  open  tenders  for  subproject 
applications.  Ten  projects  were  approved,  including  two  pilot  projects  where  energy  is 
produced from renewable energy resources that are not widely used in Latvia (biodegradable 
municipal  waste  and  applications  involving  solar  energy  and  pellets).  In  2009,  these  pilot 
projects  were  approved  and  their  duration  runs  until  January  31,  2011.  Work  continued  on 
updating recommendations for the promotion of “green procurement” in public administration 
and  local  government  institutions,  as  well  as  for  the  promotion  of  environmentally  friendly 
construction standards. Recommendations for three new groups of products/services were also 
under  development.  In  2009,  the  legislative  basis  for  electricity  production  from  renewable 
energy resources and on pricing procedure was also approved.  

The main challenge of Latvia is to decrease the energy intensity of its industry where targeted 
measures are lacking. 

3.13.5.  The business environment 

Latvia scores slightly above the EU average concerning state aid for industry and services and 
electricity  prices  for  medium  size  enterprises,  but  slightly  below  average  concerning  the 
satisfaction with the quality of infrastructure and the e-government usage by enterprises. 

In  2009,  a  regulation  setting  common  principles  for  policy  planning  and  ex  ante  impact 
assessment practice was adopted. Latvia has also drafted a new Construction Law to decrease 
the number of public institutions involved in the process from five to one and to cut the time 
required for obtaining a construction permit from 180 days to 60. The draft law was subject to 
public  consultation  in  the  second  half  of  2009.  Latvia  is  continuing  to  improve  its  new 
Insolvency  Law  that  entered  into  force  in  2008.  Amendments  were  scheduled  to  make  the 
insolvency  process  more  rapid,  flexible  and  efficient.  The  Public  Procurement  Law  (June 
2009) was amended by altering substantially the requirements for the selection procedure and 
standardising the required documentation. 

In 2009, the e-government programme 2010-2013 was revised, providing for development of 
system-to-system  interfaces  for  government-to-business  e-services  to  improve  the  uptake. 
Since June 1, 2010 the Enterprise Register enables business start-ups to apply simultaneously 
for VAT registration. However, entrepreneurs are consequently asked to appear in person at 
the premises of the State Revenue Service (SRS) where an additional questionnaire has to be 
filled  in.  On  the  basis  of  this  questionnaire,  a  special  SRS  committee  makes  a  decision 
whether to grant a VAT number or not. Officially, up to 15 days are needed to obtain a VAT 
number,  but  the  countdown  is  started  only  after  the  entrepreneur  has  filled  in  the  SRS 
questionnaire. Thus, Latvia  still does not satisfy the requirements for a fully functional one-
stop-shop for business start-ups.  

In  2009,  Latvia  adopted  2010-2016  guidelines  for  attracting  FDI  and  promoting  exports.  A 
specific  Action  Plan  for  2010-2011  was  adopted  in  March  2010.  At  the  same  time,  the 
Government  adopted  its  annual  Plan  for  the  Improvement  of  Business  Environment,  which 

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envisages  22  measures  (38  sub-measures)  in  the  areas  of  company  registration,  micro-
enterprises, tax administration, real estate, as well as e-procurement and e-government. Eight 
of the planned measures and 20 sub-measures were already implemented by August 1, 2010.  

Despite  a  significant  rise  between  2005  and  2009,  the  use  of  e-government  services  by 
enterprises  is  still  below  the  EU  average.  The  use  of  eCommerce  by  both  enterprises  and 
private  individuals  is  also  underdeveloped.  Another  feature  of  the  Latvian  economy  is  that 
ICT has so far been mainly used for support functions instead of core business activities both 
in  the  private  and  public  sectors.  Thus,  the  ICT  potential  in  raising  productivity  remains 
largely unexploited. 

3.13.6.  Entrepreneurship and SME policy 

The SME sector in Latvia has a structure which is skewed towards larger size classes, with the 
percentages of medium- sized and small enterprises much higher than the European averages 
and  the  percentage  of  micro  enterprises  much  lower.  The  contribution  of  SMEs  to 
employment (76%) in Latvia is significantly higher than the European average (67%). This is 
partly due to the particular structure of the SME sector: the relatively few Latvian micro firms 
contribute less to employment (22%) than EU micro firms do on average (30%) in all the 27 
Member  States.  In  2008,  Latvian  SMEs  accounted  for  74%  of  value  added  in  the  non-
financial business economy, far above the EU average of 58%. 

A  programme  to  promote  self-employment  and  entrepreneurship  (co-financed  by  the 
European Social Fund) was established in 2009, which provides complete support, including 
consultations, training, financial loans and grants for starting a business. Since the start of the 
programme, 101 start-ups have been supported with a total loan amount of LVL 1.57 million, 
92 projects were granted additional funding and 435 persons participated in training courses. 

A competition “Ideas Cup” has been held annually since 2007 where thousands of applicants 
submitted  their  business  plans  in  order  to  receive  mentoring.  Since  the  beginning  of  the 
competition  about  1500  ideas  were  entered  and  500  persons  participated  in  training.  The 
competition project has received the European Commission’s recognition in 2009.  

In  October  2009,  the  Government  approved  a  concept  paper  on  support  measures  to  micro-
enterprises,  aimed  at:  decreasing  business  start-up  costs;  enabling  a  friendlier  tax  policy; 
facilitate bookkeeping and access to finance; as well as promote access to information. In the 
framework  of  this  initiative,  individuals  engaged  in  small  business  activities  may  opt  for  a 
combined "patent" fee not exceeding EUR 100 per month, instead of personal income tax and 
social  security  contributions.  A  special  law  on  simplified  taxation  of  micro-enterprises  is  in 
force since September 1, 2010. The law applies to businesses with an annual turnover below 
EUR 100,000 and less than five employees. As of May 2010, a series of simplifications have 
also entered  into  force as regards company registration, notably a possibility to establish  an 
enterprise with decreased (instant) statutory capital – going as low as EUR 1.43.  

The  support  measures  for  entrepreneurship  also  include  various  financial  instruments:  loan 
instruments,  guarantees,  as  well  as  seed,  start-up  and  risk  capital  support  programmes.  For 
example, the Mortgage and Land Bank programme “Loans for the Improvement of Enterprise 
Competitiveness”  accounts  for  LVL 140.2 million  financing.  Since  the  beginning  of 
programme (2008), a total of LVL 106.6 million in loans has been approved, including LVL 
38.4  million  of  loans  co-financed  from  the  ERDF.  The  Latvian  Guarantee  Agency  (LGA) 
provides credit  guarantees and export credit guarantees  in the framework  of the programme 

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“Guarantees  for  the  Improvement  of  Enterprise  Competitiveness”.  By  August  31,  2010  the 
LGA  had  issued  credit  guarantees  to  136  companies  for  a  total  of  LVL  51.3  million  and 
export credit guarantees to 29 companies for total amount LVL 1.5 million. In the framework 
of  the  European  Investment  Fund  loan  instrument,  investment  and  working  capital  loans  to 
SMEs are available. The total funding of this measure is LVL 36.5 million or 0.3% of GDP 
(the bank financing at least 50% of the credit portfolio) and it is run by two big commercial 
banks.  Finally,  there  are  also  two  risk  capital  financing  schemes  of  some  LVL 14 million 
each, one of which for seed and start-up financing. 

Access to finance is the most pressing challenge currently faced by Latvian SMEs. In general, 
their low level of penetration in global value chains is an additional constraint on innovation 
and growth. 

3.13.7.  Conclusions 

Latvia's  cost  competitiveness  during  the  overheating  years  deteriorated.  Given  that  labour-
intensive products are still very important in Latvia's goods exports and reflecting the strong 
service orientation of the economy, it seems to be of paramount importance to respond to this 
deterioration in cost competitiveness by cost reductions in the short-term and by productivity 
increases  in  the  longer-term.  Labour  market  conditions  have  changed  dramatically  and 
statistical  evidence  of  nominal  wage  adjustment  is  growing.  This  adjustment  of  the  labour 
market  is  expected  to  ensure  the  necessary  correction  of  wages  and  to  shift  workers  to  the 
tradable  sector,  thereby  supporting  the  recovery,  although  emigration  to  other  EU  Member 
States is a major risk factor. 

An  increase  in  productivity  appears  to  be  the  only  way  for  Latvia  to  enjoy  higher  living 
standards  in  the  future.  Hence,  new  capital  and  investment  are  badly  needed  exactly  at  the 
time when access to finance is particularly difficult. The supply side of the economy could be 
strengthened by making efficient use of the available EU structural funds in combination with 
structural reforms aimed at facilitating the shift of resources towards the tradable sector. For 
example, closer integration of the R&D and innovation policies, further improvement of the 
regulatory  environment,  as  well  as  fully  exploiting  the  potential  of  information  and 
communication  technologies  in  raising  productivity,  especially  as  regards  core  business 
functions  on  the  basis  of  broadband,  could  prove  useful.  Recent  decisions  of  the  Latvian 
authorities  put  particular  emphasis  on  specific  industry  sectors.  However,  a  favourable 
business environment, which is conducive to investment, innovation and growth, is important 
for all business actors across the board. 

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3.14.  Lithuania 

3.14.1.  Indicators graph 

Lithuania

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2007)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Towards a sustainable industry

Business Environment

Share of high-growth enterprises as % of all enterprises (2005)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

NA

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.14.2.  Introduction37 

Lithuania’s labour productivity was, measured both per hour and per person, at around 55% 
of the EU average in 2005 and 2008/2009, increasing slightly in-between. The real effective 
exchange appreciated significantly between 1999 and 2009, indicating a markedly decreased 
competitiveness, also compared to the EU average. Nominal unit labour costs in Lithuanian 
manufacturing  remained  constant  between  2000  and  2005  and  increased  by  23%  between 
2005 and 2009, resulting in an overall increase which was somewhat above the EU average of 
19%. 

Lithuania is specialised in sectors demanding low skills and, increasingly, in low-intermediate 
skill  sectors.  This  picture  is  confirmed  by  a  clear  trend  towards  sectors  with  medium-low 
technology intensity, a (decreasing) specialisation on low technology sectors and a very low 
share of higher technology sectors. Lithuania tends to specialise in sectors with a growth rate 
below the EU average but high growth sectors gain in importance. 

Manufacturing plays a slightly bigger role for Lithuania than for the EU in total (18% versus 
17% of value added in 2008). Compared to the EU, the manufacturing sector is particularly 
specialised on textiles and clothing, wood and wood products, food, and other manufacturing. 
In the service sector, construction, wholesale and retail and transport and communication had 
a clear above average weight in 2008. Agriculture and forestry are much more important than 
for the EU in total. Employment figures show that agriculture has dramatically decreased its 
importance over time, while they have remained relatively stable in manufacturing. There is a 
clear  change  in  employment  distribution  towards  service  sectors,  especially  construction, 
wholesale  and  retail  and  real  estate  and  business  activities.  Forecasts  until  2020  expect  an 
increase in employment in business and other services (+35%) and in construction (+16%) as 
well as a continued clear decline in agriculture (-37%) but also in manufacturing (-10%). 

Lithuania has a deficit in the trade in goods, with a noteworthy reduction of this deficit from 
2005 onwards. In the fourth quarter of 2009 external trade figures turned almost balanced. 

Exit from the crisis 

The drop of manufacturing output due to the economic and financial crisis amounted to 28%. 
The  production  regained  16%  in  July  2010.  The  Lithuanian  government  made  more  than 
EUR 70 million available for business to cope with the economic and financial crisis.  

The  Lithuanian  "Economic  Stimulus  Plan"  foresees  EUR 30  million  (0.1%  of  GDP)  for 
export  credit  insurance.  About  50%  of  the  contracts  have  been  signed,  but  only  a  small 
fraction of the finances have reached the exporting sector. Two holding funds, the "Business 
and  Investment  Guarantee  Fund"  (INVEGA)  and  the  EIF-managed  JEREMIE  holding  fund 
with  a  combined  volume  of  over  EUR 400  million  (LTL  1.3  billion,  or  1.5%  of  GDP),  are 
directed at improving SMEs' access to finance through several financial engineering measures 
– loans, guarantees, venture capital funds and a co-investment fund for "business angels". To 
date, about 50% of the foreseen agreements have been signed and about 18% of the financing 
extended. Even 65% of guarantees were extended.  

37 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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Moreover, a system of delayed tax payments for newly-registered SMEs has been introduced, 
delaying due payments up to 5 years for up to 80% of the calculated tax. 

3.14.3.  Towards an innovative industry 

The  current  Lithuanian  industry  structure  remains  disadvantageous  for  rapid  productivity 
growth and high value added manufacturing development. Therefore, the major challenge for 
Lithuania  is  to  upgrade  its  sustained  traditional  industries  towards  high  value  added, 
knowledge  intensive  modern  industrial  sectors  regardless  of  their  position  in  low-high  tech 
classification. 

There  have  been  some  attempts  recently  to  improve  co-ordination  and  implementation 
regarding  innovation  policy.  Several  measures  directly  addressing  innovation  are  aiming  to 
strengthen  innovation  support  infrastructure  and  develop  its  institutional  capacities,  to 
improve  R&D  and  business  co-operation  in  innovation  development,  to  improve  quality  of 
human resources for R&D and innovation and to strengthen the public and private R&D base. 
EU structural funds are used for seven instruments focussing on both technological and other 
forms  of  innovation  across  different  stages  of  the  innovation  process,  beginning  with  first 
ideas over feasibility studies to more 'hard' measures supporting the putting into practice. For 
all the instruments together, proposals for more than EUR 63 million have been received until 
2009.  

Direct  support  for  innovation  in  firms  is  offered  as  well.  Innovation  policy  discussion  has 
intensified  and  addressed  innovation  culture,  cluster  development  issues,  and  the  problems 
industry is facing - intensifying brain-drain and international migration of qualified labour. An 
amendment  to  the  Law  on  Corporate  Income  Tax  has  entered  into  force  in  2009  that 
encourages  companies'  investment  in  R&D  by  reducing  the  taxable  profit  3  times  the 
investment and reducing the amortization process to 2 years. This includes also Income Tax 
Relief for Investments into New Technologies; assessable profit for the enterprises could be 
reduced  up  to  50  %  of  expenditures  incurred  by  investing  into  equipment,  means  of 
communication,  computers,  etc.  A  key  initiative  in  terms  of  reorganisation  of  research  and 
innovation  activities  is  the  ongoing  establishment  of  five  integrated  science,  study  and 
business centres – so called Valleys – which are supposed to strengthen the links between the 
public research base, higher education and businesses and reinforce the strengths of regionally 
concentrated research and innovation networks.  

Key  challenges  include,  first,  to  improve  skills  for  innovation  and  entrepreneurial  attitudes. 
One  of  the  major  strengths  of  Lithuania  is  the  relatively  high  share  of  S&E  graduates. 
However,  there  remain  concerns  about  skills  shortages  in  certain  fields  (e.g.  highly  skilled 
human resources in the specific areas of science and technology). Secondly, R&D capabilities 
in  firms,  the  development  of  a  sound  R&D  base  and  closer  links  with  public  research  and 
higher  education  institutions  are  important.  The  Lithuanian  business  sector  suffers  from  the 
relatively low R&D potential in business, both in terms of the number of researchers in the 
business sector and in terms of R&D funding. Thirdly, there is a need to develop knowledge-
intensive clusters across public knowledge poles. 

3.14.4.  Towards a sustainable industry 

Substantial  efforts  are  needed  for  Lithuania  to  reduce  its  greenhouse  gas  emissions  in  line 
with agreed policies.   

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With  the  aim  to  promote  Cleaner  Production  (CP)  technologies  the  PE  Lithuanian 
Environmental Investment Fund (LAAIF) provides subsidies to environmental projects within 
the de minimis threshold. The main recipients are SMEs that invest in less polluting or waste 
preventing technology. Funding can reach 60-80 percent and shortens the amortisation period 
of the investments to a maximum of three years. 

In the context of the economic stimulus measures a budget of Litas 1.8 billion was available 
in 2009 to support renovation and insulation works of public buildings and private apartment 
blocks, co-financed by EU structural funds (ERDF). 

A Green Procurement Implementation Programme from 2007 foresees an increasing share of 
up to 25% (in 2011) of public procurement for which purchased products and services have to 
meet established environmental criteria. 

3.14.5.  The business environment 

Policies  to  systematically  improve  the  business  environment  are  still  relatively  recent. 
Lithuania  scores  clearly  above  the  EU  average  concerning  the  e-government  usage  by 
enterprises  and  slightly  above  average  concerning  the  availability  of  high-speed  broadband 
lines. However, the country scores below average concerning infrastructure expenditures. 

In  2008,  Lithuania  adopted  its  National  Programme  for  Better  Regulation  with  the  aim  of 
creating  the  adequate  institutional  framework  and  strengthening  administrative  capacities, 
improving the quality and efficiency of regulations as well as reducing administrative burden 
and unjustified compliance costs for businesses. In March 2009, the Government adopted the 
target of reducing by 30% the administrative burden on businesses by the end of 2011 in the 
seven  priority  areas:  Tax  Administration,  Work  Relations  (Labour  Law),  Statistics, 
Environment  Protection,  Transport,  Territorial  Planning  and  Construction  and  Real  Estate 
Operations.  The  mapping  of  the  information  obligations  was  completed  in  the  beginning  of 
2009, but the corresponding baseline  measurement  to quantify the administrative burdens is 
delayed to the second half of 2010. An expert body composed equally by representatives of 
public authorities and businesses (the Sunrise Commission) was established in March 2009 to 
present concrete proposals to improve the regulatory environment. In 2009-2010, it submitted 
more than 140 proposals to the Government, out of which 56 have already been implemented, 
e.g.  the  process  of  establishment  of  individual  enterprises  and  private  limited  liability 
companies has been simplified and registration term of legal entities in the Centre of Registers 
has been shortened from 5 to 3 working days.  

eGovernment  policy  is  part  of  the  Lithuanian  Public  Administration  Development  Strategy 
until 2010 as well as of the Information and Knowledge Society Development 2009-2015. The 
central eProcurement platform is mandatory and allows contracting authorities to implement 
the whole online process of public procurement.  

Since  the  closure  of  the  Ignalina  nuclear  power  plant  in  December  2009  which  has  turned 
Lithuania from a net exporter to an importer of electricity, prices have risen by about 30%. At 
the  same  time  electricity  market  reforms  are  implemented  including  the  trading  exchange 
BaltPool for the Baltic region since January 2010, deregulation of electricity tariffs as well as 
increasing  physical  and  organisational  integration  in  the  Nordic  and  Continental  EU  energy 
market. While one link with Estonia (EstLink I) has been in operation since 2007 a number of 
further interconnections are projected until 2015. 

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A  major  challenge  lies  in  the  field  of  energy,  namely  to  ensure  long  term  stable  and 
diversified  supply,  among  others  by  strengthening  links  with  the  energy  grids  of  its  EU 
neighbours. Moreover, consistency between actions resulting from the administrative burden 
measurement exercise and the Sunrise Commission should be ensured. 

3.14.6.  Entrepreneurship and SME policy 

SMEs  in  Lithuania  tend  to  be,  relatively,  larger  than  in  the  EU.  This  is  consistent  with  the 
good performance in terms of share of high growth enterprises. The total SME sector employs 
proportionally more people in Lithuania than in the EU. 

The national education strategy for 2003-2012 states that entrepreneurship  education should 
be  introduced  at  all  levels  of  the  educational  system,  including  secondary,  professional  and 
university education, as well as in training programmes for teachers and lecturers. In 2008, the 
government  enacted 
the  National  Youth  Entrepreneurship  Education  and  Incentive 
programme  with  a  budget  of  EUR 35 million  until  2012.  It  focuses  on  entrepreneurship 
education,  incentives  for  businesses  run  by  young  people  and  monitoring  as  an  input  for 
governmental  institutions  and  the  society.  Mentoring  and  support  for  entrepreneurs  is 
provided by 31 business information centres and 6 business incubators.. 

The  Economic  Stimulus  Plan  includes  policy  measures  to  support  SMEs'  access  to  finance, 
business  internationalisation,  as  well  as  shifting  priorities  towards  exporting  enterprises  in 
granting financing. An export promotion strategy for 2009-2013 and its implementation plan 
were adopted by the government in 2009. 

The one-stop-shop to start-up a company (Centre of Registers) is fully operational. An SME 
Council was set up in 2008 to advise state authorities on policy developments. 

A short term challenge is to ensure SMEs access to finance until Lithuania's overall economic 
situation  turns  normal  again.  A  longer  term  objective  would  be  to  promote  a  culture  of 
entrepreneurship,  in  particular  by  implementing  the  respective  reforms  in  the  educational 
system. Many of the problems addressed by the Better Regulation programme and the Sunrise 
Commission  are  also  relevant  for  SMEs,  such  as  reducing  burdens  related  to  starting  up  a 
business, obtaining licences or building permits. 

3.14.7.  Conclusions 

The  most  imminent  challenge  to  maintain  the  competitiveness  of  Lithuania's  economy  is  to 
ensure sufficient access to finance for SMEs in order to avoid that generally healthy firms go 
out of business exclusively because of tight financing conditions resulting from the economic 
crisis. 

Mid to long term challenges are to promote structural change towards more high value added 
and  knowledge  intensive  sectors.  Appropriate  policies  include  strengthening  links  between 
industry and public and private research, increase R&D&I funding and continue the reform of 
the research system. 

The  business  environment  could  be  continuously  improved  through  efforts  reducing 
administrative  burden  and  unnecessary  compliance  costs  resulting  from  legislation,  through 
increased  investments  in  infrastructure  such  as  broadband  connections,  as  well  as  through 
reforming and liberalising the energy market to ensure low energy prices and energy security. 

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Finally,  a  long  term  challenge  is  to  increase  resource  efficiency  of  Lithuanian  industry 
significantly and to transform it into a low carbon economy. 

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3.15.  Luxembourg  

3.15.1.  Indicators graph 

Luxembourg

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

NA

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Towards a sustainable industry

Infrastructure expenditures (euro per inhabitant; 2007)

NA

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

Business Environment

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.15.2.  Introduction38 

Luxembourg’s  overall  excellent  competitiveness  position  is  best  shown  in  its  labour 
productivity which is, measured both per hour and per person, clearly the highest in the EU. 
However,  nominal  unit  labour  costs  in  Luxembourgish  manufacturing  increased  by  45% 
between 2000 and 2009, thus faster than in any other EU-15 Member State except Italy. As a 
result, the overall increase was more than twice the EU average of 19%. Luxembourg showed 
a  small  deficit  in  the  trade  of  goods  in  2009  but  its  services  account  generates  very  high 
surpluses. 

Luxembourg  is  specialised  in  sectors  demanding  skills.    There  is  also  a  high  degree  of 
specialisation in medium-low technology sectors. This is mirrored in a clear specialisation on 
sectors that have a relatively high growth rate in the EU in total. 

in  2008.  There 

Manufacturing has a much smaller weight in Luxembourg than in the EU in total (9% vs. 17% 
of  value  added  in  2008).  Only  basic  metal  production  shows  an  above  average  share  in 
in  financial 
manufacturing 
intermediation  and,  secondarily,  in  transport  and  communication.  The  structural  change 
towards services is also underpinned by employment figures. Forecasts until 2020 expect an 
increase in employment in business and other services and distribution and transport by some 
10% while employment in other sectors might remain stable. 

is,  however,  very  clear  specialisation 

The  negative  trade  balance  in  manufacturing  mainly  resulted  from  deficits  in  refined 
petroleum  and  transport  equipment  while  only  basic  metal  products  showed  a  clear  trade 
surplus.  The  Revealed  Comparative  Advantage  (RCA),  measured  relative  to  the  EU  and 
concentrating on manufacturing, shows particular strengths for Luxembourg in 2008 in basic 
metals products, rubber and plastics and non-metallic mineral products. 

Exit from the crisis 

Luxembourg faced a very significant reduction of almost 33% in manufacturing output during 
the crisis. However, manufacturing quickly recovered to 81% of pre-crisis level in June 2010. 

In  the  light  of  the  economic  and  financial  crisis  Luxembourg  introduced  a  de  minimis  aid 
scheme,  guarantees  and  export  credits  under  the  Temporary  State  aid  Framework. 
Beneficiaries are mainly SMEs with the exception of export credits. Conditions on the credit 
markets  improved.  In  the  export  credit  market  problems  remain  in  some  sectors,  such  as 
construction  and  automobile.  State  support  for  export  credits  and  guarantees  therefore  still 
appears to be necessary. 

3.15.3.  Towards an innovative industry  

The  European  Innovation  Scoreboard  2008  (EIS)  ranks  Luxembourg  in  the  category  of 
Innovation  follower  with  innovation  performance  above  the  EU  27  average.  The  business 
enterprise sector remains the main contributor to R&D expenditures in Luxembourg. 

The  main  developments  in  public  support  for  innovation  are  threefold.  Firstly,  there  is  an 
effort  to  energise  the  economic  landscape  by  increasing  the  number  of  new  companies  and 

38 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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supporting more extensively the innovation process of enterprises. To this end, the new law 
on  RDI  will  be  a  key  instrument  as  it  will  target  other  types  of  innovation  that  were  not 
eligible for funding until now, and will be able to finance consulting services in innovation. 
The  reinforcement  of  collaboration  between  the  public  organisations  –  in  particular  public 
research centres – and business is also targeted by the new measures. Finally, to attract and 
retain  a  high-skilled  workforce  in  Luxembourg  remains  a  challenge.  A  bill  on  the  free 
movement and immigration was voted to make obtaining of residence permit for third-country 
nationals easier.  

3.15.4.  Towards a sustainable industry 

Industry in Luxembourg seems to have a higher than average energy intensity, which can be 
explained to some extent by its specialisation in basic metals production. The waste generated 
by  the  enterprise  sector  is  also  particularly  high;  however,  this  is  also  due  to  a  statistical 
particularity,  i.e.  the  high  number  of  workers  that  are  not  residents  in  comparison  to  total 
population. 

In March 2009, a new National Plan on Sustainable Development was agreed. There is also a 
White Paper on an overall energy strategy. The Recovery Plan contained a great number of 
specific measures for energy efficiency and renewable energy (public and private buildings – 
financial incentives for domestic equipment - fiscal incentives for the purchase of “cleaner” 
cars (scrapping schemes) etc. The 2006 Action Plan on CO2 reduction will be revised by the 
end of 2010 and a programme to develop sustainable consumption and production will be set 
up. 

Although  explained to some extent by the specialisation of the Luxembourgian  industry,  its 
high energy intensity may constitute a cost handicap and a risk factor that more focused action 
could mitigate. 

3.15.5.  The business environment 

The  business  environment in Luxemburg  is  positive, with a legal and regulatory framework 
and administrative burden clearly above the EU average. 

A sectoral target was set in 2009 to reduce by 15% the administrative burden on businesses by 
2012.  In  addition  to  the  "Entfesselungsplan  für  Betriebe",  the  2009-2013  Action  Plan  for 
Administrative Simplification foresees a range of measures and tools.  

eGovernment  usage  by  enterprises  in  2009  is  clearly  above  the  EU  average.  eGovernment 
policy is focused on back-office improvements and the development of specific services and 
applications requiring trust and security. Luxembourg has a mandatory national eProcurement 
portal.  

To  improve  transport  and  telecoms  infrastructures,  new  projects  are  foreseen,  for  instance 
better  railway  connections  with  Strasbourg  and  Saarbrücken,  creation  of  a  tram  line 
(development of the Lux tram) and railway connections between airport and city, increase of 
passenger  railway  capacity  between  Luxembourg  and  Metz  –  new  investments  in  the 
electronic telecommunications networks (Lux connect project). 

The  plan  to  merge  the  Competition  Inspection  and  the  Competition  Council  has  not  been 
implemented  yet  and  their  staffing  remains  weak.  Problems  are  more  visible  in  the  retail 

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sector but also in regulated professions. Energy prices for enterprises (especially for gas) tend 
also to be higher than in neighbouring countries, even if not by much. 

3.15.6.  Entrepreneurship and SME policy 

SMEs  in  Luxembourg  tend  to  be  larger  than  in  the  EU,  with  a  smaller  share  of  micro 
enterprises  and  a  larger  share  of  small  and  medium  sized  ones.  Their  contribution  to 
employment  follows  the  same  pattern  but  they  are  more  productive  than  in  the  EU  as  their 
shares of value added are higher in all size categories. 

The national action plan in favour of SMEs of 2008 foresees lower establishment fees for new 
companies and sets out the objective for a new company to be created within one week. It also 
foresees to facilitate the creation of new companies and the transfer of existing companies, to 
stimulate the entrepreneurial spirit, to support SMEs in their cross-border development and to 
promote the continuous vocational training. 

The new trade promotion agency Luxembourg for Business was founded in 2008 to promote 
trade  and  international  business  in  the  interest  of  the  Luxembourg  economy.  More 
specifically,  the  agency  promotes  ‘Made  in  Luxembourg’  goods  and  services  in  foreign 
markets. 

3.15.7.  Conclusions 

Luxembourg shows relatively high energy intensity in the industry. Improving this parameter 
could  contribute  to  reduced  costs  of  production.  Reducing  energy  prices  through  additional 
infrastructure and a reinforced competition framework would also contribute to lower costs. 
Nevertheless,  these  comments  should  be  seen  in  the  light  of  the  specific  geographical  and 
economic conditions of the country.  

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3.16.  Hungary 

3.16.1.  Indicators graph 

Hungary

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2007)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

-3,3

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

Towards a modern and 
competitive industry

Towards a sustainable industry

% of broadband lines with speed above 10 MBps (2009)

NA

Business Environment

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.16.2.  Introduction39 

Hungary’s labour productivity, per person employed, reaches some 70% of the EU average. 
Its  growth  over  the  last  decade  was  limited.  Hungary  showed  one  of  the  strongest 
appreciations  of  the  real  effective  exchange  rate  during  the  last  decade,  indicating  a  loss  in 
cost  and  price  competitiveness.  Still,  nominal  unit  labour  costs  in  Hungarian  manufacturing 
increased by 25% between 2000 and 2009, thus only somewhat faster than the EU average of 
19%.  During  the  last  decade  Hungary  has  faced  a  significant  overall  competitiveness  loss, 
which has reflected in different international competitiveness rankings as well. 

Nevertheless, foreign trade performance has  improved considerably since the EU  accession. 
Growth of exports accelerated in 2006 and 2007, while it decelerated in 2008 and exports fell 
dramatically  in  the  period  of  crisis.  The  contribution  of  net  exports  (goods  and  services 
together) to GDP has been positive since 2004.  

Manufacturing plays a bigger role for Hungary than for the EU in total (21% vs. 17% of value 
added  in  2008,  before  the  crisis).  The  Hungarian  economy  is  specialized  in  transport 
equipment  and  electrical  and  optical  equipment.  These  subsectors  are  particularly  export-
oriented and very important both in output performance and employment. The share of high-
tech  products  in  total  exports  is  far  above  the  EU  average.  Manufacturing  of  transport 
equipments,  machinery,  electrical  and  optical  equipments  and  chemicals  as  well  as  food 
products  have  experienced  continuously  increasing  large  trade  surpluses  during  the  decade. 
The Revealed Comparative Advantage (RCA), measured relative to the EU and concentrating 
on  manufacturing,  shows  particular  strengths  for  Hungary  in  2007  in  electrical  and  optical 
equipment and transport equipment. 

In the service sector, public sector has the clearest above average weight. The share of gross 
value  added  has  increased  in  business  services,  retail  trade  and  transport  in  the  last  years. 
Agriculture  has  a  bigger  role  than  for  the  EU  average;  however,  its  weight  has  been 
diminishing.  

Hungary is specialised in sectors demanding low skills. There is, at the same time,  a clear and 
growing  specialisation  on  high  technology  sectors  and,  to  some  extent,  medium-high 
technology sectors. Sectors with a negative growth rate have lost dramatically in importance; 
medium-high growth sectors are gaining ground. Hungary has experienced significant inflow 
of  FDI  in  regional  comparison,  however,  foreign  enterprises  are  located  overwhelmingly  in 
the developed regions and less developed regions can hardly benefit from the positive spill-
overs of FDI.  

Exit from the crisis 

The Hungarian economy was hit by the crisis especially hard: the GDP fell by 6.3% in 2009. 
Output  and  employment  in  the  manufacturing  sector  dropped  significantly  as  both  external 
and  internal  (due  to  drastic  fiscal  consolidation  measures)  demand  deteriorated.  Although 
there  was  very  limited  room  for  fiscal  manoeuvre,  the  government  launched  several 
programmes in order to support SMEs, mostly hit by the crisis. Already at the beginning of 
the  crisis  it  took  measures  to  alleviate  tight  credit  conditions  for  the  business  sector.  In 

39 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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general,  support  to  SMEs  is  a  priority  of  EU  Cohesion  Policy  in  the  current  programming 
period.  Very  important  resources  are  available  for  such  enterprise  support  in  Hungary,  and 
these resources have even been increased at request of Hungary in 2009, in the context of the 
crisis (from EUR 910 million to EUR 1.31 billion in the Economic Development Operational 
Programme). Also, efforts have been made for preservation and retraining of the workforce in 
the recession period.  

The recovery of the Hungarian economy depends on the revitalizing of the external markets. 
The output of export-driven industries is anticipated to accelerate faster than that of domestic 
market oriented sectors, particularly as the internal demand is still negatively affected by the 
fiscal consolidation. The economy is expected to enter a sustainable growth path only in 2011, 
based on both net exports and domestic demand. 

3.16.3.  Towards an innovative industry 

Hungary  belongs  to  the  "catching  up"  economies  as  regards  innovation.  R&D  investments 
relative to GDP (1%) is far below the EU average. Business R&D spending has been growing 
since 2004 both in absolute and relative terms; however, it stays still at a low level (0.5% of 
GDP). In terms of human resources for R&D and innovation there are also bottlenecks, both 
on  the  supply  and  demand  sides.  Innovation  performance,  as  measured  by  the  Summary 
Innovation Index, has improved since 2004, but innovation activity remained at a low level: 
only  one  fifth  of  companies  are  innovative.  Moreover,  R&D  and  innovation  activities  are 
rather concentrated to large foreign owned enterprises and in a few sectors. Also the regional 
R&D  concentration  in  the  most  advanced  regions  is  characteristic  for  Hungary.  High-tech 
export performance is very favourable in international comparison but is largely attributable 
to  activities  of  foreign-owned  enterprises  and  thus  it  does  not  necessarily  reflect  the 
technology-leader position of the sectors. 

One of the main problems regarding the Hungarian science, technology and innovation (STI) 
in  the  past  was  its  low  policy  priority.  In  the  context  of  the  current  reorganisation  of  the 
government structures, the science and technology institutional system was reformed in 2010. 
A Research and Science Policy Council was established in February 2010 to coordinate and 
decide on STI policy issues of strategic relevance and related major projects. 

A recent government regulation, on "deregulation of R&D" came into force as of 1 June 2010 
with the aim of simplifying and improving R&D tender procedures. 

The  Science,  technology  and  innovation  policy  strategy  (2007-2013)  set  the  target  to  reach 
total R&D expenditure of 1.4% and 1.8% of GDP by 2010 and 2013, respectively. In addition 
to  strengthening  the  role  of  enterprises  in  R&D  activities,  also  more  budget  sources  will  be 
available.  More  than  EUR 970  million  have  been  allocated  in  the  Economic  Development 
Operational Programme through the EU Structural Funds for the 2007-2013 period to support 
R&D  and  innovation,  targeting  in  particular  R&D  cooperation  between  enterprises, 
universities  and  research  institutes,  the  establishment  of  modern  research  infrastructure  and 
innovation  parks  and  patenting  activity.  For  2010,  the  government  has  earmarked 
HUF 180 billion for R&D purposes. 

The low level of overall innovation activities, especially among domestic SMEs, is the main 
challenge in this area. Moreover, the links and networks between public and private research 
are  weak  or  missing  and  there  are  still  gaps  in  the  quality  and  quantity  of  scientific  human 

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resources. Multinationals represent a potential strength for raising innovation capacities more 
widely if they are better embedded into the regional innovation systems. 

3.16.4.  Towards a sustainable industry 

Environmental sustainability of the Hungarian industry is poor as compared to more matured 
European economies. The Hungarian industry is more energy intensive than the EU average. 
The share of renewable energy sources in gross inland energy consumption has grown during 
the last decade but remains still far from the 2020 target.  

The  Hungarian  National  Climate  Change  Strategy  for  the  period  2008-2025  was  adopted  in 
2008 by the Parliament. The strategy defines targets for the business sector as well: reduction 
of  energy  and  material  consumption,  enhancing  R&D  and  innovation  activity  in  green 
products and services, for instance. 

The  Renewable  Energy  Action  Plan  is  currently  under  finalisation.  Measures,  such  as 
abolishment of bureaucratic obstacles, elaboration of simpler and faster processes and green 
procurement, should contribute to the development of the green economy in Hungary. 

The  Economic  Development  Operational  Programme  (EDOP)  and  the  Environment  and 
Energy  Operational  Programme  (EEOP)  provide  significant  financial  sources  for  enabling 
green  development.  The  EDOP  contains  actions  supporting  renewable  energy  production 
(wind  power  plants,  geothermal  power  stations,  solar,  biogas  plants),  energy-friendly 
technology investments as well as implementation of environment management systems. The 
EEOP  supports  renewable  energy  production  and  it  provides  financing  for  companies  for 
improving the energy efficiency of their buildings. 

One  of  the  main  challenges  in  this  policy  area  is  the  reduction  of  energy  intensity  of 
production.  Shifting  towards  a  green  economy  requires  not  only  financial  sources  and 
transparent regulatory framework, but also timely and effective implementation from all type 
of actors. 

3.16.5.  The business environment 

Hungary scores clearly below the EU average in most indicators, with the exception of the e-
government usage by enterprises. In particular, it provides a high level of state aid for industry 
and  services.  The  burden  of  government  regulation  is  significantly  higher  than  the  EU 
average.  

In order to create a better business environment, Hungary has adopted a resolution on Better 
Regulation  in  September  2008  that  included  17  actions,  covering  administrative  burden 
reduction, impact assessments, e-government and simplification.  

A  target  of  25%  administrative  burden  reduction  by  2012  was  set  in  the  2008.  A  focused 
survey of the administrative burdens conducted from November 2008 to June 2009 identified 
a  total  of  633  information  obligations  in  the  19  most  burdensome  focus  areas.  The 
measurement of administrative burden (2009) covered the 152 most burdensome Information 
Obligations  (IOs)  that  were  identified.  An  action  plan  containing  measures  which  do  not 
require  structural  transformation  and  can  be  quickly  implemented  was  submitted  to  the 
Government  in  2009.  Several  concrete  measures  were  taken  in  2009,  i.e.  changes  in 
construction  industry  regulation,  simplifications  in  grant  administration,  amendment  of  the 
Public Procurement act in favour of SMEs, and simplified company proceedings. 

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According to a decision adopted in 2008, only submissions comprising an impact assessment 
may  be  presented  to  the  Government  as  from  June  2009.  In  Hungary,  it  is  obligatory  to 
consult  representatives  of  the  SME  sector  on  each  new  regulation.  In  addition,  there  are 
different  consultative  forums  with  participation  of  SME  organisations  where  the  most 
important legislative changes and measures concerning SMEs are discussed, the newest one 
being  the  Economic  Consultation  Forum  (GEF).  E-consultation  is  in  place.  Draft  bills, 
ministerial resolutions  and  other  important policy concepts are made  public  via  the  relevant 
ministries’ homepages. 

eGovernment  is  a  key  element  of  the  administrative  reform.  The  "e-Public  Administration 
Strategy 2010", coordinated by the Prime Minister's Office, is implemented to extend the use 
of  ICT  in  the  public  sector  and  public  services.  Hungary  has  a  non-mandatory  electronic 
procurement platform.  

The  new  Hungarian  government  plans  to  further  simplify  public  procurement  rules  and 
propose a new legislation in 2011 incorporating additional favourable measures for SMEs. 

The  one-stop-shop  to  start-up  a  company  (Country  Courts)  is  operational.  Company  Court 
registration procedure includes also registration at the Hungarian Tax and Financial Control 
Administration (APEH) and the Central Statistical Office (KSH). Since July 1, 2008, the time 
required  for  the  so  called  simplified  company  registration  process  is  one  working  hour  (in 
accordance with the Act LXI of 2007) as the electronic procedure became compulsory. 

Measures aiming at decreasing the administrative burden of enterprises were identified; there 
is an estimated reduction of HUF 43 billion forecasted for 2010. To achieve tangible results 
for  businesses  Hungary  could  implement  the  planned  actions  of  the  resolution  on  Better 
regulation. In addition, the relatively high volume of state aid remains an issue to tackle.  

3.16.6.  Entrepreneurship and SME policy 

The SME sector in Hungary is dominated by micro enterprises that provide more than 70% of 
employment  in  the  business  economy.  Hungary  scores  clearly  better  than  the  EU  average 
concerning the time required to start a business and bank loan conditions for companies and 
slightly above the average concerning the payment duration by public authorities. However, 
the  country  scores  clearly  below  the  average  concerning  early  stage  financing  and  the 
enterprise survival rate after two years.  

In response to the financial crisis, and to improve the access of SMEs to financing, a package 
including several financial instruments was gradually introduced since the beginning of 2009. 
This included preferential loans, guarantees and interest rate subsidies. 

Tender schemes financed by the SME Budget Appropriation (KKC) offer grants for SMEs for 
training  and  entrepreneurial  knowledge,  including  the  promotion  of  entrepreneurial  and 
financial knowledge for elementary and secondary school students, cross-border activities and 
enabling  Roma  entrepreneurs  to  write  applications.  The  ’Junior  Achievement  Hungary’ 
manages  programmes  to  improve  entrepreneurial  skills  of  students,  so  that  more  than  3,000 
students can meet with successful entrepreneurs yearly. The national curriculum was modified 
in 2007 to align it with the recommendations of the EU key competences framework system, 
including the promotion of entrepreneurial and economic knowledge in education.  

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The  investment  promotion  system  was  changed  to  attract  investments  to  disadvantaged 
regions.  In  2008,  a  new  support  programme  Export  Development  Tendering  System  was 
launched,  which  gives  70%  non-refundable  support  for  international  marketing  packages. 
ITD  Hungary,  the  Hungarian  Investment  and  Trade  Development  Agency,  broadened  its 
services concerning the support of SMEs doing business abroad. 

Surviving  the  crisis  is  the  principal  challenge  for  most  SMEs  in  Hungary.  The  growing 
number of bankruptcies is a clear sign of deep concerns. Though the share of rejected SME 
loan applications is lower than the EU average, access to financing for SMEs, and early stage 
financing remains a challenge. The share of EU funds directed to SMEs is around 10% of the 
total.  The  new  Hungarian  government  plans  to  reinforce  SME  support  under  EU  Cohesion 
Policy. 

One way to tackle the lack of loans and early stage financing is JEREMIE which is a new, 
innovative joint initiative developed by the European Commission together with the European 
Investment  Fund  and  the  European  Investment  Bank  (EIB)  with  the  objective  to  improve 
access to finance for SMEs and new business creation through financial instruments, such as 
venture  capital  funds,  loan  funds  or  guarantees  funds.  Hungary  allocated  roughly  EUR  760 
million to repayable financial instruments for SMEs. The system is already set-up and running 
and  financing  is  being  provided  to  SMEs  through  innovative  financial  instruments  such  as 
micro-credits or venture capital funds. 

3.16.7.  Conclusions 

The  last  two  years  were  especially  hard  for  the  Hungarian  economy  as  it  faced  several 
challenges  as  a  result  of  structural  problems  that  became  more  acute  due  to  the  crisis.  One 
challenge for the newly elected government is to address the significant drop in both internal 
and external demand that results in a decreasing output and investment in manufacturing. The 
programmes  launched  in  order  to  support  SMEs  could  be  maintained  and  intensified  to 
achieve this. Reallocation of EU funds to SMEs has been an additional response to ease the 
lack of financing possibilities for small enterprises. Such reallocation can only be successful if 
further steps are taken to simplify administrative procedures linked to funding opportunities 
which are currently too burdensome for most companies to effectively apply for funds. The 
improvement of the business environment, especially the reduction of administrative burden, 
remains  a  key  issue  for  most  businesses.  In  order  to  achieve  the  goal  of  25%  reduction  by 
2012, Hungary would have to take important steps in the short term.  

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3.17.  Malta 

3.17.1.  Indicators graph 

Malta

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

NA

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

3,1

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

NA

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

-3,1

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Towards a sustainable industry

Business Environment

NA

NA

NA

NA

NA

NA

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.17.2.  Introduction40 

Malta’s labour productivity was, measured per hour, at some 80% of the EU average in 2005 
and  2008.  Measured  per  person,  it  reached  some  90%.  Malta’s  real  effective  exchange  rate 
appreciated  markedly  from  its  1999  level  until  2005  and  2009,  indicating  a  decreased 
competitiveness; however, this decrease was less pronounced than for the EU in total. Malta 
shows a clear deficit in the trade of goods. 

Malta  shows  a  marked  and  growing  specialisation  towards  low  skill  sectors;  while  there  is 
also some shift to high skill sectors at a low level,  the high-intermediate skills sectors have 
become relatively important and the low-intermediate skills sectors have lost ground. There is  
a clear specialisation in high and in low technology sector while the middle ground is under-
represented.  Sectors  with  a  medium-low  or  negative  growth  rate  in  the  EU  in  total  have  a 
higher weight in Malta than in the EU in average which is mainly due to the important role of 
the  sectors  “hotels  and  restaurants”  whose  growth  rate  was  just  below  the  average  and 
fisheries where it was clearly negative. However, while below the EU average, high growth 
sectors still play a major role. 

Manufacturing plays a similar role for Malta than for the EU in total (both at 17% of value 
added in 2008). Compared to the EU, the manufacturing sector is particularly specialised on 
electrical  and  optical  equipment,  other  manufacturing  and  chemicals;  in  previous  years, 
textiles  and  clothing  had  also  have  an  important  weight.  In  the  service  sector,  “hotels  and 
restaurants”  and  “transport  and  communication”  had  a  noteworthy  above  average  weight  in 
2008.  Fishing  is  much  more  important  than  for  the EU in  total.  Employment forecasts until 
2020  expect  an  increase  in  employment  in  distribution  and  transport  by  some  15%  while 
manufacturing employment might decrease by 10%.  

Exit from the crisis 

In Malta, the manufacturing output fell by 27% during the crisis. Production regained 11% in 
July 2010. The most significant problem in the Maltese economy remains the drop of exports. 
The  anti-crisis  measures  included  infrastructure  investments  (mainly  via  Structural  Funds), 
some non-budgetary measures and schemes to support directly affected sectors (like tourism) 
and enterprises (after checking the viability of their investment plans). 

The  Maltese  government  set  up  a  de  minimis  aid  scheme  of  EUR 40 million  under  the 
Temporary  State  aid  Framework.  The  aim  of  the  scheme  is  to  provide  temporary  aid  for 
enterprises  affected  by  the  crisis,  e.g.  reduced  orders  or  lack  of  credit.  10  enterprises  in  the 
manufacturing sector received grants from the scheme. A measure targeted to SMEs and the 
self-employed  aims  at  expanding  their  activity  and  providing  the  necessary  liquidity  for 
investment. Its budgetary cost was around 0.1% of GDP in 2009. Support measures to SMEs 
in 2010 have been provided through fiscal benefits. A tax credit of 40% (60% for businesses 
based in the Gozo region) is available to self-employed persons and enterprises with up to 10 
employees and to sole traders who make an investment in the next two years in some specific 
fields  (upgrading  shop  facilities,  investing  in  technology  to  comply  with  health,  safety  and 
environmental  regulations,  creating  new  jobs  and  recruiting  apprentices).  The  cost  of  this 
scheme should amount to less than 0.1% of GDP and it is likely to expire at the end of 2010. 

40 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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3.17.3.  Towards an innovative industry 

In  terms  of  innovation  performance,  Malta  remains  in  the  group  of  'catching-up'  countries. 
Malta  is  doing  well  in  terms  of  sales  of  new-to-market  products  and  high-tech  exports;  the 
latter  is,  however,  mainly  going  hand  in  hand  with  a  significant  dependency  on  one  large 
electronics exporter which gives in itself also reason for some concern. Broadband penetration 
amongst firms has increased steadily. The innovation performance of small and medium-sized 
enterprises (SMEs) remains a weakness.  

However, Malta faces general problems regarding its human capital base since the degree of 
people with secondary education in the workforce is very low (as is the employment rate in 
general);  in  addition,  lifelong  learning  is  not  broadly  used  and  the  share  of  early-school 
leavers  remains  the  highest  in  the  EU,  although  a  decline  in  the  number  of  early-school 
leavers has been registered over recent years, reflecting in particular the setting up of various 
education  institutions  whose  mission  consists  in  extending  higher  vocational  and  academic 
training to an increasing proportion of students. 

The  innovation  and  research  measures  include  a  variety  of  aid  schemes  for  enterprises  that 
offer  higher  intensity  aid  for  SMEs,  a  research  and  development  incentive  package  for 
industry,  and  capacity  building  for  research  and  innovation  infrastructures.  Many  of  these 
measures  are  co-financed  through  the  second  programming  period  of  structural  funds  from 
2007 to 2013 and target specific sectors – such as ICT, biotechnology and environment – that 
have been identified as areas offering Malta a comparative advantage. 

The innovation challenges are the following: first, financial resources in R&I in niche areas of 
economic importance are still quite low. The second programming period of structural funds 
(2007 to 2013) has provided the opportunity to earmark a substantially larger portion of funds 
for  R&I.  Second,  human  resources  in  science  and  technology  in  emerging  sectors  of  the 
economy  could  be  developed  more  strongly.  The  shift  to  a  knowledge-intensive  economy 
requires  creating  jobs  in  the  high-skills  end  of  the  labour  market  and  supporting  this  with 
innovation  and 
adequately  qualified  people.  Third, 
entrepreneurship amongst businesses, including SMEs, could be strengthened. Finally, sector-
specific  innovation  policies,  strategies  and  measures  in  areas  of  national  priority  could  be 
developed  (namely  ICT,  energy  and  environment,  health  and  biotech  and  high  value-added 
manufacturing). 

the  environment 

to  nurture 

To support a wide-spread knowledge-intensive production, it seems indispensable to raise the 
qualification level of the workforce, in particular with a view to demographic developments 
and the expected increase in skill demands. 

3.17.4.  Towards a sustainable industry 

Malta’s  main  problem  is  the  almost  complete  dependency  on  imported  energy  and  on  only 
two energy plants; there have been cases of power cuts in the recent past (June 2009, March 
2010). So far, there is only limited use of renewables and the viability of the national energy 
efficiency plan remains unclear. A connection to the European energy grid is a long-planned 
and  progressing  project.  However,  this  will  still  need  time;  a  feasibility  study  has  been 
finished and the tender period for the actual project closed in July 2010. Malta published an 
ambitious  and  comprehensive  climate  change  strategy  in  2009.  In  addition,  it  seems 
noteworthy that Malta has - after Luxembourg, Italy and Cyprus - the fourth highest density 
of car ownership in the EU (and the ninth-highest worldwide) with 557 private cars per 1000 

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inhabitants; in total, there are close to 300.000 vehicles licensed. This puts significant strains 
on infrastructure and environment. 

Malta  has  taken  many  small  measures  (e.g.  grants  for  solar  water  heaters,  tax  credits  for 
photovoltaic,  energy  saving  light  bulbs  etc)  to  promote  energy  efficiency  and  use  of 
renewables.  Malta  has  embarked  on  a  project  to  replace  all  electricity  meters  with  smart 
meters, a project which is expected to be completed within two years. Efficient use of energy 
has  become  a  priority  also  for  the  enterprises  that  want  to  ensure  sustainability.  There  is  a 
50% grant for industry on investments in renewable resources and energy efficiency (with a 
minimum  investment  of  EUR 25 000  and  not  exceeding  EUR 200 000).  Malta  is  assisting 
such a scheme being funded under the ERDF which is open to all enterprises excluding those 
operating  in  the  financial  services,  agriculture  and  fisheries  sectors.  The  allocated  budget 
under this scheme is EUR 10 million. Costs may be claimed on investments in energy saving 
solutions  such  as  solar  heating,  thermal  insulation,  building  management  systems,  energy-
saving lighting and alternative energy technologies such as solar power and wind power. The 
government  also  offers  an  investment  tax  credit  to  industry  on  capital  invested  on 
photovoltaic panels for energy generation. Malta has taken some initiatives to liberalise public 
transport systems in an effort to reduce congestion. 

Despite  several  initiatives  taken,  solar  water  heaters  remain  the  only  significant  renewable 
energy source on the island; even here, figures for new installations dropped in 2009. Thus, 
the dependence on one main (and imported) energy source which is becoming less popular in 
other  EU  Member  States  (i.e.  oil  instead  of  gas)  remains  a  crucial  challenge.  Malta  has  the 
lowest  objective  in  terms  of  the  share  of  renewable  energy  to  be  reached  in  2020  (10%  vs. 
20% for the EU in total) but is lagging far behind in achieving this target.  

3.17.5.  The business environment 

Malta  scores  above  the  EU  average  concerning  the  e-government  usage  by  enterprises,  but 
clearly below average concerning state aid for industry and services, in 2008, and concerning 
electricity  prices  for  medium  size  enterprises.  However,  2008  was  an  exceptional  year 
regarding state aids. Many derogations in the accession treaty expired at the end of 2008 and, 
in  particular,  the  final  support  for  the  shipyards  was  also  accounted  for  in  this  year.  More 
generally, state aids were decreasing, from a comparatively high level, from 2005 to 2007. 

further  step 

In October 2008, Malta adopted its Better Regulation Strategy 2008-2010 which addresses a 
range  of  key  areas  such  as  capacity  building,  simplification  and  administrative  burden 
reduction,  quality  control  and  resources.  Based  on  the  results  of  a  mapping  pilot  project 
conducted in four areas (VAT, company law, financial services and food safety) and extended 
in  a 
legislation,  working 
environment/employment  relations,  fisheries,  public  procurement,  and  environment),  a 
reduction target for administrative burdens of 15% by 2012 was set in 2008. Malta does not 
have an explicit and mandatory ex ante impact assessment procedure as such, but all primary 
legislation  requires  an  accompanying  memorandum,  the  "Legal  Notice  Checklist"  (LNC), 
revised in 2009.  

five  additional  areas 

(pharmaceutical 

to 

The Strategic Plan 2009-2012 provides a new, state-of-the-art eGovernment platform, with all 
public services online by 2012. Malta has a mandatory national eProcurement platform. 

While the exceptional situation regarding state aids in 2008 is acknowledged, developments in 
this field need to be monitored; the previously decreasing trend should continue clearly given 

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the  end  of  the  derogations  in  the  accession  treaty.  Competition  policy  and  its  effectiveness 
will always remain crucial for Malta, in general, due to the small market size and its isolated 
position; the strengthening of the institutional structure in this field which has taken place in 
recent years is welcomed.  

3.17.6.  Entrepreneurship and SME policy 

SMEs in Malta tend to be smaller than in the EU as the share of micro enterprises is higher, 
employing around 40% of the workforce in Malta against 30% in the EU. Malta has a higher 
rate of business bank loan demands rejected by banks or bank loan offers to companies that 
were rejected by the latter. For the rest of the horizontal indicator categories looked at in this 
report, no data about Malta are available.  

Malta  Enterprise  is  the  agency  responsible  for  the  promotion  of  foreign  investment  and 
industrial development in Malta. It runs several schemes one of which (ERDF Small Start-up 
Grant Scheme) is specifically aimed at supporting start-ups, particularly innovative start-ups, 
and is part of a EUR 20 million industry package. In 2009, a local Council Award Scheme has 
been established with a total budget of EUR 100 000 to support local councils for initiatives 
that encourage entrepreneurship. 

The ERDF International Competitiveness Grant Scheme was launched in 2008 and supports 
enterprises  to  expand  into  new  international  markets.  This  scheme  reimburses  50%  of  the 
marketing  costs,  trade  fair  costs,  product  certification,  and  the  wage  costs  of  a  business 
development  manager  as  part  of  a  specified  internationalisation  project.  The  scope  of  this 
scheme  is  to  support  SMEs  to  develop  their  international  competitiveness  and  hence  offer 
their  goods  and  services 
international  markets.  The  ERDF  International 
Competitiveness Grant Scheme forms part of the EUR 20 million Industry Package. 

to  other 

In  2008,  only  43  out  of  27 682  Maltese  enterprises  were  not  SMEs.  This  means  that  the 
general  challenges  to  ensure  a  diversified  energy  supply,  a  well-qualified  workforce  and  an 
effective  competition  policy  are  valid  for  SMEs  as  well.  The  effective  implementation  of  a 
stream-lined one stop shop for business that was planned in 2009 is of particular importance, 
given  the  dominance  of  SMEs  in  Malta.  The  high  share  of  small  and,  in  particular,  micro-
enterprises can make some activities, e.g. in research or in training, more difficult. It can also 
blur  statistics  to  some  extent  as  micro-enterprises  are  often  not  covered,  e.g.  in  qualitative 
surveys. 

3.17.7.  Conclusions 

Since Malta is a  small island economy without own (fossil) energy sources  or other  natural 
resources,  it  depends  on  trade  and  on  the  efficient  and  effective  development  and 
implementation  of  its  human  capital.  Given  the  small  market  size,  the  effectiveness  of  the 
competition policy and the targeted use of limited resources are crucial; this refers inter alia to 
investments in the knowledge economy, the development of renewable energy and alternative 
energy sources and to energy and resource efficiency. 

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3.18.  The Netherlands 

3.18.1.  Indicators graph 

The Netherlands

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Towards a modern and 
competitive industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business Environment

NA

NA

Business churn (enterprise entries and exits as % of existing stock; 2007)

Entrepreneurship and SMEs

NA

Share of high-growth enterprises as % of all enterprises (2005)

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.18.2.  Introduction41 

The  Netherlands  enjoys  a  surplus  in  its  trade  of  goods  and  its  labour  productivity,  both  per 
hour  and  per  person,  is  clearly  above  the  EU  average.  The  Netherlands’  real  effective 
exchange  rate  appreciated  markedly  between  1999  and  2009,  indicating  decreased 
competitiveness;  however,  this  decrease  was  less  pronounced  than  for  the  EU  on  average. 
Nominal unit labour costs in Dutch manufacturing increased by 16% between 2000 and 2009 
with  a  remarkable  acceleration  during  the  second  half  of  the  decade.  However,  the  overall 
increase remained below the EU average of 19%. 

The Netherlands is specialised, to some degree, in sectors demanding high-intermediate skills. 
High  and  low-intermediate  skill  sectors  have  been  stable  from  1997  to  2007.  However, 
already low specialisation in high technology sectors dropped significantly. Low-technology 
sectors  play  an  important  and  growing  role.  Sectors  with  negative  growth  in  the  EU  play  a 
relatively strong role in the Netherlands (3.3% of GDP against 1.6 for the EU as a whole). 

Manufacturing has a smaller weight for the Netherlands than for the EU in total (13.5% vs. 
17%  of  value  added  in  2008).  Only  refined  petroleum  and,  to  a  lesser  extent,  other 
manufacturing,  food/drinks/tobacco  and  chemicals  show  an  above  average  share  in 
manufacturing. There is, however, clear specialisation in mining and quarrying (extraction of 
crude  oil  and  gas)  and,  to  a  lesser  degree,  in  refined  petroleum,  in  health  and  social  work, 
retail  and  wholesale  trade  and  financial  intermediation.  Employment  figures  show  the  high 
level of productivity in manufacturing but also the latter’s decreasing importance over time. 
Forecasts  until  2020  expect  an  increase  in  employment  in  business  and  other  services  by 
almost 8% while employment in manufacturing might drop by some 9%. 

The  Netherlands'  export  and  import  specialisation  patterns  are  quite  similar,  with  electrical 
and  optical  equipment,  chemicals  and  refined  petroleum  featuring  strongly  in  both  cases.  It 
showed  a  strong  export  performance  in  manufacturing.  They  differ  regarding  crude  oil  and 
gas  extraction  (export)  and  transport  equipment  (import  specialisation).  The  Revealed 
Comparative  Advantage  (RCA),  measured  relative  to  the  EU  and  concentrating  on 
manufacturing,  shows particular strengths for the Netherlands  in 2008 in  refined  petroleum, 
food, drinks and tobacco and electrical and optical equipment. The positive trade balance in 
manufacturing  mainly  resulted  from  surpluses  in  refined  petroleum,  chemicals  and 
foods/drinks/tobacco  while  transport  equipment,  other  manufacturing  and  wood  products 
showed a trade deficit. 

Exit from the crisis 

Manufacturing production is still seven percent lower in July 2010 than before the start of the 
economic and financial crisis. During the peak of  the crisis it fell by more than 15%. Some 
companies  in  the  construction  sector  received  de  minimis  grants  under  the  Temporary  State 
aid  Framework.  The  Dutch  government  also  set  up  an  export  credit  scheme  under  the 
Framework.  

The existing guarantee facilities for bank loans and for risk capital for SME’s were expanded. 
Main  changes:  loan  guarantees  (50%)  available  for  bigger  SME  and  higher  amounts  per 

41 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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company and 80% guarantee instead of 50% for guarantees up to € 200.000. For risk capital 
the  maximum  guarantee  per  company  was  increased  from  €  2,5  million  to  €  12,5  million. 
Also  a  new  temporary  50%  guarantee  for  bank  loans  to  bigger  companies  was  introduced, 
under  which  guarantees  to  an  amount  of  €  1,5  billion  can  be  provided.  The  maximum 
guarantee  per  company  is  €  75  million.  In  addition,  the  government  eased  the  depreciation 
rules,  i.e.  a  temporary  increase  in  depreciation  to  an  annual  rate  of  50%  for  investments  in 
2009 and 2010. The budgetary cost is projected to be EUR 1¾ billion (0.3% of GDP), evenly 
spread over 2009 and 2010. This measure is temporary, as it only applies to investments made 
in 2009 and 2010.  

Most of the anti-crisis measures can be expected to have a positive impact on the post-crisis 
economy.  

3.18.3.  Towards an innovative industry 

According  to  the  European  Innovation  Scoreboard  (EIS)  2008,  the  Netherlands  is  an 
'innovation  follower'.  Public  R&D  expenditure  is  decreasing  while  R&D  performed  by 
businesses is below the EU average. 

There are improvements in terms of public-private linkages and entrepreneurship. However, 
firms are clearly less innovative than EU average, indicating that the opportunities that newly 
developed knowledge offer are not fully utilised. 

The  stimulus  package  of  the  government  did  not  contain  major  new  public  investments  in 
knowledge and innovation. It included, however, interesting measures to prevent the loss of 
knowledge  workers  by  R&D  intensive  firms  (e.g.  through  temporary  secondment  of  R&D 
personnel to public research institutes). The High Tech Top Projects Scheme with a budget of 
EUR 100 million helped firms in the high-tech sector to keep their R&D workers by giving 
support  for  large  R&D  projects  in  the  fields  like  high-tech  systems,  nano-electronics  and 
automotive.  

The subsidy for wage costs of R&D personnel (WBSO) is by far the largest measure in the 
Dutch innovation policy, with a budgetary weight of EUR 0.5 billion per year and has been 
broadened  and  extended.  Second  in  importance  is  the  “Innovation  Box”  that  replaced  the 
"Patent  Box"  in  2010  with  a  higher  permanent  budget  (plus  EUR 300 million  annually. 
Organisational and managerial innovation is promoted via a “Social innovation toolkit”. 

In  2008  the  scope  of  the  innovation  voucher  scheme  has  been  enlarged  to  cover  patent 
(application) costs. In 2009 innovation vouchers were extended to include private innovation 
vouchers,  which  can  be  used  for  the  purchase  of  knowledge  from  private  organisations. 
Competitive  funding  streams  for  universities  (e.g.  through  research  councils)  have  been 
strengthened.  In  addition,  personal  grants  for  researchers  have  been  introduced  and 
scholarships  for  researchers  been  increased,  with  improved  selection  procedures  to  foster 
multidisciplinary research.  

The Dutch innovation system faces several challenges. A first challenge is to strengthen the 
innovative capacity of companies. The expenditures on R&D in the private sector remain low 
and  the  share  of  innovative  companies  in  the  SME sector  is  relatively  small,  in  spite  of  the 
interesting voucher scheme. The prominence of the services sector may explain these results 
to some extent. 

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There  are  some  indications  that  the  governance  structures  in  the  innovation  policy  field  are 
rather  complex  and  constitute  a  second  challenge.  For  instance,  an  additional  structure  has 
recently  been  created  (the  interdepartmental  directorate)  and  the  number  of  programmes  is 
increasing further. 

3.18.4.  Towards a sustainable industry 

There  is  a  strong  political  commitment  to  ambitious  goals:  Energy  savings  of  2%  per  year, 
increasing share of renewable energy to 20% in 2020 and reducing CO2 emissions by 30% by 
2020 compared to 1990. 

The  Dutch  energy  production  is  oriented  towards  gas.  A  strategy  to  change  this  and  to 
promote energy savings and energy efficiency is called "Schoon en zuinig", adopted in 2007, 
with annual monitoring of 88 actions. EUR 7.5 billion are planned to be spent until 2011 on 
renewable energy.  

An electricity levy has been introduced to fund renewable energy investments. The flight tax 
has been permanently abolished from 2010, with loss of revenue of EUR 300 million per year. 
This  measure  may  reduce  the  tax  burden  but  it  also  reduces  the  internalisation  of  external 
environmental costs from flying 

The current measures will most likely not be sufficient to reach the ambitious policy goals and 
commitments mentioned above. 

3.18.5.  The business environment 

The  Netherlands  ranks  among  Member  States  with  a  legal  and  regulatory  environment  that 
highly encourages the competitiveness of enterprises and scores clearly above the EU average 
concerning the satisfaction with the quality of infrastructure.  

Regulatory  reform  has  been  on  the  agenda  of  the  Dutch  government  for  over  two  decades. 
The 2007-2011 Regulatory Burden Action Plan has set a quantitative target of 25% reduction 
of the administrative  burdens  on  businesses to be achieved by 2011. By the end of the first 
quarter of 2009, a 10.5% net reduction had been achieved. It is planned to further lower the 
administrative  burden  by  EUR  1  billion.  Common  Commencement  Dates  (CCD)  have  been 
introduced.  

Ex ante impact assessment is mandatory only for central government primary laws. It includes 
a  Business  Impact  Assessment  alongside  with  the  Environmental  Impact  Assessment,  the 
Practicability Impact Assessment and the Cost-Benefit Analysis. A new approach in the area 
of  the  public  consultation  on  new  regulations  is  based  on  using  Internet:  a  two-year 
experiment was launched by the Ministry of Justice in summer 2009.  

In  December  2008,  the  Netherlands  adopted  its  National  Implementation  Programme  for 
Better  Services  and  eGovernment  which  sets  out  agreements  between  the  national 
government,  provinces,  municipalities  and  water  boards  to  strengthen  the  use  of  the 
eGovernment infrastructure for providing better services to businesses and citizens.  

The one-stop-shop as foreseen by the Services Directive was operational by end of 2009. In 
addition, the Government already introduced a one-stop-shop for hiring the first employee and 
expanded the services of the Answer for Businesses initiative.  

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Concerning infrastructure, project investments have been speeded up as part of the anti-crisis 
measures (concerning bridges, roads, waterways and measures against rising sea level). 

No notable challenges have been identified in this policy area. 

3.18.6.  Entrepreneurship and SME policy 

SMEs' contribution to employment in the Netherlands is the same as in the EU (67%) but they 
tend  to  be  larger  on  average  than  in  the  EU,  with  the  share  of  small  and  medium  sized 
enterprises relatively higher. The Netherlands scores clearly above the EU average concerning 
the time required to start a business and early stage financing, but significantly below average 
concerning bank loan conditions deemed acceptable by companies and slightly below average 
concerning the share of high-growth enterprises.  

Regarding entrepreneurship skills, the 'National Education and Entrepreneurship Programme’ 
provides  subsidies  to  implement  entrepreneurship  education  across  the  education  system, 
based  on  a  commitment  contained  in  the  national  Strategic  Agenda  for  Higher  Education. 
Research  and  Science  Policy.  For  2008-2011  €  33  million  is  allocated  to  the  programme 
(including primary, secondary and higher education levels). 

A dozen ‘Centres of Entrepreneurship’ were established in co-operation between universities 
and enterprises to stimulate entrepreneurship among students. In 2009, a pilot programme was 
established  to  enable  students  in  higher  education  to  acquire  entrepreneurship  skills  in  the 
United States.  

Also,  a  'Partnership  for  Entrepreneurship  and  Education’  was  established  in  2005.  The 
partnership  consists  of  the  Ministry  of  Economic  Affairs  and  the  Education  Ministry,  along 
with  a  range  of  social  partners  including  education  and  employers'  organisations.  The 
partnership aims to stimulate entrepreneurship in education system, with activities including 
establishing  a  platform  for  good  practice  and  facilitating  exchanges  of  ideas  around  new 
initiatives and approaches. 

The government intends to limit its focus onto two programmes: one for starting enterprises in 
a  foreign  market  (‘prepare2start’)  and  one  for  the  positioning  of  enterprises  in  complex 
markets (‘2g@there’). The aim is to support the internationalisation of 600 SMEs.  

Registration of a new company within 3 days is possible and minimum capital requirements 
have  been  abolished  in  2009.  An  awareness-raising  campaign  about  the  benefits  of  taking 
over an existing company has started in 2009.  

A  micro-credit  pilot  project  started  in  2008  and  has  delivered  first  results.  The  rules  for 
business angels have also been eased. The ministry of economy has launched a pilot project 
on combating late payments.  

A programme for fast-growing companies has been launched with the first 43 entrepreneurs. 
The goal is to support 100 companies over 5 years.  

The  public  procurement  agency  “Pianoo”  is  offering  trainings  to  contracting  authorities  on 
writing their notifications according to the standards set out in the EU Code of good practice 
to ease participation of SMEs in public procurement.  

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No notable challenges have been identified in this policy area. 

3.18.7.  Conclusions 

The  main  structural  challenges  in  the  Netherlands  are  to  increase  private  R&D  investments 
and  to  promote  renewable  energy  and  energy  efficiency.  Several  structural  measures  have 
been adopted in the framework of the anti-crisis measures. However, it would be worthwhile 
to  review  existing  policies,  including  the  effectiveness  of  Dutch  tax  incentives,  and  to 
consider whether new measures could be useful to reinforce FDI inflow into R&D activities. 
The transition towards a more energy efficient and low carbon economy could be stepped up 
with further incentives. 

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3.19.  Austria 

3.19.1.  Indicators graph 

Austria

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

NA

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (Euro per kWh; 2008)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Towards a sustainable industry

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

NA

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.19.2.  Introduction42 

Austria’s  labour  productivity  was,  measured  per  hour  and  per  person  employed,  markedly 
above the EU average in 2005 and 2008/9. Austria is one of the very few EU members where 
the  real  effective  exchange  depreciated  between  1999  and  2005,  indicating  increased 
competitiveness. Although, nominal unit labour costs in Austrian manufacturing increased by 
7%  between  2000  and  2009  with  a  remarkable  acceleration  during  the  second  half  of  the 
decade, the overall increase remained significantly below the EU average of 19%. 

Austria  is  specialised  in  sectors  demanding  low-intermediate  skills  and  low  skill  sectors. 
While the importance of high skill sectors has been stable at a low level from 1997 to 2007, 
high-intermediate  skill  sectors  are  somewhat  gaining  ground.  This  trend  is  supported  by  a 
specialisation in sectors with medium-low technology intensity. However, while sectors with 
a  growth  rate  below  EU  average  dominated  in  1995  those  with  a  growth  rate  moderately 
above the average clearly gained ground. 

Manufacturing plays a bigger role for Austria than for the EU in total (20% vs. 17% of value 
added in 2008). This is mainly due to specialisation on wood products and, to a lesser extent, 
non-metallic  mineral  products,  basic  metal  products  and  other  machinery.  In  the  service 
sector,  only  “hotels  and  restaurants”  and  “electricity,  gas  and  water  supply”  have  a  clear 
above  average  weight.  The  primary  sector  is  smaller  than  for  the  EU  in  total.  Employment 
figures show a high level of productivity in manufacturing and also a gradual shift to service 
sectors. Forecasts until 2020 expect an increase in employment in business and other services 
by almost 20% and some losses in manufacturing and the primary sector. 

Austria’s  trade  of  goods  was  almost  balanced  in  2005  and  2009.  The  small  positive  trade 
balance in manufacturing mainly resulted from surpluses in other machinery and, to a lesser 
extent, basic metal products and wood products while refined petroleum and textiles showed a 
noteworthy trade deficit. The Revealed Comparative Advantage (RCA), measured relative to 
the EU and concentrating on manufacturing, shows particular strengths for Austria in 2008 in 
wood and wood products, pulp, paper and publishing and basic metals products. 

Exit from the crisis 

Austrian manufacturing output fell by almost 20% in the course of the economic and financial 
crisis. In June 2010, 11% of that reduction was regained.  

In reaction to the economic and financial crisis the government passed two Stimulus Packages 
in  2008  and  2009.  For  the  years  2009  and  2010  the  two  packages  have  a  planned  overall 
volume of EUR 3.7 billion. The packages comprise inter alia programmes to support SMEs 
and access to finance, infrastructure investments and R&D funds.  

Austria  made  EUR 300 million  de  minimis  aid  available  under  the  Temporary  State  aid 
Framework  of  which  EUR 128 million  were  actually  paid  to  about  4000  enterprises.  The 
majority  of  funds  went  to  SMEs  in  manufacturing  and  services  sectors  for  investment 
purposes and to cover working capital. 

42 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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The  state  also  facilitated  access  to  financial  resources  by  taking  over  guarantees  for  large 
enterprises, under the condition that the company was financially sound before 1 July 2008. 
The measure is limited to EUR 10 billion and will expire at the end of 2010. Additional risk 
capital  funds  were  provided  to  a  small  number  of  start-up  companies  in  order  to  strengthen 
equity  and  enhance  financing  of  growth-oriented  investment  projects.  A  participation  fund 
was set up for this purpose to provide direct financing in the form of silent partnerships and 
mezzanine  capital.  The  budgetary  impact  is  estimated  at  EUR 40 million  both  in  2009  and 
2010.  Export  credit  facilities  were  used  by  a  number  of  exporting  SMEs.  The  measure 
successfully ensured access to finance, in particular in the area of risk capital. Nevertheless, 
access  to  finance  will  continue  to  be  difficult  as  a  result  of  stricter  lending  policies  of  the 
financial sector. The situation eased with respect to export credit markets. 

The  recovery  packages  contained  important  infrastructure  investments  in  rail,  road,  broad-
band internet and buildings with a planned budget of more than one billion euro. In addition, 
additional R&D funds (EUR 100 million) were made available for the years 2009 and 2010. 

Austria  also  introduced  a  car  scrapping  scheme.  The  scheme  aimed  at  supporting  the 
automotive  sector  and  encouraging  the  replacement  of  the  existing  stock  of  cars  with  more 
environmentally  friendly  ones.  The  financial  burden  of  this  measure  was  shared  equally  by 
the government and the Austrian automotive sector. 

3.19.3.  Towards an innovative industry 

The  European  Innovation  Scoreboard  2008  (EIS  2009)  assigns  Austria’s  innovation 
performance  to  the  group  of  'innovation  followers'.  Based  on  low-R&D-intensive  industries 
and with a structural bias towards SMEs, the Austrian economy exceeded the EU average in 
R&D intensity. The number of science and technology graduates and researchers is, however, 
below the EU average and may hamper innovative potential in the long run.  

Beside  the  continuous  overall  growth  of  financial  resources  made  available  for  R&D 
activities, the distribution of different financial sources has changed over time. Whereas the 
relative share of public sources (Federal/States) has decreased over time, the business sector 
has substantially increased its share. Most interesting is the sharp increase of financial inflow 
from foreign countries. The basic strength of the Austrian innovation system lies in the strong 
R&D performance of small and medium-sized enterprises. 

In  2009,  the  Austrian  Government  launched  a  process  to  elaborate  a  national  strategy  for 
research, technology and innovation. The main areas for innovation policies are outlined: the 
confirmation  of  the  strong  commitment  to  invest  more  in  R&D  and  to  improve  indirect 
funding;  to  develop  a  balanced  mix  between  generic  and  applied  research  and  enhance 
cooperation  between  science  and  business  (esp.  SMEs);  the  need  for  a  stable  funding  of 
scientific  institutions  and  the  promotion  of  young  researchers;  the  need  for  more  women  in 
R&D and to develop an innovation-friendly market framework (strengthen competition in all 
areas, public procurement in support of innovation).  

However,  the  concrete  measures  taken  to  implement  these  policies  are  not  always  clear.  In 
addition,  service  sectors  and  grand  social  challenges  as  cross-cutting  issues  appear  to  be 
underrepresented in the overall strategy.  

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Despite  a  substantial  level  of  public  and  private  R&D&I  funding,  the  economic  structure  is 
still  largely  based  on  low  R&D  intensive  sectors.  R&D  policy  has  not  yet  significantly 
contributed to structural change towards high-tech industry and services.  

Among the key challenges that have been identified is "strengthening the formation of human 
capital" as there is not only an insufficient number of available researchers, but there are also 
weaknesses  of  secondary  and  tertiary  education  systems.  There  also  seems  to  be  a  need  to 
improve the conditions for start-ups, including venture capital. Well-known barriers to entry 
as  well  as  weak  competition  policy  remain  largely  unaddressed  issues.  Efficiency  of  direct 
and  indirect  support  could  increase.  The  lack  of  a  clear  vision  on  innovation  has  produced 
several  inefficiencies,  especially  in  innovation  governance  (e.g.  independence  of  agencies, 
lack  of  communication  between  ministries  involved,  programmatic  interventions  instead  of 
comprehensive). 

3.19.4.  Towards a sustainable industry 

The  share  of  renewable  energy  production  in  overall  energy  consumption  is  28.5%  which 
represents  the  fourth  rank  in  the  EU  in  2008.  In  terms  of  energy  intensity  the  industry  is 
slightly  better  than  the  EU  weighted  average.  The  emphasis  of  Austrian  climate  policy 
currently lies on energy efficiency of buildings. 

The  Stimulus  Package  II  foresaw  EUR 250 million  for  measures  to  increase  the  thermal 
efficiency  of  buildings.  Uptake  was  very  rapid,  and  it  is  estimated  that  the  funding  led  to  a 
total investment 6 times greater, as well as a reduction of 5.3 million tons of CO2. A further 
reduction of 2-3 million tons will result from shifting fuel consumption for vehicles towards 
bio-fuels and electricity, with a target of 10% by 2020.  

In addition, contracts signed under the Joint Implementation/Clean Development Mechanism 
(JI/CDM)  will  result  in  a  saving  of  8 million  tons.  For  the  JI/CDM  programme 
EUR 531 million will be made available up to 2012, with EUR 89 million per year.  

Increases in the funding for rail infrastructure of EUR 900 million (EUR 120 million of which 
included in the Stimulus Package I) will serve not only to stimulate demand, but should also 
help reduce energy consumption by making rail travel more attractive and efficient, through 
extensive use of ICT. 

In early 2010 the ministries for environment and economy presented a new strategy to meet 
Austria's energy and environment targets. It aims at increasing the share of renewable energy 
in  total  consumption  to  34%  by  2020,  reducing  emissions  in  non-ETS  sectors  by  16%  in 
relation to 2005 levels and further improving energy efficiency.  

Austria  announced  an  additional  strategy  for  research,  technology  and  innovation  in  energy 
related fields. Amendments were introduced to the regime on renewable electricity production 
subsidies  to  take  account  of  the  fast-growing  sector,  i.e.  cap  on  individual  financial  support 
and new technical standards. 

Austria  has  put  in  place  a  comprehensive  national  energy  strategy.  The  main  challenge 
remains its effective implementation. 

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3.19.5.  The business environment 

Austria  scores  above  the  EU  average  in  almost  all  indicator  categories,  in  particular 
concerning the legal and regulatory framework and the quality of infrastructure.  

Austria  set  in  2007  a  reduction  target  for  administrative  burden  of  25%  for  the  burden 
stemming  from  national  law  until  2010  and  of  25%  for  EU  induced  burden  until  2012.  In 
addition  to  the  first  simplification  plan  containing  133  reduction  measures  to  reduce 
administrative costs for businesses, an updated simplification plan containing approximately 
200 measures was published in spring 2009. These represent about 2/3 of the reduction target. 
Out of these, about 20% have been completed.  

Public  consultation  on  new  regulations  tends  to  take  place  on  a  preliminary  draft  legal 
proposal but if it reveals fundamental problems, a second round of consultations is carried out 
on  a  revised  draft.  The  recent  trend  is  to  use  internet  consultations  in  order  to  increase 
transparency  and  to  involve  a  wider  public.  Each  legal  act  is  accompanied  by  a  so-called 
"Vorblatt" that summarises the reasons for intervention and the main impacts. However, the 
scope  of  the  impact  assessments  is  rather  limited  and  only  in  a  few  cases  per  year  external 
studies can be used for a more detailed assessment. There is a reform project for the budget 
that  will  introduce  a  requirement  as  of  2013  to  demonstrate  in  an  impact  assessment  the 
benefits of expenditures as well (and not only costs). As regards compliance costs for firms, 
the assessment is generally limited to administrative burden impacts rather than more general 
costs of regulation. There appears to be no ambition to introduce that in the medium term.  

e-Government usage by enterprises in 2009 is above the EU average. Austria has a national e-
Procurement  platform  mandatory  for  the  federal  government  authorities.  The  estimated 
administrative costs reduction of the e-Government applications account for EUR 500 million 
until the end of 2010 and a further EUR 500 million by 2012. 

The  one-stop-shop  to  start-up  a  company  (WKO  Gründerservice)  is  fully  operational.  The 
enterprise  online  portal  adopted  in  March  2009  aims  at  allowing  firms  to  comply  centrally 
with all information obligations without having to supply any information twice. It is a central 
gateway  for  firms  who  will  be  able  to  use  it  for  any  interaction  with  authorities.  The 
implementation is foreseen in three steps until 2012. 

Given the favourable business environment compared to the EU average, there are no major 
challenges  to  be  addressed.  The  relative  weakness  in  access  to  broadband  lines  has  been 
addressed  in  the  context  of  the  Stimulus  Package  I  and  a  further  complementary  national 
programme has been announced for 2010. 

3.19.6.  Entrepreneurship and SME policy 

The  Austrian  SME  sector  has  a  relatively  large-scale  structure,  i.e.  the  percentage  of  micro 
enterprises (88%) is below average while the percentages of small (11%) and medium-sized 
enterprises  (1.7%)  are  higher  the  European  averages.  SMEs  employ  67%  of  the  workforce 
which is in line with the rest of the EU. Austrian SMEs are slightly more productive than the 
European average. 

Austria clearly ranks above the EU average concerning the enterprise survival rate after two 
years  and  slightly  above  the  average  concerning  the  payment  duration  of  public  authorities 
and bank loan conditions deemed acceptable by companies. In contrast, Austria scores clearly 

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below  the  average  concerning  business  churn  and  early  stage  financing  in  the  World  Bank 
ranking. Commission data shows a constant reduction over recent years of the time to start a 
business to 11 days. It is however still above the EU average of 7.7 days in 2009. 

The inheritance and gift tax law expired in 2008 (accounting for EUR 140 million tax yields) 
which  facilitates  transfers  of  businesses.  An  action  programme  for  SMEs  for  the  years 
2007/2008  had  been  jointly  implemented  by  the  Federal  Ministry  of  Economy,  Family  and 
Youth (BMWFJ) and the Federal Economic Chamber. It encompassed pilot- measures in the 
areas ‘Young Entrepreneurs’, ‘Knowledge Management’ and ‘Future Markets Best Ager and 
Health’  and  provided  young  entrepreneurs  with  support  or  coaching  in  marketing, 
organisation, controlling and finance. 

The  implementation  of  the  Small  Business  Act  principles  advanced  in  many  areas,  notably 
with  respect  to  export  promotion,  guarantee  schemes  and  entrepreneurship  education.  Here, 
Austria  is  currently  making  progress.  A  national  action  plan  is  in  preparation,  with  the 
objective  of  expanding  entrepreneurship  education  to  all  types  of  secondary  education.  The 
strategy  also  includes  activities  related  to  teachers  training  for  entrepreneurship.  Moreover, 
the revised bankruptcy law entered into force in 2010. 

SME and entrepreneurship policy is well developed in Austria. Promoting a positive attitude 
towards  entrepreneurship  remains  a  societal  challenge  that  requires  further  efforts  beyond 
standard business support measures, such as increased efforts in entrepreneurship education.  

3.19.7.  Conclusions 

Overall,  the  Austrian  economy  is  very  competitive  and  no  major  bottlenecks  exists  that 
hamper competitiveness in the short- to medium term. Issues to be addressed are a reform of 
the  education  system  with  the  aim  of  increasing  the  number  of  tertiary  level  graduates  and 
increasing  the  number  of  (start-up)  entrepreneurs.  In  addition,  R&D&I  policy  and  spending 
could  better  support  structural  change  from  an  economy  dominated  by  low-R&D-intensive 
industries requiring low and low-intermediate skills towards an economy based on high-value 
and high growth sectors that require high skilled labour. 

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3.20. 

Poland 

3.20.1.  Indicators graph 

Poland

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Towards a modern and 
competitive industry

Towards a sustainable industry

Business Environment

NA

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.20.2.  Introduction43 

Poland's labour productivity is, measured both per hour and per person, considerably below 
EU average. While it was stable per hour worked, a slight increase was measured per person. 
Poland  is  one  of  the  very  few  EU  members  where  the  real  effective  exchange  rate  has  not 
appreciated,  remaining  almost  unchanged  since  1999.  Nominal  unit  labour  costs  in  Polish 
manufacturing declined by 25% between 2000 and 2009 with most of the decline occurring 
during the first half of the decade, resulting in a 44 percentage point gap compared to the EU 
average increase of 19%. 

Poland  is  specialised  in  sectors  demanding  low  skills  and  in  low-intermediate  skill  sectors. 
The importance of high-intermediate skill sectors has been increasing from 1997 to 2007 at a 
low level, while low skill sectors are losing ground. This picture is confirmed by a clear trend 
towards  sectors  with  medium-low  technology  intensity,  specialisation  in  low-technology 
industries and a low share of high-technology sectors. Poland tends to specialise in medium 
high growth sectors and in sectors with a low or negative growth rate. 

Manufacturing plays a slightly bigger role for Poland than for the EU in total (19% vs. 17% of 
value added in 2008). The manufacturing sector is particularly specialised on wood and wood 
products,  refined  petroleum  and  food.  In  the  service  sector,  electricity/gas/water  supply  and 
wholesale and retail have a clear above average weight. Agriculture and mining/quarrying are 
much  more  important  than  for  the  EU  in  total.  Employment  figures  show  the  low  level  of 
productivity in agriculture but  also  its decreasing importance  over  time and change towards 
service sectors. Forecasts until 2020 expect an increase in employment in business and other 
services (+39%) and in distribution and transport (+12%), as well as a clear decline in primary 
sector (-36%) and manufacturing (-8%). 

Poland  shows  a  small  deficit  in  the  trade  of  goods.  The  negative  trade  balance  in 
manufacturing  mainly  resulted  from  deficits  in  chemicals,  electrical  and  optical  equipment 
and  other  machinery  while  food,  drinks  and  tobacco,  transport  equipment  and  other 
manufacturing  showed  a  noteworthy  trade  surplus.  The  Revealed  Comparative  Advantage 
(RCA),  measured  relative  to  the  EU  and  concentrating  on  manufacturing,  shows  particular 
strengths for Poland in 2008 in wood and wood products and other manufacturing. 

Exit from the crisis 

Poland was less severely hit by the economic and financial crisis and managed to avoid GDP 
recession. Still, manufacturing output dropped by 17%. This output reduction was, however, 
almost  completely  regained  by  July  2010.  In  contrast,  bankruptcies  increased  by  120%  in 
2010 compared to January 2009. Further difficulties are expected in the steel and construction 
sectors  as  well  as  the  food  industry.  Poland  supplied  de  minimis  aid  under  the  Temporary 
State Aid Framework mostly to SMEs in the manufacturing, automobile and services sectors. 

3.20.3.  Towards an innovative industry 

Compared  with  other  European  countries,  Poland  is  not  one  of  the  most  innovative 
economies.  Nonetheless,  the  level  of  investment  in  innovation  is  raising.  Nevertheless,  it 

43 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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remains  that  Polish  companies  do  not  sufficiently  invest  in  innovation  T  and  tend  to  focus 
their investments on new machinery and equipment.  

The  analysis  of  the  current  policy  mix  confirms  its  horizontal  approach  which  can  be 
described as offering generic rather than sector-specific support to innovation. The financial 
support  comes  mainly  form  the  structural  funds  through  the  Operational  Programme  – 
Innovative Economy and the Regional Operational Programmes. Some additional funding to 
SMEs is provided through state programmes and projects, such as: "Bon na innowacje" (co-
financing  development  of  innovative  products  or  technologies),  preferential  loans  for 
investments  in  innovation,  and  technological  credits  granted  by  Bank  Gospodarstwa 
Krajowego. Until June 2009, there were practically no long-term research agendas and only 
recently  has  the  National  R&D  Centre  launched  calls  for  tenders  for  three  large  strategic 
projects.  This  can  be  considered  as  a  positive  development  in  improving  the  existing 
innovation  policy  mix,  by  the  launching  of  programmes  that  had  not  been  previously 
supported.  Taking  into  account  the  budget  allocations,  the  main  focus  seems  to  be  on 
increasing business R&D and implementation of new technologies.  

Important challenges remain: (a) stimulate and deepen innovation internal capacities of Polish 
companies;  (b)  improve  science-industry  cooperation  especially  in  sectors  that  have  already 
invested significantly in R&D, not excluding the best projects in other sectors that show the 
biggest  potential  for  change;  (c)  promote  multidisciplinary  profile  skills  for  innovation  in 
order to ensure that the supply of innovation skills meets the industry demand. 

3.20.4.  Towards a sustainable industry 

The current structure of the industry and use of older technologies contribute to higher energy 
and  carbon  intensity.  Poland  is  performing  worse  than  the  EU  average  in  the  area  of  waste 
generation and share of environmental goods in export. What is more, Poland has taken few 
steps to use the crisis to green the economy and it seems that the commitment to fight climate 
change is still perceived more as a burden than an opportunity.  

Poland is increasing public investment in renewable energy sources by 0.1-0.2% of GDP in 
the  period  2009-2012.  The  increase  of  spending  on  renewable  energies  is  a  positive 
development.  This  action  is  expected  to  produce  investment  worth  EUR 250-800 million, 
boosting demand in the construction sector. 

At  the  end  of  2009  the  Parliament  adopted  amendments  to  the  Act  on  Energy  law,  which 
addressed some of the problems related to development of energy from renewable sources. 

In addition, in July 2009, the Polish parliament adopted the Act on the Management System 
for Greenhouse Gas Emissions or Other Substances. Its main objective is to use the surplus 
Assigned  Amount  Units,  granted  to  Poland  under  the  Kyoto  Protocol,  to  support  a  national 
system of “green investments”. This law sets up the National Centre for Emission Balancing 
and Management that will be responsible for the management of the National Emission Rights 
Register.  

Poland has high expectations for the Carbon Capture Storage technologies that could make its 
energy production from coal much more ecological. Consequently, relevant legislation as well 
as  research  on  potential  deployment  of  these  technologies  is  underway.  Poland  has  even 
launched a demonstration project for an energy power plant. 

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According to the negotiated agreement with the EU, by 2020 15% of energy consumption in 
Poland  should  come  from  renewable  resources  i.e.  (5%  less  than  the  target  for  the  EU). 
However,  taking  into  account  that  at  present  only  7%  of  energy  consumption  come  form 
renewable sources, even this objective might be difficult to reach, if no additional incentives 
are introduced. Furthermore, regulating the Polish waste management system would improve 
the functioning of the market of waste treatment at municipal and national level. 

3.20.5.  The business environment 

Poland scores slightly above the EU average concerning the electricity prices for medium size 
enterprises,  but  clearly  below  the  EU  average  in  all  other  indicator  categories,  in  particular 
concerning the satisfaction with the quality of infrastructure.  

In March 2008, Poland adopted the target of reducing by 25% the administrative burden on 
businesses  until  2010  in  seven  priory  areas:  environment,  land  development  plan,  social 
security, economic activity law, hallmarking law, employment law, and tourist services. In the 
first phase, the mapping of information obligations (IO) in these priory areas resulted in the 
identification of over 700 IOs in 50 statues. The next phase, the measurement of costs of each 
IOs,  led  to  the  preparation  of  a  summary  report.  On  this  basis  will  be  developed  concrete 
solutions for reducing the administrative burden to be proposed for December 2010.  

The  Regulatory  Reform  Programme  for  2009-2011  promotes  preparation  of  better  Impact 
Assessments,  including  impacts  on  SMEs.  Training  on  impact  assessment  preparation, 
intended for almost 3 000 public officials from different ministries, started in December 2009. 
The  programme  also  strengthens  the  role  of  public  consultations  in  new  regulations.  Public 
consultation with stakeholders on new regulations may be open consultations, or may target 
stakeholders  of  a  certain  profile  (business  associations,  social  partners,  trade  unions  and 
trilateral commission). However, there is no single institution which would represent SMEs. 
A manual for conducing public consultations was adopted in July 2009.  

eGovernment  usage  by  enterprises  in  2009  is  below  the  EU  average  and  has  slightly 
decreased  since  2005.  eGovernment  policy  is  part  of  a  wider  Information  Society  strategy 
until 2013 (adopted in 2008) and is focused on improving basic infrastructure across all levels 
of  government.  Poland  doesn't  have  a  central  e  Procurement  infrastructure,  but  only  a  non-
mandatory  Public  Procurement  Office  (PPO)  Portal  managed  by  the  Public  Procurement 
Office.  

Positive  developments  concerning  investments  in  transport  and  energy  infrastructure  can  be 
noted  especially  in  the  road  sector,  where  many  transport  projects  were  advanced  during 
2009.  Furthermore,  a  new  flexible  model  for  funding  road  investments  was  introduced  to 
ensure  a  more  effective  use  of  funding.  A  point  of  concern  is  the  project  pipeline  in  the 
railway sector where institutional capacity may be insufficient. 

Progress was made in energy market competition and energy infrastructure. Poland's energy 
market  has  been  rather  isolated  from  the  rest  of  the  EU  and  steps  towards  energy  market 
reforms  have  been  taken  at  a  relatively  slow  rate.  In  recent  months,  Poland  has  made  some 
progress towards improving the regulatory regime for third party access to underground gas 
storages. However, third party access to the transmission network is still not fully complied 
with,  particularly  as  regards  the  important  Yamal  pipeline.  More  efforts  may  be  needed  to 
open  up  the  Polish  energy  market  to  outside  competition  and  to  increase  the  market's 
flexibility. 

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Business  regulations  and  infrastructure  remain  to  be  improved.  The  challenge  for  the 
government is to implement in a systematic way the regulatory reform programme giving it a 
deserved  political  priority  at  all  levels  of  the  administration  and  in  partnership,  not  in 
competition,  with  the  parliament.  The  expansion  of  eGovernment  services  should  lead  to 
additional reduction of the bureaucratic burden. The infrastructure is still a bottleneck to the 
economic development of the country. To tackle this challenge, significant efforts would have 
to be undertaken to cover the existing gaps in both transport and energy. In the energy field 
there is an urgent need to renew generation capacities and to upgrade and expand the grid. To 
achieve significant progress, more funds and human resources will have to be allocated to all 
infrastructure  projects.  The  next  round  of  infrastructure  planning  could  be  more  explicitly 
linked to the needs of economic development of the country. 

3.20.6.  Entrepreneurship and SME policy 

Poland  scores  slightly  above  the  EU  average  concerning  the  payment  duration  by  public 
authorities, but clearly below average concerning time required to start a business and early 
stage  financing.  Some  other  data  are  not  available  for  Poland.  There  is  a  similar  share  of 
SMEs in Poland compared to the EU. The main difference consists of a higher share of micro 
enterprises at the expense of small ones. It could be an enterprise growth issue or the artificial 
effect of self-employment visible in the statistics in the form of micro enterprises. 

The action ‘Support and promotion of entrepreneurship and self- employment’, covered in the 
EU Structural Fund programme for human capital, promotes entrepreneurial attitudes and at 
entrepreneurship  among  women  and  minorities.  It  involves  financial  support  and  advisory 
assistance  during 
is  about 
EUR 400 million for the period of 2007-2013. 

the  start-up  phase  and  early  operations.  The  budget 

The  one-stop-shop  was  introduced  in  March  2009.  It  brings  together  the  municipal/local 
administration,  the  tax  office,  the  Central  Statistical  Office  (GUS)  and  the  Social  Insurance 
Institution  (ZUS).  The  possibility  of  setting-up  a  company  fully  online  (zero-stop  shop)  is 
foreseen to be developed after the adoption of an integrated IT solution planned only for July 
2011.  

In 2009 Ministries of Economy and of Justice launched a program for overcoming the stigma 
of  business  failure  and  for  activities  on  a  second  chance  policy.  The  program  includes  (1) 
counteracting  bankruptcy  of  enterprises,  (2)  fast  and  efficient  bankruptcy  proceeding,  (3) 
second chance policy and (4) promotion and information campaign. 

The  ‘Passport  to  Export’  initiative  supports  SMEs  in  the  European  market  and  promotes 
exports  as  a  part  of  the  Innovative  Economy  Operational  Programme.  The  budget  for  the 
period 2007-2013 is ca. EUR 410 million largely from EU Structural funds. Services offered 
include:  advice,  computer  platform  with  business  information,  subsidies  for  international 
business  trips  and  fairs,  and  for  obtaining  documentation  required  for  market  products  or 
services in a given foreign market. 

The  availability  of  export  finance  has  been  increased,  mainly  delivered  via  Bank 
Gospodarstwa  Krajowego  (BGK)  and  Export  Credit  Insurance  Corporation  (KUKE), 
including  export  loans  in  the  pre-  and  post-shipment  phases,  insurance  and  guarantees 
connected  with  loans  for  export  activities,  including  foreign  exchange  risk  insurance  and 
foreign investment risk insurance. 

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The entrepreneurship attitude is one of Poland’s main strengths. Almost all remaining areas of 
SME  policies  could,  however,  be  improved.  Foremost,  the  general  business  environment 
could  be  made  more  business  friendly.  A  further  increase  of  the  efficiency  of  business 
registration  procedures  and  a  reduction  of  its  costs  would  be  helpful.  The  bankruptcy 
procedures should be accelerated as a result of the programme of the Ministries of Economy 
and of Justice. These general business environment measures, including a duly implemented 
Regulatory Reform Programme 2009-2011, will yield significant benefits to SMEs. 

SMEs  in  Poland  have  limited  access  to  finance,  especially  at  early  stage.  It  has  to  be  also 
analysed  why  the  government  offered  guarantee  funds  have  a  relatively  limited  use.  The 
challenge can thus be to improve the use of the current system by simplifying it and making 
the information about financing modes more easily available. 

SMEs in Poland are less innovation and less internationally oriented than their EU peers. The 
government  should  continue  activities  in  this  domain,  while  focussing  only  on  the  most 
effective  measures  and  achieving  a  balance  between  the  general  innovation  measures, 
frequently targeting larger firms, and SME measures. 

3.20.7.  Conclusions 

The Polish economy stood well during the crisis. It could rely on its still flourishing domestic 
market,  good  prudential  financial  market  regulations  and  a  floating  exchange  rate.  Poland 
benefits also from its position as a manufacturing hub for Europe. Yet, the country faces still 
several challenges and could fare even better with improved policies.  

Entrepreneurs keep on complaining about persistent administrative burden and an inefficient 
administration  apparatus.  Transport  infrastructure  is  not  yet  sufficiently  developed  to  match 
the raising transportation needs of an expanding economy. Similarly the energy infrastructure 
is  not  adequate  to  facilitate  competition,  to  provide  long  term  stable  and  secure  electricity 
provision,  and  to  support  the  environment  friendly  upgrade  of  the  energy  system.  The 
economy moves forward and, as it develops, the lack of innovation becomes progressively a 
more important challenge to further long term growth. 

More  efficient  governance  would  improve  the  general  business  environment.  This  would 
include simpler and more transparent regulations and a steadily improved efficiency of public 
administration and of the judiciary. Better governance would best go hand in hand with well 
developed  infrastructure  addressing  both  transport  and  energy.  The  latter  will  need  to  be 
upgraded  especially  to  meet  the  environment  challenges  and  to  replace  the  obsolete 
generation  capacity.  Finally,  adopting  new  technologies  would  help  Poland  to  keep  its 
economic  activity  up  and  to  cope  with  external  competition.  For  this  to  happen,  industry 
would  have  to  invest  more  in  innovation.  Focussed  support  and  smart  policies  will  be 
necessary  to  develop  growth  poles,  including  measures  that  will  more  effectively  link 
universities with industry. 

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3.21. 

Portugal 

3.21.1.  Indicators graph 

Portugal

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

NA

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

NA

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.21.2.  Introduction44 

Despite  some  recent  improvements,  the  Portuguese  economy  continues  to  suffer  from  an 
overall low productivity and weak competitiveness position. Portugal has recorded persistent 
sizeable  current  account  deficits  in  the  current  decade  (despite  important  and  increasing 
services trade surpluses). 

Portugal’s labour productivity (measured per hour) represents around 60% of the EU average. 
Measured  per  person,  it  reaches  almost  75%.  The  real  effective  exchange  rate  continued  to 
appreciate in the 1st half of the current decade but afterwards (as from 2006) there appears to 
be only a moderate deterioration in cost competitiveness. In parallel, nominal unit labour costs 
in  Portuguese  manufacturing  increased  by  13%  between  2000  and  2009,  thus  remaining  6 
percentage points below the EU average of 19%. 

As regards goods, Portugal tends to specialise in sectors with low or negative  growth rates. 
There  is  also  a  relatively  high  degree  of  specialisation  in  sectors  requiring  low  skills. 
Regarding the technology-intensity, there is a clear underrepresentation of high and medium-
high sectors and a still relatively high specialisation in low technology sectors. Nevertheless, 
specialisation has increased in sectors of medium and high technological intensity, in tandem 
with an improvement in the technological content of output in sectors classified as traditional. 

In the last 10 years, there was a chronic deficit in the trade of goods, manufacturing exports 
lost  market  shares  overall  and  remained  concentrated  in  small  number  of  countries,  the 
reduction observed in the exports over-specialisation in low technology sectors was followed 
by  a  modest,  partial  catching-up 
low-medium  and  medium-high 
technology.Manufacturing plays a smaller role for Portugal than for the EU in total (14% vs. 
17% of value added in 2008). Despite the considerable restructuring and convergence towards 
the  EU  average,  the  manufacturing  sector  is  still  particularly  specialised  on  leather  and 
footwear  and  on  textiles  and  clothing.  In  the  service  sector,  hotels  and  restaurants,  public 
administration,  education  and  financial  intermediation  have  a  noteworthy  weight  above  the 
EU average.  

in  sectors  of 

Employment  figures  show  the  very  low  level  of  productivity  in  agriculture  but  also  its 
decreasing importance over time and a structural change towards service sectors, trends likely 
to continue in the future. 

The  negative  trade  balance  in  manufacturing  mainly  resulted  from  deficits  in  chemicals, 
electrical  and  optical  equipment,  basic  metal  products  and  transport  equipment  while  only 
textiles  and  clothing  showed  a  noteworthy  trade  surplus.  The  Revealed  Comparative 
Advantage  (RCA),  measured  relative  to  the EU and concentrating on manufacturing,  shows 
particular strengths for Portugal in 2006 in wood and wood products, leather and footwear and 
textiles and clothing. 

As  for  services,  Portugal  has  shown  competitive  advantage  in  tourism,  but  also  in 
transportation services, construction and other services rendered to companies. 

Exit from the crisis 

44 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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In Portugal, manufacturing output fell by more than 20% in the course of the economic and 
financial crisis. In July 2010, manufacturing output stands at 85% of pre-crisis level. Several 
measures  were  taken  aimed  at  helping  firms  to  cope  with  the  severe  market  conditions, 
including targeted support to SMEs and increasing public investment.  

Access to finance was eased since July 2008 by subsidising credit lines for additional funding 
for  SMEs  (subsidised  interests  and  provision  of  part  of  collateral  through  the  guarantee 
mechanisms  of  the  National  Mutual  Guarantee  System),  for  a  total  amount  of  over 
EUR 4 billion, implying a cost for the government of 0.1% of GDP. Before end 2009, almost 
the whole amount had been  used (the  credit granted under these lines in 2009 may have an 
impact on concerned enterprises’ activities still in 2010).  

On 8 June 2010, a new credit line (PME Invest VI) for SMEs of EUR 1.25 billion was created 
(including EUR 450 million to support exporting companies and EUR 350 million supporting 
micro  and  small  companies).  Altogether,  these  initiatives  already  allowed  50 000  firms  to 
access to credit (over EUR 5.7 billion in total). 

The regime of guarantees requested was streamlined and VAT reimbursements were speeded-
up (from 90 to 60 days in the general regime or 30 days in the monthly regime) as from the 1st 
July  2010.  SMEs  with  profits  below  EUR 2 million  are  exempted  from  the  extraordinary 
corporate tax increase of 2.5% adopted on 30 June 2010 for 2010 and 2011.  

Support  to  export  credit  insurance  mechanisms  was  enhanced.  This  measure  aimed  at 
temporarily  guaranteeing  conditions  for  SMEs  to  develop  their  trade  activity  in  external 
markets  in  2009  after  the  slump  in  world  trade  recorded  in  late  2008,  providing  them  with 
additional credit risk coverage for sales up to a total of EUR 4 billion (about 2½% of GDP) 
and implying a fiscal cost of 0.01% of GDP. 

These measures helped in achieving the positive developments in net-exports recorded in the 
recent months. The data available for the first four months of 2010, indicate that trade flows 
have been partly recovering from the significant losses verified in the previous five quarters, 
with exports outperforming imports, with obvious beneficial effects: on the reduction of the 
current account deficit and growth (GDP increased by 1.8% y-o-y in the 1st quarter of 2010). 

3.21.3.  Towards an innovative industry  

The  European  Innovation  scoreboard  (EIS)  2009  data  show  that  Portugal  has  continued  to 
improve  its  overall  innovation  performance  and  is  amongst  the  fast  growing  'Moderate 
innovators'  countries,  a  group  joined  since  2008,  as  in  2007  Portugal  was  still  among  the 
'Catching-up countries'). Portugal made considerable progress in many areas (such as human 
resources  or  business  R&D)  but  still  reveals  relative  weaknesses  in  a  number  of  areas  (e.g. 
business R&D). 

Important structural efforts to boost innovation encompass the Technological Plan, covering 
several  measures  aimed  at  strengthening  networking  and  competitiveness  factors  among 
business,  individuals,  territories  and  the  creation  of  eleven  competitiveness  poles  and  eight 
clusters  –  ranging  from  information  technologies  and  communication  to  energy  and  health, 
among others. 

Against  the  background  of  the  crisis,  there  was  an  increase  in  the  corporate  tax  credit  for 
R&D  expenses  (one  of  the  most  generous  regimes  in  the  OECD  countries)  and  there  was  a 

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reinforcement of the capital of FINOVA (guarantee and interest rate sponsored credit line for 
innovation  in  micro  and  small  firms).  At  the  same  time,  numerous  structural  measures  to 
support R&D and Innovation activities are being undertaken such as: reinforcing the support 
to R&D in different consortia between firms and science and technology entities; set up of the 
international Iberian Nanotechnology laboratory in Braga in July 2009. 

A  number  of  challenges  can  be  identified.  These  include  the  following:  first  strengthening 
skills,  human  capital  and  the  dynamic  cross-linkages  between  the  education  and  research 
systems and the corporate sector; second fostering the emergence and establishment  of new 
companies,  both  domestic  and  foreign-owned,  to  promote  employment,  particularly  in 
knowledge intensive activities; and third strengthening of SMEs in-house capabilities. 

3.21.4.  Towards a sustainable industry 

The national strategy for energy 2020, recently adopted on 15 April 2010, updates the strategy 
defined  in  2005  and  provides  an  integrated  and  detailed  framework  of  measures  for 
promoting:  renewable  energy,  energy  efficiency  and  associated  eco-industries,  competition 
and  diversification  of  primary  sources  of  energy,  security  of  supply,  reduction  of  energy 
dependence  and  its  overall  environmental  impact  and  to  achieve  the  climate  change  and 
sustainable growth goals. 

Several  important  measures  were  implemented  for  promoting  energy  efficiency,  renewable 
energy and the development of associated eco-industries, such as: the set up on 20 May 2010 
of a the energy efficiency fund aimed at supporting energy efficiency technologies in the field 
of transports, private buildings, services and industry, incentives for the installation of thermal 
solar panels adopted in February 2009 a legal act regulating the incentives for the utilisation 
of  electric  vehicles  and  the  development  of  a  pilot  supply  network,  involving  25 
municipalities  and  a  consortium  including  a  public  research  institute  and  several  private 
companies),  the  foreseen  adoption  of  a  new  national  action  plan  for  renewable  energy 
(recently object of a public consultation).  

The energy efficiency of industry remains an issue. The public finance consolidation efforts 
may put the funding and timely implementation of some of these measures and investments at 
risk.  

3.21.5.  The business environment 

Portugal scores significantly above the EU average concerning the availability of high-speed 
broadband lines, but clearly below average concerning the legal and regulatory framework as 
well as state aid for industry and services.  

Over  a  period  of  less  than  three  years  several  initiatives  for  reduction  of  administrative 
burdens,  enhancing  legal  quality  and  e-government  have  been  launched.  The  Simplex 
Programme  for  the  reduction  of  administrative  burdens  launched  in  2006  was  strengthen  in 
2008 through the introduction of quantified targets for 2012 and full compliance cost and was 
extended  to  cover  municipalities  (Simplex  Autárquico  Programme).  The  Legislar  Melhor 
Programme for enhancing legal quality (launched in 2006) is the first integrated programme 
for Better Regulation in Portugal and include the first steps toward ex ante impact assessment, 
the Simplex Test. A preliminary version of the Practical Guide for Prior Assessments has been 
developed. Further efforts leading to the setup of an effective mechanism of regulatory impact 
assessment including their quality monitoring are still needed. 

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eGovernment  was  developed  in  association  with  the  administrative  and  legislative 
simplification  programme.  Substantial  effort  has  been  made  to  provide  all  public  services 
online and to increase the level of sophistication. Business services are fully available online, 
and  the  usage  by  enterprises  stands  above  the  EU  average.  The  national  e-procurement 
platform is mandatory only for central administrations.  

The  one-stop-shop  to  start-up  an  enterprise  (Enterprise  Formality  Centres,  CFE)  is  fully 
operational.  

Energy  infrastructure  investments  such  as  in  the  National  Dam  plan  continue  (foreseen  to 
increase from to 70% the contribution of hydroelectricity by 2020). 5 dams, one of which is 
reversible, with a potential power of 1040 MW in total are under construction. 

A  plan  was  adopted  to  develop  and  support  broadband  investment  by  the  private  sector 
(estimated to reach EUR 1 billion). 

The natural gas tariffs were liberalized for companies (customers with an annual consumption 
above 10 000 m3) on 11 June 2010. 

Portugal  could  improve  its  overall  business  environment  by  creating  more  favourable 
framework conditions for investment and entrepreneurship. Examples of concrete bottlenecks 
include:  facilitating  the  conditions  for  hiring  workers  and  the  procedures  for  dealing  with 
construction  permits,  reducing  the  delays  in  the  court  system,  the  rationalisation  and 
consolidation of existing regulations. 

Full  implementation  of  the  measures  and  calendar  foreseen  for  the  gradual  liberalisation  of 
tariffs  in  the  natural  gas  and  electricity  markets  would  be  helpful.  This  applies  as  well  to 
measures  to  foster  the  cross-border  energy  connections  and  a  start-up  of  a  dynamic  Iberian 
electricity market. Implementation of the service directive is crucial. Efforts should continue 
to include effectively Municipalities and all levels of Public Administration within the scope 
of  the  Simplex  Programme,  to  implement  an  impact  assessment  and  evaluation  systems,  to 
achieve  further  administrative  simplification,  burden  reduction  and  greater  efficiency  of 
public services in general and in particular in the judicial system. 

3.21.6.  Entrepreneurship and SME policy 

The  SME  sector  in  Portugal  is  relatively  more  important  than  in  the  EU  as  a  whole  and  is 
dominated by micro enterprises (accounting for 42% of total employment, compared to 30% 
for  the  EU).  Portugal  scores  significantly  above  the  EU  average  concerning  the  business 
churn and early stage financing, but significantly below concerning the payment duration by 
public authorities and the enterprise survival rate after two years. 

Many measures were taken during 2009 and 2010 in the context of mitigating the effects of 
the  crisis,  especially  on  SMEs,  with  the  purpose  of  facilitating  access  to  credits  and  export 
markets (see above).  

Several measures targeted at promoting exports and the internationalisation of SMEs, such as: 
i) set up, on 19 January 2010, of the Council for the Promotion of Internationalisation (CPI) 
charged with the definition, follow-up and evaluation of the internationalisation strategy and 
supporting  measures;  ii)  creation,  on  1  June  2010,  of  a  fund  (initially  EUR 250 million) 
supporting  the  internationalisation  and  exports  (FAIE)  for  SMEs,  aimed  at  increasing  the 
number of firms exporting, enlarging the geographical scope, number of products, the valued 

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added  and  the  technological  content  of  the  exports;  iii)  set  up  of  network  of  14  “export 
support offices” throughout the country and a program “Inov-export” supporting traineeships 
in exporting SMEs. 

A  legal  act  has  been  adopted  to  unify  and  streamline  the  procedures  for  granting  tax 
incentives  for  investments  in  Portugal  and  for  the  internationalisation  of  Portuguese 
companies (including a corporate tax credit of 10% - up to 20% for SMEs - of the relevant 
investments until 2020). 

In  order  to  reduce  the  delay  of  payments  by  public  authorities,  the  ‘Timely  Payment 
Programme’  has  been  implemented  in  2008,  complemented  by  the  Programme  for 
Extraordinary Reduction of State Debt (‘Programa de Redução Extraordinária de Dívidas do 
Estado’), as one of the measures to promote the liquidity conditions for businesses. A new law 
(adopted on 27 April 2010) sets the conditions and makes mandatory the payment of interest 
by the state and local authorities in case of delay of payments. 

Of  a  more  structural  nature,  a  large  number  of  supporting  measures  and  programmes,  party 
funded  by  the  EU  structural  and  cohesion  funds  were  set  in  place  by  the  Portuguese 
government,  mostly  in  2007  and  2008.  The  QREN  system  is  a  major  funding  source  of 
government  initiatives  designed  to  support  the  economic  development  of  the  country.  The 
programme  FINICIA  aims  at  improving  access  to  credit  and  equity  for  companies  in  early 
stages of their life cycle, while FINCRESCE supports the transfer of the ownership of SMEs, 
management  buy-outs  and  management  buy-ins.  The  programme  PAECPE  that  adapted 
previous initiatives was approved in 2009 to support recipients of unemployment benefits to 
become  self-employed.  A  training  program  for  managers  of  micro,  small  and  medium 
companies, aimed at improving their management skills, was put in place on 29 March 2010 
and runs until 30 June 2011.  

Regarding  entrepreneurship  skills,  the  Education  Ministry  is  implementing  a  National 
Education  Project  for  Entrepreneurship  Education  (Projecto  Nacional  de  Educação  para  o 
Empreendedorismo  or  PNEE)  which  aims  at  establishing  entrepreneurship  education  as  a 
cross-curricular  subject  within  the  curriculum.  Within  the  framework  of  the  PNEE, 
elementary, secondary and vocational/professional schools have been invited to develop a set 
of initiatives leading to the creation of entrepreneurship competencies and attitudes. 

The main challenges in the entrepreneurship and SME field are to ensure that public finance 
consolidation  and  the  gradual  exit  from  supporting  measures  does  not  undermine  general 
liquidity  conditions  and  access  to  finance  for  businesses  and  in  particular  SMEs  and  to 
promote  entrepreneurship  and  the  framework  conditions  and  incentives  that  facilitate 
structural change and growth in the medium and long term. 

3.21.7.  Conclusions 

Portugal could further improve its overall business environment by creating more favourable 
framework conditions for investment and entrepreneurship. The administrative and regulatory 
environment  is  the  main  issue  here;  efforts  should  continue  to  implement  an  impact 
assessment  and  evaluation  systems,  to  achieve  further  administrative  simplification, 
administrative  burden  reduction  and  greater  efficiency  of  public  services  in  general  and  in 
particular in the judicial system. 

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Weaknesses  regarding  skills,  human  capital  and  cross-linkages  between  the  education  and 
research  systems  and  the  corporate  sector  and  low  business  R&D  investments  constitute 
obstacles for the emergence and establishment of new companies, particularly in knowledge 
intensive activities. The promotion of international partnerships and of research in consortia in 
the  context  of  the  national  innovation  system  may  help  in  bringing  the  interaction  between 
universities and companies to a new level. 

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3.22.  Romania 

3.22.1.  Indicators graph 

Romania

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2007)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Towards a modern and 
competitive industry

Towards a sustainable industry

Business Environment

Entrepreneurship and SMEs

Duration of payments by public authorities (days; 2010)

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.22.2.  Introduction45 

Labour productivity in Romania was growing from 2005 but did only reach some 45% of the 
EU  average  in  2008/9,  measured  per  hour  and  per  person.  However,  even  though  annual 
productivity  growth  rates  in  this  period  exceeded  5%,  significant  losses  in  competitiveness 
were  unavoidable  as  nominal  unit  labour  costs  in  Romanian  manufacturing  increased  by 
261% between 2000 and 2009 with almost 2/3 of the increase occurring during the first half 
of the decade. This increase was higher than in any other EU Member State and more than 10 
times higher than the EU average of 19%. Romania shows a decreasing deficit in the trade of 
goods starting with 2009. The export sector had to cope with Romania's strong appreciation of 
the real effective exchange rate since 1999 (the strongest in the EU). 

Sectors  with  negative  and  low-growth  rate  for  the  EU  in  total  are  still  very  important  in 
Romania (both amounting to 41.2% of GDP in  2007) and exert a negative influence  on the 
general performance of the country. However, their share in GDP decreased over the period 
1995-2007, but more growth-intensive sectors are only slowly gaining ground. 

Manufacturing plays a much bigger role for Romania than for the EU in total (24% vs. 17% 
of value added in 2008). Romania ranks among the EU Member States with the highest share 
of  manufacturing  in  GDP  and  the  lowest  of  market  services,  while  the  multiplier  effect  of 
manufacturing  on  market  services  is  the  lowest  in  the  EU.  Compared  to  the  EU,  the 
manufacturing sector is particularly specialised on leather and footwear, textiles and clothing, 
food/drinks/tobacco, wood products and furniture, and refined petroleum.  

This specialisation in sectors demanding low-skills is slowly losing ground in favour of low-
intermediate and high-intermediate skill sectors. The restructuring of the Romanian industry 
has generated over the last decade a gradual shift from labour- and resource intensive sectors 
towards higher technology sectors largely as a result of foreign direct investment inflows (e.g. 
the  case  of  the  automotive  sector,  ICT,  metallurgy  -  ferrous  and  non-ferrous,  building 
materials, machinery and equipment). This trend is confirmed by the export structure of recent 
years  characterised  by  a  significant  increase  of  exports  of  machinery  and  equipment  which 
trebled during the period 2002-2007 and of transport equipment and accessories which went 
up fivefold, while exports of textiles and footwear increased by around 20% during the same 
period.  

In  the  service  sector,  only  “transport  and  communication”,  construction,  and  wholesale  and 
retail trade have a larger weight than EU in total. The primary sector is larger than for the EU 
in total due to the second-highest share of agriculture in the EU. Employment figures show an 
extremely low level of productivity in agriculture even after substantial job losses. Forecasts 
until 2020 expect an increase in employment in distribution and transport, and in construction 
by some 30% while employment in the primary sector might decrease by 25%. 

Exit from the crisis 

After  several  years  of  sustained  growth,  Romania  was  hit  hard  by  the  global  economic 
downturn starting from the second half of 2008. In July 2010, manufacturing output was 6% 
lower than before the economic and financial crisis. In the course of the crisis it fell by almost 

45 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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20%. Construction and real estate, road transport, chemical industries, extraction of crude oil 
and natural gas were among the most affected sectors. 

The need for fiscal consolidation left little room for manoeuvre in launching costly recovery 
measures. The main stimulus measures affecting product market were the Rabla car scrapping 
scheme  for  stimulating  the  renewal  of  the  national  car  fleet  and  the  temporary  rise  of  the 
maximum  threshold  of  State  aid  from  EUR 200 000  to  EUR 500 000  (the  budget  of  this 
scheme  for  the  period  2009-2011  is  of  EUR 45 250 000).  Moreover,  the  Government  has 
offered  state  guarantees  in  support  of  major  investment  projects  by  large  companies  (Ford 
Romania,  Oltchim,  Renault  Technologie  and  Renault  Mecanique,  Pirelli  Tyres,  Rafo  and 
Romplumb) active in the manufacturing sector. 

Furthermore,  in  the  framework  of  the  structural  reform  conditionality  attached  to  the 
Memorandum of Understanding (MoU) of the EU financial assistance to Romania concluded 
in  June  2009,  a  number  of  structural  reforms  initiatives  have  been  launched,  which  have 
limited impact on the 2009 and 2010 budgets. Reforms include initiatives towards improving 
the efficiency and effectiveness of public administration, sound use and improved absorption 
of EU funds, increasing the efficiency and effectiveness of public R&D spending, improving 
the business environment, and tackling undeclared work. 

3.22.3.  Towards an innovative industry 

The structure of Romania's economy is characterised by the prevalence of low- and medium-
technology  sectors,  with  low  knowledge  demand  and  low  innovation  culture.  The  level  of 
innovation infrastructure and mechanisms is still at an early development stage, situation due 
to a large extent to the chronic very low public and private RDI expenditure. The low levels 
of business RDI, both in the case of large firms and SMEs, are rooted in several structural and 
managerial  deficiencies,  such  as  the  firms'  reluctance  or  inability  to  take  on  financial  and 
commercial risks arising from RDI, the poor financial services and instruments to mitigate the 
risk,  the  little  awareness  of  the  funding  opportunities  for  innovative  enterprises  that  have 
recently  become  available,  the  lack  of  a  clear  market  supply  and  demand  approach  to 
innovation, the excessive reliance on government funds and the low share of funding attracted 
from  EU  funds  and  other  sources.  In  addition,  the  Romanian  innovation  system  faces 
weaknesses as regards its scientific performance and the governance of the RDI activities. In 
this  light,  the  innovation  performance  is  weak  compared  to  the  EU  average  (third  to  last 
among  the  EU-27)  but  its  growth  rate  makes  Romania  one  of  the  growth  leaders  in  the 
‘catching–up’  group  of  countries,  according  to  the  European  Innovation  Scoreboard. 
Innovative firms account for less than a fifth of the country’s total number of active firms and 
workforce. 

The  current  set  of  innovation  policy  instruments  in  Romania  includes  direct  instruments, 
which continue to be the dominant funding mechanism, and a few indirect instruments, such 
as tax incentives, which are still largely insufficient. The main recent initiatives include: the 
main  instrument  of  innovation  policy  is  the  National  Plan  for  RDI  2007-2013  oriented 
towards  enterprises  in  order  to  support  innovation,  technological  development  and 
implementation  of  research  results  in  industry;  tax  allowances  of  up  to  120%  of  the  firm's 
RDI  investment  (through  an  increase  of  the  deductibility  of  RDI  expenditure  from  100%  to 
120%) and use of the accelerated depreciation method on machinery and equipment used for 
RDI activities, since January 2009.  

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Under  the  severe  cut  of  public  RDI  spending  in  2009  (50%  less  than  foreseen  in  the 
multiannual  planning  and  25%  less  than  in  2008),  there  are  concerns  about  the  capacity  to 
ensure adequate funding for the ongoing research programmes and projects. In light of this, a 
process  of  improving  the  efficiency  and  effectiveness  of  the  public  RDI  spending  was 
launched in 2009 and a Plan was adopted by the Romanian Government in May 2010, in line 
with  the  conditionality  attached  to  the  MoU.  The  Plan  draws  a  set  of  measures  aiming  at 
adjusting  to  the  limited  financial  resources,  ensuring  the  consistency  of  RDI  policies  and 
programmes,  stimulating  private  sector  RDI  activities,  as  well  as  establishing  and 
implementing uniform procedures for monitoring and evaluation of RDI activities. 

The number of innovative enterprises in industry and services has slightly increased in recent 
years.  Thus,  the  challenge  is  to  increase  the  innovative  potential  of  enterprises,  particularly 
SMEs. Closely related to this, another major challenge is to improve technology transfer and 
business support infrastructure (business incubators, technology transfer offices, S&T parks, 
clusters etc.). In this respect, there are bottlenecks in the absorption of foreign technology as 
well as challenges to mitigate high innovation costs, particularly for SMEs, through provision 
of  assistance  programmes,  availability  of  technology  enriched  information,  and  appropriate 
financing schemes. Moreover, partnerships among industry, university and R&D institutions 
could be improved. Public funding could be used more to leverage private sector investments, 
strengthen links between business and research institutes and better adjust research to market 
needs. Furthermore, a cross-cutting issue is the shortage of a highly skilled labour force due to 
an  inefficient  high-education  system  not  yet  reformed  and  substantial  brain  drain  and 
migration. These challenges are matched with the need to improve significantly the business 
environment in order to provide the appropriate framework conditions. 

3.22.4.  Towards a sustainable industry 

the  environmental  standards.  In  addition,  foreign  direct 

The sluggish restructuring of the industrial base which, prior to 1989, has been characterised 
by the high-share of energy-intensive and non-sustainable industries and a poor energy-saving 
culture,  resulted  in  outdated  technologies  and  productive  equipment  and  lack  of  conformity 
in 
with 
manufacturing industries have had a clear preference for low-technology and energy-intensive 
sectors. In consequence, the environmental performances of the Romanian industry are poor. 
The levels of the energy-intensity in industry as well as of waste generated by enterprises are 
the  third-highest  in  the  EU,  while  the  export  of  environmental  goods  is  well  below  the  EU 
average. 

investment  flows 

The  main  funding  instrument  for  environmental  policy  is  the  Operational  Programme 
Environment  with  a  total  budget  of  EUR 5.6 billion  (EUR 4.5 billion  EU  contribution  and 
around  EUR 1.1 billion  national  public  participation)  over  the  period  2007-2013.  The 
Operational Programme Increase of Economic Competitiveness provides also funding for the 
development  of  an  eco-efficient  productive  system,  ncreasing  the  energy  efficiency  and 
promoting renewable energy sources. 

The main recent initiatives with direct relevance to industry are the state aid scheme for the 
promotion of high-efficiency cogeneration and thermal energy and the Rabla programme for 
stimulating the renewal of the national car fleet (ongoing in 2010). 

The  main  developments  at  institutional  level  are  the  government  decision  to  implement  the 
Commission's  Regulations  and  Directive  2005/32/CE  on  eco-design  requirements  for  the 
energy  performance  of  energy-using  products,  currently  under  endorsement,  as  well  as  the 

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adoption  of  the  2010-2013  Roadmap  for  the  implementation  of  the  Environmental 
Technologies Action Plan (ETAP Romania). By contrast, the approval of the National Action 
Plan on Green Public Procurement for the period 2010-2013 which sets multi-annual green 
procurement targets for different categories of products and service, planned as for September 
2009, has been delayed. Finally, an inter-ministerial working group was established in April 
2010, in order to develop the Romanian strategy on electric cars. 

As one of the most energy-intensive economies in Europe, energy efficiency should be a key 
priority in Romania, in line with the EU objectives on climate change and renewable energy 
for 2020. Whilst some measures are already foreseen, an ambitious and integrated strategy is 
now required to improve radically the energy efficiency of production structures in order to 
reduce energy dependency, emissions of CO2 and costs for end-users. Moreover, conformity 
with  environmental  standards,  which  is  essential  for  industry  competitiveness,  will  require 
significant  financial  efforts  to  supporting  the  adoption  of  standards,  upgrading  productive 
capacities  and  processes,  and 
friendly,  eco-efficient 
technologies.  Thus,  another  priority  would  be  publicly-financed  investments,  including 
relocating funds from other public investments programmes with less multiplier effect in the 
economy, and an increased use of EU Structural Funds. 

in  environmentally 

investing 

3.22.5.  The business environment 

The Romanian business environment is hampered by the weak administrative capacity at both 
central  and  local  levels.  The  lack  of  implementation  of  structural  and  institutional  reforms 
resulted in a heavy regulatory environment, characterised by the lack of transparency in the 
decision-making  process  and  significant  red  tape  in  all  sectors  of  administration.  The  high 
number  of  authorisations  and  permits  and  delays  in  obtaining  them,  as  well  as  the  world 
second  highest  number  of  taxes  to  be  paid  (113)  are  mirrored  by  the  weak  position  of 
Romania  in  the  various  international  benchmarking  exercises.  Moreover,  the  lack  of 
development  of  transport  infrastructure,  especially  motorways  -  Romania  has  the  least 
developed  motorway  network  in  the  EU  and  there  is  no  motorway  connection  to  the 
motorway  network  of  other  EU  Member  States  -  represents  a  shortcoming  for  increasing 
economic competitiveness. Furthermore, ICT take-up by enterprises and administration is still 
at an early development stage, although the percentage of high speed lines is very high.  

In accordance with the conditionality attached to the MoU between the European Community 
and Romania and the Stand-By Agreement concluded between Romania and the International 
Monetary Fund, the Government assumed in September 2009 the responsibility for the Law 
on the reorganisation of public authorities and institutions, streamlining public spending and 
supporting the business environment. This law includes several measures to reduce budgetary 
expenditure and to support the business environment to overcome the economic crisis.  

In the context of the MoU, several structural reforms that should contribute to improving the 
business environment have been initiated over the period 2009-2010. A functional review of 
the public administration led by the World Bank– which is aimed at addressing both specific 
performance challenges in individual ministries and the systemic problems that may require a 
government-wide  approach  -  has  started  in  2010.  Based  on  its  outcomes,  the  Government 
should  prepare  an  action  plan  for  a  strategic  reform  of  public  administration  to  increase  its 
efficiency  and  effectiveness.  An  inventory  has  been  made  that  totals  275  categories  of 
requirements  for  authorisations/permits  focussing  on  registering  property,  operating  a 
business  and  building  works.  A  list  of  51  from  the  275  categories  issued  by  the  central 
government institutions has been included in a Plan in view of simplification or elimination. 

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So far, 16 categories have already been simplified/ eliminated while in the other 35 work is 
ongoing. Amendments to the bankruptcy legislation aimed at shortening the time necessary to 
close  down  a  business  to  less  than  1  year  have  been  submitted  to  Parliament.  Furthermore, 
other  amendments  are  under  preparation  to  enable  out-of-court  corporate  restructuring 
negotiations.  

A  Better  Regulation  Strategy  for  the  period  2008-2013  was  adopted  in  2008.  Romania 
assumed a national target of 25% of administrative burden reduction by 2012. The process of 
identifying  the  information  obligations  was  completed  in  June  2009  (4430  information 
obligations  were  identified  in  13  sectors).  The  next  stage  consists  of  measuring  the 
administrative  costs  on  the  basis  of  a  SCM  manual  adapted  to  Romania's  specific  needs, 
whose  development  is  funded  by  the  Dutch  government.  In  parallel,  the  development  of  a 
sector-specific methodology to improve ex ante impact assessments in the field of education 
and health was foreseen to be completed by end 2009. Finally, codification work is ongoing to 
elaborate the Administrative Code and the Administrative Procedure Code. 

Romania  has  taken  a  number  of  measures  to  improve  the  quality  of  public  services  via 
Internet.  Ambitious  objectives  for  eGovernment  and  eBusiness  have  been  set  through  the 
Governmental  Strategy  for  Broadband  Communications  Development  in  Romania  for  the 
period  2009-2015,  which  was  adopted  in  2009.  Moreover,  the  creation  of  a  national  portal 
(eRomania) is under way.  

The implementation of the EU Services Directive was scheduled for completion by end 2009. 
In addition, the Government is planning to restructure the Romanian energy generation sector 
by consolidating the state-owned energy assets in two companies while maintaining the legal, 
managerial and operational independence of the concerned entities. 

The  measures  already  initiated  or  foreseen  address  some  business  environment  bottlenecks, 
such  as  cutting  red  tape  or  developing  the  information  society.  However,  strengthening  the 
administrative capacity is the key weakness to be addressed. Thus, implementing timely and 
effectively  the  recommendations  of  the  functional  review  of  the  public  administration 
currently led by the World Bank would be an important undertaking. Another major challenge 
would be continuing and broadening the scope of the administrative simplification initiated in 
the frame of the  MoU conditionality. Whereas  many  of  the  categories of  authorisations and 
permits  already  simplified  are  not  among  those  having  a  significant  impact  on  business, 
particularly on SMEs, it would be essential to further extend the inventory to other areas of 
the public administration and to carry out the process in close collaboration with stakeholders 
and  the  business  community.  In  addition,  a  substantial  reduction  of  the  number  of  tax 
payments  per  year  seems  also  to  be  essential.  Furthermore,  investing  in  transport  and 
communication  infrastructure  would  be  critical  to  improving  competitiveness  and  attracting 
investment.  

3.22.6.  Entrepreneurship and SME policy 

SMEs are prevailing in the Romanian economy and represent over 99% of total enterprises. In 
recent years, the SME sector has consolidated its role in the economy in terms of number of 
employees  and  average  turnover  per  enterprise.  The  economic  crisis  resulted  in  much  more 
restrictive  credit  terms  for  SMEs  and  large  enterprises  and  the  difficult  situation  on  the 
financing markets will be an issue for economic recovery. The number of SME bankruptcies 
doubled in the first half of 2009 compared to the same 2008 period. Most SMEs are severely 
undercapitalised, despite some national initiatives and support programmes. The shortage of 

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finance, lack of business support services, limited entrepreneurial skills and experience, and 
insufficient knowledge of how to enter markets are the main factors explaining the low rate of 
business survival, lack of growth and competitiveness.  

Romania has taken a small number of stimulus measures with a view to supporting business 
dynamism.  Some  of  measures  announced  by  the Romanian Government in early 2009  have 
been adopted very late, thus considerably delaying the expected effects (such as the temporary 
tax  exemption  of  the  reinvested  profit  starting  with  Q2-2009,  postponed  to  October  2009) 
while some of them have not been adopted at all. Financial support to SMEs was provided via 
multi-annual national programmes and guarantee instruments. The National Credit Guarantee 
Fund for SMEs became operational, and a Counter Guarantee Fund of Loans to SMEs was set 
up in 2009. In addition, legislative measures were taken in 2009 to ensure the implementation 
of the JEREMIE initiative. 

Currently,  there  are  several  actions  running,  financed  by  the  OP  Increase  of  Economic 
Competitiveness, providing support to new investments, internationalisation of SMEs, support 
for the implementation of international standards, and advisory services. In addition, support 
to  investment  projects  of  micro-enterprises  as  well  as  to  developing  the  regional  business 
infrastructure is provided through the OP Regional Operational Programme. Several ongoing 
assistance  projects,  financed  through  the  OP  Administrative  Capacity  Development,  aim  at 
implementing a coherent plan for improving the business environment, transposing at national 
level the Small Business Act, and developing an operational one-stop-shop pilot model.  

The  public  procurement  law  was  modified  with  the  aim  of  accelerating  and  rendering  more 
flexible  the  procedures  of  absorption  of  European  funds.  In  addition,  an  assessment  of  the 
participation  rate  of  SMEs  in  the  public  procurement  process  was  carried  out,  showing  that 
over 55% of contracts with a total value of EUR 4 billion were allocated to SMEs.  

Concerning  entrepreneurship,  the  government  initiated  in  2008  an  action  to  stimulate 
entrepreneurial  mindsets  of  high  school  pupils  and  students  through  the  use  of  interactive 
learning  methods  such  as  ‘the  simulated  firm’.  Several  programmes  for  entrepreneurial 
education  among  young  people  and  women  were  carried  out,  with  a  total  budget 
approximately  2.3  higher  in  2009  compared  to  2008.  Moreover,  the  2006-2009  National 
Multiannual  Programme  set  up  to  support  SMEs'  access  to  training  and  consulting  services 
was extended until 2012, with a total budget for 2009 of EUR 5.1 million. 

Romania's policy response to helping SMEs to survive the economic crisis was hindered by 
the  need  for  fiscal  consolidation,  which  left  little  room  for  manoeuvre  in  launching  costly 
recovery  measures.  To  mitigate  the  companies'  higher  costs  of  financing,  scarcity  of  credit 
and guarantees, and lack of working capital, the main challenge in the short term relates to the 
access of companies, especially SMEs, to financing, including through EU funding. Related 
to this, Romania needs to increase support to enterprises, particularly SMEs, in accessing the 
available EU funds, as well as to reduce significantly late payments by public authorities to 
economic agents. Moreover, facilitating the access of Romanian companies to markets could 
help  offset  the  decline  in  demand.  In  this  respect,  increasing  transparency  of  public 
procurement  practices  and  starting  to  support  the  internationalisation  of  SMEs  could  be 
important steps.  

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3.22.7.  Conclusions 

Whilst  the  short-term  priority  is  to  bring  the  public  finances  under  control  and  stabilise  the 
macro-economic  framework,  the  implementation  of  a  number  of  urgent  structural  reforms 
should help to significantly improve the business environment. In this light, the effective and 
timely implementation of the measures included in the MoU will be critical as it will help exit 
from crisis in good conditions and pave the way for a return to sustainable growth.  

Effective  reform  of  public  administration  at  central  and  local  level  would  be  a  key 
undertaking  for  Romanian  economic  structure.  The  weak  administrative  capacity  limits  the 
possibilities for reform, hinders the absorption of EU funds and is, in general, dissuasive for 
all  economic  investors.  Strengthening  the  efficiency,  effectiveness  and  independence  of  the 
public administration should help improve the quality and enforcement of policies as well as 
the effective absorption of structural funds. Making an increase of the low rate of absorption 
of the EU Structural Funds a priority for economic policy would allow raising the necessary 
investment  in  infrastructure  and  human  capital  without  an  excessive  burden  on  the  national 
budget. Moreover, transparency in the decision-making process and accountability of public 
resource mobilisation and use are essential cross-cutting issues to consider.  

Improving  the  heavy  regulatory  environment  and  reducing  the  significant  red  tape  in  all 
sectors  of  the  administration  would  contribute  to  unlocking  the  business  potential  and 
reducing  costs  of  doing  business.  Furthermore,  developing  the  weak  transport  (especially 
motorways) and communication infrastructure would be critical to improving competitiveness 
and attracting investments.  

In the long term, the challenge will be to ensure a paradigm shift away from unskilled labour 
and energy intensive sectors towards more smart, low-carbon and resource-efficient activities. 
Upgrading  productive  capacities  and  processes,  investing  in  environmentally  friendly,  eco-
efficient  technologies,  increasing  the  innovative  potential  of  enterprises,  and  addressing  the 
shortage of highly skilled labour force available due to an inefficient high-education system 
not  yet  reformed  and  substantial  brain  drain  and  migration,  will  be  essential  for  the 
competitiveness of the Romanian industry at 2020 horizon.  

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3.23. 

Slovenia 

3.23.1.  Indicators graph 

Slovenia

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

NA

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Towards a modern and 
competitive industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business Environment

Business churn (enterprise entries and exits as % of existing stock; 2005)

Share of high-growth enterprises as % of all enterprises (2006)

Early stage financing (% of GDP; 2008)

Entrepreneurship and SMEs

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

NA

NA

NA

NA

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.23.2.  Introduction46 

Slovenia’s labour productivity, measured both per hour and per person, reached around 80% 
of the EU average in 2005 and in 2008/2009. The real effective exchange rate has appreciated 
since 1999. The implied decrease in competitiveness is moderate as the drop is lower than for 
the  EU  on  average.  Concomitantly,  nominal  unit  labour  costs  in  Slovenian  manufacturing 
increased by 21% between 2000 and 2009, thus only somewhat faster than the EU average of 
19%.  Slovenia’s  fast  growth  was  held  back  by  the  crisis.  Due  to  its  export-orientation,  it  is 
very  sensitive  to  economic  setbacks.  In  that  context,  labour  productivity  and  cost 
competitiveness are under careful scrutiny. 

Slovenia’s progress (from 1997 to 2007) towards higher value added activities is reflected in 
its  recent  specialisation  patterns.  Sectors  demanding  low  and  low-  intermediate  skills 
dominate the Slovenian economy while the share of low skill sectors is decreasing. There is a 
decreasing  specialisation  in  high  and  low  technology  sectors  at  the  benefit  of  medium 
technology sectors. In comparison with the rest of the EU in 1995-2007, Slovenia is getting 
more  specialised  in  sectors  which  had  a  medium  to  high  growth  rate,  and  decreasingly 
specialised in sectors with a negative growth rate. 

Manufacturing plays a larger role in the Slovenian economy than in the EU (representing 22% 
in  Slovenia  vs.  17%  in  the  EU  of  total  value  added  in  2008).  The  country  is  mainly 
specialized  in  the  production  of  wood  and  wood  products,  in  chemicals  (driven  by 
pharmaceutical  companies),  in  rubber  and  plastics,  in  basic  metal  products  and  in  leather, 
footwear and textiles. In the services sector, electricity, gas and water supply and construction 
weight  proportionally  more  than  in  other  EU  countries.  Employment  figures  confirm  the 
larger  role  played  by  the  manufacturing sector compared to the overall EU. But Slovenia is 
slowly  transitioning  towards  a  more  services-driven  economy.  It  is  forecast  that,  by  2020, 
employment  will  decrease  by  28%  in  the  primary  sector  and  by  13%  in  the  manufacturing 
sector. Conversely, construction services and business and other services would have grown 
respectively by 9% and 10% by 2020.  

Slovenia  is  very  dependent  on  its  trading  partners  (mainly  Germany,  Austria,  Italy  and 
Croatia).  Slovenia’s  production  in  transport  equipment,  chemicals  and  metals  (basic  and 
transformed) is predominantly exported. Slovenia’s industries are often  part of larger global 
value  chains.  As  a  result,  Slovenia  is  a  strong  importer  of  intermediates  (products  imported 
for  production  processes  purposes  and  not  for  local  consumption).  Slovenia  is  mainly  a  net 
importer  in  refined  petroleum,  in  agriculture  products  and  in  mining  and  quarrying. 
Conversely, machinery and other manufacturing showed a noteworthy trade surplus. Due to 
the  crisis,  Slovenia  showed  a  small  trade  deficit  in  2008.  The  Revealed  Comparative 
Advantage  (RCA),  measured  relative  to  the EU and concentrating on  manufacturing, shows 
particular  strengths  for  Slovenia  in  2008  in  wood  and  wood  products.  However,  Slovenia 
mainly exports raw wood - logs rather than processed wood products with higher value added, 
and other manufacturing. 

Exit from the crisis 

46 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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The  highest  level  of  manufacturing  output  in  the  last  three  years  took  place  in  June  2008. 
When compared with the lowest level of manufacturing output in April 2009, the difference is 
as high as 28%. In July 2010, output had only recovered by 15%. During the crisis Slovenia 
provided support to business in the form of de minimis aid and guarantees. Limited access to 
long-term financing is expected to continue until the end of 2010. The construction sector is 
particularly affected by the lack of finance. 

The  first  package  of  anticrisis-measures  was  adopted  in  December  2008.  It  primarily 
addressed the issues of improving liquidity in the banking sector, of additional incentives to 
business,  of  reduction  of  public  spending,  and  of  job  preservation.  The  second  package, 
adopted in February 2009, consisted of further measures concerning the financial sector and 
liquidity  of  companies,  measures  in  the  area  of  labour  market,  life-long  learning  and  social 
security,  support  to  sustainable  development,  and  measures  aimed  at  improving  the  use  of 
cohesion funds. The government also increased its level of R&D spending. 

The state loan guarantee scheme (support scheme for credit institutions) aims at overcoming 
problems  of  liquidity  and  of  obtaining  credit  from  commercial  banks.  It  is  to  be  used  for 
financing investments and working capital and for converting short-term credits into medium- 
and  long-term  ones.  The  state  loan  guarantee scheme  of  EUR 1.2 billion  is  implemented  by 
the  Slovenian  Export  and  Development  Bank  (SID  Bank)  since  mid  2009.  In  total 
EUR 645 million  of  state  loan  guarantees  has  been  auctioned  out  to  commercial  banks;  the 
state  has  taken  upon  itself  an  average  of  34%  of  the  loan  risk.  This  scheme  expires  in 
December 2010. The government has envisaged in the new exit strategy through 2013 a new 
instrument to encourage funding of investments in activities of particular importance for the 
Slovenian  economy.  Banks  are  bidding  for  guarantees  at  regular  auctions  organised  by  the 
SID Bank, by offering their own funds for the state guaranteed part of the credit and the part 
where they take over the risk. The risk is therefore split between the state and the banks which 
thus  multiply  the  total  credit  potential  of  the  scheme.  By  December  2009,  around 
EUR 533 million loans had been approved by commercial banks, with on average 34% state 
guarantee. The scheme falls under the temporary state aid framework and will expire on 31 
December  2010.  The  government,  in  January-March  2010,  announced  plans  for  a  new 
EUR 1 billion  loan  scheme  to  enable  large  companies  to  obtain  state  guarantees  for 
development  projects.  In  addition,  the  Slovene  Enterprise  Fund  (SEF)  has  been  offering  to 
SMEs  bank  loan  guarantees  with  subsidised  interest  rate.  In  2009,  the  favourable  financial 
resources of SEF (guarantees, co-guarantees, subsidised interest rates and grants) amount to 
EUR 120 million for 779 projects of SMEs.  

In  conclusion,  the  largest  recent  employment  declines  were  observed  in  the  manufacturing 
and construction industries. The recovery process will depend both on banks providing access 
to  finance  to  companies  in  the  short  term  and  on  restructuration  and  reinforcement  of  the 
domestic basis in the long term. 

Towards an innovative industry 

Slovenia has the highest R&D intensity among new Member States. It amounted to 1.7% of 
GDP  in  2008.  Slovenia  has  increased  its  R&D  intensity  during  2000-2008  by  an  average 
annual growth rate of 2.3%, as it reached 1.4% in 2000. This growth happened thanks to the 
increase in R&D investment in the private sector. From 0.8% of GDP in 2000, it grew to 1.1% 
in 2008, while public R&D intensity remained at 0.6% of GDP (public R&D spending rose 
considerably in 2009, when government increased its R&D expenditures by 46 % in nominal 
terms). 

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Looking at the European Innovation Scoreboard (EIS) data (EIS, 2009), Slovenia is making 
continuous  progress  in  its  innovation  performance.  Slovenia  now  belongs  to  the  group  of 
‘Innovation  followers’  along  with  countries  like  Belgium,  Austria,  the  Netherlands  and 
France.  These  countries  have  an  innovation  performance  below  those  of  the  innovation 
leaders  but  close  to  or  above  that  of  the  EU27.  In  the  past,  Slovenia  was  one  of  the  best 
performing of the moderate innovators group (with innovation performance below the EU-27 
average).  Changing  peer  group  proves  the  considerable  progress  made  by  the  country. 
Slovenia’s strengths lie in human resources, in finance and support, in the proportion of firms 
that have introduced innovations onto the market or within their organisations. It is also able 
to  generate  employment,  exports  and  sales  thanks  to  innovation.  Conversely,  the  country  is 
relatively weaker in firm investments in Intellectual Property Rights (IPR) and in technology 
balance  of  payments  flows.  In  2009,  Slovenia’s  market  share  in  high  tech  products  was 
artificially  boosted  because  of  robust  demand  in  the  motor  vehicle  market  (through  the  car 
scrapping schemes) and the pharmaceutical sector. 

In  2008-2009,  new  measures  were  introduced  or  existing  ones  were  modified  by  different 
organisations active in the research, development and innovation fields.  

Public  sector  instruments  have  been  relatively  stable.  In  2009,  as  in  2004  (year  of  their 
foundation)  centres  of  excellence  have  been  fostered,  supported  also  by  the  European 
Regional Development funds. The state has increased the co-financing of research equipment 
and  infrastructure  to  increase  the  international  competitiveness  of  public  research,  also  in 
relation to anti-crisis measures. 

The  national  research  and  development  programme  for  2009-2010  intends  to  strengthen  the 
links  between  the  business  sector  and  the  research  field.  There  have  also  been  measures  to 
strengthen  human  resources  in  R&D  activities,  facilitating  mobility  and  inter-disciplinary 
interactions.  The  government  has  allocated  grants  for  the  purchase  of  new  technological 
equipment to 231 SMEs and start-up of 91 innovative companies in technological parks and 
incubators in 2009. 

Numbers of challenges remain outstanding. The level of R&D investment, both in the public 
and the business sector is threatened by the crisis. Besides, structural funds had a more limited 
impact than it could have had due to delays of calls and complex administrative procedures. 

Better coordination of the innovation support network is needed, especially among ministries 
as well as with intermediary support organisations. Besides, the Slovenian private sector often 
complains  about  the  insufficient  or  complicated  instruments  available  for  R&D  and 
Innovation.  The  frequent  changes  in  support  programs  make  the  overall  system  less 
transparent. 

3.23.3.  Towards a sustainable industry 

While  production  from  emission-intensive  industries  tended  to  increase  in  the  recent  years, 
the  crisis  has  reversed  this  trend.  The  production  of  emission  intensive  industries  has 
decreased by 2.4% in 2008 and by 18.6% in 2009, mainly due to lower production of metals, 
especially aluminium. 

The  overall  Slovenian  economy  remains  prone  to  higher  greenhouse  gas  emissions.  Two 
factors  drive  this  tendency:  the  specialisation  in  manufacturing  activities  and  the  strategic 
localisation of the country. The localisation is both a curse and a blessing. Slovenia is situated 

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between Austria, Italy, Hungary, Croatia and is directed towards the Adriatic Sea. It makes it 
an attractive manufacturing location and transit country. But road transport is eventually the 
largest contributor of greenhouse gas emissions.  

The  National  energy  efficiency  action  plan  2008-2016  contains  29  instruments.  SID  Bank 
offers financing of investment in R&D and innovation through the European Clean Transport 
Facility  fund  of  the  EIB  and  its  own  funds.  The  measure  would  cost  EUR 136 million.  It 
prioritises clean and technology advanced industries that invest in R&D and innovation.  

Concerning the government’s own actions, public investment and procurement are to favour 
energy efficiency and environmentally-friendly solutions. Public procurement was made more 
environmentally  friendly  in  2009  thanks  to  amendments  to  the  public  procurement  act. 
Moreover,  public  tenders  favour  a  number  of  environmental  criteria  including  energy 
efficiency, reduction of hazardous substances and recycling. 

Among recent measures that target individuals and companies, sustainable tourism is actively 
encouraged  (introduction  of  environmental  standards).  Natural  persons  are  now  allowed  to 
generate  electricity  in  small  power  plants  without  registering  as  sole  proprietors  (since  an 
April 2010 amendment of the energy act). Financial support is provided in the priority areas 
of clean and technologically advanced industries (e.g. automotive industry).  

Concerning  non-budgetary  measures,  Slovenia  has  merged  all  competencies  for  renewable 
energy and energy efficiency. 

As  the  current  transition  from  a  manufacturing-driven  towards  a  more  services-driven 
economy is a long process, radical measures are needed. Technological changes are needed to 
come  along  to  improve  the  overall  performance  of  the  country  in  terms  of  both  energy 
efficiency and greenhouse gas emissions. At a more sectoral level, it is a challenge to mobilise 
the means to develop railway services that can offer an alternative to road transport. 

In  the  first  phase  of  the  emission-trading  scheme  (2005-2012),  emission  permits  were 
distributed for free. By 2013, a transition to the auctioning system will take place. 

Summing  up,  due  to  its  location  that  makes  it  a  transit  country  and  its  specialisation  in 
manufacturing activities, Slovenia is structurally prone to high gas emissions. The structural 
changes  brought  by  the  crisis  are  an  opportunity  to  favour  energy  efficiency  and 
environmentally-friendly solutions. 

3.23.4.  The business environment 

From  an  international  benchmarking  perspective,  Slovenia  ranked  53  (out  of  183)  in  the 
World Bank’s Doing business 2010 progressing 5 places. But there are still number of areas 
where bureaucratic obstacles could be removed. 

Slovenia  scores  much  above  the  EU  average  in  terms  of  infrastructure  expenditures,  of 
government  regulation  burden  and  e-government  usage  by  enterprises.  For  instance,  about 
90%  of  the  basic  government  services  are  available  online  (though  the  actual  usage  is  still 
low).  However,  it  scores  clearly  below  average  for  the  legal  and  regulatory  framework  and 
electricity prices for medium size enterprises.  

In  May  2009,  the  Government  adopted  an  Action  Plan  to  reduce  administrative  burdens  for 
businesses by 25% by 2012. The aim of the programme is to simplify procedures, to raise the 

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quality  of  administrative  services  at  national  level  and  to  reduce  administrative  barriers  in 
different  working  areas  within  ministries.  A  new  politically-binding  document  was  adopted 
by the Parliament. It extends the scope of the impact assessments and includes the SME test.  

The eGovernment strategy and action plan, in force since 2007, is being refocused from back-
office  reform  and  infrastructure  to  improving  user  satisfaction.  Slovenia  has  a  mandatory 
national eProcurement platform since June 2007. 

Since  July  2005,  the  one-stop-shop  system  VEM  and  its  electronic  version  e-VEM  have 
enabled  a  cost-free  registration  in  one  day  for  sole  entrepreneurs.  In  2007  e-VEM  was 
introduced  on  a  large  scale.  From  February  2008  on,  all  forms  of  companies  could  be 
registered  either  at  VEM  contact  points  or  electronically  through  e-VEM  with  cost-free 
registration in maximum 3-4 days.  

Even though Slovenia has the highest rate of SMEs winning public procurement contracts in 
the  EU,  more  changes  are  expected  in  the  public  works  contract  system  that  would  make  it 
even more user-friendly to contracting authorities and users.  

To  push  infrastructure  investment  further,  a  number  of  simplifications  are  considered  in  the 
area  of  spatial  planning,  construction  and  the  acquisition  of  land  and  permits  for  the 
installation of equipment. 

The institutional limitations (in terms of means and) of the competition authority have been 
pinpointed repeatedly. One of the most pressing objectives is to prevent anomalies in public 
procurement. 

3.23.5.  Entrepreneurship and SME policy 

The SME sector in Slovenia is comparable to the EU average. In both cases, SMEs represent 
more  than  99%  of  enterprises  and  about  67%  of  employment.  In  2002-2008,  the  overall 
growth rate of employment in SMEs in Slovenia amounted to 14% in comparison of an EU 
average of 12%. Slovenia scores well with regards to the EU concerning the time required to 
start  a  business  and  the  enterprise  survival  rate  after  two  years,  but  clearly  below  average 
concerning business churn.  

Several measures in the two crisis packages target specifically SMEs. To support high growth 
enterprises,  the  government  set  up  in  2009  a  measure  providing  Bank  loan  guarantees  with 
subsidized  interest  rate.  The  objectives  of  the  instrument  are  to  ensure  more  favourable 
conditions for SMEs, to support new investment and support future growth of the companies. 
Under  this  scheme,  the  Slovenian  Enterprise  Fund  (SEF)  is  in  cooperation  with  different 
banks  providing  guarantees  (from  60%  to  80%)  for  the  banking  investment  loans  with  a 
subsidy  rate  for  existing  SMEs.  Available  budget  for 
this  measure  was  around 
EUR 43 million  in  2009.  Additional  guarantees  and  subsidies  of  interest  rates  for  SMEs 
(additional  EUR 50.6 million  in  2010)  are  implemented  by  the  Slovenian  Enterprise  Fund. 
They  are  combined  with  EU-backed  guarantees  from  the  EU-CIP  (Competitiveness  and 
Innovation Programme) and with funds from the ERDF Structural funds (European Regional 
Development Fund). In 2009, SEF instruments (guarantees, co-guarantees, subsidised interest 
rates  and  subventions)  backed  loans  of  around  EUR 120 million  for  around  779  projects  in 
small firms. Since July 2009, the time to reimburse the VAT was reduced to 21 days. 

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The Slovenian Government adopted in mid 2009 ‘The Programme of Financial Engineering 
Instruments for SMEs’ – PIFI in order to reduce financial gap for SMEs and includes equity 
and  debt  financial  instruments  that  will  be  managed  through  a  holding  fund.  This  Holding 
Fund is funded through the EU structural funds. The Slovenian Enterprise Funds published on 
March 2010 the first call worth EUR 33.99 million for holding fund’s investments in venture 
capital companies. It intends to develop equity investments in SMEs in the form of venture 
capital and mezzanine capital. This should facilitate the growth of SMEs with high potential.  

Concerning  entrepreneurship  measures,  two  types  of  actions  are  worth  highlighting.  Firstly, 
start-up Slovenia is a competition for start-up companies which has been launched in 2007 by 
the  government  and  has  recently  been  joined  by  business  angels.  It  aims  at  identifying  and 
rewarding  the  best  new  innovative  Slovenian  enterprises  in  order  to  support  them 
professionally,  enable  them  to  connect  with  potential  investors  and  promote  them  in  the 
general  public.  Secondly,  the  agency  ‘JAPTI’  (that  promotes  entrepreneurship  and  foreign 
investments)  has  updated  its  programme  in  2007  to  encourage  the  integration  of 
entrepreneurship topics at all levels of formal education. It involves successful entrepreneurs 
in the promotion of entrepreneurship in schools. It trains teachers to promote entrepreneurial 
skills and creates flexible study programs and education of students at foreign universities. It 
promotes entrepreneurship for specific groups, with more emphasis on young people and on 
women.  Entrepreneurship  education  is  also  incorporated  into  the  Slovenia  Development 
Strategy and the programme of measures for promoting entrepreneurship and competitiveness 
2007-2013. 

the  government 

implemented  a  new  program 

the 
During  2005-2009 
internationalization  of  Slovenian  companies  (Program  za  spodbujanje  internacionalizacije 
podjetij za obdobje 2005-2009). The aim of the programme was to offer new opportunities to 
promote the Slovenian economy, organise trade delegations, participate in world fairs, and to 
operate the Slovenian clubs abroad. This program is continuing also in the period 2010-2014. 
For the year 2010 the provided budget is about EUR 5 million. 

to  promote 

Despite the  two  packages of anti-crisis measures, SME’s access  to finance has remained an 
issue.  Credit  growth  has  decelerated  and  more  restrictive  bank  lending  can  be  observed. 
Among  the  other  difficulties  that  small  businesses  face,  one  can  underline:  a  decrease  in 
orders,  a  problem  of  late  payments,  increases  in  labour  and  energy  costs  (the  government 
intends to introduce new excise duties on electrical energy for companies).  

The venture capital market in Slovenia is undeveloped and immature and little integrated in 
the EU single market. There are only few local venture capital funds with very limited venture 
capital  investments.  While  the  new  law  on  venture  capital  companies  has  a  good  basis,  tax 
advantages are only for those venture capital companies that are registered in Slovenia. This is 
indirectly  preventing  cross-border  inflows  of  venture  capital  and  thus  also  prevents  the 
Slovenian market from attracting additional and alternative sources of finance for innovative 
and high-growth firms.  

On  the  whole,  solving  the  immediate  issues  such  as  late  payments  is  equally  important  as 
fostering entrepreneurship and risk capital in the long term. 

3.23.6.  Conclusions 

Despite the fact that Slovenia was the fastest growing new EU Member State before the crisis, 
it was still hit hard. The Slovenian Government put in place two crisis packages as a response 

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to the crisis. But the temporary anti-crisis measures will have to be progressively removed. As 
an export-oriented economy, many industries have been dependant on the recovery of trading 
partners. In order to mitigate the dependence on external demand in the future, it is crucial to 
also reinforce the domestic basis.  

More  can  be  done  to  strengthen  Slovenia’s  domestic  competitiveness  and  to  facilitate  the 
transition of sectors facing restructuration. Apart from the labour markets reforms that are to 
come  along,  several  improvements  in  the  business  environment  could  be  achieved.  A  level 
playing  field  of  competition  (especially  in  services  sectors)  could  be  strengthened.  The 
entrepreneurship  and  innovation  culture  could  flourish  further  with  a  clear  government 
innovation  structure,  more  debt  finance  and  an  actual  venture  capital  market.  Finally,  more 
technological changes and investments could improve the overall performance of the country 
in terms of both energy efficiency and greenhouse gas emissions. 

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3.24. 

Slovakia 

3.24.1.  Indicators graph 

Slovakia

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2004)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

NA

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Towards a modern and 
competitive industry

Towards a sustainable industry

Business Environment

Share of high-growth enterprises as % of all enterprises (2006)

Early stage financing (% of GDP; 2008)

Entrepreneurship and SMEs

NA

NA

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.24.2.  Introduction47 

Slovakia’s labour productivity per hour and per person reached some 80% of the EU average 
in 2008/2009. Compared to its level in 2005, it showed a slight increase on both counts. The 
real  effective  exchange  rate  appreciated  significantly  since  1999,  more  than  in  any  other 
Member State except Romania, indicating markedly decreased competitiveness. In contrast to 
this  development,  nominal  unit  labour  costs  in  Slovakian  manufacturing  declined  by  28% 
between 2000 and 2009 with most of the decline occurring during the first half of the decade, 
resulting in a 47 percentage point gap compared to the EU average increase of 19%. 

The large FDI inflows to Slovakia have been an important source of technology transfer for 
its economy, which has supported a rapid increase in labour productivity (the third strongest 
in the EU over the five years up to 2008). After a period of slow increase in the 1990s, FDI 
inflows boomed  over 2000-2008 and represented almost  50%  of annual  GDP in cumulative 
terms in 2008. A favourable geographical location, relatively low labour costs and taxes, the 
existence  of  various  schemes  in  support  of  FDI,  important  improvements  in  the  overall 
economic  and  business  climate  over  the  period  and  EU  accession  largely  explain  the 
attractiveness  of  Slovakia  for  foreign  investors.  FDI  inflows  are  concentrated  in  the  energy 
(production and distribution), car manufacturing and financial sectors, and come mostly from 
other EU countries, notably Austria and the Netherlands. 

Slovakia  is  increasingly  specialised  in  sectors  with  medium-low  technology  intensity, 
accompanied  by  a  decreasing  importance  of  low  technology  sectors  over  time.  At  the  same 
time, the supply of skills has been shifting in favour of both low and low-intermediate skills. 
Slovakia is mainly specialised in sectors with a low or medium-high growth rate. Analysis of 
the  revealed  comparative  advantage  (RCA)  index,  broken  down  according  to  technology 
intensity of goods exports, indicates that Slovakia has developed a comparative advantage in 
medium-to-high technology goods and ICT industries. This is broadly in line with the RCA 
analysis based on factor intensity, which indicates that Slovakia has a comparative advantage 
in  capital  intensive  goods  and  a  disadvantage  in  raw  material  intensive  goods.  These 
indicators  are  consistent  with  changes  in  the  composition  of  exports  and  point  to  a  gradual 
shift in the structure of Slovakia's exports to higher value-added products. 

Manufacturing plays a much bigger role for Slovakia than for the EU in total (24% vs. 17% of 
total value added in 2008). The 2006 sectoral specialisation index reveals Slovakia's strength 
in  wood  and  wood  products,  leather  and  footwear,  refined  petroleum,  basic  metals,  mineral 
products  and  transport  equipment  With  an  average  share  of  services  in  total  exports  and 
imports  of  about  10%  in  2008  (down  from  21%  in  1995),  Slovakia  is  the  country  with  the 
lowest intensity of trade in services in the EU. This reflects the very large expansion of trade 
in  goods  over  the  last  decade.  Slovakia  showed  a  slightly  positive  balance  in  the  trade  of 
goods in 2009, whilst there was a deficit in 2005. The positive trade balance in manufacturing 
mainly  resulted  from  large  surpluses  in  transport  equipment,  refined  petroleum  and  metal 
products,  while  chemicals  showed  a  noteworthy  trade  deficit.  In  the  service  sector,  only 
electricity, gas and water supply, as well as wholesale and retail sectors show a clear above 
average weight.  

47 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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The  structure  of  merchandise  trade  has  changed  significantly  over  time,  with  a  strong 
concentration  in  the  car  and  transport  industry  that  now  accounts  for  almost  a  quarter  of 
Slovak exports. The import structure is dominated by machinery and electric equipment goods 
used in the car and energy sectors (43% of total imports), and energy products (13% of total 
imports).  In  the  primary  sector,  mining  and  quarrying  plays  a  strong  role  in  imports. 
Slovakia's  export  market  share  in  world  trade  has  more  than  doubled  since  1995,  reaching 
0.4% in 2008. The export market share in euro area countries has also increased significantly, 
from  0.2%  in  1995  to  almost  0.8%  in  2008.  The  key  drivers  of  these  increases  have  been 
greater  economic  integration,  initially  significant  cost-competitiveness  advantage  and 
continuous improvements in the quality of exported products. However, the pace of gains in 
market  shares  has  slowed  down  over 
time,  suggesting  an  erosion  of  Slovakia's 
competitiveness,  consistent  with  the  developments  in  the  real  effective  exchange  rate.  The 
Revealed Comparative Advantage (RCA), measured relative to the EU and concentrating on 
manufacturing,  shows  an  interesting  shift  for  Slovakia  from  2005  to  2008.  Slovakia  had 
particular  strengths  in  2005  in  wood  and  wood  products  and  basic  metals  products,  refined 
petroleum and leather and footwear. These sectors remained important in 2008 (except refined 
petroleum) but were less prominent; electrical and optical equipment and transport equipment 
gained ground and were more important. 

Exit from the crisis 

Manufacturing  output  in  Slovakia  fell  by  32%  in  the  wake  of  the  economic  and  financial 
crisis. In July 2010, Slovakian output in manufacturing stands at 87% of pre-crisis levels. In 
response to the crisis, Slovakia adopted three stimulus packages, labour and product market 
reforms, and measures to support the banking sector. In product markets, the government tried 
to  counter  the  effects  of  the  economic  and  financial  crisis  by  means  of  the  following  two 
measures: 

A car scrapping scheme: As in other EU countries, this scheme was designed to boost demand 
for  automobiles  and  accelerate  the  change  for  newer  models  with  lower  environmental 
impact.  The  scheme  was  carried  out  in  two  rounds  in  spring  2009  with  state  subsidy 
amounting  to  EUR  55  mil.  .No  additional  expenditure  on  the  car-scrapping  scheme  is 
envisaged. The measure will impact the budget beyond 2009 due to a shift of revenue from 
VAT and car registration fees from latter years to 2009 given the corresponding shift in car 
purchases. The  effects  of the  measures are expected to be observable over the period 2009-
2012 with a budgetary impact of 0.08% of GDP. 

Interest-free  loans  for  projects  increasing  energy-efficiency:  This  measure  was  aimed  at 
boosting  demand  in  the  construction  sector  and  also  providing  future  benefits  in  terms  of 
energy  efficiency.  If  necessary  conditions  were  met,  the  loan  would  cover  100%  of  eligible 
costs. The programme was time constrained, in force from 1 June 2009 to 31 December 2009. 
The impact is estimated at less than 0.1% GDP. 

In  addition,  the  anti-crisis  measures  included  a  number  of  temporary  actions  encouraging 
R&D. 

3.24.3.  Towards an innovative industry 

Slovakia  ranks  to  countries  with  lowest  rates  of  innovation  activity  in  the  EU.  Slovakia 
occupied 26th place out of the 33 countries included in the SII in 2008. Some 80 thousands of 
Slovak  small  and  medium  enterprises  (SMEs)  account  for  low  productivity  levels  and  low 

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R&D  intensity.  Branches  of  multi-national  companies  operating  in  Slovakia  have  their 
headquarters  and  R&D  centres  located  outside  Slovakia,  and  express  limited  interest  in 
networking  with  Slovak  R&D  facilities.  Slovak  SMEs  in  general  account  for  low  R&D 
expenditure and compete with low costs of labour.  

The  innovation  policy  mix  designed  for  the  planning  period  from  2007  to  2013  is  fairly 
similar to that applied in the planning period from 2004 to 2006. Most financial assistance is 
allocated to the technology transfers, business and technology incubators,  R&D  cooperation 
and  risk  capital  schemes  supporting  SMEs.  The  major  difference  is  in  the  amount  of  the 
assistance  provided  which  should  substantially  increase.  The  Innovation  Voucher  Scheme, 
support to projects applying for the EU CIP programmes,  and stimuli for R&D  activities in 
the  business  sector  have  reasonable  chances  of  implementation  in  the  above-mentioned 
period.  

To  counter  the  crisis  effects,  Slovakia  adopted  temporary  stimuli  for  business  R&D  in  the 
form of public subsidy and income tax relief for the private co-financing part. In addition, the 
R&D  Agency  of  Slovakia  was  financing 
in  2009. 
EUR 3.8 million  were  allocated  for  feasibility  studies  and  projects  in  applied  research  and 
experimental  development,  with  additional  private  co-financing  of  EUR 2.3 million.  Co-
operation  within  and/or  between  the  academic,  public  and  business  sectors  was  allocated 
EUR 265 551  for  9  projects.  However,  it  is  understood  that  in  reality  these  projects  only 
involved  public  actors,  since  the  required  legislative  change  to  enable  public-private  co-
operation was still pending. Finally, EUR 1 million was allocated for 40 projects to promote 
applied research to young people.  

three  anti-crisis  programmes 

Slovakia has also organised successive calls for proposals for projects in the R&D field, co-
financed from the EU structural funds, whereby identical calls were mostly published for the 
Bratislava region and Slovakia as a whole. 57 projects were approved in the total amount of 
EUR 23 million  for  applied  research  and  technology  transfer  in  the  public  sector,  with 
additional  24  projects  amounting  to  EUR 10.2 million  in  the  Bratislava  region.  On  15  June 
2009, contract was signed with the Slovak Centre for Scientific and Technical Information for 
a EUR 33 million project to develop a national data centre for R&D. 

The main challenges in the national innovation system have been continuing for many years 
and identified in the key government documents on innovation policies: first, the low volume 
and  quality  of  R&D  activities,  poor  participation  of  Slovak  firms  in  R&D,  and  weak  ties 
between  industry  and  academia  sectors;  second,  the  fragmented  national  innovation  system 
and  low  numbers  of  innovation  policy  tools;  and,  third,  the  low  shares  of  innovating 
enterprises  in  the  national  economy.  All  these  challenges  are  strongly  entangled  and 
necessitate a thorough review of existing policies and instruments with a view of defining a 
coherent research and innovation strategy adapted to the Slovak situation. 

3.24.4.  Towards a sustainable industry 

Slovakia  ranks  among  countries  with  higher  energy  intensity  of  its  industry  and  the  carbon 
intensity of its energy consumption than EU average. Slovakia scores below EU average also 
in terms of environmental goods exports as a percentage of overall exports. 

In August 2008, an EUR 80 million call for proposals was launched to raise energy efficiency 
in  power  production,  co-financed  from  the  EU  structural  funds.  The  programme  aims  at 
improving  the  efficiency  of  co-generation  heating  plants,  but  also  covers  restructuring  of 

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industry  and  services,  as  well  as 
in  buildings.  A 
EUR 125 million  loan  from  EBRD  for  the  period  2009-2010  was  also  secured  to  improve 
energy infrastructure in terms of efficiency.  

improving  energy  efficiency 

On  1  September  2009,  Slovakia  enacted  support  for  renewable  energy  resources  and  high-
efficiency cogeneration to achieve savings in primary energy, prevent network losses and to 
reduce  emissions.  The  Renewable  Energy  Act  provides  for  a  stable  energy  price  for  10-15 
years (feed-in tariffs) to ensure investment, depending on different variables. The tariff can be 
lowered in case some of the investment is co-financed from the EU structural funds. The same 
feed-in tariff applies, if the share of bio methane in power production exceeds 20%.  

The  Energy  Efficiency  Act,  which  is  in  force  since  2009,  provides  for  measures  to  ensure 
sustainable energy consumption, leading to potential savings of 12,405 TJ over a three-year 
period. Special measures with considerable impact are envisaged in construction (accounting 
for 11% of the total savings), household appliances, public sector, industry and agriculture, as 
well as transport. The private sector can also draw on the Sustainable Energy Finance Facility 
– a credit line jointly offered by the EBRD and Slovak banks.  

The  high  energy  intensity  of  the  industry  must  be  seen  in  the  context  of  the  sector 
specialisation of Slovak manufacturing. Nevertheless it may constitute a cost handicap. 

3.24.5.  The business environment 

Slovakia  scores  significantly  above  the  EU  average  concerning  the  e-government  usage  by 
enterprises,  but  below  average  in  almost  all  other  indicator  categories,  in  particular 
concerning electricity prices for medium size enterprises. Unlike gas prices, electricity prices 
have not followed a downward path after market liberalisation in 2007, pointing at potentially 
insufficient competition.  

Slovakia  has  a  better  regulation  agenda  that  includes  an  administrative  burden  reduction 
programme  with  a  25%  reduction  target  of  by  2012.  The  first  measurement  was  held  from 
June to August 2009 and covered 48 Acts in the following sectors: company law, civil law, 
accounting,  market  regulation, 
labour  and  employment, 
environment, intellectual property, capital incentives regulation, bankruptcy and rescheduling. 
In  the  framework  of  the  agenda  for  better  regulation,  a  pilot  project  to  test  a  Uniform 
Methodology  for  Assessing  Selected  Impacts  has  been  ongoing  since  September  2008,  with 
numerous  delays.  Consequently,  the  deadline  for  the  introduction  of  this  methodology  has 
been  repeatedly  postponed.  The  Unified  Methodology  for  Assessing  Selected  Impacts  was 
finally introduced on July 1, 2010. 

tariffs  and  charges, 

taxes, 

The one-stop-shop for business start-ups is only operational for sole traders.  

In reaction to the crisis, Slovakia introduced the possibility for rollover of VAT deductions, as 
well as took the more general measures to introduce group VAT registrations, retroactive tax 
registration, as well as simplified VAT and income tax administration for small entrepreneurs 
as  of  spring  2009.  The  period  for  refunding  VAT  overpayments  has  been  permanently 
shortened from 60 to 30 days as of 1 April 2009, conditional upon absence of tax arrears in 
the  past  12  months.  The  preliminary  data  show  that  some  15%  of  the  entities  with 
overpayments  used  this  option,  representing  30%  of  the  total  amount  due  in  VAT 
overpayments.  In  spring  2009,  Slovakia  also  reformed  its  depreciation  rules,  increasing  the 
input price of assets, as well as allowing for component depreciation and faster depreciation 

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of specific asset types. The total cost of the measure was estimated at EUR 34 million for the 
period 2009-2010. 

The  business  environment  in  Slovakia  needs  swift  improvement.  In  the  context  of  the  slow 
progress  in  tackling  this  challenge,  the  2010  Doing  Business  survey  by  the  World  Bank 
showed deterioration in the country's performance: Slovakia was ranked in position 42, down 
from  35  in  200948.  The  areas  requiring  most  attention  due  to  perceived  worsening  of  the 
situation  include  contract  enforcement.  Better  regulation  needs  to  be  turned  into  a  fully-
fledged and  fundamental principle throughout the Slovak public administration  to  achieve a 
lasting  improvement.  The  authorities  could  also  look  into  further  ways  of  stimulating 
competition in the electricity sector.  

3.24.6.  Entrepreneurship and SME policy 

The Slovak SME sector has a relatively large-scale structure as compared to the EU average, 
with much higher shares of medium-sized and small enterprises while the percentage of micro 
businesses is considerably lower (76% vs. 92% in the EU). The contribution of Slovak SMEs 
to  the  overall  economy,  as  measured  by  the  value  added  (47%),  is  in  EU-terms  small.  On 
average, SMEs in Slovakia also play a less prominent role in the local economy: contribution 
of SMEs to employment in Slovakia (55%) is well below the European average (67%). Only 
the group of medium-sized firms seem to break this trend, being responsible for 23% of the 
work force in the private sector, as compared to the EU average of 17%. 

In  the  context  of  its  2009-2010  recovery  plan,  Slovakia  took  many  initiatives  in  support  of 
corporate  cash  flows,  both  in  terms  of  tax  administration  measures  and  direct  financial 
support. Specific SME support programmes were designed in the form of an extended micro-
loan scheme, incubator care, as well as consulting and training support scheme. The budgeted 
cost for 2009 constituted EUR 8 million, of which EUR 5 million for the micro-loan scheme.  

Slovakia  has  stepped  up  SME  financing  by  increasing  the  equity  of  two  public  lenders  in 
spring 2009. Over the first six months of 2009, this allowed for raising SME lending by 25% 
in new loans and 8% in total loans outstanding in comparison with the end of 2008, whilst the 
total insurance portfolio of Export-Import Bank grew by 14% y-o-y. Since August 2009, EIB 
funds  for  SME  loans  have  also  been  available  in  the  total  amount  of  EUR 50 million.  The 
Slovak  Guarantee  and  Development  Bank  (SZRB)  is  also  providing  loan  guarantees  in  the 
value of up to 55% of the loan value to SMEs that seek loans at private banks. There is no 
need to visit the SZRB to obtain a guarantee and this can be done within as little as five days. 
During  the  first  six  months  of  2009,  454  fast-track  bank  guarantees  were  provided  in  the 
aggregate  amount  of  EUR 30 million,  enabling  SME  loans  in  the  total  value  of  about 
EUR 59 million. 

Since  2009,  new  legislation  on  vocational  education  gives  opportunities  to  private  firms  to 
support  professional  schools  and  influence  their  curricula to reflect better the labour market 
needs  and  provide  basis  for  entrepreneurship.  One  of  the  priorities  in  the  framework  of 
teaching  curricula  in  recent  years  has  been  to  support  the  development  of  entrepreneurial 
skills and for acquiring basic knowledge about business and the economy at secondary-school 
level.  The  Ministry  of  Education  has  incorporated  this  issue  into  the  state  education 

48 
compared to 2009. 

It  should  be  noted,  however,  that  the  2010  edition  includes  two  additional  countries 

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programmes by creating a facultative subject for all groups of study paths. Secondary schools 
aimed to incorporate the issue into school education programmes by September 2009. 

The  main  challenges  in  the  entrepreneurship  and  SME  policy  field  relate  to  the  rather  high 
administrative  burden  that  exists  in  Slovakia.  For  example,  the  time  required  to  wind  up  a 
business stands at 4 years – well above the EU average of 2 years, whilst it takes about twice 
as long for Slovak SMEs to export or import (25 days for both) than in EU (11 and 14 days, 
respectively). According to the 2010 Doing Business survey by the World Bank, the area with 
the most marked deterioration was in procedures to start up a business. 

3.24.7.  Conclusions 

Taking  into  account  the  fact  that  Slovakia  is  now  part  of  the  euro  zone,  whilst  the 
neighbouring  countries  are  not  and  have  floating  exchange  rates,  it  is  crucial  that  Slovakia 
gives  a  further  impulse  to  its  reform  programme  in  support  of  productivity  gains  and 
improvements  in  the  non-price  competitiveness  of  its  products.  Reallocation  of  resources 
towards education, R&D and innovation would enhance the growth prospects of the economy, 
while facilitating transition towards new types of economic activities. Hence, a coherent R&D 
and  innovation  strategy  is  required,  with  a  particular  focus  on  the  institutional  reform  and 
substantial  improvement  of  business-research  cooperation,  while  creating  further  incentives 
for the private sector in R&D and innovation. The shift to project-focussed public support to 
R&D  activities  is  a  step  in  the  right  direction;  institutionalising  it  would  provide  for 
competition in this area.  

The reform priorities could also include enhancement of the business environment and market 
functioning, including reduction of administrative burden on businesses, particularly SMEs. A 
comprehensive  better  regulation  strategy  appears  to  be  helpful,  including  systematic  impact 
assessments with SME tests and continuous simplification of the existing legislation. Slovakia 
could also encourage entrepreneurship more, in particular, by enabling easier company start-
ups and strengthening entrepreneurship education. 

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3.25. 

Finland  

3.25.1.  Indicators graph 

Finland

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Towards a sustainable industry

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

Business Environment

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Entrepreneurship and SMEs

NA

Share of high-growth enterprises as % of all enterprises (2005)

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.25.2.  Introduction49 

Finland’s  labour  productivity  is  10%  above  the  EU  average  on  a  per  hour  basis  (+7%  per 
person employed). In 2008 labour productivity in manufacturing was the fifth highest in the 
EU.  Finland’s  real  effective  exchange  rate  appreciated  somewhat  since  1999,  indicating  a 
small  decrease  in  competitiveness  vis-à-vis  third  countries.  In  parallel,  nominal  unit  labour 
costs in Finnish manufacturing first declined and then increased again resulting in an overall 
decrease of 2%. This implied a 21 percentage point gap compared to the EU average increase 
of 19%. Thus the price competitiveness improved. 

Finland  is  specialised  in  sectors  demanding  high-intermediate  and  low-intermediate  skills. 
There  is  a  clear  trend  towards  sectors  with  high  technology  intensity  from  1997  to  2007. 
Finland’s sectoral structure regarding growth intensity is balanced. 

Manufacturing plays a much bigger role for Finland than for the EU in total (22% vs. 17% of 
value added in 2008). Finnish manufacturing is specialised on pulp, paper and publishing as 
well as electrical and optical equipment. In the service sector, only the sector “transport and 
communication” and “health and social work” have an above average weight. In the primary 
sector,  agriculture  and  forestry  play  a  bigger  role  for  Finland  than  for  the  EU  in  total. 
Employment  figures  show  a  decreasing  importance  over  time  of  the  primary  sector  and 
manufacturing  and  a  trend  towards  service  sectors,  especially  real  estate  and  business 
activities.  Forecasts  until  2020  expect  an  increase  of  employment  in  business  and  other 
services of almost 16%. 

Finland shows a surplus  in  trade  of  goods in 2009. The export structure largely follows the 
sectoral  structure  of  the  economy;  only  transport  equipment  and  refined  petroleum  have  a 
larger export share relative to their importance in the economy. The positive trade balance in 
manufacturing  mainly  resulted  from  surpluses  in  pulp,  paper  and  publishing,  electrical  and 
optical equipment, other machinery and basic metal products, while food, textiles, chemicals 
and  transport  equipment  showed  a  noteworthy  trade  deficit.  The  Revealed  Comparative 
Advantage  (RCA),  measured  relative  to  the EU and concentrating on manufacturing,  shows 
particular  strengths  for  Finland  in  2008  in  pulp,  paper  and  publishing  and  wood  and  wood 
products. 

Exit from the crisis 

During the peak of the economic and financial crisis the manufacturing sector faced an output 
reduction of 28%. In July 2010, output recovered from this trough by only 10%. In response 
to the crisis Finland provided a total amount of EUR 23 million to more than 4000 SMEs in 
manufacturing and services sectors. The funds were allocated under the Temporary State aid 
Framework,  mainly  as  de  minimis  aid.  In  addition,  the  government  introduced  a  number  of 
further  measures  with  the  aim  of  improving  financing  conditions  for  enterprises.  The 
government  authorised  various  state-controlled  entities  to  significantly  increase  their 
provision of guarantees, export credits, venture capital, injections of new capital and interest 
subsidies. These will most likely expire at the end of 2010. 

49 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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The  crisis  measures  successfully  ensured  access  to  finance  of  the  real  economy.  The 
willingness of the financial sector to take risk is still relatively low, in particular in respect of 
loans to SMEs. 

3.25.3.  Towards an innovative industry 

Finland  has  a  very  good  innovation  performance  that  puts  this  country  in  the  group  of 
innovation leaders. Both public and private R&D expenditure is well above EU average.  

The Government agreed in January 2009 on a stimulus package which included a number of 
relevant  measures  for 
to  research  and 
development  have  been  further  raised  on  a  permanent  basis  beyond  the  already  high  R&D 
support.  Funding  is  available  not  just  for  technological  but  also  non-technological 
development.  

innovation  policy.  Appropriations  allocated 

ERDF funding is supporting measures in favour of enterprise development and the innovation 
system  (applied  research  and  interaction  and  cooperation  between  research  centres  and 
enterprises).  The  Finnish  authorities  have  decided  to  frontload  ERDF  financial  allocation 
from the end of the programming period to the years 2009-2010. 

In view of preparing new innovation strategies for the future, a number of challenges can be 
identified: first the transformation of firm strategies and emerging new innovation models. In 
recent years it has become clear that the old innovation policy approach has clung too much to 
traditional  science  and  technology  policy  perspective.  Secondly,  it  seems  important  to 
increase and enforce Finland’s attractiveness for investments. A major future challenge facing 
economic and societal development will be to keep Finland sufficiently attractive for business 
and  jobs  and  as  a  living  environment.  Thirdly,  the  base  of  innovative  growth-oriented 
enterprises  could  be  broadened.  The  overall  positive  development  of  the  Finnish  economy 
over  the  past  decade  disguises  uneven  performance  across  the  board  with  sometimes 
individual large domestic multinational enterprises (e.g. Nokia) having accounted for a large 
part of the impressive progress in productivity and private R&D investments. In this situation, 
a lack of innovative growth-oriented small and medium-sized companies and start-ups is one 
of the major identified weaknesses. 

A new innovation strategy adopted by the Ministry of Employment and the Economy in 2008 
seeks  to  the  improve  to  the  effectiveness  of  the  innovation  policy.  The  strategy  advocates 
transformation of the policy away from the current supply and grant based measures towards 
market and demand based measures. The scope of the policy will be broader. 

The  Ministry  of  Employment  and  the  Economy  launched  in  2010  an  action  programme  to 
implement the strategy. 

3.25.4.  Towards a sustainable industry 

The  Finnish  industrial  sector  is  energy-intensive  compared  to  the  EU  average.  Waste 
generated by enterprises is one of the highest in the EU.  

The new Climate and Energy Strategy envisages that growth of energy consumption will be 
halted  and  reduced  by  2020.  In  June  2009,  a  broad-based  Energy  Efficiency  Committee 
proposed  125  measures  to  achieve  the  37  TWh  of  energy-savings  (of  which  5  TWh  for 
electricity) by 2020. The committee has put an emphasis on sectors outside emissions trading. 
Urban  structure,  buildings,  transport,  households,  agriculture  and  industry  as  well  as  the 

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public  and  private  service  sectors  were  all  under  examination.  It  was  concluded  that  the 
biggest  savings  can  be  achieved  through:  new  vehicle  technology  (8.5  TWh),  new  building 
and  renovation  construction  regulations  (4.9  TWh),  more  challenging  energy  efficiency 
agreements  (2.8  TWh)  and  stricter  equipment  energy  requirements  (2.1  TWh).  These  four 
measures should account for half of the savings target.  

In  the  energy-intensive  industry,  the  impact  of  emissions  trading  and  other  measures  is 
expected  to  enhance  the  efficiency  of  energy  use  by  around  8  TWh  by  2020.  New  energy 
efficiency measures currently being prepared include, for example, a substantial strengthening 
of  energy  information  and  advice  targeting  consumers  and  an  Act  on  energy  efficiency  in 
public  corporations.  Resource  efficiency  will  also  play  a  key  role  towards  a  low-carbon 
economy.  

Owing  in  part  to  its  relatively  large  share  of  industry,  energy  intensity  in  Finland  is  higher 
than  that  of  its  neighbours.  The  government  has  placed  a  priority  on  improving  energy 
efficiency and has adopted an active stance. 

Despite  the  prevalence  of  energy-intensive  industrial  sectors  and  the  high  dependence  on 
energy imports, energy efficiency does not rank high on the political agenda. Improvements 
are  expected  only  via  indirect  market-based  instruments  such  the  energy  tax  reform  or 
emission trading. It is not certain whether these measures will suffice in the long-run to ensure 
a smooth transition towards a sustainable industrial structure in Finland. 

3.25.5.  The business environment 

Finland  scores  significantly  above  EU  average  concerning  almost  all  indicator  categories, 
with the exception of the availability of  high-speed broadband lines where it scores slightly 
below average.  

In Finland, the Better Regulation Strategy is embedded in the 2007 Government Programme 
and  Strategy  Document  and  includes  i.a.  tools  and  processes  such  as  the  forward  looking 
legislative  plan,  the    instructions  on  effective  law  drafting,  legal  quality  and  ex  ante  impact 
assessment, simplification and administrative burden reduction for businesses.  

Integrated guidelines for ex ante impact assessment were adopted at the end of 2007, which 
comprise  a  part  on  assessing  business  impacts  including  the  impact  on  SMEs,  on 
entrepreneurship  and  on  growth  of  enterprises.  As  a  continuation  of  the  SÄVY  project  on 
business  impacts  (2004-2007),  a  working  group  has  been  set  up  for  ex  post  evaluation  of 
legislation.  Public  consultation  of  stakeholders  on  new  regulations  is  based  on  guidelines 
adopted  in  2010,  and  recent  trends  include  electronic  consultation  in  order  to  encourage  a 
wider  participation.  In  this  respect,  the  programme  Sähköinen  asiointi  ja  demokratia  (e-
services  and  e-democracy,  SADE)  will  establish  a  modernised  version  of  an  interactive 
participation environment in 2011. 

In  March  2009  the  Government  approved  a  decision-in-principle  on  the  action  plan  for  the 
reduction of the administrative burden on businesses by 25% by the end of 2012 (compared to 
2006).  The  action  plan  includes  a  list  of  the  most  important  administrative  sector-specific 
reduction measures whose implementation will be ensured by the responsible ministries and 
authorities,  the  seven  priority  areas  being:  taxation,  statistics,  agricultural  subsidisation 
procedures,  food  safety  and  quality,  employers'  reporting  obligations,  financial  reporting 
legislation and environmental permit procedures. Public procurement was added as a priority 

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area in 2010. Furthermore, the development of eGovernment is considered as a key horizontal 
priority of the action plan.  

Finland  ranks  first  in  2009  as  regards  the  take-up  of  eGovernment  services  by  businesses. 
Regarding  eProcurement,  Finland  has  a  mandatory  notification  database  for  ongoing  public 
tenders  and  develops  non-mandatory  common  platforms  for 
the  other  phases  of 
eProcurement. 

The one-stop-shop to start-up a company (Trade Register) is fully operational. 

A  higher  degree  of  competition  in  services  including  retail  and  wholesale  trade,  would 
contribute to downward pressure on prices and also to increasing productivity in the sheltered 
sectors. 

3.25.6.  Entrepreneurship and SME policy 

The  government  programme  for  the  years  2007-2011  contains  guidelines  and  priorities  for 
SME  policy  development.  The  government  implemented  the  programme  "Change  Through 
Entrepreneurship  and  Skills"  (ESF  2007-2013  programme).  The  aim  is  to  provide  the  best 
possible  operating  environment  for  entrepreneurship  and 
increasing 
entrepreneurial  activity,  creating  a  positive  entrepreneurship  culture  and  growth 
entrepreneurship.  

innovation  for 

Entrepreneurship  is  included  in  school  curricula:  It  is  one  of  seven  main  interdisciplinary 
themes  in  lower  secondary  school  curricula  and  one  of  six  themes  in  the  upper  secondary 
study  programmes.  Recently,  entrepreneurship  education  within  the  education  system  has 
been  intensified  and  educational  institutions  are  encouraged  to  intensively  collaborate  with 
businesses.  Female  entrepreneurship  is  promoted  by  strengthening  business  expertise,  peer 
guidance  and  a  business  mentoring  system.  In  addition,  special  projects  to  promote 
entrepreneurship in the creative sector and the welfare sector are under way. 

Despite  the  favourable  business  environment  entrepreneurship  culture  is  not  particularly 
pronounced  in  the  Finnish  society.  Improving  attitudes  towards  entrepreneurship  and  risk-
taking  remains  a  challenge  in  order  to  further  enhance  business  dynamism  in  the  long  run. 
From  this  perspective,  the  work  being  done  to  improve  the  access  to  finance  of  growth 
enterprises is a step to the right direction. 

3.25.7.  Conclusions 

Finland's economy is competitive in relation to the EU average and competitiveness policies 
aim in the right direction. Nevertheless, Finland faces a number of challenges. 

Finland's innovation policy could be further broadened to include all sectors of the economy 
and centred around major societal challenges, in particular demographic change, in order to 
diversify  the  economy  and  reduce  the  economic  dependence  on  individual  sectors  or  even 
firms. 

Despite  a  generally  favourable  business  environment  the  availability  of  early-stage  finance, 
and acceptable general conditions relating to access to finance, the Finnish economy, with the 
exception  of  a  few  sectors,  is  not  dynamic  and  "entrepreneurship  culture"  lags  behind  other 
Member  States.  Measures  to  increase  the  number  of  high-growth  enterprises  and  start-up 
companies may improve business dynamism. 

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Climatic conditions and the industrial structure only partly explain the high energy intensity 
of the Finnish economy. Improving energy efficiency is important both in order to reach the 
climate change targets and to ensure long-term competitiveness of industry. To that end, the 
new  Energy  and  Climate  Strategy  is  a  good  starting  point.  It  remains  to  be  seen,  however, 
whether the envisaged measures will suffice. 

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3.26. 

Sweden 

3.26.1.  Indicators graph 

Sweden

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

Towards a modern and 
competitive industry

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

NA

Share of high-tech exports in total exports  (2006)

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Towards a sustainable industry

Waste generated by enterprises (kg per inhabitant; 2006)

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Business Environment

Time required to start a business (days; 2009)

NA

Enterprise survival rate after two years (2007)

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Entrepreneurship and SMEs

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.26.2.  Introduction50 

Sweden ranks among the most competitive economies in the world according to international 
comparisons;  this  is  reflected  in  its  labour  productivity,  which  is  above  the  EU  average, 
whether measured per hour worked or per person. Sweden's real effective exchange rate has 
depreciated  since  1999,  indicating  increased  competitiveness.  Concomitantly,  nominal  unit 
labour  costs  in  Swedish  manufacturing  first  declined  strongly  and  then  increased  again 
resulting  in  an  overall  increase  of  3%,  thus  16  percentage  points  below  the  EU  average  of 
19%. 

Sweden  specialises  in  sectors  requiring  high-intermediate  skills  and  exhibiting  medium 
growth rates. There is a marked specialisation on high-technology sectors.  

Manufacturing represents about a similar share of GDP in Sweden (20%) as in the EU as a 
whole (17%). Notwithstanding the fact that Sweden is one of the least specialised economies 
in  the  EU,  wood  and  wood  products,  pulp,  paper  and  publishing,  and  machinery  are 
nonetheless  sectors  in  which  Sweden  is  particularly  strong.  In  services,  only  two  sectors 
(health  and  social  work;  electricity,  gas  and  water  supply)  represent  a  clearly  higher  GDP 
share in Sweden than in the EU as a whole. Employment in the health and social work sector 
as  well  as  in  public  administration  has  increased  rapidly  since  2000,  rendering  both  sectors 
larger in 2009 than the manufacturing sector in terms of the number of employed persons. By 
2020 employment in the manufacturing sector is forecast to increase slightly (+3%) while in 
all  service  sectors  it  is  forecast  to  increase  significantly,  in  particular  in  business  and  other 
services (+ 20%). 

Sweden has a positive balance in the trade of goods, mainly due to surpluses in pulp, paper 
and  publishing,  machinery,  transport  equipment,  metal  products  and  wood  products  and 
refined  petroleum.  The  only  trade  deficits  worth  mentioning  are  in  food  and  textiles.  The 
Revealed Comparative Advantage (RCA), measured relative to the EU and concentrating on 
manufacturing, shows particular strengths for Sweden in 2008 in pulp, paper and publishing 
and wood and wood products. 

Exit from the crisis 

Swedish manufacturing production fell by one quarter during the crisis. In July 2010, the level 
of manufacturing output stood at 86% of its pre-crisis level. The Swedish automobile industry 
was  particularly  severely  hit  by  the  economic  crisis.  As  a  consequence  its  two  car 
manufacturers  and  their  suppliers  have  been  supported  in  several  ways:  (i)  through  the 
creation  of  a  limited  company  with  the  task  of  conducting  research  and  development  and 
other activities in the automotive cluster (initial capital amounting to SEK 3 billion); (ii) state 
credit  guarantees  to  companies  in  the  automotive  cluster  for  raising  loans  in  the  European 
Investment Bank for green technology conversion; (iii) rescue loans of up to SEK 5 billion for 
companies  in  the  automotive  cluster  that  find  themselves  in  financial  crisis;  any  such  loans 
will  comply  with  the  European  Commission's  guidelines  on  state  aid  and  will  be  granted 
against adequate security. 

50 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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In  addition,  to  ease  credit  constraints  on  export  companies,  the  Swedish  Export  Credit 
Cooperation (Svensk Exportkredit) has received SEK 3 billion in new equity funding and the 
Swedish  state's  100%  stake  in  the  holding  company  Venantius  has  been  transferred  to  the 
Swedish Export Credit Cooperation to increase the latter's lending capacity. Furthermore, the 
Swedish  Export  Credits  Guarantee  Board  (Exportkreditnämnden  –  EKN)  guarantee 
framework has been raised from SEK 200 billion to 500 billion. 

ALMI Företagspartner, which promotes the development of competitive SMEs and stimulates 
new enterprise, also received new equity funding of SEK 2 billion to enable it to increase its 
lending. 

Companies  are  not  currently  experiencing  any  serious  credit  restrictions.  However,  banks 
remain cautious with respect to SME lending. 

3.26.3.  Towards an innovative industry 

The  Swedish  business  sector  invests  substantial  resources  in  research  and  development 
(R&D) from an international perspective. In 2008, estimated R&D investment by companies 
with 50 employees or more was equivalent to 2.86% of GDP. Sweden's public investment in 
R&D is estimated to have reached 1% GDP in 2009, thus meeting the agreed EU objective. 
Sweden is among the Innovation Leaders with innovation performance well above the EU27 
average.  With  the  highest  innovation  performance  of  all  compared  countries  within  the 
European  Innovation  Scoreboard,  the  Swedish  national  innovation  system  shows  clear 
strengths  in  several  areas:  A  stable  macroeconomic  environment,  a  relatively  well  educated 
workforce,  a  handful  of  R&D-intensive  multinational  corporations,  ambitious  public 
investment in activities related to innovation and state of the art scientific performance. These 
strengths  are  reinforced  by  Sweden’s  integration  into  global  markets.  However,  there  are 
areas, such as ensuring an adequate skills supply that need continued attention. 

On 28 January 2009, the parliament approved a Research and Innovation Bill for 2009-2012 
providing  for  additional  resources  amounting  to  SEK 5 billion.  New  funding  for  university 
research will be allocated based on a quality assessment system and to research within fields 
of strategic importance for the competitiveness of Swedish business. The bill also introduces 
an  initiative  to  increase  the  commercialisation  of  research  results  and  support  to 
Innovationsbron AB (a publicly owned company aiming at supporting the formation of new 
businesses based on research-related ideas). Innovation offices will be set up at a number of 
higher education institutions.  

VINNOVA, the Swedish Governmental Agency for Innovation Systems, runs the ‘Research 
and  grow’  (Forska  och  Väx)  research  and  innovation  programme  addressing  SMEs  (2005-
2009) and promotes Institute Excellence Centres which create international environments for 
research, development and innovation activity within areas of great importance to the future 
competitiveness and growth of Sweden (2006-2013). 

In  2008,  Sweden  launched  a  pilot  programme  to  stimulate  growth  among  medium-sized 
companies (‘Medium-sized companies in change’), where skills development is an important 
element. It is implemented in 2008-2010 with a budget of ca EUR 2.5 million. 

Notwithstanding  the  strong  Swedish  R&D  and  innovation  performance,  a  number  of 
challenges  remain:  first,  the  strong  dependence  on  a  small  number  of  large  and  globalised 
firms; second, the challenge to deal with the global economic crisis and, in particular, with the 

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impact  on  the  motor  vehicle  industry,  which  suffers  from  structural  overcapacity.  The 
Swedish  motor  vehicle  industry  accounts  for  around  one  quarter  of  private  sector  R&D 
investments  and  for  around  one  fifth  of  investments  in  machinery  and  inventory.  Third, 
policies for supporting non-technological forms of innovation and innovation in services are 
lacking.  

The  apparent  difficulty  in  converting  large  investments  in  R&D  into  growth-enhancing 
productive  innovations  (often  referred  to  as  "the  Swedish  paradox")  indicates  that  the 
allocation of these investments could be improved. The process by which R&D investment is 
converted into commercially viable innovative products could also be enhanced by facilitating 
entrepreneurial activity.  

1.1.1.  Towards a sustainable industry 

Sweden has low national emissions per capita and per unit of GDP compared with most other 
industrial countries. The relatively low emissions are largely due to a high proportion of hydro 
and nuclear power in electricity production and substantial use of biofuels. 

Sweden puts major emphasis on the transition to an “eco-efficient economy” and implements 
a comprehensive policy mix with focus on sustainable growth, energy, and transport, climate 
change, environmental technologies and green taxes. 

In  2009,  the  parliament  adopted  an  integrated  climate  and  energy  policy.  Sweden's  climate 
target is a reduction in greenhouse gas emissions for those activities not covered by the EU 
emissions  trading  system  of  40%  by  2020  compared  with  1990.  The  target  for  the  share  of 
renewable energy in total energy consumption was set at 50% by 2020 and an Action Plan to 
achieve it was presented in June 2010. The main instrument is the green electricity certificate 
scheme, which aims at generating 25 TWh of new renewable electricity in 2020 compared to 
2002. The target set for energy efficiency is to decrease the energy intensity by 20 per cent by 
2020  compared  to  2008.  The  programmes  to  promote  energy  efficiency  will  amount  to 
SEK 550 million a year in 2010–2012. 

Several  additional  measures  were  taken.  In  December  2009  the  Swedish  Environmental 
Technology Council presented a national environmental technology plan. In the research and 
innovation  bill  adopted  in  2009,  SEK 535 million  will  be  spent  on  strategic  research  on 
environment  and  climate  during  2009-2012.  The  Swedish  Governmental  Agency  for 
Innovation  Systems  has  a  mandate  to  invest  SEK 40 million  on  green  solutions  and 
technologies. The Swedish Agency for Economic and Regional Growth has a mandate during 
2008-2010  to  carry  out  investments  (about  SEK 55 million)  in  environmentally  driven 
business  development  through  support  directed  at  SMEs.  The  Programme  for  Energy 
Efficiency  (PFE)  is  a  financial  instrument  aimed  at  the  Swedish  energy-intensive  industrial 
companies.  The  Swedish  Government  supports  through  the  Swedish  Energy  Agency  a 
number of development projects for electric cars. In December 2009 Parliament adopted a bill 
on climate and energy taxes, which will take effect gradually over the period of 2010-2015 to 
allow industry and other stakeholders to adjust. 

No notable challenge has been identified in this policy area. 

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3.26.4.  The business environment 

Sweden  scores  above  the  EU  average  in  all  the  business  environment  indicator  categories, 
with the exception of the level of state aid.  

The  Better  Regulation  strategy  is  structured  around  five  pillars:  measurement  of  the 
administrative  costs  to  businesses,  regulatory  impact  assessment,  the  Better  Regulation 
Council,  consultation  with  the  business  sector,  and  a  rolling  Action  Plan  for  Better 
Regulation.  The  Action  Plan  for  Better  Regulation,  set  up  in  2006,  is  updated  annually  and 
covers a broad range of regulatory simplification measures. The Government has set a target 
of  reducing  the  administrative  burden  on  businesses  by  25%  until  2010,  representing  a  cost 
saving of approximately SEK 25 billion. A new Action Plan for Better Regulation for 2011-
2014 is under preparation. 

The Ordinance on Impact Assessment, which entered into force in January 2008, states that 
Impact  Assessment  should  take  into  account  small  businesses  in  the  regulatory  design,  if 
relevant.  The  new  Regulatory  Council,  mandated  with  ensuring  the  quality  of  impact 
assessments  and  promoting  administrative  burden  reduction  in  regulatory  design  became 
operational in January 2009.  

eGovernment  usage  by  enterprises  in  2009  is  above  the  EU  average.  In  January  2008,  the 
Government  adopted  an  eGovernment  Action  Plan  focused  on  back-office  integration  and 
infrastructure development. Sweden has a non-mandatory national eProcurement platform.  

Sweden’s state-run retail pharmacy monopoly was abolished with effect from 1 July 2009. It 
is  the  result  of  a  reform  of  the  Swedish  pharmacy  system  initiated  in  2008.  In  2009  the 
government  launched  the  liberalisation  of  railroad  traffic,  which  will  be  completed  in  three 
stages by 1 October 2010. Since January 2010, the Competition Authority can take action to 
prevent  Swedish  government  bodies  from  engaging  in  business  activities  that  distort 
competition,  thereby  protecting  small  businesses  operating  in  local  markets  from  unfair 
competition. 

In  November  2009  the  Swedish  Government  presented  a  national  broadband  strategy.  The 
objective  is  to  achieve  that  90%  of  all  households  and  businesses  should  have  access  to 
broadband of at least 100Mbit/s by 2020. 

The one-stop-shop to start-up a company (Företagsregistering) is fully operational.  

Regarding business environment, Sweden has increased the pace on improving competition. It 
is,  however,  important  that  the  government  continues  to  actively  follow  up  on  the 
comprehensive  report  published  in  2009  by  the  Swedish  Competition  Authority,  which 
identified  a  number  of  areas  where  competition  could  be  strengthened,  and  to  vigorously 
enforce  the  new  Competition  Act,  which  entered  into  force  in  2008.  Among  the  areas 
identified were markets, where private and public companies compete with each other and in 
public  procurement.  There  has  been  a  trend  break  with  administrative  costs  for  business 
declining as a result of the government’s extensive work. A 7.3% (or almost SEK 7 billion) 
reduction between 2006 and 2010 is, however, only a step in the right direction towards the 
Sweden’s ambitious target of a 25 per cent reduction in administrative costs for business.  

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3.26.5.  Entrepreneurship and SME policy 

Regarding  entrepreneurship,  ‘Start-up'  offices  giving  support  and  guidance  to  people  who 
want to become entrepreneurs have been established in nine cities in Sweden. In July 2010 the 
Government extended until 30 March 2011 the period for establishing start-up offices until 30 
March  2011  and  allocated  SEK 4 million  to  this  programme.  EUR 2 million  a  year  between 
2008 and 2010 is aimed at improving advice and access to credit for immigrant entrepreneurs. 
In its Budget Bill for 2009, the Government announced its ambition to make entrepreneurship 
an  integrated  theme  throughout  the  education  system.  The  Government  has  already  adopted 
decisions on several initiatives in support of the development of entrepreneurship programmes 
in  schools  and  higher  education.  The  initiatives  are  brought  together  in  a  strategy  for 
entrepreneurship  published  in  May  2009.    Moreover,  a  national  programme  aimed  at 
promoting  women  entrepreneurship  is  running  since  2007,  allocating  SEK 100 million  each 
year until 2014. 

In November 2008, Sweden launched a pilot programme to stimulate growth among medium-
sized  companies,  where  skills  development  is  an  important  element.  It  will  be  implemented 
during 2008-2010 with a total budget of about SEK 24 million. 

A new law came into force on 1 January 2009 which regulates how Swedish municipalities 
and county councils are to proceed if they decide to introduce a freedom-of-choice system for 
patients  and  clients  in  their  health  care  and  social  care  systems.  Under  the  new  law,  more 
people in need of care and assistance will be able to choose who they want to provide it. The 
act is an alternative to the Public Procurement Act. 

All public administrations should be able to implement public procurements electronically by 
2010. Special efforts are deployed to make tendering by SMEs easier. 

A number of measures focus on SMEs internationalisation: 

The Swedish Trade Council has taken the initiative to start the Business Opportunity Project 
(BOP) that targets small companies  with  a  turnover  of  less  than  EUR 10 million. It  offers 
companies  help  in  entering  international  markets  through  a  standardised  and  subsidised 
service consisting of three steps: market check, visiting programme and follow- up. The Trade 
Council  also  implements:  Steps  to  Export,  a  service  offering  SMEs  free  advice  on 
planning their international business development. 

Since  2007  financial  support  through  ‘Export  loans’  is  given  to  small  firms  with  less 
than  50  employees  to  help them  in  their  internationalisation.  The  loans  are  administrated 
by ALMI Företagspartner and initially approximately EUR 50 million has been set aside for 
this initiative. 

The  Internationalisation  Guide  is  a  web  portal  aiming  at  guiding exporting companies, or 
firms that are about to start exporting, to various resources including advisory services, export 
financing and expertise on export markets.  

Sweden shows a consistent although mixed performance compared  with  the  EU average. In 
particular,  there  is  scope  for  improvement  in  the  desire  to  become  an  entrepreneur,  where 
Sweden (21%) scores below the EU average (30%). 

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3.26.6.  Conclusions 

Sweden ranks among the most competitive economies in the world and there are no notable 
major  challenges  identified.  However,  in  the  longer  term,  Sweden  might  benefit  from 
loosening  its  dependence  on  a  limited  number  of  large  firms  and  target  new  markets.  This 
involves  both  developing  a  stronger  sector  of  fast-growing  SMEs  and  the  ability  to  attract 
green  investments.  Although  total  R&D  investment  in  Sweden  is  high  by  international 
standards, Sweden would benefit from continued efforts to commercialise R&D, to consider 
non-R&D drivers of innovation, and to bring innovation closer to market needs. In view of a 
negative  demographic  trend,  securing  an  adequate  supply  of  skills,  especially  in  Maths-
Science-Technology education, is vital for future competitiveness. 

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3.27.  The United Kingdom 

3.27.1.  Indicators graph 

United Kingdom

Distance from the EU average (measured in standard deviations)

-3

-2

-1

0

1

2

3

Labour productivity per hour worked  (EU=100; 2008)

Labour productivity per person employed  (EU=100; 2009)

Labour productivity per person employed in manufacturing (1000 PPS; 2008)

Share of science and technology graduates (% of 20-29 years old population; 2007)

R&D performed by businesses (% of GDP; 2008)

Share of innovating enterprises as % of all enterprises (2006)

Share of high-tech exports in total exports  (2006)

Towards a modern and 
competitive industry

NA

NA

NA

Energy intensity in industry in kg of oil equivalent per euro of gross value-added at
constant prices (2008)

Carbon intensity per ton of oil equivalent of energy consumption  (industry;
tCO2/toe; 2007) 

Waste generated by enterprises (kg per inhabitant; 2006)

Towards a sustainable industry

Exports of environmental goods as % of all exports of goods (2008)

State aid for industry and services as % of GDP (2008)

Electricity prices for medium size enterprises (euro per kWh; 2009)

Infrastructure expenditures (euro per inhabitant; 2007)

Satisfaction with quality of infrastructure (rail, road, port and airport)
(1=underdeveloped / 7=extensive and efficicient by int'l standards; 2009)

Business Environment

% of broadband lines with speed above 10 MBps (2009)

Legal and regulatory framework (0= neg. / 10=pos.; 2010)

Burden of government regulation (1 = burdensome 7 = not burdensome; 2008/09)

E-government usage by enterprises (%; 2009)

Time required to start a business (days; 2009)

Enterprise survival rate after two years (2007)

NA

Business churn (enterprise entries and exits as % of existing stock; 2007)

Share of high-growth enterprises as % of all enterprises (2006)

Entrepreneurship and SMEs

NA

Early stage financing (% of GDP; 2008)

Rejected loan applications, and loan offers whose conditions were deemed
unacceptable, as % of all loan applications by SMEs (2009)

Duration of payments by public authorities (days; 2010)

Note : For sources and definitions, please see the technical annex. In the graph, data are presented in such a way that data bars pointing to the right (left) always 
indicate performance which is better (weaker) than the EU average.

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3.27.2.  Introduction51 

The United Kingdom’s labour productivity, measured per hour and per person, was stable and 
above  the  EU  average.  Nominal  unit  labour  costs  in  UK  manufacturing  increased  by  17% 
between 2000 and 2009 with a remarkable acceleration during the second half of the decade. 
However,  the  overall  increase  still  remained  below  the  EU  average  of  19%.  The  United 
Kingdom  is  one  of  the  very  few  EU  members  where  the  real  effective  exchange  rate 
depreciated from 1999 to 2009, indicating increased competitiveness. 

The  United  Kingdom  showed  no  clear  specialisation  with  regard  to  skills  intensity  in  2007; 
high-skill  sectors  have  gained  ground  since  1997  while  low-skill  sectors  became  less 
important.  This  picture  is  accompanied  by  a  clear  and  stable  specialisation  in  sectors  with 
high technology intensity; specialisation in medium-high technology sectors is decreasing and 
low-technology sectors play an important and growing role. Sectors with negative growth in 
the EU played a relatively strong role in the United Kingdom in 1995 and 2007. 

Manufacturing has a smaller weight for the United Kingdom than for the EU in total (13% vs. 
17% of value added in 2008). Only pulp, paper and publishing shows an above average share 
in  manufacturing.  There  is,  however,  clearer  specialisation  in  mining  and  quarrying  and  in 
financial  intermediation.  Employment  figures  show  the  high  level  of  productivity  in 
manufacturing  but  also  its  decreasing  importance  over  time.  Forecasts  until  2020  expect  an 
increase in employment in business and other services by almost 25% while employment in 
manufacturing might drop by some 13%. 

The United Kingdom’s showed a deficit in the trade of goods in 58 of the last 64 years, with 
the last surplus being in 1982. The negative trade balance in manufacturing mainly resulted 
from deficits in virtually every sub-sector of manufacturing, except aerospace, where the UK 
enjoys  a  very  strong,  albeit  deteriorating,  global  market  share.  The  Revealed  Comparative 
Advantage  (RCA),  measured  relative  to  the EU and concentrating on manufacturing,  shows 
particular strengths for the United Kingdom in 2006 only in electrical and optical equipment. 

Exit from the crisis 

Manufacturing output decreased by 15% in the course of the crisis. In July 2010, output was 
still almost 10% lower than the level prior to the crisis. The UK introduced a car scrapping 
scheme  for  private  households  that  ended  in  February  2010.  In  addition,  the  automotive 
industry  is  supported  by  the  Automotive  Assistance  Programme  (AAP),  a  support  package 
that  aims  to  unlock  up  to  GBP 2.3 billion  (0.15%  of  GDP)  in  loan  guarantees,  and, 
exceptionally, loans to the UK automotive sector. The programme support is offered through 
the  EU's  Temporary  State  aid  Framework.  Also  in  line  with  the  Temporary  State  aid 
Framework  the  UK  made  a  budget  of  EUR 9.6 billion  available  for  guarantees,  loans  and 
green products. In addition, the increased de minimis aid threshold has been widely used by 
SMEs  to  reduce  the  effects  of  the  crisis.  Almost  1500  SMEs  in  manufacturing  and  services 
received  aid  under  this  scheme.  The  government  also  created  a  Strategic  Investment  Fund 
(SIF) of GBP 750 million (0.05% of GDP) in 2009 and 2010 combined to support investment 
in a range of emerging industrial sectors in the UK. 

51 
qualitative information is 31 August 2010. 

For main sources used see the methodological annex. The cut-off date for all data and 

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Despite increases in margins, the overall cost of finance for business is now more favourable 
than  in  2007  and  2008.  In  addition,  the  majority  of  businesses  can  obtain  financing.  For 
instance,  the  March  2010  Bank  of  England  Trends  in  lending  report  shows  85.9%  of  SME 
loans and overdrafts by value were approved in January 2010. There has been a decline in the 
demand  for  finance  from  SMEs  since  2007  and  2008  as  SMEs  have  become  more  cautious 
about  taking  on  external  debt.  The  February  2010  SME  Business  Barometer  survey  shows, 
82%  of  the  SME  employers  who  did  not  apply  for  finance  in  the  last  6  months  gave  their 
reason as not needing it and 8% reported they did not want to take on additional risk. While 
some firms have faced problems with international trade finance, indications from the private 
sector  are  that  these  are  reducing.  There  are  therefore  no  current  plans  to  introduce  a  new 
trade credit insurance scheme. 

3.27.3.  Towards an innovative industry 

In  the  field  of  R&D  and  innovation,  the  UK  has  a  strong  research  base,  reflected  by  its 
scientific  performance  and  quality  assurance  system,  and  established  knowledge  transfer 
mechanisms,  although  the  engagement  of  companies  in  innovative  activities  is  not  well 
developed  particularly  in  the  important  services  sectors.  The  UK's  strong  innovation 
performance is confirmed by its 5th rank on the summary innovation index out of 27 Member 
States based on the European Innovation Scoreboard (EIS 2008). The UK’s good standing is 
due to excellent performance on a few indicators, most notably lifelong learning and venture 
capital.  

A number of measures can be singled out to support innovation policy. "Make Your Mark" is 
aimed  at  supporting  a  favourable  innovation  climate  via  innovation  management  advice  to 
companies.  "Enterprise  Finance  Guarantee"  supports  lending  where  businesses  are  able  to 
demonstrate  to  the  lender  that  they  are  viable  and  are  able  to  service  the  loan  but  lack  the 
collateral and/or track record to secure a normal commercial loan. The "Economic Challenge 
Investment  Fund"  provided  support  for  a  diverse  range  of  activities  including  ones  directly 
supportive  of  innovation,  including  support  for  knowledge  transfer,  training  of  researchers, 
recruitment  and  further  development  of  skilled  personnel  in  enterprises  and  support  to 
organisational innovation. 

Knowledge-intensive services, such as finance and business services and engineering, are an 
increasingly  large  part  of  the  UK’s  ongoing  economic  success  and  UK  innovation  activity. 
However,  innovation  in  these  sectors  is  not  usually  technology-based.  Supporting  and 
encouraging  innovation  in  these  sectors  is  a  key  challenge.  A  number  of  other  challenges 
include boosting the relatively weak intensity of innovation activity in enterprises, translating 
knowledge  into  ‘new  to  market  products’  and  intellectual  capital,  improving  future  skills 
needs,  and  raising  private  R&D  investment  and  innovation  continues  to  be  an  important 
challenge for the UK. 

3.27.4.  Towards a sustainable industry 

In addition, the government has introduced targeted measures to help UK enterprises through 
the recession and to lay the foundation for a sustainable recovery. In this context, the budget 
for  2009  announced  a  GBP 750 million  Strategic  Investment  Fund  to  support  advanced 
industrial projects of strategic importance focusing on emerging technologies and regionally 
important sectors. Investment via the Strategic Investment Fund is well underway and to date 
covers  a  wide  range  of  industries,  but  with  a  clear  focus  on  high-tech  and  low-carbon 
industries.  In  the  context  of  the  Low  Carbon  Industrial  Strategy  published  in  July  2009  the 

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UK has deployed a comprehensive range of policies to support the transition to a low carbon 
future. Budget 2009 committed a further £1.4 billion in targeted support for the low carbon 
economy  and  showed  how  the  Government’s  policy  framework  is  enabling  £50  billion  of 
investment in low carbon over the period 2008-11. 

3.27.5.  The business environment 

The Government announced a ‘one-in, one-out’ rule in the Coalition document published on 
20 May 2010. The rule requires that no new domestic regulation is brought in without other 
regulation being cut by a greater amount. This commitment is intended to bear down on the 
burden of regulation, boosting enterprise and driving economic growth and innovation.  

The  Administrative  Burden  Reduction  Programme  was  a  key  part  of  the  previous 
Government’s  better  regulation  agenda.  This  five  year  programme,  launched  in  2005,  was 
designed  to  cut  unnecessary  bureaucracy  and  remove  out-of-date  regulations-  making  life 
simpler for business and the voluntary sector. The programme has delivered more than £3.5bn 
of net annual savings, representing a reduction of over 26.5% in administrative burden placed 
on business by government. The programme has also delivered a reduction of over 34% in the 
number of information requests that central departments and agencies request from frontline 
public sector workers. The Government has committed to publishing a forward programme of 
all regulatory measures due to be implemented in the UK to inform business and the public. 

The  ex  ante  impact  assessment  policy  was  recently  updated.  All  new  regulatory  and  policy 
proposals now require in their impact assessment and explanatory memorandum consideration 
of exemptions or simplified enforcement for small businesses. A guidance document on the 
Small Firms Impact Test and a handbook for officials on regulating for small businesses have 
also been published. In addition, the introduction of a forward-looking planning tool has been 
announced  to  allow  companies  to  predict  more  clearly  the  effect  of  upcoming  regulation. 
Public consultation of stakeholders on new regulations is embedded in the Code of Practice 
on Consultation. 

Despite  significant  improvement  over  the  period  2005-2009,  take-up  by  businesses  of 
eGovernment  services  is  still  below  the  EU  average  in  2009.  The  UK  has  a  non-mandatory 
national eProcurement platform (Buying solutions) which includes an electronic marketplace 
containing details of Public Sector supplier contracts, a Purchase to Pay solution and a pan-
Public Sector data warehouse e Procurement.  

The government-run BusinessLink network currently operates as a one-stop-shop for business 
advice,  including  start-ups.  It  includes  an  online  portal,  telephone  helpline  and  face  to  face 
advice. All necessary forms can be accessed from the Business Link website, but they are not 
processed  by  one  single  organisation.  Incorporation  of  a  company  still  takes  place  with 
Companies  House  (online).  Although  Companies  House  remains  a  separate  entity  for 
incorporation of a company, the BusinessLink portal may otherwise been considered a "one-
stop-shop" for start-ups and as the portal for accessing the UK's point of single contact under 
the Services Directive.  

The Government had already prior to 2007 put measures in place that anticipated many of the 
recommendations  later  included  into  the  European  Small  Business  Act  (SBA).  The  United 
Kingdom  scores  slightly  better  than  the  EU  average  concerning  the  level  of  state  aid  (i.e. 
provides less state aid than the EU average), but slightly below average concerning electricity 
prices for medium size enterprises and the availability of high-speed broadband lines. 

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3.27.6  Entrepreneurship and SME policy 

The United Kingdom scores clearly above the EU the enterprise survival rate after two years, 
business  churn  and  early  stage  financing.  It  does  not  score  below  the  average  in  any  of  the 
other main indicator categories used. 

The Local Enterprise Growth Initiative (LEGI) was announced in the 2005 budget. A total of 
EUR 482 million has been allocated to the programme up to 2010/2011. It intends to help the 
most deprived local areas, through enterprise and investment. Three key outcomes are strived 
for:  to  increase  total  entrepreneurial  activity,  to  support  sustainable  growth,  and  to  attract 
appropriate inward investment and franchising. In 2007, the women’s enterprise ambassadors’ 
network was launched. Some 1,300 ambassadors are now in place instilling women with the 
confidence  to  successfully  start  and  run  a  business.  The  government  started  pushing  the 
entrepreneurship  education  agenda  in  2003.  It  is  now  integrated  into  the  cross  government 
enterprise strategy. Moreover, an Enterprise Network has been established to provide support 
for a sustainable network of Enterprise Learning Partnerships (ELPs). The National Council 
for  Graduate  Entrepreneurship  (NCGE)  is  developing  its  University  Enterprise  Networks 
which  bring  together  universities,  private  sector  businesses,  and  the  regional  agencies  in 
projects  to  promote  entrepreneurship  to  students  and  post  graduates.  From  April  2008,  the 
NGCE has received additional funding of about EUR 350 000 for this. 

3.27.6.  Conclusions 

The  relatively  high  level  of  productivity  and  the  depreciation  of  the  real  effective  exchange 
rate  are  clear  signs  for  the  generally  high  level  of  competitiveness  of  the  UK  economy. 
However,  the  economic  performance  depends  to  a  certain  degree  the  primary  sector  and  on 
financial  services  which  might  indicate  some  vulnerability  to  external  shocks.  The 
manufacturing base is rather small. While the research base and the innovation performance 
are, overall, strong this is mainly due to lifelong learning and venture capital. Weaknesses in 
innovation,  especially  in  the  important  service  sectors,  remain.  There  is  a  comprehensive 
policy towards a sustainable industry. 

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4. 

METHODOLOGICAL ANNEX 

4.1.  Main Sources 

4.1.1.  General 

•  CEDEFOP (2010), Skill supply and demand in Europe – Medium-term forecast 

up to 2020 

•  Council of the European Union (2010), Broad Economic Policy Guidelines, 

Document No. 11646/10 of 7 July 2010, 
http://register.consilium.europa.eu/pdf/en/10/st11/st11646.en10.pdf 

•  European Commission (2009), Member States' autumn 2009 reports on the 

implementation of their National Reform Programmes, 
http://ec.europa.eu/archives/growthandjobs_2009/documentation/index_en.htm#i
mplementation 

•  European Commission (2009), Implementation of the Lisbon Strategy Structural 

Reforms in the context of the European Economic Recovery Plan, COM(2009) 34 
final, Volume II, of 29 January 2009,  

•  European Commission (2009), State Aid Scoreboard, Report on State aid granted 

by the EU Member States, Autumn 2009 update, COM (2009) 661 final, 
download: http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0661:FIN:EN:PDF 

•  European Commission (2010): Internal Market Scoreboard, N°21, July 2010 

download: http://ec.europa.eu/internal_market/score/index_en.htm 

•  European Commission (2010): Lisbon Strategy evaluation document, SEC(2010) 

114 of 2 February 2010 - 
http://ec.europa.eu/archives/growthandjobs_2009/pdf/lisbon_strategy_evaluation_
en.pdf 

•  European Commission, DG Economic and Financial Affairs (2010), Price And 

Cost Competitiveness (quarterly report) 

•  European Commission, DG Enterprise and Industry (2010), EU Industrial 

Structure 2009 – Performance and competitiveness, download: 
http://ec.europa.eu/enterprise/newsroom/cf/itemshortdetail.cfm?item_id=3934 

•  Eurostat (2010), Structural indicators, 

http://epp.eurostat.ec.europa.eu/portal/page/portal/structural_indicators/indicators 

•  National Reform Programmes of the EU member states, October 2009 

EN 

206 

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4.1.2.  Towards an innovative industry 

•  European Commission (2008), European Innovation Progress Report, 

http://ec.europa.eu/enterprise/policies/innovation/facts-figures-
analysis/trendchart/index_en.htm 

•  European Commission (2009), European Innovation Scoreboard 2009, Pro Inno 
Europe Paper no 15, http://www.proinno-europe.eu/page/european-innovation-
scoreboard-2009 

•  Erawatch Country Report (2009), 

http://cordis.europa.eu/erawatch/index.cfm?fuseaction=ri.home 

4.1.3.  Towards a sustainable industry 

•  ECORYS (2009), Study on the Competitiveness of the EU eco-industry (within 
the Framework Contract of sectoral competitiveness studies ENTR/06/054), 
October 9, 2009 

•  European Commission (2009), Staff Working Document SEC(2009)889final of 
23/06/2009 "Synthesis of the complete assessment of all 27 National Energy 
Efficiency Action Plans as required by Directive 2006/32/EC on energy end-use 
efficiency and energy services: Moving forward together on saving energy" 

•  European Commission (2009), Progress report on the implementation of the 

European Economic Recovery Plan, December 2009 

•  Eurostat (2010), Environment, energy and external trade databases, 
http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes. 

•  International Energy Agency (2009), "Implementing energy efficiency policies: 

are IEA member countries on track?", October 2009 

•  MURE (http://www.isisrome.com/mure) and IEA energy efficiency 

(http://www.iea.org/textbase/pm/?mode=pm) databases 

•  National Energy Efficiency Action Plans of the EU Member States, June 2007 

4.1.4.  The business environment 

•  European Commission (2009), Report on the implementation of the SBA, 

COM(2009) 680 of 15 December 2009 – 
http://ec.europa.eu/enterprise/policies/sme/small-business-
act/implementation/files/sba_imp_en.pdf  

•  European Commission (2010), SBA Fact Sheets 2009, 

http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-
review/index_en.htm#h2-sba-fact-sheets 

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207 

   EN 

 
•  Eurostat (2010), E-government usage by enterprises 2009, 

http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/dataset?p_prod
uct_code=TSIIR140 

•  OECD, Better Regulation in Europe - The EU 15 Project, 

http://www.oecd.org/document/0/0,3343,en_2649_34141_41909720_1_1_1_1,00.
html 

•  World Bank (2010), Doing Business – Measuring Business Regulation, database 

under http://www.doingbusiness.org 

•  World Economic Forum (2009), The Global Competitiveness Report 2008-2009 - 

http://www.weforum.org/documents/gcr0809/index.html. 

•  Ernst & Young: Waking up to the new Economy, Ernst & Young’s European 

Attractiveness Survey 2010 - 
http://www.ey.com/Publication/vwLUAssets/Attractiveness_survey_2010_EU/$F
ILE/Attractiveness_survey_2010_EU.pdf 

4.1.5.  Entrepreneurship and SME Policy 

•  European Commission (2008), Think Small First - A Small Business Act for 

Europe, COM(2008)394 of 26 June 2008, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0394:FIN:EN:PDF 

•  European Commission (2010), SBA Fact Sheets 2009, 

http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-
review/index_en.htm#h2-sba-fact-sheets 

•  Eurostat (2010), Business demography statistics, 

http://epp.eurostat.ec.europa.eu/portal/page/portal/european_business/data/databas
e 

4.2. 

Data set and methodological approach 

4.2.1.  Data set 

The following data set presents the data underlying the graphs presented in this report. 

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EN 

212 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.2.2.  Definitions of the indicators 

Name of Indicator 

Definition 

Towards a modern and competitive industry 

(1)  Labour productivity per 

hour worked 

Gross  Domestic  Product  in  Purchasing  Power  Standards 
per hour worked relative to EU-27 (EU-27=100) 

Source: Eurostat  

(2)  Labour productivity per 
person employed  

Gross  Domestic  Product  in  Purchasing  Power  Standards 
per person employed relative to EU-27 (EU-27=100) 

(3)  Labour productivity in 

manufacturing per person 
employed 

(4)  Unit labour costs in 
manufacturing  

(5)  Share of science and 
technology graduates 

(6)  R&D performed by 

businesses 

Source: Eurostat 

Gross value added in Purchasing Power Standards per 
person employed 

Source: Eurostat 

Development  (2000=100)  of  the  following  ratio:  Total 
compensation  of  employees  in  manufacturing  (in  nominal 
values) divided by total valued added in manufacturing (in 
constant prices). 

Source:  European  Commission  (AMECO-Database  2000-
2005) and OECD (2005-2009) 

Number of new science and technology graduates (levels 5 
and  6  of  the  “International  Standard  Classification  of 
Education  ISCED  5-6”)  divided  by  20-29  years  old 
population. 

The  term  “science”  includes  the  following  fields  of 
life  sciences,  physical  sciences, 
education  (ISCED): 
mathematics,  statistics  and  computing,  while  technology 
refers  to  graduates  in  engineering,  manufacturing  and 
construction. 

The indicator includes new tertiary graduates in a calendar 
year  from  both  public  and  private  institutions  completing 
graduate  and  post  graduate  studies  compared  to  the  age 
group of 20-29 years old population that corresponds to the 
typical graduation age in most countries.  

Source: Eurostat 

The  indicator  covers  all  expenditures  for  R&D  performed 
within  the  business  enterprise  sector  (BERD)  on  the 
national  territory  during  a  given  period,  regardless  of  the 
source of funds.  

The  data  on  this  indicator  are  gathered  by  Eurostat  which 
applies  the  guidelines  laid  out  in  the  Frascati  Manual,  the 
"Proposed  standard  practice  for  surveys  of  research  and 
experimental development" (OECD, 2002).  

EN 

213 

   EN 

 
Note: Gross domestic expenditure on R&D is composed of 
Business enterprise expenditure on R&D, Higher education 
expenditure  on  R&D,  Government  expenditure  on  R&D 
and Private non-profit expenditure on R&D. 

Source: Eurostat 

(7)  Share of high-tech exports   Share (in %) of exports of all high technology products in 

total exports.  

High technology products cover the following: Aerospace, 
Electronics-
Computers-office 
instruments, 
telecommunications,  Pharmacy,  Scientific 
Non-electrical 
Electrical 
machinery, Armament. 

machinery, 

Chemistry, 

machines, 

(8)  Share of innovating 

companies  

(9)  Trade balance of goods (% 

of total exports of goods) 

Source: Eurostat. 

Enterprises  which  have  introduced  during  an  observation 
period of three years new or significantly improved goods, 
services  and/or  processes,  marketing  or  organisational 
innovation  or  a combination of those, divided by the total 
number  of  active  enterprises  at  the  end  of  the  observation 
period. 

Source:  Community  innovation  surveys  (CIS).  Enterprises 
with  less  than  10  employees  do  not  belong  to  the  total 
population covered by CIS. 

Net  exports  (exports  minus  imports)  of  goods  divided  by 
total exports of goods (all in current prices). The aggregate 
EU trade balance includes trade with third countries only. 

Source: Eurostat. 

(10 Trade balance of services 
(% of total exports of 
services) 

Net exports (exports minus imports) of services divided by 
total  exports  of  services  (all  in  current  prices).  The 
aggregate  EU  trade  balance  includes  trade  with  third 
countries only. 

(11 Real effective exchange 

rate 

Source: Eurostat. 

Nominal  effective  exchange  rate  deflated  by  nominal  unit 
labour  costs  (total  economy)  relative  to  a  panel  of  36 
countries  (EU-27  +  9  other  industrial  countries:  Australia, 
Canada,  United  States,  Japan,  Norway,  New  Zealand, 
Mexico,  Switzerland,  and  Turkey).  1999=100  for  all 
countries.  A  rise  in  the  index  suggests  deterioration  in 
competitiveness.  The  figure  for  each  country  is  calculated 
against the rest of the countries belonging to the panel. The 
EU  aggregate  figure  is  calculated  against  the  non-EU-27 
countries belonging to the panel. 

Source: European Commission (DG ECFIN)  

(12 Revealed Comparative 
Advantage (RCA) 

in 
The  RCA  gives 
manufacturing exports for a given Member State relative to 

the  share  of  a  given  sector 

EN 

214 

   EN 

 
(13 Energy intensity in 

industry 

(14 Carbon intensity 
(industry)  

the share of the sector in manufacturing exports of 21 EU 
Member  States;  due  to  the  lack  of  data  Bulgaria,  Cyprus, 
Latvia,  Lithuania,  Malta  and  Romania  are  not  covered 
here. 

Towards a sustainable industry 

Energy consumption in kg of oil equivalent divided by gross 
value-added (constant prices) in industry (NACE sections C: 
Mining  and  Quarrying,  D:  Manufacturing,  E:  Electricity, 
Gas and Water Supply). 

Source: Eurostat (“environment and energy” and “national 
accounts”) 

CO2 emissions by industry excluding the energy sector and 
including the construction sector, per ton of oil equivalent of 
energy  consumption  in  industry  without  the  energy  sector 
and including construction. 

Sources:  

European  Environment  Agency  for  the  figures  on  the  CO2 
emissions.  The  relevant  categories  are  NACE  13-22,  24-
37, and 45, sections C, D and F without subsections CA (10-
12), DF (23) and section E (40). 

Eurostat  for  the  figures  regarding  energy  consumption  in 
tons  of  oil  equivalent.  The  relevant  categories  are  1.A.2  -
 101800  final  energy  consumption  industry  +  101022  auto 
producer input 2 and 3 101600 non-energy consumption. 

(15 Waste generated by 

enterprises 

The  amount  of  hazardous  and  non-hazardous  waste  of  all 
enterprises divided by the number of inhabitants.  

Source: Eurostat  

(16 Exports of environmental 

goods 

Exports  of  goods  from  "eco-industries"  divided  by  total 
exports of goods (all in nominal values).  

The  notion  of  "eco-industry"  refers  to  sectors  whose 
products  measure,  prevent,  limit,  minimize  or  correct 
environmental damage. The trade codes considered to cover 
eco-industry  goods  are  those  identified  in  the  Ecorys  study 
on  the  “Competitiveness  of  the  EU  eco-industry”  (pages 
190/191) of 22 October 2009, carried out for DG ENTR. 

Source: European Commission (DG ENTR) calculations on 
the basis of Eurostat/COMEXT data.  

Business Environment 

(17 Burden of government 

regulation 

Average  mark  given  by  business  executives  in  a  World 
Economic Forum  survey  to  the  question "How burdensome 
is  it  for  businesses  in  your  country  to  comply  with 

EN 

215 

   EN 

 
 
(18 Legal and regulatory 

framework  

(19 E-government usage by 

enterprises  

governmental  administrative  requirements  (e.g.,  permits, 
regulations,  reporting)?"  (1  =  extremely  burdensome;  7  = 
not burdensome at all) 

Source:  Global  Competitiveness  Report  2008-2009  of  the 
World Economic Forum 

Average  evaluation  (0  =  negative;  10  =  positive)  of  the 
statement "The legal and regulatory framework encourages 
the  competitiveness  of  enterprises"  in  an  IMD  survey  of 
businesspeople. 

Source:  World  Competitiveness  Yearbook  2009,  IMD 
(International Institute for Management Development).  

Share of enterprises using the internet to interact with public 
authorities (i.e. having used the Internet for one or more of 
the following activities: obtaining information, downloading 
forms,  filling-in  web-forms,  full  electronic  case  handling). 
Data  are  expressed  in  %  of  enterprises  with  10  or  more 
persons employed and belonging to the NACE categories D, 
F, G, H, I, K, O. 

Source:  Eurostat  publishing  data  validated  by  Cap  Gemini 
in association with the Member States. 

(20 Infrastructure 

expenditures per 
inhabitant 

Sum  of  investment  and  maintenance  expenditures  on  rail, 
road, 
inland  waterways,  maritime  ports  and  airports 
infrastructure.  

(21 Satisfaction with the 

quality of infrastructure 

(22 Availability of high-
speed broadband 
infrastructure 

(23 Electricity prices for 

medium sized enterprises 

Source: OECD International Transport Forum Statistics. 

Average  mark  given  by  business  executives  in  a  World 
Economic  Forum  survey  to  the  quality  of  rail,  roads,  ports 
and  airports  (1  =  underdeveloped;  7  =  extensive  and 
efficient by international standards). 

Source: Global Competitiveness Report 2008-2009 of the 
World Economic Forum. 

Percentage of broadband lines with speed above 10 MBps 

Source: European Commission, DG INFSO 
Communications Committee Working Document 

Average  national  price  in  Euro  per  kWh  excluding  taxes, 
applicable  for  the  first  semester  of  each  year  for  medium 
size industrial consumers (annual consumption between 500 
and  2000  MWh).  The  indicator  does  not  cover  small 
enterprises  for  reasons  of  data  availability,  nor  large 
enterprises,  since  the  latter  often  have  individual  contracts 
with  energy  providers.  Until  2007  the  prices  refer  to  the 
situation on 1 January. 

Source: Eurostat 

(24 State aid for industry and  The indicator measures state aid for industry and services as 
% of GDP. State aid as defined under article 107 TFEU that 

EN 

216 

   EN 

 
services  

has  been  granted  by  the  Member  States  and  has  been  the 
subject of a final Commission decision, or has been granted 
on  the  basis  of  a  block  exemption  regulation.  Accordingly, 
general measures (e.g. a general tax break for expenditure on 
research  and  development),  and  public  subsidies  that  have 
no  effect  on  trade  and  do  not  distort  or  threaten  to  distort 
competition, are not covered, neither is aid compensating for 
services of general economic interest.  

Source: European Commission, DG COMP State aid 
scoreboard 

Entrepreneurship and SMEs 

(25 Starting a business (days)  Time needed to start a business, recorded in calendar days. It 
is the median duration that incorporation lawyers indicate as 
necessary. It is assumed that the minimum time required for 
each procedure is one day.  

Source: World Bank Doing Business. 

(26 Enterprise survival rate 

after 2 years 

Number  of  enterprises  started  in  year  t  and  which  still 
existed  in  year  (t+2),  divided  by  the  total  number  of 
enterprises that started in year t 

(27 Business churn 

(28 Access to loans: rejected 

applications  

(29 Early stage financing  

Source: Eurostat 

Sum  of  the  number  of  enterprise  starts  and  exits  (“births” 
plus “deaths”) in the reference period (year t), divided by the 
total number of enterprises active in year t. 

Source: Business Demography (Eurostat).  

Survey  response  on  rejected  loan  applications  and  loan 
terms  and  conditions  were  deemed 
offers  whose 
unacceptable  by  the  enterprise,  as  %  of  all  applications  for 
bank loans of SMEs that applied in the past six months  

Source: Flash Eurobarometer 

The indicator measures early stage financing as % of GDP. 
Venture capital investment data are broken down into “early 
stage” (seed and start-up) and “expansion and replacement” 
capital.  Seed  capital  is  defined  as  financing  provided  to 
research,  assess  and  develop  an  initial  concept  before  a 
business  has  reached  the  start-up  phase.  Start-up  is  defined 
as  financing  provided  for  product  development  and  initial 
marketing, manufacturing and sales.  

Source:  Eurostat,  using  data  from  the  European  Private 
Equity and Venture Capital Association (EVCA). 

(30 Duration of payments by 

Effective payment duration in days. 

public authorities 

Source: European payment Index by Intrum Justitia. 

(31 Share of high-growth 

Enterprises  with  average  annualised  growth  greater  than 

EN 

217 

   EN 

 
enterprises 

4.2.3.  MICREF 

20% in the number of employees, over a three-year period, 
and  with  ten  or  more  employees  at  the  beginning  of  the 
observation  period,  divided  by  the  total  number  of  active 
enterprises at the beginning of the three year period. 

Source : Eurostat 

Graph  VI  is  based  on  data  from  MICREF.  MICREF  is  a  data-base  the  Commission  has 
developed  to  provide  a  systematic  record  of  the  actual  implementation  of  microeconomic 
reform measures in the EU. MICREF covers microeconomic reform measures in the 27 EU 
Member States, implemented between 2004 and 2009 (EU-15: 2000-2009). The database also 
provides  information  on  the  design  and  scope  of  reforms  undertaken.  The  following  table 
gives the original data used for the construction of Graph VI. 

Improving the 
(small) 
business 
environment

R&D and 
Innovation

21%
16%
16%
18%
17%
31%
29%
27%
28%
19%

12%
16%
17%
20%
24%
24%
32%
26%
36%
48%

Start-up 
conditions
4%
7%
6%
5%
9%
13%
8%
5%
7%
3%

Year Education
4%
2000
2%
2001
7%
2002
8%
2003
9%
2004
13%
2005
12%
2006
16%
2007
11%
2008
8%
2009

Competition 
policy

Sector specific 
regulation

Market 
integration

4%
7%
10%
7%
7%
2%
3%
2%
5%
3%

50%
43%
39%
35%
24%
15%
12%
18%
11%
15%

5%
9%
6%
7%
10%
2%
5%
6%
2%
6%  

4.2.4. 

Indicators graphs in the country chapters 

The graphs present, for each indicator, the distance of the respective Member State from the 
EU average. This distance is expressed in terms of standard deviations, which is a common 
measure of the spread of observations in a distribution (in this case, a measure of the variation 
of  Member  State  performance  around  the  EU  average).  This  enhances  the  comparability  of 
the  presentation  of  indicators  with  different  measurement  units  and  distributions  across 
Member States. 

The  data  are  presented  in  the  country  graphs  in  such  a  way  that  a  bar  pointing  to  the  right 
always indicates a positive performance. Likewise, a bar pointing to the left always indicates 
a performance below average. This is straightforward for indicators, e.g. labour productivity, 
where  high  values  are  strived  for.  However,  for  those  indicators  where  low  values  are  the 
objective, e.g. generation of waste, the data bars in the graph have been converted so that a 
positive deviation from the average (bar pointing to the right) represents a lower generation of 
waste  than  the  average.  These  conversions  enable  an  easy  reading  of  the  country  profiles, 
since all bars presenting positive values in the country profile suggest a level of performance 
of  the  respective  Member  State  which  is  better than the EU  average  and  all bars  presenting 
negative values suggest a level of performance of the respective Member State which is below 
EU average.  

The indicators for which such conversions have been carried out are: (1) energy intensity in 
industry in kg of oil equivalent per euro of gross value-added at constant prices; (2) carbon 

EN 

218 

   EN 

 
intensity per ton of oil equivalent of energy consumption; (3) waste generated by enterprises; 
(4)  state  aid  for  industry  and  services  as  %  of  GDP;  (5)  electricity  prices  for  medium  size 
enterprises, (6) time required to start a business; (7) rejected loan applications, and loan offers 
whose  conditions  were  deemed  unacceptable,  as  %  of  all  loan  applications;  (8)  duration  of 
payments by public authorities. 

The  indicators  presented  in  the  above  table  (under  1.2)  for  which  the  distance  from  the  EU 
average would not be meaningful (exchange rates and trade balances) are quoted in the text. 

The EU averages used to show the respective standard deviations in the country profiles are 
the  values  for  the  EU  as  a  whole  and,  hence,  weighted  averages  of  Member  States 
performance.  For  the  following  nine  indicators,  however,  unweighted  arithmetic  averages 
have  been  used  due  to  missing  EU  totals:  share  of  science  and  technology  graduates, 
satisfaction  with  quality  of  infrastructure,  legal  and  regulatory  framework,  time  required  to 
start  a  business,  enterprise  survival  rate,  business  churn,  early  stage  financing,  duration  of 
payments by public authorities, and share of high-growth enterprises as % of all enterprises. 

4.2.5.  Methodological remarks to the introductory sections of the country chapters 

The introductory section of the country chapters refers inter alia to three different taxonomies 
to analyse the sectoral structure of an economy: the sectoral structure by (1) skill intensity, (2) 
technology  intensity  and  (3)  growth  intensity.  While  the  first  two  concentrate  on 
manufacturing  only  [based  on  the  two  digit  NACE  Rev  1  classification  (31  manufacturing 
sectors) and the OECD Stan database (22 manufacturing sectors)], the last one covers all of 
the economy and is based on sections of NACE Rev 1 classification (29 sectors).  

All  three  taxonomies  use  as  a  starting  point  the  sectoral  structure  of  value  added.  The  text 
concentrates on the specialisation of a given country on a specific group of sectors, e.g. the 
share of value added of its high skill sectors relative to the share of high skill sectors in the 
EU in total. It is, thus, important to note that an increasing or decreasing specialisation does 
not  necessarily  imply  a  major  impact  on  the  economy  as  a  whole  as  some  sub-groups  are 
rather small, in particular the group of sectors with negative growth in the EU. 

For  an  in-depth  presentation  and  more  sources,  see  European  Commission  (2009),  EU 
Industrial  Structure  2009  –  Performance  and  Competitiveness,  pp  64-72,  at: 
http://ec.europa.eu/enterprise/newsroom/cf/itemshortdetail.cfm?item_id=3934.  The  analysis 
in the country chapters uses updated data for 1997 and 2007. 

4.2.5.1.  Taxonomy by labour skill intensity 

This taxonomy classifies sectors in four different groups according to the educational 
attainment of the workforce of the sector: 

High skill sectors had a share of 42.6% in EU value added in 2007, up from 41.2% in 
1997.  They  comprise:  Mineral  oil  refining;  coke  and  nuclear  fuel;  chemicals; 
office  machinery;  electronic  valves  and  tubes;  telecommunication  equipment; 
radio and television receivers. 

High-intermediate skill sectors had a share of 15.2% in EU value added in 2007, up 
from  14.9%  in  1997.  They  comprise:  Scientific  instruments;  other  instruments; 

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other transport equipment; building and repairing of ships and boats; aircraft and 
spacecraft; railroad equipment and transport equipment not elsewhere classified.  

Low-intermediate skill sectors had a share of 26.5% in EU value added in 2007, after 
26.6% in 1997. They comprise: Wood and products of wood and cork; pulp, paper 
and paper products, printing and publishing; fabricated metal products; machinery 
and  equipment  n.e.c.;  insulated  wire;  other  electrical  machinery  and  apparatus 
n.e.c. 

Low skill sectors had a share of 15.7% in EU value added in 2007, down from 17.2% 
in  1997.  They  comprise:  Food,  drink  and  tobacco;  textiles,  clothing,  leather  and 
footwear; rubber and plastics; non-metallic mineral products; basic metals; motor 
vehicles; furniture; miscellaneous manufacturing; recycling. 

4.2.5.2.  Taxonomy by technology intensity 

This taxonomy was developed by the OECD and classifies sectors in four different 
groups depending on their R&D intensity: 

High-technology  sectors  had  a  share  of  9.5%  in  EU  value  added  in  2007,  up  from 
8.5% in 1997. They comprise: Pharmaceuticals; office, accounting and computing 
machinery;  radio,  television  and  communication  equipment;  medical,  precision 
and optical instruments; aircraft and spacecraft. 

Medium high-technology sectors had a share of 35.7% in EU value added in 2007, up 
from  32.2%  in  1997.  They  comprise:  Chemicals  excluding  pharmaceuticals; 
machinery and equipment n.e.c.; electrical machinery and apparatus n.e.c.; motor 
vehicles, trailers and semi-trailers; railway and transport equipment n.e.c. 

Medium  low-technology  sectors  had  a  share  of  29.6%  in  EU  value  added  in  2007, 
down from 30.5% in 1997. They comprise: Coke, refined petroleum products and 
nuclear  fuel;  rubber  and  plastic  products;  other  non-metallic  mineral  products; 
basic metals; fabricated metal products; building and repairing of ships and boats. 

Low-technology sectors had a share of 25.2% in EU value added in 2007, down from 
28.8%  in  1997.  They  comprise:  Food  products,  beverages  and  tobacco;  textiles, 
textile products, leather and footwear; wood and products of wood and cork; pulp, 
paper, paper products, printing and publishing; manufacturing n.e.c.; recycling. 

4.2.5.3.  Taxonomy by growth intensity 

This taxonomy classifies sectors in five different groups depending on their average 
annual growth rate in the EU from 1995 to 2007. Hence, they are not referring to the 
growth performance of the sector in question in each Member State which may have 
been  higher  or  lower.  Contrary  to  the  other  taxonomies,  this  grouping  also  covers 
service sectors. 

High  growth  sectors  with  an  average  annual  EU  growth  rate  from  1995  to  2007 
between 3.4 and 6.5%. They had a share of 38.8% in EU value added in 2007, up 
from 35.3% in 1995, and comprise: Real estate and business activities; financial 
intermediation;  transport  and  communication;  chemicals;  electrical  and  optical 
equipment. 

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Medium-high  growth  sectors  with  an  average  annual  EU  growth  rate  from  1995  to 
2007  between  2.5  and  3.0%.  They  had  a  share  of  18.3%  in  EU  value  added  in 
2007, down from 19.5% in 1995, and comprise: Machinery n.e.c.; wholesale and 
retail  trade;  basic  metals  and  metal  products;  rubber  and  plastics;  transport 
equipment. 

Medium-low  growth  sectors  with  an  average  annual  EU  growth  rate  from  1995  to 
2007 between 1.5 and 2.3%. They had a share of 17% in EU value added in 2007, 
up  from  16.7%  in  1995,  and  comprise:  Pulp,  paper  and  publishing;  activities  of 
households; other manufacturing; non-metallic mineral products; health and social 
work; other services; hotels and restaurants. 

Low  growth  sectors  with  an  average  annual  EU  growth  rate  from  1995  to  2007 
between  0.4  and  1.4%.  They  had  a  share  of  24.3%  in  EU  value  added  in  2007, 
down from 26.2% in 1995, and comprise: Refined petroleum; electricity, gas and 
water  supply;  agriculture  and  forestry;  public  administration;  education;  food, 
drinks and tobacco; construction; wood and wood products. 

Negative growth sectors with an average annual EU growth rate from 1995 to 2007 
between  -3.9  and  -1.2%.  They  had  a  share  of  1.6%  in  EU  value  added  in  2007, 
down  from  2.2%  in  1995,  and  comprise:  Mining  and  quarrying;  leather  and 
footwear; fishing; textiles and clothing. 

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