Mayer Brown, London, UK
Central European Investment Forum
Ladies and Gentlemen,
Many thanks for the invitation to open your conference today with a few remarks. Congratulations on your impressive list of prominent speakers. And congratulations also on your ambitious choice of topic – innovation.
Innovation is indeed a key question for the economies of Central Europe, as they want to grow and progress to the next stage of their development.
Innovation addresses the challenge that Albert Einstein put so succinctly, when he said: “If you always do what you always did, you will always get what you always got.”
Your conference today is both very timely and very urgent – timely because innovation is the next big step for the countries of Central Europe as their economies advance, and urgent because progress is needed to keep up with an increasingly competitive global economic environment.
To understand where the countries of Central Europe stand, allow me to look back briefly to where we began.
Today, 30 years after the fall of communism, countries in Central Europe are almost fully integrated in the global economy.
This is a tremendous achievement: those state-owned, inefficient, wasteful and heavily polluting economies have been replaced by private sector-based market economies with relatively slim and efficient production processes in the global value chain.
This is not to say that there are no legacy issues – which may differ from country to country – and that there are no new challenges, which need to be addressed. But broadly speaking the direction of travel is correct.
This is illustrated by the growth figures: after a strong performance in Central Europe and the Baltic states of 4.7 per cent growth in 2018, we again expect a robust increase in output by 3.8 per cent this year. For instance, strong domestic demand in Poland has made it the largest economy in the region, less dependent on exports. The financial sector is again able to support the real economy.
The time has come for the economies in the region to move to the next frontier. For this, innovation is indispensable.
Why? Because innovation is a key driver of productivity growth, which in turn is the engine of economic development. It creates value which is then translated into prosperity. Innovation is driven by human ingenuity, the quest for new solutions and the thirst for explorations. Innovation is knowledge put into practice.
Innovation is also hard work. Thomas Edison famously said that genius was “one per cent inspiration and 99 per cent perspiration”.
And innovation needs a lot of funding.
This is where the countries of Central Europe are still lagging behind. According to Eurostat, the regions with the highest R&D intensity in the EU today are located in Germany, Austria and the United Kingdom. No Central European country meets the EU target of 3 per cent GDP spending on R&D – note that Slovenia was the relatively best performer with 1.9 per cent, in 2017.
This lack of funding may explain why only a small number of innovations in Central Europe are new to international markets. Instead, most innovative activities involve the adoption of existing technologies from abroad.
In the long run this is not enough. Economies in this region need to scale up their ability to produce innovation that is new to the world. The EBRD can play a key role in addressing this challenge. In 2014, we launched our Knowledge Economy Initiative to boost productivity and competitiveness through investment and policy reform.
This EBRD initiative aims to: 1) improve the business environment to innovate, including through technology and skills transfer, 2) build information and communication infrastructure 3) support the ability of traditional industries to innovate; and 4) help to ensure access to finance, including venture capital or crowd-funding.
One example is our €100 million Venture Capital Investment Programme, dedicated to direct equity investments in early and growth-stage technology companies.
We also have commitments to 15 venture capital and technology funds with an aggregate EBRD financial commitment of €250 million. The total capital raised by those funds amounts to around €920 million. As of mid-2018 those funds had invested about €500 million into some 170 companies in the Central Europe region.
The most exciting example has been the extraordinary success of the Romanian technology company UiPath. In 2015 it had less than US$ 1 million in revenue. Two years later it had revenues in excess of US$ 100 million and was valued at US$ 3 billion. On 30 April this year, UiPath confirmed that it had closed a fourth round of financing with US$ 568 million, at a post-money valuation of US$ 7 billion.
And what, you will ask, does UiPath actually do? Founded by two Romanians, today it is a global software company that develops a platform for robotic process automation. While the whole world talks about the Fintech revolution for which the Baltics have become so well-known , the example of UiPath in Romania shows that there are many more successful and highly innovative companies in Central Europe.
At the EBRD we want to drive forward a process that allows the countries and people of the region to develop, expand and benefit from this potential. Google and WhatsApp are two examples of world market leaders – their talent was born in EBRD countries. Our goal is to celebrate the global success that comes out of Pardubice rather than out of Palo Alto.
But a supportive environment for innovation is critical. To measure the situation more precisely we have developed the EBRD Knowledge Economy Index. It compares: (i) institutions for innovation, (ii) skills for innovation, (iii) the innovation system and (iv) the ICT infrastructure.
In the EBRD region, the best performing countries for Knowledge Economy are Estonia, Slovenia and Lithuania. The country that has made the greatest progress in creating a knowledge economy in recent years is Serbia.
The index shows that Central European countries have relatively favourable institutions for innovation and ICT infrastructure. However, the skills for innovation and the efficiency of innovation systems remain significantly behind the best global innovators.
As you can see, there is a lot to be done and a lot to be discussed today. Your four thematic panels about infrastructure; the real economy, energy and electromobility; software, artificial intelligence and digital; and foreign investors could not have been chosen better.
Before the 2008 global financial crisis, it was fashionable to call the Central European economies “tiger economies”. The tiger was severely wounded by the crisis, but the way it has overcome the challenges has demonstrated the countries’ resilience. Today, it may be time to talk about the “phoenix economies”. They have risen again. In order to fly, they need nothing more than innovation.
I wish you a successful event today and thank you for your attention. Many thanks!