Innovation development is a priority policy in all member countries of the Eurasian Economic Union (EAEU). The EAEU members often host different international conferences, business forums and other events devoted to the popularization of innovations and new technologies. Countries implement programs and special policies, supported by experts of international development and financial institutions. Moreover, they permanently announce new technology development initiatives in order to attract private investment, foreign talents, and affiliates of multinational corporations. Therefore, it is important to review and analyze basic innovation achievements of the EAEU members.
The following Figure 1 shows rankings of the EAEU countries based on the Global Innovation Index (GII). The rankings demonstrate existing gaps in innovation development within the union. Russia is a leading regional innovator, while Kyrgyzstan lacks technological development. Russia is the only country in the region, which improved its ranking for the considered period. If in 2009-2010 period it had 64th position out of 132 countries, in 2019 it improved and was 46th out of 129 countries (48th out of 141 countries in 2015). Armenia and Kyrgyzstan also made a progress in 2019 compared with the 2009-2010 period, while indicators of Belarus and Kazakhstan worsened. It should be noted that the Global Innovation Index consists of different factors, including institutions, human capital and research, infrastructure, market and business sophistication. All of these input indicators are important and affect the results of innovation policies of the countries. However, the basic one, which has direct and significant impact on innovations, is human capital and research indicator (Figure 2), by which Russia and Belarus are obvious leaders, despite position of Belarus insignificantly worsened. Kazakhstan and Kyrgyzstan have approximately same positions. However, Kyrgyzstan overtook Kazakhstan in 2019. Ranking of Armenia remains far behind its Eurasian partners. One of the basic sub indicators of this factor is expenditure on education, by which in 2019 Kazakhstan ranked 105th, which was obviously its weakness, while resource-poor Kyrgyzstan ranked 9th out of 129 countries. Expenditure on research and development (Figure 3) also significantly affects technological and innovation potential of the countries.
Despite announced priority of innovation activity support almost in all countries, the sector remains underfinanced. Within the union gaps are significant. Russia is the EAEU’s leader with expenditure equaled 1.1% of gross domestic product (GDP) in 2017, which insignificantly exceeded its indicator in 2000. Belarus follows Russia and its 2017 expenditure was 0.6% of GDP. Data shows that expenditure in Belarus was lower than its initial 0.7% in 2000 and interim 1% in 2007. Financing of innovation has no changes in Armenia, and its indicator remains constant and equals 0.2%. Expenditure on innovation development in Kazakhstan and Kyrgyzstan remains the same. Indicator of both countries was 0.1% in 2000, increased to 0.2% in 2007 and decreased to 0.1% in 2017. These countries have the lowest positions in the union. Therefore, Kazakhstan, despite its state programs, including State program of industrial and innovation development, Digital Kazakhstan, Startup Kazakhstan and others and having more resources than all its EAEU partners (excluding Russia) pays insufficient attention to financing issues.
In terms of financing innovations and new technologies, all EAEU members are far behind the global leaders. In 2017, research and development expenditures in Israel and Korea were 4.5% and 4.6% of GDP, respectively. Israel initially had higher values equaled 3.9% in 2000 and 4.4% in 2007, while in the same period Korea’s indicators were 2.2% and 3%, respectively. Support from both public and private sector and rise of giant technological corporations allowed Korea to become one of the global innovation leaders.
In order to increase innovation potential of the union, the EAEU implements joint policy, in particular the EAEU 2025 Digital Agenda [Eurasian Economic Commission, 2017]. The Digital Agenda aims to achieve sustainable economic growth by creation of favorable conditions and accelerated development of innovations, formation of new industries and markets, and improvement of competitiveness of the EAEU economies. The basic directions of the agenda include digital transformation of the main economic sectors and markets (goods, services, capital and labor), management and integration processes, and development of digital infrastructure. It is expected that by 2025, implementation of the agenda will increase GDP of the EAEU by 11%, which is two times higher than digital development of the EAEU members without common agenda. However, the Digital Agenda does not have any certain information about financing of the innovation projects, which is a main problem as private sector has low interest to finance innovations and the region lacks developed venture funds. This issue is important as countries have different levels of economic development, and in many cases cannot afford themselves to finance projects with good potential. Lack of finance, which is also a problem at the country level, is the weakness of the agenda.
To date, only Belarus demonstrates success of its innovation and technological policy, mainly represented by the Hi-Tech Park, located in its capital Minsk. According to Razumovskaya (2016) education and high qualification of people together with work culture and ethic foster innovation in the park. The Hi-Tech Park is famous for its globally recognized companies and products. Astrasheuskaya (2019) notes that market value of the Epam Systems Inc., a global provider of software engineering and IT expertise is more than $11 billion. Agricultural sector of Belarus can benefit from agro-tech company OneSoil, which helps 127 thousand farmers worldwide. The Game Stream company is famous for its popular videogame “World of Tanks.” Global technological giants such as Facebook and Google interested in and acquired many products developed by companies and startups of Belarus, in particular Viber messenger, selfie app MSQRD and AIMatter photo editing. The Hi-Tech Park not only stopped brain drain from Belarus, but also stimulated to return Belarusians, who left 10-15 years ago. Returned Belarusians contribute to the development of the Hi-Tech Park by their knowledge and experience gained abroad. Moreover, it attracts talents and investment from many countries, including Kazakhstan and Russia. In 2018, export of the Hi-Tech Park services was $1.4 billion. In 2019, it increased by 52% and reached $2.1 billion [BelTA, 2020a]. To date, the number of registered companies in the park is 818 with more than 61 thousand people employed [BelTA, 2020b]. Razumovskaya (2016) adds that Belarus is emerging as the Silicon Valley of Eastern Europe.
Thus, the Eurasian Economic Union has low level of innovation development. There are significant gaps in the level of technological development within the EAEU, and Russia remains a leading regional innovator according to the Global Innovation Index. Policymakers of the union understand the role of innovations and digital transformation, but provide insufficient support in terms of finance. Moreover, expenditure on education remains low and restricts development of talents for the new digital economy. The Digital Agenda of the EAEU also lacks appropriate information regarding finance issues, which makes technological development complicated for resource-poor members of the union. Belarus achieved success in technological development through its Hi-Tech Park, which has a global recognition. Countries of the union should pay attention to this role model. Moreover, they should reconsider the role of education and research in innovation and economic development and solve finance-related problems in these fields. Otherwise, digitalization and innovation development policies can become permanent processes with poor results.
References:
Astrasheuskaya, Nastassia (2019). Funding and stability are key to IT growth in Belarus. Retrieved from https://www.ft.com/content/c2ef3362-0611-11ea-a958-5e9b7282cbd1. Accessed on 23.04.2020.
BelTA (2020a). Pompeo visits Belarus’ Hi-Tech Park. Retrieved from https://eng.belta.by/society/view/pompeo-visits-belarus-hi-tech-park-14-2020/. Accessed on 27.04.2020.
BelTA (2020b). Belarus’ Hi-Tech Park welcomes over 80 new resident companies. Retrieved from https://eng.belta.by/society/view/belarus-hi-tech-park-welcomes-over-80-new-resident-companies-129767-2020/. Accessed 27.04.2020.
Confederation of Indian Industry and INSEAD (2010). The Global Innovation Index 2009-2010. Retrieved from https://www.globalinnovationindex.org/userfiles/file/GII-2009-2010-Report.pdf. Accessed on 24.04.2020.
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Cornell University, INSEAD, and WIPO (2019). The Global Innovation Index 2019: Creating Healthy Lives—the Future of Medical Innovation. Retrieved from https://www.globalinnovationindex.org/userfiles/file/reportpdf/gii-full-report-2019.pdf. Accessed on 24.04.2020.
Eurasian Economic Commission (2017). About Main Directions of the EAEU 2025 Digital Agenda. Retrieved from http://www.eurasiancommission.org/ru/act/dmi/workgroup/Pages/default.aspx. Accessed on 26.02.2020.
Razumovskaya, Olga (2016). Belarus is Emerging as the Silicon Valley of Eastern Europe. Retrieved from https://www.google.com/amp/s/www.wsj.com/amp/articles/belarus-is-emerging-as-the-silicon-valley-of-eastern-europe-1481032802. Accessed on 23.04.2020.
World Bank (2020). Research and development expenditure (% of GDP). Retrieved from http://api.worldbank.org/v2/en/indicator/GB.XPD.RSDV.GD.ZS?downloadformat=excel. Accessed on 25.04.2020.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.