Is Innovation a Turks' Game to Avoid Middle Income Trap?

A. Mete ÇakmakcıGIST Initiative Leadership Circle Working Group Meeting, Kuala Lumpur

February 23rd, 2011

Where is the Brand Equity?

A place of limitless exotic fun?A future mutual partnership?

An economic partner from a safe distance? A curious tease?

The Story : Demographics In 2009, 2,731,878 students were

registered in undergrad university programs. 397,884 graduated from undergrad programs.

28,681 master and 3,744 PhD degrees were awarded.

Source : US Census Bureau, 2010

In 2009, 13,263 Turkish students were enrolled in the US universities, (10,2% increase from 2008 and 8th most populous group)

Many return with business ideas.

Converting High-Tech to Low-Tech

Source : TUSİAD, (2008) “Türkiye Sanayiine Sektörel Bakış”

Source : OECD STI Scoreboard, 2008

Share of high-tech in manufacturing exports from 1992 to 2008 only increased from 1,2 % to 1,7 %. Poland’s increased from 3,7 % to 5,2 %; Brazil’s increased from 5,4 % to 12 %.

Turkey’s exports increased from 14,7 Billion USD in 1992 to 127 Billion USD in 2008. (2008 imports were 202 Billion USD )

x 3,5 increase in TUBİTAK grants to private companies

1416 Million TL in Public R&D Investments

286 Million TL in Public R&D Investments

2002 2003 2004 2005 2006 2007 2008 20090.45

0.55

0.65

0.75

0.85

300

500

700

900R&D Spending (% of GDP)

GDP (Billion TL)

R&

D S

pe

nd

ing

GD

P

Investing in R&D

2002

48%

12%

40%

2009

Source : State Planning Organization, 2010

Cheaper borrowing is trigerring more R&D investments & spending

2010

X 5

in p

rivat

e R&

D

spen

ding

64%

7%

29%

Higher Education

Public Institutions

Private Companies

Promoting Private Sector R&D Law # 4691 on Technology Development Zone and Law # 5746 on R&D Promotion

grants generous tax deductions/exemptions for R&D activities.

28 active TDZs support 1515 firms employing 13,000 R&D staff generating 540 Million USD in exports. (mostly software companies)

76 R&D centers facilitated 1,9 Billion TL in R&D spending by the private sector

Source : OECD STI Scoreboard, 2008

SMEs and Entrepreneurship The National SME Administration was

established in 1990 as a SME support organization, over the years turned into a funding organization.

In 2010 provided 260 Million TL in SME and Enterpreneurship supports as grants, loans and interest subsidies

In 2009 the mandate was expanded to support non-manufacturing SMEs (+1,100,000 enterprises) The Ministry of Industry and Trade is operating a «Techno» Enterprenuership 100 K grant for recent university program graduates. Funding for 2011 is increased to 30 Million TL.

Institutional Capacity Development

Evolving System of Supports

Investment and Infrastructure DevelopmentCritical-Mass Development

1990 2000 2005

The system reached a maturity level for an extensive review of programs and mandates. Develop linkages between S&T policies and other policy domains (regional, industrial etc.)

SMEs

Clusters Entrepreneurship

?TU

BİTA

KRDAs

KOSG

EB

MoI

T

RDAs UFT

MoI

T

RDAs

KOSG

EB

Vertical (fast-track etc.) and horizontal (segmentation) linkages are missing between various programs

Technical & Non-technical Innovation

Source : OECD STI Scoreboard, 2008

Non-technical Innovation Activities

Innovation Activities

For most companies purchasing technology is the innovation activity.

Systemic Linkages

Source : OECD STI Scoreboard, 2008

Firms collaborating on innovation with higher

education institutions by size, 2004-06

Firms collaborating on innovation with government institutions by size, 2004-06

Firms collaborating on innovation activities by size,

2004-06

R&D Human Resources

Source : OECD STI Scoreboard, 2008

Number of FTE Researchers increased from 29,000 in 2002 to 73,500 in 2009.

Global Benchmarking

Source : www.worldbank.org/kam

European Benchmarking EU-27 Turkey Spain Poland

Life-long Learning 9,7 1,5 10,4 5,1

Pubic R&D Expenditures 0,65 0,37 0,55 0,38

Private Credit 1,31 0,29 1,83 0,4

Non-R&D Innovation Expenses 1,03 0,16 0,49 1,03

Public-private Co-Publications 31,4 0,3 10,6 1,3

EPO Patents 105,7 1 29,3 3

Technology Balance of Payments Flows 1,07 0,12 0,28 0,4

SMEs introducing product or process innovations 33,7 29,5 29,5 20,4

SMESs introducing marketing or organizational innovations 40 50,3 29,5 29,1

Employment in Medium-high & High-tech Manufacturing 6,69 3,6 4,47 5,5

Employment in knowledge-intensive services 14,51 5,53 14,22 10,33

Medium-tech and high-tech manufacturing exports 48,1 38 52,3 48,9

Knowledge-intensive Services Exports 48,7 12,9 27,9

New-to-market sales 8,6 4,65 7,37 4,56

New-to-firm sales 6,28 11,17 8,48 5,55

Source : European Innovation Scoreboard 2008

Knowledge Regions

Lessons Learned Top political ownership is essential; but does not guarantee good program practice

(many «me too» programs)

Program development should focus on «what should be done»; not «what can be done» (Law #4691 and Law #5746)

More funding does not guarantee better projects («less with more» vs «more with less»)

Programs should be alligned with the interests of the market players (i.e. focus on creating value, rather than «safe» accounting)

More projects means more refereeing for professors. Should be careful not to distract research focus.

Evaluation should be part of the support cycle, not «archeology» (hard to track money afterwards)

System should be open, accountable and flexible to accommodate program agencies (facilitate «innovation» in the system)

About TTGV

TTGViVCi

“Istanbul Venture Capital Initiative”Turkey’s first and only dedicated fund of funds

Teknoloji Yatırım A.Ş.Early Stage Technology Focus

Investment Vehicle

İş Girişim A.Ş.

TURKVEN TPEF-1

Technology Development FundingSoft-Loan to Private Company’s Technology Development and

Commercialization Projects

Environment and Energy Projects Funding

Soft-Loans to Private Company Energy Efficiency, Clean Production and Renewable Energy Projects

Demand Side Capacity Projects Supply Side Studies

Shareholder

Investor

Shareholder

Program Management AgencyCo-finance Provider

Sponsor

Facilitator

Finance Provider

TTGV is foundation co-established by government agencies, Turkish blue chips,umbrella organisations.

Türkiye Teknoloji Geliştirme VakfıCyberpark, Cyberplaza B-Blok Kat : 6

Bilkent 06800, Ankara

www.ttgv.org.tr