information report the innovation policies of … (mpcs). the barcelona euro-mediterranean...

CES 396/2000 fin FR-IT/SG/CAT/hm

REX/034 Innovation policies of SMEs

and the craft sector (6th Euromed summit)

Brussels, 16 August 2000

INFORMATION REPORT

of the

Section for External Relations

on

The innovation policies of SMEs and the craft sector

(6th Euromed Summit)

_____________

Rapporteur: Mr Pezzini

_____________

- 1 -

CES 396/2000 fin FR-IT/SG/CAT/hm …/…

Procedure On 27 January 2000 the Economic and Social Committee, acting under Rule 26 of its Rules of Procedure, decided to instruct the Section for External Relations to draw up an information report on The innovation policies of SMEs and the craft sector (6th Euromed Summit). The preparatory work was carried out by the following members and experts working for the rapporteur and groups:

President Mr Andrade - I

Rapporteur Mr Pezzini - III

Members Mr Bernabei - I

Mr Briesch - II

Ms Cassina - II

Mr Ehnmark - II

Mr Giron (Rule 54 for Mr de Paul de Barchifontaine ) - III

Ms Lopez Almendariz - I

Mr Nilsson - III

Experts Mr Domenico Mauriello (for the rapporteur)

Mr Daniel Guiraud (for Group I)

Mr Embarek Kari (for Group III) The study group met three times:

− 22 March 2000

− 4 May 2000

− 30 May 2000. The section adopted the information report on 5 July 2000 by a majority with one vote against.

1. General introduction The fifth Euro-Mediterranean summit of economic and social councils and similar institutions, which was held in Antalya on 4 and 5 November 1999, decided that one of the reports to be presented at the following summit (to be held in Italy during the second half of 2000) should

- 2 -


consider "innovation policies in SMEs and craft industries, from the angle of sustainable development, financing and access to training". The Economic and Social Committee has drawn up this report in cooperation with the Moroccan National Committee for Youth and the Future (CNJA), the Italian National Economic and Labour Council (CNEL), the Malta Council for Economic Development (MCED) and representatives of the Turkish economic and social sector.

2. Introduction: the development of relations between the European Union and the Mediterranean partner countries

2.1 The European Union's current policy towards the Mediterranean countries was launched at the Corfu European Council in June 1994. On 18 October 1994, the Commission tabled the

Euro-Mediterranean partnership1 idea, with the aim of providing the majority of the neighbouring countries in the Mediterranean area with assistance and enabling them to become part of a free trade area by 2010. The concept underpinning the partnership was adopted by the Essen European Council (9 and 10 December 1994). The Cannes European Council (June 1995) earmarked nearly 5 billion ecus for aid for the partnership countries. Euro-Mediterranean cooperation was from then on developed through the MEDA Programme. 2.2 In 1995, the EU began signing association agreements with the Mediterranean partner countries (MPCs). The Barcelona Euro-Mediterranean conference (27-28 November 1995) between the EU Member States and the 12 Mediterranean countries (Algeria, Morocco, Tunisia, Egypt, Israel, Jordan, Lebanon, the Palestinian territories, Syria, Turkey, Cyprus and Malta) was a key moment in the cementing of relations; it strengthened the previously established objectives of the partnership and

generated a declaration and a work programme2. 2.3 This process promises clear benefits for economic systems both north and south of the Mediterranean; but a number of key factors must also be borne in mind. There are growing question marks and concerns, at both economic and cultural level, surrounding the creation of a free trade area and the fact that it will make the MPCs more open to European and world competition. Though there are distinctions to be drawn at sectoral level, primarily between high-tech and low-tech business activities, one key to the growth of the MPC economies appears to be innovation (in production and distribution processes, and product ranges, etc.) and the development of new business systems.

1 Strengthening the Mediterranean Policy of the European Union: Establishing a Euro- Mediterranean Partnership .

COM(94) 427 final (8 March 1995).

2 "Results of the Barcelona Euro-Mediterranean Conference: Texts I & II", EUROPE documents Nos. 1974 (9 February

1996) and 1975 (14 February 1996)

- 3 -


3. An outline of the MEDA programme and its various facets 3.1 Overall EU aid to the Mediterranean countries rose sharply following the Barcelona

conference3. Commitments rose from approximately EUR 400 million in 1986 to more than a billion euros from 1996 onwards. Total spending commitments for the Mediterranean and Middle Eastern areas for the period 1986 to 1998 amounted to a little under EUR 10 billion, with actual expenditure of 6.9 billion (Table 1). Egypt was the principal beneficiary of the resources allocated (25%), directed mainly towards infrastructure and services from 1996 onwards, and other production sectors in 1998 (industrial modernisation programme designed to support Egyptian SMEs by means of specialised technical assistance services). However, the main beneficiaries in terms of assistance per capita were Tunisia and Jordan. At sectoral level, it should be noted that 56% of aid was earmarked for infrastructure projects in the social (education, health, etc.) and service (transport, credit, etc.) areas. 3.2 However, actual expenditure as a percentage of commitments was low, only reaching 70% overall, having dipped to around 50% in 1996. The northern Mediterranean countries (Turkey, Malta and Cyprus) recorded a much higher level of expenditure (85.6%) than the other MPCs (67.8%). Consideration should, however, also be given to the difficulties encountered by the MPCs in absorbing the resources allocated to them. These were particularly apparent in technical difficulties in implementing the initiatives. In this respect, it would be useful to provide manuals and leaflets on the correct use of EU funds and, more specifically, practical examples of SME support instruments and the procedures for setting them up in the various countries. 3.3 The MEDA programme was the EU's principal financial instrument for the implementation of the Euro-Mediterranean partnership. MEDA I accounted for 3,424.5 of the 4,685 million euros earmarked for financial cooperation between the EU and the MPCs in the 1995-1999 period. It gradually replaced other forms of EU financial intervention in the Mediterranean area. In October 1999, the Commission approved a new draft MEDA regulation (MEDA II) and passed it on to the Member States for approval. The Committee hopes that the new regulation can be fully approved before the sixth Euro-Mediterranean summit of economic and social councils and similar institutions. 3.4 The MEDA programme financed activities at both national and regional level. The 12 Mediterranean countries mentioned above benefited from local level measures under the MEDA regional indicative programme (RIP) which used 10% of resources. The remaining 90% was allocated to national indicative programmes (NIP), involving just nine partners (Algeria, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia, Turkey, and within the Palestinian territories, the Gaza Strip). The EU Council

3 The figures below relate to all the assistance given to the Mediterranean countries and not just the MEDA programme

budget, although it accounts for the lion's share.

- 4 -


of Ministers adopted a series of general guidelines for the use of the MEDA funds on a bilateral and

regional basis4. Measures under the MEDA Programme cover four main areas:

• support for structural adjustment, to reduce the social impact of economic reform programmes implemented in conjunction with the Bretton Woods institutions and the EU (9% of total commitments);

• economic transition and development of the private sector, to ensure that the private sector, and especially SMEs, can operate in an economically favourable environment and prepare for the advent of the free trade area; this strand financed activities such as technical assistance for privatisation, financial and credit sector reform, modernisation of industrial structures and the establishment of business centres, and accounted for 38% of total commitments;

• strengthening the socio-economic balance, by financing sectoral support programmes and cooperation projects, for instance in the fields of health, education and rural development;

• building up civil society , by financing the activities of non-governmental organisations, and associations, etc.

3.5 The new Mediterranean policy brought in an innovative form of cooperation that looks beyond the context of individual countries and aims to implement measures of regional interest relating to the environment and investment growth. This has led to the launch of a number of programmes to develop networks between countries on both sides of the Mediterranean (MED programmes). Four of the original seven programmes have been frozen or incorporated into other strands. Although the Commission decided, in April 1998, to re-launch decentralised cooperation by means of three programmes: MED URBS (improving living conditions in urban areas and developing cooperation between local authorities), MED MEDIA (developing networks in the media world) and MED

CAMPUS5 (linking EU and MPC universities in order to pool experience and transfer technology and know-how), it is unlikely that these programmes will be re-launched under their original formats. 3.6 The ECIP (European Community Investment Partners) scheme, set up to develop the private sector in the southern and eastern Mediterranean, as well as in Asia, Latin America and

4 Decision 97/706/EC of 6 December 1996, OJ L 325 of 14 December 1996

5 In view of the importance of this programme in the light of the present report, please refer to the mid-term evaluation

report, which provides a critical assessment (SPAN consultants B. V., MED-Campus mid-term evaluation, final report,

November 1994).

- 5 -


southern Africa, deserves special attention. This instrument6 helped EU SMEs identify potential partners for joint ventures, co-financed feasibility studies and pilot projects and shared the cost of related training activities. The updated version, with specific reference to the MPCs (regarding MEDA II), will attempt to achieve greater alignment with other support instruments in the private sector.

3.7 A number of criticisms7 can be made of both planned and completed aid programmes, irrespective of sector or region:

• the projects are ill-defined, often with confused aims;

• responsibilities and roles are unclear;

• not enough consideration is given to the diverse, broader socio-cultural context;

• coordination with other institutions, with other similar initiatives, and even between partners involved in the same cooperation project is limited;

• evaluation and control instruments are lacking, owing partly to the extremely small volume of data available.

3.8 These evaluations have made it possible to highlight a number of procedures which, on the basis of the guidelines mentioned with reference to the RIPs and the NIPs, should facilitate the involvement of the MPCs in formulating measures and policies in line with the partnership approach. Cooperation should therefore include a number of key elements, such as: detailed information on the thrust of the measure and the choice of sector; an indicative budget; the links between regional and bilateral cooperation; the source of additional available financing; a definition of needs and expected results, also referring to evaluation exercises. In general, major efforts are needed in the area of evaluation, drawing from the experience and success stories gathered by the Commission and taking into account elements such as:

• the development of benchmarking activities and the definition of assessment criteria linked to each instrument or programme;

• the impartiality of evaluation, by using independent units to carry out the task; and

• ensuring evaluation reports are completed and properly disseminated.

6 As Council Regulation 213/96 expired on 31 December 1999, the Commission decided on 26 January 2000 not to

approve any new ECIP measures after that date and to manage only those already under way until their completion.

The results of the activities conducted in the two-year period 1998-1999 were assessed in an independent study

published in December 1999 (Independent Appraisal of the EC Investment Partners - ECIP - Financial Instrument,

951482).

7 These criticisms were highlighted in the COWI Consulting Engineers and Planners report, Evaluation of Aspects of EU

Development Aid to the MED Region, Final Synthesis Report, November 1998.

- 6 -


3.9 In the light of these general considerations, there will now follow a detailed examination of the key aspects of the commitment of the EU and Mediterranean partner countries in relation to cooperation on introducing and disseminating new technologies. The document will touch on national and transnational programmes whose common feature is the establishment or strengthening of networks (public and/or private) designed to disseminate innovative practice. Special attention will be given to an assessment of the degree to which the information society has taken root in the MPCs and of its potential role in establishing and implementing networks to promote technological innovation.

4. MPC performance in the field of innovation and R&D 4.1 There are elements of both continuity and discontinuity in the field of science and technology that must be taken into account in any analysis of the resources and performance of the Mediterranean countries. 4.2 The ratio between R&D spending and GDP, though not giving a complete picture of a country's commitment to research or its innovation capacity, is nonetheless one of the most widely-used ways of quantifying degree of innovation and can also be a valid means of analysing MPC performance. A breakdown of national data shows that there are substantial differences between countries. Despite these differences, almost all the countries show clear structural similarities (Israel apart, where the problem seems to be that of matching technological development with local capacity to take advantage of the major research effort). A fragmented production system (little able to exploit advances in science and technology) and an academic world over-burdened (in terms both of human and of financial resources) with instilling basic knowledge make it difficult to achieve the boost in research activity needed to create the critical mass which will spark a virtuous circle of self-sustainable growth. 4.3 There are also shortcomings in the statistics available, and in quantitative data in particular, owing to the lack of priority given to R&D. Turkey provides the most detailed picture, as research there receives special attention from both industry and the State. The R&D to GDP ratio in Turkey rose from 0.2% in 1983 to 0.5% in 1992, though it has had trouble in passing that threshold and moving towards the 1% target. Egypt and Tunisia appear to be progressing at the same pace. In Egypt, the ratio reached 0.5% in 1995, while in Tunisia, the 8th Plan target is to reach 1% during 2000. In Morocco, R&D spending does not seem to be taking off, while in Algeria and Syria, there are considerable problems in measuring the ratio, making it quite unreliable as an indicator. Lastly, Cyprus and Malta are both examples of small economies where R&D at national level is seen as being of secondary importance to participation in transnational research networks and international research centres. (See Table 2)

- 7 -


4.4 When data for the MPCs are compared with OECD country figures8, Israel's strong commitment to R&D stands out. As a percentage of GDP, Israel's R&D spending (2.3%) is higher than that of nearly all the European Union countries (with the exception of Germany, France, Finland and Sweden), and is not far behind the United States and Japan (Table 3). The data for Poland (0.76%) show that the CEECs are generally more committed to innovation than the MPCs. 4.5 Although MPC governments are tending to increase R&D spending, no significant changes have been noted in the number of staff and professionals assigned to those activities, which (notwithstanding the serious lack of available data) seems to have remained static in recent years. The staff employed in research are concentrated predominantly in three countries: Egypt, Turkey and Israel. There are also major differences between these three countries: Israel has double the human resources of Turkey (calculated in full-time equivalents) for a geographical area that is ten times smaller. Israel also has a ratio of 13 R&D staff per 1,000 inhabitants, on a par with European countries such as Germany or France. 4.6 This exceptional case apart, the quota of human resources employed in research in the MPCs is generally 20 or 30 times lower than in the EU. The absence of accurate and up-to-date figures on this matter is a reflection of the threadbare organisation of research activities in the MPCs, in the public sector and private industry alike. A few countries have conducted pilot surveys in this area, following the establishment of new government structures to manage R&D activities (Tunisia) or the revamping of existing institutions (Lebanon). 4.7 In university research and research linked to government departments (often dominated by small research centres and laboratories), there is limited employment in R&D activities, to the extent that on average under 10% of work time is spent on R&D. 4.8 Evaluating individual MPC commitment to R&D activities does not give a full picture of the extent of company innovation efforts however, particularly in the case of SMEs and the craft industry. Firms can in fact introduce innovations without doing (very much) research (and, most importantly, without it being possible to quantify the cost), by implementing gradual innovations through cooperation with clients and suppliers (above all in the case of sub-contracting networks) or even by imitating other companies' products or acquiring external professional expertise. 4.9 Nevertheless, in the industrialised countries, in-house scientific and technological research has become increasingly important for small firms, for at least four reasons. First, almost by definition, technology-intensive SMEs have to invest in research in order to keep their competitive

8 This comparison, which in many cases is based on data for different years, can be considered only to be an illustration

of the varying propensities of the countries in question towards innovation; the calculation methods of the OECD and

the local MPC sources also differ.

- 8 -


edge. Furthermore, when collaboration agreements are drawn up, all parties must possess some valuable scientific and technological asset to make available to their partners. The second point is that in some sectors that traditionally do little research, the investments necessary to develop new products and processes have increased. Third, new applications based on technology and scientific research are constantly emerging even in industries that are not typically high-tech, such as transport, services and, in particular, health. Finally, the increase in (national and EU) legislation on environmental issues and the safety of industrial processes and consumer products is obliging firms to invest ever more in scientific research, in order to meet and maintain the required standards. 4.10 Aside from the problem of developing in-house R&D, mechanisms are needed to underpin the transfer (or in many cases, introduction) of technologies to the MPCs (and the prospects for applying them in different economic and cultural contexts), based on cooperation and/or foreign direct investment, especially of the green-field type. The inefficiency (or in some cases, absence) of national systems to register and recognise patents is, however, an obstacle to the growth of foreign direct investment in the MPCs. The shortcomings of the patent system undermine the introduction of new technologies to the area, not to mention the need to protect the products invented in the MPCs and use those already common in the developed countries. In other words, growth in foreign direct investment appears to have been stunted by a lack of protection for industrial property rights, without which, for instance, foreign multinationals are unlikely to be prepared to transfer their advanced technologies to a new location in an MPC. 4.11 MPC patent legislation varies from one country to another, but in general the guarantees offered are inferior to international standards, both because certain industries or specific products of strategic interest for foreign companies (especially small and medium-sized companies and those operating in high-tech or innovative sectors, such as software and multimedia applications) are not covered and because legal infringements in this area are rarely followed up in court. For instance, Egypt has yet to approve legislation reinforcing patent protection, while Morocco is about to bring in legislation on industrial property this year, simplifying registration procedures (centralising them in Casablanca). 4.12 The local fabric of small and medium-sized companies also seems fragile from a technological point of view, in spite of the fact that the public sector generally appears to be geared up towards promoting research. A series of measures are needed to sow the seeds for growth in real investment (venture capital, development of mutual guarantee companies for SMEs, tax breaks), staff training (improving opportunities for technicians and engineers), and the development of innovative practice within SMEs. At institutional level, universities should be made more aware of their role as the interface between the world of research and the production system, providing training courses based on real scientific and technical requirements, monitored over time. This is precisely where partnerships with EU training and higher education establishments with similar experience can make all the difference.

- 9 -


4.13 The development prospects of the MPCs would seem to depend not so much on their economic starting point as on their capacity (and especially that of their production systems) to carry the cost of the transition and to establish a new balance in the socio-economic system. In this context, the role of the EU and economic, technical and financial cooperation is crucial. The first step - with the agreement of the MPCs - should be the establishment of monitoring tools, not only on a strictly macroeconomic level (income, employment, etc.) but also based on an analysis of prospects for growth in terms of education and training, research and development and technological innovation. 4.14 When devising support measures, the EU should pay careful attention to the specific innovation requirements of small business and the craft sector in the MPCs. These requirements are linked to the characteristics of SMEs in those countries, which in most cases operate in "traditional" sectors (textiles, food etc.) but still have high potential for innovation. If, however, future European R&D support policies concentrate too intensively on high-technology and basic research start-ups, there is a clear risk that the strongest strand of MPC business will be left out of the technological development cycle. 4.15 An improvement in "background factors", and in the legal and administrative framework, will generate increasingly fertile ground for both foreign and internal investment. As regards foreign investment, it is obvious that the introduction of technology and the transfer of know-how from the EU countries, facilitated in part by MPC access to the information society and the creation of "virtual networks" between (public and private) organisations involved in research on the northern and southern sides of the Mediterranean, could have a multiplier effect. This process should be facilitated by the Eureka project, which was set up for SMEs and is designed to harmonise standards under CEN-CENELEC ETSI.

5. Examples of success in promoting innovative practices in SMEs and the craft industry 5.1 One example of the EU's commitment to promoting Euro-Mediterranean cooperation

is demonstrated by the establishment of a Working Group on Industrial Cooperation9, which has identified four priority areas for regional programmes to be financed by MEDA.

9 This working group (set up in 1999 by merging the two working groups established in 1997 following the "Barcelona

Declaration on EU-MED Industrial Cooperation" is made up of representatives of the industry ministries in the Euro-

Mediterranean area. It meets twice a year to pinpoint priorities for action in the field of industry. In this way it

provides the Commission with useful information to enable it to set up (and then monitor) regional programmes.

- 10 -


The four areas are: investment, innovation and quality, Euromed market instruments and mechanisms, and SME development. Under the "Innovation and quality" priority area, the Working Group has set up a regional programme, with two components:

• the first is entitled "Innovation at the service of businesses", and includes actions for promoting and upgrading sectoral technical centres and innovation centres in the Mediterranean countries, the creation of a Euro-Mediterranean network of technical and innovation centres, awareness-raising for businesses through the transfer of good practice, and specific actions to enable technical and innovation centres to forge links with laboratories, research centres, and EU and MPC technology centres;

• the second is entitled "Quality", and its aim will be to launch a number of information and training measures at regional level, in the fields of standardisation, certification, quality of industrial products and measurement methods. Special emphasis will be given to networking between administrative units responsible for promoting quality in the Mediterranean countries and their connection with the Euro-Mediterranean network of technical and innovation centres.

Although the EU is clearly committed to identifying best practice in the field of research and technological innovation for the benefit of Mediterranean SMEs, recognising best practice in MPC R&D initiatives is no easy task, in view of the limited volume of information collected for public use. 5.2 The exception is Israel, where the commitment to research and, above all, experience from international cooperation have always been the cornerstone of development policy. For instance, the last decade has seen growth in high-tech companies, supported by industrial policy measures geared towards internal development (venture capital, etc.). The government set up a public company (yozma), which in turn opened venture capital firms and granted incentives to private investors. Measures of this kind strengthened the influx of capital and venture capital into Israeli high-tech industries, making the sector attractive to investors as early as the beginning of the 1990s. Currently, technological changes in the communications, software, Internet and multimedia tools sector are bringing new resources to the country's high-tech electronics industry.

5.3 Technological development is also the priority of the TDP (Technology Development Programme), launched in 1993 by the Egyptian government's Cabinet's Information and Decision Support Centre. The main objective of the TDP is to implement an integrated strategy for the development of high-tech companies, SMEs in particular, by removing the main barriers experienced by entrepreneurs (in terms of finance, information services, training and technical assistance), linking the private sector and the government bodies responsible for the domain, identifying important pilot projects, linking up with national and international research bodies and promoting private investment in the sector. One of the projects promoted under the TDP relates to the organisation of the Business

- 11 -


Technology Incubation Centre, which drew on the best practice developed by similar bodies already up and running in the European Union (providing services such as assistance with launching pilot projects, choosing a location, and finding sources of financing). It focuses on traditional sectors of the Egyptian economy (such as textiles, artistic craft work - carpets, ceramics, etc. - and pharmaceuticals) which need the most support (financial, organisational, commercial, etc.) to meet the challenge of innovation at global level. 5.4 European Commission programmes have also scored successes in transferring know-how and innovation. In the present document, reference will be made to a number of projects set up

under ECOS-Overture10 in areas that are critical for the sustainable development of the MPCs (such as the environment, water, energy, and health).

5.5 These include the MED-Cartesio11 programme, whose objective is to protect the environment through the efficient management of solid urban waste. The project facilitates the transfer of know-how from EU countries with particular experience to the MPCs, through training activities for technicians and government officials specifically responsible for the environment.

5.6 A project of more immediate interest to SMEs, however, is "Look - local is OK"12, which aims to provide tourists visiting the project areas with a real understanding and experience of local traditions, through products and services provided by networks of SMEs. As a result, the benefits of the project are felt not only by tourism SMEs, but by the entire local business fabric (craft, food, fisheries, etc.).

5.7 The MEDI-VAL project13 is another regional development project, aimed at developing cultural tourism and economic activities to regenerate urban areas, and at disseminating the use of information technologies for managing sites of historic or artistic interest. The project's central objective is the creation of an information database and a handbook for monitoring and promoting economic activities in historic city centres, to enable users/visitors to go on a virtual tour of the districts

10

ECOS-Ouverture is a European Commission programme that promotes cooperation between regions and cities of the

EU and the partner countries of central and eastern Europe and the Mediterranean. Activities are co-financed by the

EU's European Regional Development Fund (ERDF) and the PHARE programme.

11 The project leader is the municipality of Turin (Italy); the EU partners are the Oporto region (Portugal) and Crete

(Greece) and the Mediterranean partners are the municipalities of Fez (Morocco) and Tunis (Tunisia).

12 This project is led by the Tampere region (Finland), and includes the prefecture of Lassithi (Greece) and the Swedish

districts of Årjang and Säffle on the EU side and the municipalities of Larnaca (Cyprus) and Tripoli (Lebanon) on the

MPC side.

13 The municipality of Kalamata (Greece) is the project leader. The EU partners include two more Greek municipalities

(Kozani and Livadia) and County Clare (Ireland); the MED partner is the municipality of Foca (Turkey).

- 12 -


involved in the project. Finally, a strong emphasis is placed on the need for public and private bodies to cooperate, as this is essential for marketing initiatives, the introduction of new technologies and, as a final spin-off, the establishment and development of businesses, SMEs in particula r.

5.8 The FORTI project (for training and self-employed work) was set up as part of technical cooperation between Tunisia and Germany and focuses on developing SMEs (craft industry included) using national financing alone. FORTI was the fruit of Tunisia's ninth social and economic development plan, which concentrates on the role of SMEs in economic development and employment policy. The aim is to help would-be entrepreneurs (181 in the first phase, including 45 women) in central and western Tunisia to develop business ideas and bring them to fruition, by first assessing their personal abilities and then matching them with the market openings, the credit system and the technology available. 5.9 An analysis of success stories at national and transnational level highlights the main barriers to SME innovation, irrespective of the area of activity (industrial or tertiary), in marked contrast to the experience of larger companies. 5.10 The main obstacles to SME and craft industry innovation are not only a lack of financial support and uncertainty as to the success of the investment but also inadequate access to strategic -type information and difficulties in linking up/cooperating with external research centres (whether public or private). The lack of specialised human resources (i.e. specific training needs) and the lack of services geared to the needs of small businesses are also a serious problem. This shows how important it is to step up training at all levels and make entrepreneurs more mobile. Networks should be set up to provide assistance with information and communication technologies and business development. 5.11 In the light of these obstacles, effective ways must be devised to disseminate innovation (in the form of technology, experience and methods), on the basis of an integrated five-pillar approach: training, information, R&D, consulting and financing. Consideration of the close link between education, training and technological innovation is particularly important. On the financial side, attention should focus on existing financial instruments, and in particular on the conditions tied to "micro-credit" and mutual guarantee companies funded by private capital. 5.12 The measures must cater for differences in size (i.e. the fact that SMEs and craft companies develop in a totally different way to large companies), industry (giving greater emphasis to innovative processes in the services sector, until now neglected as a result of the arguably excessive focus on the manufacturing sector) and location (i.e. the particular institutional, economic and technological environment).

- 13 -


5.13 In order to enhance local capacity to provide opportunities for the introduction and development of technological innovation, the first task is to combat the sense of isolation experienced by SMEs when they are unaware of bodies that can help them develop innovative practices (in technology or organisation). It would be particularly useful here to disseminate detailed information on bodies (and above all institutions) that are able to help and advise companies on innovative processes and technologies. A system of this kind would strengthen the bonds between research and assistance structures and SMEs, both within the MPCs, and between them and the EU. 5.14 The ultimate goal should be to find ways of promoting R&D in SMEs and the craft industry and disseminating the results of activities (including those conducted under Community programmes). One way of doing this would be to include companies in networks of excellence (institutions, universities, research centres, etc.) and exchange information and expertise (researchers, students, etc.) within them. 5.15 This will necessarily involve an examination of best practice already tried and tested in the EU, and also in certain MPCs, particularly in sectors in which those countries are specialised or have a natural vocation. 5.16 A good example of such best practice is the Italian DIT programme (for the

dissemination of technological innovation)14, designed to encourage innovative practices in the agri-food SMEs of the south of Italy, by means of training, information and technical assistance activities, provided via the network of chambers of commerce. The programme has forged a close link between researchers and SMEs: 13 universities, 14 research bodies and 300 data collection and analysis experts have taken part in the DIT programme, forming an accurate picture of the growth and potential of companies in southern Italy. The Internet was picked out as one of the main ways to promote new

business in the Italian south. The DIT programme now has its own website15, which includes a page called "DIT Fiere" where over 400 companies can present their products (oil, wine, dairy products, fruit

and vegetables, plants and flowers, preserves, truffles and pasta)16. The DIT Fiere page is a solid starting point for guiding southern Italy towards electronic commerce and enabling SMEs to test out novel ways of promoting their products as a network.

14

The DIT programme was launched by the Istituto G. Tagliacarne in the early 1990s, with backing from the MURST

(the ministry for universities, and scientific and technological research), with which three agreements have been drawn

up. The innovative nature of the DIT programme's approach lies in the identification and satisfaction of the

requirements of companies and regional production systems, developing potential by creating networks.

15 www.programmadit.net

16 The plan is to turn the website into an on-line shop, with a "virtual shopping trolley" and a system for placing orders.

- 14 -


5.17 The TE.M.A. programme (for craft industry technologies and markets)17 was aimed exclusively at Italian craft companies and set up training, information and technical assistance activities in the textiles, ceramics, jewellery, clothing, carpentry, wrought iron and glass sectors. The TE.M.A. programme engendered a community spirit among craft workers and encouraged joint endeavours (exhibitions, catalogues, workshops, etc.) and the use of innovative techniques and materials in production processes, while stepping up marketing efforts for the craft products of the participating companies. 5.18 As well as details of EU best practice in the field of research and technological development, the MPCs need to secure accurate knowledge of the initiatives that the European Commission has promoted for them to encourage the exchange of information and practices aimed at bringing SMEs closer to each other, thus facilitating economic integration among the MPCs and between them and the EU. 5.19 The Syrian European Business Centre (SEBC, which belongs to the European Information Correspondence Centre network), offers Syrian companies (especially in the textiles and agri-food sector) information and training/assistance on Community programmes of specific interest to them. It also provides the Commission with feedback on the nature and needs of local companies, thus making it possible to gauge support policies for SMEs effectively. In addition to an initial diagnosis of business areas in which SMEs can enhance their performance (on both foreign and Syrian markets), the SEBC helps companies to identify potential partners with whom they can cooperate to expand their reference markets. 5.20 Access to information and the capacity to translate information into company development projects (based mainly on the capacity of the human resources available) are, therefore, among the chief strategic factors in the dissemination of innovation in SMEs and craft firms. In the future, the information society will make this process much easier, but in the short to medium term it is certainly not the only way of overcoming existing information shortcomings. The following analysis refers to the limitations (cultural, linguistic and technological, etc.) affecting the spread of information tools such as the Internet in the MPCs. It might be worth creating a 'Cordis-MED" strand within the Cordis system, to help SMEs gain access to innovation centres. Joint training and joint information schemes between EU companies and MPC companies would also be useful.

6. The development of information technology in the MPCs 17

TE.M.A. was financed from the Fondo Nazionale dell'Artigianato 15% quota and was managed by the Istituto G.

Tagliacarne in conjunction with the following craft industry associations: Confartigianato, CNA, Fedartfidi and

Artigiancassa. It lasted 30 months in total and ended in December 1999.

- 15 -


6.1 The Barcelona Conference stressed that support for the Mediterranean scientific and technological community and the modernisation of communication infrastructure networks were pivotal for the success of the Euro-Mediterranean partnership. 6.2 These priorities, reiterated at the Rome conference in May 1996, paved the way for practical measures to develop the Mediterranean countries' telecommunications sectors and promote the use of information technology in industry, research and education. These measures involve disseminating the Internet (through pilot projects) and developing the information society. 6.3 In February 1999, the EU Member States adopted the EUMEDIS (Euro-Mediterranean Information Society) initiative, with a view to extending the information society throughout the Mediterranean area and reducing the IT gap between the EU and the southern shore of the Mediterranean. Italian craft organisations, chambers of commerce and industrial organisations have contributed to EUMEDIS projects and are confident that they can develop a worthwhile partnership in the years ahead. 6.4 This initiative, the biggest project ever taken on by the Commission in the development of the information society, aims to:

− establish a network of information society "focal points" in the Mediterranean, to define a joint Euro-Mediterranean strategy;

− choose and finance means of linking European and Mediterranean research centres (via the Internet);

− develop pilot projects (at local/transnational level) in five specific sectors of application: information and communication technology applied to education and training; e-commerce and economic cooperation; health; multimedia access to cultural and tourist resources; information technologies applied to industry and innovation.

6.5 The main targets of EUMEDIS are hospitals (and other medical research institutes), chambers of commerce and sectoral organisations, universities (and post-graduate teaching and vocational training institutions), public and private research centres, museums, and NGOs promoting tourism in the Euro-Mediterranean regions. The secondary target is the public (individuals and SMEs) who could benefit from the services provided by the above-mentioned bodies. 6.6 It should however be noted that the gap between the European Union and the MPCs in terms of the development of telecommunications infrastructure varies. A number of countries (Israel, Cyprus, Malta and Turkey) have made considerable progress in digitalising networks, data transmission, mobile communications and satellite links. Some have also embarked on privatisation of the

- 16 -


telecommunications sector (Israel, Turkey, Malta, Cyprus and Morocco), although as yet only in very few cases are the management and regulatory functions separate. 6.7 Just recently, the private sector has begun to show an interest in developing new technologies, leading to the establishment of government agencies to monitor this rapidly growing sector and raise users' awareness of its potential. 6.8 There was exponential growth in Internet use in most of the MPCs from the 1993-1995 period onwards (with a few exceptions, most notably Syria). Most connections were set up for communications with the United States. The most recent figures (mostly for 1999) divide the countries into three groups on the basis of the number of Internet users per 100 inhabitants (fig. 1): Israel and Cyprus are well ahead, followed by Lebanon and Turkey, while the number of users in the other countries is minimal. This is a sector in which figures change very quickly, and their variable nature should be noted. 6.9 Overall, comparison with the CEEC countries shows a lower level of Internet use among the MPCs (fig. 2). Only Latvia, Romania, Macedonia, Albania and Bosnia have a number of Internet users per 100 inhabitants similar to the figure recorded for most of the MPCs. Furthermore, there is generally a much higher level of business use in the CEEC countries; in almost all cases, the Internet is used more for business than for private purposes. As an indication of the speed at which figures change, the latest forecasts for Turkey suggest 4.4 users per hundred inhabitants in 2000 and 21 users in 2005. 6.10 In the EU, Internet use (calculated in some cases as the proportion of all PCs linked to the Internet, and in others as the proportion of all PCs with a modem) is particularly high in the UK, Sweden and the Netherlands (Table 4). Portugal, meanwhile, has the lowest number of PCs set up for Internet access. 6.11 Internet access is obviously linked to the dissemination of PCs. Estimates for 1999 suggest that there are approximately three PCs per 100 inhabitants in the MPCs (three times as many as in 1996, with an average annual increase of 35%, calculated from a starting point of 1.2). The greatest annual average increases since 1996 were recorded in Palestine (160%), Morocco (83%), Cyprus (63%) and Lebanon (57%), although they did start from very low levels. 6.12 Israel, Malta, Cyprus and Lebanon have respectable levels of PC ownership (at least 15 PCs per 100 inhabitants, with Cyprus at 20), even when compared to the EU countries. 6.13 The CEEC, however, have globally higher figures than the MPCs. The 1999 figures showed an average of 12 PCs per 100 inhabitants, a figure that has almost doubled since 1996 (6.7).

- 17 -


Three countries stand out: Hungary (with approximately 26 PCs per 100 inhabitants), Slovenia (with 25) and Poland (with 13.7). 6.14 Growth trends in these phenomena (both the dissemination of PCs and the availability of Internet access) raise the issue of sustainability, or a possible critical threshold beyond which further expansion is difficult. It is worth noting here that, among the EU countries, nearly three out of four people in Luxembourg possess a PC, and in Denmark and the United Kingdom one in two people own a PC. 6.15 The measures designed to promote Internet dissemination are only one element in the wider strategy for developing the telecommunications sector. The main barriers to use of the Internet in the MPCs are largely economic (standard of living, limited investment capacity, etc.), cultural (multimedia systems are difficult to combine with local customs), linguistic (English is not widely enough known) and technical (inadequate infrastructure). 6.16 A number of initiatives in cooperation with the EU, already launched or in the pipe-line, may ease or accelerate the transition to the information society in the southern Mediterranean countries. These include measures designed to:

− disseminate support infrastructure and monitor it in the medium term;

− harmonise EU and MPC regulations;

− support theme-based networks (health, tourism, distance-learning, environment, etc.);

− develop R&D pilot projects to highlight the advantages of IT networks;

− set up a network of centres to promote new IT applications (e-commerce, medicine, tourism, etc.). 6.17 The list certainly is not exhaustive; it highlights just a few examples which, importantly, do not take account of the fundamental differences between individual countries. Building the information society on a Euro-Mediterranean scale is not only a global process (relating mainly to cultural and economic aspects) but must also involve bilateral relations between the Union and each partner country (this is essential in areas such as infrastructure and legislation).

- 18 -


7. Proposals and conclusions 7.1 Science, technology and innovation have a definite impact on socio-economic development in the Mediterranean region and they must be given ever more attention in Community policies for the MED partner countries, through the MEDA programme and current and future programmes in the field of research and technological development in particular. The new multiannual programme can also provide a useful instrument for stepping up networks and relations between organisations and SMEs on the north and south sides of the Mediterranean. The Committee therefore stresses the need to concentrate on a specific SME and craft sector support policy under the fifth framework programme and build on it under the sixth. Involvement of the social partners in the development process is vital for effective action and tangible successes in the research and innovation field. More must be done to promote joint R&D and innovation activities as part of the Euro-Mediterranean partnership, which after all includes the development of the information society among its six priority areas for action. 7.2 Like their EU counterparts, Mediterranean SMEs and craft sector companies can play a key role in disseminating innovation and applying research results. It should also be underlined that technical and technological development in small companies has a major impact on market performance and, as a result, on employment figures. Whereas in large companies, investment in new technologies generally leads to redundancy, in SMEs and the craft sector, it often leads to the growth of a skilled work force. 7.3 Efforts must also be made to encourage EU and MPC SMEs to exchange know-how and skills in the areas of production, organisation and company management, and also the development of training initiatives in new technology-related fields. Robust action to foster the spirit of enterprise can increase the number of entrepreneurs and boost the development and innovation process. 7.4 At every level, work on joint measures in the area of research and development should take account of the following needs: 7.4.1 At policy level, to:

• strengthen the strategic objectives for EU-MPC cooperation that were set at the Barcelona Euro-Mediterranean conference, while continuing to invest strongly (above all in terms of resources) in measures aimed at the economic development of the MPCs and Euro-Mediterranean scientific cooperation, giving these countries the same level of priority as that planned for the CEEC;

• expand bilateral cooperation between the EU Member States and the MPCs, as a prerequisite for closer cooperation based on mutual interests and the balanced involvement of researchers and

- 19 -


technicians in training and transnational exchanges, with a view to addressing the difficulties inherent in geographical distance and linguistic and cultural differences;

• step up the involvement, at various levels, of EU and MPC SMEs in Community programmes

concerned (to varying degrees) with RTD, such as the fifth framework programme18 (first and foremost the horizontal programme "Innovation and participation of SMEs"), MEDA II and other Euro-Mediterranean initiatives;

• pursue and strengthen policy dialogue within the Euro-Mediterranean RTD cooperation monitoring committee;

• bolster efforts to improve the coordination of various financial instruments, in order to raise the profile of EU and MPC activities in the area of R&D and bring them into line with Euro-Mediterranean partnership policy;

• back the use of new technologies in SMEs and the craft sector (primarily in traditional sectors), including those associated with the Information Society (supporting the development of tangible and intangible infrastructure, and the dissemination of information technology culture and practice);

• boost MPC capacity to attract investment (foreign investment in particula r, given its potential as a vehicle for innovation), possibly through a network of promotional agencies covering EU Member States and Mediterranean partner countries.

7.4.2 At operational level, to:

• pay specific attention to SMEs and cooperation between the countries north and south of the Mediterranean in the future formulation of Community R&D programmes, help to identify needs and translate them into the objectives of technological development plans, and also cut the preliminary red tape linked to the drawing up of contracts;

• introduce measures geared to SME and craft industry requirements, especially in the area of technical and technological assistance and advice, training (including business management skills), support for investment in technology (including basic technology), and information and awareness campaigns run by socio-economic organisations, professional bodies, and chambers of commerce, crafts and industry;

18

See the specific comments contained in the ESC opinion on the Fifth Framework Programme (R/CES/538/98).

- 20 -


• raise awareness among employers' organisations and trades unions operating in the MPCs of joint development programmes linking the countries north and south of the Mediterranean;

• strengthen the resources and operational capacity of the socio-economic organisations, inter alia, by stepping up contacts and experience-swapping between EU and MPC organisations.

• identify and select priority themes and cooperation instruments that are of special relevance to MPC SMEs, with specific reference to the preparation phase of Euro-Mediterranean programmes;

• promote new business as the driving force and as an integral part of development; nurture the growth of networks of existing companies (in cluster form) and the establishment of new ones, and the development of cooperation initiatives between SMEs and associations (craft-related in particular) with specific expertise in the abovementioned activities;

• set up agencies (or even networks of agencies) to act as liaison offices for promoting and applying technological innovation in MPC SMEs and craft companies, inter alia by disseminating best practice;

• identify categories of SMEs on which to target pilot schemes in the RTD field, thereby improving the chances of success;

• define methods for evaluating, implementing and disseminating the results of R&D projects (joint projects in particular);

• map and monitor MPC national R&D and innovation policies for SMEs and craft sector companies (legal framework, tax situation, and legislation on direct investment, industrial property, joint ventures, etc.) and bilateral projects with EU Member States, with a view to pinpointing fields in which there is a specific need and therefore potential for joint projects, especially in the area of joint research infrastructures;

• set up evaluation committees, with ESC involvement, to assess the progress of EU initiatives involving the MPCs (such as EUMEDIS, in the near future), in order to provide ongoing support and pinpoint key factors;

• involve financial bodies (EIB19, EIF, territorial development banks) in processes related to SME access to funding, drawing on EU experience with the two round tables on banks and banking and SME policies.

19

Note for example the Innovation 2000 Initiative, under which the EIB finances SME venture capital operations.

- 21 -


7.5 These priorities are in line with the Barcelona declaration principles of building up capacity for innovation, technical and scientific training for research staff and above all participation in joint and bilateral projects based on the establishment or strengthening of networks of R&D excellence. Brussels, 5 July 2000

The President of the


George Wright

The Rapporteur for the


Antonello Pezzini

The Secretary-General of the

Economic and Social Committee

Patrick Venturini

***

N.B.: Appendices overleaf.

- 22 -

CES 396/2000 fin Appendix I FR-IT/SG/CAT/hm …/…

Appendix I

Regional distribution of European Union - Mediterranean cooperation, 1986-98 (commitments and expenditure, in million euros)

1986 1987

1988

1989

1990

1991 1992 1993 1994 1995 1996 1997 1998 Total

Commitments Total

401

149

309

511

386

1,133

655

711

757

869

1,189

1,543

1,368

9,981

Northern Mediterranean (*)

47 16 35 5 18 226 6 25 21 62 149 205 179 995

South-eastern Mediterranean (**)

280 83 226 445 277 612 478 452 512 415 829 1,142 999 6,750

Gaza (**) 57 27 28 35 36 144 53 94 113 129 170 139 116 1,141 Other Middle-Eastern countries

0 0 - 6 8 125 8 41 28 33 36 45 41 371

Regional 1 0 1 1 1 3 64 60 71 165 0 8 - 376 Other 16 22 19 19 45 24 46 39 12 65 5 4 32 349 Expenditure Total

311

164

249

331

285

1,012

468

594

581

578

601

794

943

6,910

Northern Mediterranean (*)

63 50 42 16 24 232 25 34 24 64 45 119 113 852

South-eastern Mediterranean (**)

218 84 178 278 222 687 320 346 358 304 363 512 690 4559

Gaza (***) 25 25 26 30 30 80 61 78 92 108 106 113 81 856 Other Middle-Eastern countries

2 2 2 6 9 9 11 8 13 28 30 42 23 183

Regional 0 0 0 1 1 2 10 35 35 54 - - - 138 Other 2 2 1 1 0 2 42 94 59 19 57 8 36 322

(*) Turkey, Malta and Cyprus (**) Morocco, Algeria, Tunisia, Egypt, Jordan, Syria and Lebanon (***) The Gaza Strip alone and not the Palestinian territories as a whole Source: European Commission/ODI database 1999

(Table 1)

- 23 -

CES 396/2000 fin Appendix II FR-IT/SG/CAT/hm …/…

Appendix II

Main indicators of R&D in the MPCs No of R&D staff

per 1000 inhabitants (1992) R&D spending /GDP

(as a %, 1996) Patents per 1000 research

staff (1995) Algeria (1) Cyprus Egypt Israel Jordan Lebanon (1) Malta Morocco Palestine Syria Tunisia Turkey

0.04 0.52 n.a.

4.35* n.a n.a

0.46* 0.03* n.a n.a

0.11* 0.3*

0.33 0.5

0.5(2)

2.3 >0.5 ** 0.3 **

>1 0.3 * 0.01 0.13 0.35

0.5 (3)

0.9 8.2 n.a

18.37 n.a n.a

18.2 2.2 n.a n.a 1.1

0.22

(1) The government intends to earmark 1% of GDP for R&D spending by the end of 2000. (2) Source: UNESCO

(3) The government intends to earmark 1.5% of GDP for R&D spending by the end of 2000. 18% of all R&D spending is private sector funded.

(*) 1993 (**) 1995 Source: national data on R&D staff and spending; the data on patents were

provided by the INPI: EPO (EPAT), USPTO, and processed by OST and CHI-Research

(Table 2)

- 24 -

CES 396/2000 fin Appendix III FR-IT/SG/CAT/hm …/…

Appendix III

R&D expenditure and staffing in the main OECD countries, 1997

EXPENDITURE (million US$) (a) STAFFING (in full-time equivalents) Total % of GDP Total of whom researchers

United States 211,928 2.71 ... 964,800

Japan 90,207 2.92 894,003 625,442

Germany 41,900 2.31 453,679 231,128

France 27,876 2.23 320,805 154,839

United Kingdom 22,603 1.87 270,000 146,000

Korea 19,281 2.89 136,559 102,660

Italy 12,276 1.01 141,737 76,056

Canada 11,515 1.60 129,750 80,510

Netherlands (b) 6,853 2.09 80,789 34,482

Sweden 6,965 3.85 65,495 36,878

Australia (b) 6,687 1.68 90,519 60,890

Spain 5,419 0.86 87,150 53,883

Belgium (c) 3,461 1.58 38,449 22,918

Austria 2,839 1.52 24,458 12,821

Mexico (c) 1,915 0.31 33,297 19,434

Denmark 2,600 2.03 31,467 16,766

Finland 2,922 2.78 41,256 21,149

Norway 1,977 1.68 24,877 17,490

Poland 2,182 0.76 83,803 55,602

(a) Values in purchasing-power parities

(b) 1996

(c) 1995

(d) 1998

Source: OECD

(Table 3)

- 25 -

CES 396/2000 fin Appendix IV FR-IT/SG/CAT/hm …/…

Appendix IV

Percentage of all PCs in the EU countries linked to the Internet

1997 1998

Austria 25 (***) 27 (***)

Belgium n.a. n.a.

Denmark 25 (*) 33

Finland 32 28

France n.a. 13.5 (*)(***)

Germany n.a. 13.6 (*)

Greece 10 (**) 18

Ireland n.a. 4.75

Italy 5.4 (*) 10.9 (*)

Luxembourg 10.3 (**) n.a.

Netherlands 26.6 36.7

Portugal n.a. 4.7

United Kingdom 60.6 (***) 65.5 (***)

Spain 4.6 (***) n.a.

Sweden 23.5 40.6

(*) Private only

(**) Estimate

(***) Percentage of all PCs with modems

Source: European Commission - Information Society Promotion Office

(Table 4)

- 26 -

CES 396/2000 fin Appendix V FR-IT/SG/CAT/hm …/…

Appendix V

Number of MPC Internet users per 100 inhabitants (1999) (o)

Private use Business use

1 1.23

0.73 0.978.74.5

7.3 (*) (**)0.24 (*) 0.02 (*)

0.7 (*) 0.1 (*)

0.03 0.3

0.01 0.02

0.05 (*)

0.27 (*)

4

0.06 (*) (**)

(*) 1998

(**) For private and business use

(o) The figures are taken from national sources; as they are based on definitions that were not standardised or common to all the countries, and in some cases were based on estimates, they should be considered to be purely indicative and as showing only general trends. For an idea of the phenomenon's extremely rapid growth, national sources estimate that the proportion of the total Turkish population using the Internet will reach 4.4% by the end of 2000 and 21% by 2005.

Source: European Commission - Information Society Promotion Office ISPO

(Figure 1)

- 27 -

CES 396/2000 fin Appendix VI FR-IT/SG/CAT/hm

Appendix VI

Number of Internet users per 100 inhabitants in the CEECs (1999) (°)

Latvia

Lithuania

Poland

Czech RepublicHungary

*Bosnia & Herzegovina

Private use Business use

(*) For private and business use

(°) The figures are taken from national sources; as they are based on definitions that were not standardised or common to all the countries, and in some cases were based on estimates, they should be considered to be purely indicative and as showing only general trends.

Source: European Commission – Information Society Promotion Office (ISPO)

(Figure 2)

information report the innovation policies of … (mpcs). the barcelona euro-mediterranean...

Documents