Juan Carlos Navarro, Principal Technical Leader Competitiveness and Innovation Division, IDB Paramaribo, February, 2013 CONTENTS • Quick overview: Competitive position of Suriname • The notion of a knowledge-driven economy • Salient issues: Some details and a framework – Innovation, technology ICTs – Skilled labor force – Business climate • What the IDB does and how it can help Suriname’s Competitive Outlook, WEF 2012 Barbados Trinidad and Tobago Jamaica Dominican Republic Guyana Suriname Haiti Infrastructure 44 24 22 84 91 55 97 87 85 105 126 105 109 100 109 114 93 79 142 143 144 Macroeconomic Stability 134 19 141 105 109 96 86 Health and Primary Education 16 55 104 106 99 82 134 Higher Education and Training 19 71 75 97 87 102 144 Good Market Efficiency 64 106 80 101 84 128 142 Labour Market Efficiency 29 110 77 107 85 96 83 Financial Market Sophistication 33 60 55 96 86 107 141 Technological Readiness 30 60 73 78 94 105 138 Market Size 134 107 100 65 132 139 127 Business Sophistication 36 84 79 80 64 112 142 Innovation 40 104 86 118 76 124 143 Indicator Overall Rank Institutions An intermediate stage of development Defining the knowledge economy • The adaptation, creation, transmission and productive application of knowledge becomes a major driver of the economy. • The most dynamic economic sectors at the global stage are those that can clearly be defined as knowledge intensive. • Knowledge embedded in human capital (skills) or intangibles (intellectual property) grows consistently in importance. • The knowledge content of products grows continuosly. • Skilled work becomes ever more valuable. Highly skilled even more valuable. • Innovation becomes key for business productivity and profitability across the board, including traditionally low tech sectors. • Innovation is increasingly driven not only by technology, and certainly no mainly by advanced research, but by intangibles such as design, marketing and communications. • Technology has, however, lowered the cost of innovation worldwide to unprecedented levels. Visualizing the knowlege economy iPad’s value chain There is a worldwide race aimed at turning national economies into knowledge economies The reason: a knowledge-driven economy is the closest thing there is to an economy with an ability to withstand adverse external shocks over long periods of time. It is arguably the best source of a sustained competitive advantage. Suriname’s WEF 12th Pillar: Innovation 2012-2013 Rank Value 12th pillar: Innovation, 1-7 (best) 124 2.617 12.01 Capacity for innovation, 1-7 (best) 106 2.707 12.02 Quality of scientific research institutions, 1-7 (best) 128 2.524 12.03 Company spending on R&D, 1-7 (best) 115 2.638 12.04 University-industry collaboration in R&D, 1-7 (best) 106 3.162 12.05 Gov’t procurement of advanced tech products, 1-7 (best) 126 2.837 12.06 Availability of scientists and engineers, 1-7 (best) 111 3.486 12.07 PCT patents, applications/million pop. 92 0.192 Source: GCR 2012/2013 2011-2012 Rank Value 121 2.59 100 2.639 120 2.686 116 2.587 117 2.954 120 2.938 103 3.504 WEF 9th Pillar: Technological readiness 9th pillar: Technological readiness, 1-7 (best) 9.A Technological adoption, 1-7 (best) 9.01 Availability of latest technologies, 1-7 (best) 9.02 Firm-level technology absorption, 1-7 (best) 9.03 FDI and technology transfer, 1-7 (best) 9.B ICT use, 1-7 (best) 9.04 Individuals using Internet, % 9.05 Broadband Internet subscriptions/100 pop. 9.06 Int’l Internet bandwidth, kb/s per user 9.07 Mobile broadband subscriptions/100 pop. Source: GCR 2012/2013 2012-2013 2011-2012 Rank Value Rank Value 105 3.19 96 3.29 122 4.01 123 3.99 110 4.273 101 4.45 121 4.071 124 3.918 130 3.675 131 3.612 85 2.37 70 2.58 83 32 78 31.59 76 4.533 83 2.987 109 4.722 94 2.426 128 0 Benchmarking ICTs in LAC Global IT Report 2012 There is a lack of information and indicators to measure the use of ICTs at the firm level in all the LAC region, including Suriname. Conceptual framework: ICT, competiveness and productivity • A whole series of studies point clearly to a strong positive impact between firm’s adoption and use of ICT and productivity. • ICT penetration in firms has grown steadily over the past 10 years, reaching a majority of SMEs, but penetration in other emerging economies has been faster and deeper, maximizing the economic impact. • In LAC, ICT adoption and use has advanced mostly in administrative functions, with very little inroads into advanced uses (marketing, value chain optimization, business analytics…). • Adoption has taken place in a highly unequal manner, differentiating regions, urban and rural areas, economic sectors… • SME’s capacities to manage ICT well tend to be very low, given: • Insufficient investment in broadband infrastructure. • Shortage of skilled human capital specialized in ICT. • Low overall ICT readiness in the population and the labor force. • Firms do not have information about potential applications that could enhane their productivity. 4 Constraints to private sector development 1. Inadequately Educated Workforce 2. Customs and Trade Regulations 4. Corruption 7. Licenses and Permits 5. Courts 8. Tax Rates World Bank Enterprise Survey 2010 3. Access to Finance 6. Practices of the Informal Sector 9. Access to Land 10. Crime, Theft Inadequately trained workforce+ elevated rates of skilled outmigration • Approximately 65% of the firms interviewed in the Enterprise Survey round stated that an inadequately trained workforce was a major constraint. Of those, 30% identified this skills gaps as the greatest constraint to their growth. • Over 40 percent of the labor force with higher education emigrates World Bank Enterprise Survey 2010 Suriname: Education’s positive impact on employment and earnings I. Determinants of the likelihood of employment Education (in relation to no education) Primary: +13% Junior Secondary: +21% Senior Secondary: +62% Tertiary: +86% II. Determinants of monthly earnings IDB, Gardiner and Spampini, 2009 Junior Secondary: +11% Senior Secondary: +43% Tertiary: +86% The Disconnect • Over 40 percent of employers say that a skills shortage is a leading reason for entry-level vacancies. • Only 43 percent of employers agreed that they could find enough skilled entry level workers. • Only half of youth believe that their post-secondary studies improved their employment opportunities. • 1/8 of 15 to 24 year-olds are NEET (not in employment, education or training). • Over 70 percent of training and post-secondary institutions declare that they are providing the right skills to their students. McKinsey: Education to Employment: Designing a system that Works. 2012. The basics: Simplify choices for families and students The basics: gather and disseminate information on jobs, demands for skills, career paths of graduates… IDB, Bassi, Busso, Urzua, Vargas, 2012 Conceptual Framework: TFP, Competitiveness and Human Capital • Focus on an economy’s distance to the technological frontier in order to decide what kind of innovative activity is the priority and what types and levels of skills are a better fit to it. • A more educated labor force adopts existing technology faster. • If most businesses operate far from the technological frontier, a premium has to be put in intermediate levels of skills –vocational and technical post-secondary, engineering degrees- rather than in highly advanced diplomas. When strategizing to acquire talent, remember • “NO MATTER WHO YOU ARE, MOST OF THE SMARTEST PEOPLE WORK FOR SOMEONE ELSE” Bill Joy, co-founder of Sun Microsystem Constraints to private sector development 1. Inadequately Educated Workforce 2. Customs and Trade Regulations 4. Corruption 7. Licenses and Permits 5. Courts 8. Tax Rates World Bank Enterprise Survey 2010 3. Access to Finance 6. Practices of the Informal Sector 9. Access to Land 10. Crime, Theft Creation of new businesses In 2011, Suriname held one of the lowest business entry density rates in the LAC region however the number of newly registered firms has been increasing since 2009. World Bank Doing Business Report The challenge of enhancing productivity Business climate in Suriname World Bank Doing Business Report Beyond business climate, an innovation climate • An innovation climate (a business climate that favors knowledge-driven economic activities), includes mostly: – – – – – – – – – An entrepreneurial culture High awareness and skill in managing intellectual property rights. Well developed university-industry linkages Public programs focused on encouraging the private sector to innovate (correcting widespread market failures) Public policies that take facilitate technology diffusion and adoption Technological services (metrology, quality certification, standards and laboratories) are available. Smart capital Good deal flow Good pipes for that flow (trust among key actors and excellent broadband connectivity). PRODUCTIVITY THRIVES WHEN: THE WHOLE INNOVATION SYSTEM WORKS Long-term Innovation Investment Openness to Investments and International Commerce Skilled Labor Force National Development Strategies Firm Innovation ICT Infrastructure Networks and Legal & Institutional Framework Venture Capital Business Development Technological & Institutional Services IDB’s Competitiviness and Innovation Division MANDATE Enhance business productivity and competitiveness in the Latin America and Caribbean region by facilitating the creation and growth of dynamic firms with the capacities and tools to innovate and compete in international markets. CTI’s STRATEGIC OBJECTIVES Improving the policy and regulatory framework so that it is conducive to innovation and entrepreneurship, and to the creation and growth of competitive firms Designing, implementing and evaluating productive (business) development and innovation policies that: •Increase private sector investment in innovation and technological development • Boost the productivity of firms and their capabilities to network and compete in international markets. Strengthening the capacity of institutions to design and implement innovation and productive development policies (governance models, policy coordination, management and evaluation capacities). CTI’s AREAS OF WORK ENTREPRENEURSHIP INNOVATION AND TECHNOLOGY Economic growth depends on private sector investment in innovation and new technologies. The ability of a country to adapt and take advantage of technological changes depends upon its entrepreneurs. BUSINESS DEVELOPMENT Business and knowledge networks, value chains, International standardization, quality certification INSTITUTIONS AND ENVIRONMENT Institutions and enabling environments are crucial for promoting competitiveness and innovation in firms. INNOVATION AND TECHNOLOGY Support for firms to increase their investment in innovation and technological development, based both on R&D and new business models. Programs for technology diffusion, transfer and adoption in firms such as ICTs and green & clean technologies. Developing increased firm capabilities in design, quality management and intellectual property. Strengthening human capital for innovation and technology absorption. © BUSINESS DEVELOPMENT Support for productive development policies and programs to strengthen firm linkages, upgrade productive capabilities and foster firm competitiveness (clusters, value chains, and innovation systems). Programs to strengthen provision of business development and access to market services (export promotion, internationalization, ICT programs). Support for improved access to information for the design, monitoring and evaluation of Productive Development Policies & SME policies. INSTITUTIONS AND ENVIRONMENT Programs to improve business climate and environment for innovation and competitiveness (i.e., reduce costs of doing business, facilitate business registration). Improved regulatory frameworks to facilitate the creation and development of innovative companies (i.e., strengthen intellectual property rights framework). Support the strengthening of institutions to coordinate productive development and innovation policies. Support for mechanisms for public-private sector dialogue. ENTREPRENEURSHIP Programs to develop and strengthen sources of entrepreneurial finance (seed and angel financing). Promote and develop a climate of entrepreneurship. Support networks, incubators and programs to unleash entrepreneurial talent. Incentives to support entrepreneurs and entrepreneurship in sectors such as ICT and other knowledge intensive industries. MAJOR IDB/IFD/CTI PRIORITY ACCELERATE BROADBAND DEVELOPMENT IN LAC Forthcoming publications, TCs and ESWs under preparation. In Brazil UNASUR announced that the 12 Southern Cone countries agreed upon a set of mandates that they will pursue to address the region’s gap in Broadband penetration. At a broadband forum co-organized by the IDB in November 2011 - Caribbean Ministers mandated an audit of the broadband infrastructure and regulatory frameworks Infrastructure, Services and Applications Capacity Building Public Policy Strategic Regulation IN THE PRODUCTION FRONTIER… If anything LAC suffers from a deficit of average players; firms with medium productivity levels. (DIA, IDB 2010) Super Star Firms Medium Productivity Firms Most policy interventions in LAC are needed among these firms and here is where CTI concentrates its work. Low Productivity Firms The productivity of the firms in Latin America varies across a very wide spectrum. CTI supports increasing incremental innovation capabilities - meeting LAC firms along a spectrum of existing capacities - to move low productivity firms closer to the technological frontier. IN THE PRODUCTION FRONTIER… This process enhances competitiveness. Super Star Firms (2) Supporting entrepreneurship increases the number of firms in the market. (3) The market selects the most viable firms and remove the obsolete ones. Medium Productivity Firms Low Productivity Firms (1) Policy Push is intended to level the Playing Field In the end, you have to write your own book John Kao Surinam’s firms Only 14.6% of firms in Suriname export compared to 18.4% in the average LAC country 94% of the firms surveyed were Micro, Small and Medium Sized (<99 employees) enterprises. The firms were evenly split over the services and manufacturing sectors. World Bank Enterprise Survey 2010 IN ADDITION: LOW LEVELS OF INSTITUTIONAL READINESS UNDERMINE LAC’S ABILITY TO COMPETE GLOBALLY High-Technology (ISO) Technical Committee (TC) Members: Low-Technology (ISO) Technical Committee (TC) Members: 100 100 80 80 60 Percent Percent Proportion of LAC and OECD Countries that are ISO TC members 50 40 60 50 40 20 20 0 0 LAC OECD Information technology LAC OECD Information and documentation LAC OECD LAC OECD Financial services Nanotechnologies LAC OECD Food products LAC OECD Tourism and related services Both in High-tech and in Low-tech Source: ISO. 20010 LAC OECD Textiles LAC OECD Rubber and rubber products CERTAIN MARKET AND GOVERNMENT FAILURES ARE ESPECIALLY PREVALENT IN LAC • Market failure is more prevalent in less developed countries, and the non-market institutions that try to intervene may be less successful in doing so (Hausmann et al. 2008; Stiglitz, 1989). • Government failures rather than market failures often [i.e., in Costa Rica] represent the main justification for productive development policies (IDB, 2010). Government (Public Sector) Failures: Institutions and the Environment • The regulatory system is biased against failure (stiff penalties for bankruptcy, burdensome transaction costs for starting and closing a business, etc.) & cultural contempt for failure, create inefficiencies and reduce healthy economic risk taking behavior. • Deficient technological business services (i.e., metrology, quality certification services and institutions). • There are low levels of institutional capacity for public policy coordination and minimal support (financing and otherwise) for long term investments in innovation activities. • The education system has not produced an adequate supply of skilled workers or entrepreneurs. CERTAIN PRIVATE SECTOR CHARACTERISTICS EXACERBATE MARKET FAILURES IN LAC PRIVATE SECTOR CHARACTERISTICS: • Firms, Entrepreneurs and their Networks The Productivity Trap in LAC – Firms in less developed countries may face greater uncertainties about their ability to produce and market new goods; lack of complementary products in product markets can be an additional hurdle (Stiglitz 1989). – In some countries in LAC - markets and firms are smaller than they optimally should be; therefore they can not make optimal use of economies of scale. If external economies of scale are intra-national, larger markets have a positive effect on productivities (Exteco). • Weak linkages between firms or poor performing intermediary companies create huge information gaps and compromise the quality of the entire value chain. • Knowledge gaps regarding specific market distortions (public and private) creates the need for an “identification” policy process (Hausmann et al, 2008).