EU Regional Development Fund to invest €100B in innovation

Under a major reform of EU regional policy, billed by the Commission as the "largest since its introduction", billions in EU regional development funds – once sprinkled widely to help poor regions catch up – will now be targeted to support innovation.

Helping low-income regions learn how to innovate is now the top priority, both to bridge the research divide and to halt the brain drain from Europe’s Eastern and Southern countries, said Johannes Hahn, Commissioner for Regional and Urban Policy.

“To reap the full potential of the internal market, we have to close its innovation divide,” Hahn told a Science|Business Innovation Board event yesterday (5 February). Under the new 2014 - 2020 regional development budget, some €100 billion will be spent on research and innovation, information and communications technology, SMEs and the low-carbon economy.

There are two main concerns to address. First, “Europe is excellent at turning money into knowledge, but lacking in turning knowledge into money,” Hahn said. “This is one of the big deficiencies in Europe.”

Second, Europe is “divided into a research zone and a non-research zone” said Hahn. “We have to address this divide and this is where the structural funds come in.”

These imbalances are driving the brain drain. “Latvia and Lithuania have lost 10 percent of their workforce over the last 10 years,” Hahn said. Bulgaria, Romania and the Balkan countries are suffering a similar brain drain. “These figures account for 15-20 percent of a year’s age group in a country – and these are the best ones that leave. None are likely return for work.”

As a former CEO of an R&D-driven company and Minister for Science in Austria, Hahn said these issues, “can only be tackled by innovation.”

Geographic criteria

Innovation is already a key part of the €80 billion Horizon 2020 R&D programme, but Hahn said while this is crucial, more is needed. “Horizon 2020 is driven by excellence criteria, and that’s correct. But there are no geographic criteria to spread innovation. That’s why we need regional policy to spread innovation,” he said.

In addition, the Commission aims to make better use of the synergies between Horizon 2020 and regional development funds. For example, Hahn said, structural funds could be used “to improve the attractiveness” of universities by investing in new equipment and infrastructure and higher salaries to attract outstanding researchers.

Delivering these synergies, “Will not be easy, but it should be promoted by all players,” said Hahn. Eighty per cent of people say they want to live, work and grow old in the region where they were born, Hahn noted, adding, “Innovation can help with this.”

View from the boardroom

Regions often look to foreign direct investment from multinationals to drive economic growth, raising the question of what large companies look for when they choose a base of operations. “We don’t mind where the innovation comes from,” said David Eyton, Group Head of Technology at BP. “We look for a region’s critical capacity.”

Joe Macri, Vice-President Public Sector, Europe Middle East & Africa at Microsoft, echoed this sentiment. “We invest with a local, regional approach; we want to do business everywhere.”

The notion of connecting local business leaders and universities to an “open community that could transcend regions” is to be welcomed, said Maya Said, Vice President of Strategy, External Innovation & Science Policy, Global R&D at Sanofi. “Where we invest depends on the underlying infrastructure,” she said, citing the Upper Rhine region as an area where there has been concerted Franco-German collaboration to get the universities and SMEs working together to drive innovation from basic science to new drugs. “It’s a great cluster when it comes to healthcare innovation,” Said noted.

The brain drain from Europe’s Eastern and Southern Member States is definitely a problem when it comes to attracting investment, with the speakers agreeing that one key draw for business is the quality of the talent pool in a region. “The university’s role is crucial in this regard,” said Tuula Teeri, President of Aalto University in Finland.

Defining innovation

The Commission will “define innovation in a broad sense, not in a narrow sense” Hahn said. Rather than being limited to new technologies, it could encompass for example, a new marketing strategy that is important in improving competitiveness. There is potential for innovation in engineering and biotechnology, but equally in applying new business models and practices.

Spending money alone, of course, does not automatically lead to innovation, said Hahn. To channel funds more effectively, the European Commission will now require regions applying for structural funds to submit smart specialisation strategies.

A smart specialisation strategy uses local know-how (or “entrepreneurial discovery”) to identify and build on a region’s existing strengths. Regional and local authorities will play a central role in designing, implementing, and monitoring investment. Funding will not be spread thinly across projects, as in the past, diminishing its impact. It will now be a requirement to focus on a limited number of policy objectives to build up a critical mass of investment in selected areas.

Strategy before projects

The guiding principle is that a region’s projects will now follow directly from its strategy – this, Hahn noted, is the “biggest cultural shift” in the new funding programme.

The benefit of this approach according to Mikel Landabaso, Head of Unit, Competence Centre for Smart and Sustainable Growth at DG Regio, who will aid Commissioner Hahn in unrolling the new funds, is that it challenges policymakers to talk to business leaders and universities to find out what innovations might work in a particular local economy. It’s an attempt to “break from bad planning” and an exercise in “opening minds,” he said.

The big gap in implementing the plan, according to industry and university representatives at the conference, is that many low-income regions lack the skills, education and experience to design innovation strategies. Acknowledging this, Hahn said that some regions will need more guidance than others.

The Commission is opening up access to experts in the Joint Research Centre in Seville for regions that want help in drafting plans. To date 150 of Europe’s 274 regions have signed up.  

Teeri drew attention to the difficulty of measuring success across Europe’s 274 diverse regions. Hahn admitted this was a challenge, but with member states and experts a list of indicators has been drawn up and the “philosophy and standard” applied to each evaluation will be the same.

Hahn acknowledged the experimental nature of the smart specialisation strategy approach but also the promise of its “open collaborative” roots. “It won’t be easy, but it’s important to start this strategy with an open mind.”