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Lessons from Five Years of Helping Governments Foster Incentives Transparency

Harald Jedlicka's picture

Global competition to attract foreign and domestic direct investment is so high that nearly all countries offer incentives (such as tax holidays, customs duty exemptions and subsidized loans) to lure in investors. In the European Union, the 28 member states spent 93.5 billion euros on non-crisis State Aid to businesses in 2014. In the United States, local governments provided and average of US$80.4 billion in incentives each year from 2007 to 2012.

In order to better understand the prevalence of incentives worldwide, the Investment Climate team in the Trade & Competitiveness Global Practice of the World Bank Group reviewed the incentives policy of 137 countries. Results showed that all of the countries that were surveyed provide incentives, either as tax or customs-duty exemptions or in other forms. Table 1 (below) shows the rate at which these instruments are used across advanced and emerging economies. For instance, tax holidays are least common in OECD countries and are most prevalent in developing economies. In some regions they are the most-used incentive.[1]





However, despite offering incentives, few countries meet all the requirements of a fully transparent incentives policy. These include: mandating by law, and maintaining in practice, a database and inventory of incentives available to investors; listing in the inventory all aspects of key relevance to stakeholders (such as the specific incentive provided, the eligibility criteria, the awarding and administration process, the legal reference and the awarded amounts); making the inventory publicly available in a user-friendly format; requiring by law the publication of all formal references of incentives; and making the incentives easily accessible to stakeholders in practice. A T&C study now under way on incentives transparency in the Middle East and North Africa (MENA) region showed that none of the eight countries analyzed has a fully transparent incentives policy. (See Graph 1, below.)




Meet the Innovators: Tech Entrepreneurs Forge a New Future for the Western Balkans

The countries of the Western Balkans – which include the states of the former Yugoslavia, along with Albania – are not exactly world-famous for their entrepreneurial spirit. Yet if you look at their societies more carefully, you’ll soon find a surprising number of new companies dotted throughout the Western Balkans. They’re already setting their sights beyond smaller domestic markets: They’re looking to Europe, and the world.

Western Balkans: Through Science, Innovation and Collaboration, a Program for Shared Prosperity

Paulo Correa's picture


 

You’d probably be skeptical if I told you that the Western Balkans – a region that has long suffered from social and ethnic fragmentation – now has a strong opportunity to boost shared prosperity by promoting research, innovation and entrepreneurship. Your views might not even change if I showed you that such idea is validated by preliminary studies linking research and innovation to the performance of firms and countries in the region.

You might be surprised – yet your initial assumption might be unchanged – if I told you about the kind of companies that are starting to build a different economic landscape in the region: firms like UXPassion, Pet Minuta, Strawberry Energy or Teleskin, which are all technology-based startups created by young researchers who became entrepreneurs. Click on this link (http://www.worldbank.org/en/news/video/2013/10/22/western-balkans-research-and-development-for-innovation), or on the video embedded below, to meet them and other innovators from the Western Balkans.

Indeed, the transition to a market economy and the breakup of the former Yugoslavia starting in 1991 had a severe impact on the research and innovation sector in the Western Balkans. Research capacity narrowed significantly, and R&D’s links to the productive sector of the economy disappeared. The new industrial structure has naturally a lower propensity to invest in research while the current business environment promises low returns to the enterprise investments in innovation. Efforts to revamp the region's research and innovation sector were most of the time short-lived.

As a result, the performance of the research and innovation sector in the Western Balkans is gloomy. The region’s current investment in R&D are roughly the same amount as the investment by just the second-largest university in the United States. (In 2012, for example, only 38 patents from the region were registered with the U.S. Patent and Trade Office – compared to the average of 27 patents registered by each American university.) At the same time, very little of those investments are efficiently transformed into wealth. For example, for each invention that received a patent, the region spent, on average, three times more in R&D resources than does the United States.

Building on a continuing series of efforts to reform their national innovation systems, in the hope of changing their gloomy prospects, the Western Balkan countries in 2009 committed to develop a joint regional research and innovation strategy. That strategy, developed between 2011 and 2013, was formally endorsed last month by the ministers responsible for science and education from Albania, Bosnia-Herzegovina, Croatia, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro, and Serbia. The preparation of the strategy, which benefited from technical assistance by the World Bank and from the financial support of the European Commission, involved representatives from the region’s leading universities, research institutes, private sector firms and government agencies. Discussions of the draft proposal were pursued in all seven countries as part of a large outreach exercise.