Course of Higher Education in:"Governance and Development of SMEs in Egypt"                                 Towards an Inn...
CONTENTS                                                                    Research Project ReportEXECUTIVE SUMMARY      ...
Research Project ReportExecutive Summary      The aim of this research work is to provide:               Industry policy ...
Research Project Report     I. RESEARCH METHODOLOGY      1.1       INTRODUCTION      In the Innovation-based economy, the ...
Research Project Report               What industry policy development recommendations can the Egyptian policy makers ben...
Research Project Report     II. INTRODUCTION      Economic Development is at the heart of all national policies in all cou...
Research Project Report      2.1   SOCIETAL STEP MODEL OVERVIEW OF ITALY            2.1.1    ECONOMY Brief            Ital...
Research Project Report            Italy is the third-largest economy in the euro-zone, but exceptionally high public debt...
Research Project Report                   An uneven distribution of economic activities and ICT infrastructure between no...
Research Project Report               which can be reached by creating an atmosphere of coexistence in which immigrants an...
Research Project Report               competencies and shared competencies can be understood from the Figure 4 below accor...
Research Project Report               jurisdiction. The Commune and Provincial Councils are made up of representatives ele...
Research Project Report     III.      ITALIAN NATIONAL INNOVATION SYSTEM       3.1        INTRODUCTION       Innovation is...
Research Project Report       In 2008, Italy’s economy contracted by 1% following growth of 1.6% in 2007. Production fell ...
Research Project Report               1. Ministries of Education, Universities and Research (MIUR), Economic Development (...
Research Project Report                3. Industrial districts;                4. Technology districts: 24 technology dist...
Research Project Report       In terms of innovation performance, Italy is below the EU average and its relative position ...
Research Project Report                                       Table 1: Sample Country Groups per Innovation Category [20] ...
Research Project Report                                  Figure 9: Italy European Innovation Scoreboard Country Profile [2...
Research Project Report                                    Figure 10: GCI General and Innovation Performance Rankings. [21...
Research Project ReportFigure 11 shows the R&D profile of Italy as compared to the EU and US.                             ...
Research Project Report       Also, according to the OECD Science, Technology and Industry Outlook       2012 [7], Italy’s...
Research Project Report       In the National Strategic Reference Framework (NSRF) 2007-2013, related       to the Cohesio...
Research Project Report       3.4         INTERVENTION PROGRAMS AND POLICIES FOR ECONOMIC DEVELOPMENT       To put the eco...
Research Project Report         3.4.1      OVERVIEW LIST OF NATIONAL PROGRAMS AND POLICIES                  The Fund for ...
Research Project Report                       o   A Fund for Competitiveness and Development was created to support indust...
Research Project Report         3.4.2   EU FUNDING PROGRAMS AND INSTRUMENTS FOR MEMBER STATES       Supporting all EU Memb...
Research Project Report          IV.        EGYPT AND THE EU       4.1        LONG HISTORY OF COOPERATION                 ...
Research Project Report       Under the general Development and Cooperation Europeaid, the EU-Egypt Association Agreement ...
Research Project Report       Currently there is an online export helpdesk tool that allows exporters to the EU to extract...
Research Project Report       Algeria, Armenia, Azerbaijan, Belarus, Georgia, Israel, Jordan, Lebanon, Libya, the Republic...
Research Project Report                                     Figure 19: EU-Egypt Action Plan Priority Areas [34]       Sinc...
Research Project Report       Egypt signed Memorandum of Understanding with the EU on Strategic Partnership on Energy in 2...
Research Project Report       4.2     DEVELOPMENT COOPERATION INSTRUMENTS AVAILABLE FOR EGYPT       Considering this long ...
Research Project Report                           Figure 23: The SPRING Program [29, 38]               Figure 24: The Deve...
Research Project Report               Figure 25: The European Instrument for Democracy & Human Rights (EIDHR) [40]        ...
Research Project Report       Egypt is eligible for co-operation activities financed under the ENPI multi-country and regi...
Research Project Report       The Italian Government holds a 74% stake in SIMEST, while minor shareholders are banks and  ...
Research Project Report   V. INDUSTRY POLICY DEVELOPMENT RECOMMENDATIONS       Egypt is still in a transition stage from a...
Research Project Report       5.1     CONTEXT-AWARE VS. CONTEXT-NEUTRAL DEVELOPMENT CONCEPT       This research was not in...
Research Project Report       5.2         A FRAMEWORK FOR INDUSTRY POLICY DEVELOPMENT       The framework proposed in [1 &...
Research Project Report       The authors in [1&2] state that both provisions and entitlements are determinants of develop...
Research Project Report       In this context, territories should not be considered as simple administrative units but as ...
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
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Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
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Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
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Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
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Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
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Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
Towards an Innovation-Driven Economy in Egypt ... (Check description for details)
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This is my Individual research project report that I submitted in the training held in Italy during Q4 of 2012 about governance and development of SMEs in Egypt that was dedicated for 34 Egyptian professionals selected from across many governmental ministries and agencies. Training was held in Bertinoro near Forli, Bologna, and was administered by Bologna University in the CEUB center of excellence .... (You can skip the research details to the "Industry Policy Development Recommendations" section if you want to get my own input and description of the Sundial Model for industry policy development)

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Towards an Innovation-Driven Economy in Egypt ... (Check description for details)

  1. 1. Course of Higher Education in:"Governance and Development of SMEs in Egypt" Towards an Innovation-Driven Economy in Egypt Industry Policy Development Recommendations from The Italian National Innovation Support System Research Project Report This document represents the individual research project report of the higher educational course on "Governance and Development of SMEs in Egypt “conducted in Italy from 10th of Sep. 2012 till 23rd of Dec. 2012. Submitted by: Tarek Salah Kamel tsalah@itida.gov.eg Capability Development Unit Manager, Information Technology Industry Development Agency (ITIDA), Egypt. th Sunday, 16 of Dec. 2012
  2. 2. CONTENTS Research Project ReportEXECUTIVE SUMMARY 3 I. RESEARCH METHODOLOGY 4 1.1 INTRODUCTION 4 1.2 RESEARCH FOCUS POIN T 4 1.3 RESEARCH APPROACH 4II. INTRODUCTION 6 2.1 SOCIETAL STEP MODEL OVERVIEW OF ITALY 7 2.1.1 ECONOMY BRIEF 7 2.1.2 SOCIAL BRIEF 9 2.1.3 POLITICAL BRIEF 10 2.1.4 TECHNOLOGICAL BRIEF 12III. ITALIAN NATIONAL INN OVATION SYSTEM 13 3.1 INTRODUCTION 13 3.2 OUTLINE OF THE ITALI AN NATIONAL INNOVATI ON SUPPORT SYSTEM 14 3.3 NIS PERFORMANCE OVER VIEW 17 3.4 INTERVENTION PROGRAM S AND POLICIES FOR E CONOMIC DEVELOPMENT 23 3.4.1 OVERVIEW LIST OF NAT IONAL PROGRAMS AND P OLICIES 25 3.4.2 EU FUND ING PROGRAMS AND INSTRUMENTS FOR MEMBER STATES 27IV. EGYPT AND THE EU 28 4.1 LONG HISTORY OF COOP ERATION 28 4.2 DEVELOPMENT COOPERAT ION INSTRUMENTS AVAI LABLE FOR EGYP T 34V. INDUSTRY POLICY DEVE LOPMENT RECOMMENDATI ONS 39 5.1 CONTEXT-AWARE VS. CONTEXT -NEUTRAL DEVELOPMENT CONCEPT 40 5.2 A FRAMEWORK FOR INDU STRY POLICY DEVEL OPM ENT 41 5.3 INDUSTRY POLICY DEVE LOPMENT RECOMMENDATI ONS FOR EGYPT 45 5.4 CONCLUSION 49VI. REFERENCES 50 EXHIBIT 1: Contents of the Higher Education Course on: "Governance and Development of SMEs in Egypt" 53 EXHIBIT 2: The European Union Structure and Main Institutions 54 EXHIBIT 3: Selected Key Organisations within the Italian National Innovation System 60 EXHIBIT 4: The Emilia-Romanga Region NIS Overview 62 Industrial Clusters of Emilia-Romagna and Main Competitive Sectors 63 Research and Innovation in Emilia-Romagna 78 The High Technology Network and Techno-poles 78 Some Best Practices Innovation Support Programs in Emilia-Romagna 81 Digital Infrastructure Overview 83 Incentives for Research and Innovation in Emilia-Romagna 84 Educational and Research Policy Brief of Emilia-Romagna 85 EXHIBIT 5: Overview of the ICT Sector in Italy 882|P a g e
  3. 3. Research Project ReportExecutive Summary The aim of this research work is to provide:  Industry policy development recommendations for decision policy makers in Egypt to transform its economy into an innovation-driven one, and  EU development cooperation instruments available for Egypt to be used for the value of Egyptian ICT SMEs either directly by them or through specific governmental SME support programs. In this regard, this research provides an overview of the Italian National Innovation System (NIS) components, with specific detail to the Emilia-Romagna Region, as well as a performance review of that NIS global and European competitiveness through analysis of different global reports like the WEF, OECD, WB, EIS, IUC, PRO-INNO TrendChart, as well as other studies. This overview is preceded by an outline of a STEP model of the Italian economy aimed at understanding the context, in which, the Italian NIS operates. Combining knowledge gained from this research with the one gained from the “Higher Education Course on Governance and Development of SMEs in Egypt”, the research concludes with a central idea around which the two research targets are detailed in the last two sections. The central idea is about the necessity of adopting a specific form of context-aware strategic thinking in industrial policy development in contrast to context-neutral one. Context-aware in the sense that the properties of the industrial system cannot be explained by its components alone, rather they are explained through a holistic approach to industry policy development that’s able to comprehend the mechanics of its context to guarantee a level of coherence and compatibility with its socio-economic-and-political fabric yielding to its sustained development. A proposed theoretical model for context-aware policy development is explained, as benefited from the Emilia-Romagna region successful innovation performance in Europe [1,2]. Also, implications for adoption of this model in Egypt are elaborated that would guarantee its effective application and usage for reaching a sustainable industry policy that extends its four pillars, namely: innovation, entitlements, provisions, and territorial dimension.3|P a g e
  4. 4. Research Project Report I. RESEARCH METHODOLOGY 1.1 INTRODUCTION In the Innovation-based economy, the quest for sustained economic development and global competitiveness of a nation requires the existence of a reliable, efficient and competent National Innovation Support System (NIS) that ensures a sustainable national competency of innovating new technologies that could be realized by the industry sector, which are either commercialized from public research or realized through industry R&D and technology transfer. Each Nation has its own National Innovation Support System (NIS), in what relates to policies, regulations, institutions, programs, and interconnections that eventually influence the level of economic development and the global competitiveness rank of the whole nation. The course of higher education in “Governance and Development of SMEs in Egypt”, that was conducted in Italy from 9th of September till 21st of December 2012, presented a holistic approach to development of SMEs covering four main aspects affecting the National Innovation Support System within any country, which are: Law and Regulations, Political Economy and Finance, Public Administration and Regional Strategic Planning, as well as Business Organization [Exhibit 1]. It’s within the value of this holistic course and the specific study done on the Italian National Innovation Support system that this research is conducted. 1.2 RESEARCH FOCUS POINT This research project aims to study the Italian National Innovation Support System in what relates to general components as well as performance and challenges. Most importantly is the study of the government intervention policies and regulations to ameliorate the competencies of the economic factors of production, and develop the ICT sector specifically towards a higher level of competitiveness. From this study, as well as from the higher education course, the aim is to extract for Egypt:  Industry policy development recommendations for decision policy makers in Egypt to transform its economy into an innovation-driven one, and  Development Cooperation Instruments Available for Egypt to be used for the value of Egyptian ICT SMEs either directly by them or through specific governmental SME support programs. 1.3 RESEARCH APPROACH The research intends to answer the following questions:  What is the current performance of the Italian National Innovation Support System in terms of innovation capacity competence and global competitiveness?4|P a g e
  5. 5. Research Project Report  What industry policy development recommendations can the Egyptian policy makers benefit from in improving the Egypt’s global competitiveness and innovation performance of our economy, with a special concern to the ICT industry?  What are the development cooperation instruments available for Egypt that could lead to possible collaboration opportunities between Egyptian ICT SMEs and the Italian counterparts? To answer these questions, the following research process was followed: 1. Laying out a simple STEP model for the Italian Economy to understand the context, in which the Italian NIS operates. 2. Studying several global reports about the competiveness, innovation, and doing business rank of Italy. (WEF, OECD, IUC, EIS, WB .. etc) 3. Review on government intervention policies for industry development with specific regard to the ICT sector. 4. Extracting development cooperation instruments available for Egypt and industry policy development recommendations. The outline of this process is described in Figure 1: Figure 1: Research Approach5|P a g e
  6. 6. Research Project Report II. INTRODUCTION Economic Development is at the heart of all national policies in all countries. However, in times of crisis seeking an economic development policy becomes a very hard task. Egypt is still witnessing what shall exceed two-year turmoil of events starting with the revolution in Jan. 2011. However, combined with global crisis effects, weak political stability of the government, local deterioration of factors of economic production, and increased level of political tension among the society, succeeding to even lay down a clear economic development policy of the country seems even harder. This implies that development of a certain sector cannot be attained alone, unless there is an adequate level of a reliable and well-performing holistic model of the society. However, in the quest for Development, it’s important to differentiate between development and growth. Development is a long-term process of growth and improvement not only from an economic point of view, but also from social and cultural points of view. As stressed by Sylos Labini (2006), “Economic development is a means to reach the wider aims of cultural and social development”; Dahrendorff (2008) also highlights that “Economic development cannot arise without civil development” [1]. Bianchi and Labory have presented in [1] the results of a long-range research that suggests that the current global crisis revealed a long-term structural changes in the economy, which all firms in all sectors have to face and which require government intervention. The main problems revealed by the crisis can summarized as: 1. Short-term views prevailed, highlighting short-term benefits of sustained consumption and profits in the financial sector. 2. Partial views also prevailed in the sense of isolating economic phenomena from political and social aspects 3. The crisis is also generated by a myopic and individualistic views whereby self-interest and own profits and returns prevail, without regard to the community. Further details are in [2], where they suggested a holistic approach to industry policy development, revealing a basic and important idea that the properties of the industrial system cannot be explained by its component parts alone. The whole industrial system has to be considered with underlying society and policy, such that industry development is determined by – and in turn influences – the characteristics and evolution of the society and its cultural development [1]. In this regard, and in order to understand the industrial development policy in Italy, the following section of this study starts by presenting the context, in which the Italian National Innovation System operates, which can be described by an overview STEP model of the Italian Economy.6|P a g e
  7. 7. Research Project Report 2.1 SOCIETAL STEP MODEL OVERVIEW OF ITALY 2.1.1 ECONOMY Brief Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private small companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by SMEs, many of them are family owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 17% of GDP [3]. Figure 2: Societal STEP Model Italy was one of the six member states that established the European Economic Community (EEC), one of the predecessors of the EU. Italy was a founding member of the euro area and was among the first group of countries to introduce the euro on January 1, 1999. Euro notes and coins entered general use on January 1, 2002, replacing the Italian Lira [4] . Figure 3: Some Economic Indicators of Italy. (Source: WEF Competitiveness Report 2012-2013) After the 1950s, Italy transformed from a weak agriculture-based economy, severely affected by the consequences of World War II, into one of the world’s most industrialized nations. It has a highly developed infrastructure and was ranked number 10 in The Economist’s Quality of Life 2010 Index [5]. While Italy has developed a reputation for producing high quality luxury goods, the small size of Italian businesses prevented the country for benefiting from recent reforms. Italy has been referred to as “the sick man of Europe” due to economic stagnation, political instability, and challenges in pursuing reform programs. [4]7|P a g e
  8. 8. Research Project Report Italy is the third-largest economy in the euro-zone, but exceptionally high public debt burdens and structural impediments to growth have rendered it vulnerable to scrutiny by financial markets. Public debt has increased steadily since 2007, reaching 120% of GDP in 2011, and borrowing costs on sovereign government debt have risen to record levels. During the second half of 2011 the government passed a series of three austerity packages to balance its budget by 2013 and decrease its public debt burden. These measures included a hike in the value- added tax, pension reforms, and cuts to public administration. The government also faces pressure from investors and European partners to address Italys long-standing structural impediments to growth, such as an inflexible labor market and widespread tax evasion. The international financial crisis worsened conditions in Italys labor market, with unemployment rising from 6.2% in 2007 to 8.4% in 2011, but in the longer-term Italys low fertility rate and quota-driven immigration policies will increasingly strain its economy. The euro-zone crisis along with Italian austerity measures have reduced exports and domestic demand, slowing Italy’s recovery. Italys GDP in 2011 is still 5% below its 2007 pre-crisis level [3]. Key Facts [4]:  The World Economic Forum (WEF) Global Competitiveness Report for 2011/2012 ranked Italy 42nd out of 139 countries in terms of competitiveness. The country’s competitiveness is held back by structural weaknesses in the labor market (ranked 127th on labor market efficiency), weak public finances, and a poor institutional environment.  Italy dropped four spots in the World Bank’s 2012 Doing Business Report to place 87th out of 183 countries. It fell ten places in the category of “starting a business” (now 77th).  According to the European Commission’s September 2012 spring forecast, economic growth is expected to be -1.4% in 2012 and a more welcomed +0.4 in 2013. Plummeting global demand continue to seriously affect the country’s exports, while a weak labor market and inflation pressures contribute to low consumer spending.  As is typical during recessions, the government has run a large deficit. In 2012, it is projected to reach -2.4%. With the persistent government deficit the general government debt is to reach 123.4% of GDP. According to the European Commission, the characteristics of the Italian economy may be summarized as follows [6]:  A predominance of SMEs, which affects the level of R&D expenditure, innovation Enhancement and human capital improvement;  The perception of innovation carried out by SMEs as a modernization process rather than as a strategic activity;8|P a g e
  9. 9. Research Project Report  An uneven distribution of economic activities and ICT infrastructure between north and south;  Low levels of technical education;  A limited propensity to make patent applications; and  A shortage of finance and the need for a more dynamic venture-capital market. 2.1.2 SOCIAL Brief Italy is the 23rd country of the world in terms of population at 61M citizens (July, 2012 est.). The Median age in Italy is 43.5 years and the proportion of the population that is older than 65 is 20.3%. On both these measures Italy is the second “oldest” EU country (after Germany) [3]. Italy has a dearth of highly skilled human resources, and the most highly qualified sometimes find better opportunities abroad. During 2011/13 academics’ salaries and career progression have been frozen in order to contain public spending. A lack of opportunities and unattractive career prospects and working conditions for talented individuals may further weaken the human resource base. A recent parliamentary act aims to support the recruitment of early career researchers. A new action plan for future youth employment (Italia 2020) aims to better align curricula with the changing demand of industry [7]. As a result of the profound economic and social changes induced by postwar industrialization, including low birth rates, an aging population and thus a shrinking workforce, during the 1980s Italy became to attract rising flows of foreign immigrants. The present-day figure of about 4.6 million foreign residents, that make up some 8% of the total population, include more than half a million children born in Italy to foreign nationals—second generation immigrants, but exclude foreign nationals who have subsequently acquired Italian nationality [8]. The level of immigration to Italy presents a social problem, as the level of unemployment in Italy reached 11.1% in 2012, local authorities is striving to solve this problem and offer better jobs to their own citizens. According to [9], restrictive immigration policies that have been created over time are the main reason for the continual illegal flows of immigrants. As a result, there is a certain sense of widespread dissatisfaction with policies, which should not merely be based on countering illegal flows, readmission agreements, temporary stay centers, or even the simple view of immigration in terms of employment. Italians need, instead, to invest more in legal paths,9|P a g e
  10. 10. Research Project Report which can be reached by creating an atmosphere of coexistence in which immigrants and natives are asked to demonstrate reciprocal responsibility [9]. The most widespread religion in Italy is Roman Catholicism which is not, however, a State religion. The Republican Constitution states that all citizens have equal dignity and are equal before the law without distinction of sex, race, language and religion. As far as the Catholic Church is concerned, the Italian Constitution establishes that the State and the Holy Seat are independent and sovereign and that relationships are ruled by the Lateran Treaty of 1929 and subsequently amended in 1985 [10]. Italy is known to be suffering from network of organized crime organizations. Since their appearance in the middle of the 19th century, Italian organized crime and criminal organizations have infiltrated the social and economic life of many regions only in Southern Italy, the most notorious of which being the Sicilian Mafia. There are six known mafia-like organizations in Italy: Cosa Nostra of Sicily, ‘Ndrangheta of Calabria and Camorra of Naples, are rather old. Recently, two new organizations, Stidda and Sacra Corona Unita of Puglia have appeared [11]. Actually, the presence of criminal organizations represents one of the main obstacles to the economic growth and development of several regions and countries around the world. Besides the immediate costs imposed by violence and predatory activities, such organizations may take advantage of their economic and military power to influence the political decision- making process. It’s estimated in Italy that the expansion of organized crime lowered GDP per capita by 16 percent over a 30-year period, relative to a control group of regions less affected by mafia presence. The decrease was caused primarily by a contraction of private investment, which was progressively replaced by (less productive) public capital [12]. 2.1.3 POLITICAL Brief Being part of the six EU states that started the process of the European integration in 1952 and witnessed the evolution of the European Union, it’s not accurate anymore to study the political status of an European state without noting how the EU policies and regulations affect such a state. Italy is a special case since the Treaty establishing the European Community was signed in Rome in 1957. (Exhibit [2] presents an the EU structure main institutions) Currently governments of the European Union Member States are sharing competencies with the EU itself, and their daily work is totally in compliance with the directives and regulations set by the EU in its exclusive competency areas. The difference between exclusive10 | P a g e
  11. 11. Research Project Report competencies and shared competencies can be understood from the Figure 4 below according to the Treaty on Functioning of the EU [13]: Figure 4: Difference between Exclusive and Shared Competencies [13] The EU policies in what relates to sustainable development, green economy, innovation, and other areas are guiding lines for all EU Member States local policies, each in its own territory. The Constitution establishes that the Italian Republic is made up by State, Regions, Provinces and Communes. These are all autonomous bodies with powers and functions limited by the Constitution [10]. Italy is a Parliamentary Republic. The President of the Republic is the higher office of the State. He is elected every seven years by the Parliament in common session and by representatives of the Regions. Italy is subdivided into 20 Regions, five of which enjoy a particularly high level of autonomy according to special statutes adopted through constitutional law. The Regions are established as autonomous bodies with their own statutes, their own powers and functions. The Commune and the Province are administered respectively by the Commune and Provincial Councils. These bodies have the power to deliberate, in the respect of the national and regional laws, on all measures relating to the organization of the services specific to their11 | P a g e
  12. 12. Research Project Report jurisdiction. The Commune and Provincial Councils are made up of representatives elected by residents by universal suffrage [10]. According to the global transparency report, there are a number of corruption challenges in Italy [14]: In the Government and Politics area:  Checks and balances in the Italian government are compromised. A 2012 study indicates that the legislative branch has little independence from the executive. This creates a disparity in power and enables the executive to govern without appropriate accountability.  Integrity mechanisms are also poor in the public sector. According to a 2011 report, parliamentary and government codes of conduct are aspirational at best, and not enforceable. Weak – and often non-existent – sanctions cannot effectively deter corrupt acts. National corruption scandals also undermine public officials’ image. The National Integrity Systems Assessment report says that: “Italys National Integrity System is far from robust, with an average NIS score of 55.04 per cent (scores range from 0 [lowest or worst] to 100 [highest or best]). Corruption is able to flourish almost everywhere as state institutions enjoy considerable autonomy, which does not correspond to standards of accountability and integrity” [15]. In the Political Financing area [14]:  Corporate donations to political parties and candidates are unregulated. Although there are constraints on election expenditure, there are no limits on donor contributions to parties or candidates. Donor identities are only revealed for contributions above €50,000 and even these loose regulations are not adequately enforced.  Political party and campaign expenditure reporting are also unsatisfactory due to the large gap between law and practice. The public is unable to access financial reports of political parties and a number of corruption scandals have added to public distrust in the party system. A 2010 report shows that Italians perceive political parties to be the most corrupt institution in the country. 2.1.4 TECHNOLOGICAL Brief The technological part of the STEP model will be elaborated in detail through the study of the Italian National Innovation System in the Section 2 and in Exhibit 4 for Emilia-Romagna region specifically.12 | P a g e
  13. 13. Research Project Report III. ITALIAN NATIONAL INNOVATION SYSTEM 3.1 INTRODUCTION Innovation is a priority of all Member States of the EU and of the European Commission. Throughout Europe, hundreds of policy measures and support schemes aimed at innovation have been implemented or are under preparation. The diversity of these measures and schemes reflects the diversity of the framework conditions, cultural preferences and political priorities in the Member States [16]. THE INNO-POLICY TREND CHART The ‘First Action Plan for Innovation in Europe’, launched by the European Commission in 1996, provided for the first time a common analytical and political framework for innovation policy in Europe. Building upon the Action Plan, the Trend Chart on Innovation in Europe is a practical tool for innovation organisation and scheme managers in Europe. Run by the Innovation Policy Directorate of DG Enterprise and Industry, it pursues the collection, regular updating and analysis of information on innovation policies at national and European level. The Trend Chart serves the “open policy co-ordination approach” laid down by the Lisbon Council in March 2000. It supports organization and scheme managers in Europe with summarized and concise information and statistics on innovation policies, performances and trends in the European Union (EU). It is also a European forum for benchmarking and the exchange of good practices in the area of innovation policy. The Trend Chart on Innovation has been running since January 2000. It now tracks innovation policy developments in all 25 EU Member States, plus Bulgaria, Iceland, Israel, Liechtenstein, Norway, Romania, Switzerland and Turkey. It also provides a policy monitoring service for three other non-European zones: NAFTA/Brazil, Asia and the MEDA countries. The Trend Chart website (www.cordis.lu/trendchart) provides access to the following services and publications, as they become available:  A database of innovation policy measures across 33 European countries;  A news service and related innovation policy information database;  A “who is who” of agencies and government departments involved in innovation;  Annual policy monitoring reports for all countries and zones covered;  Background material for four annual policy benchmarking workshops;  The European Innovation Scoreboard and other statistical reports;  An annual synthesis report bringing together key of the Trend Chart [16]. Over the last decade Italy’s economic growth has slowed and come to a halt, independently of the world economic cycle. It has been held back by the structural problems that reduce the ability of Italy’s productive system to take advantage of the opportunities inherent in the new patterns of world trade and of the innovative technologies that have spread throughout the world [16]. The financial crisis spreading at international level is affecting the Italian real economy in the same way that it is unfolding in other EU countries. The sharp reduction in revenue, the slowdown in lending and the deterioration in consumer and business confidence are holding back demand and output, creating economic contraction and significant job losses [17].13 | P a g e
  14. 14. Research Project Report In 2008, Italy’s economy contracted by 1% following growth of 1.6% in 2007. Production fell by 3.1% and the trend continued in the first part of 2009. Most industrial sectors are in difficulty. Those which have suffered first from the contraction of the international demand have been the metal-mechanic and textile industries, which are the two pillars of the made-in-Italy industries. Since September 2008 other sectors such as agro-food, construction, commerce and the chemical industry have also seen their investments and confidence in innovation reduced. The IFIIT index which measures the confidence for investments in technological innovation decreased from 78 to 65 points between June 2008 and March 2009. However, sectors such as energy, credit, insurance, telecommunications and luxury goods keep showing special attention towards innovation and new technologies, where investments are not expected to fall [17]. 3.2 OUTLINE OF THE ITALIAN NATIONAL INNOVATION SUPPORT SYSTEM The theoretical model proposed for the National Innovation System components is described in Figure 5 below. It outlines generally what components should be in place to realize an NIS [18-19]. Figure 5: A Proposed Model for the Components of the National Innovation Support System As often happens when examining the “Italian system”, within its various subdivisions, even the “Italian National Innovation System (NIS) is characterized by a large number of entities and a high level of fragmentation” [15]. Based on the European Commission’s Annual Innovation Policy Trends and Appraisal Report for Italy, it is possible to group the different institutions and organizations determining and shaping the innovation system in Italy into six categories [15], which fit most of the proposed NIS model components outlined in Figure 5. Those are: 1) Government and legislative bodies:14 | P a g e
  15. 15. Research Project Report 1. Ministries of Education, Universities and Research (MIUR), Economic Development (MSE), Innovation and Technology, Economy and Finance, and, to a lesser extent, Ministries of Environment and Health; and 2. the Inter-ministerial Committee for Economic Planning (CIPE); 2) Universities and knowledge institutes: 1. 77 universities distributed across the country; 2. The Association of Italian University Rectors (CRUI); 3. Public Research Institutes, like the National Research Council (CNR), the National Agency for New Technologies (ENEA), the Italian Space Agency (ASI), the Italian Aerospace Research Centre (CIRA), the National Institute for Nuclear Physics (INFN) and the Italian Institute of Technology (IIT) - the latter established in Genoa in 2004 by the Ministry of Education, Universities and Research and the Ministry of Economy and Finance, as a foundation with the aim of becoming an international centre of excellence for scientific research in advanced technology; and 4. Private research centers, mainly managed by the major industrial groups (Fiat, Pirelli, Telecom Italia, Finmeccanica, Enel etc.) 3) Public Innovation Agencies/Organizations: 1. The Italian Patent Office (which regulates industrial property issues); 2. The Institute for Industrial Promotion (IPI), a development agency controlled by the Ministry for Economic Development, which is involved in industrial policies, incentive instruments and policies, technology transfer networks and multilateral and bilateral international cooperation efforts; 3. Sviluppo Italia, the national agency for enterprise and inward investment development, which controls “Innovazione Italia”, a dedicated agency that implements national innovation programs; 4. Agitec, the service agency designed to assist business in making investments in innovative technology; 5. At the regional level, relevant organizations are the Regional Innovation Agencies and the Regional Competence Centers (RCCs) - the latter have been established by the Department for Public Administration and the Department for Innovation and Technology to facilitate and accelerate the development of e-government and the information society at the regional level; and 6. The 2006 Budget Law created a National Agency for the Dissemination of Technologies for Innovation (Agenzia per la diffusione delle Tecnologie per l’Innovazione), monitored by the Italian Prime Minister’s Office and aimed at fostering the competitiveness of SMEs and of industrial districts by spreading new technologies and promoting integration between the research and industrial spheres; 4) Private sector organizations: Main Italian industry associations such as Confindustria and Unioncamere; 5) Industrial Research Organizations and Centers: 1. The Italian Association for Industrial Research (AIRI), which promotes industrial research and cooperation between companies and public research institutions; 2. Industrial Experimental Stations: organizations supporting the competitiveness of enterprises in close collaboration with the relevant production sector;15 | P a g e
  16. 16. Research Project Report 3. Industrial districts; 4. Technology districts: 24 technology districts have been promoted in key strategic areas; 5. Science and Technology Parks: the number in Italy is growing. The Association of Italian Science and Technology Parks (APSTI), founded in 1989, now has 30 parks throughout the 6. country; and 7. Business Innovation Centers (BICs), Integrated Centers for Entrepreneurship Development, Incubators and Innovation Relay Centers (7 in Italy), which support innovation and transnational technology transfer; and 6) Innovation Intermediaries and Financial Institutions. The financial system supporting R & D in Italy is made up of: 1. The Italian Business Angels Network (IBAN); 2. The Italian Venture Capital and Private Equity Association (AIFI); and 3. A series of private banks and financial intermediaries that offer funding to finance R&D and innovative projects. (Rinnova, and others)These 6 main categories are illustrated in Figure 6 below [15]: (Refer to Exhibit [3] for more details). Figure 6: Outline of the Italian Innovation System Major Organizations 3.3 NIS PERFORMANCE REVIEW 16 | P a g e
  17. 17. Research Project Report In terms of innovation performance, Italy is below the EU average and its relative position has not significantly improved over the years 2004-2008 (SII was 0.314 in 2004 and is 0.354 in 2008). According to the European Innovation Scoreboard (EIS), Italy positions itself in the group of moderate innovators, showing slow progress and registering a below-average annual growth rate (1.8 in 2008 versus 2.3 EU average) [20]. Figure 7: Summary of Innovation Performance of the EU Member States [20] The moderate innovators could be compared to countries performance of the other categories in related innovation dimensions as in Figure 8. Figure 8: Country Groups: Innovation Performance per Dimension [20]17 | P a g e
  18. 18. Research Project Report Table 1: Sample Country Groups per Innovation Category [20] According to the EIS, Italy performs well (slightly above or around the EU average) in the following indicators: 1. R&D activities and employment in medium-high, high technology and knowledge-intensive services sectors. Such performance is mainly attributed to the importance of the Italian medium-technology industrial base (especially industrial areas of mechanics). 2. Community trademarks and design, a sign of the traditional country leadership at international level in sectors marked by the made-in-Italy production, design creativity and invention, which have contributed and can further boost the consolidation of the Italian products in several key markets, and 3. Non R&D innovation expenditure. On the contrary, low performance is registered for indicators such as Human resources, Finance and Support, and Linkages & entrepreneurship. The EIS indicators reflect the main traditional weaknesses of the country, namely: 1. Insufficient supply of knowledge base for high-technology solutions and dissemination of new technologies (still low number of university educated people, inadequate average level of skills and know-how among the adult and young population, low number of researchers employed), 2. Shortage of finance both from public and private sources and inefficient capital market (inadequate development of the domestic capital market, poorly performing financial sector and slow growth of companies through third-party capital, credit market still managed according to rigid and traditional criteria), 3. Low level of inter-firm collaboration and still weak system of consolidated public-private partnerships. These factors strongly affect the Italian innovation system and the ability of the country to gain on other EU countries in terms of innovation and competitiveness. Based on the analysis of indicators from several sources such as the EIS, Organization for Economic Cooperation and Development (OECD) and International Institute for Management Development (IMD), as well as on national policy debates, publications, and on the analysis of the press, three main challenges can be identified in the Italian innovation system: (1) Innovation financing (especially venture capital), (2) Mobility of talents (especially brain drain), and (3) Improvement of technology transfer mechanisms [6].18 | P a g e
  19. 19. Research Project Report Figure 9: Italy European Innovation Scoreboard Country Profile [20] However, it’s to be noted that according to the WEF Global Competitiveness Index Report 2012-2013, Italy is ranked as an innovation-driven economy category of countries [21]. So linking the two reports gives an indication that Italy is positioned close to the tail of the list of innovation driven economies as clear from Figure 10; the diamond graph shows how Italy is behind in most of the indicators of the innovation-driven economies. According to the WEF GCI report 2011-2012, Italy succeeded to move up by one place to reach the 42nd position this year. The country continues to do well in some of the more complex areas measured by the GCI, particularly the sophistication of its businesses, where it is ranked 28th, producing goods high on the value chain with one of the world’s best business clusters (2nd). Italy also benefits from its large market size – the 10th largest in the world – which allows for significant economies of scale. However, Italy’s overall competitiveness performance continues to be hampered by some critical structural weaknesses in its economy. Its labor market remains extremely rigid – it is ranked 127th for its labor market efficiency, hindering employment creation. Italy’s financial markets are not sufficiently developed to provide needed finance for business development (111th). Other institutional weaknesses include high levels of corruption and organized crime and a perceived lack of independence within the judicial system, which increase business costs and undermine investor confidence – Italy is ranked 97th overall for its institutional environment. The efforts being undertaken by the present government to address such concerns, if successful, will be an important boost to the country’s competitiveness [21].19 | P a g e
  20. 20. Research Project Report Figure 10: GCI General and Innovation Performance Rankings. [21] Other reports, such as the Innovation Union Competitiveness (IUC) Report 2011, also reported comparative details of the performance of the Italian innovation system performance. According to the Innovation Union Competitiveness report 2011, The Italian R&D and innovation system shows positive and negative aspects. In innovation, Italy ranks below the EU average as a moderate innovator. Policy intervention has opened many possibilities which have not been completely exploited due to two types of structural weaknesses [22]:  Inertia regarding modernization within the public research system and  The difficulty to realize growth and innovation within the industrial system, particularly with regard to the most high-tech sectors. The levels of population with tertiary education (11.6 %) and participation in life-long learning (6.8 %) are below the EU averages of 22.8 % and 9.8 % respectively. The total number of researchers (FTE) had an annual average growth rate of almost 4 % between 2000 and 2009, but is still well below the EU average. The business sector in Italy is characterized by a large number of small and medium-sized firms, specialized in products that require high-quality design and engineering, whose average size is significantly smaller than the EU average [22]. There is a predominance of SMEs (98% have less than 20 employees) specializing in low and medium technology sectors [21].20 | P a g e
  21. 21. Research Project ReportFigure 11 shows the R&D profile of Italy as compared to the EU and US. Figure 11: Italy R&D Profile Relative to EU and US. [22] It’s noted that Italy is well integrated in the European research and innovation system. Together with Germany, France and the United Kingdom, Italy is among the highest producers of overall publications and of cross-border co-publications. The preferred partners for scientific collaboration with Italy are among these three countries plus Spain and Switzerland [21]. 21 | P a g e
  22. 22. Research Project Report Also, according to the OECD Science, Technology and Industry Outlook 2012 [7], Italy’s share in world trade has declined and low productivity growth has led to a widening gap in GDP per capita with the best OECD performers. The weak investment in R&D may reflect the specialization of firms in traditional sectors and the prevalence of small family businesses. However, strict regulations also reduce incentives for firms to operate efficiently, invest in innovative technologies and undertake organizational change. In recognition of this, the government has begun to liberalize certain sectors by lowering entry barriers and removing price and quantity restrictions. Figure 12 shows a Comparative Performance Data of National Science and Innovation Systems [7]. Figure 12: Comparative Performance of National Science and Innovation Systems (Italy and EU).22 | P a g e
  23. 23. Research Project Report In the National Strategic Reference Framework (NSRF) 2007-2013, related to the Cohesion policy, the poor innovation capacity of the private and public sectors is identified as the principal source of competitive lag in the country [15]. The systemic weakness of Italy is linked to:  The modest amount of private research conducted even in very large firms,  The insufficient capacity to institute relationship mechanisms between the latter and SMEs,  The limited aptitude of SMEs to dialogue with the research supply system,  The inadequate level of training of entrepreneurs and  The poor involvement of workers in the innovation process both in businesses and in the public administration.  More generally, the weaknesses are traced back to: o An inadequate climate of competitiveness and to the existence of highly-protected positions in the market, in businesses and in public institutions, as well as o To lower skill levels than in other industrial countries and o To poor dialogue between businesses and the research sphere.  Also insufficient is the ability to produce and attract skilled human capital, while at the same time the national economy has difficulty in absorbing human resources that have successfully completed higher education. The research supply system is described as being “patchy”, that is, as having areas of excellence which are not however supported by an adequate system of rules. This in turn leads to the perpetuation of situations of unaccountability fuelled by the absence of merit-based recruitment mechanisms [17]. However, despite the overall Italian relative lower performance in innovation as compared to the leader-innovation players, some regions like Emilia-Romagna are considered as model of innovation in Europe [2]. Regions of Italy have their own regional development policies that could fill gaps and account for shortages in the national ones, as and explained in the next section.23 | P a g e
  24. 24. Research Project Report 3.4 INTERVENTION PROGRAMS AND POLICIES FOR ECONOMIC DEVELOPMENT To put the economy on a sustainable growth path based on sound macroeconomic fundamentals, the Italian government has embarked since 2011 on a substantial process of fiscal consolidation and structural reform [7]. Italy aims to improve productivity, competitiveness and innovation throughout the country via a sustainable development framework. The main focus will therefore be on promoting skills and providing public services to people and investors. These national objectives are to be achieved through four macro-objectives [24]:  Developing knowledge circuits;  Improving living standards, security and social inclusion;  Fostering clusters, services and competition; and  Internationalizing and modernizing the economy. However, for Italy with 20 regions, each region put also its own development policies that sometimes fill some gaps in the national policy or simply account for its failure. That’s why regions have a considerable level of inequalities according to the competency of the responsibles within this region for policy development and availability of resources and how they are put into the economic cycle of development. This is realized in the north and south disparity problem in Italy for example with much R&D and innovation capacity concentrated in northern and central regions of the country. Also across all Europe, led to the adoption of the Cohesion policy aiming to improve the economic conditions of specific regions within the EU suffering from such disparity. So the result is that, for a specific region, we have 3 sets of policies and programs targeting different economic development dimensions or even the same dimension together but through different means and mechanism. Figure 13: National, Regional, and EU Policies and Programs Integrating Together. In the following section, a list of national intervention programs and agreed policies across Italy is outlined, and then followed by a summary of major EU funding programs. Of course, details of the 20 regional policies and programs in Italy are beyond the scope of this research. Nevertheless the Emilia- Romagna region specifically is overviewed in more detail in Exhibit [4].24 | P a g e
  25. 25. Research Project Report 3.4.1 OVERVIEW LIST OF NATIONAL PROGRAMS AND POLICIES  The Fund for the Promotion of Research (FAR) o With a budget of USD 2.5 billion (2010-11), it’s contributed significantly to increasing public funding for business firms, universities and Public Research Institutes (PRIs)  The National Research Plan (2011-13) o Aims to promote research by strengthening business sector co-operation with the public sector and supporting the internationalization of research.  Industry 2015 (2006-15) o The program establishes strategic guidelines to ensure development and competitiveness of the country’s economic system and defines new tools aimed at encouraging investment. Sets out to support business networks and industrial innovation projects and includes a fund for enterprise finance [17].  Industrial Innovation Projects  Such support measures are aimed at promoting investment in high- innovation programs within strategic sectors for Italy’s development.  Enterprise Networks  An enterprise network is a form of contractually-based coordination among enterprises. It’s specifically designed for SMEs seeking to achieve critical mass and greater market power.  Fund for Corporate Finance  Intended to make it easier for SMEs to obtain credit and risk capital.  National Reform Program 2011-12 o Requires general policies to have a small impact on the national budget.  The National Strategic Framework 2007-13 o Includes the National Operational Program (PON) Research and Competitiveness 2007-13, funded by the European Regional Development Fund (ERDF) and by the National Revolving Fund (Fondo di Rotazione), which is of high importance for regional cohesion and competitiveness  Territorial Research and Development Initiatives o The aim is to enhance competitiveness of high-export product areas through R&D. To such end, the Italian Government has developed a policy focused on the formation of Technology Districts (TDs). Currently, there are 29 formally approved TDs throughout the country specializing in different areas (e.g. nanotechnologies, wireless technologies, biotechnologies, logistics, cultural heritage, mechatronics, .. etc) [25].  Science, Technology , and Innovation (STI) Policy Governance Improvement o The Ministry for Economic Development (MISE) is in charge of industrial innovation, and the Ministry for Education, University and Research (MIUR) is responsible for the national education system, including higher education, but also for promoting research at national and international level. The National Agency for the Evaluation of Universities and Research Institutes (ANVUR) has operated under MIUR since 2010. o In order to improve public research performance, a reform of funding mechanisms for and management of universities were approved in 2010 by Parliament and is being implemented [7]. o As stated in the National Reform Program 2011, for 2011/12, tax incentives have been strengthened for research commissioned by firms to universities and PRIs as well as for research developed in collaboration with them.25 | P a g e
  26. 26. Research Project Report o A Fund for Competitiveness and Development was created to support industrial innovation projects in such areas as energy efficiency, new technologies for “Made in Italy” products, new technologies for life, and innovative technologies for cultural heritage. An independent agency is being set up to evaluate universities and research in order to improve the governance of the research and innovation system. Italy also obtains EU Structural Funds, which help to finance regional projects.  Public Sector Innovation o The e-Government Plan 2012 of the Department for Public Administration defines a set of digital innovation projects to modernize the public administration, to make it more efficient and transparent, and to improve the quality of services and reduce costs. The plan sets out some 80 projects and 27 targets to be achieved by 2013.  Knowledge Flows and Commercialization o Various initiatives aim at bridging the gap between academia and industry. Technological districts and high technology poles as well as public-private laboratories are established in different parts of the country.  The National Innovation Fund (FNI)  Was created in 2012 by MiSE to facilitate the financing of innovative projects based on the exploitation of industrial designs and patterns. In addition, the Innovation Package introduced in 2011 supports the patenting activity of SMEs.  The National Technology Platforms and Industrial Innovation Network (RIDITT)  Were set up in 2010 to ensure dissemination of innovation and technology between research system and enterprises.  The Strategy for the Internationalization of Italian Research (SIRIT 2010-15) o Integrates the national research priorities in international strategies and priorities, notably the EU’s 2020 Strategy. Italy actively participates in EU R&D programs, the European Strategy Forum on Research Infrastructures (ESFRI) and other European initiatives such as EUREKA (for international S&T cooperation) and Erasmus (for mobility of students and researchers).  Green Innovation o Italy has improved its RTA in environment-related technologies over the past decade and will soon develop a specialization if this trend continues. The government provides a number of incentives for renewable energy production. The Energy Account (Conto Energia) initiative promotes solar photovoltaic, and a Kyoto Fund was set up to finance measures to reduce greenhouse gas emissions. Green Certificates (CV) promote electrical energy produced from renewable sources and White Certificates – energy efficiency labels (TEE) – encourage energy-saving measures. A package of fiscal incentives for energy efficiency interventions in existing and new buildings was approved by Parliament in 2011 [7].26 | P a g e
  27. 27. Research Project Report 3.4.2 EU FUNDING PROGRAMS AND INSTRUMENTS FOR MEMBER STATES Supporting all EU Member States (MSs) are a specific set of EU Funding programs, which have a big role in funding many programs aimed at financing different dimensions of economic, social, and technological development in all MSs, including Italy as well. These funding programs actually are emerged from another set of EU Policies and Treaties that were developed over time, are being continuously enhanced, and elaborated more since the start of the buildup of the European Union. From the European Economic Union Treaty in 1957 till the Lisbon Treaty in 2007, that targets to achieve a globally technologically competitive EU economy, such treaties and policies aims to achieve more general targets encompassing economic, social, and political competitiveness of the EU. Guided by the desire to achieve peace and prosperity after the WW2, the customs union was created, then the European Union, then the Monetary Union, with some recent challenges to the Euro that may result in speeding up discussions towards a political union. However, for the scope of this research only the list of Funding programs shall be outlined, not the evolution of such treaties [24-27]. Figure 14: Most Important EU Funding Programs for Member States. Such Funding Programs are very valuable in extending the resources of each Member State up to the value of greater access to much more resources, which is one of the important values gained through the EU. Realized in the union is that the sum of the group is greater than the sum of its parts, which shall be referred to in a later section about lessons learned in the political dimension with very profound possible impacts on the economic development of Egypt. Further more details about EU policies, programs and priorities covering all areas from agriculture to transport can be found in http://ec.europa.eu/policies/index_en.htm.27 | P a g e
  28. 28. Research Project Report IV. EGYPT AND THE EU 4.1 LONG HISTORY OF COOPERATION EGYPT EU RELATIONS The EU and Egypt began diplomatic relations in 1966. The EU seeks to develop a particular close relationship to Egypt, its geographical neighbor, and to support Egypt’s domestic and political reforms. The relationship emphasizes close cooperation on democratic reform, economic modernization, social reform, and migration issues. The current agenda of EU-Egypt relations is spelled out in an Action Plan under the European Neighborhood Policy. Egypt and the EU are bound by the legally binding treaty in the form of the Association Agreement which came into force in 2004. Trade remains another important subject of relations, as well as financial co- operation, details which can be found in the Country Strategy Paper [28]. The Euro-Mediterranean Co-operation was launched at the 1995 Barcelona Conference between the European Union and its originally 12 Mediterranean Partners: Morocco, Algeria, Tunisia, Egypt, Jordan, the Palestinian Authority, Lebanon, Syria, Turkey, Cyprus, Malta, and Israel. The main objectives of the Barcelona Declaration were [29]: 1. Establish a common Euro-Mediterranean area of peace and stability based on fundamental principles including respect for human rights and democracy (Political and Security Partnership). 2. Create an area of shared prosperity through the progressive establishment of a free-trade area between the EU and its Partners and among the Mediterranean Partners themselves (Economic and Financial Partnership). 3. Develop human resources; promote understanding between cultures and rapprochement of the peoples in the Euro-Mediterranean region as well as to develop free and flourishing civil societies (Social, Cultural and Human Partnership). Under this framework, Association Agreements have been adopted between the EU, the Member States and the Mediterranean country partners. And In general, it provides a gradual establishment of a Mediterranean free trade area in accordance with the rules of the World Trade Organization (WTO).28 | P a g e
  29. 29. Research Project Report Under the general Development and Cooperation Europeaid, the EU-Egypt Association Agreement forms the legal basis governing relations between Egypt and the EU, modeled on the network of Euro-Mediterranean Partnership Agreements between the Union and its partners in the southern flank of the Mediterranean Sea. The Association Agreement was signed in Luxembourg on 25 June 2001 and entered into force on 1 June 2004, following ratification by the Member States and by Egypt. It replaces the earlier Co-operation Agreement of 1977. Figure 15 shows the scope of the agreement. Figure 15: Scope of the EU-Egypt Association Agreement [30]. The Association agreement establishes an FTA between the two partners with the elimination of tariffs on industrial products and significant concessions on agricultural products, which means lower tariff rates and increased quotas for certain products. Amended with an agreement on agricultural, processed agricultural and fisheries products (in force since 1 June 2010), Figure 16 shows the value gained for both industrial and agriculture products. Figure 16: Association Agreement FTA Impact on Trade between Egypt an EU [30].29 | P a g e
  30. 30. Research Project Report Currently there is an online export helpdesk tool that allows exporters to the EU to extract information about customs tariffs, imports procedures and preferential arrangements applicable to their products, as well as to have access to trade statistics and useful links. It has an Arabic version and Egypt recorded more than 75% of the website hits [31]. Figure 17: Online Export Helpdesk Tool [31]. In 2008 the Barcelona Process, under the Euro-Mediterranean Partnership (EUROMED), has been re- launched through the establishment of the Union for Mediterranean (UFM), which should promote economic integration and democratic reform across 16 neighbors to the EU’s south in North Africa and the Middle East. Figure 18: UFM Key Initiatives [32]. The Euro-Mediterranean Co-operation is further supported by the European Neighborhood Policy. With its European Neighborhood Policy (ENP), the EU is seeking to reinforce relations with neighboring countries to the east and south in order to promote prosperity, stability and security at its borders. The ENP was launched in 2004. At present, 16 partners are addressed by the ENP: Egypt,30 | P a g e
  31. 31. Research Project Report Algeria, Armenia, Azerbaijan, Belarus, Georgia, Israel, Jordan, Lebanon, Libya, the Republic of Moldova, Morocco, the occupied Palestinian territory, Syria, Tunisia and Ukraine. The ENP provides the EU with the means to deepen bilateral relations with these countries. The policy is based upon a mutual commitment to common values: democracy and human rights, rule of law, good governance, market economy principles and sustainable development. The ENP actually takes relations beyond standard cooperation or trade agreements to offer political association and deeper economic integration, increased mobility and increased people-to-people contacts [29, 33]. EU-EGYPT ACTION PLAN 2007-2013 “This Action Plan is a first step in a process covering a timeframe of three to five years. Its implementation will help fulfil the provisions and aims of the Association Agreement (AA) and will encourage and support Egypt’s national development, modernization and reform objectives. It will furthermore help to devise and implement policies and measures to promote economic growth, employment and social cohesion, to reduce poverty and protect the environment, thereby contributing to the long term objective of sustainable development. Implementation of the Action Plan will also help, where appropriate, further integration into European Union economic, social and technological structures and significantly increase the possibility to advance the approximation of Egyptian legislation, norms and standards to those of the European Union in appropriate areas, thereby enhancing prospects for trade, investment and growth.” [34] Countries wishing to deepen their relationship with the EU agree joint bilateral action plans to this effect. And the EU-Egypt Action Plan has been adopted in 2007. Figure 19 shows the extent of this action plan priority areas [34]. The European Neighborhood and Partnership Instrument (ENPI) is the financial instrument for the ENP. It is addressed to ENP partner countries and offers co-funding for promoting good governance and equitable social and economic development process. It has been operational since 1 January 2007. The ENPI is the main source of funding for the 17 partner countries, with overall allocation for the ENPI instrument amounts to almost €12 billion for the seven-year period 2007-2013 [35]. The ENPI supports the following in particular:  Political reform (good governance, rule of law, respect of human rights);  Economic reform (economic development, market economy, convergence with the EU internal market);  Social reform (integration, employment, non-discrimination);  Sectoral co-operation (environment, energy, health…)  Regional and local development;  Participation in EU programs and agencies.31 | P a g e
  32. 32. Research Project Report Figure 19: EU-Egypt Action Plan Priority Areas [34] Since 2007, the Commissions priorities in terms of financial cooperation with Egypt have fallen under the strategic framework for EU co-operation with Egypt is established in the Country Strategy Paper, which currently covers the period 2007-2013. Figure 20: ENPI Egypt Strategy Paper Funds per Priority Area [35].32 | P a g e
  33. 33. Research Project Report Egypt signed Memorandum of Understanding with the EU on Strategic Partnership on Energy in 2009. It targets from 2009-2015 to give priority to [36]:  Development of a comprehensive Egyptian energy strategy,  Development of a wide-ranging policy and projects in the field of energy demand management, energy efficiency and renewable energy sources;  Enhancement of technological, scientific and industrial cooperation.  Development of energy networks and energy security  Establishment of a work program for the gradual convergence of Egypt’s energy market regulations with those of the EU33 | P a g e
  34. 34. Research Project Report 4.2 DEVELOPMENT COOPERATION INSTRUMENTS AVAILABLE FOR EGYPT Considering this long history of relations between Egypt and the EU, currently Egypt has considerable access to many development cooperation instruments that can be used to support its economic development efforts, including the development of its SMEs in all fields as well as in ICT. Figure 21 gives a general overview of these instruments that are available for Egypt [25-27]. Figure 21: Development Cooperation Instruments Available for Egypt. Overview summary of most of these programs are provided in the figures below: Figure 22: Partnership for democracy and shared prosperity with the Southern Mediterranean [37].34 | P a g e
  35. 35. Research Project Report Figure 23: The SPRING Program [29, 38] Figure 24: The Development Cooperation Instrument (DCI) [29, 39]35 | P a g e
  36. 36. Research Project Report Figure 25: The European Instrument for Democracy & Human Rights (EIDHR) [40] Figure 26: Framework Protocol 7 for Research and Technology Development [41]36 | P a g e
  37. 37. Research Project Report Egypt is eligible for co-operation activities financed under the ENPI multi-country and regional programs and the ENPI Cross Border co-operation component. Egypt also benefits from the new Erasmus Mundus program, enhancing mobility and co-operation with EU in the field of higher education [42]. Beyond the bilateral geographic instrument (ENPI), Egypt is also eligible for additional funds under the European Instrument for Democracy and Human Rights (EIDHR) and thematic programs established under the Development Co-operation Instrument (DCI), which covers among others the Non-State Actors and Local Authorities in Development (NSA & LA), Investing in People and Migration. In 2010, a budget of €1.9 million was made available to civil society organizations (€0.9 million under EIDHR; €1 million under NSA & LA). In 2011 Egypt benefitted from EIDHR (€2.0 million), NSA & LA (€1.0 million) and from global calls under the DCI thematic programs [42]. BOOSTING CO-OPERATION THROUGH TWINNING Twinning is a European Commission initiative that was originally designed to help candidate countries acquire the necessary skills and experience to adopt, implement and enforce EU legislation. Since 2003, twinning has been available to some of the Newly Independent States of Eastern Europe and to countries of the Mediterranean region. Twinning projects bring together public sector expertise from EU Member States and beneficiary countries with the aim of enhancing co-operative activities. They must yield concrete operational results for the beneficiary country under the terms of the Association Agreement between that country and the EU [43]. A budget of €62 million is available for Egypt under the Twinning instrument which promotes institution and capacity building through support provided by experts from Member States to partner country Ministries. Areas covered by the Twinning Instrument include Tourism, Maritime Safety, Postal Services, Investments and Free zones and Railways safety. Future projects will cover other areas of the Association Agreement and the EU-Egypt Action Plan such as: Statistics, Occupational Health, Water Quality, Waste Management, Telecommunications, Animal Disease, Norms and Standards and Road Safety [42]. Full details about the international financial institutions can be found in [26] including history of previous engagements with Egypt in different sectors, however SIMEST as a specific Italian institution playing an important role in developing Italian companies locally and in international markets needs to be elaborated here. Established in 1990, SIMEST is an Italian state – owned agency specialized in facilitating the processes of internationalization of Italian enterprises and companies all over the world. Based in Rome, it operates by providing financial support, technical assistance and professional consultancy during the entire process of internationalization of the company.37 | P a g e
  38. 38. Research Project Report The Italian Government holds a 74% stake in SIMEST, while minor shareholders are banks and business associations. Today, the agency operates in every country in the world, outside the European Union, including Egypt. Figure 27: SIMEST Profile [44, 45] Table 2: SIMEST Services in All Phases of Development [44]38 | P a g e
  39. 39. Research Project Report V. INDUSTRY POLICY DEVELOPMENT RECOMMENDATIONS Egypt is still in a transition stage from a Factor-Driven economy to an Efficient-Driven one and still far from being in the Innovation-Driven category like Italy for example according to the latest Global Competitiveness Index report 2012-2013. Its global competiveness rank suffered a significant decrease in this latest report, as clearly affected by the recent turmoil after the revolution in Jan-2011, the observed level of inefficiencies in the total factors of economic production, and the increased government and political instability [21]. Table 3: Past 5 years of Egypt GCI Rank This situation briefs the current final deteriorating state of Egypt’s global competitiveness despite a lot of development policies, strategies and Figure 28: Egypt GCI Profile programs deployed over the last decade using national and international resources. Sustainable development is not yet attained. More precisely, this highlights the fact that development only occurs within a supportive context. Socio-economic and socio-political parameters of a society actually can enable or mute any development policy. Laying down an elaborate strategy and policy for development with miscellaneous high-value programs for the society and industry is not the final answer or the magic key to wealth and prosperity. Despite the intellectual difficulty to actually settle on the detailed content of such strategies and policies that should be of a correct and true relevance to increasing the global competitiveness of a nation, there exists the socio-economic/political context in which this strategy and policy operates that actually determines factors of implementality and feasibility of meeting the minimum success measures foreseen in development programs. Like most of entrepreneurship trials; many actually fail to sustain, whatever an elaborate business plan was previously written, for the same reasons. Considering this clear fact the industry development recommendations are needed to be holistic ones that aim to find gaps to fill in Egypt in the socio-economic/political fabric of the society, which are critically needed to really assure the correct channeling of policy documents to the real world.39 | P a g e
  40. 40. Research Project Report 5.1 CONTEXT-AWARE VS. CONTEXT-NEUTRAL DEVELOPMENT CONCEPT This research was not intended to just copy existing efficient systems from Italy to Egypt, whatever differences or similarities that exist between the two countries on many aspects, however it aimed rather to try to understand the economic efficiency of Italy and how some development initiatives were much tuned with the socio-economic/political fabric of the society that made them successful in some economic sectors and yielded them less or not successful in some others. In general, universal concepts and generic methodology practices could be transferred from a certain context to another, however may be yielding into completely different practices on ground in that other context. As what has been recorded to be successfully efficient and of high productivity in a certain context doesn’t necessarily prove the same in another context. It’s worth noting that there is a generic trap in copying systems from one context to another in the macro scale of strategy and policy development. Apart from differences in contexts mentioned before; to even start by selecting a certain successfully-implemented governmental macro-scale program to copy, it’s really very difficult to report that this program did pass its true KPIs set before launching it, or even report the exact enhancements and value improvements it brought to the socio-economic fabric of the society. The exact causality to an even existing improvement is generally uncertain, whether it’s due to availability and efficient use of resources, competency and talented skill set of the human-factor of implementation, efficient organizational structure and procedures of control and communication, having an elaborately defined project with complete risk mitigation strategies and tactics that are well-defined and exactly followed, or any other parameter affecting project success in general. Majority of governmental programs do not report their exact added-value to their beneficiaries and hence the society after implementation. Reporting numbers of beneficiaries and amounts of invested resources doesn’t necessarily mean that the value-added really exists or matches such invested resources that if could have been invested in another program might have achieved greater success on ground. The political context plays a major role in how development programs are presented and reported, and it’s often that program managers care about reporting their personal success in managing the program and meeting its delivery requirements within its time frame and assigned budget rather than the exact amount of added value of such deliverables to the program beneficiaries, that is really practically difficult to measure in most cases. Also the human factor is a major contributor to the success or failure rate of any real program implementation on the individual competency and skill set level as well as on the teamwork level. This shows the importance and necessity of following a context-aware way of strategic planning and thinking when it comes to the formulation of an industry development policy. On the contrary applying context-neutral development programs may fail to effectively enhance the total factors of economic production specific to a certain context if not carefully tuned to it.40 | P a g e
  41. 41. Research Project Report 5.2 A FRAMEWORK FOR INDUSTRY POLICY DEVELOPMENT The framework proposed in [1 & 2] is a model of context-aware strategic thinking model for industry policy development. The authors in [2] have analyzed the industrial policy of Emilia-Romagna region in Italy, which is considered a model of diffused industrialization and flexible specialization, and where industrial development is intimately linked to the civil society and social norms and values. They showed that the relatively good performance of the Emilia-Romagna region in terms of economic and social development can be attributed to a large extent to the industrial policies that have been implemented since the 1980s, which represent a model for their proposed framework that’s much more needed after the recent crisis. These policies were proactive, in that they have tried to anticipate change in industry and favor industrial structure adaptation to provide the appropriate gears towards sustainable development paths. And also they were participative, in that the policy was defined and implemented through discussion and consensus with all relevant stakeholders, primarily firms, but also with other regional public entities such as towns and provinces. This model of stakeholder engagement is also characterized in the literature also as a quadruple helix model, as an evolution from the triple-helix one, that capitalized only on public-private-university relations without the civil society engagement. Following is a description of this framework, as successfully applied by Emilia-Romagna Region [2]. The Sundial Model Figure 29: The Sundial Model of Industrial Policy Development (Showing the Four Levers of Industrial Development)41 | P a g e
  42. 42. Research Project Report The authors in [1&2] state that both provisions and entitlements are determinants of development. They determine the available resources and the capabilities of individuals to use these resources in order to create value. Countries have different trajectories of industrial development according to their set of provisions and entitlements. Historically this has been explained through classical theories like the Ricardian model through comparative advantage of nations due to differences in labor productivity, then adapted by Heckscher-Ohlin model through differences in the total factors of production (labor, labor skills, physical capital and land), and finally elaborated in more detail by Paul Krugman new firm-based theory highlighting increased return to scale, consumer appreciation of diversity, and thus explaining intra-industry trade [46]. A territory social structure, economic organization and institutional governance determine the development of certain competencies at regional level that lead to specific task specialization. This task specialization primarily arises territorially or regionally because it is the level at which certain types of knowledge relations arise more easily and densely, and some resources are deeply rooted. An important consideration regarding task specialization is locating precisely within a territory where the competence is embedded. A territory may specialize in specific tasks because the competencies underlying these tasks are held and controlled by regional firms. These firms in this case determine the specialization of the territory. Hence the development of this territory must then consider this local specialization competency and could depend on the firm strategic decisions.42 | P a g e
  43. 43. Research Project Report In this context, territories should not be considered as simple administrative units but as places where values and distinctive competencies and skills can be intensified, due to being territorially defined through social aggregations with economic and political structures. The regional administrative level is more appropriate to identify possible synergies and possible competencies to develop locally, because of its better knowledge of both local actors and local knowledge. So this implies that regional development policies must exist to complement and synergize with national development ones, that should still provide resources, promote task specialization at the regional level, and favor interregional exchanges and synergies when different regions are specializing in complementary competencies. Coordination between regional and national development policies is critical to success. Therefore, it is increasingly important for regions to be able to favor synergies at local level so that task specialization can occur – usually through the support of buildup of industrial clusters – and be able to adapt to changing circumstances, however at the same time to develop their capacity to create relations elsewhere in the world, so that the local industry can become part of the global value chains. The Industrial policy in this model highlights that policies require adequate politics and coherent policies. The design of an industrial policy requires identification of industries’ current and future trends, and foresight of emerging technologies with their possible disruptive or advantageous applications to existing industries generating possible scenarios, which policy-makers have to choose from. The question for policy is to identify a possible development path on the basis of the current situation of the regional system and its historical evolution, which identifies its distinctive competencies, the current resources and entitlements and the desirable new developments. “The past sets the possibilities, while the present controls what possibility is to be explored”. Since the industrial policy choice is very political, it’s necessary that all stakeholders are involved in order to share and gain access to critical knowledge as well as achieve consensus that indicates that implementation will be more precisely followed. The economic system is complex, thus industrial development is determined by complex interdependencies and processes, which imply the abandonment of methodological individualism in not considering the overall system of which industrial development is a part.43 | P a g e

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