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Business news
Baltic Sea Region to Develop via Integration
10.12.2004 11:52

baltic_region_forum St Petersburg Times

By Angelina Davydova

Special to the St.Petersburg Times

Innovation and competitiveness are the two main priorities for Baltic Sea region development, Uffe Ellemann-Jensen, the former Danish foreign minister and the chairman of Baltic Development Forum said as his concluding remarks at the 6th Baltic Development Summit.

The summit took place in Hamburg last month, and aimed at presenting reports on the conditions of the Baltic Sea region, on competitiveness and new enterprises in the area, and looked to promote further cooperation between the participating countries.

The Baltic Development Forum summit - an annual conference held in one of the cities of the Baltic Sea region (Riga last year, Stockholm next year) - gathers the region's leading figures from politics, business, academia, research, and media, and acts as a communication platform for future integration and cooperation in the area.

Along with the communicative function, there are a number of reports and research projects being presented each year which reflect the current state of the region, its problems, prospects and challenges.

One of the projects - "State of the region report 2004: an assessment of competitiveness in the Baltic Sea Region" - was developed by Vinnova (a Swedish Agency for innovation systems), Stockholm School of Economics and Harvard Business School. It can be seen as one of the most important analytical reports, providing data and research on the region.

According to Per Eriksson, the general director of Vinnova, the economy is becoming more knowledge-based and global. At the same time, "European Union has set a goal to become the world's most dynamic knowledge-based economy," and, within it, "the Baltic Sea region, has the potential to become the region with the most dynamic growth in the EU".

One of the key prerequisites for regional growth is R&D innovation. Erikssoon stressed that R&D must be strongly linked to business needs, and technology cooperation has to shift from the Public-Private Partnership model (public organization and private business working in tandem) to a Public-Private-University Partnership model - thus, bringing scientific research into business.

As mentioned in many of the sessions and panel discussions, the Baltic Sea region is entering a new era.

Many new trade and organizational ties are being formed, while "reality as regards to benefits raises demand for deeper cooperation".

Nonetheless, a "new era requires a new strategy". As an economical body, the region has the advantage of having high labor utilization (employees per capita and hours worked per employee are the highest out of all the EU regions). However, there is a disadvantage: low domestic purchasing power - the lowest of all the EU regions. In other words, the Baltic Sea region is a very expensive region to live in.

Because Russia is part of the Baltic Sea region, it's considered an equal partner for development and cooperation in many ways, although the country is still falling behind in a number of economic indicators. For example, although the Baltic Sea region reported the highest prosperity growth of the four European regions, outperforming EU-15 and EU-25 in terms of real GDP growth, Russia has the lowest GDP per capita (slightly over $5000 per year).

This is despite the fact that its growth is one of the fastest in the region.

Compared to the average country in the region, Russia is responsible for only 37 percent of the area's prosperity (Nordic Countries - 154 percent, Germany - 150 percent, the Baltic countries and Poland - 53 percent each). At the same time, in terms of scientific publication relative to real GDP, Russia rates quite high (among the top few in the region), but this status is gradually falling (3-4 percent down per year).

While the Baltic Sea region leads its European peer regions on the World Economic Forum's overall Business Competitiveness Index (Baltic Sea Region ranks sixth, with Finland first, Sweden third, Denmark fourth, the UK ninth, Central Europe - 21st, Iberian Peninsula - 27th), Russia comes in only at 63.

Interestingly, the Baltic region's business environment benefits from strong physical infrastructure, a skilled labor force, low levels of corruption, strong clusters, tough regulations and companies competing on innovation and uniqueness. Its key weaknesses include low levels of local rivalry, high taxes, a high level of distortive subsidies, bureaucracy, and some signs of weakness in the education system. Russia, on the other hand, faces quite other weaknesses and enjoys different benefits.

One of the main reasons for Russia's low competitiveness, as seen by the researchers, is its low spending on Research and Development (R&D) both by the state and by businesses.This also leads to the country receiving the lowest innovative capacity ranking (Russia is 39th, whereas Finland comes first, with Germany second).

The overall conclusion on this is that "Russia stands out with an extreme imbalance between the availability of scientists on the one hand and the lack of a strong innovation policy on the other".

Although there is no single solution to all of Russia's economical problems (especially since they are often linked to the country's political situation), the Forum did demonstrate how Russia can come to play a greater role in European integration: namely, through greater integration within the Baltic Sea region.

The question is, however, to what extent will Russia allow this integration? In other words, will it give up some part of its economic sovereignty for the sake of regional cooperation, provided there is a strong need for this? At the moment, that is the question neither politicians nor businesspeople in Russia seem to be able to answer.

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