TALLINN - The latest research and development (R&D) data from Statistics Estonia clearly shows that the Estonian economy is becoming more research-based, the Ministry of Economic Affairs and Communications said.
With the help of R&D workers recruited to the private sector the year before last, companies invested a record amount in testing and development work this year. The increased volumes create a solid base for these companies to develop higher value-added products and services that will help the Estonian economy grow again.
The total volume of R&D spending in 2023 was 702 million euros, accounting for 1.84 percent of GDP. Compared to 2022, R&D investments were up by 60 million euros. The private sector drove the growth in investments, accounting for nearly 40 million euros of the growth. In total, the private sector invested 405 million euros in R&D in 2023, or 1.08 percent of GDP, which is more than ever before.
Among the countries of the European Union, Estonia ranks 11th in terms of R&D spending, still far behind the countries that invest the most. Sweden is in first place with 3.57 percent of GDP, while Belgium, Austria, Germany and Finland also invest more than 3 percent. With a result of 1.84 percent of GDP, Estonia also lags behind the EU average, which is 2.25 percent. Another thing that distinguishes Estonia from the countries that invest more in R&D in the EU is that companies there invest even more in R&D than the state. For example, in Sweden, private sector R&D investments account for 2.56 percent of GDP, which means that the state's share is around 1 percent.
Nevertheless, it can be observed that R&D intensity in Estonia is increasing year by year, and based on the latest data, the number of companies investing in R&D activities has also increased -- 468 companies in 2023, which is significantly more than in 2022, when there were 399 companies. This is the highest number of companies that have invested in R&D activities in Estonia. Almost two-thirds of the companies investing in R&D today have started doing so in the last five years. The number of companies investing in R&D is still small compared to the total number of companies, but it is good to note that every year, either completely new companies with a research-based business model are added to the business landscape, or more mature companies increasingly see development activities as a source of innovation for their products and services.
More than half of the total R&D expenditure was invested in experimental and development work, of which the lion's share, or 82 percent, was carried out in the private sector. While applied research was carried out less than the previous year, including in the private sector, compared to the total R&D expenditure, investments in experimental and development work increased strongly over the year, and this was especially true in the private sector -- 27 percent more over the year. The private sector has not increased its investments in experimental and development work by such a large leap in the last 10 years, despite the general long-term downward trend of the Estonian economy.
The private sector rapidly recruited R&D workers in 2022, when 1,076 R&D workers were hired. In 2023, another 335 were added. Across all sectors, the total number of full-time R&D workers also increased in 2023 compared to the previous year, reaching 8,772. More than half of those employed work in the private sector as of 2023. It can be concluded that the R&D workers hired by companies in 2022 have enabled the private sector to dramatically increase the volume of testing and development work in the following year.
The growth in corporate R&D investments was driven by the information and communications technology sector, accounting for more than half of private sector R&D investments.
State support measures have contributed to the growth in private sector R&D intensity, as R&D investments made in the private sector with state funding have increased significantly over the year.
The central support measure in the innovation policy of the Ministry of Economic Affairs and Communications to support the growth of R&D intensity in companies is the program for applied research, which is implemented by the Business and Innovation Agency and provides support for both applied research and experimental and development work. The measure has proven to be very popular among companies. Over the past year, the program's experts have advised companies on over 200 project ideas, of which 145 were submitted as funding applications and approximately 60 projects have received funding decisions.
In addition, the Applied Research Center, established under AS Metrosert, will be launched in the coming years within the jurisdiction of the Ministry of Economic Affairs and Communications, and will offer companies important R&D services, including access to infrastructure. The ministry expects the addition of the Applied Research Center to the Estonian innovation landscape to also provide a boost for companies to develop products and services with higher added value.
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