Latvia’s future challenges in R&D

  • 2012-09-19
  • By Charo Navarro Mateo

RIGA - Located in a dynamic part of Europe, Latvia is positioned as a gateway between the East and the major markets in the European Union, with its population of over 500 million. The Baltic country has also developed strong pharmaceutical and medical device industries. However, in analyzing the country in terms of innovation, the study “Union Innovation Scoreboard 2010,” published in 2011, Latvia ranks last among the 27 surveyed countries.

Innovation development in the Baltics was a central theme at the Life Sciences Baltics 2012 Forum, held last week in Vilnius.

“We know that R&D is the key where [we have] to be able to perform and achieve advancements (…), we had problems in Latvia during 2009 and 2010, but since then we have recovered and grown again, and it shows in the amount of exports in the sector,” said Juris Puce, 1st Secretary at the Ministry of Economy. Latvia has seen 29.4 percent growth in exports from companies focused on pharmaceuticals and medical devices.

These figures are supported by the activity of the two main Latvian companies in the sector - Grindex and Biosan - which have much of their sales activity abroad. In the case of Biosan, already represented in the U.S. and now expanding to Japan and South Korea, this figure reaches 98 percent. “The way to develop a company is in its international orientation and collaboration, which is [essential] in modernizing its infrastructure and technologies,” says Juris Bundulis, Chairman of the Board of Grindeks.

Nevertheless, Latvia reports spending 0.6 percent of GDP on R&D. Scientific research spending in the private business sector in 2010 was 0.22 percent of GDP, a figure significantly behind that of the old EU member states, as well as below the average EU rate overall in this sector – 1.23 percent of GDP, states Eurostat figures.

From the Latvian industrial sector, Vitalijs Skrivelis, chairman of the supervisory board of the Latvian Association of the Chemical and Pharmaceutical Industry (LAKIFA), is optimistic about what Latvia can offer, mainly in anti-cancer and cardiovascular treatments. “We keep competitive even without a large public budget, but what we need is working capital (…), our banks are so conservative [when it comes] to investing in risk capital.”

What Skrivelis wants to point out is apparent in the report “Development of Science and Technology in Latvia 2011,” published by the Ministry of Science and Education. Latvia is in 5th position from the bottom in terms of investment per GDP; for comparison, the European average is 2 percent of GDP. Both the public and private sectors have shown a weak capacity for investment in R&D: of the 0.6 percent of GDP in total R&D spending, most of this came from the private sector.

The increase in research financing has, however, been significantly affected by the EU Structural Funds: the program “Entrepreneurship and Innovation,” designed by the EU Commission for Latvia, accounts for approximately 16 percent of the total money allocated to the country for the period 2007-2013 (736 million euros, in contrast with the 103 million euros from the Latvian government).

Education and investment  

Which are the main factors that explain this situation? For Richard Bergstrom, Director General of the European Federation of Pharmaceutical Industries and Associations (EFPIA), the main issues are to achieve an Equal System, with R&D as the main economic and social value driver, with research activities done by academics. “The low level of public and private sector investment and an insufficient number of employees in research work” could be the main reasons for the low level of development of R&D in Latvia.

“Research activity is increasing, but we are concerned that we are still in last place in terms of investments in Investigation, Development and Innovation (I+D+I)” says Dr. Osvald Pugovics, scientific director at the Latvian Institute of Organic Synthesis.

In the same way, Bundulis says that with the level of national research: “we are happy with the people we have in Latvia today, (…). They can be ambitious people. You can always find better, but with the resources we have, we are at an optimal level. The people recognize that they really believe that they can do it.”

It can be concluded that Latvia needs to pay special attention to the funding mechanisms, to ensure more private investment to strengthen the development of research institutions, both private and public, and their mutual collaboration. This need is on the agenda of the EU.

European Horizon 2020, the roadmap designed by the European Commission, is the core of the public European investment program in R&D, to respond to the global economic crisis and strengthen the EU’s global scientific position. It is developed through multiple programs and initiatives that are financed with 80 billion euros to ensure the necessary technology, research talent and infrastructure for the future. The plan sets a rate of development in R&D for each country; for Latvia R&D growth is targeted at 1.5 percent for 2020.

“We really think it is possible to reach the rate of 1.5 percent as part of European Horizon 2020, as we are doing everything that is required. Many new companies and entrepreneurs are emerging and development is going fast. It is a question of time,” says Jelena Narkune, head of the representative office of the Investment and Development Agency of Latvia (LIAA) in Lithuania.  

The Agency (recently named one of the top 10 performing national investment promotion intermediaries in the world) centers its activity, as a public institution, in offering a wide range in services to help companies to expand their business, including through foreign trade promotion, investment attraction, as well as state support programs.

“A national commitment to increase research and development funding, compared to total investment, represents an ambitious but realistic long-term goal. It is already shown in the growth of contacts with [other] countries in getting the same experiences,” remarks Narkune.

Development and the healthcare system

The conference was not just centered on the commitment to economic growth. “For everything, there is a social part that we have to take into account,” said Bergstrom. He points out the necessary relationship between universities and industry, and competition in clinical trials as a model of R&D that should have a social effect on a country.

How is investment in technology and R&D developing the healthcare system in Latvia, and how does this relate to the population? Is it centered on the competition in clinical trials as developed by universities and hospitals? Most of the Latvian manufacturers are focused on exports and operate on the global markets as their first priority. According to Latvia’s 1st secretary of the Ministry of Economy, the country also needs an “interconnected system for citizens to get the best drugs or devices [available] in the international sector.”

In the same way, Skrivelis defends the export profile of industries, because “small countries need to go internationally, to get innovative technology from strong countries, for example, technology to find a cure for cancerous melanomas.

Future challenges

The general feeling among the speakers is that Latvia is on its way, but its challenges are great. “First of all, we cannot forget that the key to success is not just companies and their internationalization. It is more than that, because industry cannot be developed without the work of scientists, who actively move around the educational institutions,” says Bergstrom.

In that sense, what experts point out is the necessity for Latvia to invest in education. The country needs to increase the number of people employed in science and research, where this is the beginning of a developing science and research environment. For Grete Kuura, project assistant at TERM and HealthPort at the University of Gothenburg, “The [Baltic countries] face the crucial challenge to invest in collaboration between science and industry to reach their potential for commercialization, not just in manufactured products, but in research results.”

The shared result between analysts and businesspeople is that the best economic and social growth is through education. “The key to success is in people and believing in them” says Bundulis.