1. Bulgarian Industrial Association Georgi Shivarov, Vice President The 4 th Vienna Economic Forum 5 – 6 November 2007

2. Innovation investment in Bulgaria remains related primarily to the transfer of knowledge from the EU through foreign direct investment and import of capital goods. R&D expenditures are relatively low (0.50% of GDP). The financial system of the country is growing rapidly but still fails to offer specific innovation financing instruments. The expectations are for the trend of increased R&D investment to continue in the next few years under the influence of the additional financing from the EU funds and the more active private sector. Innovation investment in Bulgaria Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

3. INVESTMENT IN R&D, % OF GDP % Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

4. R&D EXPENDITURES IN BULGARIA Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

5. GOVERNMENT BUDGET SPENDING FOR THE ‘SCIENCE’ BUDGET LINE Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund BGN thousand

6. PROJECTED GROWTH OF THE R&D EXPENDITURES ACCORDING TO THE NATIONAL INNOVATION STRATEGY Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

7. Investment in R&D Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund R&D expenditures in Bulgaria increase but they are still four times lower than the EU-15 average level. The structure of R&D expenditures in Bulgaria is strongly imbalanced. The share of the public sector in their financing and implementation is twice higher than that of businesses or higher education. Ninety percent of R&D expenditures in Bulgaria go for operational needs, mainly staff salaries and maintenance of the equipment in the public sector.

8. STRUCTURE OF R&D EXPENDITURES BY INSTITUTIONAL SECTORS IN BULGARIA Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

9. STRUCTURE OF R&D EXPENDITURES BY SOURCES OF FINANCING IN BULGARIA Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

10. STRUCTURE OF R&D EXPENDITURES BY ECONOMIC ITEMS (1995 – 2004) Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

11. STRUCTURE OF THE OPERATING COSTS FOR R&D BY TYPES OF RESEARCH IN BULGARIA Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

12. R&D SPENDING BY FIELDS OF SCIENCE IN BULGARIA BGN thousand Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

13. International transfer of innovation - FDI Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund The inflow of foreign investment has grown steadily in Bulgaria, remaining the major source for technological renovation of the country. The share of foreign direct investment (FDI) in the gross capital formation has been some 40 % in Bulgaria for the last eight years - twice higher than in the EU-8. Most FDI are directed towards the most innovative sector in the country - financial intermediation – as well as towards logistics, transport, ITC and real estate. The share of manufacturing in FDI has decreased.

14. FOREIGN DIRECT INVESTMENT INFLOW IN BULGARIA BY COUNTRIES IN EURO MILLION (1992- 2006)

15. Top 10 biggest Bulgarian partners in foreign trade Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS www.bia-bg.com www.bia-bg.com

16. Financing of innovation Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund The own resources of enterprises continue to be the main source of financing for their innovation activities in 2006, followed by banks and domestic and foreign partners. Banks and EU funds scored the highest growth among the sources of financing The specialized instruments for innovation financing such as venture capital funds are practically unknown to Bulgarian innovative enterprises. The development of the local capital market, the accumulation of resources in long-term financial instruments and the entry of EU funds are expected to lead to the emergence of the first national venture capital instruments in 2007-2008.

17. The market orientation of the Bulgarian innovation system is in its infancy: Bulgarian enterprises show low levels of innovativenessThe market orientation of the Bulgarian innovation system is in its infancy: Bulgarian enterprises show low levels of innovativeness The innovation, R&D and technological products develop separately in the national economy. From structural perspective their interrelations remain weakThe innovation, R&D and technological products develop separately in the national economy. From structural perspective their interrelations remain weak Our conclusions Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

18. The national innovation system is shaped and influenced primarily by the integration and financing in the European innovation networks and the changes in the of public innovation policy and financingThe national innovation system is shaped and influenced primarily by the integration and financing in the European innovation networks and the changes in the of public innovation policy and financing The main constraints for the development of the national innovation system are the lack of suitable sources of financing in short-run and the lack of skilled human capital in the long-runThe main constraints for the development of the national innovation system are the lack of suitable sources of financing in short-run and the lack of skilled human capital in the long-run Our conclusions Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

19. The national innovation system has started to improve its performance, which is a clear signal that the time for more decisive action in this domain has begunThe national innovation system has started to improve its performance, which is a clear signal that the time for more decisive action in this domain has begun. Our conclusions Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

20. Our proposals Improvement of the coordination between the national strategic documents, policies, administrative and financial instruments which influence the national innovation systemImprovement of the coordination between the national strategic documents, policies, administrative and financial instruments which influence the national innovation system Fine tuning of the innovation resources from the EU Structural and Cohesion Funds within the country and coordination with other programs at the European levelFine tuning of the innovation resources from the EU Structural and Cohesion Funds within the country and coordination with other programs at the European level Provision of greater political, administrative and financial resources for developing and implementing a national innovation policyProvision of greater political, administrative and financial resources for developing and implementing a national innovation policy Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

21. The main objective of the national policy for management of the innovation resources coming from the EU Funds, the national budget and the EU Framework Programs in Bulgaria should be the development of "institutional instruments" which improve: links with the world technology frontier links with markets (and sophisticated customers) links with markets (and sophisticated customers) supply of needed skills, services and other inputs supply of needed skills, services and other inputs the local innovation system and network the local innovation system and network Our proposals Bulgarian Industrial Association UNION OF THE BULGARIAN BUSINESS ARC Fund ARC Fund

22. Bulgarian Industrial Association Georgi Shivarov, Vice President The 4 th Vienna Economic Forum 5 – 6 November 2007