Analyst: Estonia's R&D spending a long way from target

The intensity of Estonia's research and development (R&D) spending remains a long way from its target, Swedbank chief economist Tõnu Mertsina said.

The ratio of Estonia's R&D spending to GDP roughly equals the average in the European Union, the analyst said.

"In states where the intensity of R&D spending is high, productivity is generally high as well, and vice versa - the states whose R&D spending is lower also have lower productivity," Mertsina said, adding that the former generally place higher in terms of competitiveness. 

Estonia's R&D spending totalled €365.6 million in 2018, exceeding the preceding year's expenditure by a fifth. R&D spending in the higher education and business sectors respectively accounted for 35 percent and 42 percent of the total R&D expenditure, whereas the share of the public sector amounted to 11 percent.

While R&D costs in the higher education sector grew 35 percent, the corresponding growth in the business sector was just eight percent. Of the combined growth of the two sectors, which in total amounted to a fifth of the preceding year's expenditure, growth in the higher education sector accounted for 70 percent.

Despite strong growth, the 1.4 percent share of R&D spending of GDP still remains a long way from the target 3 percent set for 2020. Based on preliminary data, reaching the target would require a 2.4-fold growth in expenditure - an increase by €880 million, which Mertsina deems unattainable.

Expenditure by the business sector equaled 0.6 percent of GDP last year. Over 40 percent of the R&D costs concerned information and communications, particularly programming, which contributed most to the sector's total R&D cost growth. Information and communication were followed in terms of greatest R&D spending by financial services, the electronics industry and production of electrical equipment. 

A study of industrial enterprises carried out by Swebank shows that close to 50 percent of businesses in the processing industry plan to increase their added value by contributing to R&D. Close on one fifth is already cooperating with research and development institutions, 75 percent of them with the Tallinn University of Technology and 15 percent with the University of Tartu. The sectors in the processing industry planning to invest most in R&D are the food industry and the timber industry.  

The number of people employed in research and development totaled around 9,500 in 2018, accounting for 1.4 percent of total. employment. While the figure declined slightly last year and has been in a decline for a while, the combined number of employees measured as working full time in research and development has increased over the past few years instead. 


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Editor: Helen Wright

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