Heading towards a new direction for economic growth (*)

It is widely recognized that the Canary Islands need to move towards a diversified economy, with more complex productive activities that allow for more sustainable and inclusive growth capable of generating stable and quality employment. A fair and prosperous society is one that creates good opportunities for all individuals to achieve their personal and professional goals. We need to reinforce strategies to combat inequality, which leads to lower aggregate demand; which prevents many citizens from reaching their maximum productive capacity, thus hindering our future growth; and which leads to a society that will devote less public investment to the detriment of its productivity in strategic sectors such as education, technology, new infrastructures or public transport, among others. We must learn from the economic growth and development that the archipelago has experienced in recent decades and from the impact of the crises that will inevitably and periodically continue to affect our progress, leaving many people behind and forcing others to leave our region in search of better career options.

Once the discussion on the reasons for economic diversification and the role of technology and innovation in the new direction of economic growth that we need has been resolved, the focus should be on the pace and intensity that we should put into this strategy. The current pandemic and, as a consequence, the European funds that the Canary Islands are receiving for recovery and, above all, for its economic transformation, are an opportunity. The dual ecological and digital transition is a train to the future that we must get on together and coordinately both the public and private sectors.

Changing any status quo is always complicated. It is even more so when the story of the Canary Islands’ economic growth and development is based on the recognition of the efforts made by the islands’ business sector in recent decades to move us from the poverty and misery of the middle of the last century to the current situation. Tourism is and will always be an engine of economic growth in the Canary Islands. The service sector, as in most advanced economies, will continue to play a central role and will feed many hundreds of thousands of people. It is therefore just as misguided to interpret economic diversification as calling into question the tourism industry, as it is to say that other options for wealth creation than just attracting visitors and tourists are naïve and dreamy. As always, the key lies in the balance, and it also has a lot to do with confidence, courage and planning. In order to provide added value, it is necessary to precisely define the comparative advantages of the Canary Islands for creating innovative economic activity, and how much effort in terms of enthusiasm, investment and time we are prepared to dedicate to achieving the expected success. At the same time, both the government and the private sector must make a firmer and more credible commitment to the talent and knowledge that exists in the Canary Islands, which is the decisive resource on which the most advanced economies compete globally. We must also be capable of attracting and integrating the talent that may come from abroad, with special attention to that which exists in African countries.

There are different ways to move towards a more open and competitive economy. EMERGE is committed to value creation through research and innovation activities.  The investment in R&D increases productivity and helps us to access the knowledge needed to address today’s economic, social and ecological challenges and to achieve a sustainable and resilient economic recovery. With the technology entrepreneur as an agent of change, startups and technology-based companies act as technology transfer units supported by competitive public funding and private capital. These types of global companies are capable of creating new markets and have in their DNA a commitment to science and disruptive innovation. Unlike digital startups or internet companies, tech startups do not take advantage of network effects, branding or internet platforms. They are associated with a higher level of risk and uncertainty, so their financing needs are very specific. But they create the added value that the Canarian economy will need in the medium and long term. For our region to achieve a significant amount of entrepreneurs and technology start-ups, the processes of knowledge generation, transfer and exploitation must be perfectly aligned, and there must be public funding mechanisms to accompany the process of creation and growth of these types of companies so that they can capitalise their knowledge. The priorities established in the next document of the Canary Islands Smart Specialisation Strategy (S4) must be supported by mechanisms adapted to the reality of our region. Under this vision, universities and government research and technology centers must increase their degree of engagement with industry.

However, not everything is responsibility of the public sector. As a less developed territory, geographically distant from the main engines of European growth, the Canary Islands, as a region and at company level, have clear limitations in efficiently absorbing the public funding for R&D&I. On the one hand, we do not benefit from the knowledge spillover effects that exist in other territories. We must understand that while the costs of information transmission do not increase with distance, the costs of knowledge transmission do. On the other hand, most of our companies do not yet have the internal capabilities and incentives to do research and technological development. The demand for innovation from our private sector remains marginal. Without a public supply of innovation that meets an appropriate demand for innovation, all we achieve is to accentuate the Matthew effect, which has a structural impact on many innovation systems, particularly our own, without extending the resources and possibilities that are currently available to society as a whole and to the productive sectors. We cannot underestimate that one of the purposes of public investment in R&D is to leverage in private sector investment.

In a broader context, the Canary Islands must make a more integrated effort to ensure that the commitment to innovation, internationalisation and attracting investment are perfectly coordinated strategies. This is the recommendation of the Task Force Seizing New Growth Opportunities: Canaries / Israel Innovation Partnership, coordinated by EMERGE in collaboration with the Government of the Canary Islands and the Embassy of Israel in Spain. The Canary Islands Agency for Research, Innovation and Information Society of the Canary Islands Government must lead and supervise the execution of an action that contemplates that domestic economy and our international economic relations are connected, being essential an economic policy that responds to the accelerating convergence between physical and digital economy. Beyond the tax benefits and incentives, which are necessary but not sufficient, we need to design an ambitious strategy to occupy central positions in global networks of entrepreneurship, innovation, science and technology, without undermining the resources to which we have access as an Outermost Region of the European Union. The Government of the Canary Islands must have flagship programmes with excellence and cross-cutting criteria to promote entrepreneurship, science and innovation, in its broadest sense, that can join international alliances and become a reference at regional and international level. A good example of this is the Africa-Canaries Challenge launched by the Canary Islands Government’s General Directorate for Economic Affairs with Africa to support social innovation in African countries, the first of its kind in our archipelago to create bidirectional links with African talent and whose projection is key to positioning ourselves in this type of network. It is crucial to strengthen and guarantee the continuity of this type of initiatives.

Over the last two years, ACIISI has done a positive job in listening and addressing the interests and priorities of all public and private parties in the entrepreneurship and innovation ecosystem. This sensitivity is generating confidence and allowing progress to be made towards a more consistent, self-critical and ambitious analysis. As a result, the public and private sectors are talking more than ever and through different channels and initiatives about how to put R&D&I into the core of the strategy. A commitment by all parties involved in the entrepreneurship and innovation ecosystem to take a step forward in their level of self-demand and excellence is key. It will also be important for the largest companies in the archipelago to continue to take risks, invest and place even more trust in local innovative talent. Within the framework of European aid, the establishment of public-private partnerships to resolve the complex challenges that exist in the islands could be a good strategy. The Canary Islands have an abundance of good problems: urgent ones, which need a viable short and medium-term solution. It can be helpful the launching of a challenge-fund to identify pre-competitive areas where academia, industry and government research and technology labs could work together. A review of the new UK’s Advanced Research and Invention Agency (ARIA) could offer some interesting insights. Plus, along with this, the renewal of people, ideas, projects and objectives is also a necessity, because the level of qualification and motivation is different now than it was a decade ago. The CIDE network, an initiative of the Regional Ministry of Economy, Knowledge and Employment of the Government of the Canary Islands, promoted through the Canary Islands Agency for Research, Innovation and Information Society (ACIISI), and co-financed by the European Regional Development Fund, with a co-financing rate of 85% in the framework of the Canary Islands ERDF Operational Programme 2014-2020, of which EMERGE has been a member since 2020, is also expanding its scope this year with the addition of new entities to improve the impact of its results with the aim of having a more innovative private sector. In short, only by adding up and improving can we advance towards the vision of, more just, inclusive, developed and competitive region capable of generating prosperity.

Throughout this process, EMERGE will continue to rely on the knowledge and entrepreneurial drive that exists in the Canary Islands. In a world of rapid and permanent change, and thanks to access to the Internet, there is the possibility of depending on ourselves to make progress and correctly orientate the direction of our economic growth and make it more resilient. But if we do not want to fall behind the most developed Spanish and European regions, we need to move faster, be braver and take up the challenge regardless of all its consequences. The reconstruction of La Palma is a major opportunity to demonstrate this will.

 

(*) Moisés D. Santana is Managing Director at EMERGE

October 2021

 

Traducción en español disponible en: https://asociacionemerge.com/hacia-una-nueva-direccion-del-crecimiento-economico-de-canarias/

 

 

 

 

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