Geopolitics, innovation and restructuring in Iran and the Middle East

Sharif UniversityDecember 3, 2017

Thomas AnderssonThomas.andersson@iked.org

• Context

• Benchmarking

• The Innovation System

• The Digital Era

• Governance

Outline

2017-18: Where are we...

• Technology on the move, incremental, disruptive, diffusion• Economic expansion and cross-border integration blend with

stagnation, alienation and new protectionism• Challenges social cohesion, income differences, jobs• Population explosion overall, urbanisation, young vs. old societies• Grand Challenges intensify:

- Climate change, ecosystem deterioration, accelerating loss of biological diversity- Energy, food and water supply disruptions- Poverty, congestion, waste, new health issues

• Public indebtedness and unmet investment needs• Regional conflicts, refugee crisis• Terrorism, peace at stake, threat of major war• Explosion of populism, opportunism, crisis of the “public good”

4

The Islamic Republic of Iran

• High Growth based on natural resources is over• Critical challenge to diversify away from oil & gas

and large public sector with high cost levels • Government domination, efficiency and trust issues• Generations change; informed, wired and educated

young generations, but quality problems in education, mismatch with labor markets

• “Rentier” economy - emphasis on real estate and tangible investment

• Failure to put in place inspirational and inclusive approach to research, innovation and entrepreneurship!!

Regional – Economic Context

6Source: Government of Iran (2005) Vision 2025

Vision 2025 targets

Share of adults with at least a bachelor’s degree 30%

Number of Iranian universities in top 10% worldwide 5

Full-time university professors per million population 2 000

Share of PhD students among total students 3.5%

GERD/GDP ratio 4.0%

Share of GERD financed by business enterprise sector 50%

Researchers (FTE) per million population 3 000

Government researchers (share of total researchers) 10%

Researchers in business enterprise sector (share of total researchers) 40%

Share of researchers employed by universities 50%

Scientific articles per million population 800

Average citations per publication 15

Number of articles among 10% most cited worldwide 2 250

Number of Iranian journals with an impact factor of more than 3 160

Number of national patents 50 000

Number of international patents 10 000

7Source: UNESCO Institute for Statistics database (2016)

Enrolment in and graduation from tertiary education in Iran

-

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

-

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

3 500 000

4 000 000

4 500 000

5 000 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Tertiary education

Enrolment (left-hand axis) Graduates (right-hand axis)

8Source: Thomson Reuters’ Web of Science, Science Citation Index Expanded (2015)

Scientific publications, Iran

0

50

100

150

200

250

300

350

0

5 000

10 000

15 000

20 000

25 000

30 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of papers (left-hand axis) Number of papers per million population (right-hand axis)

9Source: Ministry of science, research and technology (2016)

Development of Technology Parks and incubators in IR Iran

31 33 33 36 38

113

131

146154

167

0

20

40

60

80

100

120

140

160

180

2011 2012 2013 2014 2015

Technology Parks

Technology Incubators

R&D Expenditure % of GDP, 2012

Source: The World Bank (KAM)

0

0,5

1

1,5

2

2,5

3

3,5

4

Kazhakhstan

Azerbaijan

Russia

Iran

South Africa

Malaysia

Sweden

US

Singapore

China

Korea

Thailand

11Source: UNESCO Institute for Statistics database, 28 January 2016

-

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Patent applications Patent grants

Patent Applications, Iran 2001-2012

12

Composition of non-oil exports in Iran

Source: UNESCO Institute for Statistics database, 28 January 2016

17 16,3 15,2

24,115,8

11,6

36,2

35,939,2

21,531,2 33,4

1,2 0,7 0,6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 (6.8 B$) 2009 (21.9 B$) 2014 (35.5 B$)

None Low tech Medium-low tech Medium-high tech High-tech

Undiversified economyHigh-technology exports (% of manufactured exports)

Source: The World Bank 2017, data from 2012 or latest available

1 1 1 2 2 4 4 5

14 14

20

26

41 4349

International trade muted

Source: The World Bank 2017, data from 2012 or latest available

Egypt Iran Iraq SaudiArabia

Qatar Oman Kuwait UAE

10,4

25,7

44,4

56

72,6 72,7 73,2

89,7

Export of Goods & Services % of GDP (2015)

Investment growth rate, per cent (2001-2014)

24,6

6,7 6,47,9

4,7

-1,4

11,1 11

2,9 3,8 3,5

-23,8

-6,9

3,5

-30

-20

-10

0

10

20

30

2001 2003 2005 2007 2009 2011 2013Source: Management and planning organisation (2016)

• Context

• Benchmarking

• The Innovation System

• The Digital Era

• Governance

Outline

Source: The Global Competitiveness Report (2017)

Competitiveness ranking, 2017-18

Index rank Iran

Bra

zil

Ch

ina

Egyp

t

Kaz

akh

stan

Ko

rea

Mal

aysi

a

Mex

ico

Om

an

Pak

ista

n

Sau

di

Ara

bia

Turk

ey

Swe

de

n

US

GCI 69 80 27 100 57 26 23 51 62 115 30 53 7 2

Macroeconomic

environment44 124 17 132 98 2 34 43 66 106 58 50 4 83

Institutions 85 109 41 64 68 58 27 123 28 90 26 71 11 20

Technology

readiness91 55 73 94 52 29 46 71 59 111 44 62 5 6

Financial Market

Development128 92 48 77 114 74 16 36 54 96 56 80 10 2

Higher education

and training51 79 47 100 56 25 45 80 71 120 43 48 18 3

Business

Sophistication97 56 33 84 108 26 20 49 72 81 34 67 6 2

Innovation 66 85 28 109 84 18 22 56 76 60 40 69 7 2

Labour Market

Efficiency130 114 38 134 35 24 26 105 122 128 80 127 20 4

18Source: World Economic Forum (2017)

Education ranking, 2017/18

Index rank Iran

Bra

zil

Ch

ina

Egyp

t

Kaz

akh

stan

Ko

rea

Mal

aysi

a

Mex

ico

Om

an

Pak

ista

n

Sau

di A

rab

ia

Turk

ey

Swe

de

n

US

Overall ranking

(GCI)69 80 27 100 57 26 23 51 62 115 30 53 7 2

Primary education

enrolment14 94 1 33 4 30 32 71 77 131 42 82 12 84

Secondary

education

enrolment

77 50 66 84 18 53 93 74 32 119 22 37 3 57

Tertiary education

enrolment26 57 68 77 64 3 90 82 58 116 41 2 43 9

Quality of

education system94 125 29 130 77 81 14 108 75 61 41 101 20 4

Quality of

Management

schools

92 95 50 124 39 69 25 67 116 102 52 108 22 6

Internet access in

schools93 90 50 119 39 15 27 83 79 98 57 72 3 10

Source: World Economic Forum (2017)

Technological Readiness & Innovation 2017/18

Index rank Iran

Bra

zil

Ch

ina

Egyp

t

Kaz

akh

stan

Ko

rea

Mal

aysi

a

Mex

ico

Om

an

Pak

ista

n

Sau

di A

rab

ia

Turk

ey

Swe

de

n

US

Overall ranking

(GCI)69 80 27 100 57 26 23 51 62 115 30 53 7 2

Availability of

latest tech. 105 78 81 91 104 23 35 52 71 70 40 57 5 6

Firm-level tech.

absorption118 59 58 100 81 23 17 56 95 88 32 46 1 2

FDI and tech

transfer74 53 49 75 93 55 13 26 86 69 39 61 14 5

Capacity for

innovation88 73 44 123 84 35 14 70 109 80 64 74 4 2

Quality of

research

institutions

55 77 36 121 78 32 24 46 57 67 54 100 13 5

University-

industry

collaboration

94 70 28 117 75 27 11 49 97 63 46 66 10 2

Government

procurement50 118 10 61 73 32 4 90 133 33 15 64 17 2

Source: The Global Competitiveness Report (2017)

0,0 5,0 10,0 15,0 20,0

Poor public health

Government Instability/coups

Insufficient capacity to innovate

Poor work ethic in labour force

Inadequately educated workforce

Complexity of tax regulations

Tax rates

Restrictive labour regulations

Corruption

Foreign currecny regulations

Inadequate supply of Infrastructure

Inflation

Inefficient government bureaucracy

Policy Instability

Access to Financing

0,0

0,4

2,3

2,7

2,8

2,9

3,0

4,4

6,0

7,5

11,4

11,7

12,0

12,9

19,6

Most Problematic Factors for Doing Business, Iran, 2017/18

• Context

• Benchmarking

• The Innovation System

• The Digital Era

• Governance

Outline

Evolution of innovation metrics

First GenerationInput Indicators

(1950s–60s)

Second GenerationOutput Indicators

(1970s–80s)

Third GenerationInnovationIndicators(1990s)

Fourth GenerationProcess Indicators

(2000s plusemerging

focus)

·R&D expenditures

·S&T personnel

·Capital

·Tech intensity

·Patents

·Publications

·Products

·Quality change

·Innovation surveys

·Indexing

·Benchmarking innovation capacity

·Knowledge

·Intangibles

·Networks

·Demand

·Clusters

·Management techniques

·Risk/return

·System dynamics

“The Smile Curve”

Abandoning the Linear Model

Source: based on Van Welsum and Vickery (2004), Miroudot et al. (2009) and Open Innovation: The New Imperative for Creating and Profiting from Technology, H. Chesbrough, 2003

Open Innovation Model

Source: Business Angel Networks

Diversified Roles in Funding

Education

Research

Governance and

Infrastructures

Innovation

Knowledge Triangle

28

• Awareness: Recognising your own strengths and weakness.• Imagination: Identifying new patterns in complexity and opportunities in uncertainty.• Curiosity: Challenging and thinking out of the box.• Regulation: Keeping emotions under control.• Motivation: Developing optimism and personal drive.• Empathy: Reading emotions and motivation in other people.• Ability to build and manage relationships.

Soft Skills

On Mindset

Reactive Receptive Constructive

Attitude We follow the rules We do what we have to in smartest way

We look for competitive advantages

Position Defensive Acceptance Conscious decision

Perceived impact Threat Competition neutral Opportunities

Typical solution Filter on pipe Process change Product development/innovation

Collaboration partners

Technical specialists Responsible within the industry

Customers, suppliers, competitors

Mindset categories

• Context

• Benchmarking

• The Innovation System

• The Digital Era

• Governance

Outline

Point of Sale IP CamerasPower Lines IP PhonesIn-VehicleInfotainment

Home Storage

Sensors Net book

Security IPTV/IMS Military/AeroLearning Home AutoDigital Signage PortableMedical

Net top

Gaming Industrial PC PrintersMedical Transport Robotics FactoryAutomation

MID

Genomics Research

Medical Imaging

Financial Analysis

Weather Prediction

Oil Exploration

Design Simulation

Cloud Computing

Data Center Refresh

32

0

50

100

150

200

250

Oman Iran SaudiArabia

UAE Qatar Egypt EU 15

Fixed-telephone subscriptions per 100 Inhabitants

Mobile-cellular telephone subscriptions per 100 inhabitants

Percentage of Individuals using the Internet

Fixed-broadband subscriptions per 100 inhabitants

ICT for selected countries, 2015

33

Iran Oman KoreaSaudiArabia

Turkey Malaysia Brazil

Price Basket 0,5 0,7 0,8 0,8 1,6 1,6 1,8

World Ranking 7 20 27 28 62 63 78

0

10

20

30

40

50

60

70

80

90

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

2

ICT

Pri

ce B

ask

et

Wo

rld

Ra

nk

ing

ICT Price Basket (2014)

5

6

54

69

77

88

104

0 20 40 60 80 100 120

Egypt

Iran

Saudi Arabia

Turkey

Brazil

Oman

Malaysia

Source: The World Bank, 2016

Secure Internet Servers/million people (2014)

Digital City: Overview

Traffic Control & InformationPassenger Information Systems

Street Light ManagementArea Surveillance / Public Safety

ShoppingExperience-based

services

Industry & energy

High Tech WorkplaceVideo Conferencing

Call CenterSolar cells

Smart Grids

Ministries

High Definition TVBroadband Internet

Multi MediaPersonalization

Automated Meter Management

Living &Home Office

Distant LearningRemote Teaching

University

TourismHotels & Resorts

High Definition TVBroadband Internet

Access to Multi Media content

Mobile MoneyMobile Payment

E-commerce

Secure CommunicationPublic Internet Services

Traffic & Transportation

Remote MonitoringE-Health services

Hospital

36

“Smart” City Agenda

Economy &

InnovationCommunity &

CitizenshipCulture and

Entertainment

Environmental

PracticesUrban Places &

Spaces

Movement &

Transport

S&T CITY VALUE

SMART INFORMATION SERVICES

TECHNOLOGYSOCIAL

INFRASTRUCTURE

- INSTRUMENTING- INTERCONNECTING- INTELLIGENCE

- KNOWLEDGE CITY

- CREATIVE CITY- HUMAN CITY U

SE

R-D

RIV

EN

OP

EN

IN

NO

VA

TIO

N

EC

OS

YST

EM

- POLICY CONTEXT- LEADERSHIP

- ON-GOING MANAGEMENT

- 3P PARTNERSHIP- LIVING LABS

PARTICIPATORY GOVERNANCESOCIAL INNOVATION

MA

NA

GE

ME

NT

Network infrastructure

Information Systems

Devices

Applications / Services

Content

Sectors (health, education,

government, banking…)

Beyond technology: the ecosystem

Aw

areness

& Train

ing

Regu

lation

& C

om

mu

niy

Acito

n

Pu

blic

Policies

• Context

• Benchmarking

• The Innovation System

• The Digital Era

• Governance

Outline

Innovation ecosystem: Areas for Action

• Input (R&D, funding) output (publications, patents)• Organising science, basic vs. applied research, University organisation, University – industry interface• Technological readiness, Human capital, substantive vs. soft skills, Entrepreneurship• Funding instruments & business services • Regulation, red tape, getting markets to work, institutional frameworks• ICT, broad-band, usage• Behavioural, “smart”• Institutions, policy coordination

• The Governance System

• Financing R&D and innovation

• Supporting Knowledge-based firms

• Policies for new growth areas

• IPRs

• Regional Development Schemes

• FDI and technology transfer

UNCTAD: areas for reform

• Continued financial sector sanctions

• Dominance of M&A – partly ruled out

• Dynamism associated with VC & entrepreneurship

• Trust, accounting, IPRs, dispute-resolution

• Semi-public sector

• Professional business services support

• Acceptance of win-win

Issues in FDI

Infrastructure needs, niche solutions Heavy haul supply chain (terminals and rolling

stock) for mining

Sustainability and maintenance in railway

transport

Cutting logistics

costs for mining in half

Requires private-public

partnership (railways and

mining in collaboration) as

well as international

participation

Hydrological systems and biomass – the Waterboxx

•Water savings of some 90% compared with conventional drip irrigation.• Water wastage, e.g., through evaporation, is dramatically reduced (e.g. water diffused underground, without air contact). • Pioneering knowledge of local species and root systems• Increased efficiency, reduced costs of fertilisers. • Reduced maintenance costs and high robustness enabling greening and restoring now useless lands to productive purposes, and absorb CO2

45

Scientists

Innovation Policy Positioning:

Implicit

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

EnvironmentScientists

Innovation Policy Positioning:

Traditional

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

Environment

I.P.

Traditional positioning of innovation policy Implicit positioning of innovation policy

Scientists

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

Environment

Innovation Policy:

Explicit Positioning

I. P.

Scientists

ResearchEducation

Industry Finance

Trade Etc.

LabourUnions

Firms

NGOs

Environment

Innovation Policy:

Explicit Positioning

I. P.

Explicit positioning of innovation policy Explicit positioning of innovation

policy with interactions

Source: IKED (2003)

1) Upgrade the importance of STI policy and improve coordination in support of synergies between the main policy fields as well as at regional level, with a view to strengthening the implementation of innovation

2) Reduce the national R&D spending target to 1 per cent of GDP from public sources and 1.5 per cent from private ones

3) Make funding of universities more competitive to drive improved performances in key dimensions, introduce an R&D “project” or “mission” funding scheme targeting prioritized areas, reform public procurement and public-private partnership, and broaden private sector R&D-support through a tax incentive

Recommendations (1)

4) Leverage human capital, strengthen education institutions broadly, advance “learning for life”, mobility and use of ICT, and instil enhanced talent attraction and management

5) Adjust the approach to Evaluation, incl. with a view to policy-experimentation, gauging the unexpected and taking direct as well as indirect results into account in support of the innovation system as a whole

6) Adopt a comprehensive strategy for attracting and benefitting from Foreign Direct Investment (FDI) as well as other external sources of funding, including Venture Capital (VC), by enacting conditions that sustain long-term partnerships and mutual win-win

Recommendations (cont. 2)

7. Further the credibility and usefulness of Intellectual Property Rights (IPR) through a comprehensive reform effort encompassing their entire life cycle, from patent application to dispute resolution, including awareness creation, training and professional support, for the purpose of maximising relevance to the innovation system8) Nurture the knowledge economy across sectors, although with special policy support for start-ups and new growth areas, including through professional business services and an upgraded customer orientation 9) Mobilise ICT for Innovation and capitalising on “big data” and "smart" applications through strategies that link technology to people and induce innovation in response to every-day and sustainability issues

Recommendations (cont. 3)