Innovation in Transition



Sherif El Diwany, ECES Executive Director; Hildegard Gacek, EBRD Managing Director; Erik Berglof, EBRD Chief Economist; Hanan Morsy, EBRD Lead Economist; Philip ter Woort, EBRD Director for Egypt; Dr. Mona Al Garf, Head of the Egyptian Competition Authority; Dr. Ahmed Fikry Abdul Wahab, Chairman, FAW Industrial Group and a Board Member of FEI

The EBRD’s 2014 Transition Report (TR), titled “Innovation in Transition”, focuses on how individual companies across the transition region innovate. The report reveals how innovation can help increase firm productivity, boost economic growth, and re-energise transition. The report takes a broad view of innovationusing a unique enterprise survey analysing how firms innovate by introducing new products, new production processes, new ways to organize themselves, and new ways to market their products and services, and whether they do this by adopting products and technologies from advanced economies or by developing new products and processes themselves. The report also takes stock of firms’ investments in research and development and provides new insights into how managerial practices influence firm productivity.

A key theme of this report is that regardless of a country’s level of economic development and its progress along the transition path, firm managers can make decisions that have a profound influence on the efficiency and productivity of the businesses they run. Yet, which actions are most beneficial – R&D, adopting products that were developed elsewhere, or improving management practices – depends strongly on the business environment in which a firm operates. Governments can do a great deal to unleash this potential, but in order to determine the right measures for any given country they must work closely with the private sector.

The presentation also showcased the findings from a recent EBRD research paper that investigates the nature of growth undergone by Egypt in the decade preceding the Arab Spring. The paper demonstrates that during this period of high growth, Egypt did not witness a structural reallocation of labour towards modern, productive sectors in the way that was seen in emerging markets, notably in South-East Asia. It is argued that factors including limited openness to trade, a low diversification of exports and deficient access to finance explain why Egypt is currently in this “low value trap”. EBRD then presented sector-specific and cross-cutting policy proposals to overcome these barriers to structural change and boost productivity growth.

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