1. How to use prioritization methods in the course of implementation of RIS3 S3 Platform – Peer review workshop 25 February 2014, Rīga

2. Introduction Methodology for selecting and reviewing RIS3 priorities via identification of industry sectors with highest growth potential. Method developed by a group of experts: Gundars Kuļikovskis, Aiva Švēde, Gatis Ābele, Krišs Riekstiņš during June, July – 2013 as part industry analysis for RIS3 Latvia 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.2

3. RIS3- Simplified 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.3 Continuous improvement Review cycle once a year RIS3 Strategy (1) Analysis(2) Process(3) Vision(4) Priorities (5) Policy mix (6) Monitoring

4. Challenges Identification of industries with highest growth potential for selecting RIS3 priorities should be evidence based process, based on hard and objective data Were to create human capital to benefit from it, rather than feed to brain drain Implementing RIS3 is aiming at moving target. Re-evaluation of priorities should be done on regular basis: Important changes in external context should be expected during strategic planning 7 year cycle Non-linearity. Even successful policies result in unforeseen changes in internal context Process of re-evaluating priorities should be compatible with process of initial strategy setup Rent seeking is a problem at every step. Lobby groups are powerful and government needs strong arguments Cost of re-evaluation should be reasonable 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.4

5. RIS3 – strategy of economical transformation Economic transformation should lead to higher productivity at individual as well as cumulative level Innovation is the key to move to higher value products and activities Successful smart specialization: Increase trade - higher volume of exports & imports Decrease number of technologically unrelated products produced locally Increase value of products produced locally per volume “What You export matters” by Ricardo Hausmann, Jason Hwang & Dani Rodrik Export is the key for growth Moving to higher value products can be done only step by step using existing and related production factors 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.5

6. Sectorial gap analysis Value gap between Latvia and more developed countries is good indicator of unrealized growth potential Used 9 reference EU countries: Austria, Belgium, Denmark, Ireland, UK, Netherlands, Finland, Germany and Sweden. We can expect that these countries: Done maximum in order to increase value Similar environment and climate There are no product requiring low skilled and low labour Database of international trade (COMEXT). Data of international trade of 2010, 2011 and 2012 4 digit product level which is highest degree of detail available Export value (EUR) & volume (KG) Only countries with significant volume or value of export. Country is excluded in given 4 digit product group if it is not at the top 3 at any of- physical volume, value or total value 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.6

7. Gap calculation 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.7

8. Results – growth potential by industry sector 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.8

9. Notes Approach is very conservative. Movement to higher product value is in very related product set. If we allow migration between the products the gap is higher The methodology is useful: For identifying sectors with potential for building up human capital For measuring success of convergence of economy For regions which by size is country due to type of data – Eurostat Potential of industries does not reflect potential of direct investment into industries. It might be that investment should be done in other: R&D, human capital, internationalization etc. For example wood industry can move to higher value product by employing nanotechnology If the realization of growth potential is lack of investment then such investment should be done by private capital Most important lesson is shortlist of industries which have significant value creation potential 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.9

10. Thank You! 26/02/2014Presentation@RIS3 Platform Peer Review Workshop. (C) 2014. FIDEA SIA.10