Towards an Innovation-Driven Economy in Egypt ... (Check description for details)

Course of Higher Education in:
"Governance and Development of SMEs in Egypt"

Towards an Innovation-Driven Economy
in Egypt
Industry Policy Development Recommendations from
The Italian National Innovation Support System

Research Project Report
This document represents the individual research project
report of the higher educational course on "Governance and
Development of SMEs in Egypt “conducted in Italy from 10th
of Sep. 2012 till 23rd of Dec. 2012.

Submitted by:
Tarek Salah Kamel
tsalah@itida.gov.eg
Capability Development Unit Manager,
Information Technology Industry Development Agency (ITIDA), Egypt.

th
Sunday, 16 of Dec. 2012

CONTENTS

EXECUTIVE SUMMARY 3
I. RESEARCH METHODOLOGY 4
1.1 INTRODUCTION 4
1.2 RESEARCH FOCUS POIN T 4
1.3 RESEARCH APPROACH 4
II. INTRODUCTION 6
2.1 SOCIETAL STEP MODEL OVERVIEW OF ITALY 7
2.1.1 ECONOMY BRIEF 7
2.1.2 SOCIAL BRIEF 9
2.1.3 POLITICAL BRIEF 10
2.1.4 TECHNOLOGICAL BRIEF 12
III. ITALIAN NATIONAL INN OVATION SYSTEM 13
3.1 INTRODUCTION 13
3.2 OUTLINE OF THE ITALI AN NATIONAL INNOVATI ON SUPPORT SYSTEM 14
3.3 NIS PERFORMANCE OVER VIEW 17
3.4 INTERVENTION PROGRAM S AND POLICIES FOR E CONOMIC DEVELOPMENT 23
3.4.1 OVERVIEW LIST OF NAT IONAL PROGRAMS AND P OLICIES 25
3.4.2 EU FUND ING PROGRAMS AND INSTRUMENTS FOR MEMBER STATES 27
IV. EGYPT AND THE EU 28
4.1 LONG HISTORY OF COOP ERATION 28
4.2 DEVELOPMENT COOPERAT ION INSTRUMENTS AVAI LABLE FOR EGYP T 34
V. INDUSTRY POLICY DEVE LOPMENT RECOMMENDATI ONS 39
5.1 CONTEXT-AWARE VS. CONTEXT -NEUTRAL DEVELOPMENT CONCEPT 40
5.2 A FRAMEWORK FOR INDU STRY POLICY DEVEL OPM ENT 41
5.3 INDUSTRY POLICY DEVE LOPMENT RECOMMENDATI ONS FOR EGYPT 45
5.4 CONCLUSION 49
VI. REFERENCES 50
EXHIBIT 1: Contents of the Higher Education Course on: "Governance and Development of
SMEs in Egypt" 53
EXHIBIT 2: The European Union Structure and Main Institutions 54
EXHIBIT 3: Selected Key Organisations within the Italian National Innovation System 60
EXHIBIT 4: The Emilia-Romanga Region NIS Overview 62
Industrial Clusters of Emilia-Romagna and Main Competitive Sectors 63
Research and Innovation in Emilia-Romagna 78
The High Technology Network and Techno-poles 78
Some Best Practices Innovation Support Programs in Emilia-Romagna 81
Digital Infrastructure Overview 83
Incentives for Research and Innovation in Emilia-Romagna 84
Educational and Research Policy Brief of Emilia-Romagna 85
EXHIBIT 5: Overview of the ICT Sector in Italy 88

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Executive Summary
The aim of this research work is to provide:
 Industry policy development recommendations for decision policy makers in Egypt
to transform its economy into an innovation-driven one, and
 EU development cooperation instruments available for Egypt to be used for the
value of Egyptian ICT SMEs either directly by them or through specific governmental
SME support programs.

In this regard, this research provides an overview of the Italian National Innovation System
(NIS) components, with specific detail to the Emilia-Romagna Region, as well as a
performance review of that NIS global and European competitiveness through analysis of
different global reports like the WEF, OECD, WB, EIS, IUC, PRO-INNO TrendChart, as well as
other studies. This overview is preceded by an outline of a STEP model of the Italian economy
aimed at understanding the context, in which, the Italian NIS operates.

Combining knowledge gained from this research with the one gained from the “Higher
Education Course on Governance and Development of SMEs in Egypt”, the research concludes
with a central idea around which the two research targets are detailed in the last two
sections.

The central idea is about the necessity of adopting a specific form of context-aware strategic
thinking in industrial policy development in contrast to context-neutral one. Context-aware
in the sense that the properties of the industrial system cannot be explained by its
components alone, rather they are explained through a holistic approach to industry policy
development that’s able to comprehend the mechanics of its context to guarantee a level of
coherence and compatibility with its socio-economic-and-political fabric yielding to its
sustained development.

A proposed theoretical model for context-aware policy development is explained, as
benefited from the Emilia-Romagna region successful innovation performance in Europe
[1,2]. Also, implications for adoption of this model in Egypt are elaborated that would
guarantee its effective application and usage for reaching a sustainable industry policy that
extends its four pillars, namely: innovation, entitlements, provisions, and territorial
dimension.

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I. RESEARCH METHODOLOGY

1.1 INTRODUCTION
In the Innovation-based economy, the quest for sustained economic development and global
competitiveness of a nation requires the existence of a reliable, efficient and competent National
Innovation Support System (NIS) that ensures a sustainable national competency of innovating new
technologies that could be realized by the industry sector, which are either commercialized from
public research or realized through industry R&D and technology transfer.

Each Nation has its own National Innovation Support System (NIS), in what relates to policies,
regulations, institutions, programs, and interconnections that eventually influence the level of
economic development and the global competitiveness rank of the whole nation.

The course of higher education in “Governance and Development of SMEs in Egypt”, that was
conducted in Italy from 9th of September till 21st of December 2012, presented a holistic approach to
development of SMEs covering four main aspects affecting the National Innovation Support System
within any country, which are: Law and Regulations, Political Economy and Finance, Public
Administration and Regional Strategic Planning, as well as Business Organization [Exhibit 1]. It’s within
the value of this holistic course and the specific study done on the Italian National Innovation Support
system that this research is conducted.

1.2 RESEARCH FOCUS POINT
This research project aims to study the Italian National Innovation Support System in what relates to
general components as well as performance and challenges. Most importantly is the study of the
government intervention policies and regulations to ameliorate the competencies of the economic
factors of production, and develop the ICT sector specifically towards a higher level of
competitiveness. From this study, as well as from the higher education course, the aim is to extract for
Egypt:
 Industry policy development recommendations for decision policy makers in Egypt to
transform its economy into an innovation-driven one, and
 Development Cooperation Instruments Available for Egypt to be used for the value of
Egyptian ICT SMEs either directly by them or through specific governmental SME support
programs.

1.3 RESEARCH APPROACH
The research intends to answer the following questions:
 What is the current performance of the Italian National Innovation Support System in terms of
innovation capacity competence and global competitiveness?

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 What industry policy development recommendations can the Egyptian policy makers benefit
from in improving the Egypt’s global competitiveness and innovation performance of our
economy, with a special concern to the ICT industry?
 What are the development cooperation instruments available for Egypt that could lead to
possible collaboration opportunities between Egyptian ICT SMEs and the Italian counterparts?

To answer these questions, the following research process was followed:
1. Laying out a simple STEP model for the Italian Economy to understand the context, in
which the Italian NIS operates.
2. Studying several global reports about the competiveness, innovation, and doing business
rank of Italy. (WEF, OECD, IUC, EIS, WB .. etc)
3. Review on government intervention policies for industry development with specific regard
to the ICT sector.
4. Extracting development cooperation instruments available for Egypt and industry policy
development recommendations.

The outline of this process is described in Figure 1:

Figure 1: Research Approach

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II. INTRODUCTION
Economic Development is at the heart of all national policies in all countries. However, in times of
crisis seeking an economic development policy becomes a very hard task. Egypt is still witnessing what
shall exceed two-year turmoil of events starting with the revolution in Jan. 2011. However, combined
with global crisis effects, weak political stability of the government, local deterioration of factors of
economic production, and increased level of political tension among the society, succeeding to even
lay down a clear economic development policy of the country seems even harder. This implies that
development of a certain sector cannot be attained alone, unless there is an adequate level of a
reliable and well-performing holistic model of the society.

However, in the quest for Development, it’s important to differentiate between development and
growth. Development is a long-term process of growth and improvement not only from an economic
point of view, but also from social and cultural points of view. As stressed by Sylos Labini (2006),
“Economic development is a means to reach the wider aims of cultural and social development”;
Dahrendorff (2008) also highlights that “Economic development cannot arise without civil
development” [1].

Bianchi and Labory have presented in [1] the results of a long-range research that suggests that the
current global crisis revealed a long-term structural changes in the economy, which all firms in all
sectors have to face and which require government intervention. The main problems revealed by the
crisis can summarized as:

1. Short-term views prevailed, highlighting short-term benefits of sustained consumption
and profits in the financial sector.
2. Partial views also prevailed in the sense of isolating economic phenomena from political
and social aspects
3. The crisis is also generated by a myopic and individualistic views whereby self-interest and
own profits and returns prevail, without regard to the community.

Further details are in [2], where they suggested a holistic approach to industry policy development,
revealing a basic and important idea that the properties of the industrial system cannot be explained
by its component parts alone. The whole industrial system has to be considered with underlying
society and policy, such that industry development is determined by – and in turn influences – the
characteristics and evolution of the society and its cultural development [1].

In this regard, and in order to understand the industrial development policy in Italy, the following
section of this study starts by presenting the context, in which the Italian National Innovation System
operates, which can be described by an overview STEP model of the Italian Economy.

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2.1 SOCIETAL STEP MODEL OVERVIEW OF ITALY
2.1.1 ECONOMY Brief
Italy has a diversified industrial economy, which
is divided into a developed industrial north,
dominated by private small companies, and a
less-developed, welfare-dependent, agricultural
south, with high unemployment. The Italian
economy is driven in large part by the
manufacture of high-quality consumer goods
produced by SMEs, many of them are family
owned. Italy also has a sizable underground
economy, which by some estimates accounts for
as much as 17% of GDP [3].
Figure 2: Societal STEP Model

Italy was one of the six member states that established the European Economic Community
(EEC), one of the predecessors of the EU. Italy was a founding member of the euro area and
was among the first group of countries to introduce the euro on January 1, 1999. Euro notes
and coins entered general use on January 1, 2002, replacing the Italian Lira [4] .

Figure 3: Some Economic Indicators of Italy. (Source: WEF Competitiveness Report 2012-2013)

After the 1950s, Italy transformed from a weak agriculture-based economy, severely affected
by the consequences of World War II, into one of the world’s most industrialized nations. It
has a highly developed infrastructure and was ranked number 10 in The Economist’s Quality
of Life 2010 Index [5].

While Italy has developed a reputation for producing high quality luxury goods, the small size
of Italian businesses prevented the country for benefiting from recent reforms. Italy has been
referred to as “the sick man of Europe” due to economic stagnation, political instability, and
challenges in pursuing reform programs. [4]

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Italy is the third-largest economy in the euro-zone, but exceptionally high public debt burdens
and structural impediments to growth have rendered it vulnerable to scrutiny by financial
markets. Public debt has increased steadily since 2007, reaching 120% of GDP in 2011, and
borrowing costs on sovereign government debt have risen to record levels. During the second
half of 2011 the government passed a series of three austerity packages to balance its budget
by 2013 and decrease its public debt burden. These measures included a hike in the value-
added tax, pension reforms, and cuts to public administration. The government also faces
pressure from investors and European partners to address Italy's long-standing structural
impediments to growth, such as an inflexible labor market and widespread tax evasion. The
international financial crisis worsened conditions in Italy's labor market, with unemployment
rising from 6.2% in 2007 to 8.4% in 2011, but in the longer-term Italy's low fertility rate and
quota-driven immigration policies will increasingly strain its economy. The euro-zone crisis
along with Italian austerity measures have reduced exports and domestic demand, slowing
Italy’s recovery. Italy's GDP in 2011 is still 5% below its 2007 pre-crisis level [3].
Key Facts [4]:

 The World Economic Forum (WEF) Global Competitiveness Report for 2011/2012
ranked Italy 42nd out of 139 countries in terms of competitiveness. The country’s
competitiveness is held back by structural weaknesses in the labor market (ranked
127th on labor market efficiency), weak public finances, and a poor institutional
environment.
 Italy dropped four spots in the World Bank’s 2012 Doing Business Report to place
87th out of 183 countries. It fell ten places in the category of “starting a business”
(now 77th).
 According to the European Commission’s September 2012 spring forecast, economic
growth is expected to be -1.4% in 2012 and a more welcomed +0.4 in 2013.
Plummeting global demand continue to seriously affect the country’s exports, while a
weak labor market and inflation pressures contribute to low consumer spending.
 As is typical during recessions, the government has run a large deficit. In 2012, it is
projected to reach -2.4%. With the persistent government deficit the general
government debt is to reach 123.4% of GDP.

According to the European Commission, the characteristics of the Italian economy may be
summarized as follows [6]:

 A predominance of SMEs, which affects the level of R&D expenditure, innovation
Enhancement and human capital improvement;
 The perception of innovation carried out by SMEs as a modernization process rather
than as a strategic activity;

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 An uneven distribution of economic activities and ICT infrastructure between north
and south;
 Low levels of technical education;
 A limited propensity to make patent applications; and
 A shortage of finance and the need for a more dynamic venture-capital market.

2.1.2 SOCIAL Brief
Italy is the 23rd country of the world in terms of population at
61M citizens (July, 2012 est.). The Median age in Italy is 43.5
years and the proportion of the population that is older than
65 is 20.3%. On both these measures Italy is the second
“oldest” EU country (after Germany) [3].
Italy has a dearth of highly skilled human resources, and the
most highly qualified sometimes find better opportunities
abroad. During 2011/13 academics’ salaries and career
progression have been frozen in order to contain public
spending. A lack of opportunities and unattractive career
prospects and working conditions for talented individuals may further weaken the human
resource base. A recent parliamentary act aims to support the recruitment of early career
researchers. A new action plan for future youth employment (Italia 2020) aims to better align
curricula with the changing demand of industry [7].

As a result of the profound economic and social changes induced by postwar industrialization,
including low birth rates, an aging population and thus a shrinking workforce, during the
1980s Italy became to attract rising flows of foreign immigrants. The present-day figure of
about 4.6 million foreign residents, that make up some 8% of the total population, include
more than half a million children born in Italy to foreign nationals—second generation
immigrants, but exclude foreign nationals who have subsequently acquired Italian nationality
[8]. The level of immigration to Italy presents a social problem, as the level of unemployment
in Italy reached 11.1% in 2012, local authorities is striving to solve this problem and offer
better jobs to their own citizens.

According to [9], restrictive immigration policies that have been created over time are the
main reason for the continual illegal flows of immigrants. As a result, there is a certain sense
of widespread dissatisfaction with policies, which should not merely be based on countering
illegal flows, readmission agreements, temporary stay centers, or even the simple view of
immigration in terms of employment. Italians need, instead, to invest more in legal paths,
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which can be reached by creating an atmosphere of coexistence in which immigrants and
natives are asked to demonstrate reciprocal responsibility [9].

The most widespread religion in Italy is Roman Catholicism which is not, however, a State
religion. The Republican Constitution states that ''all citizens have equal dignity and are equal
before the law without distinction of sex, race, language and religion''. As far as the Catholic
Church is concerned, the Italian Constitution establishes that the State and the Holy Seat are
independent and sovereign and that relationships are ruled by the Lateran Treaty of 1929 and
subsequently amended in 1985 [10].
Italy is known to be suffering from network of organized crime organizations. Since their
appearance in the middle of the 19th century, Italian organized crime and criminal
organizations have infiltrated the social and economic life of many regions only in Southern
Italy, the most notorious of which being the Sicilian Mafia. There are six known mafia-like
organizations in Italy: Cosa Nostra of Sicily, ‘Ndrangheta of Calabria and Camorra of Naples,
are rather old. Recently, two new organizations, Stidda and Sacra Corona Unita of Puglia have
appeared [11].
Actually, the presence of criminal organizations represents one of the main obstacles to the
economic growth and development of several regions and countries around the world.
Besides the immediate costs imposed by violence and predatory activities, such organizations
may take advantage of their economic and military power to influence the political decision-
making process. It’s estimated in Italy that the expansion of organized crime lowered GDP per
capita by 16 percent over a 30-year period, relative to a control group of regions less affected
by mafia presence. The decrease was caused primarily by a contraction of private investment,
which was progressively replaced by (less productive) public capital [12].

2.1.3 POLITICAL Brief
Being part of the six EU states that started the process of the European
integration in 1952 and witnessed the evolution of the European
Union, it’s not accurate anymore to study the political status of an
European state without noting how the EU policies and regulations
affect such a state. Italy is a special case since the Treaty establishing
the European Community was signed in Rome in 1957. (Exhibit [2]
presents an the EU structure main institutions)

Currently governments of the European Union Member States are sharing competencies with
the EU itself, and their daily work is totally in compliance with the directives and regulations
set by the EU in its exclusive competency areas. The difference between exclusive
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competencies and shared competencies can be understood from the Figure 4 below according
to the Treaty on Functioning of the EU [13]:

Figure 4: Difference between Exclusive and Shared Competencies [13]

The EU policies in what relates to sustainable development, green economy, innovation, and
other areas are guiding lines for all EU Member States local policies, each in its own territory.

The Constitution establishes that the Italian
Republic is made up by State, Regions,
Provinces and Communes. These are all
autonomous bodies with powers and
functions limited by the Constitution [10].
Italy is a Parliamentary Republic. The
President of the Republic is the higher office
of the State. He is elected every seven years
by the Parliament in common session and by
representatives of the Regions. Italy is
subdivided into 20 Regions, five of which
enjoy a particularly high level of autonomy
according to special statutes adopted through constitutional law. The Regions are established
as autonomous bodies with their own statutes, their own powers and functions. The
Commune and the Province are administered respectively by the Commune and Provincial
Councils. These bodies have the power to deliberate, in the respect of the national and
regional laws, on all measures relating to the organization of the services specific to their

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jurisdiction. The Commune and Provincial Councils are made up of representatives elected by
residents by universal suffrage [10].

According to the global transparency report, there are a number of corruption challenges in
Italy [14]:

In the Government and Politics area:
 Checks and balances in the Italian government are compromised. A
2012 study indicates that the legislative branch has little independence from the
executive. This creates a disparity in power and enables the executive to govern
without appropriate accountability.
 Integrity mechanisms are also poor in the public sector. According to a 2011 report,
parliamentary and government codes of conduct are aspirational at best, and not
enforceable. Weak – and often non-existent – sanctions cannot effectively deter
corrupt acts. National corruption scandals also undermine public officials’ image.

The National Integrity Systems Assessment report says that: “Italy's National Integrity System
is far from robust, with an average NIS score of 55.04 per cent (scores range from 0 [lowest or
worst] to 100 [highest or best]). Corruption is able to flourish almost everywhere as state
institutions enjoy considerable autonomy, which does not correspond to standards of
accountability and integrity” [15].

In the Political Financing area [14]:

 Corporate donations to political parties and candidates are unregulated. Although
there are constraints on election expenditure, there are no limits on donor
contributions to parties or candidates. Donor identities are only revealed for
contributions above €50,000 and even these loose regulations are not adequately
enforced.
 Political party and campaign expenditure reporting are also unsatisfactory due to the
large gap between law and practice. The public is unable to access financial reports of
political parties and a number of corruption scandals have added to public distrust in
the party system. A 2010 report shows that Italians perceive political parties to be the
most corrupt institution in the country.

2.1.4 TECHNOLOGICAL Brief
The technological part of the STEP model will be elaborated in detail through the
study of the Italian National Innovation System in the Section 2 and in Exhibit 4 for
Emilia-Romagna region specifically.

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III. ITALIAN NATIONAL INNOVATION SYSTEM

3.1 INTRODUCTION
Innovation is a priority of all Member States of the EU and of the European Commission. Throughout
Europe, hundreds of policy measures and support schemes aimed at innovation have been
implemented or are under preparation. The diversity of these measures and schemes reflects the
diversity of the framework conditions, cultural preferences and political priorities in the Member
States [16].

THE INNO-POLICY TREND CHART
The ‘First Action Plan for Innovation in Europe’, launched by the European Commission in 1996, provided
for the first time a common analytical and political framework for innovation policy in Europe. Building
upon the Action Plan, the Trend Chart on Innovation in Europe is a practical tool for innovation organisation
and scheme managers in Europe. Run by the Innovation Policy Directorate of DG Enterprise and Industry, it
pursues the collection, regular updating and analysis of information on innovation policies at national and
European level.
The Trend Chart serves the “open policy co-ordination approach” laid down by the Lisbon Council in March
2000. It supports organization and scheme managers in Europe with summarized and concise information
and statistics on innovation policies, performances and trends in the European Union (EU). It is also a
European forum for benchmarking and the exchange of good practices in the area of innovation policy.

The Trend Chart on Innovation has been running since January 2000. It now tracks innovation policy
developments in all 25 EU Member States, plus Bulgaria, Iceland, Israel, Liechtenstein, Norway, Romania,
Switzerland and Turkey. It also provides a policy monitoring service for three other non-European zones:
NAFTA/Brazil, Asia and the MEDA countries. The Trend Chart website (www.cordis.lu/trendchart) provides
access to the following services and publications, as they become available:
 A database of innovation policy measures across 33 European countries;
 A news service and related innovation policy information database;
 A “who is who” of agencies and government departments involved in innovation;
 Annual policy monitoring reports for all countries and zones covered;
 Background material for four annual policy benchmarking workshops;
 The European Innovation Scoreboard and other statistical reports;
 An annual synthesis report bringing together key of the Trend Chart [16].

Over the last decade Italy’s economic growth has slowed and come to a halt, independently of the
world economic cycle. It has been held back by the structural problems that reduce the ability of
Italy’s productive system to take advantage of the opportunities inherent in the new patterns of world
trade and of the innovative technologies that have spread throughout the world [16]. The financial
crisis spreading at international level is affecting the Italian real economy in the same way that it is
unfolding in other EU countries. The sharp reduction in revenue, the slowdown in lending and the
deterioration in consumer and business confidence are holding back demand and output, creating
economic contraction and significant job losses [17].

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In 2008, Italy’s economy contracted by 1% following growth of 1.6% in 2007. Production fell by 3.1%
and the trend continued in the first part of 2009. Most industrial sectors are in difficulty. Those which
have suffered first from the contraction of the international demand have been the metal-mechanic
and textile industries, which are the two pillars of the 'made-in-Italy' industries. Since September 2008
other sectors such as agro-food, construction, commerce and the chemical industry have also seen
their investments and confidence in innovation reduced. The IFIIT index which measures the
confidence for investments in technological innovation decreased from 78 to 65 points between June
2008 and March 2009. However, sectors such as energy, credit, insurance, telecommunications and
luxury goods keep showing special attention towards innovation and new technologies, where
investments are not expected to fall [17].

3.2 OUTLINE OF THE ITALIAN NATIONAL INNOVATION SUPPORT SYSTEM
The theoretical model proposed for the National Innovation System components is described in Figure
5 below. It outlines generally what components should be in place to realize an NIS [18-19].

Figure 5: A Proposed Model for the Components of the National Innovation Support System

As often happens when examining the “Italian system”, within its various subdivisions, even the
“Italian National Innovation System (NIS) is characterized by a large number of entities and a high level
of fragmentation” [15].
Based on the European Commission’s Annual Innovation Policy Trends and Appraisal Report for Italy,
it is possible to group the different institutions and organizations determining and shaping the
innovation system in Italy into six categories [15], which fit most of the proposed NIS model
components outlined in Figure 5.
Those are:
1) Government and legislative bodies:

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1. Ministries of Education, Universities and Research (MIUR), Economic Development (MSE),
Innovation and Technology, Economy and Finance, and, to a lesser extent, Ministries of
Environment and Health; and
2. the Inter-ministerial Committee for Economic Planning (CIPE);
2) Universities and knowledge institutes:
1. 77 universities distributed across the country;
2. The Association of Italian University Rectors (CRUI);
3. Public Research Institutes, like the National Research Council (CNR), the National Agency
for New Technologies (ENEA), the Italian Space Agency (ASI), the Italian Aerospace
Research Centre (CIRA), the National Institute for Nuclear Physics (INFN) and the Italian
Institute of Technology (IIT) - the latter established in Genoa in 2004 by the Ministry of
Education, Universities and Research and the Ministry of Economy and Finance, as a
foundation with the aim of becoming an international centre of excellence for scientific
research in advanced technology; and
4. Private research centers, mainly managed by the major industrial groups (Fiat, Pirelli,
Telecom Italia, Finmeccanica, Enel etc.)
3) Public Innovation Agencies/Organizations:
1. The Italian Patent Office (which regulates industrial property issues);
2. The Institute for Industrial Promotion (IPI), a development agency controlled by the
Ministry for Economic Development, which is involved in industrial policies, incentive
instruments and policies, technology transfer networks and multilateral and bilateral
international cooperation efforts;
3. Sviluppo Italia, the national agency for enterprise and inward investment development,
which controls “Innovazione Italia”, a dedicated agency that implements national
innovation programs;
4. Agitec, the service agency designed to assist business in making investments in innovative
technology;
5. At the regional level, relevant organizations are the Regional Innovation Agencies and the
Regional Competence Centers (RCCs) - the latter have been established by the
Department for Public Administration and the Department for Innovation and Technology
to facilitate and accelerate the development of e-government and the information society
at the regional level; and
6. The 2006 Budget Law created a National Agency for the Dissemination of Technologies for
Innovation (Agenzia per la diffusione delle Tecnologie per l’Innovazione), monitored by
the Italian Prime Minister’s Office and aimed at fostering the competitiveness of SMEs and
of industrial districts by spreading new technologies and promoting integration between
the research and industrial spheres;
4) Private sector organizations:
Main Italian industry associations such as Confindustria and Unioncamere;
5) Industrial Research Organizations and Centers:
1. The Italian Association for Industrial Research (AIRI), which promotes industrial research
and cooperation between companies and public research institutions;
2. Industrial Experimental Stations: organizations supporting the competitiveness of
enterprises in close collaboration with the relevant production sector;

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3. Industrial districts;
4. Technology districts: 24 technology districts have been promoted in key strategic areas;
5. Science and Technology Parks: the number in Italy is growing. The Association of Italian
Science and Technology Parks (APSTI), founded in 1989, now has 30 parks throughout the
6. country; and
7. Business Innovation Centers (BICs), Integrated Centers for Entrepreneurship
Development, Incubators and Innovation Relay Centers (7 in Italy), which support
innovation and transnational technology transfer; and
6) Innovation Intermediaries and Financial Institutions.
The financial system supporting R & D in Italy is made up of:
1. The Italian Business Angels Network (IBAN);
2. The Italian Venture Capital and Private Equity Association (AIFI); and
3. A series of private banks and financial intermediaries that offer funding to finance
R&D and innovative projects. (Rinnova, and others)
These 6 main categories are illustrated in Figure 6 below [15]: (Refer to Exhibit [3] for more details).

Figure 6: Outline of the Italian Innovation System Major Organizations

3.3 NIS PERFORMANCE REVIEW

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In terms of innovation performance, Italy is below the EU average and its relative position has not
significantly improved over the years 2004-2008 (SII was 0.314 in 2004 and is 0.354 in 2008).
According to the European Innovation Scoreboard (EIS), Italy positions itself in the group of
'moderate innovators', showing slow progress and registering a below-average annual growth rate
(1.8 in 2008 versus 2.3 EU average) [20].

Figure 7: Summary of Innovation Performance of the EU Member States [20]

The moderate innovators could be compared to countries performance of the other categories in
related innovation dimensions as in Figure 8.

Figure 8: Country Groups: Innovation Performance per Dimension [20]

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Table 1: Sample Country Groups per Innovation Category [20]

According to the EIS, Italy performs well (slightly above or around the EU average) in the following
indicators:
1. R&D activities and employment in medium-high, high technology and knowledge-intensive
services sectors. Such performance is mainly attributed to the importance of the Italian
medium-technology industrial base (especially industrial areas of mechanics).
2. Community trademarks and design, a sign of the traditional country leadership at
international level in sectors marked by the 'made-in-Italy' production, design creativity and
invention, which have contributed and can further boost the consolidation of the Italian
products in several key markets, and
3. Non R&D innovation expenditure.
On the contrary, low performance is registered for indicators such as Human resources, Finance and
Support, and Linkages & entrepreneurship. The EIS indicators reflect the main traditional weaknesses
of the country, namely:
1. Insufficient supply of knowledge base for high-technology solutions and dissemination of
new technologies (still low number of university educated people, inadequate average level
of skills and know-how among the adult and young population, low number of researchers
employed),
2. Shortage of finance both from public and private sources and inefficient capital market
(inadequate development of the domestic capital market, poorly performing financial sector
and slow growth of companies through third-party capital, credit market still managed
according to rigid and traditional criteria),
3. Low level of inter-firm collaboration and still weak system of consolidated public-private
partnerships. These factors strongly affect the Italian innovation system and the ability of the
country to gain on other EU countries in terms of innovation and competitiveness.

Based on the analysis of indicators from several sources such as the EIS, Organization for Economic
Cooperation and Development (OECD) and International Institute for Management Development
(IMD), as well as on national policy debates, publications, and on the analysis of the press, three main
challenges can be identified in the Italian innovation system:
(1) Innovation financing (especially venture capital),
(2) Mobility of talents (especially brain drain), and
(3) Improvement of technology transfer mechanisms [6].

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Figure 9: Italy European Innovation Scoreboard Country Profile [20]

However, it’s to be noted that according to the WEF Global
Competitiveness Index Report 2012-2013, Italy is ranked as an
innovation-driven economy category of countries [21]. So linking the two
reports gives an indication that Italy is positioned close to the tail of the
list of innovation driven economies as clear from Figure 10; the diamond
graph shows how Italy is behind in most of the indicators of the
innovation-driven economies.

According to the WEF GCI report 2011-2012, Italy succeeded to move up by one place to reach the
42nd position this year. The country continues to do well in some of the more complex areas measured
by the GCI, particularly the sophistication of its businesses, where it is ranked 28th, producing goods
high on the value chain with one of the world’s best business clusters (2nd). Italy also benefits from its
large market size – the 10th largest in the world – which allows for significant economies of scale.
However, Italy’s overall competitiveness performance continues to be hampered by some critical
structural weaknesses in its economy. Its labor market remains extremely rigid – it is ranked 127th for
its labor market efficiency, hindering employment creation. Italy’s financial markets are not
sufficiently developed to provide needed finance for business development (111th). Other institutional
weaknesses include high levels of corruption and organized crime and a perceived lack of
independence within the judicial system, which increase business costs and undermine investor
confidence – Italy is ranked 97th overall for its institutional environment. The efforts being undertaken
by the present government to address such concerns, if successful, will be an important boost to the
country’s competitiveness [21].

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Figure 10: GCI General and Innovation Performance Rankings. [21]

Other reports, such as the Innovation Union Competitiveness (IUC) Report
2011, also reported comparative details of the performance of the Italian
innovation system performance. According to the Innovation Union
Competitiveness report 2011, The Italian R&D and innovation system shows
positive and negative aspects. In innovation, Italy ranks below the EU average
as a moderate innovator. Policy intervention has opened many possibilities
which have not been completely exploited due to two types of structural
weaknesses [22]:
 Inertia regarding modernization within the public research system
and
 The difficulty to realize growth and innovation within the industrial
system, particularly with regard to the most high-tech sectors.
The levels of population with tertiary education (11.6 %) and participation in life-long learning (6.8 %)
are below the EU averages of 22.8 % and 9.8 % respectively. The total number of researchers (FTE)
had an annual average growth rate of almost 4 % between 2000 and 2009, but is still well below the
EU average. The business sector in Italy is characterized by a large number of small and medium-sized
firms, specialized in products that require high-quality design and engineering, whose average size is
significantly smaller than the EU average [22]. There is a predominance of SMEs (98% have less than
20 employees) specializing in low and medium technology sectors [21].

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Figure 11 shows the R&D profile of Italy as compared to the EU and US.

Figure 11: Italy R&D Profile Relative to EU and US. [22]

It’s noted that Italy is well integrated in the European research and innovation system. Together with
Germany, France and the United Kingdom, Italy is among the highest producers of overall publications
and of cross-border co-publications. The preferred partners for scientific collaboration with Italy are
among these three countries plus Spain and Switzerland [21].
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Also, according to the OECD Science, Technology and Industry Outlook
2012 [7], Italy’s share in world trade has declined and low productivity
growth has led to a widening gap in GDP per capita with the best OECD
performers. The weak investment in R&D may reflect the specialization of
firms in traditional sectors and the prevalence of small family businesses.
However, strict regulations also reduce incentives for firms to operate efficiently, invest in innovative
technologies and undertake organizational change. In recognition of this, the government has begun
to liberalize certain sectors by lowering entry barriers and removing price and quantity restrictions.
Figure 12 shows a Comparative Performance Data of National Science and Innovation Systems [7].

Figure 12: Comparative Performance of National Science and Innovation Systems (Italy and EU).

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In the National Strategic Reference Framework (NSRF) 2007-2013, related
to the Cohesion policy, the poor innovation capacity of the private and
public sectors is identified as the principal source of competitive lag in the
country [15].
The systemic weakness of Italy is linked to:
 The modest amount of private research conducted even in very
large firms,
 The insufficient capacity to institute relationship mechanisms
between the latter and SMEs,
 The limited aptitude of SMEs to dialogue with the research supply
system,
 The inadequate level of training of entrepreneurs and
 The poor involvement of workers in the innovation process both in businesses and in the
public administration.
 More generally, the weaknesses are traced back to:
o An inadequate climate of competitiveness and to the existence of highly-protected
positions in the market, in businesses and in public institutions, as well as
o To lower skill levels than in other industrial countries and
o To poor dialogue between businesses and the research sphere.
 Also insufficient is the ability to produce and attract skilled human capital, while at the same
time the national economy has difficulty in absorbing human resources that have successfully
completed higher education.
The research supply system is described as being “patchy”, that is, as having areas of excellence which
are not however supported by an adequate system of rules. This in turn leads to the perpetuation of
situations of unaccountability fuelled by the absence of merit-based recruitment mechanisms [17].

However, despite the overall Italian relative lower performance in innovation as compared to the
leader-innovation players, some regions like Emilia-Romagna are considered as model of innovation
in Europe [2]. Regions of Italy have their own regional development policies that could fill gaps and
account for shortages in the national ones, as and explained in the next section.

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3.4 INTERVENTION PROGRAMS AND POLICIES FOR ECONOMIC DEVELOPMENT
To put the economy on a sustainable growth path based on sound macroeconomic fundamentals, the
Italian government has embarked since 2011 on a substantial process of fiscal consolidation and
structural reform [7]. Italy aims to improve productivity, competitiveness and innovation throughout
the country via a sustainable development framework. The main focus will therefore be on promoting
skills and providing public services to people and investors. These national objectives are to be
achieved through four macro-objectives [24]:
 Developing knowledge circuits;
 Improving living standards, security and social inclusion;
 Fostering clusters, services and competition; and
 Internationalizing and modernizing the economy.

However, for Italy with 20 regions, each region put also its own development policies that sometimes
fill some gaps in the national policy or simply account for its failure. That’s why regions have a
considerable level of inequalities according to the competency of the responsibles within this region
for policy development and availability of resources and how they are put into the economic cycle of
development. This is realized in the north and south disparity problem in Italy for example with much
R&D and innovation capacity concentrated in northern and central regions of the country. Also across
all Europe, led to the adoption of the Cohesion policy aiming to improve the economic conditions of
specific regions within the EU suffering from such disparity.
So the result is that, for a specific region, we have 3 sets of policies and programs targeting different
economic development dimensions or even the same dimension together but through different
means and mechanism.

Figure 13: National, Regional, and EU Policies and Programs Integrating Together.

In the following section, a list of national intervention programs and agreed policies across Italy is
outlined, and then followed by a summary of major EU funding programs. Of course, details of the 20
regional policies and programs in Italy are beyond the scope of this research. Nevertheless the Emilia-
Romagna region specifically is overviewed in more detail in Exhibit [4].

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3.4.1 OVERVIEW LIST OF NATIONAL PROGRAMS AND POLICIES
 The Fund for the Promotion of Research (FAR)
o With a budget of USD 2.5 billion (2010-11), it’s contributed significantly to increasing
public funding for business firms, universities and Public Research Institutes (PRIs)
 The National Research Plan (2011-13)
o Aims to promote research by strengthening business sector co-operation with the
public sector and supporting the internationalization of research.
 Industry 2015 (2006-15)
o The program establishes strategic guidelines to ensure development and
competitiveness of the country’s economic system and defines new tools aimed at
encouraging investment. Sets out to support business networks and industrial
innovation projects and includes a fund for enterprise finance [17].
 Industrial Innovation Projects
 Such support measures are aimed at promoting investment in high-
innovation programs within strategic sectors for Italy’s development.
 Enterprise Networks
 An enterprise network is a form of contractually-based coordination
among enterprises. It’s specifically designed for SMEs seeking to
achieve critical mass and greater market power.
 Fund for Corporate Finance
 Intended to make it easier for SMEs to obtain credit and risk capital.
 National Reform Program 2011-12
o Requires general policies to have a small impact on the national budget.
 The National Strategic Framework 2007-13
o Includes the National Operational Program (PON) Research and Competitiveness
2007-13, funded by the European Regional Development Fund (ERDF) and by the
National Revolving Fund (Fondo di Rotazione), which is of high importance for
regional cohesion and competitiveness
 Territorial Research and Development Initiatives
o The aim is to enhance competitiveness of high-export product areas through R&D. To
such end, the Italian Government has developed a policy focused on the formation of
Technology Districts (TDs). Currently, there are 29 formally approved TDs throughout
the country specializing in different areas (e.g. nanotechnologies, wireless
technologies, biotechnologies, logistics, cultural heritage, mechatronics, .. etc) [25].
 Science, Technology , and Innovation (STI) Policy Governance Improvement
o The Ministry for Economic Development (MISE) is in charge of industrial innovation,
and the Ministry for Education, University and Research (MIUR) is responsible for the
national education system, including higher education, but also for promoting
research at national and international level. The National Agency for the Evaluation of
Universities and Research Institutes (ANVUR) has operated under MIUR since 2010.
o In order to improve public research performance, a reform of funding mechanisms
for and management of universities were approved in 2010 by Parliament and is
being implemented [7].
o As stated in the National Reform Program 2011, for 2011/12, tax incentives have
been strengthened for research commissioned by firms to universities and PRIs as
well as for research developed in collaboration with them.

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o A Fund for Competitiveness and Development was created to support industrial
innovation projects in such areas as energy efficiency, new technologies for “Made in
Italy” products, new technologies for life, and innovative technologies for cultural
heritage. An independent agency is being set up to evaluate universities and research
in order to improve the governance of the research and innovation system. Italy also
obtains EU Structural Funds, which help to finance regional projects.
 Public Sector Innovation
o The e-Government Plan 2012 of the Department for Public Administration defines a
set of digital innovation projects to modernize the public administration, to make it
more efficient and transparent, and to improve the quality of services and reduce
costs. The plan sets out some 80 projects and 27 targets to be achieved by 2013.
 Knowledge Flows and Commercialization
o Various initiatives aim at bridging the gap between academia and industry.
Technological districts and high technology poles as well as public-private
laboratories are established in different parts of the country.
 The National Innovation Fund (FNI)
 Was created in 2012 by MiSE to facilitate the financing of innovative
projects based on the exploitation of industrial designs and patterns.
In addition, the Innovation Package introduced in 2011 supports the
patenting activity of SMEs.
 The National Technology Platforms and Industrial Innovation Network
(RIDITT)
 Were set up in 2010 to ensure dissemination of innovation and
technology between research system and enterprises.
 The Strategy for the Internationalization of Italian Research (SIRIT 2010-15)
o Integrates the national research priorities in international strategies and priorities,
notably the EU’s 2020 Strategy. Italy actively participates in EU R&D programs, the
European Strategy Forum on Research Infrastructures (ESFRI) and other European
initiatives such as EUREKA (for international S&T cooperation) and Erasmus (for
mobility of students and researchers).
 Green Innovation
o Italy has improved its RTA in environment-related technologies over the past decade
and will soon develop a specialization if this trend continues. The government
provides a number of incentives for renewable energy production. The Energy
Account (Conto Energia) initiative promotes solar photovoltaic, and a Kyoto Fund was
set up to finance measures to reduce greenhouse gas emissions. Green Certificates
(CV) promote electrical energy produced from renewable sources and White
Certificates – energy efficiency labels (TEE) – encourage energy-saving measures. A
package of fiscal incentives for energy efficiency interventions in existing and new
buildings was approved by Parliament in 2011 [7].

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3.4.2 EU FUNDING PROGRAMS AND INSTRUMENTS FOR MEMBER STATES
Supporting all EU Member States (MSs) are a specific set of EU Funding programs, which have a big
role in funding many programs aimed at financing different dimensions of economic, social, and
technological development in all MSs, including Italy as well. These funding programs actually are
emerged from another set of EU Policies and Treaties that were developed over time, are being
continuously enhanced, and elaborated more since the start of the buildup of the European Union.
From the European Economic Union Treaty in 1957 till the Lisbon Treaty in 2007, that targets to
achieve a globally technologically competitive EU economy, such treaties and policies aims to achieve
more general targets encompassing economic, social, and political competitiveness of the EU. Guided
by the desire to achieve peace and prosperity after the WW2, the customs union was created, then
the European Union, then the Monetary Union, with some recent challenges to the Euro that may
result in speeding up discussions towards a political union. However, for the scope of this research
only the list of Funding programs shall be outlined, not the evolution of such treaties [24-27].

Figure 14: Most Important EU Funding Programs for Member States.

Such Funding Programs are very valuable in extending the resources of each Member State up to the
value of greater access to much more resources, which is one of the important values gained through
the EU. Realized in the union is that the sum of the group is greater than the sum of its parts, which
shall be referred to in a later section about lessons learned in the political dimension with very
profound possible impacts on the economic development of Egypt.

Further more details about EU policies, programs and priorities covering all areas from agriculture to
transport can be found in http://ec.europa.eu/policies/index_en.htm.

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IV. EGYPT AND THE EU

4.1 LONG HISTORY OF COOPERATION

EGYPT EU RELATIONS
The EU and Egypt began diplomatic relations in 1966. The EU seeks to develop a particular close
relationship to Egypt, its geographical neighbor, and to support Egypt’s domestic and political
reforms. The relationship emphasizes close cooperation on democratic reform, economic
modernization, social reform, and migration issues. The current agenda of EU-Egypt relations is
spelled out in an Action Plan under the European Neighborhood Policy. Egypt and the EU are
bound by the legally binding treaty in the form of the Association Agreement which came into
force in 2004. Trade remains another important subject of relations, as well as financial co-
operation, details which can be found in the Country Strategy Paper [28].

The Euro-Mediterranean Co-operation was launched at the 1995 Barcelona Conference between the
European Union and its originally 12 Mediterranean Partners: Morocco, Algeria, Tunisia, Egypt,
Jordan, the Palestinian Authority, Lebanon, Syria, Turkey, Cyprus, Malta, and Israel. The main
objectives of the Barcelona Declaration were [29]:
1. Establish a common Euro-Mediterranean area of peace and stability based on fundamental
principles including respect for human rights and democracy (Political and Security
Partnership).
2. Create an area of shared prosperity through the progressive establishment of a free-trade
area between the EU and its Partners and among the Mediterranean Partners themselves
(Economic and Financial Partnership).
3. Develop human resources; promote understanding between cultures and rapprochement of
the peoples in the Euro-Mediterranean region as well as to develop free and flourishing civil
societies (Social, Cultural and Human Partnership).

Under this framework, Association Agreements have been adopted between the EU, the Member
States and the Mediterranean country partners. And In general, it provides a gradual establishment of
a Mediterranean free trade area in accordance with the rules of the World Trade Organization (WTO).

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Under the general Development and Cooperation Europeaid, the EU-Egypt Association Agreement
forms the legal basis governing relations between Egypt and the EU, modeled on the network of
Euro-Mediterranean Partnership Agreements between the Union and its partners in the southern
flank of the Mediterranean Sea. The Association Agreement was signed in Luxembourg on 25 June
2001 and entered into force on 1 June 2004, following ratification by the Member States and by Egypt.
It replaces the earlier Co-operation Agreement of 1977. Figure 15 shows the scope of the agreement.

Figure 15: Scope of the EU-Egypt Association Agreement [30].

The Association agreement establishes an FTA between the two partners with the elimination of
tariffs on industrial products and significant concessions on agricultural products, which means lower
tariff rates and increased quotas for certain products. Amended with an agreement on agricultural,
processed agricultural and fisheries products (in force since 1 June 2010), Figure 16 shows the value
gained for both industrial and agriculture products.

Figure 16: Association Agreement FTA Impact on Trade between Egypt an EU [30].

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Currently there is an online export helpdesk tool that allows exporters to the EU to extract
information about customs tariffs, imports procedures and preferential arrangements applicable to
their products, as well as to have access to trade statistics and useful links. It has an Arabic version and
Egypt recorded more than 75% of the website hits [31].

Figure 17: Online Export Helpdesk Tool [31].

In 2008 the Barcelona Process, under the Euro-Mediterranean Partnership (EUROMED), has been re-
launched through the establishment of the Union for Mediterranean (UFM), which should promote
economic integration and democratic reform across 16 neighbors to the EU’s south in North Africa
and the Middle East.

Figure 18: UFM Key Initiatives [32].

The Euro-Mediterranean Co-operation is further supported by the European Neighborhood Policy.
With its European Neighborhood Policy (ENP), the EU is seeking to reinforce relations with
neighboring countries to the east and south in order to promote prosperity, stability and security at its
borders. The ENP was launched in 2004. At present, 16 partners are addressed by the ENP: Egypt,
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Algeria, Armenia, Azerbaijan, Belarus, Georgia, Israel, Jordan, Lebanon, Libya, the Republic of
Moldova, Morocco, the occupied Palestinian territory, Syria, Tunisia and Ukraine. The ENP provides
the EU with the means to deepen bilateral relations with these countries. The policy is based upon a
mutual commitment to common values: democracy and human rights, rule of law, good governance,
market economy principles and sustainable development. The ENP actually takes relations beyond
standard cooperation or trade agreements to offer political association and deeper economic
integration, increased mobility and increased people-to-people contacts [29, 33].

EU-EGYPT ACTION PLAN 2007-2013
“This Action Plan is a first step in a process covering a timeframe of three to five years. Its
implementation will help fulfil the provisions and aims of the Association Agreement (AA)
and will encourage and support Egypt’s national development, modernization and reform
objectives. It will furthermore help to devise and implement policies and measures to
promote economic growth, employment and social cohesion, to reduce poverty and protect
the environment, thereby contributing to the long term objective of sustainable development.
Implementation of the Action Plan will also help, where appropriate, further integration into
European Union economic, social and technological structures and significantly increase the
possibility to advance the approximation of Egyptian legislation, norms and standards to
those of the European Union in appropriate areas, thereby enhancing prospects for trade,
investment and growth.” [34]

Countries wishing to deepen their relationship with the EU agree joint bilateral action plans to this
effect. And the EU-Egypt Action Plan has been adopted in 2007. Figure 19 shows the extent of this
action plan priority areas [34].

The European Neighborhood and Partnership Instrument (ENPI) is the financial instrument for the
ENP. It is addressed to ENP partner countries and offers co-funding for promoting good governance
and equitable social and economic development process. It has been operational since 1 January
2007. The ENPI is the main source of funding for the 17 partner countries, with overall allocation for
the ENPI instrument amounts to almost €12 billion for the seven-year period 2007-2013 [35].

The ENPI supports the following in particular:
 Political reform (good governance, rule of law, respect of human rights);
 Economic reform (economic development, market economy, convergence with the EU internal
market);
 Social reform (integration, employment, non-discrimination);
 Sectoral co-operation (environment, energy, health…)
 Regional and local development;
 Participation in EU programs and agencies.

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Figure 19: EU-Egypt Action Plan Priority Areas [34]

Since 2007, the Commission's priorities in terms of financial cooperation with Egypt have fallen under
the strategic framework for EU co-operation with Egypt is established in the Country Strategy Paper,
which currently covers the period 2007-2013.

Figure 20: ENPI Egypt Strategy Paper Funds per Priority Area [35].

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Egypt signed Memorandum of Understanding with the EU on Strategic Partnership on Energy in 2009.
It targets from 2009-2015 to give priority to [36]:

 Development of a comprehensive Egyptian energy strategy,
 Development of a wide-ranging policy and projects in the field of energy demand
management, energy efficiency and renewable energy sources;
 Enhancement of technological, scientific and industrial cooperation.
 Development of energy networks and energy security
 Establishment of a work program for the gradual convergence of Egypt’s energy market
regulations with those of the EU

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4.2 DEVELOPMENT COOPERATION INSTRUMENTS AVAILABLE FOR EGYPT
Considering this long history of relations between Egypt and the EU, currently Egypt has considerable
access to many development cooperation instruments that can be used to support its economic
development efforts, including the development of its SMEs in all fields as well as in ICT. Figure 21
gives a general overview of these instruments that are available for Egypt [25-27].

Figure 21: Development Cooperation Instruments Available for Egypt.

Overview summary of most of these programs are provided in the figures below:

Figure 22: Partnership for democracy and shared prosperity with the Southern Mediterranean [37].

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Figure 23: The SPRING Program [29, 38]

Figure 24: The Development Cooperation Instrument (DCI) [29, 39]

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Figure 25: The European Instrument for Democracy & Human Rights (EIDHR) [40]

Figure 26: Framework Protocol 7 for Research and Technology Development [41]

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Egypt is eligible for co-operation activities financed under the ENPI multi-country and regional
programs and the ENPI Cross Border co-operation component. Egypt also benefits from the
new Erasmus Mundus program, enhancing mobility and co-operation with EU in the field of higher
education [42].

Beyond the bilateral geographic instrument (ENPI), Egypt is also eligible for additional funds under
the European Instrument for Democracy and Human Rights (EIDHR) and thematic programs
established under the Development Co-operation Instrument (DCI), which covers among others
the Non-State Actors and Local Authorities in Development (NSA & LA), Investing in
People and Migration. In 2010, a budget of €1.9 million was made available to civil society
organizations (€0.9 million under EIDHR; €1 million under NSA & LA). In 2011 Egypt benefitted from
EIDHR (€2.0 million), NSA & LA (€1.0 million) and from global calls under the DCI thematic programs
[42].

BOOSTING CO-OPERATION THROUGH TWINNING
Twinning is a European Commission initiative that was originally designed to help candidate
countries acquire the necessary skills and experience to adopt, implement and enforce EU
legislation. Since 2003, twinning has been available to some of the Newly Independent States of
Eastern Europe and to countries of the Mediterranean region.
Twinning projects bring together public sector expertise from EU Member States and beneficiary
countries with the aim of enhancing co-operative activities. They must yield concrete operational
results for the beneficiary country under the terms of the Association Agreement between that
country and the EU [43].

A budget of €62 million is available for Egypt under the Twinning instrument which promotes
institution and capacity building through support provided by experts from Member States' to
partner country Ministries. Areas covered by the Twinning Instrument include Tourism, Maritime
Safety, Postal Services, Investments and Free zones and Railways safety. Future projects will cover
other areas of the Association Agreement and the EU-Egypt Action Plan such as: Statistics,
Occupational Health, Water Quality, Waste Management, Telecommunications, Animal Disease,
Norms and Standards and Road Safety [42].

Full details about the international financial institutions can be found in [26] including history of
previous engagements with Egypt in different sectors, however SIMEST as a specific Italian institution
playing an important role in developing Italian companies locally and in international markets needs to
be elaborated here.
Established in 1990, SIMEST is an Italian state – owned agency specialized
in facilitating the processes of internationalization of Italian enterprises
and companies all over the world. Based in Rome, it operates by providing
financial support, technical assistance and professional consultancy during
the entire process of internationalization of the company.

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The Italian Government holds a 74% stake in SIMEST, while minor shareholders are banks and
business associations. Today, the agency operates in every country in the world, outside the European
Union, including Egypt.

Figure 27: SIMEST Profile [44, 45]

Table 2: SIMEST Services in All Phases of Development [44]

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V. INDUSTRY POLICY DEVELOPMENT RECOMMENDATIONS

Egypt is still in a transition stage from a Factor-Driven economy to an Efficient-Driven one and still far
from being in the Innovation-Driven category like Italy for example according to the latest Global
Competitiveness Index report 2012-2013. Its
global competiveness rank suffered a
significant decrease in this latest report, as
clearly affected by the recent turmoil after
the revolution in Jan-2011, the observed
level of inefficiencies in the total factors of
economic production, and the increased
government and political instability [21].

Table 3: Past 5 years of Egypt GCI Rank

This situation briefs the current final
deteriorating state of Egypt’s global
competitiveness despite a lot of
development policies, strategies and Figure 28: Egypt GCI Profile

programs deployed over the last decade using national and international resources. Sustainable
development is not yet attained. More precisely, this highlights the fact that development only occurs
within a supportive context. Socio-economic and socio-political parameters of a society actually can
enable or mute any development policy. Laying down an elaborate strategy and policy for
development with miscellaneous high-value programs for the society and industry is not the final
answer or the magic key to wealth and prosperity. Despite the intellectual difficulty to actually settle
on the detailed content of such strategies and policies that should be of a correct and true relevance
to increasing the global competitiveness of a nation, there exists the socio-economic/political context
in which this strategy and policy operates that actually determines factors of implementality and
feasibility of meeting the minimum success measures foreseen in development programs. Like most of
entrepreneurship trials; many actually fail to sustain, whatever an elaborate business plan was
previously written, for the same reasons.

Considering this clear fact the industry development recommendations are needed to be holistic ones
that aim to find gaps to fill in Egypt in the socio-economic/political fabric of the society, which are
critically needed to really assure the correct channeling of policy documents to the real world.

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5.1 CONTEXT-AWARE VS. CONTEXT-NEUTRAL DEVELOPMENT CONCEPT
This research was not intended to just copy existing efficient systems from Italy to Egypt, whatever
differences or similarities that exist between the two countries on many aspects, however it aimed
rather to try to understand the economic efficiency of Italy and how some development initiatives
were much tuned with the socio-economic/political fabric of the society that made them successful in
some economic sectors and yielded them less or not successful in some others.

In general, universal concepts and generic methodology practices could be transferred from a certain
context to another, however may be yielding into completely different practices on ground in that
other context. As what has been recorded to be successfully efficient and of high productivity in a
certain context doesn’t necessarily prove the same in another context.

It’s worth noting that there is a generic trap in copying systems from one context to another in the
macro scale of strategy and policy development. Apart from differences in contexts mentioned before;
to even start by selecting a certain successfully-implemented governmental macro-scale program to
copy, it’s really very difficult to report that this program did pass its true KPIs set before launching it,
or even report the exact enhancements and value improvements it brought to the socio-economic
fabric of the society. The exact causality to an even existing improvement is generally uncertain,
whether it’s due to availability and efficient use of resources, competency and talented skill set of the
human-factor of implementation, efficient organizational structure and procedures of control and
communication, having an elaborately defined project with complete risk mitigation strategies and
tactics that are well-defined and exactly followed, or any other parameter affecting project success in
general. Majority of governmental programs do not report their exact added-value to their
beneficiaries and hence the society after implementation. Reporting numbers of beneficiaries and
amounts of invested resources doesn’t necessarily mean that the value-added really exists or matches
such invested resources that if could have been invested in another program might have achieved
greater success on ground.

The political context plays a major role in how development programs are presented and reported,
and it’s often that program managers care about reporting their personal success in managing the
program and meeting its delivery requirements within its time frame and assigned budget rather than
the exact amount of added value of such deliverables to the program beneficiaries, that is really
practically difficult to measure in most cases. Also the human factor is a major contributor to the
success or failure rate of any real program implementation on the individual competency and skill set
level as well as on the teamwork level.

This shows the importance and necessity of following a context-aware way of strategic planning and
thinking when it comes to the formulation of an industry development policy. On the contrary
applying context-neutral development programs may fail to effectively enhance the total factors of
economic production specific to a certain context if not carefully tuned to it.

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5.2 A FRAMEWORK FOR INDUSTRY POLICY DEVELOPMENT
The framework proposed in [1 & 2] is a model of context-aware strategic thinking model for industry
policy development. The authors in [2] have analyzed the industrial policy of Emilia-Romagna region in
Italy, which is considered a model of diffused industrialization and flexible specialization, and where
industrial development is intimately linked to the civil society and social norms and values. They
showed that the relatively good performance of the Emilia-Romagna region in terms of economic and
social development can be attributed to a large extent to the industrial policies that have been
implemented since the 1980s, which represent a model for their proposed framework that’s much
more needed after the recent crisis. These policies were proactive, in that they have tried to
anticipate change in industry and favor industrial structure
adaptation to provide the appropriate gears towards
sustainable development paths. And also they were
participative, in that the policy was defined and
implemented through discussion and consensus with all
relevant stakeholders, primarily firms, but also with other
regional public entities such as towns and provinces. This
model of stakeholder engagement is also characterized in
the literature also as a quadruple helix model, as an
evolution from the triple-helix one, that capitalized only
on public-private-university relations without the civil
society engagement.

Following is a description of this framework, as successfully applied by Emilia-Romagna Region [2].

The Sundial Model

Figure 29: The Sundial Model of Industrial Policy Development (Showing the Four Levers of Industrial Development)

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The authors in [1&2] state that both provisions and entitlements are determinants of development.
They determine the available resources and the capabilities of individuals to use these resources in
order to create value. Countries have different trajectories of industrial development according to
their set of provisions and entitlements. Historically this has been explained through classical theories
like the Ricardian model through comparative advantage of nations due to differences in labor
productivity, then adapted by Heckscher-Ohlin model through differences in the total factors of
production (labor, labor skills, physical capital and land), and finally elaborated in more detail by Paul
Krugman new firm-based theory highlighting increased return to scale, consumer appreciation of
diversity, and thus explaining intra-industry trade [46].

A territory social structure, economic organization and institutional governance determine the
development of certain competencies at regional level that lead to specific task specialization. This
task specialization primarily arises territorially or regionally because it is the level at which certain
types of knowledge relations arise more easily and densely, and some resources are deeply rooted. An
important consideration regarding task specialization is locating precisely within a territory where the
competence is embedded.

A territory may specialize in specific tasks because the competencies underlying these tasks are held
and controlled by regional firms. These firms in this case determine the specialization of the territory.
Hence the development of this territory must then consider this local specialization competency and
could depend on the firm strategic decisions.

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In this context, territories should not be considered as simple administrative units but as places
where values and distinctive competencies and skills can be intensified, due to being territorially
defined through social aggregations with economic and political structures. The regional
administrative level is more appropriate to identify possible synergies and possible competencies to
develop locally, because of its better knowledge of both local actors and local knowledge. So this
implies that regional development policies must exist to complement and synergize with national
development ones, that should still provide resources, promote task specialization at the regional
level, and favor interregional exchanges and synergies when different regions are specializing in
complementary competencies. Coordination between regional and national development policies is
critical to success.

Therefore, it is increasingly important for regions to be able to favor synergies at local level so that
task specialization can occur – usually through the support of buildup of industrial clusters – and be
able to adapt to changing circumstances, however at the same time to develop their capacity to create
relations elsewhere in the world, so that the local industry can become part of the global value chains.

The Industrial policy in this model highlights that policies require adequate politics and coherent
policies. The design of an industrial policy requires identification of industries’ current and future
trends, and foresight of emerging technologies with their possible disruptive or advantageous
applications to existing industries generating possible scenarios, which policy-makers have to choose
from. The question for policy is to identify a possible development path on the basis of the current
situation of the regional system and its historical evolution, which identifies its distinctive
competencies, the current resources and entitlements and the desirable new developments. “The
past sets the possibilities, while the present controls what possibility is to be explored”.

Since the industrial policy choice is very political, it’s necessary that all stakeholders are involved in
order to share and gain access to critical knowledge as well as achieve consensus that indicates that
implementation will be more precisely followed.

The economic system is complex, thus industrial development is determined by complex
interdependencies and processes, which imply the abandonment of methodological individualism in
not considering the overall system of which industrial development is a part.

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