the Baltic Sea Cooperation, 8.10.2013
I want to start by thanking the German Embassy and Ambassador Dr. Götz for the kind invitation for this luncheon and for the opportunity to address some topical issues.
I would like to share some views on the current economical situation and some ideas for a better future in the Baltic Sea Region. There are also some issues in the field of energy policy I would like to touch upon, not least the regional LNG-terminal and EU’s new policies on bioenergy. Further, Finland has started its year-long Presidency in the Council of the Baltic Sea States (CBSS) and I would like to open a bit our special focus on the “Clean-shipping”.
Economic Growth and Innovativeness
In many international comparisons, Finland has been ranked among the most successful nations in the world. In particular, we are envied for our achievements in R&D, our educational results, our use of information and communication technology and our knowledge management. We have been able to create business activities that have gradually gathered strength and achieved substantial market positions.
So what are the facts today? Between 2005 and 2010, Finnish exports’ share of the world market fell by almost 20 percent, and is still falling. For the first time in twenty years, we recorded a current account deficit last year. As a proportion of total exports, high technology exports have fallen to a record low of under 10 percent. For the first time in two decades, an import surplus was recorded in Finland’s high-tech trade balance.
These cold facts sit uneasily alongside the impression that Finland is enjoying world-class success. Changes in the global economy and competitiveness have transformed the big picture for Finland.
The business sector is currently undergoing severe structural change. Responding to requirements related to the maintenance of the welfare society and sustainable development as well as the need for structural change within society and the economy constitutes the central framework for the research and innovation policy of the present government term.
Finland’s competitiveness is based on strong expertise. In Finland, the basic starting points for responding to these challenges through research and innovation activities are good. The implementation of education, science and innovation policies has been based on long-term objectives. Finland has been rated among the top countries in the international PISA study assessing the competencies of 15-year-olds in key subjects and the quality of primary and lower secondary education as well as in international comparisons in the areas of competitiveness and innovation. We have a well-functioning research and innovation system and a high education level.
This, however, is no longer sufficient. In addition to maintaining the funding for research, development and innovation activities at a high level, it is necessary to refocus education, research and innovation activities on all levels. In addition to maintaining a sufficiently broad competence base with the necessary capability to react, we need operating models that encourage constant renewal and the transcending of boundaries, the courage to experiment and take risks and steering methods and incentives to support these objectives.
The structures and functions of public educational institutions and research organisations have been renewed to promote their opportunities for action. In the area of innovation policy, the investments made have focused on incentives for research, development and innovation activities, growth entrepreneurship and the demand for innovations using, among other things, means provided by demand- and user-oriented innovation policy.
The long-term development of the overall level of funding for research, development and innovation (RDI) activities has, for the most part, been positive. However, as corporate investment in RDI has declined, the share of research and development costs in GDP has gone down in recent years.
In total, 7 billion euro was spent on research, development and innovation activities in 2011 in Finland by the private and public sector together. This accounted for 3.78% of the GDP representing one of the world’s highest R&D&I expenditure ratios to GDP. Business enterprises account for approximately 70 per cent of the Finnish R&D&I expenditure. Private sector’s contribution to overall R&D&I investment is among the highest in the world.
In 2012, for the first time, also public investment in RDI underwent a clear decline. In accordance with the government’s budget framework decision, the volume of direct RDI funding by the state will go down in real terms until the end of the government term.
The threats facing Finland make it necessary for us immerse ourselves in the development of the research and innovation system even more actively than before. We must continue the restructuring of universities and polytechnics into operating units of higher quality, improve graduation rates and reduce study times in order to secure a competent and innovative workforce. It is also necessary to ensure sufficient and up-to-date research resources and strengthen the internationalization of the RDI system. Moreover, Finland needs to utilize opportunities for cooperation with the emerging economies; cooperation with Russia and other neighborhood countries are also essential.
Finland’s National Innovation Strategy highlights the importance of growth companies and demand and user-driven innovation in innovation policy:
The majority of new jobs and increase in productivity are generated by rapidly growing small and medium-sized enterprises. A new focus area for Finnish enterprise policy is to create internationally competitive growth enterprises in Finland, and lines of business that generate new enterprises with high added value. The key objective of the growth enterprise policy is to improve public business services so that they meet the needs of growth enterprises and are easily available to all companies. Another objective is to develop financial incentives and operating models that can harness private top business expertise and private venture capital in support of the early growth of companies. Publicly supported business incubators and enterprise accelerators foster these objectives.
Among others, in 2014 a growth funding program will be launched to boost growth and internationalization of SMEs and to support the capital investment market.
BALTIC SEA REGION COLLABORATION
Potentiality of innovation cooperation with the neighborhood countries in Baltic Sea Region has not yet been fully utilized. Baltic Sea Region offers us a great innovation and business potential in renewable energy, digital services and information and communication technologies, health and wellbeing, cleantech and shipping, transportation and food industry, just mention some examples.
Baltic Sea region itself provides a home market of 100 billion people which offers a big business potential especially for small and medium-sized companies who have no competences or resources to go for China or other giant markets.
Baltic Sea countries have all highlighted the common need for strategic prioritization – leveraging regional innovation ecosystems as innovation platforms, and developing coordinated efforts even across borders. More integrated cross-governmental approach in innovation and research is needed. Transnational cooperation among universities, companies and other stakeholders can give us a unique chance to find solutions to global problems such as aging, pollution, clean water, energy, unemployment etc. The Baltic Sea Region itself could evolve into an innovation hub for new green technologies and healthcare innovation. This could also help us to make Baltic Sea Region more visible and attractive for talents and foreign investments.
The Baltic Sea Region is well-positioned to fully benefit from entrepreneurship. However, the ability to turn new firms into hi-growth enterprises and scaling them up, is lacking. This is essential because we know that new hi-growth enterprises will create most of new jobs in future, and even today.
A business environment providing strong framework conditions for growth entrepreneurship, can be strengthened through a range of policy measures. But, very different policy toolkits are required for growth entrepreneurs, compared to that for SMEs in general.
In Finland, the Government has recently decided to strengthen the ecosystem for start-ups and hi-growth companies:
•The government has decided on a ten year program providing 50 million Euros per year to the venture capital market, on the condition that the private sector brings at least the same amount. Long-term provision of capital is expected to bring continuity and to attract the best talents and venture teams to enter the market.
•Streamlining the seed and early stage government financing and moving from direct investments to investments into funds.
•Starting to use asymmetric profit sharing for attracting private investors
•Simply providing capital does not create fast-growing companies. The best business experience is needed for growth in global markets. The government initiative, the Vigo business accelerator program enable serial entrepreneurs to coach startups, which often lack the competence to grow global. A flagship growth venture of the program is the company called Supercell, non-existent a couple of years ago, but now making a profit of EUR 1,5 million per day.
•Alongside providing capital, start to use tax incentives. The Government has decided to give tax incentives for business angels as well as for enterprises when they invest in R&D.
The past few years have seen the birth of several venture accelerator programs to better support the growth of innovative startups. This development is linked to the significant drop in the cost of creating a startup and seed its growth.
Finland has been active in start-up scene with success stories such as F-Secure, Linux, MySQL, Solid and Rovio.
An example of a successful startup community is called Startup Sauna which builds on the accelerators concept with an open sources approach covering the whole Baltic Sea Region.
A new initiative by the EU called “Startup Europe” and ongoing call of EUR 100 million for venture accelerators aiming at creation of top accelerators in Europe and as a result, giving a birth for hi-growth ventures such as Spotify and Rovio, can remarkably boost the Baltic Sea Region to become one of the leading hubs in Europe for startups and hi-growth ventures.
The European Commission has set an ambitious target to create internal energy markets for Europe by the end of 2014. The goal was set in order to keep the energy prices affordable for the household and industrial consumers and increase the competitiveness of the whole area.
The Nordic Electricity Market has been a forerunner in creating free market conditions and cross-border cooperation. It can be considered to be the best functioning cross-border electricity market in the world. The common markets have benefitted all participating countries, including also the Baltics during the recent years. Also the common EU electricity market will be based greatly on the Nordic markets.
It has to be noted that the current development regarding capacity mechanisms may lead us in the opposite direction. As the mechanisms have a potential to counteract to the common goal of internal electricity markets it is crucial that the use of the mechanisms are well justified and that they fulfill common criteria.
An important part in creating the internal markets is adequate cross-border transfer capacities of energy. The Baltic Energy Market Interconnection Plan (BEMIP) initiative was started in 2008 by the European Commission in order to find ways to improve and develop connections in the Baltic Sea Area. This development covers both electricity and gas.
Concrete results of BEMIP include the construction of a second subsea cable Estlink -2 between Finland and Estonia. Estilink-2 is expected to start commercial operation in 2014.
As for gas the BEMIP High Level Group has agreed to develop a regional gas market in the Eastern Baltic Sea Area. The objectives of this gas market development include connecting Finland, Estonia, Latvia and Lithuania to the European gas network, increase security of supply and diversify gas sourcing. Liquefied natural gas (LNG) could also be used to increase off grid use by customers not connected to gas pipeline network. Using LNG as a marine fuel is a way to comply with the SECA (Special Emission Control Area) sulphur emission limits entering into force in the Baltic Sea area in 2015.
The BEMIP High Level Group has agreed that the development of the East Baltic Regional Market needs investments to new gas infrastructure and the necessary projects have been identified. These investment projects are:
•a gas transmission pipeline between Poland and Lithuania
•development of the Latvian Incukalns gas storage
•development of gas transmission pipelines in the Baltic States
•a subsea gas pipeline BALTICONNECTOR between Estonia and Finland
•a regional LNG-terminal, which would serve the Finland and three Baltic States
Finland has proposed that the regional LNG terminal would be built in Finland in Inkoo using a shipping route and port area, which have served coal imports from the late 1970’s. Finland’s proposal includes the idea of building the BALTICCONNNECTOR between Inkoo and Paldiski. Currently the discussions with our Estonian colleagues and the European Commission are ongoing for us to find a solution on the location of the regional LNG-terminal and we look forward to a prompt decision which would take into account the benefits of the whole region.
The Finnish Government has set an objective to support gas as an important part of the Finnish energy mix.
Sustainability of bioenergy
If you allow, I would now like to take a few moments to focus on the sustainability of biomass, on which the European Commission is currently preparing legislation. This is currently one of our most important EU issues and I’m sure several of us share the same worries.
Renewable energy plays a key role in moving the EU towards a low-carbon economy and addressing concerns related to dependency on fossil fuel imports. One of the most abundant and economically viable sources of renewable energy for the future is biomass.
In its Energy Roadmap 2050, the European Commission states that the EU’s 2050 decarbonisation objective will require a large quantity of biomass for heat, electricity and transport. It is also evident that the renewable-energy targets set for 2020 cannot be reached without biomass. It is estimated that more than half of the increased use of renewable energy by 2020 will be based on solid biomass. In the EU’s upcoming 2030 framework for climate and energy, increased use of renewable energy, especially solid biomass, will be a necessity.
Many countries around Baltic Sea have significant domestic biomass potential and are already utilizing it for energy production. About 80 percent of Finland’s renewable energy is based on forest biomass. I have understood that also in Germany, for example, around 70 per cent of total final energy from renewable sources is covered by the different types of biomass used for energy generation. The most important source of bioenergy in Germany is wood.
Many countries also plan to increase the utilization of biomass further to achieve their renewable energy targets. Almost half of increase of renewable energy required by the 2020 target in Finland will be based on forest biomass (forest chips). In Germany, according to the National Renewable Energy Action Plan, the share of biomass in heating and cooling from renewable sources will be 79 per cent and in electricity production about 23 per cent. It is important to ensure that increasing the biomass utilization for energy production takes place in sustainable way.
The sustainability of solid biomass for energy production must be addressed in ways that tackle the real problems and that avoid unintended negative consequences. As regards forest biomass, the European forestry that meets national forestry regulations, as well as national and European environmental regulations, must be regarded sustainable – including from a European energy policy point of view. The real challenge is to ensure that the sustainability of imports is at the same high level and to protect unique and threatened environments.
The forests of Europe can and must play an increasingly important role in the EU’s competitiveness and climate and energy policies. Sustainably produced forest biomass is already available in the EU as an alternative to fossil fuels in heating, electricity and transport. The growth and competitiveness of this important source of renewable energy must not be jeopardized.
The theme of the Finnish Presidency in the Council of the Baltic Sea States (CBSS) is “Clean, smart and safe Baltic Sea” and during our Presidency we will focus especially on maritime policy and clean shipping.
Clean shipping is a very important and topical theme for all of us around the Baltic Sea. Recent regulation to reduce sulphur content of fuels used in shipping in Baltic Sea from 2015 is leading to substantial changes in energy solutions. To prevent further environmental damage such us eutrophication of the Baltic Sea, also actions to prevent water, chemical and waste emissions are needed.
For Finland the new regulation on sulphur contents of fuels is a huge challenge for our industry and shipping businesses due to the long distances to the main market areas. At the same time nature of the Baltic Sea is very unique and it is an important to prevent further damage of the sea. New cleantech solutions can help us to solve both of these challenges, competitiveness and environmental problems, to create clean shipping solutions of the future.
Finland is working extensively to promote clean shipping. Finland is for example planning a funding scheme for LNG –infrastructure investments. Also research and development actions to create different cleantech and energy efficiency solutions have been supported and piloted. The new LNG fuelled passenger ship Viking Grace is in this respect “state of the art”. Finnish ports and cleantech companies are actively developing new solutions to water and waste management in the harbours. For example Ports of Turku and Helsinki have been partners in Clean Baltic Sea Shipping –development project.
Essential is that we all work together to solve the challenges we are faced with by the new rules on better environmental performance of ships. With public & private partnerships we can also open new avenues for better performance and prosperity for the Baltic Sea region.