HUNGARY: Boost R&D to improve economy

Hungary should invest more in research and development to make its economy more competitive and boost growth, according to a new OECD report. The report, Hungary - OECD Review of Innovation Policy, considers the strengths and weaknesses of Hungary's innovation system and recommends steps the government could take to increase the impact of innovation on the country's future prosperity.

Over the past two decades, Hungary has built a market-oriented, globally competitive economy, the report notes. The country has become a major exporter of manufactured goods and investments by multinational enterprises have helped the economy diversify into more technologically advanced sectors, such as information technology, cars and pharmaceuticals.

But challenges remain. Overall business spending on R&D as a percentage of GDP was less than half the EU-average in 2006, at 0.48% compared with 1.1%. Nearly three-quarters of this spending is by majority or fully-owned foreign firms, and half a dozen firms alone account for more than one third of the total.

In the long-term, the report warns, this high share of R&D funding by foreign firms could only be sustained if R&D intensive firms link more closely with local research institutes and other firms. The increasingly global sourcing of R&D facilities may also threaten Hungarian sites.

Looking ahead, the OECD advises Hungary to improve governance of its science and technology system and provide more stability while putting in place medium to long-term objectives. Political commitment is needed to boost investment in science and technology and to set clear policies to foster business innovation, the report says.

More emphasis should be placed on reinforcing innovation capabilities of small-to-medium enterprises, along with continuing efforts to cut red-tape to stimulate technology-based entrepreneurship. More attention should be given to innovation in the service sector.

The report says Hungary should speed up the pace of reform in public institutions involved in research and innovation policy, notably the Academy of Sciences. More emphasis on evaluating science and technology institutions and programmes, as well as improved coordination and cooperation between government bodies, research institutions and industry, including public-private partnerships, would help.

In a discussion of leveraging EU funding, the report says Hungary should take advantage of EU funding while still maintaining its own national investment in R&D and innovation.