The Annual Growth Survey 2016 highlighted that investing in R&I at national level is critical for growth and that therefore Member States should continue to prioritise public investments in R&I, ensuring their efficiency and leverage with regard to business investment. Member States need to keep up the pace of reforms to ensure an investment-friendly environment. See more information about the European Semester.
The European Semester supports Member States' structural reforms in different policy areas to promote jobs, growth and investment. Research and innovation play a key role in this context. That is why the Commission gives recommendations to and closely work with the Member States to increase the performance of their national R&I systems.
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Reducing the economy's reliance on the financial sector remains a central long-term challenge. Diversification towards high value-added emerging activities remains a major challenge for the economic sustainability and development of Luxembourg. Activities in these sectors tend to be technology- and knowledge-intensive. Areas identified as most promising are Information and Communication Technologies (ICT), materials (composites), space and logistics. The successful diversification of the economy will partly depend on efforts to strengthen investment in innovation and knowledge-based capital (KBC).
The low level of investment in intangible capital may have had a negative impact on total factor productivity (TFP). Despite their relative resilience during the crisis, Luxembourg is the only Member State, with Finland and Greece, where investment in intangible capital decreased after the crisis. Investment growth in KBC has also significantly slowed down. This raises concerns because such investment is an important driver of productivity and growth as it usually underpins innovations and their subsequent adoption. The decline may suggest a slowdown in innovation performance detrimental to total factor productivity growth.
The sharp decrease in business expenditure on research and development (R&D), a key type of intangible investments, is a matter of particular concern. Public R&D intensity increased fivefold between 2000 and 2015, but business R&D intensity dropped in the same period from 1.5 % of GDP to 0.7 %.
Information and communications technology is one of the priority sectors selected in the context of the economic diversification strategy where significant improvements have been made. Between 2008 and 2012, the sector recorded the fourth highest growth in the EU. In 2013 it further expanded by 4.8% representing 7.3 % of the national gross value added. Strong technological infrastructure underpins this good performance. In recent years, additional measures have been taken to encourage the development of young innovative companies in this sector. For instance, the: Fit4start programme helps a selection of start-ups through a combination of financial support for prototype development and coaching. In January 2016, the ICT Seed Fund was launched to finance new innovative high-tech ICT businesses.