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Netherlands - RIO Country Report

RIO Country Report The Netherlands 2015

The annual RIO Country Report offers an analysis of the R&I system in the Netherlands, including relevant policies and funding, with particular focus on topics critical for EU policies. The report identifies the main challenges of the Dutch research and innovation system and assesses the policy response. 

R&I Challenges
Increase the utilisation of public knowledge infrastructure by SMEs
Challenge description: 

One of the key challenges of the Netherlands is to valorise the excellent knowledge it is producing. The indicators in the Innovation Union Scoreboard point at the contrast between the quality of the research system, resulting in relatively many (highly cited) publications and doctorate graduates, versus a modest performance on the account of innovation outputs . A common explanation is found in the business expenditures on R&D, which lags behind the EU average as discussed in the next challenge. Dutch universities do already have strong links with parts of the business sector, as reflected in a comparatively high share of industry funding for university research and the high rate of co-publication. However, SMEs in certain sectors of the economy collaborate less with universities than in other advanced economies.

Policy Response: 

The necessity to improve the role of firms in diffusing and applying public knowledge is one of the drivers behind the R&I strategy of the Ministries of Economic Affairs and Education, Culture and Science: the Enterprise Policy. Over 2011, several top teams (constituted by representatives from the industry, research institutes and government) identified nine top sectors reflecting unique strengths of the Dutch economy. In order to carry out basic and applied research in the top sectors, 19 consortia have been established (12 from 2016 onwards). In these so-called Top consortia for Knowledge and Innovation (TKIs) many existing research initiatives are being put together. An essential element is that research is conducted through public-private partnerships. Besides supporting regular research projects of the TKIs, the government provides a top-up for research-oriented PPP-initiatives. As part of the new R&I policy, the government is reorganizing its applied research institutes to reduce governance costs and reduce complexity for SMEs. 
 

Policy assessment: 

In 2014 industry invested €359m in research conducted in TKIs, which amounts to 44% of total funding for TKI-projects. Taken together with the public funding, the total TKI R&D-expenditures were €814m. This is above the target of €800m, out of which 40% funded by private parties. The new top sectors approach based on public-private partnerships can play a role in improving the valorisation of public knowledge by bringing about closer cooperation between business and public research performers, while raising the scope and ambition of business innovation including in performing more R&D. The bottom up, firm focused, approach taken in the design of the Top Sectors and their research agendas (notably the bi-annual Knowledge and Innovation Contracts) ensures involvement of businesses and the direction of policy support at the challenges and opportunities observed by these firms. While R&D expenditures may be low, the Netherlands ranks fifth among EU MS in terms of its share of SMEs introducing product or process innovations. A greater involvement of SMEs in the instruments of the top sector policy could increase the impact of this policy further. In order to make this happen, policy measures were simplified and a special intervention for SME participation was introduced (SME Innovation support for Top Sectors; MIT) over the past few years.

Increasing private RDI expenditure and economic restructuring
Challenge description: 

The business sector as a whole invests less in R&D and in knowledge-based capital than is the case in other advanced innovation systems: it ranks 12th among EU MS in terms of the BERD as % of GDP and 32nd in terms of non R&D innovation expenditures as % of GDP respectively. The latter indicator mainly reflects low levels of expenditures on advanced equipment and machinery. The relatively low levels of BERD can partially be explained by the Dutch economic structure which has a strong specialisation in services and some other sectors which have a relatively low formal R&D component. Some of these sectors (e.g. food and agriculture) are internationally very competitive and in comparison to other countries also very R&D intensive. Some other sectors show a lagging productivity which may erode the competitiveness of the economy.

Policy Response: 

Various predominantly fiscal measures have been adapted or newly introduced over the past year(s) and their growth partially compensated for a decline in direct public funding of private R&I. From 2016 onwards the WBSO (for R&D salary) and RDA (for R&D equipment) schemes will be merged. The future of the Innovationbox, about 25% smaller than the combined WBSO and RDA, depends on the policy response to a recent evaluation and ongoing policy debates regarding corporate taxation in an international perspective. The Enterprise Policy includes a number of measures to promote innovation in SMEs and larger companies. These include the MIT scheme to promote innovation (and PPP participation) in SMEs. The selected top sectors include a number of high tech sectors (life sciences, advanced materials and high tech systems, ICT), medium tech sectors in which the Dutch has a very strong knowledge base (water, chemistry, energy, agro & food, horticulture and logistics) and advanced services (creative industries). Dutch smart specialisation strategies partially mimic the top sector approach, though a number of regions has made a selection of the areas in which they can develop further.

 

Policy assessment: 

The top sector approach promotes the further upgrading of sectors in which the Netherlands is or has the potential to be world leading. The OECD argued for an extension of the coverage of the top sector policy to other (new) sectors or at least encouraging policy learning to improve the performance of underperforming sectors or extend into potential new areas of economic strength. The latter, which led to an increased policy focus on ‘cross-over innovation’, would help ensure the necessary dynamism in the light of changing global environments, promote structural change and shift the Dutch economy more towards high tech sectors. The current system of R&D tax credits, though well-designed, does not serve all of the varying needs of the business sector. Though eligible to firms of any size, large MNCs are thought to benefit from these to a relatively greater extent than SMEs. According to the OECD, rebalancing the system with a sufficient focus on competitive, well-designed direct support instruments could be more effective in stimulating longer-term ambitious innovation.

Framework conditions for innovative start-ups: improving access to finance
Challenge description: 

Young and entrepreneurial firms account for most of net job growth in the Netherlands and are an important source of radical innovation. Venture capital investments are above the European average and growing according to the NVP. However, in comparison to e.g. BE, DK, SE, and the UK the level of VC as % of GDP is relatively low. Especially for small firms it remains difficult to fund their innovative activities. For this specific group, the Advisory Council for Science Technology and Innovation expressed its concerns regarding the accessibility of existing policy instruments. It also stated that SMEs are still poorly connected to the initiatives that are central in the Enterprise Policy.

Policy Response: 

Recognizing that especially small firms face problems with acquiring capital, there are several additional (non-fiscal) policies exclusively devoted to facilitate private R&D spending by SMEs. These include the aforementioned SME Innovation support Top Sectors (MIT) and Future Funds, which covers Innovation Credits (also available to larger businesses), SEED capital and Fund-of-Funds, SME loan guarantee scheme (BMKB), the Early stage funds (VFF), micro-financing, and the Growth facility scheme. Innovative public procurement is also actively promoted (Dialogic 2015). The Dutch Venture Initiative (DVI) is a fund set up by the Ministry of EA and the European Investment Fund (EIF) for providing investment capital to rapidly growing companies. Other measures include a programme that offers SMEs support in acquiring bank credit (MKB-Go), an action plan to increase the equity capital of SMEs and an increase in the ceiling of the micro-financing facility (Qredits; now continuing without public funding). The government partially finances platforms for crowdfunding. Actual use of the various instruments is supported with efforts to lower administrative barriers. A striking example in this respect is the merger of Syntens and the Chambers of Commerce as of January 2014. This should make it easier for SMEs to find their way to support, just like the recent launch of a National Funding Guide (October 2015).

Support for high tech startups was previously supported through the ‘Subsidy scheme Knowledge Exploitation’ (SKE). Many of the 18 locally oriented SKE-initiatives for technostarters have been continued as Valorisation Programme projects. Another part of the Technostarter programme that is being continued is the Business angel program (BAP). This instrument is designed to bring entrepreneurs and business angels in contact with each other, for instance via the Business Angel Network (BAN). Additional policy efforts partially focus on attracting foreign startups to set up shop in the Netherlands for which among others a startup visa was implemented.

Policy assessment: 

In total, 65% of public R&D budgets devoted to private actors was used by SMEs in 2014 and the share of SMEs innovating increased to 54% in the period 2012-2014. A recent evaluation of the Dutch innovation and entrepreneurship policy mix raised questions about a substantial share of funding going to ordinary rather than innovative and growth-oriented SMEs. Because access to finance is still found to be insufficient, the Ministry of EA and the EIF decided in March 2016 to continue their DVI initiative with DVI-2. As DVI-1 with its budget of €180mln is regarded as being successful, the EA and EIF will now provide €100mln each.

Combined with another €100mln contribution by institutional investors, the final (leveraged) amount of capital is calculated to result in €1.2mln if also private funding parties join in. The Ministry of EA’s assessment is that this is a solid basis for improving access to finance.

 

Maintaining and improving the Human Capital Base for R&I
Challenge description: 

The Netherlands has a strong and highly educated workforce for innovation, but has faced challenges responding to emerging labour market needs. The increasingly fierce competition for top international talents will exacerbate problems in addressing skills shortages which are partially due to an ageing population. The IUS 2015 indicator for the Dutch population aged 30-34 with a tertiary education shows a strong performance (43.1%) in comparison to the EU average (36.9%). However, while the EU2020 target of 40% for graduation success rates in higher education has been surpassed, the Netherlands scores low on this indicator in comparison to peer countries such as Sweden, Finland, Norway or the UK. The main challenge lies in the lack of science and engineering students to meet prospective labour demand, though in the past the CPB has raised questions about the extent to which these perceived shortages reflect reality.

Policy Response: 

The national Technology Pact 2020 (signed in 2013) forms a non-binding broad agreement between industry, trade unions, educational institutions at various levels, and governments at various levels to spur technology and technological education. Together with the human capital agendas of the top sectors, it is intended to address the shortage of skilled workers. Over the coming years, the Dutch government will invest the money from the cancelled basic student grant directly into the enhancement of the quality of higher education. This amount, €620m in 2016, increases to a maximum of €1bn per year. Examples of investments include intensive support for students; increase of contact hours; rewards for good scientists who also teach. Students, universities and colleges are given a major say in the destination of the money for higher education. Support for prospective students from less advantaged backgrounds remains. Another major initiative to strengthen quality and relevance of education is the establishment of approximately 40 Centres of Excellence and Centres of Craftsmanship. These centres, drawing upon intensive involvement of (local) enterprises, aim to contribute to the transition of vocational training, to innovation projects, and to the development of life-long-learning programs.

Policy assessment: 

Co-ordination in the Human Capital Agendas of the Top Sectors and the Technology Pact could help improve responsiveness to labour market demand. Potentially as a response to the greater personal costs of education or the technology pact, the number of university students choosing a scientific or technological study has increased in the past ten years from 26 to 35%. The share of technical students in Universities of Applied Sciences (UAS) and in secondary education has also increased markedly. The share of female science and technology students is gradually increasing. Labour shortages, though diminishing, remain. Existing initiatives to encourage profiling and specialisation of university teaching and research activities, e.g. the performance agreements between the Ministry of Education, Culture and Science and the universities, could enhance efficiency. This would especially be the case if educational quality would get valued higher in the assessment criteria universities adhere to (like the Standard Evaluation Protocol, which only considers research quality).

 As the 2014 European Semester SWD indicated, care should be taken to promote skill enhancement broadly.

Chapters
1. Overview of the R&I system

After facing three recessions since 2008, the Dutch economy finally started to show signs of recovery in 2014. Dutch GDP per capita is well above EU28 average of €27,300 (2014): in 2012-2014 it grew from €38500 to €39,300. According to the Innovation Union Scoreboard 2015, the Netherlands is leading among the group of ’innovation followers’. One of the key strengths of the Dutch innovation systems lies in the quality of its science base, as reflected in the number and quality of scientific publications.

In terms of GERD as percentage of GDP, the Netherlands performs at a level similar to the EU28 average (1.97% in 2014), but considerably below e.g. Germany, Denmark and Sweden. It is also still far below the target of 2.5% set by the Dutch government for 2020. Especially the Dutch BERD is low in comparison to the other countries mentioned (1.02% in 2014). The Netherlands is one of the largest net recipients of FP7 funding, having received € 3.371b in funding over the FP7 period (a return percentage of 7.4%, versus a contribution of 5%). The annual income from FPs has increased from €165m to €537m (8.1% of available budgets) in the first year Horizon 2020 was in place. For the Netherlands, FP7 funding out-weights the contributions received as core R&D funding through the structural funds (around €180m).

 

 

2. Recent developments in research and innovation policy and systems

Key developments in the R&I system in 2015 included:

  • In 2015 the Ministry of Economic affairs set up an Additional Action plan SME funding to supplement a 2014 action plan which was part of the new growth agenda. The plan includes various actions aimed at extending existing measures like the recently established Netherlands Investment Institute and the Future Funds (continuation of the SME Innovation Funds). The total package of interventions has the potential of creating €2.5b of extra funding. In order to help firms find the most appropriate type of financial support, contact points were streamlined into one single "Enterprise Point" and a National Funding Guide was released.
  • From September 2015 the basic grant system for students was replaced by an extended loan system. This change occurs as part of broader reforms of the educational system, which also includes performance contracts between universities and the ministry of ECS.
  • In November 2015, the new National Research Agenda was presented, following up on the Science Vision 2025 of November 2014. In this agenda a knowledge coalition of universities, research institutes and governmental organizations consolidated a list of research questions that fit with the scientific strengths, societal challenges and economic opportunities in the Netherlands. This list of questions is supposed to be a basis for strategic allocation of public resources for research.

 

 

3. Public and private funding of R&I and expenditure

In the years following the crisis, public expenditures on R&D have been relatively safeguarded. During the crisis and the post-crisis period, direct public funding to R&D, expressed as GERD funded by the government, has not fallen back to the pre-crisis levels, neither in terms of appropriations nor as effective expenditures. Direct public funding increases in real values up to 2012 and it slightly drops in 2013. Compared to similar economies, e.g. the Nordic countries, the Dutch direct public funding as % of GDP is lower although still above the EU average. Starting in 2011 part of the direct public funding was shifted from the public to the private sector.

The 2015 Country specific recommendation for the Netherlands is to: "Shift public expenditure towards supporting investment in R&D and work on framework conditions for improving private R&D expenditure in order to counter the declining trend in public R&D expenditure and increase the potential for economic growth." The declining trend in public R&D expenditures has been accompanied by a growth in indirect support. From 2015 onwards the projected indirect support is set to decrease alongside direct support. The total of budgeted direct and indirect support evolves from € 4.8b in 2015 to € 4.5b in 2019.

4. Quality of science base and priorities of the European Research Area

The Netherlands is very well aligned with most of the ERA priorities. Women, however, are underrepresented in Dutch academia. In 2013 only 16% of professors in the Netherlands were female, which is the lowest percentage of all European member states. Open access is an important theme during the Dutch EU presidency.

5. Framework conditions for R&I and science-business cooperation

Improving circulation and exploitation of scientific knowledge by public private collaboration is one of the main pillars of the Dutch Enterprise Policy. The 'top sector approach' is concentrated on nine priority areas characterized by scientific excellence and high export opportunities. Apart from R&D tax incentives a wide range of programmes have been set up to promote business innovation and to support innovative start-ups and other SMEs.

6. Conclusions

The challenges put forward in the executive summary are summarised in the conclusions. The chapter lists relevant policy actions, assesses their appropriateness, efficiency and effectiveness, and provides links to relevant evidence (based on evaluations or empirical analyses).

Geo coverage
Report year
2015
Country Report file
Official publication date
Tuesday, 3 May, 2016
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