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RIO Country Report Sweden 2015

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


R&I Challenges

Strengthening early stage private venture capital and reforming public venture capital

Challenge description: 

Compared to other EU countries, Sweden is performing reasonably well when it comes to the overall level of venture capital investment relative to GDP. In 2013, Sweden ranked behind Denmark (0.1%) and the UK (0.12%), on par with Finland (0.08%), above the EU-28 average (0.06%) and well before Germany (0.04%). Latest data show promising signs for 2014 with private venture capital investments increasing by 57% compared to 2013. Public investment declined at the same time. Overall, total venture capital investments rose by 27% between 2013 and 2014. In global comparison, overall venture capital investment as a share of GDP is at the top of the OECD middle range.

However, total investments are still well below 2008 levels and the World bank's Doing Business indicator 2015 ranked Sweden only 61st for "getting credit" (overall rank: 11th) with the ease of getting credit worsening over time (rank 42nd in 2013). The market for private venture capital reveals gaps in early-stage investment and available support is still skewed towards public venture capital. A 2014 report by the Swedish National Audit Office pointed to risks of crowding out of private capital as a relatively large share of the public venture capital was invested in the parts of the venture capital market where private actors are most active. Over 40% of the government capital was invested in companies in expansion phases and mature companies whereas companies in the seed stage only received 0.2% of public venture capital. In addition, most state owned actors were found not to have any cost efficiency targets.

Current Swedish programs to support SME access to finance are managed primarily by large public agencies, e.g. ALMI, Norrlandsfonden, The Swedish Industrial Development Fund, Fouriertransform, Inlandsinnovation and the Energy Agency. Additionally, the Swedish pension funds continue to be a source of venture capital but not generally for early stage investment. It should also be mentioned that 2014 saw a drastic reduction in the level of tax deduction for private savings towards pension.

Policy Response: 

Early 2015 saw the formation of a new Innovation Council at highest political level chaired by the Prime Minister. One of its first tasks was to consider how to best promote collaboration between the private and public venture capital initiatives.

Following the government inquiry on "a fund structure for innovation and growth" in 2015 the Swedish government announced reforms of public financial support to SMEs in the budget bill for 2016. The reforms announced include the ambition to establish a new public state-owned company incorporating the two existing public venture capital companies Inlandsinnovation AB and Fouriertransform Aktiebolag forming a new public company with a larger financial base and without predefined sectoral and regional limitations in investment focus. The investment technique of the new company will be fund-of-funds, i.e. it will co-invest with private capital In venture capital funds. The main objective of the new company will be to co-finance early stage venture capital investments in innovative Swedish enterprises with high-growth potential. Another objective is to contribute to the strengthening of the overall financial ecosystem in Sweden. A more detailed propositions of the reforms was presented to the parliament in spring 2016. If accepted by parliament the changes will take force from January 1, 2017.

Other developments include the introduction in 2013 of a tax deduction for investment in companies that are not stock market indexed and have less than 50 employees. Another new instrument is the investment savings account which is in effect a reduction of capitals tax for investors. This instrument allows individuals to maintain a personal account for shares, bonds, etc. which is taxed at a much lower rate than capital tax and there is no tax per transaction.

Policy assessment: 

The challenge has been recognised and prioritised at the highest political level. It is yet too early to assess the effectiveness of the recently introduced measures. The tax deduction for investment in not stock market indexed companies is very limited since only companies with 50 or fewer employees are eligible and the deduction must be repaid on sale of the shares. The new investment savings account could become an effective stimulus for the private venture capital market. It is possible that the potential reduction in personal savings due to the de-facto abolishment of tax deduction for private savings towards pension might be compensated by the introduction of this new savings account. However, it is not likely that these accounts will play a larger role for the private venture capital market than the private pension funds did. Currently, personal savings are low and mostly tied up in pension funds and real estate. The marked increase in private investments in 2014 is a very promising sign.

Reduce dependency of BERD on multinational companies (MNCs)

Challenge description: 

Private R&D is concentrated in large multinational firms, both foreign and Swedish owned, which dominate the Swedish economy. Foreign-owned firms now employ almost 25% of the workforce in business and industrial sectors, mostly in services and manufacturing. Over the last decade large multinationals have increasingly outsourced their research and innovation facilities, often placing them close to growth markets or in new headquarters, as a result of gradually adopting advanced global strategies as well as foreign ownership. Primarily two reasons have been put forward as explanations to why Swedish owned multinationals locate some parts of their R&D abroad. The first is to adjust their products and processes to specific preferences and needs on the market in another country. The second is to benefit from knowledge and technologies developed in another country by placing some of its own R&D there. Other factors that appear to influence where Swedish MNEs decide to place their R&D are how strong the protection of intellectual property rights is in a country, the country’s relative endowment with skilled labour, and how far from Sweden the country is located.

About 80% of Swedish business R&D is performed by a few large multinational companies with more than 200 employees with most of it concentrated in firms with >1000 employees. In 2013, 89 firms with >1000 employees accounted for 63% of Swedish BERD. In the same year, 49% of BERD was spent by Swedish owned multinational companies, 39% by foreign owned companies and 12% by local Swedish companies. BERD is very high in European comparison, with 2.12% of GDP in 2014, but has been on a slight downward trend as share of GDP over the last ten years (2.69% in 2003) due to the relocation of some of the R&D units of MNEs. This illustrates the economic dependence on a few large firms, which creates vulnerabilities and unforeseeable risks. In addition, R&D investments in SMEs fell by 30% between 2005 and 2009 (European Commission, 2014a). Analysis by the Swedish Agency for Growth Policy Analysis (Growth Analysis) shows the same trend for years 2007 – 2011.

For many years Sweden had a national agency for stimulating foreign direct investment: Invest Sweden. In 2013 the government decided to merge Invest Sweden and the export council (Exportrådet) into the new organization Business Sweden which is no longer following any specific policies aimed at attracting R&D intensive FDI.

Policy Response: 

Over the past two decades there have been substantial efforts focused on an incremental industrial restructuring to reduce economic dependence on a few large actors by supporting growth in high-tech firms and improving framework conditions for SMEs. With a view of increasing BERD, the previous government introduced a tax incentive scheme for business investment in R&D in 2014. This deduction is very limited in scope and only applies to personnel costs as it is not on total R&D expenditure but on the social insurance per employee. According to DG TAXUD's Study on R&D Tax Incentives, the foregone social security revenues are estimated at about €45m net (SEK 420m). Within the current budget suggestions, the government has also proposed to support funding to SMEs covering part of the costs associated with coverage of salary for staff that is ill. About €32m will be devoted to this effort.

Many SMEs receive support from actors such as ALMI, a publicly funded actor charged specifically with promoting business development. VINNOVA offers specific funding to SMEs via its SME umbrella programme, Innovation Projects in Enterprises (created out of already existing programmes in 2015). In 2015, VINNOVA also launched a new scheme for innovation vouchers targeting SMEs. SMEs can also participate in the FFI programmes, the internationalisation programme, the Institute Excellence Centre programme and most other VINNOVA-programmes such as the Challenge Driven Innovation programme or the Strategic Innovation programmes. The Knowledge Foundation, a public research foundation, also funds collaborative projects between university colleges and firms in a large range of programmes including the most recent Researcher Profiles scheme. The Swedish Energy Agency offers support and loans to SMEs in emerging energy technology areas.

Policy assessment: 

The tax incentive scheme introduced in 2014 was very limited in scope and it is yet too early to assess its effects. A broader tax credit scheme may be part of a solution but Swedish governments have so far preferred to avoid this particular policy measure. Overall, there is no shortage of initiatives aimed at SMEs; on the contrary, there may be a problem with respect to the proliferation and complexity of some of these measures. Further, these measures do not seem to generate the desired effects at macroeconomic level. There may also be some yet untapped potential in attracting new foreign investments.


1. Overview of the R&I system

Sweden takes the top spot in the 2012 Research Excellence Composite Indicator ahead of Denmark and the Netherlands and the EU Innovation Union Scoreboard 2015 classifies Sweden as an innovation leader together with Germany, Denmark and Finland. Sweden has since long ago reached the 3% target for total GERD as share of GDP and this level of investment remains constant despite the financial crisis. In 2014, GERD was the second highest in the EU (after Finland) summing up to 3.16% of GDP, compared to an estimated average of 2.03 % for EU-28. However, Swedish expenditure on R&D has been in decline when expressed as share of GDP since the beginning of the millennia, from 3.61% of GDP in 2003 to 3.16% in 2014. GERD performed by the higher education sector has traditionally been high and is still on a slight upward trend, amounting to 0.92% of GDP in 2014, the second highest among EU countries after Denmark.

The main sources of Swedish science policy are the Research Bill and the Energy Bill. The bills are produced every four years with the current cycle covering 2013-2016. The 2015-2016 period is expected to be dominated by stakeholder consultations and lobbying as the process of priority setting proceeds. An additional policy document, the National Innovation Strategy (2012), provides guidelines for innovation policy up to 2020.

2. Recent developments in research and innovation policy and systems

Key developments in the R&I system in 2015 and early 2016 included:

  • A detailed proposition for a reform of the venture capital sector was presented by the government to the parliament in spring 2016 (Regeringens Proposition 2015/16:110).
  • In 2015, the 23 Strategic Research Areas were evaluated by an international expert panel. The panel delivered a positive opinion and identified the long-term focus as one of the main strengths of the investment which enabled the research groups to engage in a higher degree of risk taking than that associated with project funding. It was however argued that the groups could be more focused on societal needs and undergraduate teaching.
  • A 2015 evaluation of the autonomy reform in the tertiary education sector, which was introduced in 2011, found that most staff below the leadership level at universities did not feel themselves affected by this reform. At the level of Vice Chancellors it was felt that gains in autonomy through the reform were lost to indirect governance from the government.
  • At the request of the Swedish government, the OECD conducted a review of the Swedish school system and published a report in mid-2015. The report suggests that attention should be given to inter alia:  improving the quality and attractiveness of the teaching profession; reviewing present levels of funding of education; increasing existing levels of support for disadvantaged students and creating a national school improvement strategy.

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

Public research budgets were largely left unaffected by the economic crisis. 2011 was the only year with a moderate contraction of Government Budget Appropriations on R&D (both in absolute and relative terms) followed by a distinct increase in allocations again in 2012. Swedish gross domestic expenditure on research and development (GERD), in absolute terms, decreased during the crisis in 2009 but recovered very soon and in 2013 surpassed pre-crisis levels. GERD funded by the government has registered positive growth rates since 2005, including 2011.

The intensity of Swedish business expenditure on R&D (BERD) is well above 2%, one of the highest in Europe. In 2013, BERD intensity stood at 2.28%, corresponding to 69% of total R&D investments in Sweden. One can also observe that BERD intensity has been on a slight downward trend for the past ten years which, after a phase of consolidation between 2010 – 2013, seems to be continuing in 2014. Preliminary figures estimate BERD intensity at 2.12% for 2014 and also point to a fall in BERD in nominal values. This downward trend is often ascribed to the relocation of some of the R&D units of big Swedish and foreign owned enterprises. About 80% of Swedish business R&D is performed by a few large export-oriented, internationalised companies with more than 200 employees with most of it concentrated in firms with >1000 employees. The vast majority of corporate R&D is funded by the business sector itself, with a small contribution from the government which has been very stable and a contribution from abroad that used to be above 10% but reduced to 7% in 2013

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

In late 2014, the Swedish Research Council proposed a new draft research evaluation model for allocating resources to universities and university colleges which has been under scrutiny by stakeholders. The draft model was designed to be a driver of quality, promoting the contribution of high quality research to societal development and facilitating better informed research policy decisions. Sweden is well aligned with most ERA policies. More recent developments include the introduction of a common platform for research applications called PRISMA which is a joint project of The Swedish Research Council in collaboration with research councils Forte and Formas.

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

Overall, the general policy environment for doing business in Sweden is favourable. The country has performed well on the World Bank’s Doing Business indicators throughout the past decade.

The Swedish Agency for Innovation Systems, VINNOVA, is the most important government agency for the support of young innovative companies. This support is complemented by a number of other public actors, like ALMI, Universities’ Innovation Offices and Holding companies. There is no shortage of initiatives targeting innovative firms.

All publicly funded research performers in Sweden are legally obliged to engage in knowledge transfer since 1997. This rule has since been revised to emphasise knowledge transfer to support innovation and most Swedish universities have some type of incubator and support infrastructure for university spin-offs.

6. Conclusions

The two identified challenges put forward in the executive summary are summarised in the conclusions. The chapter lists relevant policy actions and assesses their appropriateness, efficiency and effectiveness.

Geo coverage
Report year
Official publication date
Thursday, 23 June, 2016
Country Report file
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