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Mr Erkki Liikanen

Member of the European Commission, responsible for Enterprise and the Information Society

"Stimulating investment in European IT"

European Investment Forum

Copenhagen, 5th November 2002

Ladies and Gentlemen,

It is a pleasure for me to open the second day of the 8th European Investment Forum. This event is now a well established activity in the European venture capital industry.

As entrepreneurs and as investors creating future businesses on a European level, you contribute actively to building up "Enterprise Europe" which is at the core of our economic development.

"Enterprise Europe" will also benefit from the recent Brussels Summit, which set the scene for successful conclusion of the enlargement negotiations. This paves the way for a single market of more than 500 million people.

Today, I would like to concentrate mainly on three subjects:

  • the productivity and growth perspective in light of the situation of the telecommunications sector,

  • the role of risk capital, innovation, and entrepreneurship,

  • and the future of EU research in the field of Information Society technologies.

Productivity and Growth Perspective

From an economic viewpoint, it is not sufficient to create the world's largest market in Europe, we also need to ensure that it is based on a sustainable productivity growth.

It is clear that there is a potential for improvement of our economy: the GDP per capita in the EU is still less than 70 percent of the US level.

Two thirds of this difference is generally attributed to lower employment levels in Europe. One third is due to the so-called "productivity gap". The latter is the most worrying because it affects our long term competitiveness and our ability to create jobs and wealth. Our statistics also show that it has been widening since the mid 90's.

Increasing productivity is a key priority. For workers, an increased productivity creates room for increases in real wages . For private companies, productivity growth means an increase in competitiveness. For governments, increased productivity generates a larger tax base from which better public services can be financed.

Information and Communication Technologies, in combination with the re-organisation of processes in companies and administrations, and investment in skills, have fuelled the growth of productivity and wealth in many parts of the economy.

We also need to improve the conditions for entrepreneurship, and stimulate R&D and innovation. All our economic analyses show that these are the essential elements for sustainable increase in economic growth and prosperity.

However, despite the growing importance of telecommunications in our economy, we now have to face the challenge of the deteriorating situation in this sector.

The telecoms industry has revenues of over €300 billion and employs more than 1.5 million people. It has seen substantial growth over the past years, due in large part to the liberalisation of telecommunications services.

The further development of the communications sector is being supported by a number of regulatory and policy initiatives:

  • The new regulatory framework, to be implemented by Member States by July 2003, will be more flexible than the existing one. It will provide greater regulatory stability and transparency, and will foster increased competition and consumer choice.

  • eEurope 2005 which aims in particular to stimulate secure services, applications and content based on a widely available broadband structure.

  • The current Research & Development programs, and related initiatives, with which the Commission encourages the development of broadband infrastructure, including 3G, and of promising applications.

Today, however, the sector is in serious difficulties due to an unprecedented combination of factors: burst of the Internet bubble, economic slowdown, and over-capacity in backbone networks.

At the same time the mobile sector is confronted with the changeover from second to third generation (3G). High 3G licensing costs are a burden on several operators in Europe.

The way forward is to stimulate demand and increase certainty for investments. Our analysis of the situation shows that the measures that we have taken so far are appropriate. But more should be done. We intend to discuss the situation in the sector and eventual additional measures at the forthcoming Telecoms Council.

Risk Capital

Times are also difficult for the venture capital industry. However, the "venture capital" culture in Europe has made positive advances during recent years in spite of the current downturn, and more expertise is now available in this field.

There are also important actions taking place at Community level under the impetus of the Risk Capital Action Plan and Financial Services Action Plan. These are a few examples:

  • Conditions of state aids to venture capital activities have been simplified and clarified, in particular for seed and early stage funds.

  • Amended regulations on prospectuses should be adopted by the end of the year, introducing a truly European passport for issuers, facilitating the European-wide IPOs and cross-border raising of capital.

  • The Commission allocated 200 million euros to reinforce the EIF's early stage funding facility over a five year period.

  • The proposed common accounting standards based on the International Accounting Standards (IAS) will facilitate financial reporting as well as the procedures for the listing of high-growth companies in stock markets.

  • The "Innovation 2000 Initiative" launched by the European Investment Bank is on track. Since March 2000, 9.6 billion euros have been invested in research and innovation projects in ICT technologies and education (of a targeted total of 15 billion euros by end 2003).

  • Concrete measures have been proposed to improving the legislation on insolvency and bankruptcy.

  • Considerable efforts are being made to support the business angel community. We realise that the contribution of business angels to the entire risk capital supply is probably at least twice as high as the contribution of all venture capital funds together. Through their "coaching" and "transfer of know-how", business angels contribute even more significantly to the early stages of development which are so critical for innovation support. Our efforts are now focusing on helping the organisation of business angel activities, particularly outside of the most mature markets.

On all the above topics, we must now ensure that we continue stepping up our efforts despite the ambient "pessimism" to avoid a prolongation of the economic downturn.

Entrepreneurship and Innovation

But financial support alone is not the "panacea" we also need to improve innovation and entrepreneurship in Europe.

High-growth companies are not only important for creating wealth and future jobs, but they also act as agents for innovation and change throughout the economic process.

Unfortunately, survey after survey confirm what we all know - that "risk aversion" is still as strong as ever in Europe. In a recent Eurobarometer poll, 48% of individuals surveyed agreed with the statement that "a business should not be set up if there is a risk it might fail" !

It is particularly worrying that the European Venture Capital Association September 2002 Barometer reports that Venture Capitalists have seen a drop of 30% to 40% in the number of business plans submitted in the first 8 months of 2002 as compared to the same period last year.

In order to address the most urgent issues, we have conducted a thorough survey of practices in Member States and encouraged improvements through peer pressure. We will include the main conclusions of these exercises in the Green paper on entrepreneurship which will be available in January 2003.

Through the Commission's Innovation Programme, we also continue strengthening the flow of knowledge between sectors, and between innovation actors and industry.

This is important because it is not sufficient to improve the production of innovation if the necessary "knowledge transfer networks" are not in place to allow entrepreneurs to fully exploit the knowledge which is produced.

It is in this context, that a new web service called "Gate2Growth" has been launched under Commission funding. It provides support to entrepreneurs through access to networks of financiers, corporate development experts, incubator professionals, patent officers and academia.

It includes a database of investment opportunities and matching services which should leverage other networking initiatives such as this investment forum.

As you can see, the development of risk capital, entrepreneuship and innovation in Europe are really at the centre of our policies. This explains the preparation of a new Commission Communication on Innovation policy for the beginning of next year.

Take-up of ICT

Although innovation and entrepreneurship will determine the overall pace of future growth, we should not overlook the impact of basic ICT adoption in Industry.

It remains clear that ICT as an enabling technology and the associated reorganisation of business processes and value chains are at the root of sustained productivity growth in spite of the normal economic cycles.

However, there is probably one key lesson to be drawn from the current crisis in the ICT sector: "Technology for technology's sake" does not bring value. This is mainly why most "dotcom" start-ups failed to deliver.

We should not lose sight of the end purpose: Technology should serve citizens, businesses and administrations.

This is why "placing the user, people, first" in the development of the information society has driven the agenda of the second phase the eEurope initiative, called eEurope2005.

It is designed to address the wider adoption of ICT by society as a whole. This includes actions to promote online public services and the rapid take-up of the full range of ICT-enabled practices, taking into account that individuals are workers, consumers and citizens at the same time.


In addition, the stimulation of business investment in R&D is needed to unlock the EU's full innovation potential, and hence the productivity improvements we desperately need in order to reach our overall objectives.

As you are probably aware, we have set a new strategic objective for R&D spending at the Barcelona meeting in March 2002 with the aim of approaching 3% of GDP by 2010, up from 1.9% in 2000.

This would bring Europe up to the level of the US and Japan. We can not achieve this goal through government spending alone, if we consider that 80% of the R&D investment gap with the United States lies with the funding levels of the enterprise sector.

This is why we are calling on corporations and private investors like you to increase the level of business funding, which should reach two thirds of total R&D investment by 2010 at the latest.

This proportion has already been achieved in the US and in some of the best performing European countries. With this target in sight, we will make further policy efforts to make business R&D investment more attractive.

Final Remarks

Finally, I would like to mention the IST conference which is being held in Copenhagen as we speak.

This conference marks the beginning of the Information Society Technologies component of the 6th Community Framework Programme, which is a major step in the direction of the R&D objectives I just mentioned.

The new framework programme will pave the way for a true European Research area. There will be new funding instruments and provisions to allow for more ambitious - higher-impact - initiatives to be supported.

We anticipate that, thanks to the new mechanisms in place, venture capital forces will be actively associated with the funding strategies in many areas.

A new possibility for efficient public-private partnerships for funding R&D - and early deployment will be thus available at EU level.

The participation of SMEs is crucial. Their share of the total research funding budget is targeted to a minimum of 15% and we aim at a higher percentage for the IST priority.

I can only encourage you to get to know more about these opportunities at the IST workshop which will take place here this afternoon, or by visiting the IST conference before you leave Copenhagen.

I look forward to continuing to work with the community of entrepreneurs and the venture capital sector in the coming years and I wish you all a fruitful investment forum.

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