Innovation-Driven Ecosystems

Dario Vins
May 1, 2018 · 4 min read

Digital Frontier Series

The World Bank’s Doing Business indicators paint an unflattering picture of much of the Central and Eastern Europe (CEE) region’s economies. Economic hardships and a lack of opportunities and future prospects result in sizeable migration that drains the region of its most educated and skilled residents. The region’s most depressed area is the Western Balkans with per capita income of just 27% of the EU15 average. Over 50% of its youth population is unemployed, with one country reporting a staggering 63%, the Europe’s highest. Women participation in the active labour market starts at dismal 30%, while the region’s SME sector and SEs in the impact sector provide less than 30% of total employment.

The business environment in most countries of the CEE region remains challenging, exhibiting macroeconomic instability, fast and drastic political changes, and a general lack of understanding or support to startup culture and thinking. The region’s small and medium enterprises (SME) and social enterprises (SE) identify political instability, corruption, poor access to finance, high tax rates as the main constraints to doing business. International actors point to low productivity as the fundamental problem holding back the region’s economic development reflecting years of under-investment, weak institutions and a difficult business environment. In both the venture and impact arena, a lack of regional business development services, such as incubators, accelerators, hubs, impact investors, and ecosystem operators has been identified as one of the biggest barriers to the development of women, social and youth entrepreneurship.

Youth entrepreneurship, for instance, has long been seen as one of the instruments to mitigate high rates of unemployment and the 2008 global financial crisis placed young people into the policy focus. The EU considers the promotion of entrepreneurship as a key policy to tackle youth unemployment through creation of new jobs. The number of young people opting for self-employment remains low due to various constraints to start a business in these countries and the inherent risks of selecting entrepreneurship as a career path. Prospective entrepreneurs, however, do express positive aspirations towards entrepreneurship and are learning how to accept failure and deal with inherent risks. This points to a possible way forward.

Embracing women, social and youth entrepreneurship calls for a shift in public opinion and attitudes towards an entrepreneurial culture. However challenging, this is a plausible way address the persistently high youth and women unemployment rates by turning unemployed entrepreneurs into job creators that provide new and quality employment opportunities in key sectors of the new digital economy. This has also been referenced by actors in the region as one of the possible means of addressing region’s emigration of skilled workers (“brain drain”) from the region.

To sustain this sentiment and create an entrepreneurial momentum to bring the startup numbers in the region to sustainable levels, it is necessary to develop cross-border, innovative, and value-driven ecosystems that will provide structured support and intelligent financing. Sources of innovation in key sectors have to be identified and programs designed to attract innovative companies and their global talent to the region. Finally, a full range of required technology, media and telecommunications (TMT) and other key sectors’ infrastructure needs to be built to mobilize entrepreneurial innovation and move the region towards a digital economy.

The governments have to address the unfavourable business environment and remove complex, demanding, and expensive business processes in order to support the region’s SMEs and to attract innovation to the region. They can do this by introducing forward-looking taxation programs, modernizing labour laws and education, and by supporting innovation, promoting public-private partnerships and social dialogue to prepare for the digital economy. The region’s countries have to incorporate the process of digital transformation, entrepreneurial learning and development of required skills in the formal education of young women and men.

The EU also needs to demonstrate its support for women, youth and social entrepreneurship in the region; creation of regional ecosystems and intermediaries; and for the regional bodies’ and the national and authorities’ efforts in this area. The EU should, first and foremost, avail the intermediaries, SMEs and SEs from all countries of the CEE region, regardless of their membership status, with full access to the funds, instruments and toolbox available to the SME, SEs, and intermediaries in the member countries.

The above needs to be complemented with development of national, regional (cross-border) and EU-funded long-term programs and financing for (cross-border) ecosystems and impact intermediaries in the CEE.

To conclude, strong promotion of youth, women and social entrepreneurship and development regional ecosystems to support the region’s innovative startups and SMEs in key sectors would accelerate transition to the new digital economy and enable circular migration as a response to the region’s “brain drain” problem. The resulting successful proliferation of innovative startups, SMEs and SEs will help move the CEE region toward the digital frontier.

MIF Ventures is an impact-focused investment firm whose goal is to combine top-tier environmental, social, and financial returns. Manages MIF II Impact Venture Fund that provides intelligent capital to impact-driven SMEs and social enterprises to help them accelerate their product roadmap, scale globally and improve targeting social issues to deliver better outcomes.

This story has been developed with Mozaik Foundation.

Dario Vins

Written by

Impact Investments @mifventures, CIM IF @ Mozaik Foundation / GIZ GmbH

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