Speech of the Minister of Commerce, Industry and Tourism Mr. Nicos A. Rolandis at the Hi-Tech Seminar Co-Organised by the Embassy of the USA and the Cyprus American Business Association, on the 20th September, 2000, at the Forum Intercontinental Hotel

Business Incubators in Cyprus

It is indeed a great pleasure for me to be here today to attend and address this seminar. I would like to express my sincere thanks for the opportunity to present my Ministry’s policy on the development of a High Technology Industrial sector in Cyprus. Ôhis new sector of technology will prove to be the biggest and most productive revolution in the industrial history of Cyprus.

Industrial policy today is a vastly different concept from what it was 30 or 40 years ago. In the 1960s and 1970s, national authorities believed that protectionism - in essence, the use of discriminatory rules and barriers to shield their companies from competition from abroad - was the key to prosperity. Now it is widely accepted that insularity can only lead to stagnation and that it is the liberalisation of markets that offers the greatest benefits both to the consumer and the supplier, and that helps business and industry to remain profitable in an increasingly global and increasingly competitive market place. This, as we found out the hard way, holds also true for Cyprus.

In a period of intensified international competition, the contribution of the Cyprus manufacturing industry to the GDP has drastically declined from a level of about 18% in 1981 to a figure of around 11% today. The exports of industrial products have decreased whereas import penetration has risen considerably.

With a decision of the Council of Ministers, based on a proposal of the Minister of Commerce Industry and Tourism, the Government of Cyprus adopted a New Industrial Policy in June 1999, in its effort to overcome these problems and to accelerate the restructuring and development of the industrial sector.

The New Industrial Policy, which consists of 12 Chapters, attempts to achieve the following broad goals:

The first two Chapters refer to the first goal of the New Industrial Policy and they aim at the creation of new high technology industrial units through the setting up and operation of business incubators and the enhancement of the country’s capability for industrial research and development.

The goal of promoting high tech industries is considered particularly important, as the experience of the last fifteen years or so has shown that to move forward, we must exploit the most important endowment of the country - that is, its qualified manpower. The success of this effort may completely transform the industrial landscape of Cyprus.

A technology incubating program is an innovative system designed to assist entrepreneurs and inventors in the development of new technology-based firms. It seeks to effectively link talent, technology, capital and know-how in order to accelerate the development of new companies, and thus speed the commercialisation of technology. It is a facility that aids the early-stage growth of technology-based companies by providing shared facilities such as space and office services, and business consulting assistance.

The concept, which constitutes a very potent economic development tool, has generated great enthusiasm and has undergone extensive development in the USA and many other countries including Israel, France, Germany, Ireland, Sweden, England, Japan, China, and Canada. In the context of the New Industrial Policy, we are now in the process of introducing it in Cyprus.

The task of formulating the details of implementation of the high tech industry was entrusted to a Technical Committee headed by the Ministry of Commerce, Industry and Tourism, which includes representatives of the Planning Bureau, the University of Cyprus, the Cyprus Chamber of Commerce and Industry, the Cyprus Employers and Industrialists Federation, the Institute of Technology and the Foundation for the Promotion of Research. The Committee has worked very hard over the past year, studying the experience of other countries and designing the right strategy for Cyprus.

The Technical Committee organised visits to Greece, Ireland, Israel, the United States and Russia. Valuable lessons were learned from all the visits. Concerning the visit to the United States, in which I participated, we were very impressed with the vitality, dynamism and innovative spirit that pervaded the universities and the business world. The close linkages and creative interaction between business and the academic and research community were a particularly impressive and enviable feature, as in many other countries there is still a cultural rift between them.

The outcome of the work of the past year for the introduction of the concept of incubators in Cyprus is, I believe, an extremely interesting and innovative experiment in public - private sector collaboration. Based on the recommendations of the Committee, the government has followed a tendering procedure to identify possible partners from the private sector, who would be interested in setting up and operating an incubator. At the present stage, the final details of the collaboration are being worked out in the form of a four-year contract which, when finalised, will be signed by the Government and any of the four pre-qualified partners that are willing and able to meet its terms and conditions. Hence, up to four incubators will be set up in the next few months under this project.

The basic provisions of the partnership are outlined below:

The private sector partner will provide services to the Government for the implementation of a Scheme of Creating New Enterprises of High Technology and Innovation, by undertaking to create the physical infrastructure and employ the personnel required to set up and operate an incubator of high tech and innovative enterprises. Each such incubator will house ten to fifteen new companies which will be formed for the task of developing an innovative high tech product.

In addition to office and work space, the Incubator will be responsible to offer to the companies under incubation, the following services, either directly or through third parties:

The Government will pay an annual grant towards the running expenses of the incubator. The private partner is expected to bear the capital expenditure as well as a proportion of the running expenditure. Hence, he will not be a mere landlord and provider of services, acting as an agent of the Government, but he will be an entrepreneur who will participate in the project because he believes that there are business opportunities, bearing a certain proportion of the risk involved. The Government, on its part, will also participate in the risk, in recognition of the significant potential of the project for the further development of the Cyprus economy.

The Scheme for the Creation on New High-tech or Innovative Enterprises is addressed to individuals or small groups of individuals who present a business plan promoting the development of an innovative idea. The eligibility of the proposal for the scheme will be assessed on the following criteria:

Interested individuals or groups shall first apply to the incubator of their choice, which will make the first evaluation and, if necessary, assist the inventor to prepare a full business plan and to complete the team for its implementation. The evaluation made by the Incubator is expected to be detailed and it is desirable that the Incubator utilises the services of experts for that purpose.

After all the details of the project are worked out, an application will be submitted to a Committee, established for this purpose by the Council of Ministers, for further evaluation and approval. This Committee may require the views of specialists either from Cyprus or abroad regarding the technological and financial viability of the suggested plan. The preparation of a list of scientific associates could be one of the areas where Cyprus – USA co-operation could bear fruit.

If the application is approved by the Committee, a limited liability company will be created, the share capital of which will be divided as follows:

The precise distribution of the share capital shall be agreed on between the inventor, the Incubator and the associate/investor.

The government will finance the newly formed company with a grant of up to £50.000 each year for two years (that is, a total amount of up to £100.000). The grant will be provided subject to the condition that the inventor and/or an associate of his will deposit an amount of at least £5.000 annually for two years (£10.000 in total).

The Director of the Incubator will supervise the progress of the company and will be accountable to the Government for the proper use of the grant, which will be disbursed in stages, based on the progress of implementation of the approved business plan.

In the cases where the Company proves commercially successful and profitable, it will pay annual fees to the Government, calculated as a small percentage (1% - 3%) of sales, the total amount of which will not exceed the amount of the grant received.

The Company will stay in the incubator for up to two years. An extension of the period could be decided by the Committee, without, however, increasing the grant.

The companies leaving the Incubator will be bound to design and manufacture in Cyprus the product for which they obtained the grant, unless they obtain the Committee’s approval to conduct the activity abroad.

The criterion for the success of the scheme is whether or not the Company upon leaving the incubator has secured finance which will allow its operation as a company for the further development and production of the product for which it was created.

In the second chapter of the New Industrial Policy, the Government recognises that the existence of an Applied Research Centre focusing on specific high tech industrial sectors in which Cyprus can develop a comparative advantage could also contribute towards the effort for the development of high tech products. The Centre’s aim would be to establish bridges between industry and the academic community both in Cyprus and abroad. Work on this issue will continue, in close co-operation with the University of Cyprus and other research institutions. The building up of the research and development infrastructure, as well as the creation of a technology culture, are considered to be of vital importance for the strategy of promoting high tech industry in Cyprus.

The key feature of today’s world economy is a rapid shift towards globalisation and information and communication technologies. These technologies determine the global competitiveness of all economic sectors and foster the emergence of new non-material goods. In order to derive the maximum benefit from this process in terms of growth, competitiveness and employment, special attention must be paid to the development, dissemination and use of these non-material goods. Knowledge policies - research, innovation, education and training - are therefore of decisive importance for the future of the world.

Research and technological development, transformation of scientific and technological breakthroughs into industrial and commercial success, dissemination of technology and intellectual property rights are terms that should become the beacon that will guide us into the 21st century.