After three decades of transition to democracy and market economy, the six countries in Eastern Europe and the South Caucasus (EESC) - Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova, Ukraine – are at a turning point. Central to further progress towards the sustainable development goals under Agenda 2030 and circular economy transition will be to find and scale up new sources of growth, rather than relying on improving productivity within the existing economic structure. Diversifying the economy, especially export-oriented activities able to compete internationally, is, as policy makers recognize, imperative.
This requires innovation, or trying out new ideas to see what works and what does not – not only in specific sectors, but across economy and society. A small sub-set of companies – so-called Innovative, High-Growth Enterprises (IHGEs) – play an outsize role in and drive this process of systematic experimentation.
The potential for boosting IHGEs in EESC is substantial. High levels of education, liberal trade and investment regimes, proximity to the European Union and other growing markets, and improvements in the business climate provide a fertile ground. Tangible progress in several areas show the way. Export-oriented information technology services have grown exponentially over the past decade, especially in Belarus and Armenia. Engineering (e.g. precision engineering in Armenia, mechanical engineering in Belarus, Ukraine), viticulture (Armenia, Georgia, Moldova), and textile and design (Moldova, Georgia) have substantial demonstration effects.
To enable, nurture, and promote such IHGEs, EESC countries first need to understand their needs, peculiarities, and dynamics to develop support mechanisms that make sure more people try out more ideas than otherwise.
IHGEs are distinct in a few ways from the rest of enterprises. For example, rather than being based on Research and Development (R&D) or operating from necessity, they are driven by the business opportunities which they actively exploit experimenting with new ideas. In addition, IHGEs not only grow rapidly but are exceptional at fostering positive economic change and find new ways of making products or services more accessible to more people. Finally, and contrary to a common misconception, IHGEs are not bound to one sector, e.g. information technology or “high-tech” niches in the economy, but emerge across all sectors with some differences in distribution from country to country.
This requires rethinking how countries support the private sector in a fundamental fashion. To guide reform efforts, UNECE has published the policy handbook “Supporting Innovative High-Growth Enterprises in Eastern Europe and South Caucasus”. The handbook goes through principles, examples, and good practices for:
- fostering an enabling environment for IHGEs to promote growth (e.g. simplifying and streamlining regulation; improving hard and soft infrastructure; enabling risk finance such as private equity for firms’ growth);
- using a key account approach to design flexible, tailored, and catalytic support to IHGEs (e.g. “high-growth” mentoring and advisory services going beyond the traditional acceleration programmes; client management approach);
- enabling external risk finance for each growth stage of a firm (given the high risk and high failure rates of innovative initiatives, public support should aim to fill gaps, especially at the early stages, crowd in other sources of equity finance, and aim to recoup and reinvest returns from successful projects);
- building private sector absorptive capacity for innovation (e.g. through training, advisory services, peer learning experiences); and
- promoting internationalization and linkages (to facilitate knowledge exchange, enhance learning and drive firms` capabilities).
UNECE developed the Handbook based on the work developed by the UNECE Team of Specialists on Innovation and Competitiveness Policies.
Figure 1. The focus of attention - IHGEs
Figure 2. Five types of support measures for IHGEs