April 6, 2022

Research and Development investments towards four percent of GDP


Research and development investments to four percent of GDP

The Finnish Startup Community is pleased with the government's decision in the framework debate to allocate EUR 350 million in additional funds to research and development. In the future, Finland's total investment should be four percent of GDP.

In the economic environment darkened by the COVID-19 pandemic and the war in Ukraine, the Finnish government's decision to invest in research and development (R&D) brings faith in the future among startup entrepreneurs as well. "This was also the case in the 1990s recession, when we were able to collect the results of the decisions through, among other things, the rise of Nokia," says Riikka Pakarinen, CEO of the Finnish Startup Community.

In international comparison, however, Finland is still far from the top. In relation to GDP, Finland's investment in research and development is only eleventh among the OECD countries. For example, the levels in Denmark (3.1% / GDP) and Sweden (3.4%) are clearly higher than Finland (2.8%). In the OECD comparison, South Korea, for example, is one of the top countries in terms of R&D investment, accounting for almost 5% of GDP**. "We should also take an open-minded approach to the more distant, technologically advanced countries," says Pakarinen.

R&D money for the regions

In the budgetary framework negotiations, the Finnish government decided on additional support for the Academy of Finland, an increase in strategic research funding, as well as regional R&D funding and an R&D tax incentive for companies as completely new tools. "It is important that companies have incentives to increase their product development," says Pakarinen. "The emergence of new companies and innovations is vital to our country's economy." Exports from startups have grown rapidly and are currently totaling € 3 billion a year. At the current rate of growth, the Finnish start-ups will equal the size of the Finnish forest industry – by 2030. “This will only happen if development is supported. Additional budget allocation in R&D is a step in the right direction, but future governments must continue on this path. Including the private sector, Finland's R&D investments should be raised to 4% of GDP in the coming parliamentary terms,” Pakarinen says. These decisions will also make Finland more attractive in the eyes of foreign investments and experts.

Crises open up opportunities

Due to the green transition and disruptions in supply chains, Finland is e.g. now preparing for rapid changes in the country's energy supply. This opens up new opportunities not only for green energy production, but also for other innovations in all fields of business. "There are already numerous growth and startup companies in Finland that are developing new solutions for energy production and the green transition," reminds Youssef Zad, the economist of the Finnish startup community. "Supporting the research and development work of these companies will help to solve global challenges. In addition, it will create jobs and prosperity."

**Source: Gross domestic spending on R&D (indicator). OECD (2022), doi: 10.1787/d8b068b4-en (Accessed on 05 April 2022).

Youssef Zad

Chief Economist