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Aruba, June 9, 2014 Greece is finally showing signs of recovering from its 2008 crash. However, as much as macroeconomic reforms are needed, the future of the Greek economy will be determined by its competitiveness, which concerns costs, but is also measured by innovation.

In that regard, Greece finds itself at a crossroads. It can improve its competitiveness by reducing costs in its traditional sectors, such as tourism, agriculture, and trade. Or it can aim higher – by laying the groundwork for higher value-added goods production.

The key to such a change is developing an innovation-oriented industrial structure and a well-functioning innovation system. This is going to be a considerable challenge.

Currently, the annual expenditures for research and development (R&D) amount to 0.67% of Greece’s GDP. Other Eurozone economies invest four times as much in relative terms, around 2.5% to 3% of their GDP.

In the “Innovation Performance Index,” prepared by the European Commission, Greece ranks far lower than any other Eurozone country. This is unsurprising given that the traditional sectors of the Greek economy are far less dependent on R&D. To get ahead, Greece’s business environment has to change and become much more open to innovation.

According to the 2014 edition of the World Bank’s “ease of doing business indicator,” Greece ranks 72nd out of 189 countries. Despite some improvement, Greece still has an overregulated legal framework that puts substantial burdens on entrepreneurs. Requirements for licenses, permits, and reporting remain excessive. Key agenda items – such as investor protection, the enforcement of contracts, and an efficient insolvency regime – remain unfinished. And the OECD’s most recent report on Greece identified 555 regulatory restrictions that, if lifted, would create major incentives to re-dynamize the Greek economy.

Technology-oriented firms face further obstacles, which have inhibited the country’s potential innovators since long before the current crisis, often forcing researchers to retract into fundamental research or academia instead of becoming entrepreneurs. Some companies, such as MobileFX, Velti, Globo, InternetQ, and Lykos, remain based in Greece but have chosen to develop their innovations abroad.

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