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The Cabinet this week approved a ‘whopping’ €20 mln for innovation, a paltry figure if one considers that this amounts to less than 0.1% of GDP and almost as much as the University of Cyprus singlehandedly secures for its research programmes.
Even the justification for this dowry – that although an autonomous fund, will probably be managed by the soon-to-be established junior ministry for innovation – lacked a sense of confidence towards the economy.
As the government spokesman said the €20 mln geared towards innovative projects and start-ups will help with financing “in the absence of funding by the commercial banks”.
We all know that apart from a handful of successful university-driven ventures, there is no funding, simply because we do not have a risk culture and incentives in place to encourage business angels who will invest in start-ups.
Lenders long ago abandoned providing venture capital and borrowing from banks nowadays is more troublesome than putting together a save-the-penguins mission to the Antarctic.
Hence, the profits from financial institutions in Cyprus come primarily from ‘administration costs’, like fees and charges, and not from ‘new business’, such as investing in promising ventures.
The worldwide norm for start-ups, varying from one economy to another, is for a failure rate of 50% to 90% from the first year and the lower end of that scale surviving into the second, third or even fourth year.
Failures for start-ups are not bad. Quite the contrary, unlike the silly “one to seven” formula drummed up by the ‘experts’ who claim that for every euro spent in the fledgling Olivewood cinema industry, the economy benefits from seven more, start-ups do contribute to the economy, even failed ones.
Lessons are learned, blueprints are redesigned, and founders return to the market with new ventures and better ideas.
And if one in ten makes it big, by going public or selling to a major peer, then you’ve hit the jackpot.
But innovative concepts and start-ups do not necessarily have to be hi-tech ideas or super-apps developed by 20-year-old geeks that can do amazing things on your mobile and win prizes at annual awards ceremonies.
This misconception has to be overturned – innovation is what will make an economy competitive, by introducing efficient mechanisms that improve the operating functions with direct benefits to the entity or project.
It could even be low-tech and should aim to improve the economic livelihood of those around us, employees and associates, with tangible benefits to the real economy, not just creative accounting to show a healthy rate of growth.
Furthermore, for start-ups to succeed, we need to clearly identify a market need, such as developments taking place in the shipping industry and the switch to hybrid and zero-carbon fuelled vessels, and self-driving smart ships, as is the concept behind the new maritime centre conceived in Larnaca.
A prime example of what we should not do is the Pentakomo technology park that never got off the ground because the government was clueless about what it should do there and how to go about it.
Judging from the small amount invested by the state, let’s hope the innovation fund is not doomed to idleness as well.
