Continuous Investment

By | September 17, 2013

The EU still lags behind the United States and Japan in overall R&D intensity; China is rapidly catching up. The EU has set an R&D intensity target of 3 % for 2020, which is below the Japanese target of 4% but in line with those of the United States and China. The funding allocated to research and innovation in the EU Framework Programme for Research and EU Structural Funds has increased substantially since 2000, and further increases are expected for the period 2014-2020. However, efforts are also needed at Member State level to achieve national R&D intensity objectives, despite the economic crisis.

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Since the onset of the current crisis, many Member States and associated countries have been engaged in smart fiscal consolidation that prioritises investment in R&I. Public and private investment in R&D increased up to the start of economic crisis. When, in 2008 or 2009, depending on the country, the impact of the crisis started to be felt in public funding, some governments chose to implement a countercyclical strategy, keeping up investment in R&D and incentivising the private sector to follow suit. In fact, most Member States have maintained or increased their investment in R&D despite fiscal constraints. In many Member States this strategy has worked well, in particular in countries where the private sector is knowledge-intensive and internationally competitive.

These countries were affected by the crisis for a shorter period of time and have staged a stronger economic rebound. However, in a few countries the countercyclical strategy did not sufficiently stimulate private investments to generate a rebound. This occurred mainly in those countries where the economy suffered persistent liquidity constraints combined with lower demand for knowledge by business. Unfortunately, the latest information collected from the Member States shows that the number of countries maintaining or increasing their efforts in R&D investment is falling. The importance of staying at the forefront and engaging in smart fiscal consolidation must therefore be emphasised now that some countries might be tempted to lower the priority they give to public investment in knowledge creation.

With increasing fiscal constraints and cuts in national research budgets, in particular in the most crisis-affected Member States, the relative importance of EU funding for research and innovation is increasing. Before the crisis, EU funding represented more than 20 % of projectbased funding in Europe, and this has increased since then thanks to higher annual budgets in the Seventh Framework Programme for Research and Technological Development (FP7). The increased budgets for research, innovation and entrepreneurship in the Structural Funds for 2014-2020 and in the upcoming Horizon 2020 are likely to boost this innovation-triggering effect further. This impact is enhanced by the fact that in the 2011-2012 period a larger number of Member States revised how they implement their Structural Funds in order to better incentivise R&I investment by the private sector.

Overall, European enterprises have slightly increased their investments in R&D as a share of GDP since 2008. They also expect to increase their investment in R&D globally by an annual average of 4% over the period 2012 – 2014. However, there are large differences between Member States and between industrial sectors and actors. Some countries are suffering cuts in R&D investment by the private sector, in particular by SMEs. Larger international corporations tend to increase their level of investment but not necessarily in their country of origin, confronting innovation leaders with the challenge of knowledge specialisation and cluster building on a global scale. As regards sectors, many countries have seen an increase in R&D intensity in more traditional medium-tech industries (metals, rubber and plastics, food products) and in growing markets that are influenced by societal challenges such as waste treatment and the need for clean energy and water.