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New #EIB Investment Survey highlights investment gaps and obstacles amid recovery

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First EIB Group Survey of 12,500 firms across Europe shows investment recovery is underway and set to strengthen further – but firms need to speed up adoption of new technologies, while uncertainty and lack of skills are still holding many firms back

  • The investment recovery is strengthening in Europe. 84% of European firms reported having invested in the previous financial year. Going forward, more firms expect to expand their investment activities than to scale them back.
  • Firms consider only some 44% of their machinery and equipment to be “state-of-art”. Global competition and technological advancement call for a quick action.
  • But most firms say uncertainty (69% of firms), lack of skilled labour (68% of firms) and the business and the regulatory environment are their top concerns.
  • Access to finance is a concern for Europe’s younger, smaller, innovative firms and firms active in those countries more affected by the economic downturn.

In a survey published today, 12,500 firms (comprising the whole range from small SMEs with more than 5 employees to larger corporates) across the EU 28 have been interviewed to assess what they consider are their prime investment needs and the obstacles to investment they face. The first EIB Group Survey on Investment and Investment Finance (EIBIS) is a unique survey covering the EU corporate sector and its attitude towards investment and investment finance activities. Today’s report will be repeated every year by EIB Group economists.

Representing every EU member state and fully comparable among countries, this is an invaluable European instrument to monitor business investment at the EU level.

Survey results, as well as a EU wide cross-country analysis and country based publications are available at www.eib.org/eibis.

Andrew McDowell, EIB Vice President, said “We know how important the corporate sector is for Europe’s economic recovery – not least in providing jobs to its citizens. With that in mind, the EIB Group Survey on Investment and Investment Finance is a unique diagnostic tool. Its gives us some cause for optimism with regard to Europe’s economic recovery. We are seeing a determination in Europe’s corporate sector to invest and to invest more. That suggests slowly but surely signs of a recovery and awareness of what needs to be done to stay competitive among firms themselves, such as through investment in innovation and more up-to-date equipment. But we must also listen carefully to the concerns of European firms which include uncertainty and the business and regulatory environment. The Investment Plan for Europe rightly places a great deal of emphasis on creating the right conditions for investment. This survey underlines the need for member States as well as the EU institutions to act on this urgently.”

He added, “We can take heart that our support is paying off, although we still have a long way to go – the Investment Plan is helping to improve the investment climate while corporates have been taking full advantage of the investments available under the first phase of the European Fund for Strategic Investments, with EUR 34bn approved so far that will mobilise a total of 184bn in new investment, evidence of the acute market demand for instruments that support innovation and competitiveness. Lending under EFSI is an important part of overall EIB Group lending which reached EUR 84bn in 2016, mobilising EUR 280bn in total investment.”

Debora Revoltella, Chief Economist of the EIB said “While business investment is recovering throughout Europe, a protracted period of underinvestment has left a backlog. This survey tells us firms are concerned about the quality of their capital stock in the face of strong global competition and rapid technological advances. A strong focus on innovation and the diffusion of new technologies is crucial. Moreover, firms are concerned about a lack of adequate skills, which calls for appropriate policies to address the skills mismatch. This is particularly relevant in view of policy calls for more inclusive growth.”

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Investment by European firms is recovering, and set to recover further. 84% of firms are saying they recently invested. The share of SMEs investing is smaller than the share of large firms investing. SMEs also exhibit a lower investment intensity.

  • Looking forward one year, more firms expected to increase their investment activities than expected to scale back investment.
  • The corporate investment recovery is being driven by a need to become more competitive. Having underinvested during the crisis, firms are now seeing a need to catch up technologically to ensure future success.
  • On balance, some 15% of firms tended to consider that their investment over the past three years was too low to ensure their success going forward.
  • This reported investment gap does not appear to be linked to the amount of spare capacity firms have – the quantity of machinery, equipment, buildings, etc. is not the problem.
  • There is substantial potential to catch-up with the technological frontier: firms consider only 44% of their machinery and equipment to be “state-of-the art”; and only 40% of their building stock as satisfying high energy efficiency standards.
  • The great majority of investment (about 70%) is aimed at replacing out-dated or worn-out machinery, equipment, buildings and IT, or at introducing new products or processes.
  • Lack of skilled labour is the second most serious constraint on investment (reported by 67% of firms). This constraint is particularly severe for some countries with high levels of employment, but also for many Central and Eastern European countries that have experienced significant outward migration. The mismatch between needs and available skills seems too high for firms to deal it by themselves via internal trainings. In fact, this calls for a more focused action in terms of European policy for skills development, possibly addressing vocational training.
  • Business regulation, labour market regulation and high energy costs are the next most severe barriers to investment, reported by 58%, 55% and 51% of firms, respectively.

The share of finance-constrained firms is higher among SMEs than among larger firms. Young firms tend also to be constrained and they are also those generating more jobs. Targeted actions supporting young and innovative firms are crucial.

The EIB Group Survey on Investment and Investment Finance (EIBIS) will improve our understanding of the needs, opportunities and constraints faced by European businesses. It will be used to inform policy dialogue and policy-making on the drivers and barriers to investment and to refine the support to investment provided by the EIB Group, for example in the context of the Investment Plan for Europe and by identifying key sectors in need of particular attention such as education and youth entrepreneurship and start-ups.

Furthermore, it is designed to build up a store of publically available enterprise data to enable the analysis of investment and business environment trends over time.

Overall, it shows the need for continues policy action to support investment, with a focus on enhancing European competitiveness.

Background

The EIB Group (EIB and EIF) is active in around 160 countries around the world.

The European Investment Bank (EIB) is the European Union's bank. The EIB is the long-term lending institution of the EU and is the only bank owned by and representing the interests of the European Union member states. It makes long-term finance available for sound investment in order to contribute towards EU policy goals. The EIB works closely with other EU institutions to implement EU policy.

The EIB invests in four priority areas in support of growth and job creation: Innovation and skills; Access to finance; Climate action and environment and Strategic infrastructure

The European Investment Fund (EIF), which is part of the EIB Group, is a specialist provider of risk finance to benefit small and medium-sized enterprises (SME) across Europe. By developing and offering targeted financial products to its intermediaries (such as banks, guarantee and leasing companies, micro-credit providers and private equity funds), the EIF enhances SMEs access to finance. The EIF’s shareholders are the EIB, the EU, represented by the European Commission (EC), and a wide range of public and private banks and financial institutions. The EIF carries out its activities using either our own resources or those provided by the EIB, the EC, by EU member states or other third parties. See www.eif.org for more information.

China

Huawei chief: The world needs an open approach to scientific research

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At the webinar for Beijing-based research and science attaches from Europe and from the EU, I made the following comment on the subject of research collaboration in Europe: “The nationalization of scientific activity – country by country – is not what the world needs at this time,” writes Abraham Liu.

Here’s why

The events surrounding COVID-19 have given us all some time to reflect upon many different issues – some are of a micro or personal scale – others have a larger macro-economic dimension.

But as the world is embarking on finding a vaccine for COVID-19, there is one clear dawning realization for us all to reflect upon.

Research, educational, private, and public bodies from all over the world must collaborate on basic and applied research. Without intensive international engagement and co-operation, society will not be able to benefit from new innovative products and services. Governments and the private sector alike must substantially invest in basic scientific research if the new products of tomorrow are going to be delivered into the global marketplace.

The process of innovation must not be confined to any one company or any one country. Scientific excellence working together across borders can create new products that address key socioeconomic challenges in the world today. That is why so many multi-jurisdictional research teams across the globe are working on a vaccine for COVID-19.

The same principle – namely the need for international engagement and co-operation – applies to the ICT sector and to the capability to bring new technological innovations into the marketplace.

Huawei is one of the most innovative companies in the world.

Under the EU industrial scoreboard for research and development 2019 Huawei ranks fifth in the world in terms of the levels of financial investment that the company makes in the fields of R&D. This a  finding of the European Commission having surveyed 2,500 companies in the world that invest a minimum of €30 million in R&D per annum. We:

  • Run 23 research centres in 12 countries in Europe.
  • Hold 240+ technology partnership agreements with research institutes in Europe.
  • Collaborate with over 150 European Universities on research.
  • Employ 2,400 researchers and scientists in Europe.
  • Invest 15% of our global revenues into research each year and this level of investment is going to increase.

International collaboration is at the heart of the Huawei business model when it comes to our research activities.

Europe is home to 25% of all global R&D investment. A third of all scientific publications that are reviewed in the world today emanate from European researchers. Europe is home to the best scientists in the world. And this is why so much of Huawei investment on the research side is based in Europe.

Huawei has participated in 44 collaborative research projects under both FP7 and under Horizon 2020. We have engaged in research covering, for example, 5Gcloud and device technologies and the building of ICT platforms that will deliver the smart cities of the future. So Huawei has a strong embedded imprint on research in Europe, and this remain the case for many years to come. In fact, Huawei’s first research facility opened in Sweden in 2000.

The Huawei Research Center in Gothenburg

Horizon Europe – the next EU research, innovation and science instrument 2021-2027 will play a central role in delivering upon the policy agenda of the EU institutions. This includes strengthening the industrial strategies of the EU, delivering upon the EU Green deal and tackling the UN sustainability goals.

Huawei can positively support the implementation of this exciting new EU policy agenda.

The ‘nationalization’ or ‘de-compartmentalization’ of scientific and research activity – country by country – is not what the world needs today. The public, private, educational and governmental sectors  need to take an open approach to scientific engagement. This will ensure that the key global challenges facing the world today can be positively addressed for all of mankind.

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China

Thoughts on post-Abe Japan in foreign policy

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After more than seven years of steady rule, Shinzo Abe’s (pictured) resignation as Japan’s prime minister has once again put the country’s foreign policy into the world’s spotlight. With the Liberal Democratic Party (LDP) racing for the selection of new party leader and later on, the nation’s prime minister, several possible candidates have come to the fore. Apart from the ambitious Shigeru Ishiba who attempted to challenge Abe for the party’s leadership in the past, others such as Yoshihide Suga (current Cabinet Secretary) and Fumio Kishida, are expected to stand as contenders for the top post within the LDP as well as the government.

First, the perception of China within the Japanese public and LDP, has been at a low level even before the COVID-19 pandemic struck Japan. According to Pew Research Center’s Global Attitudes survey in late 2019, as much as 85% of Japanese public viewed China negatively ⸺ a figure that put Japan as the country which had the most negative view of China among the 32 countries polled that year. More importantly, such survey was conducted months before the three events: the spread of COVID-19 pandemic, the passing of the Hong Kong security law and the continuing dispute of the Senkaku (or Diaoyu) Islands. With all these three issues involving China converging at the same time, it will be challenging to expect the Japanese public will have a more positive view of Beijing this year.

The US-China rivalry today has also entered uncharted waters in which military conflict is no longer a distant dream for many. Given its vested relationships with both US and China, such challenge remains to be the most difficult for Abe’s successor to grapple with. On one hand, Tokyo has to safeguard its close trade ties with China while on the other, the former has to depend on its security alliance with the US to safeguard both national and regional security against hypothetical threats (including China). As reported by Kyodo News in last July, Suga himself was aware of such dilemma as a middle power and even recognised that the balance of power strategy might not be suitable anymore given the current freefall relationship between Washington and Beijing. Instead, Suga alerted of the possibility in siding with one of the two powers as the eventual option for Japan in the near future. While he did not mention which country to side in case such scenario becomes a reality, political observers should not be too conclusive in that he will choose China as opposed to the US if he becomes the new Japanese prime minister.

Last, Abe’s successor inherits his legacy of Japan as a proactive leader in the Southeast Asia region. As a person without much experience in foreign policy, it is challenging for Suga (more than Kishida and Ishiba) to preserve Japan’s leadership status in Asia without heavy reliance on the foreign policy establishment. That said, the current Abe administration’s policy of encouraging its manufacturers to shift production from China into either Japan’s own shores or Southeast Asian countries, will likely to be continued in consideration of the urgency compounded by the COVID-19 pandemic and the freefalling US-China relations.

With Japan’s collective pursuit with the US, India and Australia for the Free and Open Indo-Pacific (FOIP) vision as a security counter against Beijing in Southeast Asia, on top of Tokyo’s national economic interest to reduce its overdependence on China, the country fits well into the sort of external power needed by the ASEAN member states.

ANBOUND Research Center (Malaysia) is an independent think tank situated in Kuala Lumpur, registered (1006190-U) with laws and regulations of Malaysia. The think tank also provides advisory service related to regional economic development and policy solution. For any feedback, please contact: [email protected].  

The opinions expressed in the above article are those of the author alone, and do not reflect any opinions on the part of EU Reporter.

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China

China: Peak emissions before 2030 and climate neutrality before 2060

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Following the speech made by President Xi Jinping to the United Nations General Assembly on 22nd September 2020, the Energy Transitions Commission has provided the following response: “President Xi’s commitment that China will peak emissions before 2030 and aim for carbon neutrality before 2060 is a huge step forward in the fight against harmful climate change, and a welcome example of responsible global leadership. Strong policies and large investments. especially focused on the clean electrification of the economy, will be needed to achieve the mid-century objective. Analysis by ETC China have given us the confidence that a fully developed rich zero carbon economy is attainable. The priority now is to ensure that actions in the 2020s, and in particular in the 14th five-year plan, achieve rapid progress towards the twin goals.“ Adair Turner, co-chairman, Energy Transitions Commission. 

ETC Reports on China 

In June 2020, the Energy Transitions Commission (ETC) and Rocky Mountain Institute (RMI) jointly released the report – Achieving Green Recovery for China: Putting Zero-Carbon Electrification at the Core.

In November 2019, the Energy Transitions Commission (ETC) and Rocky Mountain Institute (RMI) jointly released -  China 2050: A Fully Developed Rich Zero-Carbon Economy.

About the Energy Transitions Commission 

The Energy Transitions Commission (ETC) is a global coalition of leaders from across the energy landscape committed to achieving net-zero emissions by mid-century, in line with the Paris climate objective of limiting global warming to well below 2°C and ideally to 1.5°C. Our commissioners come from a range of organizations – energy producers, energy-intensive industries, technology providers, finance players and environmental NGOs – which operate across developed and developing countries and play different roles in the energy transition. This diversity of viewpoints informs our work: our analyses are developed with a systems perspective through extensive exchanges with experts and practitioners.

For further information, please visit the ETC website. 

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