With the digital revolution well underway, Europe needs to speed up the introduction of adequate infrastructure, skills and frameworks in order to be able to benefit from fast-paced technology development, or it may lose its head start on the global market. Most EU member states are currently trailing the U.S. when it comes to digitalisation, as indicated by the European Investment Bank’s Digitalisation in Europe 2020-2021 report
Although the pandemic accelerated the digitalisation process considerably (63% of EU firms had implemented at least one digital technology in 2021), there are significant digital gaps that could impede the transformation of businesses in all sectors. This could impact the European Union’s micro and smaller firms, with fewer than 50 employees, in particular. They are already lagging behind in the adopting of digital technologies, mostly due to a lack of adequate skills and access to financing. Compared to 75% of large companies that are already digital, only 40% of micro companies fall into this category.
The report shows that countries (such as Belgium, Finland, Denmark and the Netherlands) that are the highest-ranked according to the Digital Transformation Enabler’s Index are also EU leaders when it comes to digitalisation, managing to outperform U.S. companies in 2020.
The index monitors the extent to which national industries integrate new digital technologies and foster the start-up and innovation culture.
TRADITIONAL INDUSTRIES NEED TO SCALE UP THEIR DIGITAL GOALS
This digital divide is also present at the sector level. Traditional sectors, such as construction, manufacturing, transportation and education, are technologically less advanced compared to ICT and advanced manufacturing players (such as automotive, electronics, life sciences, drug manufacturers and mechatronics).
Going further into typical digital profiles, traditional sectors can be classified as “digital adopters”. These are usually older companies that were established long before the digital age, are still in the early phases of digital adoption and tend to use well-established technologies, such as those regulating customer relationship management. On the other hand, “digital natives” are companies established on strong technology platforms that demonstrate digital maturity across a broad range of processes and functions.
We can also clearly see the correlation between a company’s success, productivity and employment, on the one side, and digitalisation, on the other. For example, in Finland, where the digital adoption rate is an exceptionally high 76%, labour productivity in digital firms is 37% higher than in non-digital ones.
EUROPE TAKES THE LEAD IN CLIMATE INVESTMENT
Digital companies are driving the market forward. Rather than replacing existing buildings and equipment, digital companies invest in the development of new products, processes and services, as well as data and software. At the same time, they are more active in innovation, which is crucial for the development of new business, energy and communication models. They are expected to contribute to the pressing issues confronting the world, such as social disparities, climate change and urban vs. rural development. The EU is lagging behind the U.S. in digital innovation, in terms of patent applications for industry 4.0 technologies, and this gap has been gradually widening. While some Chinese firms are becoming serious digital players, the GAFAM (Google, Amazon, Facebook, Apple and Microsoft) are all U.S. firms, which confirms the country’s supremacy in this area.
On the positive side, Europe is a leader in green investments and climate change mitigation, embracing the combination of climate and digital solutions. Compared to the United States, the European Union excels in terms of the share of firms investing in both climate and digital (32% vs. 28%). The share of EU firms that are investing only in climate is also nearly three times higher than in the U.S. (14% vs. 5%).
The report shows that countries (such as Belgium, Finland, Denmark and the Netherlands) that are the highest-ranked according to Digital Transformation Enabler’s Index are also EU leaders when it comes to digitalisation, managing to outperform U.S companies in 2020
CREATING CONDITIONS FOR FASTER GROWTH
Building infrastructure to enable download speeds faster than 1 Gbps is a number one priority in addressing the obstacles impeding more efficient digitalisation across all sectors. There are companies and countries that have the potential to unlock investments in digital projects, but they require faster broadband speeds. The other underlying issues include a lack of digital skills and the absence of a central educational platform that would provide expertise and training, particularly to SMEs.
Finally, these processes should be accompanied by an enabling legislative framework and new financial opportunities, especially in the areas of innovation and emerging technologies that are reshaping the future. This is the case with artificial intelligence and blockchain technologies, where Europe is currently facing an annual investment gap of up to €10 billion. The EIB report shows that the highest number of SMEs involved in these two technologies can be found in the U.S. (2,995), followed by China (1,418) and the EU27 (1,232). In other words, China and the U.S. account for 80 per cent of annual equity investments in both technologies and failure to address this issue could result in the EU losing the global race in these areas.
FINANCING OPPORTUNITIES
Accessing funds for digital projects remains one of the main obstacles on the market. The reason for this is that many countries lack a structured approach to digitalisation, which should entail all relevant sectors and available funds. At the same time, although banks are still among the main sources of external funding for companies, they are often unable to provide adequate lending products and expertise for digital projects. EIB data show that firms in traditional sectors use the same funding channels as they use for any other project, while digital natives tend to use more innovative and alternative funding instruments, such as hybrid financing and crowdfunding.
In an effort to address the existing investment gap, the EIB Group has developed dedicated financial instruments for digital projects. In cooperation with the European Commission, it has launched two pilot initiatives: a guarantee facility under Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) and early-stage equity investments in artificial intelligence and blockchain technologies. Both financial schemes aim to support companies of different sizes in scaling up their digital capacities.
In 2020, the first agreement under the COSME programme was signed for Serbia, where the EIB Group allocated €60 million to its partner commercial bank. These funds are available to local companies wishing to improve their digital skills or acquire IT equipment and software, enabling them to adapt to new market demand.
THE EIB STANDS READY TO DO MORE
The other major initiative from the European Commission is support for the establishment of digital innovation hubs — networks for full-scale support for companies. In Serbia, such an ecosystem can be found in the Science-Technology parks in Niš, Novi Sad and Belgrade, which the EIB supported under its loan to the research & development sector. At these innovation hubs, start-ups can benefit from expertise to help them develop and promote their advanced products and services that often combine digital solutions.
In Serbia and across the Western Balkans region, the EIB is already seeking new financing opportunities to provide better digital infrastructure and foster the adoption of digital models in businesses. At the same time, we intend to support the development of smart, technology-based societies and skills across all demographics. In that respect, the EIB plans to roll out the Connected Schools project, providing financing in Serbia and across other countries of the region. These kinds of initiatives can offer schoolchildren and teachers the digital skills they need to meet future industry requirements and stimulate economic development and innovation.