Uncertain times that requires for investments

Debora Revoltella and Pedro J.F. de Lima, both economists at the European Investment Bank (EIB), share in this article the results and conclusions of the EIB Annual Investment Survey conducted during the summer of 2020, at the end of the first wave of the virus, to a representative number of companies from the European Union and the United States. They also provide some policy action recommendations to promote investments reducing uncertainty and pushing for a structural transformation of the companies.

According to this survey the Covid-19 crisis will be a “game changer in the medium / long term” and to survive in the new post pandemic economy companies will have to adapt:

• “50% of EU firms say that more investment in digitalization will be needed and 40% of firms see a long-term need to adapt their product/services portfolio”. 

Investing in digitalization and innovation will be key for thriving in the post pandemic economy of the future. The survey shows how in both areas European Union´s companies are lagging behind those from US and how bigger companies are better positioned than smaller ones: 

• “37% of EU firms have not adopted any digital technology, compared with only 26% in the US”.
• “51% of EU firms did not introduce any innovations (products, processes, or services) as part of their investment activities versus 41% in the US”.

According to the authors, companies particularly SMEs need to be aware of the importance to invest in digitalization and innovation if they don´t want to “fail to adapt to the new normal, becoming ever less competitive”. However, so far the survey shows how uncertainty about the future development of the economy, lack of skills, and finance in a minor extent have been the main critical constraints for that investment.

The discrepancy between reducing investment today and the need to invest to adapt to the new normal is a clear source of concern for the authors. In order to address that mismatch, they call for the following policy actions aiming to “push for structural transformation”:

• Providing a supportive framework for digitalization, innovation and energy transition through a concerted European action “to overcome uncertainty”.
• Gradual Shifting from “indiscriminate short-term finance to targeted investment finance, including equity-type finance”.
• Technical assistance and/or advisory to accelerate re-skilling.