Market crisis to hit R&D spending, says EU

Commissioner Potočnik: Governments must not slow spending.

“The current financial crisis will certainly have an impact on the real economy and is likely to undermine the positive pace of growth we have seen in the past five years in EU companies’ R&D investment,” said EU Science and Research Commissioner Janez Potočnik. He called on governments not to slow their own spending on R&D.

Potočnik’s comments came as the EU released its annual report on industrial R&D spending. Among the highlights:

• Microsoft is now the world’s top industrial R&D spender – with a budget of €5.58 billion in 2007, pushing ahead of drug giant Pfizer. The biggest European R&D spender is Nokia with a budget of €5.28 billion, moving ahead of Daimler in the rankings. Five of the top ten R&D investors in the world are American, including General Motors, Johnson & Johnson and Ford. Others in the top-ten list are Roche, Volkswagen and Toyota.

• R&D spending by major EU companies continued accelerating in 2007, to 8.8 per cent – though much of that increase appears to have come from EU investments abroad, especially in China. The fastest-growing R&D budgets in Europe over the past five years have been at Sanofi-Aventis, Alcatel-Lucent and Boehringer Ingelheim.

• The growth rate of R&D spending by US companies slowed from 2006, to 8.6 per cent – and that pulled down the global growth rate to 9 per cent from 10 per cent in 2006. Commissioner Potočnik speculated in a press briefing that American companies may have reacted quicker than Europeans to the financial crisis that started to hit financial markets in August 2007.

• By sector, the biggest sectors in R&D spending remain pharmaceuticals and biotechnology, computer and communications technology equipment, and automotive products. But energy R&D has risen sharply over the past three years, with Shell more than doubling its research budget to €821 million. Investment in alternative energies is rising fastest of all, including at photovoltaic maker Q-Cells and wind-technology firms Vestas and Nordex.

• By location of R&D investment, the US continues to lead with 38.4 per cent of the total, and the EU with 32.2 per cent. The Commissioner noted that other research suggests EU-based companies are spending only 73 per cent of their lab budgets inside the EU, with the US and Canada getting 16 per cent. China has soared from virtually no multinational R&D investment five years ago to 3.5 per cent of the total in 2007.

Looking towards 2009, the Commissioner – a Slovenian economist before coming to Brussels – noted there’s historically “a relatively high correlation coefficient” between R&D spending and overall economic output. As a result, he told journalists, the growth rate in R&D spending is likely to go down. But by how much is uncertain. Generally, he noted, over the past few years R&D spending growth has exceeded GDP growth. “So the alarm would be if the companies would cut faster than that” – that is, if there were a real decline in spending, rather than merely a slowdown.

That makes public-sector spending especially important, he said. “Putting a brake on private and public R&D investment at this time would be a major mistake.

“We must be careful that by trying to fix the crisis in the financial sector, we do not simply displace the problems to another part of the economy, a part which is crucial for jobs and growth in the EU in the medium and long term. That’s what the Lisbon strategy is about.

"The financial crisis will be gone one day or another. The climate change and energy crisis challenges are here to stay” – requiring continued R&D investment, he said.