Digitalisation and investment in intangible capital: the Spanish case within
the EU
Banco de España-European Investment Bank
Pablo Hernández de Cos
Governor
Ladies and gentlemen,
Let me start by welcoming you to Banco de España for the conference Digitalisation and
Investment in Intangible Capital: The Spanish Case within the EU, jointly organised with the
European Investment Bank. For the Banco de España it is a great pleasure to collaborate
with the European Investment Bank in co-organising a conference for the second time.
Before going any further with my intervention, I would like to thank all of you for your
attendance here today.
The topic of this conference is very timely and appropriate. Digitalisation is a key
development that is increasingly affecting all the sectors of the economy with the ability to
significantly transform the functioning of companies and markets and the structure of the
economy more generally. However, the final impact of digitalisation on various dimensions
is highly uncertain.
Digitalisation
Digitalisation refers to the adoption of digital technologies such as big data, cloud
computing, E-commerce, artificial intelligence, robotics, the Internet of Things and 3D
printing.
The impact of digitalisation on firms and the general economy comes through various
factors. First, digitalisation reduces search, transportation and verification costs1. Second,
it leads to increased automation of routine operations. Third, it enables new ways of
organising production. Fourth, it may change the structure of the market, potentially
affecting competitive pressures in some sectors.
There is an overall consensus that digitalisation can potentially boost firms' productivity
through several channels. First, technical progress in the production of digital products
leads to new, better and cheaper products generating productivity gains in the sectors
producing these products. Second, other sectors may benefit from cheaper inputs
encouraging a higher use of those inputs as investment goods, resulting in productivity
gains for the firms in these sectors. Third, digital technologies enhance product and process
innovations leading to new production and organisational processes, new business models
and new or superior products. Finally, information and communication technologies (ICT)
are seen as reducing the cost of sharing and acquiring knowledge, potentially increasing
the diffusion of innovation and new knowledge.
However, digitalisation may also entail some challenges. First, while some argue that
digitalisation leads to more intense competition, others fear increasing market concentration
in some sectors on the back of digitalisation2. Second, some studies find evidence that ICT
and automation are related to labour market polarisation3, where mid-skilled jobs either lose
value or disappear, while there is an increase in demand for high-skilled job-profiles linked
to digital technologies. This can lead to more income inequality or at least to big transition
costs for certain groups of workers. Third, cybersecurity threats pose another challenge,
given the vast amount of valuable information created and stored in the digital economy.
Digitalisation may potentially lead to significant changes in the structure of most sectors of
the economy. Among them, the possible impact on the financial sector is especially relevant
for the Banco de España given our role as banking prudential and conduct supervisor and
central bank. In particular, new technologies may imply efficiency gains and may also
facilitate the entry of new companies offering financial services. For customers this may
entail benefits in terms of cost savings and financial inclusion. For the incumbent banks
technological change involves both challenges and opportunities. On the one hand, the
entry of new competitors such as Fintech or Bigtech companies may threaten the market
shares of incumbents. But on the other hand, innovation may lead in the long run to
efficiency gains in the provision of financial services for incumbent banks, although in the
short term it probably implies an increase in costs necessary to adapt to the new
technologies.
Given our limited understanding of the impact of digitalisation on the economy, the use of
surveys to firms can be a useful tool to enhance our knowledge of specific aspects of
digitalisation such as adoption rates, barriers and impact on firm performance. In this
regard, I would like to summarise the main findings of two recent surveys undertaken,
respectively, by the EIB and the ECB.
The EIB Investment Survey, which is run annually, included in 2018 some questions on firms'
demand for skills and digitalisation activities in the EU and the US. More specifically, 888
firms in the EU and 800 firms in the US were surveyed4. This survey shows that EU firms lag
their US peers in terms of adoption rates in the services sector whereas adoption rates in
the manufacturing sector are similar on both sides of the Atlantic. It also shows that larger
firms are more likely to adopt digital technologies than smaller ones.
The ECB Digitalisation Survey is an ad-hoc survey which interviewed 74 very large
nonfinancial companies from the euro area5. This survey shows that among large companies
the take-up of digital technologies is very high, with big data and cloud computing being
the most widely adopted.
When it comes to the impact of digitalisation on firm performance, the results of both
surveys are highly consistent. They find that digitalisation has a positive impact on firm
productivity, driven by the possibility of sharing knowledge more easily and more efficient
production processes. It also has a positive effect on sales mainly due to better access to
customers. Digital firms invest more, especially in intangible assets, and innovate more than
non-digital firms. As regards perceived obstacles, digital firms report difficulties at recruiting
and retaining highly skilled ICT staff. In addition, digitalisation was regarded by firms as
replacing low and medium-skilled jobs but not high-skilled jobs.
Intangible assets
Today's conference deals not only with digitalisation but also with intangible assets.
Intangible assets are non-monetary assets without physical substance encompassing ICT,
research and development (R&D), innovation, design, creativity, image and brand,
organisation and human capital formation.
The development of the digital economy has certainly contributed to a notable increase in
investment in intangible assets, as digital firms tend to both invest and innovate more than
non-digital firms. Also digital technologies have increased the demand for high-skill workers,
increasing in this way the investment in intangibles. Partly as a result of digitalisation, the
relative importance of intangible assets has been increasing in most economies6.
But measurement of intangible assets is not straightforward, and their definition in the
national accounts has gradually broadened. The current national accounts systems include
as intangible assets computerised systems (software and databases), R&D, mineral
exploration and entertainment, literary or artistic originals. Nevertheless, some authors7
claim that a broader range of assets should be included in the definition of intangible assets.
In this regard, it is worth mentioning that Cotec Foundation for Innovation and The Valencian
Institute of Economic Research (IVIE, by its Spanish abbreviation8) provide estimates of the
gross fixed capital formation in intangible assets in Spain for a broader range of assets than
those included in the national accounts. Data are available since 1995 with a regional and
sectorial breakdown. These data are very helpful to improve our understanding of the role
played by intangible assets in the Spanish economy.
Investment in innovation is widely recognised as a key driver of firm productivity. But
financing intangible assets can be more challenging than financing tangible assets. In
particular, the specific nature of intangible assets makes them less easy to be used as
collateral. In addition, returns from innovation are generally riskier. All these elements made
debt financing less suitable to finance innovation. Hence, innovative firms tend to rely more
on internal sources to finance investment, as well as equity and, in particular, venture
capital9. This can be particularly challenging in countries such as those of the European
Union, including Spain, in which these markets are relatively less developed than in the
United States.
The public sector often plays an important role in supporting innovation through various
ways such as directly investing, granting subsides or tax credit and financing projects. In
this regard it is worth mentioning the activities of the Instituto de Crédito Oficial (ICO) in
Spain as a key provider of venture capital, either directly or indirectly, through FOND-ICO
Global, a "fund of funds" whose goal is to promote the creation of private venture capital
funds that invest in Spanish companies. At the European level, the European Investment
Bank Group also supports innovation through different instruments such as guarantees,
SME loan securitisation and venture capital.
The public sector can also play a relevant role in supporting innovation through the
education system since a key element of innovation is the supply of high-skilled workers.
An improvement of the quality and functioning of the education system can therefore have
a positive contribution to innovation.
Spain's global position in terms of innovation and digitalisation
Now let me give you some figures on Spain's relative position in terms of innovation and
digitalisation. According to Eurostat10, R&D expenditure as a percentage of GDP stood at
2% in the EU in 2017, below the target of 3% of GDP set at "Europe 2020 strategy" and
also below US levels (2.8%). Spain's investment in R&D was lower than the EU average. It
only accounted for 1.2% of its GDP in 2017 despite having been growing for the previous
three years.
According to COTEC11, Spanish companies fund the majority of their investment in R&D,
around two thirds, with internally generated resources. Regarding external funding sources,
venture capital and private equity are the most relevant ones.
Another key element for innovation is the supply of human capital, i.e., the availability of
high-skilled workers such as researchers. In this dimension, there is also an important gap
between Spain and the EU average. In particular, according to Eurostat12, in 2017 Spain had
0.27 researchers per 100 employees in the private sector, while the EU average was 0.45.
Regarding digitalisation, Spain is gradually improving its global position. According to the
Digital Economy and Society Index, published by the European Commission13, that tracks
the evolution of EU member states in digital competitiveness, Spain ranks 11th among the
28 countries of the European Union. The index comprises five indicators: connectivity,
human capital, use of Internet services, integration of digital technology and digital public
services. Spain ranks above EU averages in 4 out of 5 of these indicators. In particular,
Spain ranks 4th in the digital public services which focuses particularly on e-Government
and e-Health services. In sharp contrast, Spain ranks in 17th position in the Human Capital
dimension, which measures the skills needed to take advantage of the possibilities offered
by digital technologies.
All in all, these figures suggest that there is room to improve the global position of Spain in
terms of both innovation activities and digitalisation, especially as regards human capital.
This is especially relevant for the Spanish economy, which show low levels of firm
productivity in comparison with their European peers.
Let me conclude by saying that I am sure that the presentations in this conference will be
the basis of fruitful discussions on key aspects of digitalisation and investment in intangible
assets in Spain, such as its evolution and drivers, the existence of barriers and the best way
to support those activities. These discussions will be very useful to enrich the policy debate
around these highly relevant issues. With this expectation, I wish you a very pleasant and
constructive conference.
Thank you for your attention.