GLOBAL INNOVATION INDEX 2020: WHO IS DRIVING FINANCIAL CHANGE?

The release of the 2020 Global Innovation Index (GII), launched in Geneva, Switzerland, in early September, reveals the latest global ranking of countries based on their performance changes. Now in its 13th year, the TAC is furthering policymakers’ understanding of how to amplify change in support of their national social and economic goals. Amid the economic turmoil caused by the COVID-19 pandemic, the 2020 issue of the TAC examines who will support change? Sacha Wunsch-Vincent, WIPO’s chief economist and TAC 2020 co-editor at WIPO, discusses some of the report’s key findings.

What does the GII 2020 assessment reveal?

Switzerland, Sweden and the United States continue to rank in the innovation rankings. For the first time, the Republic of Korea (10th) entered the ten largest groups of countries. China (14th) is the only middle-income country in the top 30 of the TAC economies, with the United Arab Emirates (34th) entering the top 35 for the first time this year. India (48th) and Philippines (48th) 50th place) are among the top 50 for the first time. The continued rise in ratings in the Philippines is remarkable as it has increased by 50 places since 2014.

China, the Philippines, India and Vietnam have made the most significant advances in rankings over the last seven years.

As regional innovation departments continue, TAC 2020, covering a wide range of statistics, reveals strong innovation performance from a range of emerging economies. For example, Thailand and Malaysia are at the forefront of R&D and (net) exports of technologically advanced companies; Botswana and Mozambique chair the Executive Committee for Investments in Education and Innovation; and Mexico is the world’s largest exporter of creative goods by total trade.

“The impact of the crisis on innovation depends on recovery scenarios and existing trade and innovation practices and policies.”

In addition, eight of the 25 economies performed better than their current expected level of development, compared to eight in sub-Saharan Africa. It is interesting to note that India, Kenya, Moldova and Vietnam have been part of this group of “innovative artists” for ten years in a row.

TAC 2020 also shows that when it comes to science and technology clusters, innovation focuses on selected high-income countries and China. Tokyo-Yokohama (Japan) is again the best cluster, followed by Shenzhen-Hong Kong-Guangzhou (China), Seoul (Republic of Korea), Beijing (China) and San Jose-San Francisco (US).

Why is GII focusing on innovation this year?

Gaining access to sustainable funding sources is a constant challenge for innovators around the world and made very difficult by the current COVID-19 pandemic. Finance plays a role in all phases of the innovation cycle, from conceptualizing a product, service or technology to commercialization and much more.

Prior to the pandemic, new players, such as government funds and nonprofits, emerged in the field of innovation funding. And while government programs remain an important way to fund innovation, a number of new funding mechanisms have emerged, such as IP markets, crowdfunding and fintech solutions. Although the current crisis has slowed this development and is unlikely to disappear, it deserves further investigation.

What impact has the COVID-19 crisis had on innovation?

To understand the impact on innovation, it is important to first look at the context in which the COVID-19 crisis took place. TAC 2019 launched a very optimistic report on the outlook for global innovation.

Over the past decade, global average innovation spending has outpaced the global economy, which has not fully recovered from the 2009 global financial crisis, venture capital spiked, and global intellectual property (IP) records hit new heights every year. . In addition, we have seen very strong political will around the world to promote innovation in support of national social and economic goals. The global innovation environment is thriving. Then COVID-19 shook the world.

Venture capital and other funding sources for innovation are likely to be shorter, especially for companies with a longer research horizon. The risk of such a reduction will negatively impact the future development of major breakthrough innovations.

The economic literature tells us that we can expect a strong negative impact on innovation because of the COVID-19 crisis. The pandemic has continued in the past with long periods of pressure on investment in innovation. As with previous economic downturns, such as the global financial crisis in 2009, spending on R&D and other innovation is expected to decline by 2020.

However, the impact of the crisis on innovation will depend on recovery situations and on existing trade and innovation practices and policies. Previous crises have affected different sectors and countries in different ways, some of which had a higher level of innovation. Today it is possible again. In fact, COVID is already taking stock of innovation, particularly in healthcare, where unprecedented amounts are being invested in the development of vaccines and other COVID-related vaccines and therapies.

What is the current state of R&D funding by companies?

TAC 2020 shows that R&D expenditure is highly concentrated among thousands of R&D-based companies around the world: 2,500 large R&D companies are responsible for more than 90 percent of the R&D carried out by companies around the world is funded. For most of these companies, innovation is at the heart of their business strategy.

Which sectors are likely to be most resilient to the crisis?

The ICT (information and communication technologies) and software sectors are likely to have stable revenues and growth in research and development thanks to sustainable digitization. In the race for the effective treatment of COVID, pharmaceutical and biotechnology companies are likely to thrive in the current environment. The same goes for the alternative energy sector.

Optimizers expect these R&D intensive industries to help prevent a rapid decline in R&D in the medium to long term. While businesses, particularly household goods (retail and wholesale), travel and leisure (including restaurants) and creative industry professionals (including concert halls and artists), the economic blockade is hit the most. COVID-19 is usually not one of the main players in formal innovation spending.

And what impact is expected on the financing of innovation?

Unlike the global economic crisis in 2009, the good news is that the current situation is not caused by the crisis in the financial or banking sector. The bad news is that the risk capital indicators that companies, especially start-ups, rely on show that money is running out to fund innovative initiatives.

Preliminary evidence suggests that greater risk aversion limits young companies’ access to capital. It is plausible that no less venture capital and other sources of innovation funding will be available, especially for companies with a longer research horizon. Such a decline is likely to negatively impact the future development of important breakthrough innovations.

At the same time, emerging high-income economies such as the US and China venture capital magnets are likely to improve significantly. There is still a strong desire for innovation and a desire for capital to seek results. For example, about half of its venture capital operations in China were closed due to a pandemic earlier this year, but are already recovering strongly, supporting innovation in online education and big data. , in software and robotics.

In the future, policies that support investment, free up resources for future growth and support the achievement of long-term goals will be crucial.

Where are the policy decisions to tackle the challenges of the current innovation crisis?

Most governments in high- and middle-income economies create emergency aid packages to reduce the impact of the impending blockade and recession to prevent short- and medium-term losses for their national economies. To date, approx. $ 9 trillion for this purpose.

In general, however, these measures are not yet explicitly focused on innovation and start-up financing. In fact, many start-ups are not available for accessible programs or have difficulty accessing them if they do. However, several countries, mostly European, are setting up special funds to support start-ups. France, for example, has Allocated DKK 80 million. To bridge the innovation funding gap for start-ups. In Switzerland, CHF 154 million was granted to startups with pandemic-related cash flow problems.

What should governments focus on in the long run?

When governments avoid the worst blockages, it will be critical for them to adopt forward-looking innovation strategies despite the higher public debt. If the decline in innovation spending is not reversed, the long-term growth potential will diminish.

After the global economic crisis of 2009, governments pursued growth policies with measures to stimulate and finance innovation and were stronger. Some countries are already shifting their focus from moderation to recovery. For example, the US and China are considering investing many more incentives to build infrastructure and support innovation.

Once governments avoid the worst blockages, it will be critical for them to adopt forward-looking innovation strategies despite the higher public debt.

In the future, policies that support investment, free up future sources of growth and support the achievement of long-term goals will be crucial. And because the impact of the economic downturn on the pandemic will be uneven across sectors and countries, it will be even more important to develop evidence-based policies to better understand these effects.