The EU needs to triple its R&D spending, and fast.

The EU needs to triple its R&D spending, and fast. Investments needed to future-proof our world in the long run and to perhaps counter the competitive pressures of the US Inflation Reduction Act. This is good news, as the EU admits it is catching-up in funding Research & Development compared to other Geo’s, but also compared to the leading global businesses.

Europe is to be the first climate-neutral continent, a beacon in the world. To achieve one of its main goals; ‘zero emission of greenhouse gases by 2050’ it formulated #greendeal: A comprehensive package of Environmental, Economic, Tax measures and in particular R&D investments.

Government R&D spending

In 2021, the EU spent €328 billion on Research and Development. Total GDP of the European Union was $16.6 trillion, so as % of GDP the R&D in the EU represented 2.27%. Source: EuroStat. Though that was an annual growth, the EU is seriously lagging its geographical competitors. China spent 2.4% of its GDP, Japan 3.26% and the US: 3.45%. For the EU to match the US region, the R&D Budget needs to increase by 1.2% of GDP or + $169 Bio. in absolute terms. One of the areas for research and development could be for The Green Deal.

Four Geo’s representing 65% of the total world GDP:

Data sources: EuroStat and World bank. Total world GDP is 96.5 Trillion (https://data.worldbank.org/) and https://ncses.nsf.gov/pubs/nsf22343

Corporate R&D spending

So how are Public Sector innovations, comparing to R&D investments of businesses. In the Fortune 500 the total R&D spend in 2020 was $740 Bio; a 5.3% + increase from 2019. This means that Research and Development constitutes 5.2 % of total revenue (14.2 trillion) Pre-Covid in 2020.

R&D spending greatly varies between different industries and individual organizations. It should be no surprise that Oil and Gas and Tech. show much higher ratios. Still, its baffling to see that the big 6 Tech Signposts (Google, Meta, Apple, Microsoft, Intel, Amazon) collectively spent $170 billion in R&D investments last year. These handful of firms represent 23% or one-fifth of the total R&D in the Fortune 500. The reinvest about 11.5% of their total 2021 Revenue ($1.4 Trillion Bio), which is about 5 times more than the EU currently invests in relation to its GDP.

Data source: Calcbench

So if the EU truly wants to be a leader on the global stage, it has some catching-up to do. And the Green Deal is a great start for the next generations to come! And the question also worth raising is, how much of your annual disposable income do you spend on Research & Development, in order to become futureproof? Perhaps some food for thought?