The 2021 Global Innovation Index reveals that R&D investment and related innovation activities have remained robust throughout the crisis.
Photograph by Andrew Brookes
In September 2020, six months after COVID-19 had been declared a pandemic, the 13th annual Global Innovation Index (GII) predicted that innovation spending would hold strong in the year ahead. We made this assertion based on years of analysis: through its ranking of the innovation performance of more than 130 economies around the world and analysis of global innovation trends, the GII has, since 2007, provided a benchmark for the state of innovation investment and related activities. For example, GII analyses found that during the 2008–09 global financial crisis, several economies experienced no aggregate R&D declines, and for others, the fall was short-lived.
Today, despite the devastating human toll and economic shock of the pandemic, R&D expenditure, IP filings, and venture capital (VC) deals have continued to grow, building on peak pre-pandemic levels. The 2021 GII report, released in October, reflects how profoundly innovation has shaped and sustained our world. Perhaps the most visible recent example has been the rapid development of COVID-19 vaccines. Elsewhere, digital innovations have led to solutions that helped the public and private sectors to manage through successive waves of the pandemic—contact-tracing tools and apps and diagnostics, among others.
Despite the devastating human toll and economic shock of the pandemic, R&D expenditure, IP filings, and venture capital deals have continued to grow, building on peak pre-pandemic levels.
The global picture of government spending on R&D is incomplete because of government reporting delays in some countries. But based on those that have disclosed their 2020 R&D figures, we found robust growth in R&D investment allocations in many countries, including Australia, the US, Austria, and Germany. That said, we did see planned declines in government R&D spending in some nations; we’ll have a better sense next year as to whether these planned decreases are only formal declarations or if they will actually happen.
Despite some decline in government spending, the overall impact on global innovation could be minimal. We have reason to be hopeful here: in 2008–09, increases in corporate R&D spending compensated for shortfalls in government R&D investment. And this appears to be true again today based on what we know so far. About 70% of the 2,500 largest global R&D spenders have released their 2020 R&D spending data. We found a healthy increase of roughly 10% in 2020, with roughly 60% of these largest R&D spenders reporting an increase. This reflects a decade-long trend of strong corporate innovation investment, which is perhaps not surprising, as the pace of progress in domains such as artificial intelligence and biotech has increased, and many new commercial growth opportunities have opened up around them.
Of course, the view at the sector level is more nuanced. The pandemic-era focus on well-being and the rapid production of vaccines saw increased investments in health-related sectors, with estimates of US government investments in the development of the COVID-19 vaccines ranging from US$18 billion to $23 billion. A majority of companies (80%) in software and ICT (information and communications technology) reported an increase in R&D spending in 2020, along with 65% of companies in the ICT hardware sector and 62% in the pharmaceuticals and biotechnology sector. This contrasts with sectors that have suffered during the pandemic: the majority of companies in the automobile and the travel, leisure, and personal goods industries reported R&D investment declines.
International patent filings via the World Intellectual Property Organization (WIPO) reached a new all-time high in 2020. The most dynamic technology fields for patenting in 2020 were medical technology, pharmaceuticals, and biotechnology. This contrasts with previous years, during which digital communications and computer technology were the fastest growing fields. The dynamism of health-related fields in patenting activity reflects an ongoing increase in scientific activity that began in pre-pandemic times. Given the recent spurt in R&D in healthcare and the digital acceleration during the pandemic, one can expect a strong increase in patenting in these sectors to continue in the years to come.
VC financing for innovation has also proven resilient during the pandemic and has increased significantly in the first half of 2021. The number of VC deals grew by 5.8% in 2020, exceeding the average growth rate for the past ten years (3.6%). Strong growth in the Asia-Pacific (+26.6%), Africa (+82.7%), and Latin America and the Caribbean (+12.1%) regions more than compensated for declines in North America (–3.1%) and Europe (–0.7%). Reflecting digital trends during the pandemic, there were significant increases in investment in e-commerce, digital health, and fintech.
As we continue to navigate the pandemic close to two years in, questions about continued innovation resilience loom. For example, will the supply chain breakdowns we’re weathering result in fractured global innovation linkages? As new variants of the COVID-19 virus continue to appear, will pharma innovations that combat outbreaks and further mutations keep pace? Multiple stakeholders, including governments, corporations, and civil society, will need to collaborate, embrace new ways of working, and invest and actively support innovation. The pandemic has demonstrated what happens when they do—and offers hope that we cannot just recover but also create an inclusive and sustainable future.
Articles published in strategy+business do not necessarily represent the views of the member firms of the PwC network. Reviews and mentions of publications, products, or services do not constitute endorsement or recommendation for purchase.
strategy+business is published by certain member firms of the PwC network.
© PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com. No reproduction is permitted in whole or part without written permission of PwC. “strategy+business” is a trademark of PwC.