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The importance of digital resilience in times of crisis

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EU Commission released the results of the 2020 Digital Economy and Society Index (DESI), which monitors Europe’s overall digital performance and tracks the progress of EU countries with respect to their digital competitiveness. This year’s DESI shows that there is progress in all Member States and all key areas measured in the index. This becomes all the more important in the context of the coronavirus pandemic, which has demonstrated how essential digital technologies have become, by allowing work to continue, monitoring the spread of the virus, or accelerating the search for cures and vaccines. Furthermore, the DESI indicators relevant for the recovery show that EU Member States should step up their efforts to improve the coverage of Very High Capacity Networks, assign 5G spectrum to enable the commercial launch of 5G services, improve citizens’ digital skills and further digitise businesses and the public sector.

Executive Vice-President, Margrethe Vestager, said: “The coronavirus crisis has demonstrated how crucial it is for citizens and businesses to be connected and to be able to interact with each other online. We will continue to work with Member States to identify areas where more investment is needed so that all Europeans can benefit from digital services and innovations.

Commissioner for Internal Market, Thierry Breton, added: “The data we publish today shows that industry is using digital solutions now more than ever. We need to ensure this is also the case for small and medium businesses and that the most advanced digital technologies are deployed throughout the economy.

In the context of the recovery plan for Europe, adopted on 27 May 2020, DESI will inform country-specific analysis to support the digital recommendations of the European Semester. This will assist Member States to target and prioritise their reform and investment needs, thereby facilitating access to the Recovery and Resilience Facility worth €560 billion. The Facility will provide Member States with the funds to make their economies more resilient and ensure that investments and reforms will support the green and digital transitions.

Main findings of the 2020 DESI

Finland, Sweden, Denmark and the Netherlands are the leaders in overall digital performance in the EU. Malta, Ireland and Estonia are following right after. The International Digital Economy and Society Index (I-DESI) shows that the best performing EU countries are also worldwide leaders. The largest EU economies are not digital frontrunners, which indicates that the speed of digital transformation must accelerate for the EU to successfully deliver on the twin digital and green transformations. Over the last 5 years, Ireland has made the most significant progress, followed by the Netherlands, Malta and Spain. These countries also perform well above the EU average as measured by the DESI score.

As the pandemic has had a significant impact on each of the five dimensions tracked by DESI, the 2020 findings should be read in conjunction with the numerous measures taken by the Commission and Member States to manage the crisis and support the recovery. Member States took action to minimise contagion and to support healthcare systems, such as by introducing applications and platforms to facilitate telemedicine and coordinate healthcare resources. The Commission also took action, such as issuing a Recommendation on a common Union toolbox for the use of technology and data to combat and enable the exit from the crisis, in particular on mobile applications and the use of anonymised data in tracing apps. The Body of European Regulators of Electronic Communications (BEREC), upon request of the Commission, started to monitor internet traffic to avoid congestion.

Main findings in 5 digital areas

The Digital Economy and Society Index tracks the progress made in Member States in 5 principal policy areas, namely connectivity, digital skills, internet usage by individuals, integration of digital technologies by businesses and digital public services.

Connectivity has improved but more needs to be done to address fast-growing needs. Member States are working on the transposition of new EU rules adopted in 2018 into national legislation, with a view to fostering investment in Very High Capacity Networks, both fixed and mobile. 78% of households had a fixed broadband subscription in 2019, up from 70% 5 years ago, and 4G networks cover almost the entire European population. But only 17 Member States have already assigned spectrum in the 5G pioneer bands, (5 countries more than last year). Finland, Germany, Hungary and Italy are the most advanced on 5G readiness. Fixed Very High Capacity broadband networks are available to 44% of EU homes.

More progress in digital skills is needed, especially since the coronavirus crisis has shown that adequate digital skills are crucial for citizens to be able to access information and services. A large part of the EU population, 42%, still lacks at least basic digital skills. In 2018, some 9.1 million people worked as ICT specialists across the EU, 1.6 million more than 4 years ago. 64% of large enterprises and 56% of SMEs that recruited ICT specialists during 2018 reported that vacancies for ICT specialists were hard to fill.

Although the pandemic has seen a sharp increase in internet use, the trend was already present before the crisis, with 85% of people using the internetat least once a week(up from 75% in 2014). The use of video calls has grown the most, from 49% of internet users in 2018 to 60% in 2019. Internet banking and shopping are also more popular than in the past, being used by 66% and 71% of internet users respectively.

Enterprises are becoming more and more digitised, with large companies taking the lead. 38.5% of large companies already rely on advanced cloud services and 32.7% reported that they use big data analytics. However, the vast majority of SMEs do not yet use these digital technologies, as only 17% of them use cloud services and only 12% big data analytics. As for e-commerce, only 17.5% of SMEs sold products or services online in 2019, following a very slight increase of 1.4 percentage points compared to 2016. In contrast, 39% of large enterprises made use of online sales in 2019.

In order to boost e-commerce, the EU has agreed on a series of measures ranging from ending unjustified cross-border barriers and facilitating cheaper cross-border parcel deliveries to ensuring protection of online customer rights and promoting cross-border access to online content. Since December 2018, consumers and companies are entitled to find the best online deals throughout the EU without experiencing discrimination based on their nationality or place of residence.

Finally, there is an increasing trend towards the use of digital public services in the areas of eGovernment and eHealth, which allows for more efficiency and savings for governments and businesses, improved transparency, and the greater participation of citizens in political life. 67% of internet users who submitted forms to their public administration in 2019 now use online channels, up from 57% in 2014, showing the convenience of using ICT-enabled services over paper-based ones. The top performers in this area are Estonia, Spain, Denmark, Finland and Latvia.

Background

The annual Digital Economy and Society Index measures the progress of EU Member States in their steps towards a digital economy and society, on the basis of Eurostat data as well as specialised studies and collection methods. The DESI 2020 reports are based on 2019 data. To improve the methodology of the index and take account of the latest technological developments, a number of changes were made to the 2020 edition, which now includes fixed very high capacity network (VHCN) coverage. The DESI was re-calculated for all countries for previous years to reflect the changes in the choice of indicators and corrections made to the underlying data. Country scores and rankings may thus have changed compared with previous publications. As the figures refer to 2019, the United Kingdom is included in the 2020 DESI and in calculated EU averages.

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Renewable Energy Jobs Reach 12 Million Globally

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Renewable energy employment worldwide reached 12 million last year, up from 11.5 million in 2019, according to the eighth edition of Renewable Energy and Jobs: Annual Review 2021. The report was released by the International Renewable Energy Agency (IRENA) in collaboration with the International Labour Organization (ILO) at a high-level opening of IRENA’s Collaborative Framework on Just and Inclusive Transitions, co-facilitated by the United States and South Africa.

The report confirms that COVID-19 caused delays and supply chain disruptions, with impacts on jobs varying by country and end use, and among segments of the value chain. While solar and wind jobs continued leading global employment growth in the renewable energies sector, accounting for a total of  4 million and 1.25 million jobs respectively, liquid biofuels employment decreased as demand for transport fuels fell. Off-grid solar lighting sales suffered, but companies were able to limit job losses.

China commanded a 39% share of renewable energy jobs worldwide in 2020, followed by Brazil, India, the United States, and members of the European Union. Many other countries are also creating jobs in renewables. Among them are Viet Nam and Malaysia, key solar PV exporters; Indonesia and Colombia, with large agricultural supply chains for biofuels; and Mexico and the Russian Federation, where wind power is growing. In Sub-Saharan Africa, solar jobs are expanding in diverse countries like Nigeria, Togo, and South Africa.

“Renewable energy’s ability to create jobs and meet climate goals is beyond doubt. With COP26 in front of us, governments must raise their ambition to reach net zero,” says Francesco la Camera, IRENA Director-General. “The only path forward is to increase investments in a just and inclusive transition, reaping the full socioeconomic benefits along the way.”

“The potential for renewable energies to generate decent work is a clear indication that we do not have to choose between environmental sustainability on the one hand, and employment creation on the other. The two can go hand-in-hand,” said ILO Director-General, Guy Ryder.

Recognising that women suffered more from the pandemic because they tend to work in sectors more vulnerable to economic shocks, the report highlights the importance of a just transition and decent jobs for all, ensuring that jobs pay a living wage, workplaces are safe, and rights at work are respected. A just transition requires a workforce that is diverse – with equal chances for women and men, and with career paths open to youth, minorities, and marginalised groups. International Labour Standards and collective bargaining arrangements are crucial in this context.

Fulfilling the renewable energy jobs potential will depend on ambitious policies to drive the energy transition in coming decades. In addition to deployment, enabling, and integrating policies for the sector itself, there is a need to overcome structural barriers in the wider economy and minimise potential misalignments between job losses and gains during the transition.

Indeed, IRENA and ILO’s work finds that more jobs will be gained by the energy transition than lost. An ILO global sustainability scenario to 2030 estimates that the 24-25 million new jobs will far surpass losses of between six and seven million jobs. Some five million of the workers who lose their jobs will be able to find new jobs in the same occupation in another industry. IRENA’sWorld Energy Transition Outlook forecasts that the renewable energy sector could employ 43 million by 2050.

The disruption to cross-border supplies caused by COVID-19 restrictions has highlighted the important role of domestic value chains. Strengthening them will facilitate local job creation and income generation, by leveraging existing and new economic activities. IRENA’s work on leveraging local supply chains offers insights into the types of jobs needed to support the transition by technology, segment of the value chain, educational and occupational requirements.

This will require industrial policies to form viable supply chains; education and training strategies to create a skilled workforce; active labour market measures to provide adequate employment services; retraining and recertification together with social protection to assist workers and communities dependent on fossil fuels; and public investment strategies to support regional economic development and diversification.

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In highly uneven recovery, global investment flows rebound

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After a big drop last year caused by the COVID-19 pandemic, global foreign direct investment (FDI) reached an estimated $852 billion in the first half of 2021, showing a stronger than expected rebound.  

That’s according to the latest Investment Trends Monitor, released this Tuesday by the United Nations Conference on Trade and Development (UNCTAD).  

It shows the increase in the first two quarters in FDI, recovered more than 70 per cent of the losses stemming from the COVID-19 crisis in 2020. 

For the UNCTAD‘s director of investment and enterprise, James Zhan, the good news “masks the growing divergence in FDI flows between developed and developing economies, as well as the lag in a broad-based recovery of the greenfield investment in productive capacity.” 

Mr. Zhan also warns that “uncertainties remain abundant”. 

Global outlook  

The duration of the health crisis, the pace of vaccinations, especially in developing countries, and the speed of implementation of infrastructure stimulus, remain important factors of uncertainty. 

Other important risk factors are labour and supply chain bottlenecks, rising energy prices and inflationary pressures.  

Despite these challenges, the global outlook for the full year has improved from earlier projections. 

The growth in the next few months should be more muted than the in the first half of the year, but it should still take FDI flows to beyond pre-pandemic levels. 

Uneven recovery 

Between January and June, developed economies saw the biggest rise, with FDI reaching an estimated $424 billion, more than three times the exceptionally low level in 2020. 

In Europe, several large economies saw sizeable increases, on average remaining only 5 per cent below pre-pandemic quarterly levels.  

Inflows in the United States were up by 90 per cent, driven by a surge in cross-border mergers and acquisitions. 

FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of the year.  

There was a growth acceleration in east and southeast Asia (25 per cent), a recovery to near pre-pandemic levels in Central and South America, and upticks in several other regional economies across Africa and West and Central Asia. 

Of the total recovery increase, 75 per cent was recorded in developed economies. 

High-income countries more than doubled quarterly FDI inflows from rock bottom 2020 levels, middle-income economies saw a 30 per cent increase, and low-income economies a further nine per cent decline.  

Mixed picture for investors 

Growing investor confidence is most apparent in infrastructure, boosted by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes. 

International project finance deals were up 32 per cent in number, and 74 per cent in value terms. Sizeable increases happened in most high-income regions and in Asia and South America. 

In contrast, UNCTAD says investor confidence in industry and value chains remains shaky. Greenfield investment project announcements continued their downward path, decreasing 13 per cent in number and 11 per cent in value until the end of September.  

Agenda 2030 

After suffering double-digit declines across almost all sectors, the recovery in areas relevant to Sustainable Development Goals (SDGs) in developing countries remains fragile. 

The combined value of announced greenfield investments and project finance deals rose by 60 per cent, but mostly because of a small number of very large deals in the power sector.  

International project finance in renewable energy and utilities continues to be the strongest growth sector. 

The investment in projects relevant to the SDGs in least developed countries continued to decline precipitously. New greenfield project announcements fell by 51 per cent, and infrastructure project finance deals by 47 per cent. Both had already fallen 28 per cent last year.

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Capabilities fit is a winning formula for M&A: PwC’s “Doing the right deals” study

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Ensuring there is a capabilities fit between buyer and target is key to delivering a high-performing deal, according to a new PwC study of 800 corporate acquisitions. . The study finds that capabilities-driven deals generated a significant annual total shareholder return (TSR) premium (equal to 14.2% points) over deals lacking a capabilities fit.

The “Doing the right deals” study looks at the 50 largest deals with publicly-listed buyers in each of 16 industries and evaluates the characteristics that delivered superior financial outcomes for the buyers, as measured by annual TSR.

A capability is defined as the specific combination of processes, tools, technologies, skills, and behaviours that allows the company to deliver unique value to its customers.

Two types of deals were found to outperform the market: capabilities enhancement deals – in which the buyer acquires a target for a capability it needs — and capabilities leverage deals – in which the buyer uses its capabilities to generate value from the target. These represent a true engine of value creation, delivering average annual TSR that was 3.3% points above local market indices. Deals without these characteristics – limited-fit deals – had an average annual TSR of -10.9% points compared to the local market indices.

While 73% of the largest 800 deals analysed sought to combine businesses that did fit from a capabilities perspective, 27% were limited-fit deals. The analysis shows that for every dollar spent on M&A, roughly 25 cents were spent on such limited-fit deals that in many cases destroyed shareholder value.

Alastair Rimmer, Global Deals Strategy Leader, PwC UK said: “Our analysis confirms that deals where the buyer is focused on enhancing its own capabilities or leveraging its capabilities to improve the target can result in a substantial TSR premium. Whether a deal creates value depends less on whether it is aimed at consolidation, diversification or entering new markets. What matters is whether there is a solid capabilities rationale between the buyer and the target.”

Capabilities fit delivers shareholder value across industries

The capabilities premium was found to be positive across all of the 16 industries studied. The share of capabilities-driven deals was highest in pharma & life sciences (92%), an industry where deals often combine one company’s innovation capabilities with another’s strength in distribution.  Other leading industries in capabilities fit deals were health services and telecommunications (both with 90% capabilities-driven deals) and automotive (86%).  Limited fit deals were found to be most prevalent in the oil & gas industry (62%), where asset acquisition can play an important role in addition to capabilities fit.

The analysis shows that the stated strategic intent of a deal, as defined in corporate announcements and regulatory filings, has little to no impact on value creation. Whether a deal fits or not depends less on stated goals of consolidation, diversification or entering new markets. What matters is whether there is a capabilities fit between the buyer and the target.  Deals aiming for geographic expansion notably stood out as performing less well than others, largely because many of them (34%) were limited-fit deals.

The M&A playing field has shifted due to COVID-19

More than ever, companies must be clear in defining which capabilities they can leverage to succeed, and which capabilities gaps they need to fill.

Hein Marais, Global Value Creation Leader, PwC UK added: “Deal rationales have shifted in a COVID context, reflecting the heightened need for new and different capabilities if an enterprise is to generate value and create sustained outcomes.  The need to move quickly increases the pressure to do deals at pace – and thereby the risk of failing to evaluate capabilities fit with enough care. Ensuring such capabilities fit, however, dramatically increases the chances of your deal creating value.”

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