Internet connectivity in a country depends on investment in ICT for communication equipment, software and IT equipment. Firms and governments invest in fixed capital for their operations and a certain percentage of these investments are allocated for ICTs.
The ICT sector receives a significant share of all gross fixed capital formation in the economy (Figure 1.20). This ICT investment is broken down into three separate categories:
software, communication equipment and IT equipment (OECD, 2011a).
Within selected OECD countries, the United States has the highest percentage of ICT investment relative to total capital formation (32%) followed by Sweden and Denmark (25%) and the majority of their investments are in software. In Belgium and Denmark, the majority of ICT investment targets IT equipment, while in Portugal the focus is communications equipment.
Venture capital
Venture capital (VC) is money provided by investors to start-ups and small firms in exchange for equity in the company. Venture capital plays an important role in the economy because it provides financing to new firms that may not otherwise have access to capital markets due to their size or stage of development. Within the business ecosystem, VC firms are an important source of funding for innovation, and many countries look for ways to improve the supply of venture capital.
Figure 1.19. Growth in monthly semiconductor worldwide market billings, May 1996-May 2012
Year-on-year percentage, three-month moving average
Source:Based on World Semiconductor Trade Statistics (WSTS), July 2012.
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The ICT sector remains a key area of focus for venture capital investment and accounted for more than 50% of all VC investment in the United States, the largest market, in early 2012. The VC market in the United States reached its peak in 2000 at the height of the dot-com bubble. The amount of ICT venture capital investment, at the time over USD 20 billion and nearly 80% of total VC financing, was approximately seven times that at the beginning of 2012. The dot-com era, however, was an anomaly and the VC market has shown considerable stability over the last 10 years.
Venture capital financing returned to steady growth after the collapse in 2001 and this growth continued for the next seven years at a moderate rate (Figure 1.21). Investment began to fall again during 2008, but began to recover again in early 2009, returning quickly to the longer-run growth path.
ICTs still account for over 50% of total VC investments, highlighting the perception of future value in the ICT sector. These persistent high percentages of investment are particularly impressive given that venture capitalists are increasingly investing in other areas such as green technologies and biotechnology.
Internet firms remain the key recipients of venture capital investments within the ICT sector. The amount of venture capital investment in Internet firms has yet to come close to the record of USD 13.5 billion reached in 2000, but has moved back to a more sustainable growth path (Figure 1.22).
Figure 1.20. ICT investment by asset in OECD countries, 2010
Percentage of non-residential gross fixed capital formation, total economy
Note:ICT equipment is defined here as computer and office equipment and communication equipment; software includes both purchased and own account software. Software investment in Japan is likely to be underestimated, owing to methodological differences.
1) 2009; 2) 2008; 3) 2007; 4) 2005; 5) 2004.
Source: OECD Productivity Database, May 2012.
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%
0 5 10 15 20 25 30
Software Communication equipment IT equipment
Uni ted States
Sweden1 Den
mark3 United Kingdom
3
New Zealand Belgium5
France Nether
lands
3
Swit zerland
Canada Finl
and Aus
tralia2 Spain
Japan
2
Por tugal4
Ireland Germany
Aus tria3
Kor ea1
Italy1
Venture capital investments in Internet firms dropped in mid-2008, but then began growing in 2009. The amount of VC entering the Internet sector reached its highest point ever in 2011, with the exception of the year 2000. This highlights the strength of the Internet sector relative to the rest of the economy, and implies that venture capitalists still see room for significant growth in the sector and among firms operating on the Internet.
Figure 1.21. Quarterly venture capital investments in the ICT sector in the United States, Q1 1995-Q1 2012
Source:Based on MoneyTree survey Report, PricewaterhouseCoopers (2012), April.
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Figure 1.22. Quarterly venture capital investments in the Internet sector in the United States, Q1 1995-Q1 2012
Note:The Internet sector comprises companies whose business models are fundamentally dependent on the Internet, regardless of the company’s primary industry category.
Source:Based on MoneyTree survey Report, PricewaterhouseCoopers (2012), April.
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25 100
0 5 10 15 20
0 10 20 30 40 50 60 70 80 90
1995 Q1 1996 Q1
1997 Q1 1998 Q1
1999 Q1 2000 Q1
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2003 Q1 2004 Q1
2005 Q1 2006 Q1
2007 Q1 2008 Q1
2009 Q1 2010 Q1
2011 Q1 2012 Q1
% Amount of ICT VC investments (left axis) % of ICT VC investments on total (right axis) USD billions
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1995 Q1 1996 Q1
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1999 Q1 2000
Q1 2001 Q1
2002 Q1 2003 Q1
2004 Q1 2005 Q1
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2008 Q1 2009 Q1
2010 Q1 2011 Q1 1.5
3.0 4.5 6.0 7.5 9.0 10.5 12.0 13.5
%
% of Internet VC investments on total (right axis) Amount of Internet VC investments (left axis)
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ICT research and development
Research and development (R&D) is a fundamental aspect of an economy’s innovative capacity. Business enterprise expenditure on R&D (BERD) is considered important for innovation and economic growth. In the OECD area, business R&D reached approximately 1.6% of OECD GDP (OECD, 2011a).
Innovation in the ICT sector is supported by large investments in R&D, as highlighted by the desire of policy makers to maintain high levels of R&D activity even during economic downturns. Indeed, some governments have focused on policy to support R&D during economic downturns as a way to promote innovation and growth.
Data show that investment in R&D for ICTs is closely tied to the overall revenue of ICT firms (OECD, 2010) (Figure 1.23). During times of economic difficulty, R&D investment falls, but recovers when revenues rebound. R&D investment retracted in 2002 and again in 2009 and 2010.
Standard trade theory suggests that countries will specialise in certain types of production where they have a comparative advantage, and trade with countries with complementary specialisations. An examination of R&D data from ICT firms in OECD countries highlights examples of specialisation within the sector.
ICT BERD varies significantly across economies (Figure 1.24). In 2010, Chinese Taipei, Finland and Korea ICT BERD reached around 1.5% of GDP. On the other hand, in two thirds of OECD countries, ICT BERD was less than 0.25% of GDP. Finland, Israel and Korea stand out with the highest ICT BERD intensity,8highlighting a specialisation in the overall ICT sector. Japan, Sweden and the United States follow with relatively high investment rates.
Among non-OECD economies, the highest ICT BERD intensity was recorded in Chinese Taipei, followed by Singapore.
Research and development in ICTs can be split into two categories: manufacturing and services. Chinese Taipei, Finland, Japan, Korea, Singapore and Sweden specialise more in ICT manufacturing, while Denmark, Iceland, Ireland, Israel and the United Kingdom specialise more in ICT services R&D. Other countries have a more balanced mixture of the two.
Figure 1.23. Growth in quarterly R&D and revenue
Top 200 ICT firms reporting R&D spending, Q1 2001-Q1 2010 (four-quarter moving average)
Source:OECD (2010),OECD Information Technology Outlook 2010.
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-15 -10 -5 0 5 10 15 20
% Total R&D Total revenue
2001 Q1 2001 Q3
2002 Q1 2002 Q3
2003 Q1 2003 Q3
2004 Q1 2004 Q3
2005 Q1 2005 Q3
2006 Q1 2006 Q3
2007 Q1 2007 Q3
2008 Q1 2008 Q3
2009 Q1 2009 Q3
2010 Q1
Another way to examine the importance of ICT investment in the economy is to look at the percentage of ICT Business R&D expenditure as a percentage of total BERD in the economy. On average, 20% of total BERD investment is focused on the ICT sector. But the data show very large differences across countries. In 2010, ICT BERD accounted for more than a half of total business R&D expenditure in Chinese Taipei, Greece, Finland and Korea.
It accounted for more than 30% in Estonia (30%), Ireland (32%), Singapore (36%) and the United States (33%).
Figure 1.24. ICT BERD specialisation, 2010 or latest year available
Percentage of GDP and as share of total BERD
Note:ICT sector is defined here as the sum of the following categories in ISIC 3 Rev. 1: 30, 32, 642 and 72. Data on ICT manufacturing is not available in Chile, Israel and New Zealand. Data on ICT services is not available in Germany. See also endnote 9. For Belgium, France, Russian Federation and South Africa, data are distributed according to the product field of the R&D. For the Czech Republic, data are distributed according to the main activity of the enterprise carrying out the R&D. Since 2004, the R&D of enterprises in the research and development industry (ISIC, R-3: 73) has been redistributed to the industries for which the R&D was carried out. For United Kingdom, data are distributed according to the product field of the R&D for large firms, while for small firms the R&D is allocated to their main activity. R&D firms are redistributed to the industry served. Telecommunications (ISIC, R-3: 642) includes postal services (ISIC, R-3:
641). For all the other countries in the chart, data are distributed according to the main activity of the enterprise carrying out the R&D.
Information on data for Israel:http://dx.doi.org/10.1787/888932315602.
1) 2009; 2) 2008; 3) 2007.
Source: OECD ANBERD and RDS Databases, June 2012; Statistics Sweden, June 2011.
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4.4 5.3 4.8 6.7 2.5 14.4 5.9 27.1 54.6 13.8 19.3 18.2 16.9 10.5 13.1 16.3 8.6 30.3 22.6 20.9 29.8 21.1 12.9 18.2 26.5 21.2 13.0 20.4 31.5 36.0 27.9 21.0 32.6 29.6 32.5 53.1 73.5 57.7
Mexico3 Chile2 Romania2 Slovak Republic1 Russian Federation1 Poland1 South Africa2 Turkey2 Greece3 Hungary New Zealand1 Italy Spain1 Australia1 Slovenia1 Czech Republic Germany2 Estonia1 Norway2 Canada2 Portugal1 United Kingdom1 Austria1 Belgium1 Netherlands3 France3 Switzerland2 Denmark3 Ireland Singapore Iceland1 Japan United States2 Sweden1 Israel Korea Chinese Taipei Finland1
ICT manufacturing R&D ICT services R&D
% of GDP ICT BERD as share of total BERD,
2010 or latest available year
ICT markets and spending
Total worldwide ICT spending is estimated to reach USD 4 406 billion in 2012, of which 58% (USD 2 572 billion) is on communications services and equipment, 21% (USD 910 billion) on computer services, 12% (USD 539 billion) on computer hardware and 9% (USD 385 billion) on software (Figure 1.25).
The contraction of the ICT sector by 3% in 2009 mainly affected computer hardware and communications equipment. But ICT spending returned to growth during 2010 after which moderate long-term growth is expected through to 2013 (WITSA, 2010). Estimates suggest that in 2012, software spending will increase more rapidly (by 7.6% a year) than computer hardware (6.1% a year), as hardware prices continue to fall. Spending on communications, both services and equipment, will also increase rapidly (by 7.6%), reflecting the uptake of more advanced services and the rapid spread of mobile services in developing countries.
The North American market (Canada, Mexico and the United States,) remains the largest for ICT spending, accounting for 31% of global spending in 2012. This is followed closely by the Asia-Pacific region and Europe, both accounting for 30%. With the emergence of new high-growth, non-OECD markets (e.g. Brazil, China, India and the Russian Federation) for ICT products and services, worldwide ICT spending is expected to increase by 7.1% a year from 2003 through 2012 while OECD spending has increased by an annual 5.1%.
OECD countries account for 72% of the estimated global ICT spending (USD 3 154 billion) in 2012, down from 85% in 2003 (Figure 1.26).
Communication services and equipment in OECD countries account for half of total OECD ICT spending, followed by spending on computer services, which accounts for 26%.
A somewhat larger share of total spending on computer services suggests a structural shift to outsourcing these business-related services, with a higher share of these services in more economically developed OECD countries (Denmark, France, Sweden, the United Kingdom and the United States). Greece, Mexico and the Slovak Republic have the highest share in communication services and equipment spending (at around 80%) (Figure 1.27). However,
Figure 1.25. Worldwide ICT spending, 2003-12
USD billions, current prices
Source:Based on data published by World Information Technology and Services Alliance (WITSA), based on research conducted by Global Insight, Inc. December 2010.
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4 500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Communications Computer services
Computer software Computer hardware
500 1 000 1 500 2 000 2 500 3 000 3 500 4 000
the share of IT hardware and service spending is well below average in Greece, Korea, Mexico, Poland, Portugal, the Slovak Republic and Turkey, because of lower business use of ICTs and the rapid growth of mobile and other consumer communication services.
Following the noticeable recession in 2009, ICT spending is increasing most rapidly in Africa, the Middle East, and Latin America, followed by Eastern Europe (Figure 1.27). In the Asia-Pacific region, Western Europe and North America, growth in spending is more subdued.
In current prices, Japan and the United States are the OECD countries with the slowest growth.
Figure 1.26. OECD ICT spending, 2012
USD millions, current prices
Source:Based on data published by World Information Technology and Services Alliance (WITSA), based on research conducted by Global Insight, Inc. December 2010.
1 2 http://dx.doi.org/10.1787/888932692847 1 200 000
250 000
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0 25 000 50 000 75 000 100 000 125 000 150 000 175 000 200 000 225 000
United States Japan
Germany United KingdomFran
ceItaly Canada
Kor ea
Spain Netherlands
Aus tralia
Mexico Swit
zerland Poland
Sweden Belgium
Turkey Aus
tria
Czech Republic Greece
Finland Norway
Den mark
Por tugal
Hun gary
Ireland Israel
Chil e
Slov ak Republi
c
New Z ealand
Sloveni a Communications Computer services
Computer software Computer hardware
Figure 1.27. Trends in ICT spending by region, 2003-12
Index 2003 = 100
Source:Based on data published by World Information Technology and Services Alliance (WITSA), based on research conducted by Global Insight, Inc. December 2010.
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50 100 150 200 250 300 350 400
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Asia Pacific Africa
World Middle East
Western Europe Latin America
North America Eastern Europe
In 2012, the United States still dominates the list of top 15 ICT spenders, followed by China and Japan (Figure 1.28). However, in terms of growth, India ranks first at 22% per year from 2003 through 2012, followed by China and the Russian Federation at 15%, and Brazil at 14%. Australia, despite its position at the bottom of the top 15 list, is fifth in terms of growth. ICT spending is increasing rapidly in most emerging non-OECD economies.
Worldwide, India is forecast to rank fifth, Indonesia ninth, the Russian Federation twenty-second and China twenty-fourth. In seventeenth place, the Slovak Republic remains the only OECD country in the top 25 in terms of market growth (Figure 1.29).
Figure 1.28. Top ICT spenders and growth, 2012
USD billions (annual average growth rate)
Source:Based on data published by World Information Technology and Services Alliance (WITSA), based on research conducted by Global Insight, Inc. December 2010.
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Figure 1.29. Fastest ICT spending growth, 2003-12
Average annual growth rate
Source:Based on data published by World Information Technology and Services Alliance (WITSA), based on research conducted by Global Insight, Inc. December 2010.
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Australia Netherlands Russian Federation Spain Korea Brazil Canada India Italy France United Kingdom Germany Japan China United States
USD billions
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%
Nige ria Bangladesh
Sri Lanka Senegal
India Iran
Zimb abwe
Morocco Indonesia
Romania Egypt
Cameroon Viet Nam
Colo mbia
Keny a
United Arab Emirates
Venezuela Slov
ak Republi c
Hond uras
Philippine s
Saudi Ara bia
Russian Feder ation
EcuadorChin a
Peru
Finally, the structure of ICT spending by segment is slowly shifting. The most notable change is the increasing share of consumer spending, which now constitutes one third of the total ICT market (Figure 1.30). This is mainly driven by the increasing demand for mobile devices (smartphones, netbooks, tablets). ICT spending is also growing faster in the natural resources sector, followed by the construction and the energy and utilities sector, possibly owing to the commodities boom and the shift to “smart” infrastructures (see OECD, 2010, Chapters 5 and 6). The educational services sector is also growing rapidly.
Spending by transport, retail trade and wholesale and distribution has grown somewhat more slowly, and in some cases their shares have even declined. Relatively slow growth by financial services is attributable in part to the collapse in expenditures during the crisis.
