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26th Sep 2021

EIB warns of €10bn investment gap in AI and blockchain

  • The US and China account for 80 percent of the €25bn of annual equity investment in AI and blockchain (Photo: BeatingBetting.co.uk)

The EU is falling behind the US and China in artificial intelligence (AI) and blockchain technologies, partly due to an annual investment shortfall of up to €10bn, the European Investment Bank (EIB) has found.

In a report, published on Tuesday (1 June), the EU bank said that the US and China together account for 80 percent of the €25bn of annual equity investments in both technologies, while the 27-nation bloc accounts only for seven percent of the total, investing around €1.7bn.

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Equity investment refers to the expenditure made in a firm by purchasing shares of that company in the stock market.

Between 2010 and 2019, global equity investments in AI and blockchain technologies had an annual growth rate of 38 percent - amounting to some €80bn-€85bn.

The EIB said these technologies are expected to play a central role in the bloc's green and digital transitions, accelerating the transformation of sectors hit hardly by the Covid-19 pandemic, such as financial services, healthcare and business intelligence.

However, it has identified an annual investment gap of about €5bn to €10bn.

"Companies and governments in Europe are substantially underinvesting in AI and blockchain compared to other leading regions, and it has become clear that the European Union struggles to translate its scientific excellence into business application and economic success," the EIB said.

The EU mainly provides early-stage financing for small and medium-sized enterprises (SMEs) working on AI and blockchain, but then it underperforms in subsequent rounds of financing, such as expansion and growth stages, the report points out.

As a result, there has been a strong movement of companies from the EU to the US.

American companies account for about 44 percent of European startup acquisitions.

In Europe and the US, most AI companies focus on information and communications or in scientific and technical activities, while about half of China's AI firms operate in the manufacturing sector.

Among the reasons for the EU's investment gap, the EIB cited the limited appetite for investments in these technologies due to high upfront investment needs, the lack of knowledge and specialisation of EU venture capital funds, and the difficulty for SMEs to connect with investors.

Another explanation for this gap is the limited role played by large institutional investors such as pension funds, insurers and endowments in financing later-stage startups involved in AI and blockchain.

Yet, this shortfall appears to be dominated by AI, compared to the gap in blockchain investments.

Since its creation in 2008, blockchain technology has been mainly used for financial services and cryptocurrencies. But it is now expanding to other sectors such as media and telecommunications, healthcare and government services.

'Widening the gap'

Meanwhile, the EIB also said that access to finance might become more challenging in the short run as a result of market conditions, "potentially widening the investment gap".

"EU and member state support schemes could plug part of the gap, but private markets will clearly need to contribute the balance," the bank said.

Moreover, innovation hubs need to be better connected to increase the flow of talent, experience and funding access.

In the EU, Paris and Berlin are the largest hubs of AI and blockchain SMEs, followed by Amsterdam, Barcelona and Madrid - although the highest number of companies in these sectors are located in Germany and Austria.

Last April, the European Commission announced that it aims to turn Europe into a global hub for trustworthy AI - with the first-ever legal framework on AI and a new coordinated plan with member states.

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