The EU is falling behind its key competitors in R&D

by Martin Banks

The organisation published its latest Reform Barometer, which examines Europe’s global competitiveness across several key indicators.

One of the report’s key findings is that, although almost 60% of member federations view the European Commission’s competitiveness and growth agenda more favourably than a year ago, over 80% of BusinessEurope members see no improvement or a deterioration in the EU’s attractiveness to global firms as an investment location.

Commenting on the publication, BusinessEurope Director General Markus J. Beyrer said: “The improved sentiment about EU policy intentions can only be sustained by delivering concrete measures that are felt be companies on the ground and that will have a positive effect on Europe’s attractiveness for investment.

“It is clear from BusinessEurope’s new Reform Barometer that the EU is not attracting the level of investment it needs to meet its economic, environmental, and societal potential.

“A clear indication of this is the fact that the EU is falling behind its key competitors in Research and Development (R&D) investment, which stood at 2.3% of spending as a percentage of GDP in 2024, compared with 3.5% in the U.S. and 2.6% in China.”

He noted, "Besides the remaining obstacles like regulatory burden, cost of energy and lengthy permitting procedures, a key barrier to this investment is limited access to finance across the EU. This is seen by our members as the primary obstacle to private investment in R&D, followed by shortages of skilled workers and administrative burdens.

"It is therefore crucial that, as highlighted by the Draghi Report, the Commission and Member States rapidly progress with the Savings and Investment Union in order to make the EU an easier place to invest.

“In relation to energy, while EU firms continue to pay significantly higher energy costs than their global competitors, volatility has become a new additional pressure point.”

He said, “Exposure to global price swings has increased sharply, making planning and investment more difficult. We therefore need to seize the opportunities we have under our control. In the upcoming ETS reform adjustments are crucially needed to better reflect the competitiveness needs of European industry.”

Beyrer added, “This includes adjusting the Linear Reduction Factor (LRF) to avoid an ’ETS endgame’ in 2040, postponing the phase-out of free allowances for all sectors and future-proofing adjustments to the Market Stability Reserve (MSR).

Taxation policy across the EU is another area which is in urgent need of reform to encourage investment into the EU, with only 15% of our members feeling that this has become more conducive to growth, competitiveness and investment over the past year. Business needs tax systems that are stable, predictable, and explicitly designed to support long-term investment.”

BusinessEurope is a leading advocate for growth and competitiveness at the EU level. Founded in 1958, it speaks for enterprises of all sizes in 36 European countries whose 42 national business federations are its direct members.