Funding shortfall puts innovation plans in jeopardy

The fifth annual International Innovation Barometer reveals that a declining global economy has stalled innovation potential. 

The report by innovation consultancy, Ayming, reveals that the global boom in innovation – reflected in the 38% of firms that now rank it a top priority for the business – is under threat from a lack of adequate financial resources, cited by a third of respondents. 

Governments around the world are putting innovation at the heart of policy agendas and anchoring their plans for prosperity to ambitions of becoming an ‘innovation-led economy’. But for innovation to become an integral part of the mechanism of any economy, funding must be accessible, and the report shows that current funding streams are not currently providing businesses with the necessary means to innovate. 

Inflation has driven up costs and critically damaged fragile profit margins, forcing businesses to seek funding from outside sources. The number of businesses using equity and debt funding nearly doubled from 23% in 2022 to 41% in 2023, making it the most popular source of funding this year, while the proportion of those self-funding innovation dropped by a fifth. 

However, rising interest rates have made debt funding a much harder route to take for start-ups and smaller businesses, resulting in a parallel rise in the number of businesses using crowdfunding tactics, which respectively rose from 7% to 26%. 

Njy Rios, Director of R&D Incentives at Ayming UK comments, “The bottom line is that the current economic climate has created a tension between business’ short and long-term plans that is having a negative impact on innovation output. Policymakers must find a way to align the two or risk jeopardising future innovation.”  

The Barometer also examines the widening intersection between innovation, technology and sustainability. The data reveals that despite ideological support, financial barriers are again impeding essential progress with 41% of businesses citing the high upfront cost and investment required as the obstacle preventing them from undertaking sustainable innovation. 

The US government’s Inflation Reduction Act was signed into law in August 2022 with the intention of making sustainability a priority for US businesses, but just 22% currently see it as such and it’s too soon to tell if the EU’s Green Deal Industrial Plan, presented in February 2023, will be effective in scaling up the continent’s manufacturing capacity. 

The report’s findings reveal that businesses are acutely aware of the economic opportunities offered up by the net-zero transition with an emphatic 78% allocating up to 20% of their annual budget to sustainability initiatives. But a set of short-term economic priorities are undermining these intentions and slowing businesses down. 

Rios continues, “While governments pay lip service to the need for green tech to save the world, the would-be drivers of this sustainable innovation require urgent access to funding. So as the world continues to advance towards climate crisis, governments need to address the funding gap with far greater resolve if policy is to be translated into practice. Until businesses are deriving economic value from prioritising sustainability, short-term economic pressures will always be a roadblock.”  

In June 2023, Ayming surveyed 853 R&D and innovation directors, Chief Financial Officers and Chief Executive Officers. Respondents were sourced from the following 17 countries: Belgium, Canada, China, Czech Republic, France, Germany, Ireland, Italy, Hungary, The Netherlands, Poland, Portugal, Singapore, Slovakia, Spain, United Kingdom, United States.  Respondents were split evenly between seven sectors: automotive, construction, finance, manufacturing, finance, pharma and technology, and reflect an equal representation of large and small businesses.