Building a strong and modern European industry

Vanya Walker-Leigh

The EU urgently needs a new industrial strategy, both short- and long-term, Business Europe stated in a report issued last week.

The organisation comprises national business federations from all EU nations as well as from Iceland, Montenegro, Norway, San Marino, Serbia and Turkey.

Entitled Building a Strong and Modern European Industry, the report pinpoints current weaknesses in both industrial structures and EU policies and legislation.

In contrast to the current European “mainstreaming of industrial competitiveness which is working only occasionally”, the EU must develop an outward looking approach based on understanding competition at global level and providing industry with a wellfunctioning and predictable legislative framework.

The EU must act as an enabler for European industry to flourish and innovate, incentivise progress and innovation, create the conditions for industry to provide solutions to emerging challenges while maintaining high standards for labour, consumers and the environment.

The report warns that industry’s contribution to the EU economy shrank from 18.8% in 2000 to 15.3% of Gross Value Added by 2013, reviving slightly to 15.6% now. Moreover, while European industry continues to be a global leader in many industrial sectors, accounting for 37% of global manufacturing exports (the leading world share of trade in manufactured goods), this share fell nearly 7% between 2004 to 2013. Meanwhile, the EU’s share of global Foreign Direct Investment fell from 50% between 2000 and 2005 to 30% over the last six years.

In a number of member states industrial production shrank by one-quarter following the economic and financial crisis. Additional factors have been stronger growth rates in East Asia, the EU’s regulatory environment, overall investment conditions and shrinking investment.

“Industry is much more important for the overall economy than it is often given credit for,” the report states, “accounting for over half of Europe’s exports, around 65% of research and development investments, it provides more than 52 million jobs (24% of EU employment), generally high-skilled jobs and above average pay, and in high value added activities. “Europe is a global leader in the automotive, aeronautics, engineering, chemicals, energy solutions and pharmaceutical industries.”

Manufacturing increasingly buys, produces, sells and exports services, now its most important “raw material” while strongly benefiting from industry’s demand in upstream and downstream value chains. This joint production (servitization) represents 24.3% of EU value-added compared to the 20.8% world average.

Boosting the EU industry’s shortterm competitiveness demands urgent action in key policy fields, the report insists. The European Fund for Strategic Investments (EFSI) should be extended to allow investment mobilisation of private capital and promote a greater risk culture. All investment-related EU instruments must be directed to the real economy and open to companies of all sizes. Prudential rules must balance increasing financial stability with supporting companies’ need for investment capital.

An ambitious and comprehensive EU-Japan free trade agreement must be concluded and the Commission’s Trade for All communication revised ensuring swifter adoption of such trade agreements. Trade defence instruments must comply with WTO rules while being workable for industry and without lowering the level of protection. EU merger rules must support innovation and the creation, development and success of innovative companies, for example in the digital and pharma sectors.

Subsidies, levies and taxes driving up consumer energy prices must be speedily phased out and a modernised energy infrastructure built up to establish an integrated energy market with regional cooperation. Research and innovation must be ensured adequate funding within the next Multiannual Financial Framework. Implementation of the “innovation principle” must be speeded up, as must the sharing of good practices and awareness raising between states relating to the circular economy.

Regarding digitalisation the free flow and physical storage of data must be ensured, accompanied by the development of and coordination between national digitalisation platforms through the creation of a European network of digital innovation hubs. Sectors with skills shortages must be identified and education with training curricula speedily adapted to meet shortfalls. Skills policies should be benchmarked as part of the European semester, focused on helping member states learn from each other and design optimum skills policies.

For the long-term the EU must unroll now a horizontal framework helping industry adapt in a fast-changing world. Strategic objectives for industry and linked services for 2030 must be defined to build a shared vision, reflecting the real shift in business practices and their statistical reporting. A dedicated and integrated approach must allow seizing opportunities in macro-trends already seen today in energy, circular economy, digitisation and urbanisation, understanding the changes these bring. The existing EU 20% of GDP manufacturing target should be supplemented by a dashboard of additional indicators.

EU governance must be made more fit for purpose: the High-Level Group on Energy-Intensive Industries must be given a clear objective and a broader mandate, a better regulation agenda must be rigorously pursued, the role of the Competitiveness Council scaled up and its work mainstreamed across all policy areas.

If Europe does not meet the challenge of launching an ambitious industrial policy strategy, around 10 to 15 % of current jobs in industry (mainly low-skilled) are expected to disappear within the next 10 years, the report warns.

To the consternation of environmentalists, the report omits explicitly addressing how industry can fulfil its role within the EU’s 2014 Energy and Climate Framework, EU’s current contribution (up to 2030) to implementation of the 2015 Paris Agreement on climate change, nor does it refer to the recent related European and Environment Council decisions. The report is available at www.businesseurope.eu