Innovation, Technology and Productivity in Spain: Challenges and Opportunities

We participated in the first day of the conference cycle The structural challenges of the Spanish economy, organized by Cajamar and Ivie, which seeks to analyze the main challenges facing the Spanish economy. In this session, entitled Innovation, Technology and Productivity in Spain, the economist and CEO of the CDTI José Moisés Martín has addressed the fundamental role of innovation and technological capital in long-term productivity growth.

Productivity in Spain: a structural challenge

Spain has remained among the “moderate innovators”, with a low contribution of technological innovation to productivity. Achieving productivity levels comparable to other countries requires more investment and more workers. Although funds are earmarked to promote innovation, companies are still unable to innovate effectively. This situation is especially worrying given the ageing of the population and economic stagnation. To ensure the country's competitiveness, it is crucial to improve efficiency and promote innovation in production processes.

According to the OPCE 2024 report, leading companies, on the border, tend to be up to five times more productive than the median distribution. Unfortunately, the percentage of innovative companies in Spain is much lower than the European average when we examine their innovative activity.

Part of the evolution of productivity in Spain can be explained by the sectoral composition, since productivity grows more in sectors that produce, or are intensive in Information and Communication Technologies (ICT). However, investment in ICT and digitalization has not generated a commensurate increase in productivity. According to the IVIE OPCE 2024 report, investment in ICT does not by itself explain productivity differences. Technology alone is not enough: its impact is significant only when combined with other factors such as R&D, design, organizational capital and human capital formation... in other words: intangible.

Situation of Spain with regard to innovation and investment

Spain has public support for funding higher than the EU average by 20 points. It is the second country with the highest percentage of funding from Next Gen Funds aimed at boosting R&D. But despite significant financial support, these efforts have not resulted in a significant increase in innovation.

• Available funds tend to focus on early-stage projects, with small amounts and a current commitment to intermediate technologies, not cutting-edge. In addition, public funding is not adapted to the needs of R&D, with deadlines that are too short to allow the maturation of innovations in Deeptech or disruptive high-impact technologies.

Added to this is a significant lack of private investment, which shows that the problem goes beyond funding and also responds to issues of regulation and business culture:

• Despite a solid scientific production, there is a lack of knowledge transfer. Patent generation is low and the connection between university research and the market is limited, which prevents academic innovation from translating into technological advances and business growth.

• The startup ecosystem in Spain is dynamic: Spain is the seventh European country in investment in Venture Capital, and the second in terms of growth. Even so, scaling technology companies remains a challenge. There are few unicorns, and many startups with potential choose to move to countries like the United States. The United States or the Netherlands, where they find a more favorable environment in terms of investment and regulation. The tax burden and lack of competitive incentives make it difficult for emerging companies to achieve their maximum development within the country.

• Continuous innovation is a challenge: it is concentrated on large companies, while SMEs, which represent the majority of the business fabric, innovate very little. According to the INE, only 12% of them declare that they carry out innovation activities. In addition, its innovative intensity — measured as the percentage of R&D spending compared to its turnover — is considerably lower than the European average.

Opportunities and strategies to boost innovation and productivity in Spain

The most innovative societies share three fundamental pillars. First, they have strong basic and regulatory infrastructures, including a developed financial system, highly qualified human capital and a regulatory environment that facilitates entrepreneurship and investment. Second, they have a dynamic innovation ecosystem, where the plurality of actors and the interconnection between them promote cooperation, trust and diversity, key intangible factors for technological development. Finally, from a political economy perspective, they are characterized by high social cohesion and the absence of distributional conflicts, valuing the global growth of the ecosystem more than the distribution of resources.

To promote a sustainable and competitive innovation ecosystem in Spain, it is essential correct coordination failures between ecosystem actors, promoting a dynamic Bottom-up that encourages the participation of companies, entrepreneurs and research centers. In addition, it is essential to attend to intangible factors that influence the innovation process, such as trust, transparency and cooperation, as well as aligning the strategy with current social and geopolitical demands.

With regard to innovation funding, a predictable and flexible model is required that guarantees the continuity of funds and adapts to the needs of the sector. It is key to strengthen the ecosystem to support innovation, promote inclusivity and facilitate co-design Of calls with the participation of the agents involved. Information transparency, accountability and a culture of rigorous evaluation are also essential to improve the effectiveness of resources allocated to innovation and enhance their long-term impact.

In conclusion, innovation and technology are fundamental tools for improving productivity and competitiveness in Spain. However, its potential can only be fully exploited if the structural challenges that limit its development are addressed. But the country's low innovative intensity has to do with multiple factors, which are not easy to modify. From funding and regulation to business culture and trust in innovation, there is a need for a coordinated effort between the public, private and academic sectors to build an ecosystem that drives sustainable growth and long-term value creation. Only in this way can Spain close the productivity gap and consolidate itself as an innovative economy on the global stage.

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