Source: Space for Development
This report has been commissioned by the European Space Agency (ESA) under its Global Development Assistance (GDA) programme. GDA has a mission to accelerate impact by fully capitalising on the power of satellite Earth Observation (EO) in international development assistance operations. The GDA programme is implemented by ESA in partnership with the World Bank (WB) and Asian Development Bank (ADB)-under the Space for International Development Assistance (Space for IDA) cooperation framework.
It is published as part of the Monitoring & Evaluation (M&E) and Impact Assessment activity led by Caribou Space with consortium members London Economics and Imperative Space. This report will strengthen the evidence that E0 activities generate wider benefits for developing countries, in terms of innovation, entrepreneurship, and job creation, in addition to the direct benefits to users of these applications that are already well evidenced.
Developing countries have a small but growing contribution to the global EO industry. A total of 241 companies based in developing countries were active in the EO industry in 2019. Together, these companies contributed a total of €82 million in revenues in 2019, or 2.2% of the global market, and supported 1,250 employees. They represent a higher growth rate in the industry, with a 14% CAGR between 2012 and 2019, compared to 9% for the industry as a whole.
The low levels of involvement from developing countries are likely explained by the high capital cost associated with upstream activities and the required investments in digital capabilities, such as human and physical capital, software, and internet connectivity, that are needed for downstream activities.
The investment in digital capabilities that are needed to exploit EO data for end users are likely to offer value to other parts of the economy. This is because these capabilities correspond with transferable human, physical, and intangible assets that can be diffused both within the E0 sector and from the E0 sector to other sectors.
These ‘digital spillovers' have been shown to accelerate knowledge transfer, productivity, and innovation within a company, between competitors, across supply chains, and across industries.
The return on investment from digital technologies to the economy therefore exceeds the return to the private companies that make these investments, suggesting a role for government and the development community to improve the take-up of digital capabilities.
These spillovers are likely to be more strongly felt by the parts of the economy that are closest to the EO services industry-in terms of geographic proximity, technological proximity, labour requirement, capital and enabling technology requirements. The ‘digital economy'-defined broadly as those industries that leverage digital technologies as a key factor of production-shares many of these similar characteristics to the EO downstream industry and is therefore likely to benefit most from investments in the EO industry.
The ability of the economy to absorb these technology spillovers depends on its ‘absorptive capacity' to recognise, absorb, and utilise this knowledge. This suggests that investments in human and physical capital, enabling technologies, related R&D (including complementary investments in internet access, technical expertise, and IT) remains a key driver for generating innovation and spillovers.
The economic return from investments in digital assets has been estimated at about US$20 for ever US$1 invested-an estimate that is almost seven times greater than corresponding investments in non-digital assets. This suggests a high potential rate of return from investments in E0 capabilities.