“Information and communication technologies are just as essential for modern society as electricity and water networks. Modern everyday life would be utterly unthinkable without information and communication technologies”, said Professor Roman Beck, outlining the importance of ICT at the think tank meeting at the outset of this study.
ICT is a key technology and an interdisciplinary technology; it helps enterprises to reduce costs, improve processes, boost innovation, and increase productivity. ICT also makes the public sector leaner, faster and more citizen-friendly. ICT improves the provision of medical care, increases safety and provides greater quality of life – this is how the industry association BITKOM describes the significance of ICT.3
But what happens when one tries to substantiate these statements with proven figures? What is the true economic significance of ICT?
Software, IT services and telecommunications are the growth drivers of the German economy The software and IT service industry in Germany has grown steadily to become an independent economic factor whose gross value creation and impact on employment is set to rise even further over the next two decades. The ISI Study published by the Fraunhofer Institute, which was presented on 03 March 2010 at the CeBIT in Hanover, provides sound data to prove this development.4
The study starts from the premise that the industry will experience an increase in employment of 80 percent by 2030, which would be equivalent to 452,000 new jobs. The industry also plays a central role in intelligent networks and technologies which society will be able to use to tackle the challenges of the future, e.g. climate change and demographic change. In spite of this, there is a strong systematic tendency to underestimate the sector’s influence as a powerful economic force and its integral function in location and industrial policies.
In the last few years the ICT industry in Germany outperformed the overall economy and reported a steady rise in gross value added, revenue, production volumes and jobs. By 2030 in Germany the sector will be generating annual gross value added of €90 billion. In comparison: Experts at Prognos expect sales in the mechanical engineering industry to be €100.8 billion and the automotive sector to generate €115.1 billion. The sectors mechanical engineering and automotive, which in Germany are generally regarded as being prime economic drivers, will develop less dynamically in the next 15-20 years, while the software and IT service sector is expected to double its contribution to gross value added.5
The ICT industry not only has direct economic significance as an independent sector, it also makes a substantial indirect contribution to domestic economic growth. For instance, modern communication networks influence economic growth by helping to spread information and promoting the development and adaptation of innovations. Current empirical studies show that on average the per-capita income of a country rises between 2.7 and 3.9 percent after broadband has been introduced compared with pre-broadband figures. In terms of the distribution of broadband infrastructure, a rise in broadband user rates of 10 percentage points of the population results in an average increase in per-capita economic growth of between 0.9 and 1.5 percentage points.6
The indirect contribution to economic growth made by ICT is largely due to the fact that software, IT and telecommunications services are interdisciplinary technologies. A great many industrial products and services depend directly or indirectly on ICT. Christophe Châlons, Chief Analyst of the PAC Group and a think tank participant, estimates that the ICT sector accounts for around five percent of the German gross domestic product. “If you also include the innovations that are made possible by ICT, then the ICT share of GDP rises to around seven percent. And if embedded systems, which also play a decisive role in innovations, are included, then the ICT share of GDP rises to over seven percent.”
At the think tank meeting, Professor Roman Beck, Goethe-Universität Frankfurt, summed this development up as follows: “Even in many traditional industrial sectors it makes perfect sense to refer to “digital value added” because their business models have evolved and now take place either fully or to a large extent in digital networks.” To assess the true economic significance of ICT it is necessary to look at how these technologies act and are used as enablers in other sectors. This is precisely the approach chosen by the LIFE 2 Study, and it allows a realistic estimate to be made of the contribution that ICT-based solutions and technologies will make to future growth.
The study’s starting point was a question; the ICT executives were asked to state in percent how much they expected revenue in their own industry to rise in the next five years. The growth expectations arising from this question were adjusted to reflect anticipated inflation, thus yielding real, industry-specific growth expectations for the coming five years. The ICT executives were also asked what proportion of this increase in revenue they expected to be generated by ICT-based solutions and technologies. By combining the responses to this question with the industry-specific growth expectations, ICT-based growth rates can be calculated for individual sectors, thus determining the growth in revenue that will be generated by ICT-based solutions and technologies in the next five years.
Figure 3-1: Importance of ICT – overall economic perspective (revenue growth)
The results of this projection substantiate the notion that ICT will be a crucial growth factor in future (see Figure 3-1). For instance, the ICT executives in the automotive industry in Germany expect an overall increase in revenue of 9.4 percent, or an average of 1.8 percent per year, over the next five years in this industry. They expect ICT-based solutions and technologies to contribute decisively to this increase in revenue. In their opinion, in the next five years ICT will enable an overall increase in revenue of 2.8 percent, or just under 0.6 percent per year. ICT-based solutions and technologies will also trigger clear growth impulses in other industries. In energy and water supplies, for example, executives expect ICT to lead to an overall increase in revenue of 11.3 percent, or a median annual increase of 2.2 percent, over the next five years in Germany.
There is also the prospect of significant growth in revenue generated by ICT-based solutions and technologies in the tertiary sector, e.g. in sales and distribution or in education. ICT executives in the retail sector expect revenue in their industry to rise by a total of 21.0 percent in the next five years, which is equivalent to annual median growth of 3.9 percent. The executives believe that ICT-based solutions and technologies will be responsible for almost half of this growth in revenue. The situation in the education sector is similar: Executives anticipate that ICT will lead to an overall increase in revenues in this sector of 7.6 percent – equivalent to annual median growth of 1.5 percent.
Figure 3-2: Importance of ICT – overall economic perspective (cost reductions)
The study also shows that in Germany in the next five years ICT-based solutions and technologies could help to achieve cost reductions of up to 17 percent. Overall, the cost saving potential is higher in the service sector than in manufacturing. In other words: There are bigger savings potentials in sectors where the “human factor” is important and the focus is on the exchange of information between people (see Figure 3-2).
Figure 3-3: Importance of ICT as an enabler of new business models
ICT as a driver for innovation and growth
One of the reasons that the software and IT service sector makes a significant contribution to economic growth is because ICT applications are capable of adding an “intelligent” functionality to existing technologies. This enables ICT – which due to its strong focus on technology and research is itself an innovative sector – to strengthen and enhance innovation in other economic areas. ICT can rightly be described as a driver for innovation and growth: With its inherent power for innovation, ICT stimulates value added and productivity in other sectors. This opinion is shared by the ICT executives who participated in the survey: Two thirds (64%) believe that ICT plays a decisive role in the economy as the enabler of new business models (see Figure 3-3).
On an international scale, 91 percent of the IT users who participated in the survey believe that information and communication technology has a very high significance for the current economy. In Germany, 99 percent of users held this opinion. The exceptionally high significance of ICT for the economy is not only recognized by enterprises, but also by consumers: 85 percent of the consumers surveyed in this study believe that information and communication technologies are of very great or great importance for the economy.
3 BITKOM (2009)
4 Fraunhofer ISI (2010)
5 Fraunhofer ISI (2010)
6 Czernich, Nina / Falck, Oliver / Kretschmer, Tobias / Woessmann, Ludger (2009)
