4.3. Business environment

The business environment is key to creating the conditions necessary to allow firms to increase their productivity and compete effectively in international markets. Table 14 rovides a summary of the situation in the Basque Country with regard to these indicators. We can see that although in absolute terms, positive progress was made compared to the previous year in many indicators, in relative terms, the progress is mainly negative, with the Basque Country losing positions (however slightly) in almost all the rankings. We will now discuss the situation and trends in each of the indicators for both the last year and, as presented in Graph 14, previous years.

Compared to the reference regions, the Basque Country occupies a medium-low position in human resources in science and technology

The first group of indicators refers to aspects related to the labour resources available in the territory. In science and technology human resources, which increased slightly in the last year, the Basque Country has a strong position in comparison with the autonomous communities and cities, intermediate when compared with the European regions as a whole, and a medium–low position compared to the reference regions. In recent years, the values for this indicator have remained fairly steady, below the average for Europe and the reference regions since 2011, and some distance from Germany.

The Basque Country is correcting the relative weakness of its population in training, especially due to the high levels of students in tertiary education

When we consider the entire population between the ages of 25 and 64, we find that after the common age for formal education is reached, the education level fluctuates very little from one year to the next, increasing slightly because the young people joining the cohort have more education than the older people leaving it. Given that the highest age bands have the worst level of education (compared to other European regions, and especially the reference regions), this is one of the business environment indicators in which the Basque Country has the weakest position, in comparison with both the European regions and the reference regions. However, it is very well positioned within Spain. Nonetheless, deficiencies in the highest age bands are offset by the education levels of younger people in terms of tertiary education. Consequently, although the value of the indicator dropped slightly in the last year, which caused the Basque Country to lose positions in the ranking of European regions (falling to below 50th place), it still remains quite high compared to the reference regions and the autonomous communities and cities, and above all the territories included in the trend graph.

The position of vocational education is a little worse than tertiary education, and dropped in both value and positions in the ranking in the last year. However, even so, it is in a medium–high position when compared to the European regions and the autonomous communities and cities, and an intermediate position compared to the reference regions. Nonetheless, it should be noted that the percentage is higher than the German average.

Compared to the reference regions, the Basque Country occupies an intermediate position in the rankings for participation in vocational training and a medium-low position in continuous training

As regards the population engaged in further education, which is necessary to continue acquiring skills, on the positive side, the Basque Country’s good position in relation to both Spain and Europe as a whole, and the positive progress in recent years should be noted. Despite this good progress, the medium–low position we see compared to the reference regions may point to a relative weakness with regard to these regions, whose structural conditions are the most similar to the Basque Country. This relative weakness has been carried over for several years.

Table 14. Status of the Basque Country in terms of business environment indicators.
Table 14 Status of the Basque Country in terms of business environment indicators
Source: Eurostat. Compiled by authors.
NB: The rankings have been compiled based on 218 European regions, except when no data were available (*217), the Basque Country and the group of 30 reference regions, and the 19 Spanish autonomous communities and cities.
Graph 14. Variation in business environment indicators.
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
Graph 14. Variation in business environment indicators
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Source: Eurostat. Elaboración propia.

The second group of business environment indicators measures R&D capacity, both public (government and universities) and total. In other words, they also include those for the business sector, already described in the analysis of business performance. Both are included to account for the possible distortion resulting from counting the R&D investment for technology centres and CRCs as private. This explains why the relative positions in public R&D expenditure and personnel are lower than the total. In Table 14, which has data for 2015, we see that, with the exception of personnel in public R&D (which remained constant), the other three indicators had dropped in absolute terms and held or lost position in comparison with all the territories. Graph 14 makes it possible to see what happened the following year: the R&D personnel indicator increased slightly and there was a drop in the other three indicators.

There is a contraction in R&D activity, accompanied by an improvement in the efficiency or productivity of the R&D performed

This downturn in R&D activity was accompanied by an improvement in the efficiency and productivity of the R&D carried out, which is of course positive. However, it would have been even more so if the improvement in R&D productivity, rather than being the result of what economists term passive increases in productivity (in other words, increases resulting from a sharp drop in the denominator: R&D activity carried out), had come from active increases (in other words, from increases in the numerator or innovation output: patents, new products, etc.). The reduction in R&D expenditure was due, among other things, to a decline in the number of firms doing R&D (normally, those that engaged in R&D in a more occasional and less systematic manner), so that the ones that remain are more efficient. However, this shrinks the base for future R&D growth. This is particularly applicable to indicators of total R&D expenditure. Public R&D expenditure, despite having been above the European average, fell below that level beginning in 2015, the result of the decline in the last two years and the increase in Europe.

The digitisation capacities installed place the Basque Country close to Europe's leading countries, but there are shortcomings in terms of the use in households and a possible lack of ICT specialists for developing digital services

Lastly, Table 14 includes two indicators related to Internet use as proxies for the sophistication of demand. The households with broadband access indicator increased not only in the last year, but also in previous years. This was made possible due to the rollout of infrastructure, which now reaches almost all households, although all of them have not yet signed up for service. As a result, despite having the technology available, the Basque Country is in an intermediate position in terms of use. This is shown more clearly in e-commerce, an indicator in which the Basque Country is at the bottom of the reference regions and below the European average. The relative weakness of Internet use by households is confirmed in the broader analysis of the digitalization of the Basque economy and society presented in Box 2.

Box 2 Principal conclusions of the DESI report on the Basque Country

In line with the business environment indicators, Orkestra has prepared a report on the digitalization of the Basque economy and society, measured by means of the DESI indicator. This indicator includes five dimensions: connectivity, human capital, use of Internet, integration of digital technology in firms and digital public services. As data are not available for the European regions, the comparison is with countries. It should therefore be remembered that within these countries there are significant differences which disappear when we look at the national average.

As a whole, the Basque Country is approaching convergence with the European leaders, primarily due to its high connectivity capabilities, the level of human capital and the more than satisfactory level of integration of digital technology at firms and public administrations. In contrast, the degree of digitalization in Basque households is less than in European households.

Graph 15. Digital Economy and Society Index, DESI 2017.
Graph 15 Digital Economy and Society Index, DESI 2017

The degree of digitalization in households could increase in the future, as the high-performance communications infrastructure, especially in terms of speed, makes it possible to offer increasingly sophisticated digital services. Additionally, the majority of citizens have the digital skills to operate in daily life.

The weakness that can be seen in household Internet use is not found in firms, which have been incorporating technology at an appropriate speed, showing a greater degree of sophistication in the use of some of the most recent technologies. In contrast, we note certain limitations in e-commerce, both in the level of marketing through the new digital channels and its impact on turnover and opening up trade with the rest of the European domestic market. This may be behind the lower use of electronic commercial transactions among Basque households. Additionally, as regards the elements of the environment which may influence the digitalization of firms, we find a lack of ICT specialists to develop digital services.

As regards public administrations, they are in the process of digitalization, with a significant range of digital public services available in terms of completeness and ease when it comes to carrying out the service. There has been considerable development in open data. In contrast, the quality of these digital services does not translate into use of public services by citizens.

Source: Zubillaga Rego, Agustin (2018) Economía y sociedad digitales en el País Vasco. Cuadernos de Orkestra.

As regards indicators of the environment, the Basque Country is correcting its relative weakness in terms of the education and training of the population as a whole (an indicator of stock which varies little from year to year), which is continuing to engage in further education (although less than in the reference regions), primarily due to the high levels of students in tertiary education. In the area of vocational education, it is notable that the percentage of students is higher than that of Germany, although it declined in the last year and stands at a medium-to-high or intermediate position in the rankings. The innovation indicators point to a downswing in inputs which, according to perceptions, may have corrected itself in the last year. This downswing has resulted in a passive increase in efficiency, but may endanger the base for future R&D growth. Lastly, digitalization indicators indicate that installed capabilities (for both connectivity and human capital) have made it possible for the Basque Country to position itself close to the leading European countries (although the data do not make it possible to analyse the regional differences within each country). However, there are still gaps in the rate of use by households and a possible lack of ICT specialists to develop digital services.

  1. Although from Graph 14 it might be possible to interpret that this began in 2013, in reality it was probably earlier, as the jump observed in the series for the reference regions that year is due to a methodological change in how this variable is calculated in the French regions, many of which are part of the reference group.

  2. Digital Economy and Society Index