Digital automation will generate more investment prospects, says Investcorp

29 Jun 2020 11:28 AM
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Digital process automation - the practice of automating repetitive, rules-based jobs through technology - will not only drive much-needed productivity benefits for the global economy, but may also offer useful investment opportunities, according to Bahrain-based Investcorp.

Although digitising and automating processes have been completely proven to deliver growth and cost optimisation benefits, “we've witnessed disparities in adoption levels across industries and geographies”, the alternative investment manager said in a fresh bright white paper, with digital potential realisation standing up at just 12 per cent in Europe, for instance.

“Despite significant digital transformation recently, we remain at a relatively early on stage of adoption of a complete range of technological advancements which have the potential to impact all sectors around the world, albeit at varying rates,” said Daniel Lopez-Cruz, managing director and head of European individual equity at Investcorp.

Investcorp, where Abu Dhabi’s Mubadala Purchase Company includes a 20 % stake, possesses $31bn (Dh113.8bn) value of assets under operations by March 31 this year. The business invests in alternate asset classes such as for example private equity, venture capital, property and hedge funds, among others.

Digital procedure automation can help to reverse a slowdown on productivity growth which has affected several significant global economies during the period of the past decade.

In Britain, for example, the Bank of England halved its expectations for productivity growth among British staff to 0.5 % per year, rather than the 1 per cent that was previously forecast. The central lender explained in a January paper that efficiency growth had averaged around 0.5 per cent per year because the 2008 financial crisis, in comparison to 2.5 % per year in the last decade. Similar trends have taken place across European countries, according to Investcorp.

“Higher productivity, often measured as gross domestic merchandise per worked hour, is a crucial driver of economic growth within an ageing Western world. Nevertheless, despite ongoing digitalisation, labour efficiency expansion has declined by about 2 percentage points on average across developed Europe because the mid-2000s,” Investcorp's analysis found.

Digital transformation will also empower innovation and decrease the costs of a variety of business techniques, it said. A PwC record estimates 45 % of work activities can be automated, which would save roughly $2 trillion in global workforce costs as computer software replaces humans by accomplishing manual, rule-structured office tasks more efficiently.

The white paper cites a McKinsey study which found that companies that become digital leaders within their sector have been able to improve profit margins 3 x faster than industry averages, experiencing greater revenue growth.

“Digital adoption is a time-consuming and frequently capital-intensive method which deters many corporations from acquiring the leap,” Mr Lopez-Cruz said. “We will be encouraged, even so, by the attractive purchase opportunities displayed by automated systems in large, developing and underserved end-markets.”