Digital automation will create more investment opportunities, Investcorp says

New white paper says there is still a lot of potential to be realised from digitising and automating routine tasks

A smartphone sits next to a cup of espresso on the desk of a home office in an arranged photograph taken in Bern, Switzerland, on Wednesday, April 1, 2020. The Covid-19 pandemic has triggered a seismic wave of health awareness and anxiety, which is energizing a new category of virus-fighting tech and apps. Photographer: Stefan Wermuth/Bloomberg
Powered by automated translation

Digital process automation – the practice of automating repetitive, rules-based tasks through technology – can not only drive much-needed productivity gains for the global economy, but can also offer valuable investment opportunities, according to Bahrain-based Investcorp.

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

“Despite significant digital transformation in recent years, we are still at a relatively early stage of adoption of a whole range of technological advancements that have the potential to impact all sectors across the world, albeit at varying rates,” said Daniel Lopez-Cruz, managing director and head of European private equity at Investcorp.

Investcorp, in which Abu Dhabi’s Mubadala Investment Company has a 20 per cent stake, has $31bn (Dh113.8bn) worth of assets under management as of March 31 this year. The company invests in alternative asset classes such as private equity, venture capital, real estate and hedge funds, among others.

Digital process automation can help to reverse a slowdown in productivity growth that has affected several major global economies over the course of the past decade.

In Britain, for instance, the Bank of England halved its expectations for productivity growth among British workers to 0.5 per cent per year, instead of the 1 per cent that was previously forecast. The central bank said in a January paper that productivity growth had averaged around 0.5 per cent per year since the 2008 financial crisis, compared to 2.5 per cent per year in the previous decade. Similar trends have taken place across Europe, according to Investcorp.

“Higher productivity, often measured as gross domestic product per worked hour, is a crucial driver of economic growth in an ageing Western world. However, despite ongoing digitalisation, labour productivity growth has declined by approximately 2 percentage points on average across developed European countries since the mid-2000s,” Investcorp's study found.

Digital transformation will also empower innovation and reduce the costs of a range of business processes, it said. A PwC report estimates 45 per cent of work activities can be automated, which would save approximately $2 trillion in global workforce costs as software replaces humans by performing manual, rule-based office tasks more efficiently.

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

“Digital adoption is a time-consuming and often capital-intensive process which deters many companies from taking the leap,” Mr Lopez-Cruz said. “We are encouraged, however, by the attractive investment opportunities shown by automated technologies in large, growing and underserved end-markets.”