OECDpubishing

SPACEECONOMY

INVESTMENTTRENDS:OECDINSIGHTSFORATTRACTINGHIGH-QUALITYFUNDING

OECDSCIENCE,TECHNOLOGYANDINDUSTRY

POLICYPAPERSApril2024No.166

》OECD

BETTERPOLlcIESFORBETTERLIVES

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OECDScience,TechnologyandIndustryPolicyPapers

ThispaperwasapprovedanddeclassifiedbywrittenprocedurebytheCommitteeforScientificandTechnologicalPolicy(CSTP)on19March2024andpreparedforpublicationbytheOECDSecretariat.

NotetoDelegations:

ThisdocumentisalsoavailableonO.N.EMembers&Partnersunderthereferencecode:

DSTI/STP(2023)4/FINAL

Thisdocument,aswellasanydataandmapincludedherein,arewithoutprejudicetothestatusoforsovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundariesandtothenameofanyterritory,cityorarea.

?OECD(2024)

Theuseofthiswork,whetherdigitalorprint,isgovernedbytheTermsandConditionstobefoundat

/termsandconditions

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Spaceeconomyinvestmenttrends:

OECDinsightsforattractinghigh-qualityfunding

Overthelastdecade,thespaceeconomyhasseensignificantshifts,

welcomingnewentrantsandtypesofcapital.Annuallaunchactivityhas

increased,inlargepartthankstotheinfluxofprivateinvestment.This

raisesquestionsaboutthefuturedevelopmentofthesector.Drawingon

OECDinsightswithinscience,technology,andinnovation,thispolicypaperexaminespublicandprivateinvestmenttrendsinthespaceeconomyanddiscusseshowpublicpolicydecisionsandinstrumentscancontributeto

attractingmoreandhigher-qualityprivateinvestment.

Keywords:Scienceandtechnology,innovation,spaceeconomy,industrialpolicy

JELcodes:L26,O14,O31,O38

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Acknowledgments

ThisdocumentwaspreparedbytheOrganisationforEconomicCo-operationandDevelopment’sSpaceForum(the

OECDSpaceForum)

intheDirectorateforScience,TechnologyandInnovation.

TheOECDSpaceForum’saimistoimprovethemeasurementofthespaceeconomyanditsbroaderimpacts,inordertohelpcountriesformulatebetterevidence-basedpolicyanalysis.TheSecretariatwishestoacknowledgethesustainedsupportprovidedbytheorganisationsformingtheOECDSpaceForum’sSteeringGroup:TheCanadianSpaceAgency(CSA),Canada;Centrenationald’étudesspatiales(CNES),France;DeutschesZentrumfürLuft-undRaumfahrt(DLR),Germany;AgenziaSpazialeItaliana(ASI),Italy;theKoreaAerospaceResearchInstitute(KARI),Korea;theNetherlandsSpaceOffice,theNetherlands;theNorwegianSpaceAgencyandtheMinistryofTrade,IndustryandFisheries,Norway;theSwissSpaceOffice,Switzerland;theUKSpaceAgency,UnitedKingdom;theNationalAeronauticsandSpaceAdministration(NASA),UnitedStates;andtheEuropeanSpaceAgency(ESA).

Forthispaper,wewarmlyacknowledgethekindsupportandthoughtfulcommentsoftheUKSpaceAgencywhendevelopingtheinitialdraftpaper,inparticularJasminKeeble,AlexLeudar,IsabellaSewellandAdamStephen.WealsoappreciatethefeedbackofindividualmembersoftheSpaceForum’sSteeringGroupondraftsofthispaper,inparticularJulieBosséandAaronParsonsintheCanadianSpaceAgency,StéphanieWillekensintheEuropeanSpaceAgencyandSangwooShinintheKoreaAerospaceResearchInstitute.

WethankourOECDcolleagueswhoagreedtosharetheirexpertiseviaashortsurveytogainabetterunderstandingoffinanceinstrumentsforhigh-risktechnologydevelopment,notablyLaurentDaniel,AlistairNolan,JamesPhilp,DouglasRobinson,BarrieStevensandDavidWinickoff,expertsfromtheDirectorateforScience,TechnologyandInnovation.WealsothankAlessandraColecchia(HeadoftheDivisionforScienceandTechnologyPolicy),Hanna-MariKilpelainen(Counsellor),andJensLundsgaard(DeputyDirector)intheDirectorateforScience,TechnologyandInnovationfortheircarefulreviewandinputs.

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Tableofcontents

Acknowledgments4

Executivesummary6

1Introduction8

2Howdoesthelevelofprivateinvestmentcomparetopublicsupportinthespace

economy?10

3Barrierstoinvestandpoliciestoattractandraiseprivatespaceinvestment20

References28

Tables

Table2.1.R&DintensityinselectedISICrev.4categories13

Table2.2.R&DintensityinselectedspaceactivitiesandOECDcountries13

Figures

Figure1.1.Increasinglycrowdedorbits8

Figure2.1.Mainperimetersofthespaceeconomy12

Figure2.2.Evolutionofselectedgovernmentspacebudgets15

Figure2.3.GrossoutputofselectedindustrysegmentsoftheUSspaceeconomy17

Figure2.4.Europeanupstreamfinalsales18

Figure2.5.Investmentincommercialspaceventures18

Boxes

Box2.1.Trackinginvestmentinofficialstatistics12

Box3.1.UKSpaceAgency:Catalysinginvestmentandmonitoringimprovement21

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Executivesummary

Accesstoprivatesourcesofcapitalhasgreatlyimprovedinthelastdecade,butpublicsourcesoffundingremaincrucialinkeyspaceindustrysegments

PublicprocurementandsupportstillaccountforamajorshareofspaceR&Dexpenditureandcommercialrevenues,inparticularinspacemanufacturing.AvailabledatafromseveralOECDcountriesindicatethatinstitutionalmarketsrepresentupto60-70%ofrevenuesforspacemanufacturingandlaunchsegments,but(much)lessthan10%forsatelliteoperationsorsatellitetelevision.AlargeshareofbusinessexpenditureonR&Dinthesameindustrysegmentsisexternallyfundedbypublicsources.

Thecombinationofcertainspaceactivities’R&Dandinvestmentintensityandtechnologyrisknegativelyaffectstheirabilitytoattractprivatecapital.AreviewofOECDstatisticsandspaceindustrysurveysonR&Dandinvestmentintensityindicatesthatcertainspaceindustrysegmentsareparticularlycapital-intensivecomparedtootherindustries.Furthermore,therearesubstantialuncertaintiesconcerningR&Doutcomesinseveralspaceindustrysegments,mostnotablyinspacemanufacturingandlaunch,makingthebusinesscaseandfutureprofitabilityofseveralapplicationsandactorsuncertain.Thesefactorscanmakeitdifficultforspacecompaniestoattractcapital,especiallywhenfacedwithcompetitionfrommoreconventionalinvestmentopportunities.

Volumesofequityfinancedirectedtospacefirmshavegrown,butfundingisconcentratedamongasmallnumberofactorsandthesectorfacescompetitionfromlower-riskandfaster-growingtechnologicalsolutions.Equityfinanceisagoodfundingopportunityforfast-movingandinnovativestart-ups.However,equityfinancetendstopreferlow-riskandquicklyscalable,intangibletechnologiestoprojectswithlowtechnologicalmaturity,longleadtimesand/oruncertainmarketprospects.Untilrecently,verylowinterestratesboostedventureandequityinvestmentsinfuture-growthindustrieslikespace,butsinceinterestrates’returntomorenormallevelsin2022,manyinvestorsarelookingforquickerreturnsoninvestment.

Governmentpolicyandprogrammesmaycontributetoattractingprivateinvestmentinmultipleways

EvidencefromotherSTIdomainssuggeststhatgovernmentsupportandprocurementprogrammesareconducivetomobiliseprivateinvestment.Involvementingovernmentprogrammescanincreaseaspacefirm’svisibilityandcredibilityvis-à-visprivateinvestors.Theexistenceofstable,long-termgovernmentdemandforthefirm’sgoodsandservicescanalsobebeneficialforattractingprivateinvestment.However,itisimportanttoensurethatcommercialandpublicpartyinterestsarealigned,e.g.whenitcomestoprotecting“l(fā)egitimatecommercialinterests”inthepublicprocurementandpotentialsubsequentsharingofsatellitedataorspace-relatedintellectualproperty.

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Furtherpublicpartnershipswithindustrycouldalsobeawayforward.Successfulpartnershipslowerprojectrisksbydistributingthemacrossseveralactorsandallocatingthemtotheactorbestequippedtodealingwiththem(e.g.theprivatepartnertakingagreatershareofdevelopmentandconstructionrisks,whilethepublicpartnerensuressomeofthemarketdemand).Inturn,thiscouldmakemoreprojectsandactivitiesattractivetoprivateinvestors.TherearemanyexamplesofbothsuccessfulandfailedpartnershipsforR&Dandpublic-private-partnershipstodevelopandoperatespaceinfrastructure.However,severalconditionsneedtobemetforthemostambitiouspartnershipstobesuccessful,including

competitionforandinthemarketandadequateresourcesandexpertiseinthepublicagencydedicatedto

projectnegotiationandmonitoring.

Therecentinfluxofprivatecapitalhasdemocratisedaccesstospace,butthequalityandlonger-termeffectsofinvestmentalsoneedtobeconsidered

Facedwithamaturingprivatespacesector,adramaticincreaseinactivityandanincreasednumberandrangeofpartnershipsandcollaborations,spaceagenciesandotherprocurementagencieswillneedtohaveadequateandsustainedskillsandresourcestomonitorchangesandinteractwithcommercialactors.

Theinfluxofprivateinvestmentinthespaceeconomyinthelasttwodecadeshasbroughtdisruptiveinnovationandapplicationstonewusersbutcanalsohavenegativeeffects,someofwhichwearejuststartingtoobserve.Forinstance,increasedspaceactivitycontributestoorbitalcongestion,spacedebrisandatmosphericandterrestrialpollution.Theunprecedenteduseofresourcessuchasorbitalspaceandtheelectromagneticspectrumfurthermorecreatestensionsbetweenfirst-andfast-movingincumbentsandnewcomers.

Whenpromotingprivateinvestmentandpartneringwithprivateactors,governmentsmaydowelltoconsiderhowthiscorrespondswithbroaderstrategicobjectives,e.g.spacesustainability,inthemediumandlongerterm.TheJapanAerospaceExplorationAgencyandtheEuropeanSpaceAgencyhaveprocuredactivedebrisremovalmissionsfromprivatefirms,scheduledfor2024and2026,respectively.TheUnitedKingdomlaunchedaSpaceSustainabilityPlanin2022,withmeasuresrangingfromregulationstoresearchgrants.

Reviewingregulatoryprocedurestoaddressrisksandaccommodateagreaterdiversityofprivatesectoractors,suchasyoungandsmallfirms,couldbenecessary.Governmentagenciesarealreadyaddressingtheneedsofsuchactorsthroughdedicatedcallsforproposals,dedicatedgrantsandincubationservices,developmentandtestingservices,etc.Nevertheless,manoeuvringgovernmentprocurementcontractsandregulatoryrequirementsstillfavourlargeincumbentswithresourcesandknowhow,andreducingredtapecouldimproveaccess.Forexample,USregulatorsarestreamliningtheirlicensingrulestomaketheprocesseasier,fasterandlessexpensive,toattractinnovativeactors(oftenfundedbyequityfinance).OneinterestinginitiativeistheUK“slidingscale”policy,whichreducesorwaivesrequirementstoholdin-orbitthirdpartyliabilityinsuranceforlow-riskmissions.

Consideringtheimportanceofgovernmentprogrammesforspaceactivities,moreevidenceisneededontheireffects

Severalspaceagencieswithresponsibilityforprocurementarealreadycollectingandsharingvaluablespaceindustrydataandpolicyevaluations,butmoreresearchisneededonthe“additionality”ofpublicspaceprogrammes,i.e.theireffectonfirminputs,outputsandbehaviour.TheOECDSpaceForumwillcontinuecontributingtotheseeffortsbyprovidingdefinitionsandguidelinesonhowtomeasurethespaceeconomyandbyanalysingspace-relatedpolicyinstruments.

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1Introduction

Thespaceeconomyhaschangeddramaticallyinthelasttenyears.Theloweringofproductionandlaunchcostsintheearly2000s(OECD,2014[1];2019[2])hasattractednewtypesofactorsaswellasnewtypesofcapital,leadingtoanexplosivegrowthinthenumberofsatelliteslaunchedintoorbit.

Figure1.1

showstheintensificationoflaunchactivitybetween2013and2022,startingwiththelaunchofthefirstcommercialnanosatelliteconstellations,consistingofdozensofsatelliteswithaverylowmass(equalorinferiorto10kg)Since2019,globallaunchactivityisdominatedbythedeploymentofsatellitebroadbandconstellationsinthelow-earthorbit.Inearly2024,theconstellationsoftwocommercialoperators,US’SpaceXandUK’sOneWeb,countmorethan5000and600satellitesrespectively,representingmorethanhalfofalloperationalsatellitesonorbit.

Figure1.1.Increasinglycrowdedorbits

8000

7000

6000

5000

4000

3000

2000

1000

0

PanelA.Numberofpayloadslaunchedintospace

OperationalsatellitesinorbitPayloadslaunchedintospaceNumberoflaunches

PanelB.Distributionofoperationalsatellitesbytypeof

Commercial

Government

Military

Civilian1

operatorin2022

78.6

10.2

8.8

2.4

020406080100

%

1.Civilianoperatorstypicallyincludeuniversitiesandradioamateurs.Note:Eachcategoryofactorsalsoincludespartnershipsanddual-usemissions(e.g.public-private,military-commercial).

Source:OECD(2023),TheSpaceEconomyinFigures:RespondingtoGlobalChallenges

,/10.1787/fa5494aa-en,

basedondatafromtheUSSpaceForceandtheUnionofConcernedScientistsSatelliteDatabase.

ThisremarkablegrowthinactivitywasfundedbygovernmentR&Dsupportandstrategicpublicprocurement(e.g.theCommercialOrbitalTransportationServicesprogrammebytheUSNationalAeronauticsandSpaceAdministration(NASA)),considerableinvestmentsbybillionairemarketentrantsfromtheinterneteconomy(e.g.SpaceX),andunprecedentedamountsofequityfinance(aswillbeshowninthenextsection).

Still,itraisesseveralquestionsforpolicymakerswhendesigningeconomicallysustainableandforward-lookingpolicies.

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?Howdoesthelevelofprivateinvestmentcomparetopublicsectorsupport?Andisitareliablesourceoffundingovertime?

?Whicharethecharacteristicsofprivateinvestmentsintermsofscopeanddurationofsupport?Doesthisdifferfrompublicsourcesoffunding?

?Howcanpublicpolicydecisionsandinstrumentscontributetoattractingmoreprivateinvestment,inareaswherethisisdesirable?

Thisreportaimstoprovideinitialanswerstothesequestions,buildingonOECDstatisticalanalysisandpolicyevidenceinthescience,technologyandinnovation(STI)domain,aswellasavailabledatafromspaceindustrysurveys.Thesectionsarestructuredasfollows:

Section2tracksdifferenttypesofinvestmentsinbothofficialstatisticsandnationalmicro-datatobetterunderstandstructuralinvestmentcharacteristicsofthespaceeconomyand/orofrelatedindustriesandassessthelevelsofavailablecapital.

?Section3looksmorecloselyatSTIpolicyinstrumentsusedtoattractandsustaininvestmentinspaceandscience,technologyandinnovationdomainsandsuggestsseveralpolicyoptionsfordecisionmakers.

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2

Howdoesthelevelofinvestmentcomparesupportinthespace

privatetopublic

economy?

Thissectionlooksatwhichsegmentsofthespaceeconomyareingreatestneedofinvestmentforphysicalcapitalandresearchanddevelopment(R&D),andthenreviewsavailableevidenceofpublicandprivatesourcesoffundingandsupport,relyingbothonOECDstatisticsandagrowingamountofdatafromspaceindustrysurveys.Whatcomesoutoftheanalysisisthatthespaceeconomyisdeeplyheterogeneous,withaclearseparationbetweenupstreamanddownstreamsegments.

?SpacemanufacturingintheupstreamsegmentstandsoutasparticularlyR&D-andinvestment-intensive,highlyreliantongovernmentprocurementandR&Dsupport.

?Activitiesassociatedwithspaceoperationsinthedownstreamsegmentcanalsobeverycapital-intensive.Certaindownstreamactivitiesarestronglyreliantongovernmentprocurement.

?Revenuegrowthisstagnantforspacemanufacturingandlaunch,aswellasforcertaindownstreamactivities(direct-to-hometelevisioninparticular),indicatingthatin-housesourcesofequitymaybelimited,unlessthefirmshaveothermoreprofitableactivities(e.g.defencebranchesofconglomeratesAirbusandBoeing)orareattachedtorichinvestors(suchasAmazonorSpaceX).

Theavailabilityandvolumeofprivateinvestmenthaveincreasedconsiderablyinthelast15years,playingagrowingroleforcertainactors,typicallyfast-movingstart-upswithscalableactivities.Privateinvestmentthereforeplaysanessentialroleinnurturinginnovation.Butthisaccountsonlyforasmallfractionofactorsandinvestmentneeds,thebulkofwhichiscoveredbypublicsupport.

Definingandmeasuringspaceinvestment

Inthespaceeconomyandotherindustries,“investment”meansdifferentthingsindifferentcontextsandthissectionprovidessomekeydefinitionsandreviewsnotablemeasurementissues.

Financialinvestmentreferstotheactofacquiringassetsoritems(e.g.stocks,equities,realestate)togenerateincomeovertime.Aninvestmentcompanyistypicallya“corporationwhoseactivitiesconsistexclusivelyorsubstantiallyofmakinginvestments(i.e.holdingpropertyandcollectionofincometherefrom)andwhosebuyingandsellingofshares,securities,realestatesorotherinvestmentpropertyisonlyincidentaltothispurpose”(OECD,2022[3]).Incontrast,innationalaccounting,investmentequals“grossfixedcapitalformation”(GFCF),whichcomprisestotalexpendituresontangibleandintangibleproducts(e.g.machinery,buildings,software,patents)intendedtobeusedforfutureproduction(LequillerandBlades,2014[4]).R&DexpenditurewasformallyrecognisedasGFCFinthe2008updateoftheSystemofNationalAccounts(SNA).Inthisreport,wewillspecificallylookatfinancialinvestments,R&Dinvestmentsandotherfixedcapitalinvestments(e.g.facilities,equipment).

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Furthermore,somespecificationsonprivatesectorinvestmentareneeded.First,itisimportanttonotethedifferencebetweenprivatesectorperformanceandfunding,e.g.R&Dperformedbybusinessfirmsisnotnecessarilyprivatelyfunded.PublicactorssupportasignificantshareofprivatesectorR&Dandothercapitalinvestmentsthroughtaxincentives,subsidies,debtandequityfinancing.Second,governmentprogrammesandactionscaninfluenceprivateincentivestoinvest–predictableandlong-termsupply-sideschemessuchasprocurementcanattractprivatecapitalasitgivesmorecertaintyonthereturnoninvestment.Relevantpublicactorsandfundinginstrumentswillthereforealsobecoveredinthefollowingsections.

Spacemanufacturinginvestmentneedsarehigherthanthoseofmostotherhigh-techindustries

Itisimportanttounderstandthetypeoffinancialchallengesandhurdlesthespaceindustryfacesforgovernmentstoprovideeffectivesupport.Forexample,revenuesandventurecapitalinvestmentsaresometimesusedtoestimateprivateR&Dinvestments(seeforinstanceBrukardt,KlempnerandStokes(2021[5])),butwithoutdetailedknowledgeaboutstructuralinvestmentcharacteristicsofdifferentspaceindustrysegments,thismayleadtoover-orunder-estimation.Furthermore,intheprivatemarketforcapital,spaceentrepreneurscompeteforsupportagainstothersectors/technologies,andtheratiobetweenupfrontcapitalneedsandexpected(short-term)returnscanbeadeterminantfactorofsuccessinobtainingfunding.

Thefirststepistodefinespaceactivitiesandlocatetheminofficialstatistics.TheOECDHandbookonMeasuringtheSpaceEconomy(OECD,2022[6])dividesspaceactivitiesintotheupstreamanddownstreamsegment

(Figure2.1)

.Theseactivitiesaredispersedacrossseveralhigher-levelindustrycategoriesintheInternationalSystemofIndustryClassification(UNDepartmentofEconomicandSocialAffairs,2008[7]),themostimportantofwhicharethefollowing:

Upstreamactivities:

?spaceresearchanddevelopment(72:scientificresearchanddevelopment)

?testingandengineeringservices(70:architecturalandengineeringactivities:technicaltestingandanalysis)

?spacemanufacturing(31:manufactureofairandspacecraftandrelatedmachinery)

?spacelaunch(51:Airtransport).

Downstreamactivities:

?operationofspacesystems(61:telecommunications)

?supplyofdevicesandproductssupportingconsumermarkets(e.g.GNESSchipsetsanddevices(26:manufactureofcomputer,electronicandopticalproducts)

?supplyofservicessupportingconsumermarkets(e.g.DTHproviders,data-derivedcommercialservices)(60:programmingandbroadcastingactivities;63:informationserviceactivities).

Figure.21

showsthedifferentsegmentsofthespaceeconomyinthreeconcentriccircles,withtheupstreamspacesegmentinthecentre,surroundedfirstlybythemuchbiggerdownstreamsegment,whichdependsontheexploitationofspacedataandsignals,andsecondly,by“space-derivedactivities”,whicharederivedfromspacetechnologiesbutnotdependentonthemtofunction.Thesethreeperimetersjointlyconstitutethespaceeconomy.

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Figure2.1.Mainperimetersofthespaceeconomy

Mainperimeters

Upstream

spacesector

Downstreamspacesector

Space–derivedactivitiesinothersectors

Scope

Upstreamspacesector=scientificandtechnologicalfoundationsofspace

programmes,manufacturingandproductionofspaceinfrastructure

Downstreamspacesector=daily

operationsofspaceinfrastructureand

“down-to-earth”activitiesthatdirectlyrelyontheprovisionofaspacecapacity

(satellitetechnology,signalsordata)toexistandfunction

Space-derivedactivitiesinother

sectors=newactivitiesinvarious

economicsectorsthatderivefromorhavereliedonspacetechnologytransfers

Activities

Fundamentalandappliedresearch;scientificandengineeringsupport;dedicatedancillaryservices(e.g.insurance);supplyofmaterialsandcomponents;designandmanufacturingofspaceequipmentandsubsystems;

integrationandsupplyoffullsystems;spacelaunch

Operationsofspaceandgroundsystems;

supplyofdevicesandproductssupporting

consumermarkets(e.g.GPS-enabled

devices,set-topboxes,selectedGIS);supplyofservicessupportingconsumermarkets(e.g.satellitetelevisionbroadcast)

Activities/products/servicesderivedfrom

spacetechnology,butnotdependentonittofunction(e.g.ad-hocspacetechnology

transfersintheautomotiveormedicalsectors).

Source:OECD(2022[6]),HandbookonMeasuringtheSpaceEconomy,2ndEdition,

/10.1787/8bfef437-en.

Identifyinginvestmentpatternsandneedsinthespaceeconomy

IndustrysurveysandofficialstatisticstendtotrackinvestmentsinR&Dandinphysicalcapitalsuchasequipmentandfacilities.

Judgingfromindustryaggregates(asshownin

Box2.1)

,upstreamanddownstreamspacesegmentshavequitedifferentcharacteristicsintermsofR&Dintensity.ActivitiesintheupstreamsegmenttendtobeextremelyR&D-intensive.Infact,accordingtorecentOECDresearch,themanufactureofairandspacecraftandothermachineryhasthehighestR&Dintensityofallrecorded4-digitISICeconomicactivities(Galindo-RuedaandVerger,2016[8]).Inthedownstreamsegment,thesituationislessclear.ThemanufactureofelectronicandopticalproductsishighlyR&Dintensive,theotheractivitieslessso.

Box2.1.Trackinginvestmentinofficialstatistics

TheintensityofR&Dandotherfixedcapitalinvestments(investmentintensity)istypicallymeasuredasashareofgrossvalueadded(GVA)–anindustry’scontributiontothegrossdomesticproduct(GDP)

–orgrossoutput(industrysalesaswellastheinclusionofotherformsofmixedincome).GVAispreferredbystatisticiansbecauseitislesssensitivetosector-specificrelianceonmaterialinputslikerawgoodsandbetterincorporatesstructuralindustrycharacteristics((Galindo-RuedaandVerger,2016[8]).ThisreportusesGVAwhenpossibleandrevertstogrossoutputwhenGVAdataareunavailable.

ThefollowingtablesandgraphsincludedataforaggregatedISICcategorieswh