Space activities are expanding globally, with a record number of countries and commercial actors investing in space programmes. Never before has there been so much interest in the space economy, with satellites in orbit registered in over 80 countries. Ever more down-to-earth activities are derived from satellite signals and data, contributing to new economic activities often far removed from initial investments in space infrastructure. This briefing note presents some of these trends, discusses current evolutions in the space sector and provides some highlights on future expected shake-ups. Most of the content is drawn from OECD documents that are referenced at the end of the note.
The importance of public spending
Public investments represent the bulk of funding in space activities, amounting to some USD 79 billion in 2019. Governments invest in space capabilities to support national security and governance objectives, but also broad socio-economic motivations, as well as the development of scientific capacities. They support basic science and R&D, and purchase space products and services using different procurement mechanisms.
The United States remain the largest space power, with a budget as high as 0.2% of national GDP, followed by Russia, Saudi Arabia and France (OECD, 2019). However, the number of developed and developing countries currently investing in space is growing. Many of them dispose now of a large portfolio of activities, reflection of well-developed space programmes (e.g. France, Germany, Italy and Canada). Furthermore, over the last decade, around twenty new countries have started investing in original space initiatives and supporting private endeavours, with distinctive and original projects. Among the others, they include the United Arab Emirates’ planned Mars mission, New Zealand’s successful small launcher, Luxembourg’s asteroid mining programme, or Israel’s lunar mission.
Private funding of space activities
Tracking and measuring private investments is challenging, but existing data shows that their volume is much lower than the one of public funding. Despite that, current evidence displays unprecedented investments coming from angel and venture capital funds in space start-ups and recently established firms. In fact, start-up equity investments represented some USD 3 to 3.25 billion in 2018 and the 2018 total represented around 16% of all the equity capital invested in space companies since 2009 (Space Angels, 2019; Seraphim Capital, 2019).
Commercial satellite telecommunications have paved the way for private financing in the space sector, typically through the adoption of classic financial schemes, like equity financing and bond issuance. In some cases, satellite operators even became publicly traded companies (in OECD countries). In others, like in China, state-owned enterprises went through restructuring processes to open up their capital. This successful trend promoted similar initiatives in other domains of space activities, where companies launched initial public offerings of stocks to fund their businesses and innovation plans (for example in the earth observation field). Still, most of the recent space companies are privately funded but not publicly traded (e.g. Space X, Blue Origin).
Founder’s own capital often remains the main source of financing, with investments coming from family circles, bank loans, equity and government support. Some large aerospace and defence firms have also set up their own venture capital funds to feed investments in start-ups operating in software development, artificial intelligence, augmented reality, sensors and autonomous vehicles, just to name a few. Some of the most active actors include for example Boeing’s HorizonX Ventures, Lockheed Martin Ventures, Airbus Ventures, Thales Corporate Ventures, and the Dassault System Venture Fund. Investments from billionaires in numerous space ventures have also increased in the past five years.
Sustained access to finance will remain a challenge for a majority of established and new players in the space sector. Hardened international competition between incumbents, the acceleration of the rollout of new technological solutions and the apparition of ever-more newcomers with yet unproven business models continue to characterise the investment outlook.
Current evolutions in the space sector
The space sector is facing a new cycle in its development, with mature off-the shelf technologies now largely available, and new commercial downstream activities derived from satellite signals and data. Promising innovations and new space technology systems are coming of age, including small and micro satellites, mega-constellations of hundreds of satellites, small launchers, broadband and internet of- things from space, commercial human spaceflight, among the others. Digitalisation is creating new opportunities to industry, thanks to the introduction of lean manufacturing processes, vertical integration of end-to-end products and services (e.g. from satellites all the way to ground terminals), as well as with the first assembly lines for the mass production of small satellites. The development of 3D printed components for satellites and rockets are also becoming the norm for both large and small aerospace manufacturers.
The last five years have seen a rapid expansion of the downstream space sector. Downstream activities all directly rely on the provision of satellite technology, signals or data to function. They include services and products for consumers using satellite capacity, such as communications, satellite television services, geospatial products, meteorology and location-based services. Their value creation and revenue generation are often far removed from the initial investments made.
Commercial satellite telecommunications were first to link with a wide range of businesses with no previous connections to the space community, mainly due to the provision of television broadcast services. Telecommunications markets are currently facing uncertainties, as space and ground technologies (e.g. fibre and 5G mobile systems with spectrum issues), as well as customer behaviours, are evolving rapidly (OECD, 2019).
Almost twenty companies have announced plans to launch new fleets of satellites in the next five years to deliver broadband services. However, most satellite broadband solutions at present are mainly complementary to existing networks in order to reach rural and remote areas. Some of these companies are backed either by existing satellite operators (e.g. O3b with SES; LeoSat with Hispasat and Sky Perfect JSAT) or manufacturers (e.g. OneWeb with Airbus; Starlink with SpaceX), but all have filed or will file for spectrum and orbital resources allocation. The investments required could range from USD 3.5 to 12 billion for a first-generation constellation, depending on the number of satellites, and the space and ground-based infrastructure chosen (OECD, 2019).
Further shake-ups expected in the space sector
In view of accelerated digitalisation trends affecting all parts of the economy, the structure of the space industry itself may undergo future changes, with new challenges to overcome:
- Changes in customers’ appetites for digital products, from satellite television to geospatial services, could have strong impacts on many existing commercial space service providers. For example, the business models of many of the planned constellations are still to be proven.
- Stronger competition across the sector may lead to increased concentration and/or multiple exits in certain segments of the value chain.
- Competition from terrestrial providers of services in space downstream markets is becoming more tangible.
- The uncontrolled presence of space debris in orbit can pose severe risks to functional satellites and other spacecraft. The issue of debris accumulation calls for increasing compliance with existing mitigation measures and cooperation among private and public actors at national and international levels. Potential business opportunities for technological development, as in the case of active debris removal solutions, exist but legal issues concerning debris ownership, liability and long-term funding of operations are far from being resolved.
IATA (2018), “Industry Statistics: December 2018”, International Air Transport Association, https://www.iata.org/pressroom/facts_figures/fact_sheets/documents/fact-sheet-industry-facts.pdf.
OECD (2018), “Private Equity Investment in Artificial Intelligence”, OECD Going Digital Policy Note, Vol. OECD, Paris, http://www.oecd.org/going-digital/ai/private-equity-investment-in-artificial-intelligence.pdf.
OECD (2019), The Space Economy in Figures: How Space Contributes to the Global Economy, OECD Publishing, Paris, https://doi.org/10.1787/c5996201-en.
OECD (2020), “The impacts of COVID-19 on the space industry”, OECD Policy Responses to Coronavirus (COVID-19), http://www.oecd.org/coronavirus/policy-responses/the-impacts-of-covid-19-on-the-space-industry-e727e36f/.
OECD (forthcoming), Handbook on Measuring the Space Economy, Second edition, OECD Publishing, Paris.
Seraphim Capital (2019), “Seraphim Global Space Index - 29% Year on Year Growth - January 2018 To December 2018”, https://seraphimcapital.co.uk/insight/news-insights/seraphim-global-space-index-29-year-year-growth-january-2018-december-2018.
Space Angels (2019), “Space Investment Quarterly: Q4 2018”, https://www.spaceangels.com/post/space-investmentquarterly-q4-2018.