Winning Investment for Australia

Wednesday, 01 May 2013

Greetings

Why is foreign investment in R&D important?

Investment in R&D has a strong impact on economy.
Compared to investment in physical capital, you get 10x more long term economic growth from investment in applied research and 30x more long term economic growth for investment in basic research .
If we can properly connect with international science systems, benefits are huge. Part of our national architecture should be (strategic) connections with the rest of the world.

What are we doing well?

The Australia – Destination Innovation[i] publication sets out Australia’s strengths persuasively.

Resilient economy, IP protection, tax incentives, educated workforce, world-class infrastructure.
Supportive government: $12.5b spent on R&D tax concession over the past decade – twice the amount of ARC funding.

State of current investment in R&D (what we don’t do so well)

Australia’s total GERD was 2.20% of GDP in 2010[ii]

Level of foreign investment as % of total GERD in 2008[iii]:

Australia’s 1.6% (ranks us 22nd^[iv]) and we compare unfavourably with:UK: 18%Canada: 7%Austria: 16%Israel 31%
But not Japan: 0.4% (which has an extremely high BERD – 2.7% of GDP, 75% of GERD)

Level of BERD: Australia 12^th in the world on 1.4% of GDP in 2008

OECD average: 1.5%, highest: Japan 2.7%[v]

BERD financed from abroad was about 1% of total business expenditure in 2010-11[vi]

Dollar wise, this is a 2x increase since 1994-5, but as a per cent of BERD, has declined 70%[vii]
27^th out of 30 OECD countries which provided data (above Chile, Japan, Korea)[viii]
OECD average is 10% of BERD[ix]
This figure is affected by many factors including investment laws, requirements for joint ventures etc.

Businesses with international collaboration on innovation in 2008:

Australia: 2.4%.
OECD average: 18.5%
Top five average: 31%.
Ranks us 25^th out of 26[x].

Australia’s technology imports outweigh its exports between 2007-10,making us a net importer of technology. Payments for technology acquisition increased to $8b[xi].

The overall summary picture painted here is:

Foreign investment in Australian BERD at significantly lower levels than other countries. These are often the countries we aspire to be like.
In general, Australian businesses are not investing as much in R&D as businesses in other successful countries.
Interesting point that we perform at the top of Asian countries, but well below most European countries.

What can we do better?

Improve the culture! It comes back to culture!

Australian business culture appears to be focussed very close to home – their innovation is focussed on being first in their industry, not first in Australia, let alone first in the world:

Almost all other OECD countries are much more likely than Australia to develop innovations that are new to international markets[xii].

Approx. 4% of Australian business work towards innovations new to international markets. The majority (64%) work on modifying products that already exist in domestic markets.[xiii]
This is not a matter of location. New Zealand: 20% focussed on international innovation. Average for most countries surveyed around 22%.[xiv]
Between 80-95% of Australian businesses develop innovations new only to their own business[xv].
While this way of innovating might contribute to specialisation of existing markets it is not obvious that it will create any –first-mover’ competitive advantage.

In Australia, I argue, we don’t have the right culture. A lot of what we do is what we used to do – just with a fiddle at the margins. And I include the education, research and business sector under the umbrella of that comment.

We’ve been talking about getting industry and publicly funded research better together since 1980. And the sides criticise each other – and the –debate’ doesn’t change much.

So, in my Office we are preparing a Science (STEM) strategy.

We plan to address a number of issues in that Strategy that I have mentioned tonight.

But it is a story for another night.

Let me finish by some reflections on how Canberra might fit in? How Canberra has evolved to Research hub – that builds on the fact that ANU was Australia’s first university in which research was a requirement.

Here we now have access to research facilities, and we have people in a range of disciplines up there with the best in the world.

We don’t prosecute every possible discipline in every research field – but in several places where we focus, we have the scale we need to be up there amongst the best.

Because we are –small’ and better focussed, there is a high concentration of research facilities and people in the ACT.

While –smallness’ per se may not give us a fully comprehensive scale, the concentration gives us an advantage.

And it is not that our scale is insignificant – it might be if we tried to do everything, but we are a tad more focussed than some other places in Australia.

Being –small’ should give us the advantage of being able to develop a culture – the right culture: quality work in fields of importance leading to either new knowledge or the potential for real innovations – or both – leading to markets, exports, a sound economy and secure prosperity.

Because we are –small’ and with a high concentration of researchers and facilities, it ought to be much more possible to link facilities and staff – in the current vernacular, the ACT is a precinct within which high quality research is conducted – although we are not so good at the translation.

They range across five university campuses – but they operate largely in different areas so competition is minimised – or should be.

In essence, Canberra has a great foundation – it just needs business, governments and the research sector to be strategic, too.

[i] Australian Trade Commission. (2013). Australia- Destination Innovation.

[ii] OECD (2013) Main Science and Technology Indicators 2012-2

[iii] OECD (2013)

[iv] OECD (2010) Measuring Innovation: A New Perspective; OECD (2012) OECD Science, Technology and Industry Scoreboard 2011; ABS (2012) DIISRTE special data request.

[v] OECD (2013)

[vi] ABS (2012) Research and Experimental Development, Businesses, Australia, 2010-11, Cat. No. 8104.0

[vii] ABS (2012) Research and Experimental Development, Businesses, Australia, 2010-11, Cat. No. 8104.0

[viii] OECD (2009) Main Science and Technology Indicators. Percentage of BERD funded abroad.

[ix] Ibid

[x] DIISRTE (2012) Australian Innovation System Report. Table 5.2: Australia’s performance in global integration against other OECD countries. P 78