R&D is closely associated with innovation, but Australia's private sector remains reluctant to invest in it.
In the beginning of the millennium, Australia's business expenditure on R&D (BERD) grew strongly, and became more in tune with that of other countries in the OECD. It also boosted the nation's gross expenditure on R&D (GERD), and Australia was able to catch up with the OECD average in its ratio of GERD to gross domestic product (GDP), which is an often used indicator to determine the innovative capacity of an economy.
But the global financial crisis has triggered a trend reversal, with BERD in steady decline and Australia's GERD to GDP ratio again losing ground.
The Industry Innovation and Competitiveness Agenda in 2014, and the National Innovation and Science Agenda in 2015 were to stimulate more innovation in Australian businesses. It has has also been a key focus of the Innovation and Science Australia 2030 plan released in 2017.
However, while recent data from the Australian Bureau of Statistics (ABS) report a rise of BERD to more than $17 billion in 2016-17, an increase of 5% in current price terms from the previous year, the BERD to GDP ratio declined again during the period, down from 1% to 0.9%.
But the ABS data also highlight that Australia's rise and fall of BERD strongly associate with the mining sector.
In 2017-18, investments in the mining sector were down $826 million or 44%. The sector added around 6% to total BERD, which made it the fourth largest contributor. Topping the list were the professional, scientific and technical services (PSTS) sector, and the manufacturing sector.
Ten years ago, though, Mining almost levelled with Manufacturing contributing 25% to BERD and pushing Australia’s BERD to GDP ratio to new heights (see figure).
Given the cyclical nature of the industry, and the growing importance of advanced technologies for its profitability, it is likely that miners will reinvigorate their efforts in R&D again. There may also be an upside to the current situation, as manufacturing and especially the PSTS sector picked up the slack as both strongly increased their spending on R&D, by $691 million (18%) and 1.36 billion (36%), respectively.
This may indicate a trend towards greater diversification in the Australian economy,and the focus on primary indicators, such as BERD or GERD to GDP ratios, may therefore not adequately reflect the trajectory of Australian business innovation.
The flow through effects from the current decline in the BERD to GDP ratio also differ across parts of Australia. For example, the current decrease in spending on R&D in the mining sector impacts predominantly on Western Australia, where BERD decreased by $490 million (24%) in 2017-18.
The state or territory with the highest level of BERD as a proportion of gross state product (GSP) was New South Wales (1.13%).