Business R&D investment on the rise – but still too low

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Australian businesses have lifted spending on Research and Development (R&D) over the past year, especially among medium-sized enterprises, but R&D spending is still low as a share of the economy.

The latest data from the ABS shows that business expenditure on R&D rose in 2013-14, despite a large decline in spending by the mining industry. Business R&D spending increased to $18.8 billion in 2013-14, up from $18.3 billion in 2011-12 (see Chart 1).

 

Chart 1: Business R&D expenditure

Chart 1: Business R&D expenditure

Despite this growth, total R&D spending accounted for only 1.2% of nominal GDP in 2013-14, down from a peak of 1.4% in 2008-09.

Across industries, manufacturing remained the biggest R&D spender in 2013-14, accounting for a quarter, or $4.8 billion, of all R&D spending in 2013-14 (see Chart 2).

R&D spending in the Professional and Financial Services sectors have also risen notably over the past decade. Mining sector R&D expenditure accelerated sharply from 2005 due to the resource investment boom, reaching a peak of 25% (or $4.3 billion) of all R&D spending in 2008-09, although spending has fallen back notably, to just $2.8 billion in 2013-14.

Together, these top four industry made up three quarters of total business R&D spending in 2013-14.

Chart 2: Value of industry R&D expenditure – Top 4 (* ANZSIC06 codes were used from 2005–06 and the survey became bi-annual from 2011-12; Source: ABS)

Chart 2: Value of industry R&D expenditure – Top 4 (* ANZSIC06 codes were used from 2005–06 and the survey became bi-annual from 2011-12;
Source: ABS)

Businesses are also devoting more human resources to R&D. The ABS estimated that an equivalent of 78,839 full-time staff were fully devoted to R&D in 2013-14 (Person years of effort or PYE). This is a sharp increase from 64,906 in 2011-12 (see Chart 3). This is equivalent to almost 1% of all the hours worked across the market sectors in the economy in 2013-14, up from around 0.4% at the turn of the century.

Chart 3: Human resources devoted to business R&D

Chart 3: Human resources devoted to business R&D

Most of this rise was driven by the professional services industry, which has taken over manufacturing and is now the biggest sector in terms of the number of R&D staff (28.4% or 22,400 PYE) (see Chart 4). Financial services also recorded a large rise in the amount of labour devoted to R&D over the past decade, although growth was more subdued in the manufacturing industry. Despite the huge run-up in business R&D expenditure since early 2000s (see Chart 2), the mining industry experienced only minimal growth in the number of full-time equivalent staff that focus on R&D.

These top four industry accounted for almost four fifths of all business human resources devoted to R&D in 2013-14.

Chart 4: Human resources devoted to business R&D - Top 4 industries (* ANZSIC06 codes were used from 2005–06 and the survey became bi-annual from 2011-12. Source: ABS)

Chart 4: Human resources devoted to business R&D – Top 4 industries (* ANZSIC06 codes were used from 2005–06 and the survey became bi-annual from 2011-12.
Source: ABS)

Ai Group is continuing our policy advocacy on behalf of members to ensure that government policy, at both the state and federal level, does not hinder business from undertaking R&D. We are constantly putting the case to government that more innovation of products and processes is needed to help rebalance the economy away from the heavy reliance of the resources industry of recent years.

We are keen to hear your views on this issue. Share your thoughts below, or contact our Economics team.

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Yi Ming Hu
Yi Ming joined Ai Group as an Economist in 2013. He has broad experience covering economics and financial markets, having previously worked as an economist for the Reserve Bank. Yi Ming holds a first-class Honours Degree in Commerce from the University of Melbourne and is a CFA charterholder and a CPA.
Yi Ming Hu

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