Pathway to recovery in digital innovation crucial to Australia’s success
Digital technologies, such as artificial intelligence, robotics and data science, will play a critical role in driving Australia ’s economic recovery post COVID-19, according to a report co-authored by CSIRO ’s data and digital specialist arm, Data61, and the Australian Trade and Investment Commission (Austrade).
The report — Global Trade and Investment Megatrends — argues that increasing the rate of, and investment in, research and development (R&D), and embracing digital transformation, is the best pathway to economic recovery.
While COVID-19 inflicted a crushing blow to the global economy in 2020, leading to a fall in global output, trade, and foreign direct investment, there was also a soaring rise in digital technology. The report estimates that in 2020, within a few months, a decade ’s worth of digital transformation occurred, in turn transforming consumer behaviour and business operations worldwide.
And in a global economy where intellectual property, technology, and innovation have become a source of wealth and productivity growth, R&D has been highlighted as one of the key engines behind sustained economic growth.
The value of R&D
With global R&D spending now worth $3.08 trillion per year, there is an opportunity for Australia to attract investment and supply R&D services to the world as part of its economic recovery.
Some of this is already happening. For example, BT Group selected Sydney for its first international cybersecurity R&D hub, making Sydney a central destination for global research talent. In Melbourne, local company NextGen launched its Cyber Defence Centre, investing in local R&D and generating more than 100 jobs for cybersecurity specialists.
The value of R&D is not just in drawing in foreign investment and creating local jobs — companies that excel at R&D and innovation have been able to use the pandemic to build their competitive edge — creating new product lines and to explore new market opportunities and develop strong global brands. This is right in line with Australia ’s desire to develop a more diversified trade portfolio and create new sources of value.
Many digital companies have come into existence via R&D to create new software systems that uplift productivity for their customers. Such companies understand and depend upon new product development.
They have innovation and R&D built into their cultures. For example, software company Technology One has increased R&D spending from $27 million to $60 million from 2010 to 2019. The company spends around 21 per cent of revenue on R&D.
Logistics software company WiseTech invested $113 million in R&D in 2019, representing 32 per cent of its revenue and up from $30.6 million in 2015.
These and other such ASX-listed technology companies have much higher rates of R&D spending intensity than the general market.
Just as the post-global financial crisis years saw a boom in R&D spending amidst deep cost-cutting, the current time may see another boom in digital innovation and R&D.
Where Australia can excel in R&D
Australia has globally sought capability in health and biotech, infrastructure and urban management, and agriculture and resources.
Developing Australia ’s Agritech could add $24.6 billion to Australia ’s GDP, and create an A$100 billion agriculture industry. It would put Australia on the world map for technologies such as precision agriculture, internet of things (IOT), artificial intelligence and blockchain which have the potential to provide real-time supply chain monitoring and providence validation.
The global Medtech market will exceed $521.22 billion in the next four years — creating opportunities in therapeutics and pharmaceuticals, biotherapeutics (including stem cells and regenerative medicine, medical device and diagnostics and digital health).
This digital services boom — driven by technologies that collect, manage, analyse and use large amounts of data – presents a potential $315 billion opportunity for Australia, the report found.
Digital innovation not only increases productivity in existing industries, it supports the diversification of the Australian economy by creating new export products and services.
To realise this potential, and make the most of the global opportunities in health, agriculture and digital services, Australian universities, research organisations, industry, and government will need to collaborate to create targeted R&D and innovation programs.
By the numbers – impact of covid-19
Globally, there was a 3.5% fall in global output in 2020.
Global services exports were forecast to fall by 15.4% and merchandise goods trade to fall by 5.6%.
Global FDI flows fell 42% to an estimated A$1.123 trillion.
This led to a 46% fall in FDI flows into Australia in 2020.
Australian universities are bracing for a further $2 billion revenue shortfall, with 22,000 less student enrolments in 2020 compared to 2019.