The highs and lows of our spending on R&D
Business expenditure on R&D now makes up half of all R&D investment in New Zealand.
Statistics NZ’s Research and Development Survey for 2016 found that R&D as a proportion of GDP had increased to 1.3%, a rise from 1.2% in 2014, but was still lower than the OECD total of 2.4%.
- New Zealand’s R&D spending is comparatively low.
- Business spending on R&D is slowly rising.
- R&D spending in the tech and high-value manufacturing sectors is driving business growth.
- New Zealand’s commitment to investing in R&D is growing, but there’s a long way to go.
Between 2014 and 2016, total R&D spending grew by 20% ($531 million) to reach $3.2 billion. Most of this growth came from the business sector, which spent $1.6 billion, an increase of 29%. Business expenditure on R&D (BERD) now makes up half of all R&D investment in New Zealand. The higher education sector spent 18% more than in the previous period, and government spending was up 5%.
Within the business sector, the area showing the biggest growth was computer services, which invested an extra $125 million (40%) for a total R&D spend of $436 million. Next highest was machinery and equipment manufacturing, spending $105 million (37%) more on R&D to reach $392 million. This industry type includes high-tech manufacturing, which develops new products and services for New Zealand and overseas markets.
The number of people working in R&D is also growing steadily. Fulltime equivalent employees (FTEs) involved in R&D increased by 2,500 to reach a total of 32,500 over the two years of the survey. The business sector accounted for a thousand of these extra workers.
In 2016, 85% of businesses doing R&D expected their R&D activity to increase or stay the same (up from 81% in 2014). More than half (59%) of businesses in the computer services sector expected to increase their R&D spending, along with 49% of machinery and equipment manufacturers and 47% of food manufacturers. Overall, only 9% of businesses expected to spend less on R&D, compared with 13% in 2014.
The leading purpose of all R&D during the period was improving or developing manufacturing processes, which accounted for 20% of all R&D expenditure. For the business sector, the key purposes of research were manufacturing (30% of expenditure), primary industries (17%) and information and communication services (16%).
Increasing R&D investment
Growth in R&D spending in government and higher education sectors was more modest than for BERD. Government R&D spending rose 5% ($32 million) and higher education R&D spending grew 18% ($143 million).
In 2016, 68% of all business expenditure on R&D came from 100 businesses. Just five businesses drive 19% of BERD ($300 million). Businesses with more than 100 employees make up only a fraction of all New Zealand businesses, but are responsible for more than half of BERD.
The New Zealand Technology Industry Association (NZTech) released a report on New Zealand’s tech sector, Digital Nation New Zealand: From tech sector to digital nation, in 2016. It focuses on ICT and high-tech manufacturing, where R&D activity tends to be more intense than many other sectors.
Its export revenue of $6.3 billion positions the technology sector as New Zealand’s third-largest export sector, hard on the heels of the dairy and tourism sectors.
Research undertaken by the New Zealand Institute of Economic Research (NZIER) for the report attempted to estimate the sector’s economic impact on national and regional growth, employment and social benefits. The research found the sector contributes $16.2 billion to GDP, produces $32 billion of goods and services, generates $6.3 billion of exports and employs almost 100,000 workers. The ICT sector’s contribution to GDP growth was higher than in any other OECD country from 2001 to 2013.
NZIER’s chief executive, Laurence Kubiak, said the crucial finding was the far-reaching influence of the tech sector on other sectors, and its potential for wider productivity gains. The report says each 4% productivity improvement in the tech sector is estimated to deliver an additional $2.7 billion GDP.
Other findings of the report were that, on average, the tech sector has higher-paid and better-qualified employees than all other sectors, and each new tech sector job creates up to five new services jobs around it.
The annual TIN report by the Technology investment Network is based on a survey of 450 export-focused New Zealand businesses operating in the high-tech manufacturing, ICT and biotechnology sectors. It analyses the results for 200 of the biggest (the “TIN200”), including 100 “Rising Star” businesses that have shown sustained growth over the previous three years.
The TIN report for 2015–16 delivered a glowing report card, saying revenue growth for the 200 companies had exceeded $1 billion for the first time.
Overall, the businesses’ expenditure on R&D represented 8.8% of total revenues. This was a 16% increase in R&D spend, to $827 million.
While businesses overall appeared to recognise the value of investing in R&D, as well as demonstrating their confidence in continuing growth, it was among the “Rising Stars” that R&D spending and revenue growth was most dramatic. Companies are selected for TIN’s “Rising Stars” list on the basis of their success over the previous three years. Their average sales revenue growth over the previous year was 41.5%. As a group, they spent nearly four times on R&D as a percentage of revenue than other TIN businesses — 67% more in 2016 than in the previous year.
Smaller businesses earning up to $10 million spent 18% of their revenue on R&D and businesses earning between $10 million and up to $49 million spent 12%. The two revenue bands each experienced revenue growth of 11%.
Updated: 25 July 2017