Most industrial businesses have no plans to lift their spending on R&D this year despite reporting a positive investment outlook, according to an annual survey of industry leaders in the sector.
The survey, conducted by Australian Industry Group (Ai Group), shows only 19 per cent of firms intend to raise their level of R&D investment, with 69 per cent expected to maintain spending at 2023 levels.
While firms report a positive investment outlook, including for R&D, the net balance score for the indicator has fallen from +26 to +6 — the lowest investment expectation since 2013. This is broadly in line with CAPEX expectations, which fell from +31 to +5.
The survey, released on Monday, has run since 2012. Of the 320 chief executives that responded, more than half were from the manufacturing sector (184), with the remainder working in industrial services (89) and construction (47).
Together, the businesses surveyed 38.7 per cent of industry value-add to the Australian economy, according to the Ai Group.
Only 24 per cent of respondents listed R&D investment as their first or second priority, behind business process improvement, staff training and development, and business development.
Ai Group said this is likely a response to perceptions that the economy will slow in 2024, with 40 per cent of respondents expecting overall business conditions to deteriorate. Less than 30 per cent expect an improvement.
“This is lower than the net expectation reported in late 2019, when Australia and many peers were facing rapidly slowing economies,” the report reads.
The fall in R&D investment expectations follows the release of data from the federal government last year that found business R&D was growing in nominal terms.
Nominal business expenditure on R&D (BERD) exceed 2013-14 levels for the first time in financial year 2021-22, according to the latest data from the Australian Bureau of Statistics, even though it remains unchanged as a proportion of GDP compared to 2017-18 levels.
BERD is likely to have grown last financial year, with the federal government estimating that its spend on the R&D Tax Incentive – a tax offset for business expenditure on R&D – had reached record levels.
In the introduction to the survey report, Ai Group chief executive Innes Willox said that “industry leaders are making productivity a focus to survive in this more difficult environment”.
“They plan to invest in technology and innovation, focus on business improvement to better control costs, and will invest in upgrading the skills of their current workforce,” Mr Willox said.
The highest investment priority for survey respondents was in technology and innovation, which reported a net balance of +37. Despite its continued importance, it is a sharp fall in investment expectations when compared to last year’s survey, when the net balance was +50.
When survey respondents were asked to identify factors affecting business operations that made then optimistic, technology and innovation returned a net balance of +55. Cybersecurity related ICT was flagged as the highest tech investment priority.
The Ai Group expects these investments to target “cost savings in the face of inflation and rising wages, and/or to find and develop new markets in a slowing economy”. Some respondents specifically highlighted “growth and innovation [opportunities] associated with the energy transition”.
The shift away from “growth-oriented forms of investment” and towards productivity boosting investment has been chalked up as a reasonable response to ongoing economic uncertainty and what is expected to be a slower economy, according to the Ai group.
Despite the increase in nominal support for businesses through the RDTI last year, the government’s spend on R&D initiatives as a proportion of GDP fell to 0.49 per cent, the lowest in 30 years.
