In my post on Monday, I looked at New Zealand’s research and development spending. The R&D dollar is just one of the proxies used to try to understand innovation and while it is certainly an important input to the innovation process, it is possible that our low level of reported spending relative to other countries might reflect the fact that we don’t have R&D tax credits. Having said that, Finland operates only a very modest R&D tax credit scheme, yet its businesses outspend New Zealand’s in R&D by a factor of four as a fraction of GDP. It is likely that R&D spending is underreported in both Finland and New Zealand relative to countries that have generous tax credits for R&D.

With this caveat, it is still interesting to drill down into the data on R&D spending. In this post I would like to make use of Figure.NZ’s data to look at R&D spending by industry in New Zealand. As the plot below shows, in 2014, the three biggest spending industry sectors in R&D were computer services, machinery and equipment manufacturing, and other services (there is a similar plot in Get Off the Grass using data from 2010 but aggregated at a higher level).

Computer services is not only now the biggest spender, it is also near the top of list of the fasting growing R&D investors, as you can see in the second chart (below). Investment in R&D by the computer services sector grew by 40% between 2012 and 2014.

Computer services are arguably the biggest success story of New Zealand tech sector in the last decade. Indeed, much of the growth in our ICT exports in the last decade has come from services. Our exports finally seem to be losing weight.

I will end this post with two more charts from Figure.nz that illustrate the mismatch between the success of our ICT sector and the government’s strategy for public sector R&D. Public sector R&D is largely carried out in our Crown Research Institutes (which makes up most of the government sector expenditure in the first figure below) and universities (which makes up the largest share of the higher education expenditure in the figure below that). Health and environmental research are the two biggest areas of expenditure in public R&D, but ICT is well down the list both in government and university research. The ICT sector is arguably our most innovative goods and services sector, but it is relatively low on the priority list for public sector spending.

On the one hand, the ICT sector seems to be doing very well – why worry about its low priority in the public sector? Well, one of the key outputs of public R&D are skilled researchers as public R&D projects is also where young researchers cut their teeth before joining the workforce. In the long-run, if we want to continue the growth of ICT services in New Zealand, then we will need to match this with growth in public support for ICT R&D.

About

Professor Shaun Hendy is the Director of Te Pūnaha Matatini. Shaun teaches in both the Department of Physics and the Centre for Innovation and Entrepreneurship at the University of Auckland, and has a range of interests, including materials science, innovation, science communication, and the use of evidence in public policy.

In 2012 he was elected a Fellow of the Royal Society of New Zealand, and in 2013 he was awarded the E. O. Tuck medal for research in applied mathematics. Shaun tweets (@hendysh), blogs, and has a regular slot on Radio New Zealand Nights as physics correspondent.

In 2012, Shaun was awarded the Callaghan Medal by the Royal Society of New Zealand and the Prime Minister’s Science Media Communication Prize for his work as a science communicator. His first book, Get Off the Grass, co-authored with the late Sir Paul Callaghan, was published in 2013.

View Shaun’s Figure.NZ data board.

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