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NZ market set to dip as R&D spend slips

NZ market set to dip as R&D spend slips

"Money spent on R&D now, when business conditions are strong, are likely to return good dividends when things do inevitably slow down.”

New Zealand’s dwindling investment in research and development (R&D) has seen it slip down a world table of 34 countries to sit almost at the bottom.

According to the recently released Grant Thornton International Business Report (IBR) survey, at this time last year a net 20% of New Zealand businesses expected to increase their expenditure on R&D, compared with only 12% at the end of the third quarter 2014.

Paul Kane, Partner, Privately Held Business, at Grant Thornton New Zealand, believes the real danger is that Kiwi businesses are continuing to invest less than major trading partners China (36%), Australia (31%), United States (27%) and the United Kingdom (20%).

“The other distressing factor is that China, Australia and the United States have all increased their commitment to R&D,” he says.

“Traditionally we are a country that does not invest heavily in R&D, often preferring to throw people rather than technology at problems, but this needs to change.

Kane says that a survey undertaken earlier this year by Grant Thornton showed that there was an interest from New Zealand businesses to invest in R&D, but it had to be backed by the Government.

“Before the election, we asked business owners what policies would best aid the growth of New Zealand businesses,” he explains, “and 89% said that providing incentives for businesses to invest in R&D would help in this area.”

The big question, in the eyes of Kane, is how to make this happen?

“The Government does not seem keen on a tax rebate incentive as it believes this is open to abuse,” he claims, “and while it does have its own grant and incentive schemes through the likes of the Callaghan Fund, the fund does have limitations, often requiring more upfront capital than a business may have.

“Perhaps we need something like the large innovation funds that Hong Kong has to co-invest.”

Kane believes that this decrease in R&D might not have any noticeable impact on the New Zealand economy in the short term because confidence levels and activity are high.

“However, the true impact could come when, in the normal economic cycle, things start to slow down and business conditions are less buoyant,” he adds.

“That will be the time when businesses need to be smarter and faster to ensure they are not dragged down.

“How much of a problem will this be? That is always the defining question, but money spent on R&D now, when business conditions are strong, are likely to return good dividends when things do inevitably slow down.”

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