May 02, 2023

Expenditure for research and development continues to grow

But compared to many OECD countries, we’re still dragging our feet

Research and development (R&D) are an important driver of innovation and competition, and ultimately economic growth.

Research and development help to explore and create new knowledge; improve existing processes, systems, and products; and address industry, national, or global challenges.

Statistics New Zealand recently released the results from the 2022 Research & Development (R&D) survey, which collects data on the level of R&D activity and related employment and expenditure from the business, government, and higher education sectors in New Zealand.

R&D expenditure totalled $5.2 billion across all sectors in 2022

The majority of this was from the business sector, where R&D expenditure was just shy of $3.1 billion in 2022. This was followed by:

  • Higher education sector, contributing $1.3 billion to total R&D expenditure
  • Government sector, contributing $900 million to total R&D expenditure.

Total R&D expenditure in 2022 increased by 11 percent since 2022 and 67 percent since 2016. It is important to note that R&D expenditures are not adjusted for inflation. But changes in key price indexes during these periods reveal that the significant increases cannot entirely be attributed to inflation. It is obvious that growing importance is being placed on R&D. More entities are performing R&D, and more spending is being allocated towards it. This is particularly interesting given the turbulent economic climate of the past few years.

This research has served different purposes in key industries, with some gaining more R&D focus than others. For example, research for the purpose of:

  • Manufacturing totalled $729 million in 2022, following a 16 percent increase since 2016
  • Health totalled $718 million in 2022, following a 101 percent increase since 2016
  • Primary industries totalled $714 million in 2022, following a 33 percent increase since 2016
  • Information and communication services totalled $679 million in 2022, following a 120 percent increase since 2016.

Interestingly, the considerable growth of R&D for the purpose of the health sector between 2016 and 2022 was not entirely a result of COVID-19. R&D for this purpose was growing comfortably prior to 2020 and then continued to grow into 2022. COVID-19 did, however, have a direct impact on R&D for the purpose of commercial services and tourism, which increased by 134 percent between 2020 and 2022.

R&D expenditure in the business sector almost doubled between 2016 and 2022

Totalling just shy of $3.1 billion, the business sector was the leading contributor to R&D expenditure in 2022, increasing by 93 percent since 2016. The number of businesses performing R&D increased significantly as well. Between 2016 and 2022, the number of entities in the business sector performing R&D increased by 45 percent, up to 2,343.

Increasing R&D expenditure has been a trend seen globally for some years now. Businesses and nations continue to see and realise the economic and social benefits arising from R&D. For example, in 2019, the New Zealand Government introduced the Research and Development Tax Incentive. This incentive operates as a tax credit, reducing the tax bill for businesses or individuals who perform R&D activities and qualify under the incentive’s requirements. For larger businesses in particular, maintaining and expanding R&D is essential for increasing market share.

R&D expenditure from the business sector mostly came from entities operating in service industries, such as computer services, and scientific research and technical services, increasing by 165 percent between 2016 and 2022, totalling $2.2 billion.

R&D expenditure has been increasing as a proportion of gross domestic product (GDP)

As presented in the below figure, R&D expenditure in New Zealand was equal to 1.47 percent of GDP in 2022, up from 1.23 percent in 2016. This can mostly be attributed to growth in R&D engagement and expenditure from the business sector. R&D expenditure from the business sector increased from 0.63 percent of GDP in 2016 to 0.86 percent in 2022.

Source: Statistics New Zealand

Although the R&D expenditure data from many other countries is not available for 2022 yet, it is still clear we lag behind many of our international counterparts. Average R&D expenditure as a proportion of GDP across Organisation for Economic Co-operation and Development (OECD) countries was 2.74 percent in 2020, compared to only 1.46 percent in New Zealand. This could be regarded as a disadvantage for us, limiting our ability to compete in the global market where innovation is at the forefront of sustainable growth. We are, however, edging closer to the Government’s target that was set in 2019, which was to have R&D expenditure equal to two percent of GDP by 2027. Although it is unclear whether it will or won’t reach this target.