Why tech is the only thing that will turbo charge Australia's economic recovery

  • Post by Rachel
  • Sep 17, 2020

In June this year, the NSW government revealed that Sydney will be home to the biggest technology hub of its kind in Australia, Tech Central, set to become a world-class innovation and technology precinct. The NSW Government has committed to facilitating 250,000 square metres of office space in the precinct which stretches several kilometres from Sydney’s Central Station. Technology giant Atlassian committed to become an anchor tenant of the precinct, basing its Australian headquarters at the new site. Atlassian co-founder and co-CEO Scott Farquhar said technology can turbo-charge Australia’s economic recovery: “That’s why we’re building this precinct. We want to create jobs, ideas and innovation. This will be home to thousands of workers and the best new ideas.”

There’s no doubt that the COVID-19 health and economic crisis presents a unique opportunity to rebuild a better economy for Australia, one that’s self-sufficient, competitive, reliant on human (rather than natural) resources and powered by the skills and industries of the future.

We have a vibrant, smart and talented startup scene and a sophisticated innovative workforce working on cutting edge ideas. Yet we’re still falling behind other nations on the digital front and need to do more to become a true digital leader on the global stage.

If Australia’s government and industry step up to the challenge now - with a sense of urgency and commitment - we stand a good chance of becoming a technology powerhouse that will create much needed jobs, improve living standards and productivity and drive prosperity for generations to come.

“Today more than ever, science and technology are vital to drive our recovery from the pandemic-led recession and build our future resilience. COVID-19 has disrupted every element of our lives…we now have an opportunity – indeed, a responsibility – to determine the kind of Australia we want to emerge."

CSIRO’s Report: Covid-19 Recovery & Resilience Report, Sept 2020

Australia’s largest shock to growth since the 1930s

While Australia appears to have escaped the worst of the pandemic-caused health crisis, COVID has still had a significant effect on the economy. In August 2020, the Reserve Bank of Australia (RBA) forecast its figures for the quarter ending in December 2020: a 10% unemployment rate, 6% GDP contraction, 7% decline in household consumption and a 17% decline in business investment. And the RBA acknowledged extensive uncertainty on all four indicators. As McKinsey’s report on The Next Normal for Australian Industries and Workforces notes, the sheer size of this shock means the COVID-19 crisis could reverberate through the economy for a decade.

According to McKinsey, various domestic and international factors - from more temporary issues such as COVID-19 restrictions, border closures and reduced exports to more permanent structural changes such as declining consumer spending, increased automation and shift to online shopping - are putting pressure on Australian business health, which is expected to result in decreased investment, more business failures, fewer new entrants and less innovation. The Australian tourism, retail, tertiary education and construction industries have been hardest hit and expected to experience hard times ahead (albeit to differing degrees). Across all industries, younger workers are predicted to be most affected, with GenZ and millennials twice as likely to be jobless as 40- to 49-year-olds.

COVID has accelerated automation and digitisation shifts in Australia. But even prior to this crisis it was predicted that 25-50% of Australian jobs would be automated by 2030. While some jobs will inevitably be lost, experts predicted more jobs will be created, driving increased productivity, a rise in personal income and economic growth in Australia, which would help return the economy close to full employment. That was all in 2019. Today, Australia is battling its worst economic and health crisis in the last 100 years and the first recession in 30 years with 870,000 jobs lost between March and May this year.

The trouble is that COVID has merely exposed and exacerbated existing systemic weaknesses as Australia’s economy was in poor health even before COVID-19 hit our shores - at the start of 2020, there were signs of very weak productivity growth, weak income growth and a relatively anaemic economic growth.

According to the Productivity Commission, one way to improve productivity growth is through the development and adoption of productivity-enhancing technology. The adoption of digital technology has already delivered significant productivity benefits to the Australian economy and the future potential of digital-led productivity growth is significant.

Deloitte Access Economics estimates that, between 2005 and 2019, the productivity benefits from the growing digital economy increased Australia’s steady state GDP per capita by 6.5%. This means that the adoption of digital technology during this period added an additional $126 billion to the Australian economy in 2019 - more than the total value added of the entire construction industry in 2017–18 (according to ABS 2019 records). With the adoption of 5G and other emerging digital technologies, the contribution of digital to productivity will only grow.

There’s growth in the tech industry but it needs to accelerate

Before the onset of COVID-19, the technology workforce in Australia displayed strong growth of 6.8% in a year. For comparison, The tech workforce has grown 1.5 times faster than the increase in professional occupations — pointing to continued strength in demand for technology workers across the economy.

The recent Australia’s Digital Pulse 2020 report from Deloitte/ACS estimates that (assuming the health and economic shockwaves of COVID-19 subside in the next two years) by 2025, there will be an additional 156,000 technology workers in Australia, bringing the total number of workers to 928,700.

However, the report notes that even with this forecasted growth trajectory, Australia is said not to be on track to become a digital leader. In the UK, for example, technology workers make up 9% of the entire workforce. According to Deloitte, to catch up, Australia would need to add over 60,000 new technology workers every year to 2025double the current forecast. But, the world’s leaders in digital technology will not wait. This year’s assessment of international competitiveness shows Australia ranks 7th out of the 16 nations considered.

Australia has fallen in rank for more than half of the indicators in the past two years. This is not because Australia’s performance has declined, but is primarily a result of other countries improving more quickly than Australia. In order to enjoy the full benefits of digital technology, the report concludes that Australia will require policy designed to promote investment in digital technology and skills.

The current debate on how Australia might make its way out of these economic woes has seen calls for universal income guarantees and increased government spending. But, as some argue, jump starting Australia’s economy and making it robust enough to withstand inevitable future challenges require exceptional effort and extreme measures to be taken by government, industries and businesses. And many believe that investment in technology, science and innovation is absolutely key for recovery.

Australia’s key unique strengths

Crucially, Australia has all the foundations to accelerate critical Australian industries by building on its world-class scientific expertise, high-value workforce, and national advantages if we make the right investments now:

  • it is among leading countries when it comes to volume and quality of research published in the fields of AI and computer science research.
  • With strong institutions, natural resources and an established trading base, it is home to a wide range of industries (agriculture, manufacturing, energy, healthcare) that can benefit from a digital transformation to drive productivity and prosperity.
  • a sound regulatory environment and unique geography provide a robust testing ground for digital technology development for roll out to other countries.
  • world-class energy resources and the highest average solar radiation per square km of any continent.
  • world-leading capabilities in off-grid renewables.
  • a long history of energy exports and has developed extensive infrastructure and trading relationships that can be leveraged to meet the region’s demand for low emission energy.
  • world-leading R&D in pre-farm gate fields including animal production, plant biology and environmental management, supported by a highly professional farming industry with strong technology adoption.
  • its medical technologies and pharmaceuticals sector is underpinned by a strong network of globally influential research organisations, universities and medical research institutes with a history of producing high-impact research.
  • strong reputation for quality and safety in food and agribusiness.
  • global excellence and critical mass in mining and metallurgical research, drawing on world-class facilities and researchers.

Why technology is the only way forward

“Our future economic prosperity is hinged upon our ability to close the technology gap and foster a new age of digital transformation. This will open Australian businesses up to new and potential opportunities on the global stage.“

Reaching Australia’s digital potential in a post-Covid world, Rupert Taylor-Price, board member of the Australian Information Industry Association (AIIA)

Prior to COVID-19, technological innovation was estimated to have the potential to add $315 billion to the Australian economy in the decade to 2028.

As BCG notes in a recent post on how to jump start Australia’s ailing economy, we’re now facing a once in a generation opportunity to reform the economy and there’s no time for complacency: “Economic policy reform that focuses on higher productivity growth will support a return to low unemployment, improve industry competitiveness, secure Australia’s ability to attract foreign investment, invest in areas of comparative advantage, cultivate innovation and commercialisation, develop workforce capabilities, and make it easier for companies to do business. Changes to regulation, taxation, industrial relations and education will be needed to deliver these outcomes”.

Yesterday, the CSIRO published the COVID19: Resilience and Recovery Report. In it, Dr Larry Marshall, CSIRO Chief, argues that we need to double down on Australian innovation” in science and technology to emerge from the pandemic-led recession in “a much stronger position”. According to the report, the speed and scope of post-COVID recovery will hinge on five pillars including investment in science; adoption of technology; growth of tech-based export industries; cultural shifts including workforce development and research-industry collaboration; and stronger emphasis on “triple-bottom-line outcomes”.

“In the past, our Aussie ingenuity has reinvented wool in the face of synthetics entering the fabric industry, it’s reinvented cotton for an Australian climate, and it’s reinvented connectivity with fast WiFi. In fact, the same expertise that reinvented wool went on to reinvent carbon fibre, securing Australia’s own secret recipe for the next‑generation material. We’ve supported existing industries to pivot, small and medium businesses to grow, and new start-ups to thrive. We’ve created jobs, built careers, and inspired generations to change the world around them through science and technology. We’ve been proud innovators.

Today more than ever, science and technology are vital to drive our recovery from the pandemic-led recession and build our future resilience. Crucially, investment in innovation can deliver both short-term shots in the arm from commercialisation of market-ready technologies, and longer-term job creation and growth from burgeoning breakthroughs and nascent new industries.”

-Larry Marshal, Chief Executive, CSIRO

How can Australia become a global technology powerhouse

“Three decades of growth have masked rising structural impediments to productivity and innovation, which are potential barriers to the next three decades of growth and prosperity. Businesses, industries and government are at a critical cross-road – if we make the wrong choices, and don’t act now, the chance for economic rebound could be lost to Australia.”
BCG - “How to jump start Australia’s economic recovery

We should look to reinvent business models, accelerate digital transformations and ramp up digital capabilities. Government, industry and businesses should focus on building robust domestic capabilities (rather than over reliance on overseas markets), strengthening Australia’s productivity and boosting Australia’s reputation as a global innovation hub:

  • 1. invest in digital literacy, tech education and upskilling - the Australian tech industry is experiencing a severe skills gap - for example, the Australian cyber security sector’s key challenge is a shortage of job-ready workers. They expect to need to fill almost 17,000 jobs by 2026. Similarly, in the AI and data space, 33% of Australian respondents to a recent Deloitte global survey, more than from any other country, called their AI skill gaps “major” or “extreme” and indicated that their most acute needs are AI researchers, business leaders, and software developers. We need to increase awareness of the importance of science and technology skills to national prosperity, improve collaboration between government, academic institutions and industry and create appropriate frameworks and mechanisms to make tech education and skills accessible to all Australians and prepare the workforce for the inevitable challenges of the future.
  • 2. build a strong innovation ecosystem with stronger collaboration between government, research and academic institutions, industry and venture capital. The origins of the now thriving tech industry (aks Silicon Wadi) and startup ecosystem in Israel, which provides the backbone for the country’s economy, can be traced to a government initiative in 1993 which offered attractive tax incentives to any foreign venture-capital investments in Israel and offered to double any investment with funds from the government. As a result, Israel’s annual venture-capital outlays, nearly all private, rose nearly 60-fold, from $58 million to $3.3 billion in the space of seven years; companies launched by Israeli venture funds rose from 100 to 800; and Israel’s technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the US in invested private-equity capital as a share of GDP. And it led the world in the share of its growth attributable to high-tech ventures: 70%. Collaboration between government and academic institutions fuelled by specific policies that encourage science and engineering higher education are also a major driver of Israel’s tech dominance.
  • 3. boost public R&D incentives (already below OECD average), particularly in sectors such as cyber security where Australia’s public spending on cyber security R&D and efforts to foster research collaborations between universities and businesses (crucial for a vibrant, innovation-driven industry) lack focus and lag other leading cyber nations such as the US and Israel.
  • 4. invest in digital infrastructure that will enable productivity and economic prosperity such as dispensing with outdated legacy systems, embracing AI and cloud computing, and optimising access to data and information to empower industries like fintech, insurtech, regtech, legal tech and many more.
  • 5. Invest more in Australia’s spacetech industry which is already flagged as part of the plan to boost economic recovery post pandemic.

“As the country is forced to move work behaviour online, and everyone is regularly using start-up-built software to interact and facilitate remote work, we are in a unique position to rapidly migrate legacy industry practices to more nimble technology-enhanced practices. This difficult period may even help the economy transition beyond coal and commodities to a nation that embraces and builds cutting-edge software, understands the value of healthcare and scientific research, exports renewable energy, and invests to feed the world’s population.”

“Tech can help Australia thrive after COVID-19”, Alister Coleman, founder and managing partner, Tempus Partners

Final thoughts

A few months ago, the World Economic Forum (WEF) published its recommendations on resetting labour markets post COVID. The WEF says the global pandemic has created a unique opportunity to “build back better” and lay the foundations of a more resilient labour market and more equal world. To do so, they say we need to double down on reskilling and upskilling to better prepare for disruption in the post-pandemic economy; support the jobs of tomorrow and identify new sources of growth and jobs as they emerge from the green economy, science and health research, and digital infrastructure and reset education, skills and jobs systems for the post-pandemic recovery. Amongst the crucial skills highlighted by the WEF are AI and data.

In the words of CSIRO’s chief, “The pandemic is testing us as a nation, but we get to decide how we respond, and what kind of Australia we want to live in as we drive our recovery and build our resilience for the next disruptions on the horizon.”