IT Financing

Australia: IT Financing

Overview:

Australia has realized that a major impediment to overall ICT development in the Commonwealth has been the lack of adequate ICT related funding. More specifically this has been true with regards to the ability to commercialize R&D results into viable enterprises. It is apparent that the lack of venture funding available for small to medium sized business has caused Australia to "miss the boat," with regards to world ICT consumption.

Business and Government are aware of this situation and have taken progressive steps to bring Australia's ICT industry in line with other developed countries.

Government Financing:

The Federal Budget reaffirms the Australian's Government's commitment to Australia's ICT industry through a number of commitments to ongoing financing of current initiatives, as well as initiatives across a range of portfolios.

To further bolster Australia's skill base more young Australians will have access to practical ICT training through an injection of $31.7 million into the Innovation New Apprenticeships. Up to 46,000 older workers will have access to IT skills training through a $23 million Department of Education, Science and Training initiative to improve IT skills [39].

The investment of $153 million on public and private security infrastructure through agencies including Defense, Attorney-General's Department, ASIO, Australian Federal Police and the National Office for the Information Economy will provide many opportunities for local ICT firms. The sector will welcome other initiatives including Australian Law Online ($1.3 million), Biometrics Identifier R&D ($3.0 million), and improvements to the Export Market Development Program ($1.6 million) .[23]

In addition, election commitments and other ongoing Government initiatives for the ICT sector are underwritten in the current Budget, including:

$44 million to a revamped Invest Australia, which will deliver a coordinated ICT Investment Attraction Strategy;
The $129.5 million Centre of Excellence, which has had its funding confirmed at previously announced levels.

Other initiatives from the fully funded $3 billion Innovation Action Plan, Backing Australia's Ability, include; 21,000 new university places ($151 million), doubling Australia Research Council funding over 5 years ($736 million), boosting public research infrastructure ($337 million) and project specific infrastructure ($246 million), the premium 175% R&D tax concession and cash-out rebate for growing pre-profit companies, extending the CRC program ($227 million), and pre-seed funding ($78 million) [40].

Current Government initiatives which support the development of digital content and applications include:

additional funding of $2.1 million over three years to the Australian Film Commission to fund the development of innovative broadband content;
$34 million over five years for the Schools Online Curriculum Content Initiative;
a $200 million commitment to the Virtual Colombo Plan;
the $50 million National Communications Fund program;
the $39 million Advanced Networks Program; and
$4.76 million over three years to the Launceston Broadband Project.

Funding for national competitive research grants, administered by the Australian Research Council, will be doubled under this initiative. This will ensure the continuing supply of new ideas, new applications of knowledge, and the identification of new areas of inquiry. Project Specific Research Infrastructure: This initiative provides additional funding of $337 million over five years for university infrastructure, provided through the existing Research Infrastructure Block Grants Scheme [40].

Another way of looking at the magnitude of country ICT investments is the proportion of total investment that is ICT. This is illustrated in Figure 6.2, which also breaks the ICT investments down into hardware, software and communications equipment.

Figure 6.2: Percentage share of ICT investment in total non-residential investment Ð Current prices, 1980-2001[21]

Figure 6.2 confirms Australia's high level of ICT expenditure. 22.5% of Australian non-residential investment is ICT, lower than the US (at 29.9%) and Finland (at 28%), but higher than the other six OECD countries examined. Australia is also similar to the US, Canada and France in that the largest share of our ICT expenditure comes from expenditure on software. By comparison, Finland's major ICT investments come from communications equipment, due largely to Nokia. The same applies to Japan and Italy. Major ICT investments in the UK and Germany come from IT hardware. In most countries, including Australia, software has been the component of ICT expenditure that is growing the fastest[21].

According to the OECD the ICT intensity (ICT expenditures as a percentage of GDP) of Australia is (8.7%). Japan has been rising rapidly since 1995 and, in spite of a decline in 1998-99, it is now level with the United States (8%). The European Union lags the other major regions by about 2 percentage points. This masks a wide gap between northern European countries with an intensity well above the OECD average – Sweden (9.2%); the Netherlands (8.0%); the United Kingdom (7.8%); Denmark (7.4%) – and southern European countries with an intensity at the bottom end of the scale, in the range of 4.5%. New Zealand ranks first for ICT intensity (10.6%), followed by Sweden (9.2%), and Switzerland (8.7%)[46].

Systemic Research and Research Training Infrastructure in Universities:

University infrastructure comprises the ‘overhead' resources essential for undertaking high quality research and training projects or programs. This initiative provides an extra $246 million over five years for the upgrading of universities' systemic infrastructure. Funding is provided for innovative approaches which link or expand access to shared facilities.

Continuation of the R&D Start Program:

R&D Start is designed to support Australian companies to undertake research and development and its commercialization. The continuation of the significant levels of support that the program offers to Australian business will encourage the growth of more innovative Australian companies in emerging and high technology industries

The ARC funds research and researchers under the National Competitive Grants Program (NCGP). These programs are grouped into Discovery, Linkage and Centers [41].

Venture Capital:

Countries such as the United States, Canada, the Netherlands and Iceland have significant venture capital investment relative to GDP and tend to direct finance towards firms in their early stages. In contrast, countries such as Portugal and Spain have low venture capital investment relative to GDP and tend to finance the expansion of firms already present. Between 1995 and 1999, venture capital investment for early and expansion stages amounted to 0.21% of GDP in the United States and 0.16% of GDP in Canada and the Netherlands.

High-technology sectors (communications, information technology and health and biotechnology) accounted for more than 80% of total venture capital investment in the United States and around 67% in Canada. This is far above the figures for Japan and the European Union.

For most OECD countries, information technology accounts for the bulk of venture capital investment. It accounts for more than a third of total venture capital in the United States (45%), Ireland (38%) and Canada (37%). Australia lags behind with

A significant proportion of the venture capital of Scandinavian countries, Switzerland, Canada and Greece is directed towards financing firms in the health and biotechnology sectors; the share of Japanese venture capital invested in this sector is almost negligible.

International flows of venture capital are increasing. Firms from the United States increasingly invest in Europe and Asia, and there is also significant cross-border investment within Europe and Asia. International flows of venture capital to Denmark and Ireland (country of destination), are more than four times the investments managed by their domestic venture capital firms (country of management).