Analyst predicts bleak future for Aust ICT economy

A visiting analyst has warned that an over-reliance on a temporary minerals boom and a decline in the number of science and engineering graduates will erode Australia's ICT capacity and hinder its unprecedented stretch of economic growth.

Partha Iyengar, Gartner analyst and co-author of globalisation study IT and the East, says that a great deal of data suggests Australia is experiencing a "hollowing out" in terms of innovation.

"It's hard to argue with the fact that Australia is the only country in the world with 25 to 30 consecutive quarters of economic growth," he told journalists in a pre-briefing before he speaks today at the Gartner Symposium in Sydney. But that growth, he argues, has been largely fuelled by a resources boom.

"A big part of Australia's growth is [attributable to its] resources industry, and China's ability to absorb anything Australia can throw at it in terms of resources just to fuel their growth."

"How long can you continue to rely on the resources paradigm to continue to fuel economic growth in Australia?" Iyengar asked. "How much is that contributing truly to generating innovation?"

"There might be some level of innovation in getting these minerals out of the ground quicker and cheaper, but is that the extent of innovation? Is that enough to really keep Australia's position in the global scheme of things?"

In an increasingly globalised world, there are only two ways to get ahead, Iyengar said. Countries either need a low cost labour pool or the makings of a knowledge economy.

"Low-cost labour is obviously not Australia's strength considering your standard of living," Iyengar said. "So the issue is, do you have the ingredients for a knowledge-driven economy? I submit that increasingly, you don't."

Iyengar said the Australian government's own 2007 "Innovation Report" showed that Australia was ranked third of 138 countries in 2002 in terms of average annual growth in multi-factor productivity. It has since slipped to seventh in 2004 and 10th in 2006.

"Australia is heading completely in the wrong direction," Iyengar said. "I would assume that the government Innovation Report [is] tasked with presenting the good news picture. The fact that this is their good news picture is scary, if you look at the numbers."

Australia also scores well below average in terms of its percentage of turnover earned from new goods and services innovation, with its 19.4 percent score dwarfed by an OECD average of 28.8 percent and the UK's 41 percent.

More worrying, Iyengar says, is that while developing nations are investing heavily in becoming knowledge economies, Australia lacks the numbers required to build the skilled workforce of the future.

"There has been a significant drop off in the number of students in Australia opting for careers in ICT and science," he said.

The growth rate of science graduates in employment between the ages of 25 and 34 (i.e. the pool of young science and tech graduates entering the workforce) was 48 percent between 2003 and 2005. Between 2006 and 2007, that growth rate slowed to four percent.

"It's close to negative, with students deserting the scientific disciplines," Iyengar said.

The growth rates for public R&D spending, he said, decreased from four percent between 2003 and 2004 to two percent between 2006 and 2007. R&D spending by Australian businesses is also flailing -- with growth rates falling from 20 percent between 2003 and 2004 to just seven percent between 2006 and 2007.

"The challenge for Australia is how are you going to turn these numbers around?" Iyengar asked. "The situation looks reasonably bleak."

A local rebuttal
Australian Gartner analyst Craig Baty says he agrees with many of his colleague's assertions -- specifically that the government needs to do more to encourage domestic ICT use, spending on research and development, and ways of attracting students to take up science and technology degrees.

However, he feels that "the situation isn't as dire as Partha would have us believe". While inevitably exhaustible, Australia's mineral reserves are vast and largely untapped, he said.

"Our ability to supply this to the rest of the world for a long, long time remains extremely strong," Baty said.

Baty said it is also simplistic to suggest that China is Australia's only customer for resources.

"China buys 14 percent of everything we produce according to the ABS (Australian Bureau of Statistics), and India buys six percent," Baty said. "There are still tens of other countries that collectively buy 30 percent of what we produce. We are not totally reliant on China and India, we're as reliant on Japan and Russia and other countries."

Besides, Baty said, no matter what the outcome in terms of resources growth, "Australia isn't as reliant on minerals and agriculture as one might think."

Services, according to Austrade, account for 77 percent of Australia's GDP (gross domestic product). Australia has a positive trade balance in terms of importing and exporting services.

"Our reliance on digging holes in the ground and surviving off the sheep's back are becoming things of the past," Baty said.

Baty said more needs to be done to encourage young people into science, engineering and ICT disciplines.

"But let me say that the quality of these graduates is more important than the quantity," he said. "The ability of Australia to take existing R&D and apply it for business purposes has potentially greater effect on our economy in terms of improving efficiency. It's not only what you discover and patent, it's how you use it and how you apply it. We have a history of being very inventive. We invented the black box recorder, aspects of the laser, we pioneered open-heart surgery, we invented the combine harvester."

The domestic use of ICT in Australia is "quite good", Baty said. According to the AIIA (Australian Information Industry Association), ICT accounts for 4.6 percent of Australia's GDP, a greater contribution than agriculture, of forestry, or fishing, or education or defence.

"We make up two percent of the world's ICT market, but don't even make up a decimal point in terms of population," Baty said. "We punch way above our weight in terms of use of ICT in our economy."

There are several areas, Baty said, where Australians are acknowledged as world specialists in technology -- nanotechnology and biotechnology among them.

Australia has the highest number of Internet users per 1000 people in developed economies, Baty said -- with 743 of 1000 having access, compared to 711 in Japan, 703 in the U.S. and 655 in the UK. India rates at 62 and China at 110.

Australia also has an "outstanding business environment" which attracts billions in foreign investment, Baty said.

"We have a skilled workforce, a stable political environment and an economy resilient to economic cycles," he said. "While the US and other economies are talking about recession, we're still booming."