Australian business innovation has stalled since the Covid-19 pandemic, with a new national index showing no clear rebound despite activity reaching its highest level in 2023-24.
The CommBank-Melbourne Institute Innovation Index recorded average annual growth of 1.94 per cent between 2006-07 and 2023-24, but progress flattened from 2021-22 onwards as inflation, supply-chain disruption and wider uncertainty weakened business confidence.
“Businesses lost confidence,” said Beth Webster, co-author of the study and director of the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne. “It changed a lot of behaviours and hasn’t been totally reset.”
The index, produced with Commonwealth Bank, draws on 18 years of de-identified government data covering businesses and workers. It combines measures including research and development, skilled employment, intellectual property and participation in knowledge-intensive international trade.
Scores are benchmarked against 2016-17, when the national average was set at 100. The index reached almost 110 in 2023-24, but the researchers said the increase did not represent a decisive post-pandemic recovery.
Wholesale trade leads innovation index
Wholesale trade recorded the strongest performance among major industries, ahead of manufacturing and professional, scientific and technical services.
The result reflects the changing nature of wholesale businesses, which can include companies that design and brand products while outsourcing manufacturing overseas. Others are investing in automated warehouses, digital ordering systems and artificial intelligence.
Biotechnology was the highest-ranked emerging technology sector, followed by space, clean energy and quantum. Victoria recorded the highest state score, while Western Australia moved ahead of Queensland in 2023-24 after stronger growth in recent years.
The research also suggests that innovation extends well beyond patents and laboratories. While only 0.38 per cent of firms held a patent, about one in five had introduced a new good or service and more than two in five had introduced a new process during the previous two years.
Australia has produced significant innovations including ticketless public transport and the Gardasil vaccine, developed by Melbourne-based CSL to protect against cervical cancer.
Professor Webster said the domestic biotechnology sector had benefited from sustained investment by governments, universities and research institutions since the 1980s.
“It’s certainly had a fair run and it’s still gathering strength,” she said.
But she warned that Australian companies were not sufficiently connected to international innovation networks, including sources of finance.
“Innovation is a team sport … you have to have people who are integrated into what else is going on,” Professor Webster said. “We’re doing well in mining technology, in agricultural technology, but I think we’ve fallen behind in other areas.”
The outlook for further progress is clouded by geopolitical instability. Professor Webster said some businesses were holding back investment while they waited for greater clarity about the global economy.
“People aren’t necessarily withdrawing money, but they’re stopping reinvesting it – they are saying ‘I might wait a little longer and see what happens’,” she said.
The next edition of the index is expected to provide a clearer picture of how businesses are adopting artificial intelligence, including machine learning and large language models. Professor Webster said uncertainty remained over the commercial value of the technology.
Her advice to businesses seeking to develop new products or processes is to build strong relationships and involve lenders at an early stage.
“Embed yourself in the ecosystem, and bring in the finance sector early; talk to your financial manager,” she said. “It’s only when they’ve got confidence in you that they will lend to you, and financing is going to be one of your biggest hurdles.”
