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A competitive advantage: How Australia can start leading the world in innovation

Over the last few articles, I have discussed the new Government’s plan to enter the ‘era of innovation’. The most significant to MarketLend and many other financial technology companies offering fintech solutions was the amendments made to crowd-sourced equity funding. By decreasing compliance costs and barriers to entry, the Government has made CSEF a viable means for smaller public companies to raise capital.  This is a great way for many established start-up’s to raise more equity, however, for our ‘innovation era’ to be sustainable, we need a method to consistently originate new start-ups. 

The Government’s first step towards incentivizing start-ups is the tax reform. Personally, I believe this is a great method of attracting angel investors. The tax incentive will be a 20% non-refundable tax offset on investment capped at $200,00 per investor, per year, and a 10 year capital gains tax exemption for investments held for three years.  This is a great step in the right direction, but what really creates an ‘era of innovation’?

To first analyse this, I’ve decided to look at one of the most successful start-ups ecosystems in the world: Silicon Valley. The Valley’s prosperity and success was based on several factors: state of the art Universities with great funding, a large amount of venture capital, and a consistent amount of Government spending within the area. Silicon Valley had an enormous competitive advantage for start-ups than almost any area in the world. Great minds, plentiful and willing angel investors, and Government expenditure attracted start-ups to utilise the new research developed across America. 

I am not advocating for Australia to replicate Silicon Valley, rather, I am advocating for Australia to continue to develop a competitive advantage for investment and innovation. Moving to the United States or Europe should never be a pre-requisite for a successful Australian start-up. We should look inwards to develop a competitive advantage. Consistent investment in education and technology are key staples to developing a similar environment to Silicon Valley. 

Australia is a resource based economy; the majority of our exports are resources. We’ve enjoyed a high standard of living, and an extremely powerful economy proportionate to our population. China’s high demand for resources has allowed us to have a very cruisy ride through the GFC but our ride might begin to have some bumps.

An important but scarcely used statistic is economic complexity. Economic complexity is the measure of production characteristics, essentially demonstrating how complex and versatile our exports are. Counties with a high-level of economic complexity are not immune to recession or lulls in the economy but they are not entirely pinned to the success of a few countries. Australia ranks 71st in economic complexity, ranking as one of the lowest OECD countries in this list. We need to change. Fast. 

Innovation is a great way to increase the diversity of our exports. We are already seeing Australian start-ups like Atlassian change the global perception of Australian start-ups, and if the Australian Government is able to efficiently respond and facilitate investment and creation, we might see an insurgence of successful Australian start-ups.  

The Turnbull Government is on the right track, but we need consistent effort put into developing a competitive advantage. The movement towards an ‘innovation era’ cannot simply be empty rhetoric or PR tool to use for an election.

15 February 2016 For Investors