- The RBA has released research which analyses the shifts underway in private non-mining investment in Australia.
- The data shows a decline in business spending on hardware and electronics has been accompanied by an equally sharp rise in software investments.
Growth in non-mining business investment has increasingly come into focus since Australia’s mining boom reached its peak in 2012/13.
According to analysts at the RBA, private non-mining investment in Australia has remained sluggish.
They attributed part of that to changes in industry structure and technological change. In addition, they said a structurally higher exchange rate since the financial crisis in 2008/9 may have served to discourage non-mining investment.
In terms of industry structure, the analysts pointed to the well-documented decline of manufacturing in Australia, which has led to a corresponding reduction in equipment and machinery.
And on the technology side, they highlighted in interesting shift in relation to non-mining IT investment:
At around the time of the global financial crisis in 2008/9, total prices paid for computer hardware and software were similar.
Since then, a stark contrast has emerged. Spending on software has risen by more than 50%, while investment in computer hardware has fallen by a similar amount.
In that sense, technology has played a key role in putting a cap on non-mining investment.
“Technological change influences firms’ decisions about whether to outsource certain operations or shift operations offshore and, ultimately, which types of activities will continue to be undertaken in Australia,” the analysts said.
“The trend towards information technology being offered as a service (such as cloud computing) is a common example of outsourcing (and also often offshoring, in the cases where the servers are located outside of Australia). Such investment has risen strongly over recent years.”
In addition, “over the past decade, the value of investment in computers and electronics has more than halved as a share of output.”
“In real terms, investment in IT equipment has also declined, occurring alongside the significant slowing in the pace of price falls for computers and electronics.”
The data indicates that the us of IT software, from outsourcing traditional manufacturing operations to the rise of cloud computing, is taking a more central role in how the modern economy operates.