Audit Commission recommendations disappointing: AVCAL
Thursday 1 May 2014
Recommendations made by the National Commission of Audit to abolish key innovation funding programmes are flawed and demonstrate a lack of genuine commitment to fostering a stronger Australian economy in the future, according to the Australian Private Equity & Venture Capital Association Limited (AVCAL).
“The Commission of Audit has got this wrong – abolishing key support programmes such as the Innovation Investment Fund and Commercialisation Australia is not going to help our economy to become more innovative and more competitive into the future,” said AVCAL Chief Executive, Yasser El-Ansary.
“A small open market economy like ours has to focus on assisting Australian businesses to compete on the world stage, and that’s hugely important to bringing about productivity-enhancing reforms that will create more jobs and more economic growth in the years ahead,” Mr El-Ansary added.
“The Commission of Audit recommendations to abolish the Innovation Investment Fund and Commercialisation Australia have been made without there being any credible or compelling argument in support of the conclusions,” according to Mr El-Ansary.
“What we wanted to see from this review was a comprehensive analysis of how government spending obligations can be re-prioritised to deliver greater economic efficiency, and better long-term outcomes for Australian businesses. In the context of Australia’s innovation system, the Commission looks to have fallen into the trap of taking a short-term view on cutting expenditure that will have a potentially devastating impact on our long-term prosperity,” said Mr El-Ansary.
“The Government needs to carefully consider the recommendations made in this report, and decide whether or not they can afford to abandon their support for the creation of a more modern and innovative future Australian economy.”
Given the significant structural change that is taking place right now across key industry sectors such as manufacturing, the Government must put in place policies that promote greater private sector investment in new business ventures, which will ultimately play a vitally important role in Australia’s future economic growth,” Mr El-Ansary said.
Background information about the Innovation Investment Fund (IIF)
The IIF is a vital component of Australia’s innovation ecosystem. By investing alongside professional venture capital (VC) managers in new companies that are commercialising research and development, the Government is bridging the funding gap that exists in this sector at very little impact to the budget bottom line. The companies that are supported by the programme are often developing new technologies in health and information technology that would not be able to get off the ground without that funding support.
Some notable examples of companies that have benefitted from IIF investment include SEEK and Pharmaxis.
The World Economic Forum Global Competitiveness Index for 2013-14 ranked Australia 21st, trailing far behind other countries in the region such as Taiwan and Singapore. The 2013 Australian Innovation System Report also identified collaborative innovation as just one area where Australia lags behind its international peers. There is broad consensus that these indicators suggest that more needs to be done, including the need to boost investment in innovation and commercialisation, in order for innovation policy to have lasting effects on Australia’s economy.
Successive Government reviews of the IIF programme have supported its continuation, and found that the rationale for such investment in the start-up sector was valid and “created value”.
The underlying rationale for intervention was that capital-constrained firms, particularly those at the start-up and early stages of their lifecycle, were constrained from maximising their innovative potential because of a lack of risk finance for growth. Accordingly, job creation and productivity growth were lower than should be expected from such firms. This situation was a direct cost to the Australian economy.
An independent review in 2012 concluded that the IIF appeared to be a “successful model” for developing a VC market that generated substantial economic benefits. This evidence indicates that the IIF can continue delivering on its stated objectives well into the future.
There have been three rounds of IIF funding since 1998. The recipients of the last and final tranche of funding under the IIF were announced in April 2013. Over 16 licensed funds have raised over $640 million as of June 2012 (including Government co-funding of $361 million).
Read the full copy of AVCAL’s December 2013 submission to the National Commission of Audit here.
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Author: Adrian O’Shannessy, Director, Greenwoods & Herbert Smith Freehills
Author: Dr Kar Mei Tang, Head of Policy and Research, AVCAL