From the Knowledge Wave to the Digital Age - MAI I TE AO MĀTAURANGA KI TE AO MATIHIKO NEI - MBIE
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GROWING INNOVATIVE INDUSTRIES IN NEW ZEALAND From the Knowledge Wave to the Digital Age MAI I TE AO MĀTAURANGA KI TE AO MATIHIKO NEI JULY 2019
Photo credits:
NZ Story Robotics Plus Scott Technology
NZ Story Rocket Lab HIT Lab NZ
Dave Allen, NIWA NZ Story NZ Story
2
JULY 2019
Contents
Foreword ��������������������������������������������������������������������������������������������������������������������4
Our economic strategy�����������������������������������������������������������������������������������������������6
Where have we come from?�������������������������������������������������������������������������������������� 8
Innovation since the Knowledge Wave ���������������������������������������������������������������������12
The starting point: a sound economy, but low productivity������������������������������������ 19
Developing innovative industries ����������������������������������������������������������������������������25
› Mobilising capital into the productive sector ����������������������������������������������������������������������� 25
› Role of industry policy ���������������������������������������������������������������������������������������������������������� 26
› Innovation – growing R&D����������������������������������������������������������������������������������������������������28
› Trade and international connections ������������������������������������������������������������������������������������30
› Investment capital ���������������������������������������������������������������������������������������������������������������� 32
› Regional economic development������������������������������������������������������������������������������������������ 34
› Skills and the future of work������������������������������������������������������������������������������������������������� 35
Industry transformation plans�������������������������������������������������������������������������������� 40
› Construction sector accord ����������������������������������������������������������������������������������������������������41
› Food and beverage�����������������������������������������������������������������������������������������������������������������41
› Agritech��������������������������������������������������������������������������������������������������������������������������������� 43
› Digital technology����������������������������������������������������������������������������������������������������������������� 44
› Forestry and wood processing���������������������������������������������������������������������������������������������� 44
The next steps ���������������������������������������������������������������������������������������������������������� 47
Conclusion��������������������������������������������������������������������������������������������������������������� 48
Case studies �������������������������������������������������������������������������������������������������������������49
3
Foreword
KUPU TAKAMUA
“PRODUCTIVITY ISN’T EVERYTHING, BUT, IN THE LONG RUN, IT IS ALMOST EVERYTHING.
A COUNTRY’S ABILITY TO IMPROVE ITS STANDARD OF LIVING OVER TIME DEPENDS ALMOST
ENTIRELY ON ITS ABILITY TO RAISE ITS OUTPUT PER WORKER.”
– PAUL KRUGMAN, NOBEL LAUREATE
New Zealand’s economy is facing excessively reliant on property speculation and
high rates of immigration. Per capita investment
challenges, which also create
in our productive industries is too low. This all
opportunities.
needs to change.
What is our place in an increasingly digitised The government is focused on achieving an
world, where technological change and economy that is productive, sustainable and
innovation is creating a new – a fourth – inclusive. We are encouraging productive
industrial revolution? How can prosperity be investment in our areas of comparative
achieved sustainably within our share of the advantage.
planet’s environmental limits? How do we
To realise our vision, the key sectors in our
make sure the benefits of our economy are
economy need to be performing at closer to
shared fairly?
their full potential.
The digital revolution is affecting many facets
Policies that promote these goals often have
of our economy. It is changing the way we grow
complementary outcomes. For example,
and harvest food, manufacture goods and
changing and improving land use can utilise and
deliver them to market. It is playing a major
prompt the development of new technologies,
role in the requirements of both consumers
improve productivity, enhance water quality
and the environment.
and lower our greenhouse gas emissions. It also
As we prepare to meet these challenges, promotes a higher-wage economy by moving
we start with a strong foundation. Currently, skills and incomes up the value chain.
we have low unemployment, inflation is under
Industry has a crucial role to play in this vision.
control, the budget is in surplus and economic
We need our industries to commit more capital
growth forecasts are solid.
and people to innovation so that we can produce
Productivity is key more high-value products and services.
However, we also face challenges, particularly Government’s role
with our levels of productivity growth and our
Some economic signals can only be modified
history of drawing down our natural capital.
by the government. Government policy can
As the Paul Krugman quote above illustrates, encourage innovation, adjust investment signals
increasing our productivity is key to our standard and fund skills training, all of which have a major
of living. Our productivity growth has been influence on the shape of the economy.
weak for some time. Our economy has been
4
JULY 2019
When industry and governments have a plan,
capital and people can be mobilised to implement
it. This makes a difference.
This publication discusses the innovation
framework that will help deliver our vision.
It is one component of the Government’s overall
Economic Strategy, which Finance Minister Grant
Robertson and I lead. The Economic Strategy
catalogues what the government is doing to
build a productive, sustainable and inclusive
economy and shows how it fits together.
Other examples of how government is working
differently are the Future of Work Tripartite
Forum and the Just Transition work programme.
In this document, we describe the current
position and our vision for the future. We set
out where we have come from and how we can
take the next steps on our journey from volume
to value.
Established economic theory shows we must
make the most of our comparative advantages.
Industry Transformation Plans are underway
across large sectors of our economy. These
include agriculture via the Primary Sector Council
We look forward to engaging with all sectors of
and the construction sector via the Construction
society as we grow the economic prosperity of
Accord. More Industry Transformation Plans
our country within our environmental limits.
are needed.
Agritech sector
The agritech sector is one of the prime areas
for expansion, as it is attracting attention
worldwide. A draft agritech strategy and
action plan to seize this opportunity is being Hon. David Parker
developed by a cross-agency taskforce in Minister for Economic Development
partnership with industry. This strategy will
provide the foundation for an agritech Industry
Transformation Plan.
5
Our economic
strategy
TĀ MĀTOU RAUTAKI OHAOHA
The Government’s vision is for an economy that is productive, sustainable and
inclusive to improve the living standards and wellbeing of all New Zealanders.
We want all New Zealanders to benefit from economic growth, both current and
future generations.
The wellbeing of our people and environment This includes the development of sector-led and
are at the centre of the Government’s economic government-supported Industry Transformation
strategy. We seek transformational change to Plans to transition these sectors to a more
make sure the benefits of growth are shared productive, sustainable and inclusive future.
more widely, and that the transition to a Sectors and industries do not operate in
lower-emissions and more sustainable economy isolation. Growing more innovative industries
is just and fair. This Government is prepared requires effort across a range of policy focus
to take a more active role to help bring about areas. We will support the changes needed to
this change. grow incomes by bringing together science and
When the Prime Minister outlined the innovation, industry, and skills policy to add
government’s priorities last year, she identified value to volume, leverage new low-emissions
four economic outcomes that will help deliver opportunities, and grow the Māori economy.
on our vision of a productive, sustainable and As with all the key shifts the Government
inclusive economy. These are to: is seeking through its Economic Strategy,
› grow and share New Zealand’s prosperity supporting the growth of innovative industries
more fairly in New Zealand will require us to work as a
› support thriving and sustainable regions system across different policy focus areas
and Ministerial portfolios. In particular, our
› transition to a clean, green and carbon-
investment environment, international
neutral New Zealand
connections and skills system will be critical
› deliver responsible governance that has to achieving the industry transformation
a broader measure of success. necessary to deliver on our vision.
Achieving these outcomes will require a
number of key shifts, and the Government’s
programme of initiatives to deliver these
key shifts is organised into six policy focus
areas. This document describes how we intend
to deliver one of the policy focus areas –
growing innovative industries in New Zealand.
In particular, it outlines the more active approach
this government is taking in partnering with key
sectors to build capacity and capability as we
develop new points of competitive advantage.
6
TO BUILD A PRODUCTIVE, SUSTAINABLE, AND INCLUSIVE ECONOMY
VISION
To improve the living standards and wellbeing of all New Zealanders
Deliver responsible
Grow and share Support thriving and Transition to a clean, green
OUTCOMES governance with a broader
NZ’s prosperity sustainable regions and carbon neutral NZ
measure of success
POLICY TRANSFORMATIVE PRODUCTIVE INNOVATIVE INTERNATIONALLY RESILIENT AND SKILLED AND
INSTITUTIONS INVESTMENT INDUSTRIES CONNECTED SUSTAINABLE INCLUSIVE WORK
FOCUS AND REGULATORY INFRASTRUCTURE
AREAS SYSTEMS
New priority Industry Existing Industry Other industry transformation
Transformation Plans: Transformation Plans: work underway:
› Food and beverage › Construction Sector Accord › Tourism
› Agritech › Creative industries
› Digital technology › Aerospace
› Forestry and wood › Renewable energy
processing › Health technologies
JULY 2019
7
Where have
we come from?
KUA AHU MAI MĀTOU I HEA?
We are not starting from scratch on the transition that the New Zealand economy
needs to make. The underlying competencies needed to compete in the digital
age have already been developed. Since the 1970s, successive governments
have wrestled with the challenges facing our economy, with one recurring theme
– how can we add value, upskill and diversify? How can we move our economy
from volume to value?
The collapse in wool prices and the weakness The consequences of these reforms were mixed.
of dairy and meat prices in the late 1960s, The economic slide of New Zealand was halted,
compounded by the loss of privileged market but some of New Zealand’s intractable social
access to the UK in the 1970s, forced business problems, with inter-generational poverty and
and government to chart a new course for rural dislocation, can be traced back to this
New Zealand’s economy. The situation was time. Those who were able to adjust and take
further exacerbated by rising unemployment and advantage of the resultant new opportunities
inflation. The government reacted with inward- prospered, while those who could not were often
looking protectionism, spending on ’Think Big’ left behind. Traces of this remain in our labour
projects and erratic macroeconomic policies. market today, with Māori and Pasifika over
New Zealand then undertook a raft of market- represented in low-skilled and low-wage work
based reforms at a scale and speed seen in few and with higher rates of unemployment than the
other countries, rapidly opening the economy rest of the population.
and unilaterally lowering the barriers to trade. On the positive side, New Zealand’s economy
has become more nimble, diverse and efficient.
CER a pivotal agreement
The profile of New Zealand’s exports has become
A critical strategy in opening up the previously more sophisticated and is increasingly capable of
closed and highly distorted New Zealand competing strongly in global markets.
economy was the negotiation and conclusion of
Since 1996, the macroeconomic parameters
the Closer Economic Relations (CER) agreement
have broadly remained unchanged. Within
with Australia, which took effect from 1983.
that framework, successive governments,
This exposed New Zealand’s previously totally
in partnership with businesses and labour,
protected manufacturing sector to international
have progressed a number of fruitful
competition from Australia and instigated the
microeconomic initiatives that have boosted
process of specialisation.
innovation and diversified New Zealand’s
export economy.
8
JULY 2019
TIMELINE
1966 The wool price collapses and dairy and meat prices weaken.
EARLY 1970s Active migration policies attract migrants from the Pacific Islands to fill labour
shortages in New Zealand’s manufacturing sector.
1974 New Zealand loses preferential market access to the UK owing to the
admission of the UK to the European Economic Community.
LATE 1970s ‘Think Big’ industrial projects are undertaken, such as the construction of the
TO EARLY Waitara and Motunui methanol plants and the Clyde Dam, and the expansion of
1980s the Marsden Point Oil Refinery, funded by large increases in government debt.
1975 The Waitangi Tribunal is established to investigate Māori Treaty claims.
1982-1984 A wage and price freeze is imposed by the government in an attempt to
combat rising inflation.
1983 New Zealand and Australia sign the CER trade agreement, agreeing to
remove all restrictions on trans-Tasman trade by 1995 at the latest.
1984-1993 New Zealand undergoes rapid market liberalisation.
1984 The 1984/85 Budget removes or phases out various subsidies and incentives,
including agricultural subsidies.
1985 The New Zealand dollar is floated to improve the efficiency of the foreign
exchange market and resource allocation throughout the economy.
1986 GST is introduced and income tax is reduced.
1987 The New Zealand Stock Market crashes in October. By February 1988,
New Zealand shares are down 55% from their pre-crash peak.
1988 GST increases to 12.5%, while income and company tax rates are reduced.
1989 The Reserve Bank adopts inflation-targeting monetary policy.
1991 The Employment Contracts Act is enacted, making union membership
voluntary. Industry awards and apprenticeship systems are abolished.
1995 The World Trade Organisation is established to operate a global system of
trade rules, acting as a forum for negotiating trade agreements and settling
trade disputes between countries.
1999 The Economic Development portfolio is established.
2000 The Employment Relations Act is enacted, requiring employers and
employees to act in good faith and promoting mediation to resolve
industrial disputes.
2000 The Regional Partnership Programme is launched to provide funding to
strengthen regional economies.
2001 The Catching the Knowledge Wave conference is held to generate consensus
on ways for New Zealand to create high-value industries that drive job
opportunities and foster a fair society.
2001 The New Zealand Super Fund is established to help manage future
superannuation costs.
2002 The New Zealand Venture Investment Fund is established to build the early-
stage capital market in New Zealand.
9
2002 The Growth and Innovation Framework sets out the government’s focus on
the ICT, biotech, screen production and design sectors.
2002 The Modern Apprenticeships scheme is started to remedy the low number of
young people in training. The scheme increases awareness of, and promotes,
workplace-based training.
2003 New Zealand Trade and Enterprise (NZTE) is established with responsibility
for developing and implementing trade, industry and regional
development policies.
2003 The Large Budget Screen Production Grant is established to support the
growth of the screen sector in New Zealand.
2004 Māori Television is established.
2006 The Economic Transformation Agenda sets out the government’s updated
policy statement on economic development.
2006 KiwiSaver is established to encourage long-term savings by New Zealanders.
2008 The Global Financial Crisis occurs. Unemployment in New Zealand increases
from below 4% to 6.5% in the space of a year.
2008 The Emissions Trading Scheme is established.
2008 New Zealand’s Free Trade Agreement with China enters into force, the first
free trade agreement that China has signed with any OECD country.
2010 The Primary Growth Partnership is launched to fund innovation in the
primary sector.
2010 GST increases to 15%.
2011 Telecom New Zealand is structurally separated into Chorus and Spark.
2011 The Productivity Commission is established to provide advice to the
government on improving productivity in a way that supports the overall
wellbeing of New Zealanders.
2012 The government launches the Business Growth Agenda.
2013 Callaghan Innovation is established to partner with businesses to help them
become more innovative and to enhance the operation of New Zealand’s
innovation ecosystem.
2013 He kai kei aku ringa, the Crown–Māori Economic Development Strategy
is launched.
2014 The Ka Hao: Māori Digital Technology Development Fund is established
(originally known as the Māori ICT Development Fund).
2015 New health and safety legislation is enacted, reforming health and safety
requirements in all New Zealand workplaces.
2017 The Provincial Growth Fund is established to invest in building regional
economies.
2018 The Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(CPTPP) enters into force.
2019 Major review of polytechnics and work-based training is undertaken.
2019 A 15% tax incentive is introduced to encourage businesses to carry out more
R&D activity.
10JULY 2019
Figure 1: Real GDP per capita
60,000
Loss of market Removal of agricultural Knowledge Wave Global Financial
access to the UK subsidies, deregulation conference Crisis
50,000
40,000
NZ$, 2009/10
30,000
20,000
10,000
0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2002
2004
2006
2010
2012
2014
2016
2018
2008
2000
Source: Statistics NZ
11
Developing appliances at Fisher & Paykel’s Auckland campus.
Source: NZ StoryInnovation since the
Knowledge Wave
TE TANGONGITANGA MAI I TE AO MĀTAURANGA
we are good at and increasing investment in
Many of the things we are good at
higher-value activities such as research and
today have evolved from activities we development, branding and after-sale service.
have been good at in the past. There In space technologies, government actions have
are numerous examples of innovative supported the development of the regulatory
industries being developed out of our system and the robust ecosystems necessary for
traditional strengths: from crop dusting a new and emerging industry to thrive.
to pilot training, from producing wool to Astute management of funds received as
making luxury apparel, and from success part of Treaty Settlements has also seen solid
growth in the Māori economy, which is now
in sailing to creating super yachts.
diversifying into areas adjacent to its traditional
While the private sector and markets have been base, including biotechnology and high-tech
the key drivers of change, government policy manufacturing. Further growth is expected as
has supported the shift to industries that incomes improve and new opportunities emerge
are more value based, helping build on what that are closely aligned with Māori values.
Some of New Zealand’s most innovative ideas begin in our universities.
Source: NZ Story
12JULY 2019
Successive governments have laid down the quality of public services and the social
the foundation for future economic growth, cohesion valued by New Zealanders.1 It was
including through the development and noted that New Zealand’s reliance on primary
reform of key infrastructure – notably in the production gave us a profile that did not match
telecommunications sector and the roll-out that of other first-world countries.
of broadband. Investment in connectivity
The Growth and Innovation Framework
infrastructure has positioned us well for the
digital future. The Growth and Innovation Framework (GIF)
that was put in place after the Knowledge
A key part of our innovation story was the
Wave conference focused on three sectors: ICT,
three-day Knowledge Wave conference in
biotechnology and the creative sectors, primarily
2001. It aimed to encourage new ways of
screen production and design. These were seen
achieving economic prosperity, recognising
as core competencies needed to drive success
that New Zealand’s economic performance
across the economy, including in our traditional
was inadequate to sustain the quality of life,
primary industries.
Growth and Innovation Framework:
The GIF that keeps on giving
Successful companies have flourished in sectors identified as
priorities by the GIF: ICT, biotechnology and screen production
and design.
Soul Machines Vesper Marine
Artificial Intelligence company Soul In the ICT sector, Vesper Marine brought
Machines was launched in November 2016 an IT solution to the America’s Cup when
by Dr Mark Sagar (who won Oscars for his it developed a marine safety system that
work creating computer-generated faces uses Automatic Identification System (AIS)
for characters in Avatar and King Kong) technology to mark the edge of the race
and serial entrepreneur Greg Cross. course with virtual buoys.
Soul Machines’ Soul Platform™ is a Digital Vesper Marine was supported by a project
Brain™ that combines neural networks grant and a growth grant from Callaghan
and biologically inspired models of the Innovation to develop their technology.
human brain to allow its realistic digital Revolution Fibres
humans to synthesise human behaviour Revolution Fibres is a leading biotech
in real time. firm that has created products used
Soul Machines’ digital humans and in everything from sound control and
autonomous characters can be deployed fishing rods to Formula 1 cars and anti-
allergy bedding. Callaghan Innovation has
in a wide range of uses across a number
supported Revolution Fibres with project
of different industry sectors. Soul
and student grants, as well as by providing
Machines was supported by a growth
wide-ranging advisory support. For
grant from Callaghan Innovation.
further information, see page 49.
1 www.beehive.govt.nz/release/knowledge-wave-conference-statement-co-chairs
13Public institutions and industry bodies have Independent research institutions such as the
developed over time to support the ICT sector, Malaghan Institute of Medical Research, the
such as the IoT Alliance2 to accelerate the Cawthron Institute and Gillies McIndoe Research
adoption of IoT technologies and the creation of Institute, as well as other government-funded
the AI Forum to undertake research on Artificial organisations, have grown specialist expertise.
Intelligence opportunities in New Zealand. In 2002, the Maurice Wilkins Centre was
The screen production sector was given a established as one of seven New Zealand Centres
significant boost through the introduction of a of Research Excellence (CoREs) and to date, the
Large Budget Screen Production Grant in 2003. Centre’s investigators have been responsible
The grant has evolved over time to preserve for bringing a number of drugs and vaccines
our international competitiveness, and the to clinical trials.
industry has responded with growth in training, These organisations work with start-up
talent and business development. We have companies, attracting domestic and international
grown new points of comparative advantage in private investment and also contract research
adjacent sectors, including computer gaming and for international companies, contributing
Artificial Intelligence. to our weightless export income. In 2016,
In the biotech sector, New Zealand has seen the New Zealand was ranked fourth globally for
growth of successful firms such as Revolution biotech innovation, behind the United States,
Fibres and Fisher and Paykel Healthcare. Singapore and Denmark.3
2 The Internet of Things (IoT) is a collection of things that are connected to the internet (such as devices, objects, machines,
animals or people) that collect and exchange data.
3 Scientific American Worldview, Overall Scores, 2016.
14
Revolution Fibre’s actiVLayr face masks are made by electrospinning liquid collagen extracted from fish skins into nanofibre.
Source: SanfordJULY 2019
Around the same time as the Growth and The New Zealand technology sector is now
Innovation Framework was launched, NZTE a significant part of the wider economy,
was established with a mandate to develop and it is becoming more widely used
and implement trade, industry and regional across other sectors, in both society and
development policies, in partnership with government. In 2018, the top 200 technology
industry, businesses, iwi, central and local exporting firms in New Zealand experienced
government, and relevant community groups. growth of 11 per cent.4 $1.1 billion in private
equity and venture capital funds were also
Since its inception, NZTE has supported
invested in New Zealand companies in the
many New Zealand firms to gain a foothold in technology sector.5
international markets. Callaghan Innovation
New Zealand sits among the most desirable
similarly partners with businesses at all
international film and television production
stages to support development and uptake
locations, and is well positioned to take
of new products, services and processes.
advantage of the significant global growth in
The introduction of the New Zealand Venture
demand for new content, including for platforms
Investment Fund (NZVIF) and tech incubators has
such as Netflix and Amazon Prime. Investment
enhanced the prospects of new and emerging
has also increased in other creative sectors,
businesses by addressing a hole in the capital
such as video game development. In 2016,
market that was inhibiting growth in many of Rocketwerkz, a Dunedin-based studio, secured
our innovative industries. significant investment from Tencent, a Chinese
As with all innovation, it has taken time to see online games company, allowing the firm to
the returns on these investments. But today we expand locally.
can see the fruits of this thinking in the success
of cutting-edge businesses such as Weta Digital,
Rocket Lab and Xero.
Telco reforms: bringing New Zealand
to the digital cutting edge
Investment in telecommunications and regulatory changes in the
infrastructure over the last decade telecommunications sector by successive
has put in place a strong foundation governments has underpinned these
for the country’s digital future. Digital developments.
healthcare, precision agriculture and We are gearing up to roll out 5G in 2020.
integrated smart cities are now presenting 5G will not just bring faster broadband
as real commercial opportunities for speeds and connection times. It will
New Zealand with wider co-benefits, such change the way we do things, bringing
as land use that is more effective and new possibilities to our firms working with
better access to healthcare. emerging technologies like the Internet
From the structural separation of Telecom, of Things, virtual reality experiences and
through to the roll-out of ultra-fast driverless cars. For further information,
broadband, the range of interventions see page 50.
4 TIN 2019 Investors Guide.
5 NZ Private Equity and VC Monitor.
15In contrast, while some gains have been made Commercialisation Fund (MRCF) in 2016 – an
in the biotech sector, growth there has been early-stage venture capital fund that provides
hampered by a lack of investment. Many biotech capital and hands-on expertise to support the
opportunities are relatively high risk (particularly development and commercialisation of promising
compared with opportunities in ICT) and require biomedical discoveries. Despite the difficulties
large investments that take a long time to see in securing investment, New Zealand biotech
a return. To date, New Zealand venture funds researchers are well regarded internationally
have not invested heavily in biotech. To help and we are beginning to see signs of success.
fill this gap and enhance commercialisation However, unrealised potential remains in this
options for early-stage biotech opportunities, sector and there is more to be done.
New Zealand joined Australia’s Medical Research
TIN200 export success
New Zealand’s technology sector is a significant part of our
wider economy. It is estimated that the sector grew by more
than $1 billion in 2018, according to the Technology Investment
Network (TIN).6
The TIN top 200 New Zealand tech NZTE tech customers experiencing growth
companies are attracting substantial of more than 40 per cent in the 12 months
investment from all over the world to April 2019.
and driving growth in diverse global There is still much to be done. Significant
markets. Fintech, agritech, digital media disruption is expected in the coming years.
and healthcare have been among the New technologies, such as augmented
best performers. New Zealand also has a and virtual reality, the Internet of Thing,
solid start-up and accelerator ecosystem and Artificial Intelligence, hold significant
for new tech companies. Callaghan opportunities, as well as challenges that
Innovation and NZTE have a strong focus will need to be managed. For further
on growing New Zealand’s tech sector and information, see page 51.
tech sector exports, with 43 per cent of all
6 TIN 2019 Investors Guide.
16JULY 2019
Looking ahead, the investments we are making We need to continue to move from volume
today in areas such as space, robotics, sensors to value in our key sectors while decreasing
and Artificial Intelligence will create a new wave our environmental impact.
of opportunities for New Zealand businesses, We need to move into new and adjacent
with huge economic potential. high-tech sectors, including those that build
Change is inevitable and inaction is not a viable on our established expertise in food and
option. When the tide is running, if we don’t beverage production.
sail forwards, we will be carried backwards. We need to make sure our regulatory settings are
We need to redefine our goals for the current right, invest in new opportunities and incentivise
technological revolution, just as the Knowledge private sector investment.
Wave and the GIF set targets for their time. We need to make sure New Zealanders have
Some of those goals are familiar, while others the right skills and that the benefits of growth
involve a new emphasis as we strive to achieve are shared equally, including in the regions.
the productive, sustainable and inclusive
economy that we want.
Into the future with digital skills
Digital technology is a cause of disruption as well as part
of the solution for facing future of work challenges.
At the moment, New Zealand’s digital To gain an understanding of the digital
technology sector, as well as the industries skills required in this area, the Forum
relying on digital technology workers, surveyed employers of digital technology
are facing a significant skills shortage. workers and developed the Digital Skills
Addressing this shortage will help the for a Digital Nation report, which included
tech sector and other industries to grow, detailing demand in growth of particular
and move more New Zealanders into digital skills. In March 2019, the Forum
highly paid work in digital technology hosted a national hui, at which more than
careers. Ensuring New Zealanders have 250 people from industry, the government,
digital skills is one way to help workers unions, NGOs and the education sector
be more resilient to the technological came together to propose answers to
disruption that a number of our three sets of challenges: preparing for the
industries are facing. future of work; bridging the gap between
This Government and industry are education and employment; and diversity
working together to address these and inclusion. The recommendations from
challenges through the Digital Skills this hui (and the Digital Skills for a Digital
Forum. Nation report) are being progressed
through the Future of Work Tripartite
Forum.
17Growing the Māori economy
The Māori economy is a critical part of our future economic
success. The Māori economy is broadly defined as privately
and collectively owned businesses that acknowledge their
genealogical links to Māori ancestors.
In the past 30 years, through settlements Collectively, Māori own $13 billion
with the government, Māori authorities in primary sector assets, which is
and enterprises have negotiated a total of approximately 10 per cent of the total
almost $2 billion in assets and financial New Zealand agriculture, forestry
redress. Through astute management, and fishing asset base. Māori control
the value of these assets has grown 50 per cent of New Zealand’s fishing quota
at an average 10 per cent per annum and approximately 30 to 40 per cent of
since settlement. the land that has forests on it. Although
To date, Māori economic growth has the forestry rights for the trees on Māori
been centred in sectors with strong links land are often held by corporate/foreign
to natural resources, land and culture. interests, many Māori groups wish to
These include the agri-sector, forestry progressively take over forest ownership.
and fishing, property, construction and For further information, see page 52.
infrastructure, tourism, and technology
and innovation.
Robotic machinery being used to stack apples.
Source: NZ Story
18JULY 2019
The starting point:
a sound economy,
but low productivity
TE WĀHI TĪMATA: HE ŌHANGA MŌMONA,
ENGARI HE ITI ŌNA WHAKAPUTARANGA
Much about the New Zealand economy is Despite this, our productivity performance
currently going well: has remained poor and in international terms,
› Economic growth is solid and forecast we have continued to fall behind our main
to remain so over the next five years. competitors, as illustrated in Figure 2.
› Inflation remains low and steady. Our economic growth has been too dependent
on high levels of net migration and house price
› Unemployment is low at just over 4.2 per cent.
inflation driving consumption and demand for
› Government debt and inflation are low, which extra infrastructure. Too much of our capital has
supports a lower level of interest rates. been skewed towards speculative asset classes,
We have strong institutions, clear legislation like rental properties, rather than investment in
and effective regulation. These settings ensure growing new points of competitive advantage.
fairness and underpin New Zealand’s ranking
The Productivity Commission7 notes that these
among the best in the world for ease of
factors have contributed to low capital intensity
doing business.
in our productive sectors – put simply, there
All of these attributes provide a good has not been enough money invested in our
platform for future economic growth. Our productive enterprises. Technology transfer
well-educated population, abundant natural and resource allocation is poor and our exports
resources, extensive investment in connectivity remain focused on low-complexity products.
infrastructure, and well-respected New Zealand While some progress has been made in
brand are other important assets. diversification, our exports remain focused on
too few products and too few markets.
7 Paul Conway, Achieving New Zealand’s productivity potential (November 2016), p36,
https://www.productivity.govt.nz/sites/default/files/Achieving%20NZ%27s%20productivity%20potential%20November%202016_0.pdf
19Figure 2: Multifactor productivity growth comparison
1.2
Australia New Zealand
Denmark Sweden
1
0.8
Annual growth rate, %
0.6
0.4
0.2
0
0.2
0.4
19901999 20002009 20102017
Source: OECD
We are also reliant on foreign funding to finance Our current account – the balance of our
our spending and investments, increasing our transactions with the rest of the world –
vulnerability to the swings and roundabouts has been in deficit for more than 40 years.
of global economic sentiment.
Figure 3: New Zealand’s external balance
6 Net international investment (right axis) 60.0
Current account (left axis)
4 Trade (left axis) 40.0
Income (left axis)
2 20.0
0 0.0
2 2.0
% of GDP
% of GDP
4 40.0
6 60.0
8 80.0
10 100.0
12 120.0
1988 1997 2006 2015
Source: Statistics NZ
20JULY 2019
Figure 4: New Zealand export growth
CAGR
2000-18
Total 4.3%
90 Other Manufacturing Primary $80
Wood & products Tourism $0.9 2.5%
$73
80 Food & beverage Other services $72 $8 3.3%
$69 $70 $0.8
$0.9
Machinery & electrical Telecommunications,
$0.7 $0.9
computer & information services $63 $63 $8
$62 $7
70 Medical devices
$7
$59 $7 $16 5.3%
$0.7 $0.7 $0.7
$56 $57
$0.6 $7 $7 $7 $15
60 $51
$0.6
$6
$0.7 $10 $13
$14
$6 $3 0.9%
$48 $6
$46 $0.5 $9 $9 $9 $0.9 6.5%
$45 $44 $45 $3 2.1%
$5
NZ$, billions
$43 $3
50 $0.7
$0.5 $5 $10
$0.7 $4
$4
$0.8
$0.7 $0.5 $0.6 $10 $9 $0.9
$5 $0.5 $5 $6 $6 $5 $3 $0.8 $3
$40 $3
$5 $4 $5 $3
$4 $10 $5 $0.6 $0.6 $0.8
40 $0.6 $5 $3 $3 $3
$9 $9 $5 $0.7
$5 $7 $9 $9 $0.5 $3 $0.6
$9 $3
$3 $3 $33 6.2%
$3 $3 $0.5
$4 $30 $30
$6 $3 $0.4 $3 $29
30 $0.3 $0.4
$2
$3 $3
$0.4 $3 $28
$2 $0.4 $0.4
$3 $2 $3 $25 $25 $25
$2 $22
$0.3
$2 $20 $21
20 $15 $16
$14 $15 $15 $16 $17
$11
$6 4.4%
$4 $4 $4 $5 $4 $5 $5
10 $3
$3 $3 $3 $3 $3 $3 $3 $3 $3 $3
$8 $9 $8 $9 1.5%
$7 $8 $7 $7 $7 $7 $8 $8 $9 $8 $8 $8 $8 $8 $9
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Statistics NZ
21
Construction and operation of the Ngatamariki power station requires collaboration.
Source: NZ StoryIn addition, some of our economic growth Although our economy has grown overall,
has brought about worsening environmental some New Zealanders have been left behind,
impacts. Water quality has degraded and while with growing disparities across regions and
greenhouse gas emissions per unit of GDP have between groups in society.
decreased, total emissions have increased.
Figure 5: Labour productivity and the intensity of emissions and energy
1400
1300
1200
Index = 1000 in 1996
1100
1000
Labour productivity
GDP per net emissions
900 GDP per picojoules energy consumed
800
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Statistics NZ, MBIE, Mfe (note: emission intensity data has been extrapolated from 2015)
NEW OPPORTUNITIES AND › A rising tide of protectionism in many
countries is bringing with it increasing friction
CHALLENGES
in world trade and threatening New Zealand
New Zealand also faces new opportunities exporters’ ability to access offshore markets
and challenges: fairly. Increasing tensions between the
› The fourth industrial revolution and US and China, Brexit and threats to the
new digital technologies are disrupting WTO rules-based system are particularly
traditional industries. The nature of work concerning to New Zealand’s interests.
is being profoundly affected by Artificial › Consumer preferences are changing. Growing
Intelligence, machine learning and automation. global action on climate change means that
› These same technologies are creating carbon-intensive industries are likely to face
significant business opportunities for those significant challenges. Food preferences
who innovate and develop businesses using are changing and vegetable-based protein
these new technologies. Many applications substitutes for dairy and meat are being
of technology have global reach and are developed.
highly valuable. As a small, trade-exposed nation, New Zealand
› Globalisation and digitisation are both needs to innovate to maintain our competitive
reducing the tyranny of distance, advantage in key areas such as our primary
but paradoxically, they are increasing reward production.
for scale, as the capital required to expand
In the face of all these challenges, we need
new digital goods and services into global
to chart a course to take advantage of new
markets can favour larger economies with
opportunities while achieving a just transition
deeper pools of capital.
for those affected by change.
22JULY 2019
Supporting start-ups and innovation:
New Zealand Venture Investment Fund
The New Zealand Venture Investment Fund (NZVIF) was established
in 2002 as a response to the lack of supporting infrastructure and
funding options for the early-stage capital market.
Since its inception, NZVIF has invested This growth notwithstanding, New Zealand’s
over $223 million into 287 companies venture capital market has yet to reach
incorporated in New Zealand through its full potential. Venture capital markets
partnerships with venture capital funds typically take 20 to 30 years to mature.
and angel networks. Those companies Further investment is required to build
have raised a further $2.4 billion from a vibrant and self-sustaining early-stage
private investors, with 54 per cent from investment ecosystem.
international investors, and earned The 2019 Budget committed $300 million
$5.6 billion in revenue and $3.9 billion of government support for series A and
in export earnings. series B capital rounds. For further
information, see page 53.
23
Emirates Team New Zealand.
Source: NZTEKey Highlights
THE TECH SECTOR IN 2015
CONTRIBUTED
28,749 $16.2B
TECH SECTOR FIRMS GDP (8% OF GDP)
EXPORTED
$6.3B 3RD
GOODS & SERVICES LARGEST EXPORT SECTOR
(9% OF EXPORTS)
EMPLOYED AN ADDITIONAL
98,911 20,154
PEOPLE TECH WORKERS
(5% OF THE WORKFORCE) WORK IN OTHER SECTORS
THE TECH SECTOR HAS HIGHER PAID AND HIGHER QUALIFIED
EMPLOYEES THAN ALL OTHER SECTORS, ON AVERAGE
ICT’S CONTRIBUTION TO GDP GROWTH
IN NEW ZEALAND HAS BEEN EACH NEW TECH SECTOR
JOB CREATES UP TO
HIGHER 5 NEW
THAN ANY OTHER OECD COUNTRY
SERVICE JOBS AROUND IT
FROM 2001 TO 2013
EACH 4% PRODUCTIVITY IMPROVEMENT IN THE TECH
SECTOR IS ESTIMATED TO DELIVER AN ADDITIONAL $2.7B GDP
24
Source: From Tech Sector to Digital Nation, NZ Tech, 2016JULY 2019
Developing
innovative industries
TĀ MĀTOU ARONGA KI TE WHAKATIPU AHUMAHI AUAHA
“IN MY VIEW, THE STATE SHOULD BE ACTIVE AND WORK IN COOPERATION WITH PRIVATE
BUSINESSES TO SPUR GROWTH THAT’S SUSTAINABLE AND INCLUSIVE. THE POLICY PROCESS
IS ABOUT CO-CREATING AND CO-SHAPING OF MARKETS, CREATING NEW OPPORTUNITIES
FOR BUSINESS INVESTMENT – AND NEGOTIATING A BETTER DEAL FOR THE PUBLIC TOO.”
– PROFESSOR MARIANA MAZZUCATO, THE ENTREPRENEURIAL STATE
The Government is committed to stimulating the productive economy by creating
a conducive policy environment and directly working with our partners to support
key sectors in reaching their full potential.
MOBILISING CAPITAL INTO THE
PRODUCTIVE SECTOR
Already this Government has taken a number of
steps to direct investment into the productive
sector and away from speculation in land assets.
This includes:
› introducing a 15 per cent R&D tax credit
› ring-fencing losses from rental portfolios
› extending the bright line test from two to
five years, so that profits from residential
investment properties that are bought and
sold within five years will generally be taxable
› banning foreign buyers of existing
New Zealand homes.
Prudent fiscal management has also helped ease
the pressure on monetary policy, accommodating The Cora autonomous aircraft.
lower interest rates and exchange rates than Source: Zephyr Airworks
might have otherwise been the case.
25Figure 6: New Zealand exports as a percentage of GDP
40
Nominal
38
Real
36
34
32
% of GDP
30
28
26
24
22
20
1995 1998 2001 2004 2007 2010 2013 2016 2018
Source: Statistics NZ
ROLE OF INDUSTRY POLICY with skills development, improve access to
capital, provide targeted support for R&D and
Our new approach to industry policy will assist the commercialisation of innovative products,
the reallocation of resources to the productive and use its own power as a purchaser to
sector. It is not focused on picking winners, create demand for new and innovative ways
but on setting the stage for winners to emerge, of doing things.
to help achieve our collective vision for a more
This approach to economic development is
productive, sustainable and inclusive economy.
more important in smaller economies, such as
Reservations with regard to the role of New Zealand, than in larger economies, such as
industry policy have typically centred on the United States, where the benefits of scale
the risk of government failure. In particular, and agglomeration mean industry policy is
governments have insufficient information less important.
about the economy, its interdependencies and
The aim of our approach to industry policy is
opportunities to appropriately target actions in
to drive productivity growth, sustainability
a way that benefits broader society. In the past,
and diversification through:
some countries have also used industry policies
defensively to protect industries undergoing › Moving from volume to value: looking
structural change, locking in wasteful activities for productivity growth in our high-volume
and slowing necessary transitions. sectors:
Modern industry policy is strategic and forward New Zealand needs to move from volume
looking. Instead of protecting old industries, to value in the largest areas of our export
governments work to support industries through economy, such as agriculture and tourism.
transition and back new opportunities as they This involves a shift away from a growth
emerge. Rather than providing subsidies or strategy based on labour absorption and
tax breaks that lock in unsustainable activities, immigration to one in which productivity
the government can help address coordination plays a much bigger role.
failures both within and across sectors, assist
26JULY 2019
Moving from volume to value can include Through our approach to industry policy, we will
enhancing existing products as well as spur innovation and its diffusion across the
creating new products, and services using economy in two key ways.
innovation and R&D at the early product First, we will continue to build the foundations
development stage. Value can also be for our ongoing success through broad-based
added at the customer end of the product- interventions that cut across key elements in
development stage, such as through the Government’s Economic Strategy, notably
innovative branding, packaging and innovation, trade and international connections,
marketing, or by providing services along investment, regional economic development,
with a product. skills and the future of work. These will include:
Reducing our environmental impact can also targeted schemes for the development of
support the shift by improving efficiencies particular skills; capital market interventions
and enhancing the clean, green brand that to fill holes in the capital cycle; non-trade
New Zealand relies on for premium prices. distorting support for emerging export
› Leveraging opportunities in adjacent companies in specific sectors; support for R&D
sectors: opportunities arising from our and commercialisation of innovative products,
points of expertise and comparative including the grants and business services
advantage: provided by Callaghan Innovation; and selective
government procurement.
The government is fully committed to
responding to the opportunities and Second, we will work in partnership with key
challenges of our changing world. We will sectors to ensure a more proactive approach is
continue to look for opportunities that are taken towards capacity and capability building as
adjacent to our existing strengths, to grow we build new points of competitive advantage.
new points of comparative advantage, create This will involve partnering with sectors to
new opportunities for export and enable develop Industry Transformation Plans, which
higher value and more sustainable land use will set out an agreed vision for the future
domestically. state of the sector and the actions needed
to get there.
› Backing emerging sectors: being prepared
to seize opportunities in new sectors of Climate change, environmental degradation and
the economy: the distribution of wealth have reinforced the
need to shift to a more strategic approach to
New Zealand will not be at the forefront
industry policy that includes a focus on long
of all new technologies, but to use Sir Paul
term sustainable development and inclusivity.
Callaghan’s phrase, some of our key strengths
Collectively we must ensure that innovation,
will lie in the ‘weird stuff’, important niches
trade, investment and skills development
where there is not yet any other obvious
support the transformation of key sectors and
global frontrunner and where we have a bit
the development of new sectors.
of a head start. Digital film services, satellite
launch services and medical devices are The drivers of improved productivity will help our
examples of this. economy to prosper in the 21st century.
Early adopters of new-to-world technologies The following section provides an overview of
can gain the biggest returns from their how we will build the foundations for growing
investment. Business and government need more innovative industries through cross-cutting
to work together to maximise our share of initiatives. The other central component of our
these opportunities now, such as in robotics, approach – Industry Transformation Plans – will
sensors and Artificial Intelligence, where we be discussed in the next section.
can leverage our competitive advantages
as a nation with expertise in agricultural
production and with a skilled and well-
educated workforce.
27INNOVATION – GROWING R&D The government is also developing a Research,
Science and Innovation Strategy, which will focus
Innovation is a critical input for a more
on increasing New Zealand’s rate of innovation
productive economy and the development of our
at the leading edge of what the world knows
sectors. Innovation is important for diversifying
and can do – the ‘frontier’ of knowledge and its
the economy, creating new industries and
application. Innovation at the frontier means
businesses and creating highly skilled jobs –
generating new knowledge and technology, and
benefits that spill over to society at large.
using that to introduce products, services and
To drive innovation, the government aims to processes that are new to the world.
lift investment in R&D from today’s figure of
By contrast, innovation ‘behind’ the frontier is
1.3 per cent of our economy to at least 2 per cent
a key focus of economic development, as it drives
of GDP by 2027. This will require a step-change in
productivity in our existing industries. Innovation
New Zealand’s knowledge investment, which will
behind the frontier is about adopting ways of
be a real challenge for New Zealand, but is likely
doing things that are new to an organisation but
to generate significant productivity gains.
are already known to others. The Productivity
While some of this increase will be delivered Commission identified that a number of
directly through government investment in New Zealand’s industries are disconnected
R&D, the key lift needed is more R&D investment from the global innovation frontier and that
by the private sector. New Zealand has a long tail of unproductive
The R&D Tax Incentive will stimulate private firms in some industries.
sector investment. The R&D Tax Incentive has Innovation ‘at the frontier’ and ‘behind
a competitive rate of 15 per cent on eligible the frontier’ are complementary. Economic
R&D, while also offering support to pre-profit development policy may encourage the adoption
businesses, such as start-ups, through a tax of new technology and frontier innovations,
refund. The R&D Tax Incentive uses a definition which in turn, generates demand for innovation
of R&D that ensures the credit can be accessed within these sectors, stimulating new
more easily across all sectors, including the investment and R&D activity. Increasing the level
technology sector. This is a major initiative, of innovation behind the frontier within existing
totalling $1 billion over four years, to lift firms is important for supporting key industries
our R&D investment and thereby, our levels to add value to volume.
of innovation and productivity. Callaghan
Innovation also supports innovation in the
economy by providing innovation services to
businesses, including technology and product
development, grants, access to experts
and training in innovation skills.
28JULY 2019
Figure 7: Total R&D expenditure in New Zealand
4
*R&D as a % of GDP
*1.37%
3
*1.23%
*1.17%
*1.25%
NZ$, billions
*1.26%
2
*1.19%
1
0
2008 2010 2012 2014 2016 2018
Business sector Government sector Higher education sector
Source: Statistics NZ
We are also building international connections economic growth by improving productivity
to support New Zealand’s thriving innovation and the sustainable use of natural resources in
system. Our Innovative Partnerships relation to that area. These are complemented by
programme attracts world-leading innovators the four Regional Research Institutes, which are
to New Zealand to carry out research and designed to stimulate leading-edge, industry-
development activities, and has already seen exploitable and commercially focused research
success with companies like Zephyr Airworks. in sectors relevant to their home regions.
We are investing in government-to-government To help lead New Zealand’s transition to a
science partnerships, connecting our researchers low-carbon economy, the government has set
with international expertise to tackle challenges aside $27 million to support the establishment
at the global frontier. and operations of a National New Energy
Callaghan Innovation and NZTE are helping Development Centre. The Centre will be
our innovators to act globally, providing them based in Taranaki to capitalise on the region’s
with the tools, investment advice and market energy talent, infrastructure and international
information to create products for the connections, but it will serve as a national
international market. energy systems integrator, working across
The government supports innovation through multiple organisations, agencies and locations.
our mission-led research institutes. The Crown The centre will work with industry and the
Research Institutes play a unique and important research sector to test, trial, demonstrate
role, supporting their sectors to innovate and and deploy new technologies across a range
grow. Each of the seven institutes is aligned with of emerging options such as offshore wind,
a productive sector of the economy or a grouping solar batteries, hydrogen and new forms of
of natural resources and they strive to achieve energy storage.
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