Shaping our slice of heaven - Regions of opportunity May 2019 - Deloitte
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Shaping our slice of heaven Regions of opportunity May 2019
Regions of opportunity
Contents
Executive summary 3
Context to our ‘within New Zealand’ story 7
Place: Purpose and how it is defined in this report 10
National and regional economic impact 12
Auckland 17
Waikato 23
Hawke’s Bay/Gisborne 29
Wellington 35
Canterbury 41
Building a platform for economic success across our regions 46
Appendix 48
Endnotes 55
Contacts 58
2
Regions of opportunity | Executive summary
Executive
summary
The Shaping our slice of heaven series is designed to promote debate
across business, industry associations, government and the media
on issues facing the New Zealand economy. Our aim is to shine a
spotlight on the challenges we face as a country to improve our
overall prosperity and wellbeing, and in doing so ask some hard
questions about what we are doing to rise to these challenges.
The regions of opportunity narrative New Zealand has plenty of goods and provincial regions to demonstrate the
Welcome to the second edition of the services exports to offer world markets differences. These five regions are home
Shaping our slice of heaven series, but the country’s full export potential to over two-thirds of the total population
entitled ‘Regions of opportunity’. hasn’t yet been realised. The diverse and account for three-quarters of the
nature of its landscapes, towns and cities nation’s gross domestic product (GDP).
In the first edition of the series, we
means New Zealand shouldn’t be treated
focused on the economic opportunities Economic impact of
as a monolith – to overlook our regional
presented by export industries that increased exports
variety and the particular opportunities
are predicted to experience above Using our Deloitte Access Economics
that come with each is to miss a crucial
average global economic growth and in-house computable general equilibrium
chance to substantially change economic
are industries in which New Zealand has (CGE) model, we assessed the potential
development for the better.
comparative advantages. We developed economic impact of increasing exports
a national prosperity map identifying New Zealand already has a well- across these four industries in the five
five industries of opportunity for New developed narrative projecting to the regions chosen. Our analysis aims to
Zealand: tourism, agribusiness, advanced world why it should not be overlooked understand how growth in key industries
manufacturing, food processing and both as a destination for inward can result in quite different outcomes for
international education. investment and a place to source goods the different regions, depending on their
and services. But while this outwardly unique characteristics.
In this second report, we move away
focused narrative is vitally important
from the national view and take a deep The key question we are asking is
on the world stage, we believe there is
dive into our regions. We examine how what role can different regions play in
further value to be unlocked by telling
increasing exports in four of these supporting our overall economic success,
the ‘within New Zealand story’ that lies
industries of opportunity (we’ve left driven by export growth? Or to put it
beneath. In this report, we examine our
out international education as the data another way, how can our regions build a
four industries of opportunity across five
is either too complex or missing) can pathway to prosperity, and what role do
regions – Auckland, Waikato, Hawke’s
contribute to the economic growth of exports play in this picture?
Bay/Gisborne, Wellington and Canterbury
some of our country’s diverse regions,
– to develop our ‘regions of opportunity’ To answer this question, we have
both individually and together, for a
narrative. We deliberately chose a mix of measured the economic impact of
more prosperous outlook overall.
five urban, provincial and mixed urban/ scenarios under which each of the
3
Regions of opportunity | Executive summary
Figure 1
Economic impact in GDP terms 2019-2040
National Auckland
Tourism $11.5bn Tourism $3.9bn
Agribusiness $4bn Agribusiness $2.5bn
Food processing $10.6bn Food processing $6.1bn
Advanced manufacturing $6.1bn Advanced manufacturing $2.9bn
Waikato
Tourism $1.4bn
Agribusiness $500m
Food processing $800m
Advanced manufacturing $100m
Canterbury
Tourism $600m
Agribusiness $500m
Food processing $1.5bn
Advanced manufacturing $900m Hawke’s Bay/Gisborne
Tourism $900m
Agribusiness $600m
Food processing $500m
Advanced manufacturing $200m
Wellington
Tourism $2.5bn
Agribusiness $600m
Food processing $1.8bn
Advanced manufacturing $1.5bn
Results for the rest of New Zealand are not presented in this infographic.
4
Regions of opportunity | Executive summary
four industries exports grow at a Regional results together. This allows us to form a more
rate necessary to reach industry or Auckland robust picture of the effects of our
government targets. Our economic The model results for Auckland scenarios on provincial regions.
model simulates how the economy will show that growth in all of these
As a small economy with some emerging
respond and re-adjust to increased industries would result in a significant
sectors, this region stands to gain the
export growth, over the period from economic impact.
most in relative terms from increasing
2019 to 2040. The model is sufficiently
The potential economic impact from exports across the four industries. For
dynamic to estimate the impact across
increased exports in food processing example, increasing tourism exports
all regions in New Zealand, including any
is particularly pronounced, with the have the potential to make the economy
inter-regional trade.
regional economy projected to be $6.1 nearly 10 percent larger between
National economic impact billion (6 percent) larger relative to 2019 and 2040. Similarly, agribusiness
Our modelling reveals our hypothesis to regional GDP than would otherwise be and food processing offer substantial
be sound – namely that export growth in the case between 2019 and 2040. In opportunity for regional growth, despite
these industries can result in significant addition, the advanced manufacturing, agribusiness already being the region’s
benefits for each of our regions of tourism and food processing industries dominant industry.
opportunity, and in turn for the country. would all experience substantial
While modelling for the advanced
Across all five regions analysed, in employment gains, growing by 27,300
manufacturing industry shows increased
aggregate, our modelling shows that: FTE, 13,500 FTE and 12,200 FTE
exports driving a $200 million (2.1
respectively by 2040.
•• Over the period 2019 to 2040, the percent) increase in regional GDP,
economy would be $11.5 billion (4.3 Our analysis reinforces the need for interestingly the impact on regional
percent) larger in real terms if our Auckland’s focus on infrastructure employment is very modest or even
five regions of focus grow at the improvement to continue. This is vital slightly negative.
national export growth target set for for Auckland to continue to be able to
However, as the region’s advanced
tourism. In addition, there is a boost function, let alone flourish.
manufacturing industry emerges, it is
in employment of an additional 23,100
Waikato well placed to specialise in servicing
full-time equivalent (FTE) jobs.
Our modelling reveals some surprising its strongest agribusiness subsector
•• The additional national GDP, as a results for Waikato. Notably, the tourism – horticulture. This could provide
result of the five regions growing industry offers almost three times as differentiation for the region as a place
at the national export growth target much potential economic benefit as where new horticulture technologies are
for agribusiness, equals agribusiness, the region’s most well- developed and tested.
approximately $4 billion over the known industry. The potential economic
Wellington
period and there would be 6,500 FTE impact from increased exports in
The model results for Wellington show
additional jobs created. tourism is projected to be $1.4 billion (6.1
that the potential economic impact
percent) larger from 2019 to 2040, while
•• If the regions we modelled grew to of growth in tourism is particularly
increased exports in agribusiness would
meet national export growth targets pronounced, with the regional economy
drive $500 million (2.2 percent) growth in
for food processing, national GDP projected to be 7.0 percent, or $2.5 billion
regional GDP. Food processing provides
would increase $10.6 billion and dollars, larger relative to regional GDP
the greatest opportunity in terms of
employment would grow by around than would otherwise be
employment growth with our modelling
23,200 FTE jobs. the case.
showing job growth of almost 3,000 FTE
•• Achieving the national research and by 2040. The Wellington region would also
development (R&D) target by growing experience considerable economic
Our results highlight the importance
advanced manufacturing exports impact from increased export growth
of sustainability, and keeping ahead of
would add an additional 39,500 in both food processing and advanced
regulatory change, for the future of the
FTE jobs and increase GDP by manufacturing, of $1.8 billion and
agribusiness sector in Waikato. This will
$6.1 billion. $1.5 billion respectively. In terms of
require hard conversations around the
employment, advanced manufacturing
Some more of the insights gained from transition to a lower emissions economy,
provides the greatest opportunity for
the economic modelling of our scenarios the use of bio-technologies, access to
the Wellington region with a projected
unearth a range of interesting insights at water and competition for land.
increase in regional employment of 4,800
the regional level. Moving geographically
Hawke’s Bay/Gisborne FTE jobs by 2040.
from north to south, they are as follows.
For the purpose of our analysis, we
have grouped Hawke’s Bay and Gisborne
5
Regions of opportunity | Executive summary
“It’s not enough to develop
regional economic development
plans region by region, without
considering how the regions link
together, and where each region’s
competitive advantage lies”
These results may seem counter- Next steps powerhouse – does not shrink or have
intuitive at first, but the signs have been While all of New Zealand’s regions stand negative effects on the regions?
apparent for some time that the region to benefit from key export industries,
•• How can we build on our regional
has opportunities to increase economic such as tourism, both the opportunities
differences to increase our overall
growth and add jobs outside of the and the benefits will not be evenly
economic resilience to respond to
public sector. In our view Wellington must distributed. Some regions may be better
external shocks?
look to its other competitive advantages, placed investing in other industries
which may be found in the synergies that draw on their strengths, including •• And as New Zealand transitions to
between the film and creative, food and existing business clusters, natural a lower carbon economy, how can
beverage, and tourism sectors. advantages or logistics connectivity. we ensure that the learnings from
Taranaki’s Just Transition programme
Canterbury In our view it is not enough to develop
are shared and applied across
The Canterbury region is well-known regional economic development plans
other regions?
for its agriculture and food processing region by region, without considering
industries. Therefore it’s not surprising how the regions link together, and where By starting conversations to address
that our modelling shows food each region’s competitive advantage lies. these questions now, we can preserve
processing provides the greatest So how do we build a strong platform and enhance the future prosperity of our
opportunity in terms of GDP, growing by for economic success across all our regions of opportunity, and by extension,
$1.5 billion (4.3 percent) over the period regions? For our regions to thrive and New Zealand as a whole.
from 2019 to 2040. take advantage of the opportunities
presented to them, some important
Untapped potential in value-add
questions need be addressed.
food processing should be seen as a
They include:
significant opportunity for the region,
leveraging its agribusiness sector. And •• How do we get regions working
further consideration of how best to grow together to support a more
Canterbury’s advanced manufacturing coordinated ‘within New Zealand’
sector should take into account the regional economic development
region’s natural resources and wealth of strategy
business services.
•• How can we ensure that local
A key question is how Canterbury can government and economic
diversify these sectors to increase its development agencies are
national and global share. Examples appropriately equipped to support
include moving towards precision strategies for growth that embrace
agriculture, diversifying food processing regional differences?
and expanding the electronic
•• How do we ensure that growth in
manufacturing hub in Canterbury.
Auckland – New Zealand’s economic
6
Regions of opportunity | Context
Context to our ‘within
New Zealand’ story
The importance of regional economic growth in driving overall
national growth cannot be over-emphasised. It is essential that
all regional economies within New Zealand continue to thrive.
Context to our A refreshed focus on regional economic development
‘within New Zealand’ story There have been efforts to develop the ‘within New Zealand’ story, including a
Over-reliance on a handful of urban refreshed government focus on regional economic development, which includes:
economies, such as Auckland, Wellington
and Canterbury, to provide growth The Provincial Growth Fund aims to close the gap between growing
for the entire nation leaves New Zealand and struggling regions, which has come about due to long-term
vulnerable to economic shocks. underinvestment and intergenerational poverty.
For instance, an asymmetric shock to
The Ministry of Business, Innovation and Employment (MBIE)’s
urban centers in the form of a downward
Just Transition Unit manages the impact and maximises opportunities
property price adjustment would
associated with the changes brought about by New Zealand’s transition to
likely soften consumer demand due to
a low emissions economy. The initiative’s current focus considers what a
declining wealth and reduced consumer
Just Transition would look like in Taranaki.
confidence. Supporting growth more
broadly within regional economies would The Living Standards Framework informs how the Government
spread economic risk over a greater prioritises investment, and how to measure economic success.
number of geographical markets and The focus is currently at a national level, but the regional implications
improve overall economic resilience. of this framework are just as important.
This begs the question of what role A research and development tax credit (R&D tax credit) was recently
regions across New Zealand should play introduced, which is critical for lifting investment in R&D and innovation in
in supporting overall economic success New Zealand, and will contribute to shaping our regions.
and to what degree there should be
The New Zealand Infrastructure Commission is being established to
centralised coordination of these efforts.
ensure the country gets the quality infrastructure investment required for
Deloitte refers to this as the ‘within New
long-term economic prosperity. It will provide support strategy, planning,
Zealand’ story.
procurement and delivery across New Zealand, and therefore unlock
growth opportunities at a regional and national level.
A future of work study is underway to consider the effects of
technological disruption on work. Digital disruption is both a risk,
as it threatens to replace or transform traditional jobs, but also an
opportunity to create jobs demanding new skills. The future of work,
and the outcome of this study, will certainly have an impact on all regions
over the long-term.
7
Regions of opportunity | Context
Exports shaping our regional futures the world economy, but can also reap of our regions, rather than the broader
There is, however, a lack of consideration significant benefits from trade, such wellbeing outcomes.
of how regional exports could benefit as enhanced efficiency and increased
Relationship between exports and
regional economic development. innovation. Through this, if risks are
economic growth
There is a focus on exports nationally, managed, trade can lead to increased
As a small, open economy, New Zealand
through targets set by industry and economic growth, higher employment
is highly exposed to global trends and
strategies for how exports could be and improvements in living standards.
events, which can have significant
diversified. In 2014 the Productivity
In this second edition of our Shaping influence on our macroeconomic and
Commission conducted a study to
our slice of heaven series, Deloitte further social environment. New Zealand
understand inter-regional trade and
develops the ‘within New Zealand’ story by borrows money from overseas, so
the extent to which goods and services
determining international monetary policy changes
are traded across distances within
the economic impact of increasing can flow through to our interest rates.
New Zealand.1 But there is as yet little
exports – both international and inter- This has economic impacts on things
evidence on the link between exports
regional – and how our regions can like mortgage repayment amounts and
and regional economic development.
prosper from this. savings rates. Changes in the exchange
Export-driven growth is highly rate, for instance, makes our products
Deloitte recognises prosperity is more
important for New Zealand. We are more or less desirable in relation to
than just economic growth and increased
trade-dependent, with exports directly products from another country,
employment. Regions are more than
accounting for a third of the country’s directly affecting the profits of New
that – their people, social cohesion,
economic output. In addition, exports Zealand exporters.
institutions, environment, history,
such as tourism, agribusiness, food
culture, infrastructure, and proximity to From a ‘within New Zealand’ perspective,
processing and advanced manufacturing
other regions (to name a few) all have a exports facilitate economic growth at
provide strong anchors for New
bearing on the future prosperity of our a regional level in terms of increasing
Zealand’s economy. New Zealand is
cities and regions. However, this report is output, employment and overall living
exposed to risks associated with being
predominately focused on the standards for those based within
trade-dependent, such as exchange rate
economic and employment outcomes the region.
fluctuations and being a price-taker in
A primary way businesses interact with
the world is through trade inflows and
Figure 2: The relationship between exports and regional economic growth
outflows. For instance, New Zealand
businesses sell milk and meat products
to overseas consumers, we provide
Local strengths Global industries of
technical expertise to international
and opportunities opportunities businesses and welcome tourists into
Regions need to undestand Understand what the global our country. It is not just cities that
where their strengths lie, opportunities are based on
relative to other regions in
benefit – strong export demand is a
global economic growth and
New Zealand, and also New Zealand’s comparative central contributing factor to buoyant
the world advantages growth seen throughout the provinces.
One mechanism underpinning economic
growth is based on extracting more
out of the same inputs (improved
Regional economic
productivity). Improving the productive
growth drives overall
economic growth capacity of resources involves identifying
and understanding our industries of
opportunity and building upon regional
competitive advantages through
Productivitiy investment and innovation.
Export growth
improvements Through strategic growth
Improving the productivity in sectors with potential
capacity of resources lies at global opportunities,
the heart of sustainable and regions can achieve
long-term economic growth national export targets
Source: Deloitte Access Economics
8
Regions of opportunity | Context
With an increase in exports and We do, however, recognise that the
From a ‘within New
productivity, businesses will benefit benefit to households may not be evenly
from being able to produce more goods distributed if growing wealth causes Zealand’ perspective,
and services with the same level of increased inequality.
exports facilitate
inputs. At the same time, the increase in
demand for products and services may
Each region has its own strengths and
economic growth at a
competitive advantages. Some regions
help attract new capital into a regional
feature specific niche industries, while regional level in terms
economy, by helping existing businesses
increase their output and by inducing
others benefit from a wide range of
industries supported by infrastructure
of increasing output,
new businesses to locate in the region to
investment over many decades, or in employment and
access the benefits of increased exports.
This in turn attracts more investment
some cases have natural advantages,
such as climate. They begin their
overall living standards
capital and local consumers.
journey to prosperity at different paces. for those based within
The increase in activity will generate
demand for labour.2 At the same time,
By understanding where each region
starts, the opportunities available, and
the region.
households will benefit from being able future challenges, we can gain a better
to consume more goods and services as understanding of how to improve the
availability increases, individuals’ wages productive capacity of their resources
rise and if producers pass on production and build a pathway to prosperity.
cost savings to consumers.
9
Regions of opportunity | Place
Place: Purpose and how
it is defined in this report
Purpose of place and how it How place is defined in report The regional split of exports
is defined For the purpose of this report, we within our focus regions
The physical attributes of a location, such consider ‘place’ to be a region based Some of our regions of focus are
as climate, geography, and proximity to on Statistics New Zealand’s defined more export-driven than are others.
other areas, influence where individuals boundaries. New Zealand has 16 For example, if we only consider both
and businesses locate. It is true that regions, and our regions of focus goods and services exported from
technology has eroded the traditional in this report are: New Zealand in 2018, Auckland has
relevance of place for businesses and the highest share of exports of our
•• Auckland
individuals. Yet a growing body of focus regions (25 percent), followed
international and local research shows •• Waikato by Canterbury (15 percent). In total,
that geographic clusters of companies our focus regions account for
•• Hawke’s Bay/Gisborne
in related industries continue to approximately 60 percent of total
feature in virtually every geographic •• Wellington exports from New Zealand.5
area – nationally, regionally, and even in
•• Canterbury
towns and cities. The existence of these
subnational clusters reveal that location
still has a role to play in harnessing
We chose regions hosting the four most
populated urban centres – Auckland,
The physical
future prosperity. Wellington, Canterbury and Waikato
– as they represent over two-thirds
attributes of a
location, such as
Place can be defined in a number
of the New Zealand population.4 They
of different ways. Often the main
are also diverse in terms of their main
climate, geography,
urban areas define New Zealand both
industries. While most of these focus on
geographically and economically.
knowledge-based industries, Waikato
and proximity
Everywhere else is identified as ‘the
and Canterbury also have significant
regions’. Technology, globalisation
manufacturing sectors and contribute
to other areas,
and urbanisation further this gap
almost 30 percent of the country’s
between urban and provincial.
agricultural Gross Domestic Product
influence where
Deloitte has also observed that while
(GDP). We selected Hawke’s Bay/Gisborne
young people are flocking to the cities
as comparator regions as their economy
individuals and
for education and work opportunities,
is mainly based on primary industry and
populations outside the cities are
are relatively sparsely populated.
businesses locate.
growing old.3 At the same time,
In addition, these two smaller regions
the decline in New Zealand-based
have yet to be studied elsewhere in
manufacturing and lower export
detail – unlike Taranaki, which is the
prices seriously affects some provinces
current pilot study in MBIE’s Just
or ‘regions’.
Transition initiative.
10Regions of opportunity | Place
Figure 3
Regional GDP growth and split of exports
from New Zealand
Auckland
25%
5.3%
Waikato
Hawke’s Bay/
9.1% Gisborne
7.5%
4.5%
6.9%
Canterbury
Wellington
14.6%
4.6% 8.3%
4.7%
Key
Split of Exports
Source: Deloitte Access Economics based on regional
export data obtained from Infometrics, and analysis of
Statistics New Zealand data where gaps were present in
the Infometrics regional export data. Including both
products and services (percentage share of total exports
from New Zealand, 2018)
GDP Growth (2017-2018)
Source: Statistics New Zealand, year end March
11Regions of opportunity | Economic impact
National and regional
economic impact
What role should regions play in These are the industries identified in Assessment of the economic
supporting overall economic success? Shaping our slice of heaven: Industries impact of increasing exports
How can our regions build a pathway to of opportunity, as having both above on our focus regions
prosperity, and what role do exports play average global economic growth over We used our in-house regional general
in this picture? the next 20 years, as well as industries equilibrium model (DAE-RGEM) to
in which New Zealand has a strong estimate the economic impact of
To address these questions, our analysis
comparative advantage on the global growing exports in our industries of
focuses on:
stage. Our prosperity map outlines opportunity. The model simulates how
•• The industries that would provide where these sit relative to other the economy will respond and adjust
New Zealand with the best chance to industries, as seen in Figure 3. to increased export growth over the
successfully turn local advantage into period of 2019 to 2040. We assume that
We are not attempting to “pick winners”.
global competitiveness (industries this growth stems from change within
We recognise that there are other
of opportunity). New Zealand, in particular from an
industries contributing to New Zealand’s
increase in productivity in each relevant
•• The economic impact of increasing prosperity, and these industries – or ones
industry, rather than from an increase
exports, within each industry of that haven’t been identified yet – may
in demand from international markets.
opportunity, on our regions and the end up also being key to future economic
Since productivity improvements do
New Zealand economy as a whole prosperity. We also recognise that there
not differentiate between production
(economic impact). are other types of prosperity, such as
for domestic consumption and export,
social prosperity, that this report
these improvements benefit the entire
Industries of opportunity doesn’t cover.
industry’s production regardless of the
This report focuses on four of New
However, based on these selected final consumer.
Zealand’s five industries of opportunity:6
industries, we wanted to know how
Based on the assumed increase
our regions of focus could benefit from
in exports, DAE-RGEM models the
Tourism increased export growth. To do so,
behavioural response of consumers,
we measured the economic impact
firms, governments and overseas
of scenarios in which each industry of
markets. At the same time,
opportunity’s exports grow at the high-
it observes resource constraints
growth profile necessary to reach certain
Agribusiness and takes into account the optimal
industry or government targets.
distribution of resources. The model
has the ability to incorporate the flow-on
impacts to any region of New Zealand
Food processing and the rest of the world.
Advanced manufacturing
12Regions of opportunity | Economic impact
Figure 4
New Zealand’s prosperity map
The biggest opportunities sit
at the intersection of global
opportunity and national
economic advantage. The results
in the upper right section below
represent New Zealand’s
industries of opportunity for
future prosperity.
Tourism
Agribusiness
Health
Advanced manufacturing
Food processing
Wealth International education
Retail Wholesale
Global opportunity (higher is stronger)
Utilities +10% of GGDP
Public administration Other education
Transport & logistics
Telecommunications Property services
Professional services
Banking Resources
Construction
ICT
-10% of GGDP
Media Other manufacturing
New Zealand advantage (right is stronger)
GGDP represents global gross domestic
product. Deloitte Access Economics
estimated the average GGDP at 3.4 percent
over the next 20 years. Source: Deloitte Access Economics
13Regions of opportunity | Economic impact
We modelled four independent •• Food processing: The export target
for food processing is included in the
‘counterfactual’ scenarios – one for primary sector target just mentioned.
Further to that, Fonterra – New
each industry of opportunity. In each Zealand’s largest dairy exporter – has
an aggressive growth target to reach
‘counterfactual’ scenario, high-growth $35 billion in total revenue by 2025.11
These targets in aggregate suggest that
profiles are applied to our focus regions. an annual growth rate of 7.5 percent is
required to achieve the export targets
set for food processing exports.
This provides a ‘what if’ style analysis, However, our focus regions follow a We feel this target is optimistic, despite
based on a hypothetical scenario where higher-growth path, while all other the historic average annual growth
the five focus regions achieve the export regions grow at their ‘base case’ rate of 5.1 percent. However, the food
growth necessary to reach national growth rates. processing sector in New Zealand has
targets. experienced a boom over the past few
Appendix A outlines our methodology years, and the constant growth rate
Appendix B details our approach, our to create export growth profiles for needed to achieve the export target is
in-house DAE-RGEM tool, and the inputs both scenarios. still possible.
used in the model.
Export targets are what our country •• Advanced manufacturing:
Scenarios and key inputs aspires to in order to maximise The Government is determined to
To determine the economic impact of the prosperity. They are set to help increase research and development
increased export growth, we compare government achieve their priorities (R&D) and productivity, announcing in
the national and regional economies and hold industry leaders accountable. the 2018 Budget their commitment to
under two distinct scenarios: We used the following export targets to increase national investment in R&D to
inform our ‘counterfactual’ scenario for 2.0 percent of GDP.12 R&D expenditure
•• The ‘base case’ scenario grows
each industry of opportunity: has a significant impact on advanced
exports at the same rate as the average
annual growth rate over the past ten •• Tourism: MBIE forecasts international manufacturing exports.13 Using the
years for each industry. tourist spending in New Zealand to findings from a 2014 study,14 we
reach $14.8 billion in 2024, up 40 estimated what the growth in advanced
•• The ‘counterfactual’ scenario manufacturing exports would be if R&D
percent from 2017.9 To meet this
grows exports at a higher rate than expenditure reached the desired 2.0
forecast, international tourist spending
the base-case scenario. We have used percent of GDP by 2040.15 This shows
would have to grow on average by 5.4
the growth rate required to achieve that exports would grow at 6.0 percent
percent annually up to 2024. We think,
national export targets set for each per annum to 2040. Assuming the
given increasing tourist spend and the
industry of opportunity.7 This creates relationship between R&D expenditure
current economic conditions, achieving
a ‘high-growth profile’. and growth in advanced manufacturing
this target is feasible.
We modelled four independent exports is similar in New Zealand, we
•• Agribusiness: In 2014, the Primary think this growth rate is achievable,
‘counterfactual’ scenarios – one for
Industries Minister announced an given the right incentives are created by
each industry of opportunity. In each
ambitious goal to double the value of the implementation of R&D tax credits
‘counterfactual’ scenario, high-growth
primary sector exports from its 2012 and the growing demand for advanced
profiles are applied to our focus regions.8
level to $64 billion by 2025.10 This manufacturing exports.
We recognise that how each region
would require an annual growth rate
responds to export growth will differ due
of 6.2 percent from now until 2025 for
to differences in, for example, access to
agribusiness. With current exports in
capital and resources, available products
agribusiness not keeping up with the
and services, level of competition, and
growth required, we think this target is
employment opportunities.
a stretch. However, the agribusinesses
industry is looking positive over the
long-term, and we expect the industry
to respond to the key challenges it
faces to continue to be prosperous.
14Regions of opportunity | Economic impact
Economic impact on New Zealand
Our analysis reveals that the economy would enjoy considerable benefits as a direct result of increasing exports in our
industries of opportunity from our regions of focus. Specifically, we estimate that:16
Over the period 2019 to 2040, the economy would be 4.3 percent larger in real terms if our regions of focus
grow at the national export growth target set for tourism. This is a gain of approximately $11.5 billion in 2018
dollars. Similarly, when compared to the ‘base case’ scenario, there is a boost in employment of an additional
23,100 full-time equivalent (FTE) jobs by 2040.
The additional national GDP, as a result of our regions of focus growing at the national export growth target
for agribusiness, equals approximately $4 billion over 2019 to 2040, relative to the ‘base case’ scenario.17
There would also be 6,500 FTE additional jobs created by 2040.
If our regions of focus grew at national export growth targets for food processing between 2019 and 2040,
there would be an increase of approximately $10.6 billion in national GDP. This also has the potential to increase
employment by around 23,200 FTE jobs by 2040.
Achieving the national R&D target, and as a result our regions of focus growing advanced manufacturing
exports, would add an additional 39,500 FTE jobs by 2040. This also has the potential to increase the size
the economy by $6.1 billion over the period 2019 to 2040, when compared to the ‘base case’ scenario.
As sectors are interrelated and may still see considerable GDP growth The next five chapters provide a detailed
affected by changes in other industries, occurring from exports in that particular narrative on each region, discussing:
related industries also benefit from industry.
•• An overview of the current economic
an increase in exports (and therefore
Economic shocks rarely occur in conditions. The economic impact
increased production) by our industries
isolation, therefore the modelling should results, in terms of regional GDP
of opportunity. For example, the
be interpreted as an indication of the and employment for each industry
economic impact of the agribusiness
potential magnitude of the impact of of opportunity.
‘counterfactual’ scenario is $4.0 billion
increasing exports in each industry and
to New Zealand over the period 2019 to •• A consideration of how the region
each region, but not as a prediction of
2040. This does not mean that the GDP could amplify the economic
the future.
growth is limited to the agribusiness opportunity identified in our
industry, but rather the economic benefit Regional economic impact on our economic impact results.
is spread across a number of industries. focus regions
Which of the industries are likely to
$1.9 billion in GDP growth out of the
provide the largest benefit to each
total $4.0 billion economic benefit
region from strong export growth?
comes through GDP growth
within agribusiness, $1.3 billion The estimated economic impact varies
comes through growth in ‘other business significantly across our focus regions.
services’ and a further $500 million This variability is driven by differences
from both ‘trade’ and ‘other government in the relative size of the industry, the
services’.18 This explains why we will economic composition within the region
observe in the following sections of the and the extent to which each region is
report that regions that are not relatively export-driven.
strong in an industry of opportunity
15Regions of opportunity | Auckland
Auckland
Tāmaki-makau-rau
Auckland is growing rapidly thanks Auckland is also a key location for
in part to record levels of overseas New Zealand’s food and beverage
1.9%
immigration.19 While barely taking up 2 and advanced manufacturing sectors.24
percent of New Zealand’s land area, it is Its proximity to the Waikato agricultural
home to over one third of the population hub supports a thriving food processing
of New Zealand’s and recently reached 1.6 million people. sector. In addition, increasing
land area Population growth is forecast to remain international recognition for Auckland’s
strong with the region predicted to reach high-tech manufacturing industry has
2 million people by 2028. It is responsible made it the country’s most acclaimed
for almost 40 percent of New Zealand’s innovation hub.
34.7 %
GDP and a quarter of our exports.20
Two thirds of New Zealand’s top 50
With a growing population, and limited food and beverage companies are
land for urban sprawl, dense urban areas headquartered in Auckland. The industry
of New Zealand’s
will need to manage the upward pressure in Auckland comes with a material R&D
population
on living costs. These areas have a house component, housing facilities such as
price to income ratio of 8.8, and Auckland the FoodBowl, a state of the art facility
City is now the 9th least affordable in for R&D trials, as well as the Liggins
a survey of over 90 cities across the Institute, which leads research into the
37.9%
world.21 Future economic growth and development of food products with
prosperity will need to overcome the specific health benefits.25
challenges an ever-increasing population
of New Zealand’s GDP Advanced manufacturing in Auckland
brings. This is a significant challenge with
is supported by GridAKL, the region’s
no easy solution.
innovation precinct and home to more
Industries of opportunity than 100 businesses, from start-ups to
Auckland is the gateway to New Zealand, multinationals. The region also contains
with 75 percent of all international a strong health technology subsector,
visitors entering the country through as well as cutting edge engineering,
Auckland International Airport.22 The 3D printing, robotics and space
city is a hub for large events like the technology firms.26
America’s Cup, which is scheduled to be
hosted there in 2021. Growth in tourism
is supported by additional investment
in the hotel sector, with 41 projects
expected to deliver an additional 6,500
rooms over the next five years, an
increase of approximately 90 percent.23
17Regions of opportunity |Auckland
Auckland
Figure 5: The economic impact of reaching national export growth targets / forecasts to the Auckland region,
relative to the ‘base case’ scenario, 2019 – 2040 (refer to p12 for context and methodology)
AGRIBUSINESS
$
3.9bn $
2.5bn
TOURISM
13,500 3,700
FOOD PROCESSING
MANUFACTURING
$
6.1bn $
2.9bn
ADVANCED
12,200 27,300
Source: Deloitte Access Economics
Key
The additional GDP in the economy over 2019 – The additional FTE jobs created by 2040
2040 compared to the ‘base case’, in 2018 dollars. compared to the ‘base case’.
18Regions of opportunity | Auckland
Economic impact of reaching There is also a considerable potential Capitalising on this
industry export growth targets economic impact from increased tourism economic opportunity
Each of our industries of opportunity growth, increasing Auckland’s regional The modelling undertaken for Auckland
provide ample opportunity to contribute GDP by 3.8 percent ($3.9 billion). The shows that growth in all of these
to future prosperity for Auckland. economic impact of increasing tourism is industries would result in a significant
predominantly driven by growth in ‘trade’ economic impact. As Auckland is a key
Impact on regional GDP
GDP, which includes accommodation and powerhouse of economic activity for the
and employment
food and beverage services. Tourism and country this comes as no surprise, but
We estimate that from 2019 to 2040 the
food processing also offer substantial the devil is in the detail and the results
potential economic impact from food
employment opportunities, with current reveal some actionable insights.
processing is particularly pronounced,
employment numbers increasing by
with the regional economy expected to First, the relative importance of exports
1.5 percent and 1.3 percent respectively
be 6.0 percent larger ($6.1 billion) relative to the Auckland region is less than in
by 2040.
to what would otherwise be the case. other regions. Exports of goods and
In particular, the economic impact of In terms of employment, advanced services account for approximately
increasing exports in food processing manufacturing provides the greatest 15 percent of Auckland’s regional
is projected to increase substantially opportunity for Auckland. Our GDP.27 This is despite Auckland being
after 2024. Three quarters of this benefit ‘counterfactual’ modelling for this the entry point for most visitors, as well
comes directly from growth in food industry of opportunity shows an the exit point for many of our exports.
processing GDP. increase of 27,300 FTEs, or 3.0 percent of This is not to say that export industries
the region’s current employment levels, are not important for Auckland. Rather
by 2040. their importance is masked by the size
of the domestic economy – driven off a
large population base.
Auckland provides a great number
of services that it can export to other
Figure 6: Annual change in regional GDP by industry, 2019 – 2040 (2018 dollars)
$1,400
$1,200
$1,000
$800
$millions
$600
$400
$200
$0
2019 2024 2029 2034 2039
Tourism Agribusiness Food processing Advanced manufacturing
Source: Deloitte Access Economics
19Regions of opportunity |Auckland
Population
1,570,100
largest urban area
Wellsford
It is important that
Auckland does not lose
its distinctive flavour of Coromandel
Aotearoa New Zealand
Waiheke Island
– situated firmly in the Auckland
Pacific with strong ties
to Asia.
Pukekohe
Pokeno
regions, and supports a wide range and supporting urban regeneration out. While this is conceptually appealing,
of businesses. This diversity and through a community-first designed it needs to be tempered by recognition
scale means some of the industries transport system are all things that will that a highly constrained approach to
of opportunity are less prominent in incrementally make a difference. But Auckland’s spatial planning may lead to
Auckland than they are in other regions. there is also room to take bold steps such some unintended consequences e.g.
as implementing a road pricing scheme increased house prices. For example,
Focus on infrastructure must
and considering options to remove port- a recent study in the United States
continue. This report is not intended
related traffic from the network. found that high house prices in highly
to focus on how to support Auckland
productive cities, such as San Francisco
to function more effectively as New Extending the apex of the “golden
and New York, limit the number of
Zealand’s largest urban centre. However, triangle” north. This report has not
workers who can afford to move or stay
it is worth re-emphasising that Auckland modelled Northland. However, we do
in them, which has a negative effect on
must follow through on infrastructure believe that by conceptually moving
economic growth and productivity.28
investment to ensure the region is not Auckland to the middle of the “golden
constrained by the quality of investment triangle”, the potential for Auckland’s Cluster benefits, and the use of
and lack of capacity for residents and “halo effect” to extend north would technology. Auckland is the largest
businesses. This means freeing up land in allow Northland to provide support and region for advanced manufacturing, with
the right places for the right things at the capacity so that potential growth is not a wide range of technology companies as
right time, providing bulk infrastructure artificially constrained. While Northland is well as having the largest concentration
to service this land, and fast-tracking a somewhat geographically challenged in a of processed foods and non-alcoholic
transport system that can effectively way that the Waikato is not, being narrow beverage manufacturers.29
move people and goods between city with an irregular landscape created by
The Auckland manufacturing sector could
and region, nationally and internationally. volcanic activity over a long period, that
benefit from further automation. For
All are vital components to allow same activity provides soils that are
example, the Netherlands exports high-
Auckland to function, let alone flourish. already supporting a shift from dairy to
tech machinery such as robotic soft fruit
horticultural products such as avocados,
Consider road pricing as an pickers and automated meat separators
kiwifruit, blueberries and citrus – all of
opportunity. Small changes can make a and undertakes significant R&D in
which are important to Auckland.
big impact: adding more park and rides, agribusiness, resulting in it’s badge as the
supporting active modes, streamlining Spatial planning. It has often been said food bowl of northern Europe.
intersections, prioritising safety that Auckland should grow up rather than
20Regions of opportunity | Auckland
Clusters have a positive impact on
regional and industry performance
although there are few economically
significant manufacturing clusters in
New Zealand.30
“Individual companies cannot establish
them on their own, while historically
governments across the world have tried
and failed to conjure effective clusters
from nothing. Therefore, where they
exist, clusters are valuable because they
represent defensible advantage in a
competitive, globalising world.”
Given the benefit of clusters, and the
fact that clusters are difficult to replicate,
there is a significant opportunity for
Auckland to respond to commercial
opportunities for global demand in
advanced manufacturing with a more
formalised approach to clusters.31
Maintain its distinctive New Zealand
brand. It is important that Auckland
does not lose its distinctive flavour
of Aotearoa New Zealand – situated
firmly in the Pacific with strong ties to
Asia. Diversity of thinking, experiences
and culture should be celebrated, and
are beneficial for Auckland’s tourism
story, providing a differentiator from
other global cities. Auckland will not win
international convention business with
a bland offering; cultural differences can
be used as a draw-card to help attract
international business visitors.
21Regions of opportunity | Waikato
Waikato
Waikato is New Zealand’s fourth- TGHs inland port development at
largest regional economy, driven by Ruakura is set to be a game-changer for
9.0%
of New Zealand’s
the agriculture industry, and dairy in
particular. This comes with challenges
due to concerns about biological effluent
the Waikato. It is officially recognised as a
project of national significance, bringing a
wide range of benefits to Waikato-Tainui,
and increased regulation of the sector, the Waikato region and to the entire
land area
which the region will have to navigate to country.
continue its economic growth.
Industries of opportunity
Also of economic significance to Waikato
Waikato is an agricultural powerhouse
9.6%
are the business services, construction,
contributing to New Zealand’s economy
and health and community services
through its domestic dairy supply and
sectors. In addition, Hamilton is emerging
exports. The downside to
of New Zealand’s as a major freight and logistics centre and
this is that agribusiness is a key
population a pivotal corner of the country’s “golden
contributor to pollution, with the sector
triangle” along with Auckland
producing three-quarters of Waikato’s
and Tauranga.
emissions. However, change is underway,
A major player in the region is Tainui with emissions per kilo of milk and meat
8.4%
Group Holdings (TGH). As the investment falling each year as farmers adopt
arm of Waikato-Tainui it has the role of innovative ways to manage and mitigate
creating and growing tribal wealth, and biological emissions.
of New Zealand’s GDP represents over 76,000 members from
Tied to the agriculture sector, the Waikato
68 marae across the wider Waikato
region is also a major source of food
region. TGH has a long-term, balanced
processing and has eight global food
approach to its investments, with a
processing plants.32,33 Waikato is home to
strong focus on the primary sector – it
the most significant cluster of agri-tech
now owns over 4000 hectares of Waikato
companies in New Zealand and also has
land that supports dairy, sheep, beef
strong aviation sector capability.34,35
and forestry operations, in addition to
having a fishing quota. TGH is also a part International tourism has grown
owner of Waikato Milking Systems, a strongly in Waikato in recent years,
Hamilton-based company that designs with international visitor expenditure
and manufactures world-class dairy and guest nights outperforming the
technology, particularly innovative rotary national average, growing 8.4 percent
platforms. They provide dairy farm in the past year.36 Additionally, the region
solutions in over 30 countries, including is well positioned to host first-rate sports
USA, Russia and China. and business events, which attract many
domestic and international visitors to
the region.37
23Regions of opportunity | Waikato
Waikato
Figure 7: T
he economic impact of reaching national export growth targets / forecasts to the Waikato region,
relative to the ‘base case’ scenario, 2019 – 2040 (refer to p12 for context and methodology)
AGRIBUSINESS
$
1.4bn $
500M
TOURISM
1,800 1,400
FOOD PROCESSING
MANUFACTURING
$
800M $
100M
ADVANCED
2,900 1,300
Source: Deloitte Access Economics
Key
The additional GDP in the economy over 2019 – The additional FTE jobs created by 2040
2040 compared to the ‘base case’, in 2018 dollars. compared to the ‘base case’.
24Regions of opportunity | Waikato
Economic impact of reaching much wider than the local area, thanks Impact on employment
industry export growth targets to the dynamic interconnectivity Food processing provides the greatest
Each of our industries of opportunity between regions. opportunity for the Waikato in
provide significant scope to contribute terms of regional employment. Our
This interconnectivity also means that an
to Waikato’s future prosperity. modelling shows an increase to regional
increase in productivity on-farm will have
employment of 2,900 FTE by 2040,
Impact on regional GDP flow-on effects for other regions, as dairy,
or 1.1 percent of the region’s current
Under our ‘counterfactual’ scenarios, produce and meat become cheaper to
employment levels, driven by increases
tourism provides the greatest supply.
in both food processing and agribusiness.
opportunity for Waikato in terms of
Food processing provides a significant
growing GDP. When compared to the Capitalising on this economic
opportunity for Waikato, with regional
‘base case’, if tourism were to grow at a opportunity
GDP increasing by $800 million (3.5
rate necessary to meet national targets, These results may be surprising, with
percent of regional GDP) in today’s dollar
it would result in an economic benefit of tourism offering almost three times as
terms if targets are met. Despite hosting
$1.4 billion to the region, equivalent to much potential economic benefit as
the largest cluster of agri-tech companies
6.1 percent of the region’s GDP. agribusiness – Waikato’s most renowned
in New Zealand, the estimated economic
industry – over the period modelled. This
On the other hand, if agribusiness growth benefit as a result of increasing exports
illustrates the untapped potential
targets were met, this would increase in advanced manufacturing has the
of tourism for Waikato.
Waikato’s regional GDP by an additional smallest impact on Waikato’s economy
2.2 percent ($500 million) over the period ($100 million from 2019 to 2040 relative
from 2019 to 2040. This represents only to the ‘base case’).
the impact on the Waikato economy,
with an expected knock on effect
Figure 8: Annual change in regional GDP by industry, 2019 – 2040 (2018 dollars)
$250
$200
$150
$millions
$100
$50
$0
2019 2024 2029 2034 2039
Tourism Agribusiness Food processing Advanced manufacturing
Source: Deloitte Access Economics
25Regions of opportunity | Waikato
Population
241,200
largest urban area Pukekohe
Approximately 25 percent
of New Zealand’s land Hamilton
Matamata
Tauranga
freight movements, start, Cambridge
end, or travel through
Te Awamutu
Rotorua
Tokoroa
Waikato, and it is a key
transport link for the
“golden triangle”, as well
Taupo
Mokau
as for the Hawke’s Bay,
Gisborne, Taranaki and
Turangi
Manawatu regions.
Creating a sustainable sector are competing internationally against yield, sustainability and profitability
prepared for future regulation. farmers who are not regulated in the through the development of high-tech,
Agriculture has historically been a same way. energy-efficient, products and solutions.
significant source of prosperity for the With local farms likely to be used as
The Government has commissioned the
region and this is unlikely to change a testing ground in the first instance,
Interim Climate Change Committee to
in the future. Our modelling clearly the Waikato stands to be at the global
assess how agri-sector obligations could
demonstrates the benefit to Waikato forefront of primary sector innovation
best be arranged if agricultural methane
of increasing exports in agribusiness. and best practice.
and nitrous oxide emissions were to
The key challenge to capitalising on
enter into the New Zealand Emissions Waikato’s tourism potential is
this opportunity is the ever-increasing
Trading Scheme. A well-managed scheme untapped. Tourism has been identified
need for farmers to respond to
that operates globally could be beneficial as the industry of opportunity with the
regulatory and market needs, including
in the long-run due to the transparency largest potential economic impact for the
changing consumer preferences for
it would place on the value of carbon, Waikato – with export growth potentially
reduced biological emissions. This will
but we need to ensure that these increasing regional GDP by $1.4 billion
necessitate hard conversations around
conversations happen today to ensure its from 2019 to 2040. Apart from the
the use of bio-technologies, access
viability. In this way, the Waikato region Coromandel – which is largely a domestic
to water, competition for land, soil
would still be able to reap the potential tourism destination – the region has not
management, and planting of carbon-
benefits from its strongest industry into traditionally been known for its tourism
sequestering vegetation. This topic is
the future. sector. Yet Waikato’s strong agricultural
further complicated by the current land
sector, natural assets (such as the
moratorium affecting how land can be A leader in agri-tech. One way the
Waitomo caves), and rich Māori culture
used in Waikato. industry is trying to increase output,
and heritage should enable the region to
while reducing emissions, is through the
Farmers are already responding to these build a distinctly Waikato tourism offering.
advancement of agri-tech, with Waikato
requirements, and biological emissions Planning is also underway by Te Waka -
home to the largest cluster of agri-tech
have been decreasing since 2005. It is the recently formed Waikato Economic
companies in New Zealand. This cluster
questionable, however, whether Waikato Development Agency to develop a
would support the Waikato region to
farmers are able to continue doing so on cultural tourism package with input from
stay ahead of the innovation curve, and
an economically sustainable basis over local iwi. Currently under development
subsequently grow the region’s exports.
the long-term, particularly if they is an agri-tourism hub located on the
Agri-tech would do this specifically by
Waikato River near Pokeno.
improving primary sector efficiency,
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