Growing an innovative New Zealand
Foreword
Executive Summary
Introduction
one. vision
and economic objective
one.1. the vision
one.2 the
economic objective
one.3 New Zealand economy now
one.4
enhancing the role of government
two the
framework
two.1 strengthening the foundations
two.2
building effective innovation
two.2.1 enhancing the
innovation framework
two.2.2 developing skills and
talent
two.2.3 increasing global connectedness
two.2.4
focusing government resources
three implementation
Conclusion
Foreword
In the
December 1999 Speech from the Throne, the government
acknowledged that economic and social advancement for New
Zealand could not proceed satisfactorily without significant
change.
At that time, the economy continued to
demonstrate significant volatility. There were major
structural problems, the current account deficit was very
large and we continued to be over dependent on the
production and export of commodities.
New Zealand's
skills, in areas relevant to the new knowledge-based
industries were inadequate. A competitive model in tertiary
education had led to unsatisfactory outcomes in terms of
both the quality and the appropriateness of the skills
produced, and our living standards were continuing to fall
behind those of most other developed countries, including
Australia.
The government was determined to address
those structural failings in order to improve real incomes
and provide the means to restore our social services to
being amongst the best in the world.
We are now two years
on, and we have made a solid beginning. Many policies are
in place that will provide a base from which the economy can
grow. New initiatives are beginning to bear fruit, but more
needs to be done.
Over the past year, we have had the
Knowledge Wave Conference, Business-Government forums, and
various government departments, business leaders and private
sector consultants engaged in work on strategies about how
best to achieve our economic objectives.
All this work
confirms the need to continue to transform the New Zealand
economy. We need to become a more innovative, more
confident, more flexible economy, which is able to compete
successfully on the international scene.
This document
establishes a framework to do that. It draws on the
recommendations of the various reports received by the
government in the past year.
It is not a detailed set
of goals and targets, but it sets out the clear direction
which the government intends to follow. It sets out a vision
we can all share. Together we can build the momentum for an
economic success story, delivering for all New Zealanders
the standard of living to which we aspire.
Helen
Clark
Prime Minister
February 2002
executive summary
This document sets out the framework government is following to create the innovative New Zealand we need to achieve our economic and social goals.
Government has listened to many ideas about how best to achieve our goals. In particular the Science and Innovation Advisory Council has reported, the Knowledge Wave Conference made recommendations and reports commissioned from the Boston Consulting Group and LEK consultants have been received. This framework is informed heavily by those recommendations.
There is a broad consensus that the key driver of higher growth rates is more innovative activity. We must build an effective innovation culture that permeates the whole economy. The countries that create and adopt new technologies and which generate innovation grow faster than those that do not.
To do that we must agree on our vision and our objectives and we must work together to achieve them.
A New Zealand Vision
A land where diversity is
valued and reflected in our national identity
A great
place to live, learn, work and do business
A birthplace
of world-changing people and ideas
A place where people
invest in the future
The Economic Objective
To return
New Zealand’s per capita income to the top half of the OECD
rankings and maintain that standing.
Enhancing the role of
government
Government will be proactive in supporting
growth, will work co-operatively with other sectors to
achieve that, and will emphasise the importance of
sustainability.
Framework
There are two key aspects to
building an economy capable of sustaining the higher growth
rates needed.
Strengthening the
foundations.
Building more effective
innovation.
Strengthening the foundations
Over the past
two years government has directed much of its effort in
economic policy at strengthening the foundation of the
economy. There are a number of elements that sustain that
base. Each is important to the potential for growth of the
economy and each will continue to be the focus of government
attention.
Policies will be aimed at
sustaining:
A stable macroeconomic
framework.
An open and competitive
microeconomy.
A modern cohesive
society.
A healthy population.
A
highly skilled population.
Sound environmental
management.
A globally connected
economy.
A solid research, development and
innovation framework.
Building effective innovation
On
its own a sound foundation will not guarantee the growth
rates needed. To move New Zealand on to a higher growth
plane we must build on the exciting things which are already
happening in some niches of the economy. To do that
government will be concentrating its policies and resources
in four areas.
Enhancing the existing
innovation framework.
Developing, attracting and
retaining people with exceptional skills and talents who are
able to innovate and so contribute to increasing our overall
productivity.
Increasing our global
connectedness to overcome the tyranny of
distance.
Focusing innovation initiatives in
areas which can have maximum impact.
Enhancing the
existing innovation framework
There are a number of
excellent examples of innovation happening in the New
Zealand economy, but our innovation system has not always
ensured New Zealand gets maximum benefit from our ideas.
Also people with ideas have not always been supported to
achieve commercialisation.
Government has taken a number
of initiatives already such as:
Creating new
Venture Investment Funds.
Funding centres of
excellence.
Improving R&D
provisions.
Government will continue to build on such
initiatives, for example by:
Developing better
linkages between tertiary education providers, industry and
communities.
Assisting in developing mentoring
frameworks.
Supporting the partnership
development of incubator processes.
Developing skills and
talents
As well as continuing to develop better core
skills we must grow, attract and retain people with the
talent to be innovators.
Government will, for
example:
Make it easier and more attractive for
overseas talent to live and work in New Zealand.
Build networks with New Zealanders currently
working overseas to encourage them to contribute knowledge
and ideas.
Support initiative to celebrate New
Zealand talent.
Support the development of
websites such as a Jobs New Zealand site.
Increasing
global connectedness
We must be better in touch with the
rest to keep up with technology, to sell our products and to
access skills and capital.
Government will, for
example:
Increase resources devoted to the
identification and attraction of appropriate foreign direct
investment opportunities.
Provide more support
for trade related initiatives aimed at increasing our
exports.
Support initiatives to brand New
Zealand as being technologically advanced, creative and
successful and to present that consistently across
sectors.
Focusing effort
Government financial and human
resources are limited, so it is essential to focus them
initially on areas which can maximise impact. To most
effectively promote innovation throughout the economy,
government has identified three areas which have both the
potential to grow in their own right and, because of their
horizontal nature, positively improve productivity across
the economy. These areas are:
Biotechnology.
Information and Communication
Technology.
Creative
industries.
Implementation
Implementing this framework
will occur at a number of levels.
Ministers will
provide leadership through all relevant portfolios to ensure
the whole of government is working together.
Specific strategies, led by the private sector, will be
developed with those involved in each of the target
areas.
Budget prioritisation – will ensure that
the direction signalled here is reflected in new spending
decisions.
Ongoing development, particularly in
relation to monitoring progress within the target areas and
identifying new opportunities will be led by a predominantly
private sector Advisory Board.
introduction
To
build a more vibrant economy capable of producing high
incomes within a sustainable framework, we need an economy
capable of adapting quickly to the changing international
environment. We need to be much more innovative in
everything we do so that the disadvantages of our size and
our distance from markets are more than compensated for by
the difference we are able to bring to products and
processes.
Over the past two years government has taken
steps to achieve the transformation required. The first was
to change the role of government in the economy. If we are
to develop an economy capable of adapting quickly and being
recognised internationally as innovators, government policy
making and implementation must also reflect new
attitudes.
The government is therefore committed to
following an economic policy direction which is:
Active
Co-operative
Sustainable and
Focused
We have a vision for the economy
which is both exciting and challenging, but we appreciate
that all wisdom on economic policy does not rest with the
government. Over the past year, as part of its policy
development process, the government has commissioned various
pieces of work, both within the public service and in
conjunction with the private sector, to look at aspects of
what needs to be done next.
This work includes projects
by the Science and Innovation Advisory Council (SIAC),
Industry New Zealand, Treasury, Boston Consulting Group
(BCG) and LEK Consultants, and covers issues such as how
best to develop the talent base for the economy, how best to
attract appropriate foreign direct investment, how to
develop our innovation system, how to build a more inclusive
economy, how to ensure social development is appropriately
incorporated and measured, along with wider work on how to
ensure all our policy development and implementation takes
place within a sustainable framework
The government also
co-sponsored the Knowledge Wave Conference with Auckland
University, which bought together a wide range of New
Zealanders along with international experts to look at how
best to achieve New Zealand’s potential.
While there are
some significant differences in the recommendations arising
from these different exercises, there is a developing
consensus around the direction New Zealand needs to
take.
This document is informed by the above work. It
spells out the framework the government will follow to
ensure our policies contribute most effectively to creating
the Innovative New Zealand we need to achieve our economic
and social goals.
one. Vision and Economic
Objective
one.1. the vision
There is a growing
consensus in the country that the New Zealand of the
twenty-first century needs to adapt from that which provided
a secure quality lifestyle earlier in the twentieth
century.
The government has articulated its new vision
for the future in many forums and recently the Science and
Innovation Advisory Council has done further work to refine
and expand on it.
Out of this work the government has
formulated the following vision for the development of the
New Zealand economy
A New Zealand Vision
A land where
diversity is valued and reflected in our national
identity
A great place to live, learn, work, and do
business
A birthplace of world-changing people and
ideas
A place where people invest in the future
We
look forward to a future in which New Zealanders:
Celebrate those who succeed in all walks of
life and encourage those who fail to try again.
Are full of optimism and confidence about ourselves, our
country, our place in the world, and our ability to
succeed.
Are a nation that gains strength from
its foundation in the Treaty of Waitangi and in which we
work in harmony to achieve our separate and collective
goals.
Are excellent at responding to global
opportunities and creating competitive
advantage.
Are rich in well-founded and well-run
companies and enterprises characterised by a common sense of
purpose and achievement. They are global in outlook
competitive and growing in value.
Derive
considerable value from our natural advantages in terms of
resources, climate, human capital, infrastructure and sense
of community.
Cherish our natural environment,
are committed to protecting it for future generation and
eager to share our achievements in that respect with
others.
Know our individual success contributes
to stronger families and communities and that all or us have
fair access to education, housing, health care, and
fulfilling employment.
one.2 the economic
objective
Our economic objective is to return New Zealand’s per capita income to the top half of the OECD and to maintain that standing. This will require New Zealand’s growth rate to be consistently above the OECD average growth rate for a number of years. That will require sustained growth rates in excess of our historical economic performance.
This objective is important not only because it will enable New Zealanders to enjoy standards of living comparable to the best in the world, but also because, without higher growth rates, New Zealand’s ability to finance the provision of public goods in the way that other first world countries do will be compromised.
Relative income decline also has consequences in terms of the exit of capital and labour as they seek better returns and opportunities elsewhere. No matter how much people value the “New Zealand way of life”, capital and labour are mobile. Unless we improve our relativity in world rankings, they will increasingly go elsewhere.
But this government does not believe we can put on hold social and environmental progress, and concentrate solely on economic growth. Implicit in the quality of the growth we are seeking will be integration of the economic, environmental and social pillars of sustainable development. Sustaining a high quality environment, managing the risks to it and implementing efficient resource use policies underpin our competitive advantages as a nation. Managing the environmental pressures from economic growth, while continuing to satisfy human needs will require an integrated effort.
Not only will social and environmental policy
continue to be given high priority in their own right, but
the choice of economic policy instruments will be influenced
by their interaction with social and environmental factors.
Sustainability will be paramount.
one.3. New Zealand
economy now
New Zealand’s relative income declined over much of the post-war period. New Zealand’s real per capita income fell from among the highest in the world in the 1950s, to just under the OECD average in 1970, to 20th in the OECD by 1999. Although the New Zealand economy grew, other developed countries grew more rapidly.
While the 1990s saw improved growth performance relative to the previous two decades this was only enough to halt the relative decline, so that New Zealand’s per capita income stabilised in the 1990s at just under 70 per cent of the OECD average.
On current projections, however, our growth rate is forecast to exceed the OECD average between 2001 and 2003.
The current macroeconomic policy framework delivers prudent fiscal policy and low, stable inflation. There is evidence of improvement in productivity growth rates and the current account deficit is forecast to improve to approximately 3 per cent of GDP in 2002 after being above 7 per cent in 2000. The New Zealand economy is also becoming less volatile, providing a better environment for business decision-making.
New Zealand has a competitive and open microeconomic environment that is reasonably free of distortion. We have a strong and transparent body of laws that regulate commercial and personal behaviour, and institutions and processes that are free of corruption. Our public accounts are prepared and published with a detail and openness that is the envy of the developed as well as the developing world. There is a presumption that most official information is free and accessible, not secret. Public policy is open to intense public scrutiny. These policy and institutional foundations allow for efficient resource allocation and for more flexible adjustment to shocks.
TRANSFORMATION IS NEEDED
But much more needs to be done in order to return New Zealand’s real per capita income to the top half of the OECD and allow us to continue to finance the provision of first world public health and education services, provide competitive opportunities for all New Zealanders, and provide returns which attract further capital to New Zealand.
Innovative activity is becoming the key driver of growth. Countries that create and adopt new technologies and which generate innovation grow faster than those that do not. Knowledge has become a key factor of production, rather than capital and labour. Although the specifics of economic development will vary across countries, the basic principle of the importance of knowledge and innovation are consistently important.
The transformation of the New Zealand economy will require the application of knowledge and innovation across the economy. Our primary sectors have always been innovators and given the importance of the sector to the NZ economy, it is imperative that its performance continues to be enhanced by the application of knowledge. Over the past three decades, however, the New Zealand economy has diversified significantly into other sectors. It is necessary to ensure that innovation occurs in these parts of the economy as well. It is not possible to achieve the growth target by relying on the 9 per cent of the economy that relates to primary production to support the other 91 per cent.
NEW ZEALAND IN THE WORLD
Transformation requires New Zealand seeing itself as part of the global economy in terms of goods and services, people and ideas. To earn first world incomes, the New Zealand economy needs to have global reach and not be constrained to being simply a small country at the bottom of the South Pacific.
Although New Zealand’s geographical location makes this a challenging task, global connectivity is critically important to economic growth. There is evidence of increased divergence in real per capita income across countries. Countries that are rich, and are becoming richer, are those that are well integrated into the global economy in terms of the flow of goods and services, people, ideas knowledge and technology. Poorer countries on the other hand are generally not well integrated into the global economy.
Until 30 years ago, New Zealand relied on its relationship with Britain to overcome the tyranny of distance. When this support was removed in the 1970s, New Zealand was forced to diversify both in terms of export markets and the types of goods and services exported.
This has proved difficult. Many New Zealand firms have not found it easy to move into export markets from a small domestic market. There are big costs associated with moving into these markets, particularly as most New Zealand firms have to do so while still being relatively small. For a small country, New Zealand’s exports as a share of GDP are lower than most other small OECD countries at around 33 per cent of GDP in 2001.
New Zealand needs to aggressively find ways to overcome its geographic location and connect with global markets – for goods and services, but also to access ideas, technology and people. Becoming a genuinely global, innovative economy is one of the key goals of the government’s economic policy.
THE SIGNS ARE THERE
There are many signs that the transformation of the New Zealand economy into a more innovative, knowledge-based and globally connected economy is well under way.
There has been a rapid increase in exports from our high and medium-high tech industries and exports of ‘elaborately transformed manufactures’ have doubled over the past ten years. Further, many new industries have emerged over the past decade and have grown strongly; software, biotechnology, electronics, marine, education exports, media/film, and wine are examples of this. New Zealand firms and researchers have emerged as world leaders in parts of these sectors. The recent Global Entrepreneurship Monitor study ranked New Zealanders as one of the most entrepreneurial people in the world, noting particularly high rates of Maori entrepreneurship. There have also been ongoing improvements in traditional areas, like the primary sector.
Over the past decade substantial investments have been made in the inputs that are necessary for economic transformation to occur. There have been large increases in tertiary education participation, with rates now well above the OECD average. Further, New Zealand has one of the highest ICT investment rates in the world (at about 9 per cent of GDP). The challenge is to ensure that these investments lead to a more productive New Zealand economy in the future.
Export Education – A Growth Industry
New
Zealand’s export education industry is little more than a
decade old. Its growth has been spectacular - from a few
thousand students a year in the early 1990s to the situation
in 2001, when 40-50,000 international students spent part or
all of the year studying in New Zealand. The number of
institutions catering to these students now numbers 7-800,
and continues to grow. Further high growth is forecast
for 2002.
Although less well quantified, the provision of education services offshore, and the sale of educational products and consultancy services overseas are also important aspects of our export education industry.
Onshore education of international students in NZ now contributes between $800 million and $1 billion pa to our GDP through expenditure on fees, accommodation and other goods and services. Export education’s direct contribution to GDP is not the only benefit accruing from this industry. It also benefits New Zealand’s social and economic development and our future international relationships.
With good planning and management the industry could double or treble this contribution within the next decade.
SIGNIFICANT ISSUES TO BE ADDRESSED
The changes that are occurring have not yet generated material changes in economic growth; rapid growth in very small sectors does not have a significant effect on the overall growth rate. Further, the New Zealand economy still looks quite different from other developed economies, including Australia’s, in a number of ways.
For example, New Zealand reports relatively small expenditure on R&D and is also an outlier in terms of the composition of R&D spending. R&D spending is dominated by the government and by other public institutions, such as universities, with private R&D spending as a proportion of GDP rating as one of the lowest in the OECD (only 28 per cent of R&D spending is private, compared to an OECD average of 71 per cent). Even after adjusting for underreporting of private sector R&D expenditure, these figures present a challenge.
Perhaps more important than the low level of R&D are the problems with commercialising ideas. Not withstanding the generally high quality of New Zealand science and technology and our general capacity for innovation as a people, the New Zealand innovation system has struggled to commercialise the considerable flow of ideas that emerge from our institutions or from individuals. On the positive side however, the rate of increase of patent applications in New Zealand is the second highest in the world, albeit off a low base.
New Zealand does not export much for a small country. The lack of proximity to large markets is a key reason for this poor exporting performance. Yet exporting is absolutely critical to our economic performance. It is not realistic to expect to earn first world incomes by concentrating on a domestic market with fewer than 4 million people.
The absence of strong exporting performance helps to explain the poor growth performance of firms. Less than four per cent of New Zealand firms export, and of those that do, only a very small number have become genuine global firms; in 2001, only 151 firms exported more than $25m and 51 more than $75m. This means that many New Zealand firms remain small, constrained by the size of the New Zealand market.
Many New Zealand firms that have invested offshore have done poorly, and have lost substantial amounts on their investments. This may be partly due to a lack of management skills in New Zealand corporates. It may also reflect problems associated with accessing risk capital and expertise to help with overseas expansion. This may in turn be affected by New Zealand’s low savings rate, which leads to a reliance on foreign savings to finance investment. A common result of this is for New Zealand firms to be bought out by larger foreign companies which then expand the companies’ ideas, goods etc into global markets.
There is so far insufficient evidence of clustering in the New Zealand economy; and outside parts of the primary sector, we do not generally observe world-class levels of scale and specialisation in the economy. This gives New Zealand a different economic profile from other developed countries, and that profile is likely to be having a negative effect on economic performance.
New Zealand also has a skewed distribution of human capital. Although the performance of the top and average students at many levels of schooling compares very favourably with other developed countries, New Zealand has a significant proportion of under performing students in terms of literacy and numeracy, and has too many students leaving school without a qualification. Without these basic skills, workers are less productive which has a negative effect on economic performance.
These issues
need to be addressed before the full potential of the New
Zealand economy can be realised.
One. 4. enhancing the
role of government
Government has a role in making economic transformation happen. New Zealand faces some unique challenges – such as its size and location – and must fashion policy responses directly addressed at these challenges. Appropriate policy settings in a small, distant country are different from those suited to larger, more proximate countries. We cannot expect simply to import policy solutions. Private sector action on its own will not suffice.
HISTORY OF THE GOVERNMENT’S ROLE IN THE ECONOMY
The government has had an important role in the New Zealand economy since the 19th century, when it was very involved in the early development of the economy. However, more substantial government attempts to stimulate domestic industry and develop a ‘modern economy’ date from about World War 2. This occurred largely from behind import protection. It was progressively supplemented by sector specific incentives, tax breaks, subsidies and various regulations over the next few decades. This policy direction was stepped up in the 1970s, particularly after the UK entered the EEC. Many prices were fixed, for example the value of the New Zealand dollar, and markets controlled, in an attempt to support various parts of the economy and to promote full employment.
This culminated in the Think Big programme in the early 1980s, an attempt by the then government to achieve greater energy self-sufficiency in response to the oil shocks. Government spending and fiscal deficits increased rapidly from the mid 1970s.
This policy direction was sharply reversed by successive governments between 1984 and 1999. The basic goal of this process was to enhance macroeconomic stability and remove distortions from the economy, so that resources were free to move in response to price signals. To that end, the government deregulated, removed distortions, corporatised, privatised, and cut public spending. The creation of a ‘level playing field’ – was thought to be sufficient to lead to higher growth.
However, the growth improvement was less than predicted. It is now clear that additional policy settings are required to generate transformational change in the economy, and return New Zealand to the top half of the OECD.
In sum, neither policy settings that had the extremes of very heavy government involvement in the economy, or of very little government involvement in the economy, generated sustained high rates of growth. A key reason for the failure of these policy regimes to deliver was that they were imposed with little consideration of their relevance to the actual structure of the New Zealand economy. Economic policy since 1999 assumes a new and relevant role for government in the economy.
ENHANCING THE ROLE OF GOVERNMENT IN THE ECONOMY
The government sees three key elements to its role in the economy. Government itself will be proactive in supporting growth, it will work co-operatively with other sectors to achieve it, and it will emphasise the importance of sustainable growth and development.
PROACTIVE POLICY
Between 1984 and 1999 government economic policy was largely ‘passive’, aiming to provide an environment in which the private sector could make investment decisions. This approach did not generate sustained growth.
This government has therefore taken a more pro-active role in all areas of the economy. For example in relation to facilitating business growth, government has taken many initiatives aimed at:
o Creating a Supportive Business and Regulatory Environment, by promoting workable competition through competition policy and international trade policy, minimising business and regulatory compliance costs, specifying and protecting property rights (including intellectual property rights), harmonising local laws and regulations with international best practice and norms, and ensuring sound mechanisms for winding up failing businesses.
Examples include the measures introduced for tax simplification, the Government’s response to the business compliance cost panel, Commerce Act Amendments, the Takeovers Code, changes to the Insolvency Law Regime, and the E government strategy.
o Encouraging Enterprising Values and Attitudes, by building and supporting confidence and positive attitudes towards entrepreneurship, pride in business success and encouraging new ideas.
Examples include the recently announced Supporting a Culture of Success initiative and Industry New Zealand’s Enterprise Awards Scheme.
o Improving Infrastructure and Resources, by, for example ensuring efficient electricity and telecommunications markets, and managing effective regimes and property rights for natural resources that are controlled by the State.
Examples include the new telecommunications regime, the new electricity market regulation, the agreement to the Dairy Merger, investment in Air New Zealand, amendments to the Resource Management Act, the Shipping Review and transport [and roading] measures.
o Making more Finance and Investment available by supporting access to different forms of financial capital such as venture capital and ensuring commercial access to capital through local capital markets and links to international capital markets.
Examples include the establishment of the Venture Investment Fund, Industry New Zealand’s Business Growth Fund and Investment Ready Scheme, and changes to the Securities Act.
Industry New Zealand
Industry NZ acts as a
practical and pragmatic link between Government and
industry. It works with central and local government, the
private sector and non-profit organisations to help
competitive businesses, industries and regions to grow.
Industry NZ delivers a range of specialist products and services, including advice, facilitation, brokering and, where necessary, funding to individual businesses, regions and industries to help them to fulfil their potential. It helps businesspeople and communities identify their strengths and capitalise on them.
Industry New Zealand provides customised help for global companies wanting to locate in New Zealand, as well as assisting industries that will drive our economy in the future to identify and remove roadblocks to their development.
Industry New Zealand's efforts will be primarily directed at priority sectors and niches of the economy that can compete on the world stage, and at stimulating regional growth based on enhanced business capability and capacity.
Industry New Zealand is modeled on international best practices that have been proven to work in a number of countries that have achieved significant industrial growth over the past decade. The model has been refined to suit the New Zealand situation, but the basic principles remain the same.
CO-OPERATION AND PARTNERSHIP
The government believes that wherever possible it should act in partnership with the private sector, local government and/or the community to assist in the development of the economy. It will help to facilitate and to co-ordinate where it can make a positive difference. It will help to build relationships and networks within the domestic economy, so that New Zealand firms can be more competitive in global markets.
The government is also ready to legislate where necessary, to align spending programmes where appropriate, and to seek the necessary public interest protections where the interests of particular stakeholders are at risk. A good example of this was the government working with industry interests to facilitate the construction of a new vehicle for the dairy industry to compete more effectively in the global dairy market. Another was the updating of the regulatory framework for the apple industry which allowed it to better address the challenges of the global economy.
Industry New Zealand is the government’s operational arm for economic development. It acts in partnership with industry to assist in growth and development, regionally, sectorally and at the enterprise level.
For example, Industry New Zealand facilitated the boat-building cluster in West Auckland, assisted with the recent Ericsson Synergy deal and has worked closely with the wood processing industry to develop a sector strategy and bring parties together to form strong business clusters.
WOOD PROCESSING STRATEGY
By 2015,
the wood supply from New Zealand's planted forests is
forecast
to double to 30-35 million cubic metres; ten
years later, 55-60 million
cubic metres of wood could be
harvested.
This "wall of wood" will be a very significant
resource for the New Zealand
economy, its regions, its
businesses and its communities. With clever development, it
could enable New Zealand to become one of the world's top
five forestry countries.
The Wood Processing Strategy,
which is a partnership between the
forestry industry, the
regions, central government and unions,
will
significantly accelerate the development of the
processing of logs, and
associated industries, and get
the best value from the regional
expansion in wood
available for harvest.
The strategy’s targets
include:
- Creating 20 percent more jobs associated with
the industry by 2005
- Processing half the additional
available wood in New Zealand by 2015
- Attracting at
least $3 billion in processing investment by 2010; and
-
Developing efficient, safe and competitive transport
networks and infrastructure in new forest regions.
This is a different role from that of the heavily interventionist government action observed before 1984. The government does not propose to rely on ownership stakes or on regulation and tax breaks to transform the economy. This is a market led approach to economic development, not one that is centrally planned. The intention is to unleash the productive potential of the private sector not to replace it.
To achieve this the government also recognises that there must be a good understanding between various sectors in the economy. Government has to understand the issues facing business and vice versa. Government has hosted a number of business forums around the country in the past year which have provided business people and government ministers opportunities to discuss issues and examine options. Such forums will continue to be a hallmark of how this government does business. Government also works closely with unions to ensure issues faced by workers are appropriately integrated into policy development, and with local government and other community organisations. Good policy requires all interests to be addressed.
This approach also recognises, however, that the government has an important leadership role in generating superior economic performance.
SUSTAINABLE DEVELOPMENT
The third characteristic of the government’s approach is its determination to link economic policy to social and environmental policy objectives. Using sustainable development as a filter for policy means that economic policy is not approached in isolation but as part of a bigger picture. While we must actively pursue economic growth, that must be done in ways which are both socially and environmentally sustainable. The concept of sustainable development hinges on the reality that economic development in the absence of social and environmental progress cannot be sustained. Nations that have allowed crime, poverty, pollution or habitat destruction to spiral, inevitably find that economic development suffers.
BusinessCare Profit and
Responsibility
The BusinessCare National Trust has been
set up as a not-for-profit trust with three year funding
from Ministry for the Environment’s Sustainable Management
Fund. The Trust is also supported by Industry New Zealand
and receives in-kind support from a number of local
authorities around the country.
BusinessCare’s focus is
on promoting, supporting and encouraging the implementation
of sustainable management and cleaner production practices
by local small and medium businesses nationwide. It seeks
to work at both the national level and the local level, to
make the changes happen. Its work will provide valuable
support for the implementation of the 2002 New Zealand Waste
Strategy.
The contribution of cleaner production policies
to the financial and environmental bottom lines of
businesses has been clearly demonstrated by companies such
as Tait Electronics Ltd, the Alliance Group and ENZA Foods
Ltd who were part of an earlier project also supported by
the Sustainable Management Fund. The BusinessCare National
Trust will build on this work and through its local
networks, carry the message to the hundreds of small and
medium businesses in New Zealand.
Work continues on developing social and environmental indicators to go alongside traditional economic indicators to measure the overall progress we are making. It is clear however that internationally our economic performance has not kept pace with our social and environmental performance.
The challenge for New Zealand now is to catch up in economic terms while ensuring that both this generation and future generations can benefit. We must grow more quickly than we have in the past. We must do that in ways that fully appreciate the long term as well as the short term consequences, and ensure that the costs and benefits arising from our economic policy settings are appropriately distributed.
2. the framework
Transforming our economy is not a quick process. Our slide down the OECD rankings has been gradual and the process of moving back up them will also take time.
Our first economic priority on becoming government was to change the role of government in the economy and then to work with business and other sectors to develop a shared vision of where the economy was capable of going. Now there is widespread acceptance that government, business, workers, local government, and communities can work more effectively together to achieve shared goals.
While competition remains of paramount importance in fields of commerce, we recognize that co-operation can also play a significant role. For example improving our competitiveness internationally will often require co-operative approaches at home.
The challenge for New Zealand now is to pursue economic activity in ways which will achieve the transformation and higher growth rates required while at the same time being sustainable over the long term, economically, socially and environmentally.
Achieving that transformation will require economic policies to be aimed at not only strengthening the economic foundations but also at building an effective innovation culture which permeates the whole economy.
Two.1. strengthening the foundations
Much of the effort of
economic policy in the past two years has of necessity been
aimed at strengthening the foundation of the economy. That
will continue to be of paramount importance.
One of the
strengths of our economy is that we are working from the
foundation of a highly productive, developed market economy,
with strong institutions, high levels of employment and a
network of effective businesses and service
providers.
There are a number of elements which sustain that base, and which create the necessary, even if not sufficient, conditions, for its transformation. Each is important to the overall strength and potential for growth of the economy.
A stable macroeconomic
framework
An open and competitive
microeconomy
A modern cohesive society
A healthy population
Sound
environmental management.
A highly skilled
population*
A globally connected
economy*
A solid research and development and
innovation framework*
These factors are all important
whichever development path is chosen for the economy. For
that reason the government has given, and will continue to
give, priority to initiatives aimed at ensuring each of
these areas is capable of providing the base from which
higher growth can be driven
[* these areas will be
discussed within section two.2]
A STABLE
MACROECONOMIC FRAMEWORK
Sound monetary and fiscal
management makes a major contribution to achieving ongoing
economic expansion and higher living standards. The
government has consistently maintained a prudent fiscal
stance and price stability, which has assisted in
maintaining a low inflation environment and has given
confidence to the business sector and provided a framework
within which investment is encouraged.
Performance to
date indicates that the government is making good progress
towards achieving its long-term objectives. Gross debt was
36.8 per cent at GDP at 30 June 1999, and net debt 21.7 per
cent. Latest financial information (at 30 November 2001)
shows that these ratios have fallen to 32 and 17.2 per cent
respectively.
The government has retained the fundamental
macroeconomic legislative framework, such as the Reserve
Bank and Public Finance Acts, and has implemented new
workplace legislation which continues to allow flexibility
in employment relationships while ensuring a fair balance
between the rights of workers and those of employers.
Foreign investment is welcomed, the government is actively supporting fair and open global trade, and is pursuing trade agreements where possible.
The current
account has been steadily improving and actions taken to
implement the New Zealand Superannuation scheme will serve
to improve our low savings ratios while at the same time
providing security for all New Zealanders in their old age.
The government will continue its sound fiscal management
(with long-term objectives for gross debt at under 30 per
cent of GDP and government spending at around 35 per cent of
GDP).
The government has already taken steps to improve
the co-ordination and planning of its capital spending
programme and more strategic investment planning will arise
from initiatives outlined in this document.
AN OPEN, COMPETITIVE MICRO-ECONOMY
Over the last two years,
the Government has taken a number of steps to improve the
environment for business in New Zealand and to expand the
opportunities for New Zealand business internationally.
These include:
Commerce Act amendments to bring
New Zealand’s competition law in line with
Australia’s.
A new takeovers code to give
greater protection to small shareholders and a beefed up
insider trading regime.
Compliance cost
reduction. Including proposals to simplify tax compliance
rules for small and medium businesses.
A new
telecommunications regime to promote greater competition and
speedier dispute resolution in the telecommunications
industry.
A new electricity market regulatory
regime.
Freeing up the markets for primary
products that give producer and consumers more choices,
including for pip fruit and dairy products.
A
closer economic partnership with Singapore, while continuing
to strengthen the closer economic relationship with
Australia.
A significant contribution to the
prospects for freeing up world trade in agricultural
products as a result of the Doha meeting of the World Trade
Organisation.
A MODERN COHESIVE SOCIETY
A modern cohesive society is an essential building block for a growing and innovative economy and society. It is nearly 64 years since this country led the world in the development of a comprehensive system of social security. The principles that informed that piece of legislation are as relevant today as they ever were – security of income for those in need, the primacy of sustainable paid employment, access to high quality and affordable health care, and dignity for older New Zealanders through a guaranteed retirement income.
Economic and social development go hand in hand. A growing economy is the best guarantee of social security, and encouraging sustainable employment is one of the best contributions that government can make. That is why the government has moved to refocus social welfare as an active and enabling force in people’s lives.
That means:
Ensuring adequacy of income for people in need
Ensuring that individuals, families, and communities have the skills and knowledge to participate in economic life
A more active approach to social security, which is about lifting individual and community capacity
A much more integrated approach to economic and social policy
The government recognises that well developed communities which offer all New Zealanders access to opportunities and networks are an essential part of, and precondition for an effective economy.
That requires that communities have the human, physical, institutional and technological infrastructure to allow them to operate effectively.
The government has implemented many initiatives in this regard and will build on these in coming years. Initiatives to revitalise communities are as diverse as the communities they serve - for example:
Heartland Service Centres in provincial centres - restoring face to face access to a range of Government services and providing support to local voluntary groups through access to resources
Income related rents and regional housing initiatives - to build community and family security and stability
Ensuring superannuation payments are appropriately linked to average wages to ensure older people are able to maintain a satisfactory standard of living and so continue to participate fully in their community.
Strengthening the community sector by building relationships across the sector, improving communications, and developing a strategy to support the sector.
Capacity building initiatives to assist Maori and Pacific communities to achieve their goals by funding infrastructure, business and enterprise development.
Establishment of a Community Voluntary sector working group tasked with making recommendations to government on rebuilding a healthy and vibrant social sector - the very heart of civil society
Improving central government’s understanding of the values, governance arrangements and working realities of the community, voluntary and iwi/Maori organizations with which they interact
Growing jobs in local communities by funding the development of community capacity through Community Employment Organisations, and by social entrepreneurs
Community Organisation Grants Scheme (COGS) on line - using information technology to streamline grants applications
Stronger Community Actions Funds - providing communities with the ability to fund local priority projects
A range of projects to rebuild the capacity of community based social service organisations
Social connectedness is a way of describing the relationships people have with others, and the benefits those relationships bring to the individual, as well as to society. People who feel socially connected also contribute towards building communities and society.
New Zealand scores well in some measures of social connectedness. For example access to a telephone is almost universal at 97 per cent and on measures of internet access within the home New Zealand ranks 9th in the OECD.
However experience suggest that certain groups are more likely than others to be left behind in the information revolution. In New Zealand these include Maori and Pacific peoples, those on low incomes, sole parents, older people, people with low or no qualifications or poor literacy, the unemployed and underemployed, people in locations lacking a sound telecommunications structure (such as rural areas), and people with disabilities.
The government is committed to closing this ‘digital divide’ by way of a ‘digital opportunity’ strategy. Already significant progress has been made. For example:
In partnership with industry, the Government is contributing $10m to pilot schemes to give more young New Zealanders, especially in less advantaged communities, the chance to develop information, communication and technology skills
Piloting broadband telecommunications access in, for example, the Far North District and Southland with a view to improving broadband infrastructure throughout the economy.
Funding community based ICT projects through the Department of Internal Affairs, and hosting and maintaining the Community Net Aotearoa website
Working with local communities to train and up-skill communities to develop computer skills and establish community hubs
Four
Digital Opportunities Pilots
Four Digital Opportunities
pilot projects were announced on 8 February 2001, following
a series of meetings between senior government ministers and
information and communication technology business leaders.
The businesses involved in this partnership are
Microsoft, The Learning Centre Trust, TVNZ, Telstra Saturn,
Telecom NZ, Compaq, Clear Communications, IBM, Renaissance,
Independent Newspapers Ltd., Sky Television, and BCL.
The
government has committed $10.4 million over four years to
the Digital Opportunities programme. The business partners
are contributing in a variety of ways including offering
products at reduced rates as well as the skills and
experience of their staff.
The four pilot projects are
education-based and planned to run for two years initially.
They are targeted to turn the ‘digital divide’ into digital
opportunities. Their aim is to use ICT to enhance
educational achievement, particularly in the areas of
mathematics, science and technology. The pilots
are:
FarNet: A community of ten schools in the Far North
using ICT to collaborate and enhance teaching and learning
through the development of a virtual school.
Generation
XP: A group of eight schools in West Auckland and Gisborne
offering industry certification, beginning with Microsoft
courses and later CISCO programmes, to senior secondary
students.
Notebook Valley: A group of four secondary
schools in the Wellington region using laptops to
collaborate and enhance teaching and learning in senior
maths and science. Teachers and students have been issued
with laptops and students have been provided with Internet
connections at home.
WickED: A group of four study
support centres in the South Island using ICT to provide
online self-study activities.
In practical terms, the
pilots are also testing a number of technical solutions to
e-learning as well as developing the skill base of the
teaching staff and the repertoire of curriculum material
they can access.
Evaluation of the pilots and the impact
they are having on teaching and learning in the
participating school communities is a major strand of the
programme.
More information on the Digital Opportunities
pilot projects can be found on TKI at
www.tki.org.nz/e/community/digiops/
A HEALTHY POPULATION
Good health is a necessary condition for
effective learning. Health is fundamental to the enjoyment
of life, and vital for effective social interaction. Last,
but not least, the workforce must be healthy to be
productive.
Government has given priority to:
o
Re-establishing community involvement in decision making in
health.
o Reducing waiting times for elective
surgery.
o Introducing a new primary care strategy aimed
at ensuring that the health system concentrates on keeping
people well, rather than just treating them once they are
sick.
o Improving service delivery, for example by
increased use of Maori and Pacific Island providers.
o
Investing heavily in mental health services.
o Tackling
health workforce shortages and building workforce capacity
for the future.
o Providing a three year funding path to
give the health sector greater certainty about future
funding so it can properly plan for the development of
services.
SOUND ENVIRONMENTAL MANAGEMENT
Central to New Zealand’s unique value in the
world is our natural environment. Our geographical and
biological features are building blocks for many of our
industries, from primary to creative.
Our reliance on
primary industries makes biosecurity imperative, while at
the same time, the importance of protecting our environment
means that our economic policies must be environmentally
sustainable.
Government has:
o Tightened border
controls and introduced instant fines for biosecurity
infringements.
o Increased funding for the national
bovine TB strategy.
o Addressed compliance cost issues
arising from the RMA.
o Introduced legislation to govern
the management of genetic modification technology in New
Zealand.
o Committed to ratification of the Kyoto
Protocol on climate change.
Our environment also presents
us with many emerging opportunities and challenges.
Delineation of our enormous continental shelf will increase
New Zealand’s domain fourteen-fold. Its survey is due to be
completed in 2002, and by 2004 a new framework for managing
our ocean resource will be implemented.
On the other hand
pressures on energy, water, and waste are increasing. Our
energy efficiency and conservation strategy aims to increase
energy efficiency by twenty per cent by 2012 and to increase
our supply of renewable energy. With local government as
partners, our waste minimisation strategy sets targets to
minimise waste and promote recycling.
Energy efficiency
and conservation
The aim of the national energy
efficiency and conservation strategy, launched in September
2001, is to improve energy efficiency by 20 per cent, and
increase the use of renewable energy by 2012. This will
slow the growth in our energy demands, thus reducing our
greenhouse gas emissions and the need for new power
stations. Better energy use in houses has the same effect,
while at the same time giving New Zealanders warmer,
healthier homes.
The significant environmental benefits
are supplemented by the economic benefits. The work of the
Energy Efficiency and Conservation Authority already shows
that on the most conservative estimate, $12.5million spent
on programmes with hard quantifiable benefits has achieved
benefits valued at $59 million – a 500+per cent return. If
the unquantified benefits, such as benefits to the
environment (eg climate change mitigation) and health are
factored in, the value rises dramatically.
Technological
innovation and a new approach to energy management and
design are key to gains in this area. As an example, The
Warehouse, is saving $2.5 million in its operation costs
around New Zealand by implementing a state-of-the-art energy
management system which nearly halves average energy use per
square metre of building.
Two.2 building effective innovation
A SOLID FOUNDATION IS NOT ENOUGH
Solid
economic fundamentals enable an economy to grow but they do
not guarantee we grow as fast as our competitors, nor do
they ensure that growth occurs in areas which are most
beneficial in the long term. If they did, New Zealand’s
economy would be performing better today.
The challenge
is to build on the sound fundamentals with policies that
actively focus on growth.
In July 2001 the Science and
Innovation Advisory Council published the first report on a
proposed Innovation framework for New Zealand. Their second
report is now being presented.
That report argues
convincingly that if we are to achieve our economic
objective of returning to the top half of the OECD per
capita income ladder then we must “excel globally”. New
Zealand must become a source of high value innovation in
particular sectors of the global economy. This will
require a significant strengthening of our innovation
system.
The government agrees. As SIAC points out, we
must increase the value of our commodity and manufactured
exports by applying more world class knowledge and
innovation, and appropriate branding. In essence our
exports need to reduce in weight and become heavier in
knowledge and value
To achieve this we need a vibrant and
well integrated innovation system which is capable of
creating wealth from ideas.
Over the past year, other
groups, some within the public sector and some joint public
and private sector, have also been working to identify the
key policy initiatives which can transform the New Zealand
economy into the global competitor it must be to achieve a
step change in our growth rates.
Although each of these
groups has looked at different aspects of the issue, or have
approached the issue from a different angle, there is a
broad consensus on what needs to be done. All agree that to
achieve our growth objectives we need to be more effective
innovators. We need an economy which encourages and
rewards the creation and commercialisation of good ideas and
which aggressively promotes the adoption of new ideas
throughout the economy.
This suggests that government
initiatives need to be aimed at:
o Enhancing the existing
innovation framework.
o Developing, attracting and
retaining people with exceptional skills and talents who are
able to innovate and so contribute to increasing our overall
productivity significantly.
o Increasing our global
connectedness to overcome the tyranny of distance.
o
Focusing government resources to maximise impact of
innovation across the whole economy.
In each of these
areas, government has made some moves already to strengthen
our performance, but much more remains to be
done.
Protemix
Auckland biotech company Protemix was
named 'Start-up of the Year' at the 2001 New Zealand Hi-Tech
Awards in Wellington.
Protemix CEO Neville Jordan said
the award was in recognition of the "outstanding scientists
who have been responsible for world-beating discoveries in
the search for therapies to combat type-2 diabetes".
Diabetes afflicts around 140 million people worldwide.
Complications caused by the type-2 strain can lead to
blindness, heart problems, kidney failure and gangrene. More
than 50% of patients with Type 2 diabetes die from the
effects of cardiovascular disease. Modern drugs and
technology have failed to suppress the progression of
diabetes and diabetic complications.
Protemix has a drug
in trials which, they say, may suppress the diabetes'
complications. The first trial targets the reversal and
prevention of cardiomyopathy in patients with Type 2
diabetes. Concurrent Phase II trials of GC811007 will target
safety, pharmacology and diabetic nephropathy.
Protemix
Corporation Ltd is a New Zealand company dedicated to the
discovery and development of novel treatments for diabetes.
Protemix' laboratories are part of the University of
Auckland, who are shareholders in the company.
two.2.1
enhancing the innovation framework
As noted earlier a
solid research and development framework is a key element in
the foundation of any economy. It is fundamental to
maintaining the quality and relevance of the knowledge base
of the economy, it is essential for the quality of the
education system and it ensures our products stay
competitive in the global contest.
For these reasons
government has put considerable effort into increasing the
emphasis on R&D in its first two years in office. But we
recognise that we must continue to enhance the quantity, the
quality, and the relevance of R&D in New Zealand. And we
must give greater emphasis to ensuring that more of our R&D
leads to economic benefit through commercialisation of the
ideas generated. I.e. we must put more effort into
innovation not just research.
SIAC sees the innovation
system as extending beyond public research institutions,
universities, and the research and development efforts of
private institutions and firms. It must incorporate links
between the idea and knowledge creators (the innovators),
the firms and people who can turn those ideas into products,
businesses, jobs, and wealth (the entrepreneurs), and the
sources of specialist expertise and finance essential for
commercialising innovation for fullest value.
They
recognise the system as a complex web of relationships and
interdependencies, rather than a collection of atomised
institutions, whose effectiveness derives from the
interactions, linkages, and coherence of the relationships,
rather than just the excellence of any one aspect.
The
SIAC report makes a number of detailed recommendations, some
for action by the government and others aimed primarily at
the private sector. Government agrees with the overall
direction proposed and is already addressing many of the
specific issues raised. For example government has
already:
o Established the Venture Investment Fund.
o
Improved tax treatment of R&D expenditure.
o Sharply
increased funding in basic research through the Marsden Fund
and the new Economy Research Fund (NERF).
o Announced
funding for Centres of Research Excellence.
o Adopted
consortia funding to improve linkages between research and
business.
o Doubled funding of grants to support private
sector R&D.
o Implemented an e-government strategy aimed
at positioning government to deliver more co-ordinated and
efficient government services and demonstrate leadership in
innovation and technology uptake.
o Led an e-commerce
strategy aimed at increasing competitiveness and uptake of
e-commerce solutions.
o Established a $1.8 million
incubator development programme to assist the development of
entrepreneurs and start up ventures.
o Developed a new
tertiary education strategy which will involve the Tertiary
Education Commission facilitating stronger linkages amongst
tertiary education providers, and between providers and
their stakeholders in industry and the community. The
Commission will also be able to use a new, more flexible
approach to tertiary funding in order to resource more
strategically, in accordance with New Zealand’s needs as a
nation.
New Zealand Venture Investment Fund.
The New
Zealand Venture Investment Fund (VIF), established in 2001,
is designed to accelerate the development of the venture
capital market in New Zealand. Through VIF the Government is
investing NZ$100 million over three years in innovative New
Zealand businesses.
The VIF programme will invest this capital through a series of individual investment funds (VIF Seed Funds) selected by VIF and operated by private sector fund managers. These funds will include venture capital raised from the private sector as well as the Government's investment contribution.
The VIF investment programme
targets are:
- Seed stage investment which is funding to
enable the development, testing and preparation of a product
or service for commercialisation.
- Start-up investment
which is funding to enable a business enterprise to begin
trading.
- Early-stage investment which provides capital
for initial manufacturing and marketing where the business
is still cash flow negative.
The VIF goals are:
- To
accelerate development of the New Zealand venture-capital
industry by increasing the level of seed, start-up and early
expansion investment activity in the New Zealand
market.
- To develop a larger pool of people in New
Zealand's venture capital market with skills and expertise
in seed and start-up investment.
- To facilitate the
commercialisation of innovations from Crown Research
Institutes, universities and the private sector.
- To get
more New Zealand businesses on paths to global success by
increasing their access to international experts, networks
and market knowledge.
But government recognises there is
still more to do. In line with SIAC recommendations, (many
of which are replicated in the BCG and LEK reports)
government will continue to build on initiatives which
increase and improve the linkages within our innovation
framework including:
o Developing a specific entrepreneur
support strategy to increase the number and enhance the
viability of, high value, high-growth ventures, particularly
in those areas where New Zealand can create a competitive
advantage.
o Assisting in the development of mentoring
frameworks, to enable people with experience in excelling
globally with innovative ventures to mentor innovators and
entrepreneurs starting out on this path.
o Assisting New
Zealand researchers/innovators and entrepreneurs to access
global knowledge bases and build international linkages that
will enable them to transfer technology to New Zealand based
companies.
o Supporting the partnership development of
incubator processes which are focused on best practice.
o
Supporting clusters to link up with research capability, and
enhancing the capacity of regional ventures to take part in
virtual clusters.
o Making it easier for innovators,
entrepreneurs, and specialist advisors to connect both
within New Zealand and internationally. For example MORST
already employs a country co-ordinator in Germany to
facilitate interaction between the New Zealand and German
science communities, and a similar position in Japan is in
the process of being established
o Encouraging and
incentivising universities, and CRIs, to play a more active
role across the innovation system
o Improving our
intellectual property framework to ensure New Zealand
receives full value for our innovations.
o Reviewing the
operation of New Zealand capital markets in terms of their
ability to provide the structures and incentives necessary
to encourage investment in more high-value ventures, while
also allowing investors to manage the risk.
o Increasing
collaboration between arts and science and arts and the
business community.
Business Incubators
Designed to
assist businesses to become established and profitable
during their start up phase, business incubationis a
relatively new concept here. As of September 2001, there
were 15 established incubators throughout the country, with
more in the planning stages.
Steve Corbett, manager of
the Enterprise Centre (e-centre) attached to Massey
University’s Albany campus, sees university based incubators
as an effective way of taking research ideas into a
commercial format.
Incubators do not all focus on
‘high-tech’ industries. Dunedin’s fashion incubator has
been identified as an area of huge potential for the city.
An exciting new tier of designers is emerging, alongside
established brands such as Nom D, Carlson and
Blanchet.
One of these is emerging designer Cat Callanan,
who graduated from Otago Polytechnic’s School of Fashion in
1999 and wasted no time in joining the incubator. Says
Callanan, “It gives us the skills and confidence to really
push our business. Also, because you are working with like
minded people, it is creatively stimulating and removes that
feeling of isolation.”
Industry NZ supports the formation
of incubators through facilitation and funding and in the
current financial year a total of $1.5 million has been
allocated for incubator development.
CRIs make an
important contribution
A natural gene which makes meat
more tender has been discovered by AgResearch scientists in
New Zealand cattle.
AgResearch Ruakura scientist Dr Chris Morris has discovered a variant of the Calpain1 gene in Jersey/Limousin cross cattle. His research suggest that this genetic variant is responsible for differences in tenderness, and believes the discovery could potentially have a major impact on the New Zealand meat industry. The project has been carried out in collaboration with Adelaide University scientists.
Farmers may be able to breed the gene into their cattle herds, enabling a bull carrying two copies of the gene to produce offspring with more tender meat. This in turn would allow a meat processing plant to reduce the time required for chilled storage of steaks before sale, or produce more tender steaks if they are stored for the usual time.
Obviously the meat consumer will then benefit from access to reliably tender beef in the market place.
"It's just one piece in the puzzle, but never-the-less a very significant first step in finding the causes of meat tenderness," Dr Morris said. "Those involved in the table beef industry in New Zealand are likely to be very excited at implications of this discovery."
A DNA test for tender beef will soon be offered by AgResearch, which will enable farmers or breed groups or societies to identify carriers of the tender form of the gene within their own herds. This will then allow them management options for improving tenderness in the herd, either by breeding up existing carriers of the tender version of the gene, or buying it in from a specialist stud.
Another
alternative could be to separate the tender gene carriers
from the tough gene animals, and manage them to meet the
different demands of the chilled export and local table meat
trade, versus the hamburger meat market.
two.2.2
developing skills and talent
A well educated and skilled
and adaptable workforce is an essential ingredient in
producing a successful economy in the 21st century.
New
Zealand has a quality education system which has
consistently produced graduates able to compete
internationally in their chosen fields.
Young Designer
Wins
Rodney Mackrell, a young designer from Massey
University’s School of Design in Wellington, won the grand
prize at the prestigious International LG Electronics
Industrial Design Competition held in Korea on October 8
2001. New Zealand’s Ambassador to Korea, Roy Ferguson
attended the award ceremony. “It shows that New Zealand is
very much a place where good industrial design is taught and
encouraged. It is particularly helpful in persuading
Koreans, and others, that New Zealand has a lot to offer in
this area of the knowledge economy” he said.
Rodney won
the prize out of a field of 1,962 entries from 56 countries.
The theme of the competition was “bridging the digital with
the human”. He designed a cellular remote that operates as
a cellular phone and also allows people to control their
home or office computer from a distance.
New Zealand has
now won the grand prize on three occasions since the
competition began in 1991.
But government recognises that
to make the jump to a successful high growth economy, we
need not only to ensure that all New Zealanders have the
education skills they need to be productive members of the
society, but also we must develop, attract and maintain a
solid core of the exceptionally talented, who can lead the
way in the innovation stakes.
We must also ensure that
the specific skills which are needed in our potentially
world-class sectors are available in New Zealand. Skill
shortages can be a major barrier to firms expanding.
Ways
of addressing these issues have been examined in detail in
the SIAC report and also in a paper “New Zealand Talent
Initiative” commissioned by the government from LEK
consulting. The reports of the Tertiary Education Advisory
Commission, and government’s Industry Training Review have
also explicitly addressed the problem.
This work suggests
three key ways to address the talent issue:
o Grow more
talent.
o Attract overseas talent to live and work in New
Zealand.
o Embrace the talents of New Zealanders
currently living and working overseas for the benefit of New
Zealand and New Zealand companies.
In each of these
areas, government has already taken some action but
recognises there is room for additional
initiatives.
Ground breaking research
Kaa-Sandra Chee
is the overall winner of the 2001 Foundation for Research,
Science and Technology FiRST Awards for young scientists,
innovators and researchers. If her ground breaking research
at Auckland University’s Centre for Gene Technology pans
out, it will pave the way for a drug cure for cataracts,
which blind 20 million people worldwide, and potentially
eliminate the need for surgical removal of cataracts.
Kaa-Sandra’s keen interest in vision goes back to her
school-days at Otumoetai College in Tauranga where at the
age of 14 she required glasses. A visit to her optometrist
sparked a lifelong interest in how the eye functions.
Her
research is focused on studying chloride transporters, one
of a variety of transport mechanisms in the lens that ensure
the lens remains transparent so that people can see. “My
work is to identify what transporters are working in lenses
with normal tissue and to compare this with what
transporters are affected in a cataract lens”.
New
Zealand Nobel Prize winner Professor MacDiarmid attended the
FiRST Awards and urged New Zealanders to be proud of their
achievements. “The New Zealand population of 3.8 million is
smaller than that of Philadelphia where I live but New
Zealanders are known throughout the world for doing great
things!”. He believes New Zealanders have done so well in
so many fields because of our farming roots, with people
having to be innovative and find practical solutions to
everyday problems. In the 21st century, however, we have to
be innovative in different ways.
GROWING MORE
TALENT
Recent international comparisons show that on
certain measures of literacy and numeracy, our education
system is performing exceptionally well, but on other
measures we are failing, because our results are not
consistent across socio economic measures.
Providing a
quality education system which is effective for all New
Zealanders, including Maori, is as much an essential
economic policy as it is a social policy goal.
This
requires increasing participation in early childhood
education and ensuring high quality services. It requires
creating a culture of continuous improvement and a focus on
quality teaching and learning. It involves focusing on
better learning in our schools by emphasising literacy and
numeracy, embedding ICT into learning processes, ensuring
that schools reflect the curriculum’s focus on giving
students the skills needed for a modern economy and society,
and outlining higher and clearer standards of achievement.
It also requires strengthening pathways for students, from school to tertiary education, from school to the workforce, and from the workforce back into the education system. The government accepts the need to focus the tertiary sector on high quality and relevant teaching and research and recognise excellence within the system, and to strengthen the overall skill base in New Zealand.
Government has put in place a number of
initiatives to address these issues from early childhood
through to tertiary education. Initiatives include:
The development of an early childhood education
strategic plan.
Community based programmes to
lift participation in quality early childhood
education.
The extension of a successful
numeracy programme into an additional 400 primary schools to
ensure that children get a good start in basic
numeracy.
Implementation of the National
Certificate of Educational Achievement to provide a detailed
picture of what students know and can do, giving them a
better foundation for further study, lifelong learning and
the world of work.
Investment of significant
funds in an adult literacy strategy, including workplace
literacy.
A leadership and management
development programme for principals, and investment in
teacher professional development.
Working with
businesses, schools and communities on a variety of high
quality ICT initiatives and create digital opportunities
projects in schools including the Kaupapa Ara Whakawhiti
Matauranga (KAWM) project which provides multimedia on-line
learning opportunities for Maori students, and ICAN which
includes a high speed network between the
schools.
Supporting students at risk of
underachievement by taking a more integrated approach to
their health, welfare and education needs.
Stabilising tertiary fees and improving the student loans
scheme.
Investing in the establishment of
Centres for Research Excellence to support world class
research in New Zealand.
The government is also committed
to ensuring that the tertiary education and training system
is much more closely connected to the challenges facing the
New Zealand economy. In practice, this means:
Greater alignment between the focus of the tertiary
education and training system and the priorities for
national development goals.
The tertiary
education and training system shaping and being shaped by
national priorities.
Improving the
cost-effectiveness of the system in order to gain greater
value from our nation’s almost $2 billion annual
investment.
Accordingly, government will ensure there
are:
Stronger linkages between employers and
tertiary providers to ensure that the gaps between emerging
skills shortages and education responses are
reduced.
Stronger links and partnerships between
tertiary research and other sectors, with research better
informing the development of new services and industries and
improving on our existing foundation.
INDUSTRY
TRAINING
The skills and talent required for a modern
economy cannot however be provided only through the formal
education system. The new economy requires people with
strong technical skills and people able to adapt regularly
to changes in technology and the demand for skills.
To
this end the government has already taken significant steps
to enhance industry training. These include:
The
development and implementation of Modern Apprenticeships.
Developed within the first 100 days of the election of the
government and launched in 2000, Modern Apprenticeships is a
prestige pathway for young people to access high quality,
mentored, work-based learning. By July this year 3000 Modern
Apprentices will be in employed across a range of industries
throughout the country.
Government decisions
arising out of a comprehensive review of Industry Training
will lift the volumes, quality and responsiveness of
industry training, and encourage higher rates of completion.
The Tertiary Education Reform Bill, now before a Select
Committee, will make a number of changes, including
requiring Industry Training Organisations to take a
leadership role in identifying, and responding to, training
needs.
In each budget since it was elected the
government has increased funding to industry training, The
Industry Training Fund was increased by $8 million to $78
million this financial year and will increase a further $16
million in 2002/2003. This will enable more New Zealanders
than ever before to participate in formal structured
workplace training. During 2000, more than 81,000 people
participated in training purchased through the Industry
Training Fund.
Technology in Industry
Fellowships, which enable students and experienced
researchers to complete R&D projects in companies, so
exposing them to an industrial environment.
A
New Technology Fund of a $1 million dollars has been
established through the Industry Training Fund to increase
employees access to industry training through the use of new
technology such as computer based training.
Gateway, a new programme to improve the transition from
secondary school into the workforce, currently involves 722
students from 24 schools. Employers are showing strong
interest in providing systematic workplace training for
school students. Gateway is also helping strengthen links
between Industry Training Organisations and
schools.
Four Industry Training Organisations
and six companies have received allocations from the newly
established Workplace Literacy Fund to deliver literacy
training in a range of industries.
Steps are also in place
to introduce more differentiation, more co-operation and
more performance based research in our universities which
will ensure the quality of our graduates continues to
improve.
The big issue now is to ensure the momentum is
maintained and in some areas increased and to ensure that
the initiatives are adequately considered and evaluated
against stated aims.
SIAC also points out that
historically New Zealand has not celebrated entrepreneurial
talent in the same way we have regarded sporting heroes.
Government accepts that this has often been the case and
will support initiatives in conjunction with the private
sector to celebrate New Zealand talent.
Aviation First
for Modern Apprenticeships
Chris Wischonwsky is breaking
new ground as one of the first Modern Apprentices to be
employed in the aviation industry. Chris, who works for
Paul and Brenda Muller at Muller Aircraft in New Plymouth,
began his Modern Apprenticeship in July.
Chris’ Modern
Apprenticeship was arranged by aviation industry training
adviser Gary Danvers, who oversees the training of 50
trainees and Modern Apprentices throughout the country on
behalf of the Aviation, Tourism and Travel Industry Training
Organisation (ATTO).
Chris is learning all aspects of
general aviation engineering and maintenance and is working
towards a National Certificate in Aeronautical
Engineering.
“I like the fact that my learning is very
practically-based. You’re assessed according to what you
can actually do, not just how well you’ve read a book,” says
Chris. “I’m lucky that this is a small shop that
incorporates a wide range of things. I’m gaining lots of
exposure to all facets of the industry – airframe work,
painting, brakes, undercarriages – and because the training
is so practical, I can learn a lot of it just in the course
of my everyday duties”.
Gary says a major skill shortage
is looming for the industry unless it trains sufficient
numbers of young people to replace its aging
workforce.
“In the United Kingdom the average age of
aircraft engineers is 50. It’s a similar situation here.
In another 5 – 10 years these people will need to be
replaced. If we don’t start training people to replace the
baby-boomers now, we’ll be in trouble. Without an
apprenticeship-type training system there is no way you can
train the number of people required, that’s my message to
employers”.
“There is a definite shortage of aircraft
engineers, particularly in general aviation, to work on
smaller aircraft”, confirms Brenda Muller.
Brenda says
the support they receive through Modern Apprenticeships has
been one of the keys to their participation.
“When I
first came to this industry from teaching in 1996, I was
shocked how little support there was for young people
wanting to train. Without support from the outside,
training for young people just falls by the wayside. In a
small business like ours there’s no way that the person
doing the instruction has time to do all the paperwork.
That’s where I see Modern Apprenticeships coming into its
own.”
ATTRACTING OVERSEAS TALENT TO LIVE AND WORK IN NEW ZEALAND
The SIAC and BCG reports, and, particularly, the LEK report, all place emphasis on the need for New Zealand to perform more effectively in the global competition for talent.
The LEK report emphasises that talented people are a key driver of innovation and economic growth and advises that as the market for talent has globalised so must our approach.
The LEK report developed ten objectives, most of
which had some relevance to government. While this document
is not addressing those recommendations in detail, we have
already signalled our strong support for both the direction
and some of the specifics by implementing a number of policy
initiatives.
For example:
Skilled migrants
have now been accorded priority in the New Zealand
Immigration programme quota, and policies have been put in
place to make it easier for employers to recruit IT, and
other skilled workers in short supply.
The
Talent Visa, a key LEK recommendation, is being introduced
as part of the overall change in our immigration policy.
This visa will make it much easier for accredited businesses
in need of specialist talent to recruit from
overseas.
Government has also, in the past two
years, put more emphasis on programmes to improve settlement
of immigrants after their arrival, thereby improving the
prospects of them becoming established in New
Zealand.
Talent Visa and Skills Shortage Work
Permit
The government will introduce a Talent Visa and
Skills Shortage Work Permit in April 2002.
Talent
Visa
The Talent Visa will enable accredited employers to
recruit highly skilled and talented individuals from
overseas. The Talent Visa aims to boost employers’ access
to global skills and knowledge, enabling accredited
employers to tap into global talent as the opportunity
arises.
Once accredited, employers will be able to
recruit talented individuals directly from overseas as the
need arises. The Talent Visa will allow successful
applicants to work for an accredited employer for two years.
After this period, Talent Visa holders will be eligible for
permanent residence, provided they have met the conditions
of their visa, meet standard health and character
requirements, and have an offer of on-going
employment.
Skill Shortage Work Permit
A Skill Shortage
Work Permit will complement the Talent Visa. Where an
acknowledged skill shortage exists, employers will no longer
need to go through the standard labour market test to prove
that no New Zealander is available to fill the position.
NZIS will maintain a Labour Market Skill Shortages List of
occupations that will qualify. The List will be reviewed
and enhanced in conjunction with unions and employer
groups.
A Skill Shortage Work Permit will be issued for
up to two years and, in some circumstances, allow permit
holders a pathway to permanent residence.
The report also
emphasised the need to ensure talented people are aware of
the
opportunities New Zealand is able to provide them,
not only in terms of business opportunities, but also
lifestyle choices. Such people need to be convinced that if
they come to New Zealand they will find an economy which is
not only technologically advanced, but is also exciting and
rewarding with a society to match.
In the past most of our international publicity has been focused around our environment and/or our sport. While this has been successful in attracting tourism, it does not necessarily encourage entrepreneurial migrants.
Effort is going into
broadening that image. Considerable resources are being
invested in conjunction with events such as the Americas Cup
and the launch of The Lord of the Rings, to portray New
Zealand as being technologically advanced, innovative,
creative, and successful. If we can combine those
attributes with the established images of a beautiful and
clean environment and a safe and secure lifestyle, there is
much more likelihood of attracting the talent we need to
supplement home grown talent.
More clearly needs to be
done, and this issue is discussed further in relation to
improving our global connectedness later in this document.
UTILISING OVERSEAS KIWIS
There are estimated to be 600,000 New Zealanders currently living and working overseas. Many of these are potentially both ambassadors for this country and/or sources of information or expertise that might be usefully harnessed to assist in the growth of New Zealand firms. This issue was not only a key part of the LEK report, but it was also addressed extensively at the Knowledge Wave conference.
The recently announced World
Class New Zealanders initiative being led by Industry New
Zealand forms an integral part of the work the government
has already started to address this issue. That strategy
includes initiatives such as:
Building a network
of talented New Zealanders currently based
overseas.
Using this network to establish
internships, business exchange programmes and mentoring for
young New Zealand entrepreneurs and emerging
talent.
Arranging inbound and outbound missions
and seminars aligned with the economic development strategy
both to increase New Zealand’s exposure to international
thinking and to encourage the development of more strategic
partnerships.
Building “connectedness” through
both targeted communications and a website that links to
private sector expatriate related sites.
A number of
private sector initiatives are also already underway, some
specifically deriving from the Knowledge Wave conference.
Government will continue to work with the private sector to
examine the further specific recommendations that have been
made such as:
Developing a Jobs New Zealand
website.
Talent spotting foreign students and
encouraging them to stay in New Zealand.
Various
initiatives to better celebrate New Zealand
talent.
A Kiwi Clubhouse network – where kiwis
abroad are encouraged to network with a view to expanding
the range of initiatives and ensuring there is appropriate
co-ordination wherever possible.
two.2.3 increasing global connectedness
For a small country of 3.8 million people, economic integration with the rest of the world to expand our potential market is critical. New Zealand’s ability to integrate with the rest of the world and to keep pace with technological change is made more difficult by its distance from major markets. As noted earlier, New Zealand does not export as much as most other small developed economies. Increasing New Zealand’s exports of goods and services is obviously critical to New Zealand’s growth and welfare. But, greater integration will not only assist the exchange of goods and services, it will also increase our access to skilled people, capital, ideas, and knowledge.
Global connectedness can be increased in
several ways. The various pieces of work commissioned by
the government, plus our own analysis, suggests attention
should focus primarily on three areas:
Attracting Foreign Direct Investment. The recent BCG report
on FDI showed that New Zealand is not performing well in
terms of attracting FDI, and is missing out on the benefits
international capital, expertise and contacts can bring.
More aggressive FDI promotional activities may generate
considerable benefits for the New Zealand
economy.
More aggressive export promotion.
Improving New Zealand’s export performance is critical for a
small, distant country like New Zealand. Government
involvement is important as the vast majority of our firms
are very small and find the move into export markets very
challenging.
Improved National branding.
Modernising New Zealand’s brand is key to the world
understanding what New Zealand has to offer in terms of
ideas, talent, entrepreneurship and
opportunity.
ATTRACTING FOREIGN DIRECT INVESTMENT
New Zealand’s approach to foreign direct investment (FDI) has been essentially passive, and relatively few resources have been dedicated to attracting it.
New Zealand has experienced periods of substantial inflows of FDI, particularly in the early to mid-1990s. That largely related to the acquisition of existing companies with most concentrated in the property, finance, and communications sectors. Relatively little FDI occurred in the export sector. The consequence of this is that foreign companies now have substantial ownership stakes in parts of the non-tradables sector – such as banking – and the flow of FDI has reduced sharply over the past few years.
One of the problems with this pattern, is that New Zealand as a whole did not extract significant benefits from the investment of foreign capital. Direct acquisition in the areas it occurred has done little to generate the expertise, knowledge, contacts, and technology that overseas companies can bring with them.
The BCG report also demonstrated that relative to other small counties New Zealand is not performing well in terms of attracting FDI. That report recommended government take a more active approach to FDI as one element of our strategy to increase our economic growth rates.
They argue that FDI can play an important role in building up domestic capacity in a sector by bringing technology and contacts, spreading knowledge, and creating linkages within a sector. This could be valuable in terms of developing world-class scale and specialisation in parts of the economy, and will enable New Zealand business to develop and sustain the strong competitive advantage needed to compete successfully internationally.
Government accepts that FDI could play a much more positive role in New Zealand if it is appropriately targeted. To be most effective FDI must build on our domestic strengths. It must be investment which adds to our competitive advantage, rather than blunting it.
New Zealand’s size and location means that it is unlikely to attract the type and levels of FDI that were attracted to countries like Singapore and Ireland.
New Zealand is currently off the radar screen when major investment decisions are made by international corporates. To address this government recognises that a continued passive approach will not generate the quality or quantity of investment needed. We need to take the lead from other small countries and actively promote New Zealand as an attractive investment destination in a targeted way.
Realistically this promotional activity can not rely on providing large financial inducements to individual companies. Indeed, New Zealand is unlikely to win a bidding war with other countries or regions in terms of attracting particular companies. Wed need to attract investment on the basis of the existence of clusters in New Zealand that are already operating at world-class levels. For example, every telecommunications company in the world has a research presence in Finland because of Nokia - not because of its cost structure or tax rates. A sector with some critical mass is more likely to act as a magnet for quality FDI and act to anchor it in New Zealand for the long term.
Accordingly, in order to attract quality FDI, and to extract the full benefits from it in terms of developing domestic strengths, we should target investment in areas where there is already at least the start of a strong domestic capacity. An existing domestic base will not only make it easier to attract quality investment, it will better position New Zealand to leverage the benefits across the economy.
Funding increases for attracting FDI will need to be staggered. While some increases are appropriate now, substantial increases will only make sense when the economy has undergone sufficient transformation to ensure that FDI can be well integrated, as an accelerant, into vibrant domestic sectors.
In the past two years government has
begun to improve the FDI environment in New Zealand
by:
Increasing funding to Investment New
Zealand, a branch of TradeNZ.
Establishing the
first dedicated offshore investment team, in New
York.
Establishing the Major Investment Fund,
within Industry New Zealand.
Proactivity by
Ministers at home and abroad in encouraging and facilitating
FDI. This has resulted in a number of new greenfields
investments, including Sovereign Yachts, Kiwi Yachts and the
Ericsson wireless initiative. More are being pursued
currently.
ERICSSON
Ericsson Synergy’s Wellington-based
centre for developing mobile internet services could receive
up to $1.6 million of government funding over the next three
years. Government ministers Jim Anderton, Pete Hodgson and
Paul Swain announced the funding in August 2001. “The
government is prepared to be active in chasing investment
that is good for New Zealand”. The funding depends on
Ericsson Synergy achieving a number of growth milestones,
including employment rates.
Since it began operating in
January 2001 ESL has developed solutions for mobile office,
mobile commerce, advanced wireless application protocol
(WAP) and messaging. It has also created advanced service
platform technology that integrates mobile networks, web/WAP
sites, customer management and billing systems. The
company is attracting a number of expressions of interest
from expatriate Kiwis who want to return to work for a
company at the leading edge of technology
development.
ESL’s establishment was announced in
November 2000 by global telecommunications company Ericsson
and Wellington-based management consultancy Synergy
International. Investment NZ and Industry NZ had been
working for several months to help bring this joint venture
into existence and, since then, Industry NZ has also been
co-ordinating government assistance for the project.
However, as the BCG report shows, New Zealand still needs to lift its game considerably in this area. The BCG report recommends that New Zealand create a vision, set targets, consolidate the activities of Investment New Zealand and the Major Investment Service, integrate FDI into its broader economic, research and talent strategies, and increase funding.
Broadly the government agrees and intends to:
Strengthen co-ordination between the activities
of Investment NZ and Industry New Zealand’s Major Investment
Service.
Seek further advice on the structural
configuration which would provide most focus to our FDI
activities.
Ensure that FDI promotional activity
is focused on those areas (biotechnology, ICT and creative
industries) identified as being the priorities for enhancing
economic growth.
Review Business Migration
policies with a view to exploring ways of utilising the
investment funds required of business migrants, in a more
strategic manner.
Increased resources will follow as structures are better aligned and domestic initiatives have begun to impact.
The taxation regime may also play a significant role in either encouraging or discouraging foreign direct investment. The government is considering the recommendations of the McLeod Committee in relation to both the level and structure of taxation on foreign direct investment. It is intended to make decisions on these matters during this year.
MORE AGGRESSIVE EXPORT PROMOTION
As described earlier, New Zealand’s export sector, occupies a lower share of GDP than most other small OECD countries. Moreover, relatively few companies are large exporters.
We can celebrate our many successes. For example, that in the past decade, New Zealand wine exports have grown by over 1000 per cent, totalling $NZ169 million in 2000. This is projected to grow to 40 million litres, worth $NZ390 million in foreign exchange earnings, by 2005. Importantly also there has been a rapid increase in high and medium high tech industries and exports of elaborately transformed manufactures over the past decade. But a dispassionate analysis indicates that transformation must be accompanied by, indeed led by, continued improvement in export performance.
TOHU WINES
The first Pinot Noir
from high-flying New Zealand wine maker and exporter Tohu
Wines has been snapped up within a few months of its
release, confirming the company’s standing both as a
producer of high quality wine and as the exporter of New
Zealand’s first indigenous branded wine. The only real
limitation faced by Tohu according to the company’s Chief
Executive James Wheeler is that demand hugely outstrips what
the company can supply.
Tohu’s success in one
international market could not have happened without the
help provided by Trade New Zealand and the Maori Business
Unit. Tohu enlisted Trade New Zealand support to carry out
research in target markets. “We took a range of different
labels, colours, shapes and names and Trade New Zealand
staff in the US and UK used their local knowledge to find
out what would work” James Wheeler says. “The name was
pivotal with Americans in particular – if they’re going to
buy the wine they have to be able to say it”.
The
government has taken a series of initiatives over the past
two years to assist export growth. For example:
TradeNZ funding has been increased.
TradeNZ is
undertaking an extensive capital expenditure program to
rapidly advance e-exporting capability.
The
Business Grow programme within Industry New Zealand has
started focusing on those enterprises with an ability to
grow quickly and to grow exports quickly.
A
pilot Fast Forward programme within Industry New Zealand has
commenced with a similar aim, and pilot efforts to promote
business cluster development are also under way.
The Export Credit Office has been established to assist
those exporters required to provide medium long term finance
to their buyers, or those dealing with countries with a high
risk of economic instability.
More open trade
arrangements have been advanced, particularly with Singapore
and Hong Kong and through the Doha Round launched by the WTO
initiative.
Considerable ministerial and
diplomatic effort has gone into new market development.
In
coming months government will give priority to:
Monitoring and evaluating existing programmes to ensure they
are meeting the needs of the market.
Exploring a
“beach head” programme in which the government either leases
separate premises, or expands Trade NZ offices to:
o
Create an incubator for small or medium sized businesses
trying to establish themselves in offshore markets.
o
Create a forward marketing base for new exporters in
strategic offshore markets.
Ensuring closer
co-ordination of the services of FORST, Industry New Zealand
and TradeNZ to ensure their services are delivered
seamlessly.
Considering increasing government
support for overseas trade delegations or missions.
BRAND NZ
Offshore perceptions of New Zealand are outdated. While there is some awareness internationally of our “clean green image” from a tourism point of view there is too little awareness of New Zealand as an innovative country at the leading edge of knowledge.
We need to develop and promote a contemporary and future-focused Brand NZ, which projects New Zealand as a great place to invest in, live in, and visit. Maori have a unique contribution to make in this regard, and the government is working with Maori to find ways of leveraging this for the benefit of all New Zealanders.
Government has committed a significant level of resources in conjunction with events such as the Americas Cup and Lord of the Rings to help to promote an image of New Zealand as technologically advanced, creative and successful.
One of the reasons why the image of New Zealand internationally is not strong is that we have not presented a consistent brand image across our various sectors. This must change. To that end government, through Industry New Zealand Trade New Zealand, and Tourism New Zealand is working with the private sector to develop a Brand New Zealand programme. The aim is to reposition the brand and develop a joint management structure so that government, industry and business can all utilise the same brand.
TradeNZ promotes New Zealand through trade fairs
and creating an offshore presence
The accelerating pace
of change in business means that companies are increasingly
requiring physical presence offshore. Managing this in a
cost-effective way is challenging, given the small size of
most of our firms. TradeNZ has begun a programme of
identifying appropriate shared “beach head” facilities and
will actively work with companies to ensure smooth market
entry. The initial focus is Singapore and facilities are
also being investigated in the US.
two.2.4 focusing government resources
Government recognises that it has an important role to play in encouraging the adoption of more innovation throughout the economy. It also recognises that its resources, financial and other, are limited. It is therefore essential to ensure that in choosing where to direct government effort, we concentrate on those areas which can achieve the biggest impact.
For these reasons government will more aggressively focus its policy intervention in relation to innovation and growth. In the first instance biotechnology, ICT and the creative industries have been chosen as the areas for particular emphasis, because of their extensive influence on so many parts of the economy.
Needless to say, this policy focus will not be exclusive. The Government has already engaged with a number of sectors to remove bottlenecks and barriers to maximising their growth potential. The Wood Processing Sector Strategy is a key example of how many government departments and crown agencies have focused their efforts and resources to address issues of skills, infrastructure and investment.
The 2001 Budget also recognised the opportunity for Government engagement with other sectors as diverse as manufacturing (especially boat-building and casting), fashion, apparel and textiles, and tourism. Much has been been achieved working in partnership with these sectors (such as implementing the Tourism Strategy) and this work will continue.
To date, however, government agencies have not clearly determined common priorities for action. That must change. It is crucial to ensure that, for example, the focus of Industry New Zealand, Trade New Zealand and the Foundation for Research Science and Technology are aligned to a high degree so they can have maximum impact.
What the new approach means is that a disproportionate effort will be put into achieving more momentum in a few areas.
CHOOSING THE SECTORS
There is no completely objective way of choosing which areas to target. Various pieces of work have been undertaken, however, to replicate international best practice in sector targeting in a New Zealand context. BCG has worked on sector targeting in the context of their report on FDI, and Industry New Zealand, FORST, and Trade New Zealand have also been working on sector targeting. There has been a significant level of agreement between the analyses.
The methodologies– particularly those used by Industry New Zealand and BCG – are very similar. The methodology considers both the global market in particular sectors and the state and potential of the New Zealand market in those sectors. In terms of global attractiveness, measures of global market size, investor return and sustainability were used. To examine ‘fit with New Zealand’, measures which capture the level of location and scale independence, the requirement for skilled labour, and the fit with New Zealand’s existing industry structure were used. To capture the existing state of development of the sector in New Zealand, measures of the current domestic market size, the state of cluster development, and the level of innovation are used. More detail on these methodologies is available from the specific reports.
In considering the targeting recommendations from these studies, the government applied three broad principles.
Capable of having a material impact on growth rates
First, the areas need to be capable of having a material impact on economic growth. Focusing policy interventions on an area that impacts on only two per cent of GDP is likely to be less useful than focusing policy so as to enhance productivity across the whole economy.
For this reason the areas chosen need to have an “horizontal” impact rather than just a vertical one. They should have clear linkages to many other parts of the economy (e.g. providing specialised inputs into various production processes) so that productivity improvements in the target area has spillover effects in many others. By significantly improving performance in areas which impact on all aspects of the economy, we can achieve enhanced productivity, and hence higher growth rates across many sectors. In this way we are not relying on increased growth in the target sectors alone to achieve the growth targets. Ideally targeted areas should also already have a number of high performing niches within them. Together, this will ensure that the targeted sectors have the capacity to have a material effect on growth.
Competitive advantage
Second, the areas chosen should be capable of developing, a degree of scale and specialisation in their own right which makes them relevant on a global scale. Without such a level of scale or specialisation we are unlikely to be able to attract the skill, talent, and investment necessary to maintain higher growth rates. For practical reasons this should occur in areas of existing or potential competitive advantage, rather than trying to start from scratch in a new area. The targeting process should be ‘market led’ in the sense that the government takes its cue from existing strengths. Identification of the areas of New Zealand’s competitive advantage need to be informed by observation of the current performance of sectors, and where the private sector is investing. This requires us to identify areas in which New Zealand excels and provide support to these so they can develop world-class scale and specialisation.
Consistency with the vision
Third the areas need to contribute to the vision of a global, innovative New Zealand economy and be consistent with the ‘New Zealand brand’. In particular, there needs to be the potential for sustained productivity growth through increased innovation and global connectivity.
NUMBER OF TARGETED SECTORS
Given the need to target areas that are capable of generating a transformational change in economic performance, there is an issue of how many such sectors should be targeted.
Government believes it is desirable to target relatively few sectors, in the first instance. If there are too many targets, the likelihood that critical mass, with world-class scale and specialisation in any sector will be achieved is much reduced. There is also an organisational capacity issue; targeting too many areas would be difficult for existing institutions and would mean that available financial resources would be spread too thinly. Further, it is difficult to concentrate on more than 3-4 strategic economic priorities at the same time, particularly across the whole of government.
While there is an argument that targeting more areas would minimise risk, government believes there is enough spread available within the sectors chosen for this not to be a serious problem.
The appropriate number of targets will be that which maximises the sum of the gains from critical mass, organisational capacity, and diversification. Given the characteristics of the New Zealand economy, and the current state of public sector institutions, government has concluded that it should focus policy initially on three areas.
Results
Given that the approaches to targeting are reasonably similar, it is not surprising that the lists of target sectors generated by BCG and Industry New Zealand are also reasonably similar. Although they do not overlap perfectly, there are many common elements; for example biotechnology and ICT consistently turn up on the lists that are constructed. Five other sectors rank highly; creative industries (film, TV, music, design), food & beverages, niche manufacturing, environmental technologies, and education exports. Of the areas recommended by the various groups, the three that best match the government principles for target selection are biotechnology, Information and Communication Technology, and creative industries.
BIOTECHNOLOGY AND INFORMATION AND COMMUNICATION TECHNOLOGY (ICT)
Biotechnology is an example of a horizontal technology as it has applications across many other sectors such as forestry, agriculture, specialist food production and pharmaceuticals.
Biotechnology is directly related to New Zealand’s strength in the primary sector, the only sector in which New Zealand currently has world-class scale and specialisation. Focusing innovation effort on biotechnology, for example, is a way of leveraging New Zealand’s comparative advantage in the primary sector to add more value to our products. New Zealand has a very good understanding of biological systems because of its strength in the primary sector. New Zealand firms have already begun to establish competitive advantage in parts of the biotechnology sector by leveraging these strengths. Although the biotechnology sector itself represents only about one per cent of GDP, it has an impact on much more.
BIOTECH
Biotenz defines biotechnology as “…the
application of science and technology to generate increased
biological-based wealth”. Biotech industries provide a way
of generating greater innovation in the primary sector, and
leveraging our knowledge of biological systems. Indeed,
biotechnology is not so much a separate industry as a set of
tools with applications across a wide range of industries.
There are applications in the pharmaceutical, agricultural,
nutraceutical, environmental, and industrial fields, among
others. Specific technologies involved in the biotech
sector include microbiology, cell biology, genomics, genetic
and protein engineering, and biochemical engineering.
There are significant global opportunities in biotech. NZ currently has made important contributions to R&D, has a strong academic base, and has many promising start-up and development stage companies with potential in selected niches (for example, agricultural applications).
Genesis
New Zealand’s most prolific biotech company is
Genesis Research and Development Corporation. Chief
Executive Dr Jim Watson left Auckland Medical School in
1994, where he was head of the department of molecular
medicine, and established Genesis, risking his own capital
in the process. The company’s own discovery, a psoriasis
vaccine, PVAC, is undergoing US Food and Drug Administration
Phase 2 clinical trials. The company is also working on
immune therapy in relation to asthma and type 1 dermatitis,
and on developing therapeutics in tuberculosis and
cancer.
The company’s business strategy is to develop
partnerships with biopharmaceutical, agricultural and
forestry companies to market end products from its gene
discovery “pipeline”.
Blis Technologies
Dunedin-based
firm Blis Technologies was established in June 2000 to
commercialise a number of biotech products, including
Salivaricin B - a promising treatment for streptococcal
throat infections. Blis, or bacteriocin-like inhibitory
substances, are antibacterial agents able to kill or control
the growth of closely related bacteria. Other Blis-producing
organisms, researched at the University of Otago and
purchased by the company, have been found to control
mastitis in cows, skin infections, dental disease, food
pathogens and enterococcal infections. Blis Technologies’
major asset in its current phase is intellectual property
and it has or is pursuing patents in Australia, Western
Europe, the United States, Singapore, Hong Kong, Taiwan and
Japan. It continues to develop antibacterial agents and
other products based on Blis-producing organisms. Blis
Technologies listed on the main board of the New Zealand
stock exchange in July 2001.
Technologies involved in the biotechnology sector include microbiology, cell biology, genomics, and biochemical engineering. There are applications in the pharmaceutical, agricultural, nutraceutical, environmental, and industrial fields, among others. BCG noted particular opportunities in agricultural biotechnology; where there are at least 50 New Zealand companies that operate in this niche, mostly located in Auckland or Christchurch.
The Royal Commission on Genetic Modification noted that the 21st century has already been dubbed the biotechnology century and that New Zealanders have a history of quickly adopting and adapting new technologies.
They advised that it would be wise to establish a Bioethics Council and develop a biotechnology strategy for New Zealand which would take into account factors such as, scientific, environmental, economic cultural, consumer preference and the interplay between them. Work on that has begun within the public sector, but it is clear that if New Zealand is to take full advantage of the potential benefits of this technology, we can not be passive.
We must identify the potential strengths within the New Zealand industry along with the potential market opportunities internationally and we must develop those in ways which are sustainable.
Targeting ICT also allows New Zealand to leverage some of its strengths. ICT has an impact on many sectors, and New Zealand firms have established competitive positions within niches of this sector already.
For example, there is a small but active wireless technology sector and some New Zealand software firms are world leaders in their fields. ICT is a rapidly growing area, and New Zealand can leverage its investments in innovation and global connectivity by focusing on some niches within it.
INFORMATION AND COMMUNICATIONS
TECHNOLOGY
There is no single accepted definition of the
Information & Communications Technology (ICT) sector.
However, there is an emerging consensus that the ICT sector
includes goods and services that use electronic means for
information processing, transmission, display and
communications. ICT sub-sectors include telecommunications,
IT hardware, IT software, IT services, Internet services,
and wireless technologies.
Some of these sectors – like IT hardware – are not likely to hold opportunities for NZ firms. However, parts of the ICT sector do hold promise and are growing quickly. For example, there is a small but active wireless technology sector (Talon Technologies, Ericsson-Synergy, and Vodafone) and some NZ software firms are world leaders in their field (for example, Jade, Tait Electronics).
Pulse Data
A Christchurch company, Pulse
Data International, received an Innovative Technology
Commendation from the Foundation for Research, Science and
Technology for its development of BrailleNote, a world first
in portable notetakers for the blind. Featuring a special
suite of software, a Braille keyboard and display, and a
speech interface, this innovation allows blind people to
send and receive emails, link up with standard computer
software applications such as Microsoft Word, and exchange
information with their sighted peers.
The BrailleNote has
subsequently been combined with Global Positioning Software.
With the addition of the new GPS software and a small
receiver, the Braille Note becomes a powerful and invaluable
device to assist blind and sight impaired people to navigate
their way independently.
The process begins by first
entering a series of landmarks and other
specific pieces
of information as 'waypoints'. One 'waypoint' might be the
user's front door, while another is the bus stop down the
road. After the initial entering of the data as 'waypoints',
the map can be replayed to act as a verbal announcement
device that 'speaks' to the user.
The GPS software has
been trialed in the U.S. with huge success and Pulse Data
aims to release it to New Zealanders early next
year
Pulse Data International was included in the
inaugural Deloittes/Unlimited fastest 50 growing companies
in New Zealand.
New Zealand has real potential to be world class in parts of the biotechnology and ICT sectors. Because New Zealand will only be competing in niches in these sectors, and the niches in which we exhibit real competitive advantage are likely to differ from other countries, it is not a major concern that other countries also target biotechnology and ICT. We can also be smart about which specific parts of sectors to target. Given that New Zealand firms will not be operating on the same scale as firms in many other countries, we need to aim to succeed by operating in profitable niches. Together, biotechnology and ICT are central to New Zealand’s aspirations to become a knowledge economy and to extracting value from our primary production and natural resources.
CREATIVE
INDUSTRIES
The creative industries sector is chosen as
the third target. This is a diverse sector, which includes
film and TV, visual arts, design, music, fashion, and
multimedia art. Creativity is at the heart of innovation
and it satisfies all three of the targeting principles.
Creative industries input into many other sectors.
For example, strengths in design can become strengths in industrial design that can add value to the niche manufacturing sector, and if we are to establish a more distinctive New Zealand identity which is reflected in our products and services, excellent and unique design must be an integral part.
Creative Industries
Britain's
Creative Task Force has defined the creative industries as
"those activities which have their origin in individual
creativity, skill and talent, and which have the potential
for wealth and job creation through the generation and
exploitation of intellectual property.” The sector is very
diverse, including industries such as Advertising,
Architecture, Art, Design, Fashion, Film and Video, Music,
Performing Arts, Publishing, and Television and Radio.
The creative industries act as an input into many other sectors. In particular, industrial design can add value to the niche manufacturing sector. Indeed, design is increasingly playing a significant role merging creativity and innovation with products and services across a wide range of industries. NZ has also clearly established competitive advantage in some niches, such as film and television production and post-production. Fashion and design are also growing strongly. This sector leverages off NZ’s unique culture and capabilities.
WETA
Transforming the
fantasy world of J.R. Tolkien’s epic story The Lord of the
Rings into a movie has brought worldwide attention to New
Zealand and to filmmaker Peter Jackson. The first of the
three films is already breaking box office records in a
number of countries.
Weta brings together a
multitude of departments under one roof and is New Zealand’s
foremost special effects business. The Weta Digital arm of
the business is estimated to be the third largest computer
special effects studio in the world.
Set up in the early
1990s to supply an all inclusive effects facility to the New
Zealand film industry, creating Middle-earth for The Lord of
the Rings was by far Weta’s biggest task with 1,500 effects
shots created in total.
Weta Workshop were responsible
for the design, fabrication and on-set operation of all the
armour, weapons, prosthetics, special make-up effects and
creatures, and also constructed the large number of
extensive and highly detailed miniatures.
A large portion
of the trilogy’s monsters were brought to life by Weta
Digital, employing the very latest advances in the field of
computer technology.
At the height of production Weta
Digital was employing 220 staff. Originally it was thought
between 80 and 90 graphic artists would be needed to
complete the trilogy special effects. Artist numbers hit 165
at the peak of the Rings production. Nearly 40 per cent of
the artists were Kiwis, and Weta attracted world class
talent to work on the film. Between $15 million and $20
million has been spent so far on Weta’s IT infrastructure .
The digital demands have spin offs throughout the IT
industry.
New Zealand has also clearly established competitive advantage in some niches within this sector, such as film and television production and post-production. Fashion and design are growing strongly. New Zealand can perform at world-class levels in this sector, because large parts of it are relatively independent of scale and distance. The sector also is able to leverages off New Zealand’s unique culture and capabilities, which international competitors can’t replicate. It therefore has the potential to generate wealth on a sustained basis.
This focus will not see the Government closing the door on engagement with other sectors. The Government is mindful that the economy is dynamic and that significant new opportunities will emerge over time. While operating within this framework, government will preserve sufficient flexibility to respond to emerging developments in other potentially high growth sectors of the economy.
3. implementation
This document sets out a direction which the government believes can help move New Zealand on to a higher growth plane.
There are four broad means by which
this framework will be given effect:
Ministerial
leadership across all related portfolios.
Specific strategies within each of the identified target
areas.
Budget prioritisation.
Advisory board
MINISTERIAL LEADERSHIP
Implementation of this framework relies on ensuring that policy initiatives across all portfolio areas which impinge on economic transformation are appropriately aligned. To this end, where ministers are making choices about priority setting and new initiatives within their portfolios, they will be ensuring that they are consistent with, and contribute to the achievement of our innovation and growth objectives.
Ministers will be using all the tools available to them, such as statements of intent, purchase agreements and government policy statements to reinforce the direction outlined in this document. This will particularly affect policy agencies such as the Ministry for Economic Development. MORST, MFAT, Ministry of Education, Ministry of Social development, Department of Labour, Ministry for Culture and Heritage, Ministry of Tourism, and delivery agencies such as; Industry New Zealand Trade New Zealand FORST, Tourism New Zealand, TEC, Creative New Zealand, and the New Zealand Film Commission
For example, the tertiary education strategy which is currently being finalised, is aimed at ensuring the sector becomes better aligned to the requirements of a knowledge economy and society. The strategy will be finalised in April, and will incorporate priorities identified in this strategy.
SPECIFIC STRATEGIES
For this framework to be effective, specific strategies must be developed jointly with those directly involved in each of the target areas. The aim is that the private sector will shape the direction of development, with government facilitating in those areas where it is best positioned and can be most effective. Consultation with each of the identified areas has already begun, focussing principally on the appropriate scope of each target. Some work is also underway on strategies for both biotechnology and the creative industries. This must be stepped up.
Taskforces will be established for each of biotechnology, ICT and creative industries. These will comprise both business and employee representatives from the area, representatives from other sectors involved in facilitating development, (e.g. the tertiary education and research sectors), and government officials from a range of departments.
The development of the strategies will be co-ordinated by the Ministry for Economic Development.
The
initial stage of defining the specific strategies will be
the completion of a strategic analysis of each area
including:
Global mapping of sector
opportunities and trends.
An analysis of New
Zealand capability and trends.
Information about
investment and growth opportunities along with current
constraints, such as skill or management capability
deficits.
Advice on the extent and nature of
potential government involvement in the sector.
The work already begun by the public sector on these issues must now be bought together with that of the private sector.
The
types of issues likely to be addressed in the strategies
will include areas such as:
Facilitating cluster
development and operation.
Establishing networks
and aligning resources both between government agencies, and
between government agencies and the sectors.
Identification of the talent, skills and research expertise
required and how to ensure their availability.
Attracting and retaining strategic investment in the
sector.
Identifying infrastructure
needs.
Promoting the sector.
Setting of goals and targets.
Monitoring and
evaluation.
BUDGET 2002
This framework is not simply
about spending money, it is much more about the kind of
economy we are aiming to grow and the need to focus our
effort to get maximum leverage from available financial and
human resources.
Government will however be ensuring
that where new initiatives are related to economic
development and growth objectives they are focused
consistently across government and this will be reflected in
the upcoming budget.
Beyond the 2002 Budget, future
budgets will provide further opportunities to consolidate
and focus the Government’s efforts and enhance the
effectiveness of the Government’s investment in promoting
more effective innovation and stronger economic
growth.
ADVISORY BOARD
This framework has picked up on
the consensus of recommendations from a range of public and
private sector reports. It recognises that to grow more
quickly, we need to be both more innovative and more
focused. Sustaining higher growth rates will however
require us to continually re-evaluate where the
opportunities lie and how we should take advantage of them.
A key part of the success of this strategy will therefore be
ensuring that we keep our focus continually relevant. We
will need to monitor progress in each area and be prepared
to adapt policies or to change course if the evidence
warrants it. To do that effectively we must ensure we are
continually looking ahead as well as evaluating the success
of initiatives.
Government will therefore establish an Advisory Board with strong private sector representation. It will report to government on progress within the areas identified within the framework, and advise on future opportunities for government focus. The aim is to ensure that our economic growth rates achieve and maintain a margin over the OECD average so that over time we achieve our stated objective of establishing the New Zealand economy back in the top half of the OECD ladder.
Conclusion
New Zealand’s next phase of its economic development must be characterised by innovation. There are many great things already happening in the economy. Many individuals and firms have great ideas. Many policy initiatives are beginning to have an impact. There are pockets of excellence throughout the economy. The challenge for New Zealand is to make those pockets of excellence the norm rather than the exception.
This framework documents a broad consensus that has emerged over the last two years as to what needs to be done to develop New Zealand’s innovative potential.
That consensus says we must continue to strengthen the fundamentals of our economy. We must have an economy able to weather shocks, and to adapt to new challenges. But we must do more than that.
If we are to reverse declining trend in our relative income measures we must achieve a step change in growth rates.
We must become a nation known internationally for our innovation, our creativity, our skills and our lifestyle.
To do that
government is committing to implementing policies with more
emphasis on:
Enhancing our innovation
framework.
Developing our skills and
talents.
Increasing our global connectedness.
Focusing innovation initiatives in those areas
which can have maximum impact.
Government has chosen to target its innovation initiatives initially in biotechnology, ICT and the creative industries. These are all areas which, if they attain their growth potential, can have a significant influence on the broad scope of the New Zealand economy. But obviously they can no achieve the growth required for the whole economy on their own.
Innovation must happen across the board. Skills and talents in all areas will be important. We must attract the right sort of foreign direct investment.
The government is committed to working with all parts of the economy to help to make that happen.
The process will not be short. We
cannot expect to recover our position in per capita income
rankings overnight. But we have the potential in New
Zealand to succeed and with a determined effort by all
players, New Zealand can, and will, enjoy sustained economic
success.