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Tourism - moving higher up the value chain

20 July 2006

Tourism - moving higher up the value chain for NZ

Speech to Tourism Auckland Industry Update Forum, Langham Hotel, Auckland

Thank- you for inviting me here to speak to you today.

As you know, the Labour-led government has made economic transformation a top priority for this term of office. I want to focus today on what this means for the tourism sector, given its importance to the New Zealand economy. Tourism is New Zealand’s biggest earner of foreign exchange, and a substantial domestic industry as well.

Our agenda for economic transformation is about building on the work that has already gone on in the growth and innovation framework, and it is also about working closely with business to help bring about economic change.

We want to raise living standards for all kiwis, and to do so we need to see a New Zealand economy that is export-led, that is innovative, high wage and high value - one that uses our natural resources and plays to our strengths.

The government cannot achieve this on its own - in fact most of the work will be down to business. Government can and will give support where it's needed but it is firms and industries which will really drive this transformation.

We will need to see a significant and sustained increase in income per capita growth. It also requires us to leverage off current areas of competitive advantage, as well as capitalising on and creating new opportunities.

Put another way, we need to build on our strengths, utilise parts of the economy that are historical strengths, as well as identifying new ones.

Given the importance of the tourism sector to the New Zealand economy, it is vital that the sector plays its part in this process.

We have a well-established evidence base that indicates that productivity improvements are the key to economic growth, and that innovation drives productivity gains.

That's as true for the tourism industry as it is for other areas of the economy.

We need to innovate to add value, not just in terms of products, but also in terms of services, processes, marketing and organisational effort.

We also need more internationally focused businesses which are at the forefront of international best practice through technology or marketing. Most of all, we need to produce more outputs through innovating and through improvements in productivity.

The tourism sector is well-placed to be an important enabler of economic transformation.

Tourism businesses are deeply integrated with international markets. You have expertise in offshore branding and marketing. You are much more internationally connected than many other sectors. This is an important asset.

So what should you be thinking about in tourism? The New Zealand Tourism Strategy’s focus on lifting yield provides a good starting point.

It recognises the importance of extracting more value from international visitors, of lifting yield to tourism businesses, while building a quality experience that sustains the resource base.

Over the five years till 2004, the tourism sector has grown its contribution to the economy at a faster rate than the growth of the economy as a whole - by 7 per cent versus 4 per cent. That is a significant achievement.

The government is working hard to help you to continue the momentum.
We have stablised funding. And the prospect of further increases in funding is still in the mix, as the industry and government work together throughout the year to assess where the industry is going.

The government has also committed billions of dollars to upgrade our roading network, and has created an environment where all New Zealanders, rural tourism operators included, can access broadband communications. Both of these are essential for us to lift productivity.

A collaborative approach between government and the industry is essential - industry needs to be thinking about what it can do to move up to higher value products - as this is not a role for government alone.

Much remains to be done. Quite a bit of that recent growth in tourism was achieved by adding more inputs and increasing the number of visitors, rather than lifting the value and quality of the tourism product.

While substantial gains have been made, particularly in lifting the quality of the product through such initiatives as Qualmark, lifting the value of tourism has been more difficult.

Growth in the economic contribution of tourism in recent times appears stubbornly linked to growth in visitor numbers. The New Zealand Tourism Strategy’s aim of bringing high value visitors to New Zealand needs to be matched by extracting more value from these visitors while they are onshore - and that means selling a higher quality product.

I know you are aware of the challenges surrounding this. Like many other sectors, the tourism sector faces challenges in attracting and retaining the skills and talent necessary to build quality tourism products and services.

The launch last week of the Tourism and Hospitality Workforce and Skills Strategy by Damien O’Connor is a big step in the dialogue about what can be done to address this.

The workforce strategy complements the government's Modern Apprenticeship and Industry Training programmes, which are lifting the skill sets of thousands of New Zealanders in a range of industries, including hospitality and tourism.

I also understand that you are currently engaged, as an industry, in the update of your sector strategy, to assess its goals and the implementation of actions to date. It will be important to maintain a focus on quality and a diversified tourism product supply.

This is essential to ensure that New Zealand tourism is able to deliver on its marketing promise. It is also essential to shifting tourism products and services to a higher value level.

Finally, one of the goals of our economic transformation work is to focus on building Auckland into a truly internationally competitive city. This is crucial for a range of our industries, not the least of which is the tourism sector.

We have seen good economic growth in regional areas that used to lag behind - such as Northland, Taranaki and the East Coast - but Auckland's growth has not developed as it should have.

Auckland plays a crucial role in tourism’s ability to lift quality and yield. Auckland’s size gives it a pre-eminent role as New Zealand’s gateway to the world, and commercial hub.

As such Auckland needs to be more internationally connected in terms of business, people and knowledge.

It needs to be seen as a classy city with not only good infrastructure, but also as a city with other key assets - such as a top university or universities feeding into research and innovation, a Pacific culture with strong, and vibrant and diverse communities, and strong firms and business. And I haven't even mentioned the food, the wine and the fashion that also help to give our overseas visitors that all-important first impression.

Over two thirds of international travellers to Auckland pass through Auckland’s international airport. For many visitors, entry and exit to the country, and hence first and last impressions, are influenced strongly by Auckland’s international image and both the tourism product and supporting infrastructure it provides.

The ability to deliver a vibrant urban and cultural experience in Auckland that can complement New Zealand's traditional tourism strengths is crucial for Auckland tourism, and also for Auckland's development as a world-class city.

As you all know, the challenge is to build high quality product. For Auckland, the additional challenge is to build its gateway infrastructure. 2011 sees the Rugby World Cup coming to New Zealand and this is an opportunity for New Zealand to be showcased to the world. It is also an opportunity to position the nation, to speed up urban revitalisation and to catalyse infrastructure development.

The tournament will deliver significant economic benefits and tourism spin-offs. It's estimated it will attract around 60,000 visitors to New Zealand.

A steering committee to coordinate cross-government support has been set up and one of its subgroups will focus on infrastructure issues, while another will coordinate work around significant business and tourism leveraging activities

Rugby World Cup 2011 is not the only event that the government is supporting. The Major Events Development Fund is worth around $3.4 million a year.

This fund is administered by New Zealand Major Events and has allowed for many diverse events to be retained, grown or attracted to New Zealand - all giving new Zealand good exposure. Past events that is has supported include the Auckland Cup Week, NZ Golf Open, World Mountain Bike Championships, the International Six Day Enduro, Warbirds over Wanaka, Lion’s Tour promotion, and the NZ International Arts Festival.

To give you a feel for what this means - in the last financial year, New Zealand Major Events has supported events which will generate an estimated value of over $270 million in economic benefit.

It's important that New Zealand is proactive in this area - and that we proactively go after international events that clearly will generate good tourism and economic spinoffs for New Zealand.

Events that have an international profile are important, but it is also possible to tap into other industries that may have tourism spinoffs. The export education industry is a classic example - New Zealand has around 100,000 international students studying here - of which around half study in Auckland.

In the year ended March 2004 education related visitors represented 9.3 per cent of total visitor spending - which is nothing to sniff at. And it's probably safe to assume that for every student, there is generally also a few family members and friends who will visit here at least once.

These international students can also play an important role in improving our connections with the rest of the world - and spreading the word about New Zealand as a great place to visit, or to live and work in or work with.

My theme today has been one of outlining the economic transformation challenges and opportunities the tourism sector faces. I think the New Zealand Tourism Strategy direction flagged five years ago is still right, and sits neatly with what the New Zealand economy needs to deliver on more broadly.

I also think that – like the economy as a whole – you face continuing challenges in lifting the value extracted from your products and services. As I said earlier, we have been pretty good at getting more wallets across the border, but less so at extracting more from each wallet.

So my message to you today is that the tourism sector plays a crucial role as New Zealand’s major export sector, and that Auckland is very important to its continuing success. You as a sector need to get engaged in constructing the development agenda for your sector, through the tourism strategy update. You need to own it, and commit to its implementation.

ENDS


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