New Zealand Budget

Analysis

Budget 2018: Regional development

Supporting digital innovation in provincial New Zealand

By Linda Meade

The Government’s $1 billion Provincial Growth Fund (PGF), announced in February, is a significant investment in regional economic development. Along with the reintroduction of R&D tax credits as a mechanism to encourage greater research and development by Kiwi firms, the PGF is a key pillar in support of the stated goal of lifting the productivity potential of the regions.

Investing in our regions will be welcomed by communities throughout the country. Each is dealing with its own unique issues and trying to capitalise on its strengths, while fighting the trend of urbanisation and the loss of skilled people. The PGF has so far committed $130.2 million to the regions for projects across various sectors.

Increasing regional productivity means thinking about what we want our regions to look like in the future. As a country, do we want to invest in low-skill, low-wage jobs, or create highly-skilled, well-paid ones?

The answer might be a no-brainer – but it will take more than a large pot of money and getting the settings around tax credits right.

The Finance Minister has been driving thinking around the future of work since 2014. He wants to develop policies to ensure New Zealanders are ready for the changes technology is heralding, so we face a future of high-wage jobs for skilled, adaptable and resilient workers.

Evidence shows technological progress and the digital innovation that underpins it are crucial. According to a Deloitte Switzerland report[1] on digital innovation capacity, New Zealand performs fairly well as a country ranked 12th in their Digital Innovation Capacity Index, above Australia (13th), Ireland (14th) and Germany (15th).

According to the report, digital innovation capacity is based in equal measures on three core elements: talent, start-ups, and investments and patents. Access to talent is perhaps the most critical of these, as it is linked to start-up businesses. While New Zealand scores well in start-ups (third in the top 20 on the Index after the US and Canada), there is room to lift our game in the areas of talent, investment into innovation, and patents.

For the Government to ensure hubs of innovation in the regions can compete with the lure of the cities, it needs a concerted, targeted approach.

Deloitte Germany reports[2] that, despite companies growing their innovation spend by 2.7% on average annually, and with the German innovation spend expected to total 175 billion euros by 2019, only 30% of German companies felt well prepared for changes in their markets arising from digital innovation.

Given the New Zealand economy is about 1/20th the size of Germany’s, how likely is it that Kiwi companies will spend around $15 billion collectively on innovation in 2019?

In Germany, most of the surveyed companies were investing in big data analytics, cloud computing, internet of things and machine learning but reported struggling to find ways to implement the latter two areas in their businesses today. The companies identified as “doing well”, invested in strategies around incubation and ideation.

We know that not all companies in New Zealand have equal and immediate access to the collaborative networks, incubation communities, and tertiary and research institutions that support greater innovation. But most will have access to something, which will vary region by region. To re-set the trajectory for innovation, and the boost in productivity this would support in our regions, we would do well to identify the respective strengths and foundational IP that exists in each city and region, around which talent, start-up businesses and university researchers can flock.

A more coordinated “within New Zealand” approach in this area would help ensure that as a country we don’t get left behind on the world stage, and that equally each region has the opportunity to share and benefit from investments and growth.

[1] https://www2.deloitte.com/ch/en/pages/innovation/articles/digital-innovation-capacity-switzerland.html

[2] https://www2.deloitte.com/content/dam/Deloitte/de/Documents/Innovation/Datenland-Deutschland-Studie-Renaissance-Innovation-Executive-Summary-English-Deloitte-2017.pdf

 

 

Find out more:

Deloitte NZ Budget Hub 

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