Signs of a Fundamental Shift in Industry Policy?

8 July 2019

The New Zealand government launched its new Industry Strategy last Tuesday – also the swan song for Minister David Parker, who has handed the Economic Development portfolio over to Phil Twyford after having shown a fair bit of enthusiasm and support for manufacturing, but also suffering from portfolio overload. It is an interesting reflection of who we are as a country to see the relative allocation of political effort that goes into (re-)distributing wealth and fixing social problems caused by a lack of resources, in turn a reflection of a lack of wealth, as opposed to creating wealth in the first place.

To be fair to this government, the new policy does acknowledge and try to address the root cause of our relatively poor economic performance – labour productivity well below that of our OECD peers, accompanied by static or declining exports as a share of GDP. It puts moving our economy into the digital space centre-stage, at same time acknowledging the challenges that move will put on upskilling our existing workforce in particular to keep up with the changes in technology we are already seeing being put in place.

Key focus of the new approach will be the development of Industry Transformation Plans for key industries with a priority focus on construction, agritech, food & beverage, digital technology (whatever that means as a separate sector, rather than a broad-base enabler) and forestry & wood processing. ‘Manufacturing’ isn’t mentioned specifically, but it does, of course, provide the foundation for wealth creation across all of these sectors. Three key principles are mentioned: Moving from Volume to Value, Leveraging Opportunities in Adjacent Sectors, and Backing Emerging Sectors. Not much surprise here, but included is a recognition that investing in change and requires capital, and the government’s diversion of $300m from The Superannuation Fund into NZVIF is a step in the right direction, except it again comes with a strong bias towards early-stage companies. Good luck to any established manufacturer who has identified an opportunity to completely re-invent their business model to dip into that!

So, for most of us – will it matter? To be fair, between this and the work done by the government’s Tripartite Future-of-Work Forum, there are signs here of a bit more enthusiasm for government to take an active role in the direction of economic development, at least compared to what didn’t happen in the previous nine years. There isn’t anywhere near enough detail in what’s been put on the table so far to tell whether this will make any difference. The impact of the new R&D tax credit scheme has yet to be felt and will depend largely on how restrictive the IRD will be on defining what is/isn’t R&D expenditure, and how arduous the actual processes to obtain the credits will be. A change in depreciation rules as a flanking measure will certainly be just as important when it comes to stimulating investment in new production machinery and equipment that will allow a more rapid growth in productivity.

The government is also investing an albeit modest amount into supporting the uptake of digital technologies in manufacturing, which is welcome. The key focus for us now needs to be on how far the government is willing to go in supporting manufacturers in upskilling their existing workforce to prepare everyone for ‘the digital age’. Two things are for sure – manufacturers, most of them SMEs, can’t tackle that task on their own, and the tertiary education and training system in its current form is ill-equipped to help. It will be interesting to watch how far the government is ultimately willing to go to match industry needs , even if it means a significant reallocation of resources in the tertiary education sector is required. Future discussions in the tripartite Future-of-Work Forum will be a bellwether to watch. But we also need to be clear in our own minds that meeting the challenge of upskilling our existing workforce will require significant investment, and a willingness to change, from manufacturers, too.