Fundamental changes needed to lift sinking productivity

Indian businesses make a significant contribution to New Zealand. Many face the challenge of how to achieve greater productivity – and this doesn’t mean working longer, but smarter and employing better technology and plant and equipment.

As published on Indian Newslink

Improving New Zealand’s productivity has proved elusive for decades and we now rank unfortunately amongst the bottom quartile of OECD countries.

Turbocharging opportunities

To turn this around there needs to be a greater focus from the government on fundamental changes to our education system, stronger incentives for research and development, and encouraging greater capital intensity within businesses.

We also need create an environment that nurtures the growth of globally successful businesses that will fund the innovation required to succeed at scale.

New Zealand has many exciting areas of proven expertise. This includes Agtech, Fintech, Medtech and Cleantech. The question is, how do we turbo-charge commercial opportunities in these sectors?

Under Covid, the government and its various agencies have found themselves in unusual and unprecedented situations, grappling with decisions on a daily basis that directly and immediately impact how businesses operate and how people go about their daily lives.

Public-private partnerships

To provide the innovation and agility needed to capitalise on our natural advantages (especially our Covid-free domestic status), New Zealand can achieve far more if there is effective partnering between the public and private sectors, drawing on the best of both.

Education plays an important role. The way Kiwis are educated will be vital to accelerating our recovery over the long term.

Young New Zealanders are falling behind their international counterparts. This is in terms of their preparedness to enter a complex technology orientated and dynamic world that demands a much higher level of critical thinking skills.

In addition to growing our domestic intellectual capital organically through investment in our education sector, there is a strong argument for importing more intellectual capital through a change in our immigration settings.

The importance of knowledge and technology cannot be understated, especially if we want to accelerate innovation and improve productivity.

Strengthening infrastructure

We would like to see a more enlightened view around the role infrastructure plays in our recovery. Currently, projects are referenced to the number of jobs that will be created during their development period.

The focus should instead be on the longer term economic stimulation these projects can enable not only through job creation but also by helping to create a more efficient and productive economy.

There is an opportunity for the Crown and local government to build infrastructure and fund some of this through recycling existing infrastructure.

We need to encourage businesses to get on board automation and mechanisation, underpinned by good digital networks. That means using tax rules to incentives businesses to invest in productivity-enhancing plant and equipment.

During the last election, we said that we would allow new plant and equipment up to a value of $150,000 to be written off in one year rather than depreciated over 8-12 years, as is allowed under current tax rules. This has the potential to deliver a step change in manufacturing capability, increased productivity and process efficiency.

Facilitating FDI flow

We would also like to see a change in stance towards foreign direct investment (FDI).

We should be activity seeking to attract people with the resources and connections to grow our existing businesses substantially with a focus on exports or undertake R&D in New Zealand. This capital can make a meaningful difference to a small nation like New Zealand, through enabling greater investment in wellbeing initiatives, funding infrastructure, creating jobs and investment in our regions.

Supporting start-ups

Another step is to encourage large New Zealand companies to better support smaller, strategically-aligned start-ups that generate new innovative businesses and technologies. We also need to better commercialise ‘warehoused’ intellectual property, especially that sitting inside our research institutes and universities.

Improving our productivity means that we can produce more satisfying and higher paying jobs and will help provide a better standard of living for New Zealanders.

While the reality is there is no ‘quick fix’ in terms of reversing our productivity decline, it is probably the greatest long term impediment on our economic aspirations.

If we want to be a competitive country in the future, we need to be making changes now and across a broad range of areas.