A puzzling government economic target

An occasional reader pointed out to me a government economic target that I wasn’t aware of.   Late last year, Communications Minister Clare Curran announced that

“The Chief Technology Officer will be responsible for preparing and overseeing a national digital architecture, or roadmap, for the next five to ten years,” Ms Curran says.

“This Government intends to close the digital divides by 2020, and to make ICT the second largest contributor to GDP by 2025.

At least one tech firm seems to think that goal is in the coalition agreement, although I couldn’t see it there.

There doesn’t seem to be much around on this goal, which is perhaps not surprising as it doesn’t seem a particularly realistic or well thought-through goal.  There are no obvious definitions or compators.    Would such an outcome even be desirable?  How would we know?

But I did find this chart in an MBIE report from last year, using data that isn’t readily available to the public.

ICT mbie

Which looks like a reasonable aount of activity, except of course that GDP in 2015 was $230 billion. so these ICT sectors in total account for about 4 per cent of GDP.

The OECD doesn’t seem to have data for all member countries, but I found this chart.

OECD ICT

New Zealand’s ICT share doesn’t seem out of line with (although perhaps a bit less than) the median OECD country.

But then I went to Infoshare to look at the breakdown of GDP by production sector.  These are the sectors that were bigger than MBIE’s ICT number in the year to March 2016 (which presumably aligns most closely with the 2015 data they quote).

GDP in year ending March 2016
Construction 15,290
Wholesale Trade 12,691
Retail Trade 11,057
Transport, Postal and Warehousing 12,377
Financial and Insurance Services 14,604
Rental, Hiring and Real Estate Services 18,021
Owner-Occupied Property Operation (National Accounts Only) 16,429
Professional, Scientific and Technical Services 19,935
Education and Training 11,436
Health Care and Social Assistance 15,095

Which industries, I wondered, did the government envisage being displaced by the ICT sector?  For example, the government also seemed to be aiming to build a lot more houses, and encouraging more people into education and training.   Which industry do you expect will still be ahead of ICT by 2025 (only seven years away now)?

And how realistic is any of this anyway?   That MBIE chart above looks quite impressive at first glance.  But as a share of total GDP, those ICT subsectors in total did not change from 2007 to 2015.   What policy changes, already announced or in the works, are likely to transform the prospects of these sub-sectors in just a few years?

In a post last year, I pointed to some other indicators of how these technology sectors just haven’t been growing to anything like the extent the boosters would like us to believe (although of course there are individual firm success stories).   Sadly, of course, that is really the story of our tradables sector as a whole –  which has managed no per capita growth at all this century.

UPDATE: From some digging around it appears that the government’s target, championed by Clare Curran is even flakier than I imagined.  Apparently at a recent select committee hearing she claimed that the technology sector was New Zealand’s third largest exporter and that she hoped it would become the “second largest contributor to the economy”.   This “third largest exporter” claim appears to come from last year’s TIN report (critiqued here), where the total foreign sales of NZ-owned tech firms are treated as New Zealand exports (for comparisons with official export data of other sectors).  As I noted in my critique, this is a nonsense claim: much of the value in many of these foreign sales is generated abroad (eg both F&P companies have large manufacturing operations abroad).  In their 2017 ICT report, MBIE talk of ICT exports of around $1 billion per annum (about 0.3 per cent of GDP).    As I showed in my earlier post, tech-like services exports as a share of GDP has barely changed this century (and the profitability of New Zealand firms operating abroad also seemed pretty weak).

To put the numbers in perspective, here is an extract from a recent SNZ table

Total exports
By top 30 categories
Year ended March
Commodity / service Exports (fob)
2017 2018
NZ$(million) % of total NZ$(million) % of total
Milk powder, butter, and cheese  11,547  16.5  14,174  18.2
Business and other personal travel  10,012  14.3  10,879  14.0
Meat and edible offal  5,983  8.5  6,797  8.7
Logs, wood, and wood articles  4,133  5.9  4,828  6.2
Education travel  3,547  5.1  4,025  5.2
Fruit  2,758  3.9  2,648  3.4
Air transport  2,158  3.1  2,451  3.1
Wine  1,627  2.3  1,723  2.2
Mechanical machinery and equipment  1,596  2.3  1,683  2.2
Fish, crustaceans, and molluscs  1,586  2.3  1,619  2.1
Preparations of milk, cereals, flour, and starch  1,213  1.7  1,558  2.0
Miscellaneous edible preparations  1,162  1.7  1,305  1.7
Aluminium and aluminium articles  982  1.4  1,152  1.5
Electrical machinery and equipment  999  1.4  1,071  1.4
Casein and caseinates  826  1.2  904  1.2
Optical, medical, and measuring equipment  829  1.2  873  1.1
Wood pulp and waste paper  721  1.0  858  1.1
Telecommunications, computer, and information services  875  1.2  848  1.1

10 thoughts on “A puzzling government economic target

  1. The bit that is really scalable is IT Services (dark green) – presumably this includes SaaS companies such as Xero. However, that segment doesn’t seem to have grown at all in the previous 8 years.

    Like

  2. That was one of the key messages of RNZ’s A Slice of Heaven – Immigration: immigrants who go into ICT and make it our second biggest [something impressive].
    It didn’t ring true to me as i wasn’t aware we had a Silicon Valley. It seemed to me we are just keeping up with something we have no natural advantage in?

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  3. Information and communication technology (ICT) – that was my entire career and it was well paid and for those with a slightly weird personality satisfying. However it has always had delusions of its significance.

    Someone makes something and someone else buys it; that is the base elephant and then the transaction may need something moved (forklift, railway, truck) so that is the first colony of parasites and then those parasites need financing and book-keeping which is second level parasites and only then do the accountants and logicians possibly need ICT. So ICT is a parasite on parasites on parasites on the real activity without which they all die.
    When cars were invented they needed full time chauffeurs who had particular engineering skills; that career is now long gone. Similarly my young grandchildren manipulate computer power in ways we never even dreamed of – say using a phone for GPS navigation to the nearest bakery.
    There is no doubt that ICT has changed the world (I’m writing from an AirBnB in France – the owners would never have started a B&B without the AirBnB ICT tecnological service) but these kinds of innovation are both rare and one off. During the 45 years I was a computer programmer Japan was seriously backward with ICT and the UK was quite advanced but it was the Japanese economy that surged past the UK despite further problems with language and location.

    NZ would be better off stopping dreaming of Bill Gates, Mark Zuckerberg and Peter Thiel and start thinking about businesses that cannot be transferred abroad. In the South of France they ask about NZ wine not our ICT. If NZ agriculture is encouraged then all the other career paths will thrive including computer coders and economists and even GGS’s property investments.

    Liked by 2 people

  4. I’m getting weary of time bound platitudes – smoke free by, predator free by, carbon zero by etc. The more of them that keep coming, the less credible the lot.

    Liked by 1 person

  5. NZ is simply importing tomorrows welfare recipients – looking at Google and Facebook is looking at electrons and blue-sky. Looking at boots-on-the-ground you need to look at IBM who are the largest global employers of IT professionals. Five years ago they reduced their global workforce by 50,000 and began outsourcing to India. Now in 2018 they are conducting another reduction drive laying off 30,000 employees in India. Much of that is finding its way into NZ where the IT-du-jour is gaming

    These new arrivals into NZ, infesting the supposed IT worked in NZ will be driving taxis and Ubers in 5 years

    https://qz.com/1152683/indian-it-layoffs-in-2017-top-56000-led-by-tcs-infosys-cognizant/

    Liked by 1 person

  6. I get the scepticism in the blog and comments but the flipside is we are in the middle of an industrial revolution equivalent. You can’t look at the static position today and say “why bother”. Things are changing rapidly and otherby’s comment above highlights how quickly employment can change even in IT.
    Interesting article on the industrial revolution of the 1700s and table 4 (pg3) shows the change in employment composition over the century: http://www.ehs.org.uk/dotAsset/15457c19-e7bd-4045-a056-30a3efac2d47.pdf
    Things are happening much quicker these days. And one of the biggest impacts we face here in NZ is the rise of former third world countries into productive powerhouses – their cheaper labour and (when they figure it out, which they are in the process of doing…) more efficient commodity production capacity/ability are likely to eat our lunch. Our future prosperity can’t be solely dependent on drying milk out for export or encouraging low-rent freedom campers to visit and soil our natural environment – China is already industrialising their dairy production to be self sufficient, Saudi Arabia is already a very efficient dairy product producer (in the desert!) and heaven help us if India gets their act together.
    In parallel we currently massively underperform in R&D and tech investment vs our developed market peers. Sometimes Governments just have to bite the bullet and make a call to push ahead with changing things. Whether it is Finnish video game production, Australian Biotech, or in fact Silicon Valley itself – none of these would exist without big Government support catalysing their early establishment.

    Liked by 1 person

    • Up to the last couple of sentences I largely agree. My criticism is mostly of the flaky target, and the gilding the lily about how well the tech sector is doing (it largely is not). We need hard-headed analysis on reasons why, and obstacles, not rushing to throw money at responding to symptoms (which is what this and previous govts have been doing for at least 20 years now).

      Liked by 1 person

  7. Mitchel Pham, Augen Software Group | Kiwi Connection Tech Hub | NZTech | FinTechNZ | InsurTechNZ | NZHIT | GITA, FB 19/06/2018

    Technology industry continues to expand and accelerate growth across New Zealand economy…

    Ahead of our AGM, I am delighted to report another year of phenomenal growth of the New Zealand tech ecosystem and our engagement across the wider economy. NZTech continues to connect, promote and advance the entire ecosystem.

    We continue to deliver even more events, delegations and summits. Our membership has expanded beyond traditional tech firms, highlighting the importance of tech throughout every aspect of the economy and society.

    With InsurTechNZ emerging as part of FinTechNZ, and the establishment of TechLeaders, TechMarketers and AgriTech New Zealand, our alliance now represent 19 associations and over 800 organisations. Meanwhile, more industry associations are joining our growing Tech Alliance.

    The New Zealand Government continues to increase its active involvement with the tech ecosystem, providing further connections and support across many interest areas, as we continue to aggregate and channel the voices and interests of our diverse community.

    Earlier this year, NZTech hosted the Digital Nations 2030 summit, coinciding with visiting delegations from the world’s leading digital nations for the D5 meeting. International leaders joined tech leaders from government and industry to discuss creating a truly digital nation by 2030.

    Recently, the AI Forum launched their research report, Artificial Intelligence: Shaping a Future New Zealand. The report identifies key AI opportunities for New Zealand to actively shape our future.

    To promote tech, our flagship national festival Techweek has grown from 287 events last year to 540 events this year. In a world first, Prime Minister Jacinda Arden opened Techweek’18 as a hologram!

    It remains crucial to promote tech widely, as very few girls choose a career in tech. Only three percent of 15 year old New Zealand girls consider a career in tech and women make up only 23 percent of those employed in IT. It is vital that we lead the way, and our annual mentoring programme ShadowTech from TechWomen continues to help inspire the next generation.

    As a founding partner of the Digital Skills Forum, NZTech also played an active role in researching the skills shortage which resulted in the Digital Skills for a Digital Nation report and numerous recommendations.

    Our growing number of international connections increases access to tech talent, investment capital, larger markets and the global tech innovation ecosystem. Examples include FinTechNZ’s participation in the ASEAN FinTech Network, InsurTechNZ’s establishment of the Global InsurTech Alliance, and Agritech New Zealand’s regular engagement with Silicon Valley.

    Our passionate board continues to evolve and deliver beyond expectations. We have one of the most engaged and high performing board teams, providing both governance and leadership to connect, promote and advance the ecosystem. I strongly encourage you to consider a nomination.

    Looking ahead, I know NZTech will continue to stimulate an environment where technology provides important social and economic benefits for New Zealand, and enable this country to be more relevant to and affect more impact on the rest of the world.

    Whether or not you join the NZTech board, this is an exciting time to be even more involved with our extended community.

    Mitchell Pham
    Chair
    New Zealand Technology Industry Association (NZTech)

    Liked by 1 person

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