Technology

Politicians of whatever stripe seem to want to associate themselves with “technology”. It was then British Labour Party leader – and Opposition leader – Harold Wilson who 57 years ago gave the speech where he talked of the new economy he looked to, referring to the “white heat of technology”. Perhaps it was the same in the 19th century too, but we certainly see and hear a lot about it in 21st century New Zealand. The economy continues to underperform, while same strange alliance of industry lobbyists and politicians want to talk up “technology” and so-called technology industries. I don’t think there is much difference between National and Labour on this one, but National is in Opposition, and yesterday Judith Collins was at it again.

As reported here, she wants to “double New Zealand’s technology sector in a decade, and specifically to double “New Zealand’s technology exports” to “$16 billion by 2030”, complete with talk of the sector being bigger than dairy 10-15 years hence.. Oh, and there was lots of money being flung around, and to top it all off National is promising a Minister for Technology. Presumably, that will be just one more title some other Minister would add to his or her list and – for better or worse – MBIE would carry on providing policy advice much as it does now.

Much of the political rhetoric in this area is fuelled by the annual TIN (“Technology Investment Network) report, a collaboration between MBIE and some private sector groups with an interest in talking up the sector. I took a sceptical look at this report in a post back in 2017. They seem to be the source of the idea that “technology exports” are currently around $8 billion per annum – the sort of line that led former minister in the current government, Clare Curran, to suggest a year or two back that technology was now our third largest export.

But the $8 billion (or thereabouts) is not a measure of exports from New Zealand – and certainly not in the sense that any serious economic analyst or national accounts statistician would recognise. Rather, it is the total foreign sales of the group of companies the TIN report put on their list. Exports, by contrast, are things produced the country concerned. ANZ is an Australian-owned and controlled bank, with significant operations in New Zealand. Last year its total revenue in New Zealand was about $7 billion, but no one thinks of that – or counts it as – an Australian export. But that is the sort of thing the TIN people lead people to do – TIN themselves tend to draft a little more carefully, but in ways that they know will lead people to talk of this revenue as somehow New Zealand exports. Last time I looked, for example, both Fisher and Paykel Appliances and Fisher and Paykel Healthcare were on the list. The former is not even New Zealand owned any more and both companies have substantial overseas operations – Healthcare, for example, does much of its manufacturing in Mexico, selling into the US. That makes it a successful New Zealand business, but those sales from Mexico to the US are Mexican exports not New Zealand ones.

It is difficult to get any sort of precise sense of the scale of (what one might reasonably think of us) “technology” exports from New Zealand, not least because technology is embedded, to a greater or less extent, in so much that is sold, whether locally or internationally.

But in my earlier post, I took a couple of proxies to try and get a sense of trends. I’ve updated some of those.

In the TIN report, for example, many of the companies are in “high-tech manufacturing”. But here is a “elaborately transformed manufactures” have done as a share of New Zealand merchandise exports.

ETM

And from services exports I worked out the share of the total made up of

Services; Exports; Charges for the use of intellectual property nei
Services; Exports; Telecommunications, computer, and information services
Services; Exports; Other business services
Services; Exports; Personal, cultural, and recreational services

The latter because the largest component of it appears to be film and TV exports (Weta workshops, Peter Jackson etc). “Other business services” is going to be quite a grab-bag, but it does include (for example) research and development services.

Here is how those services have done as a share of total services exports

tech exports

That series seemed to be doing quite well for a while, but unfortunately the last few years have not been very impressive and the latest observations are lower than those for, say, 2009. (Of course, there was a surge in education and tourism exports for a while, boosting the denominator.)

So what if we combine these two series and look at them as a share of New Zealand’s GDP?

tech exports 2020

Perhaps I’m missing some important series. But I went looking and I couldn’t spot anything obvious. Perhaps you are thinking of Xero for example, but wherever any of its export revenues from New Zealand might have been, the category of services of exports that mentions “accounting services” has shrunk hugely in real terms over the last 15-20 years. I’m sure there must be some other items some would reasonably label “technology exports” but if they were game-changing they should be easy enough to find.

We can all name various individual successful technology-based companies founded by New Zealanders. Some are even still owned, controlled, and/or based in New Zealand. And there is plenty of technology embedded in many of other exports – including dairy, the one they all seem to hope to rival.

But the overall picture really isn’t very encouraging at all. That is most unlikely to be “fixed” by flinging more scarce public money at the industry, or more visas. And we can be pretty confident that appointing a Minister of Technology would make no difference at all. In fact, if we keep on with the economic policies with run for the last 20 years, perhaps the main role for a Minister of Technology might be to front up to Parliament to explain why transformational change still hasn’t happened, hand in hand with the then Minister of Finance explaining why no progress has yet been made – perhaps another decade on – in reversing New Zealand’s longrunning relative productivity decline.

Of course, there is something of hint that the political parties aren’t really serious in the scale of the promise. National talked of doubling “technology exports” in a decade, which is akin to an average annual growth rate of about 7 per cent. For any really serious technology success story that would be a derisorily low rate of growth. Who knows: perhaps those worldwide sales of the TIN companies will grow 7 per cent per annum over the next decade – when nominal GDP is probably forecast to grow 4-5 per cent per annum – but even if that happens, it is unlikely to be the makings of a seriously stronger New Zealand economy.

5 thoughts on “Technology

  1. It’s worse than that, the policy also doubles down on the “State control of innovation” oxymoron, proposing that as Government they will set up 3 large venture capital funds (50/50 funded with the private sector).
    What a disaster this would be – the existing Government venture fund-of-funds (NZVIF, recently rebranded to NZGCP for some unknown reason but likely to have involved $$$ to implement…) has been subject to a stream of adverse comment in recent weeks in other publications from InvestmentNews to the NBR concerning:
    – false and misleading market information provided to Ministers at the same time as they were obtaining more funding (https://investmentnews.co.nz/investment-news/start-up-investors-dispute-nz-govt-claims/)
    – outright staff bullying and a toxic workplace environment (https://www.nbr.co.nz/story/government-agency-conducts-bullying-inquiry)
    – Private investors calling for the entire board to be sacked (https://www.nbr.co.nz/story/government-venture-fund-heads-should-roll)
    But alas Twyford is doing his best impersonation of an ostrich, refusing to comment on the substantive issues that have been revealed and on record supporting the board (even though the Chair and former CEO were actually National party appointees back in the day…). Andrew Little is also MIA, preferring to loudly criticise private company Weta in the media for its workplace environment rather than address what is apparently going on in a Government entity.
    All this with a backdrop of complete failure to deliver on their core mandate to build the market ecosystem, i.e. from 2017 to today, the grand total of new venture funds raised in NZ is… 2…and one of those was an Aussie fund manager tapping the local market here. Grand total new capital? c$50M, not exactly needle-moving.
    I’m not sure I have seen such a fiasco in the NZ public service.
    And let’s not forget what a roaring success Callaghan Innovation has been.
    However, it looks like both major parties are happy to double down on the abject failure of Government direct involvement in the tech sector. The definition of insanity is …?
    If you look overseas the answer is pretty clear – get the Government out of the way and free the sector up to do its thing. And if you want to juice it, offer tax incentives for investment which is what they do in the US, UK, Australia – all of which have vibrant startup scenes, multitudes of venture capital funds and a procession of big outcome champion companies emerging. They don’t have slow moving, poorly aligned and incapable Government quasi-departments gumming up the system.

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  2. A very interesting post.
    So would the proposed Ministry of Technology make much of a difference? Probably not, most likely this would turn into another bunch of sinecures producing mountains of seldom read and quickly forgotten reports. What is the solution then? Perhaps a good start would be in the education system, by redesigning it in such a way that young people would acquire not only sound basic education but also a life-long desire for learning. This of course would require a significant departure from the current philosophy, where greater emphasis is placed on “wellbeing” of pupils than on the actual quality of teaching and where one of the most unfortunate outcomes is a large number of functionally illiterate school leavers. A case in point, is the widely reported issue of “trivial” not so long ago. I’m not holding my breath though.

    You’ve mentioned the economies of the Baltic countries in one of your comments under the previous post. After some light reading it seems that while most of economical activity occurring there is in the broad service sector, it’s somewhat different type of “service” than that which is mostly practiced in NZ. Quite a lot of it is in the various branches of ICT, mostly in Estonia and Lithuania. Also, in financial technology and, particularly in Lithuania, in some very advanced biotechnology research and manufacturing and laser technology. Other than fossilized mentality, is there any reason why similar activities could not take place in NZ? As an aside, my son, a former STEM student at one of the “best” NZ universities often talked enthusiastically about the potential to create a NZ “micro-Silicon Valley”. Today, he’s a postdoctoral fellow. In one of the EU countries. I don’t believe he’ll ever return here…

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  3. I’ve been telling TIN this for years. Here’s what I posted on Linkedin recently in respone to an article which I think was in the Herald.

    I’m all in favour of the tech sector. But lets check some facts:
    “Closer to home, New Zealand’s top 200 tech sector companies generated revenue of some $12.1 billion, up more than $1b last year on the back of export markets.”

    Fonterra has revenues of $20 billion. The top 200 food and beverage manufacturers in New Zealand have revenues of $70b

    “Those top 200 [tech firms] also employ more than 51,000 people around the world.” The operative phrase here is “around the world”. However, looking at employment in NZ by all computer design firms (ANZSIC code M70) there are 32,400 employed in NZ in 2019 compared to 19,200 in 2009. So that’s good.

    “Greg Shanahan, TIN managing director, said the sector was already going to leapfrog tourism this year… and now aims to surpass dairy’s $15.1b of annual exports.” He is counting revenues as exports. Revenues are not exports. NZ exported $2.084b of ICT software and services in 2019 up by $662m in 2017 (last survey data). NZ exports of high and medium high tech goods have been flat at about $5b since the year 2000. NZ exports of machinery and equipment (which include mostly high and med high tech goods, so is a different cut of the same data) in 2010 were $1.3B. In the year to June 2020, they were….. $1.3b. By contrast in the last 5 years infant formula exports have grown by… $1.3b. Infant formula is a knowledge intensive product – it mimics human milk.

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  4. Excellent post and thoughtful responses. TIN are just a lobby group, advocating a teat upon which to suckle – I guess it’s their job. They have to tread a fine line. I have some sympathy, because they have to push for subsidies to match those we give to the real estate sector.

    Fundamentally we’re not going to tackle the systemic issue that cuts us off at the knees: our national obsession with property. Even in this climate, land speculation (and I use the term advisedly) nets around 20%+ IRR in my experience. And then there are associated economic leeches like tourism, where we import cheap labour to add value to… land assets (e.g. wineries, many of which are destination restaurants). You can even look at University balance sheets and look at their property assets.

    And while I’m at it, I saw this in a tweet the other day: comes from the Stats website… “Although a holiday home may not be in full-time use, we assume it is available to be used all year, and therefore allocate the rental from owning the holiday home to tourism expenditure.” Surely this overstates tourism GDP figures?

    I think all off this combines to effectively subsidise low innovation industries, crowding out innovation.

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    • Actually, credit where it’s due. TIN have done a huge amount over the years to lift the profile of the tech sector. The only argument for me is the measurement over its size, specifically exports.

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