The real problem with the New Zealand economy

 The New Zealand economy is in damage control mode at the
moment. Let me give you some stats to paint the picture.

New Zealand is a trading nation – we earn US$37.9bn a year
from our exporters.

Dairy exports have risen from 5.9% of all exports to 13%
between 1995 and 2010. In that same period, the number of dairy cows in New
Zealand doubled

We export most of our goods to Australia (21%) followed by
China (15%) then the US (9%) and Japan (7%).

One company, a collective although really a multination
corporation, accounts for most of that export revenue. Fonterra, which grew out
of a merger of the New Zealand Dairy Group and Kiwi Cooperative Dairies in
2001, has lead that charge and now controls one third of the world’s dairy
trade, exporting 95% of its output.

We are, as an economy, totally reliant on one company for

This, then, is the heart of the matter. Forget the grubby
pipe and the botulism. Put aside the PR debacle of sitting on the
news for months and then holding a press conference with no information.

That we are utterly reliant on one source for our income is
the real catastrophe here.

In the same time period – 1995-2010 – the internet
revolution came and swept all before it, yet ICT related exports are worth a
of dairying. How did we miss this opportunity?

Diversification is the name of the game and we as a nation,
as an economy have, to mix my farming metaphors, put all our eggs in one basket.

This is the real issue revealed by the dirty pipe. Not that
there’s an issue with process in one factory in the Waikato, but that we are utterly
exposed to an issue with process in one factory in the Waikato. That we are
utterly exposed to one industry for our place in the world.

We need to diversify. We need a concerted government-level
drive to build up our other export earners.

Traditionally, New Zealand has made its money off the land
and the sea. We’ve harvested trees, whales, gold, coal and seals. With the
advent of freezer ships we moved into sheep and beef and yes, dairy goods.

We cannot simply remain reliant on the good weather and
remoteness of our islands in order to survive. We have to do more and we have
to do it now. Arguably we’ve missed the internet revolution and all that could
have come from that, but I’m convinced it’s not too late, but we have to act
and we have to act now.

Forget low-value manufacturing – we simply can’t compete
with China or India. Forget mining – we love our clean, green (well, green at
any rate) environment too much to dig up the national parks looking for oil and
uranium. If there’s any one answer to this issue, it’s ICT.

(EDIT: Hattip to David Farrar at Kiwiblog for the above link to The Economist’s piece on Estonia. We should be doing this) 

We need to encourage our students to go into ICT fields of
study instead of accounting and management.

We need to build an export market that grows much faster
than the 11% year on year we see today.

We need to encourage more investment and more
entrepreneurship in ICT areas and not be too afraid of spending money on
businesses that ultimately don’t succeed.

We need to change the tax laws to encourage ICT developers
to do more.

We need to spend more on R&D (currently we are spending
less than the OECD average. That’s no way to get ahead).

We need to invest more in our ICT infrastructure – from our
national deployments of fibre infrastructure to our international needs with
submarine cables, but also our electricity sector to power all these devices.

We need to do these things because the alternative is that
our global economic output is entirely in the hands of a pipe cleaner in the
Waikato earning, I’m going to say, minimum wage. I’d like it to be a touch more
secure than that.

A snapshot of our ICT industry

Originally posted over at NBR


The government’s newly released ICT sector report gives us a great snapshot of the broader ICT (information and communications technology) industry, how it’s doing and how much it’s worth.

It’s really the first time we’ve had such a comprehensive look at the sector and assuming we get an annual update (at least) it’ll be very useful in benchmarking how we’re progressing.

The report focuses on the three main segments of ICT – manufacturing, services and telecommunications itself.

First, the good news. The sector is growing and is now worth 5% of GDP. Wages are running at double the national average (you’ll be pleased to know you can expect $103,563 as your midpoint in 2011) and growing faster than the national average as well – 4.5% growth year on year instead of 3.2%.

If you want to work in ICT you’ll have to live in Auckland. One third of all ICT jobs are based in the City of Sails – not surprising given the country’s population spread, but more than half of all “computer system design jobs” are Auckland based. Interestingly, Christchurch is second with 9.6% of all ICT jobs and Wellington third with 7.3%.

You’ll probably be working for yourself – fully 75% of the industry is self-employed (zero employees) – but that’s no bad thing. It means we as an economy really need to bear in mind the cost of doing business versus the cost of being an employee as an issue.

Best of all, we’re exporting. “Computer and information services” has grown from $288 million worth of exports in 2006 to $531 million in 2012 – a compound annual growth rate of 11%. Imports, by way of contrast, are still increasing but at the lower 8% CAGR.

The day will come in the near future when our exports exceed our imports and we can rightfully take our place as one of the creators in the digital economy instead of a consumer.

Which brings us to the bad news, not that it’s going to be news to anyone in the sector. We simply aren’t turning out enough graduates to fill the roles on offer. Finding new employees with skills is still the most difficult issue raised in the report.

Today, 62,000 workers are employed in ICT roles (as opposed to working for ICT firms), and that’s up 11,000 in the past decade, but half of all ICT firms report difficulty hiring staff.

The figures can be traced back to the education sector and the lack of ICT graduates coming through the system. Although the number of graduates has increased, there were only 1200 graduates in 2011. We might get to 1900 graduates by the end of next year, but even so that’s a drop in the bucket. We could never attract a big-name ICT multinational to set up a development venture in New Zealand with that small a graduate pool.

We need to encourage our kids to consider ICT as a career option. It pays well, you can travel the world, you don’t have to dig up a national park and these skills are highly desirable, yet all too often we see good quality candidates going into accounting, law and management – three areas that have trouble placing graduates because of the oversupply of talent. The skills aren’t dissimilar – maths, logic, a flair for process – and the chances of being gainfully employed are a lot higher.

It’s great to see the government looking in this much detail at our sector. I’d hope to see more of this kind of data come through in the years ahead so we can track our progress, but that’s really only the start of it all. We shouldn’t just be tracking, we should be driving this sector forward and that means a concerted effort from both sides of the fence – industry and government alike – to make it easier for ICT to bloom.


The Greens rev up the ICT sector

The Green Party has posted a discussion document aimed to
raise the level of debate about ICT and its role as economic driver in New
Zealand. My hat is off to them, in no small part because the document reads
like it was pulled from TUANZ’s policy section.

The document is broken down into three recommendations:
increasing government support for our ICT industry; encouraging youth into the
ICT employment market and taking a cornerstone shareholding in any future
international capacity provider.

Let’s look at each one in turn.

I’ve long held the belief that New Zealand government
agencies (at all levels, local and national) should be using more
locally-developed ICT services. There seems to be a belief that unless you’ve
spent hundreds of millions of dollars on an internationally sourced product, it’s

Yet here in New Zealand we have the same needs for our
government departments and agencies that they do in Holland or Germany or
Canada or Australia or just about any other country in the first world. Better
than that, our needs are on a much smaller scale so we shouldn’t have to pay
quite as much as we do for these things. Our datasets are smaller, our
databases more easily managed and analysed. Do we need bespoke, handmade
systems developed by IBM or the like? I’d wonder.

Instead I’d much rather see our local developers given a
ready supply of local opportunities. All too often they’re told they’re too
small to bid for any particular tender – that attitude has to stop. Government
buys a lot of ICT related services – let’s give some of that money to local

Getting kids into the industry is a passion of mine and goes
back to my time at Computerworld. It’s vital we have the right staff at all
levels of the industry, from layer 1 (actually from layer zero I suspect) all
the way up the stack. The Greens are talking about including ICT in our
apprenticeship schemes and that’s already begun, albeit in a small way. But I’d
like to see more flesh on the bones of this proposal – tax breaks,
encouragement into training, course credits and so on. There’s a lot we can do
to encourage our young people to take up ICT related employment over and above other
areas in which we suffer a surfeit.

Which brings us to the most controversial part of the
discussion document – the $100m cornerstone shareholding in a second
international cable.

Already the naysayers are out in force. We don’t need one,
it’s totally redundant, it’s a white elephant.

Sorry, but I disagree. We don’t need one if we carry on
pottering along at today’s rate, but I want to see a step change in terms of
our economic use of the internet. I want to see data centres built in New
Zealand using our clean, green power supply. I want to see IT firms basing
their R&D labs here, growing their developer bases here and generally using
New Zealand as a hub to take on the digital world.  I want to see ICT grow from being worth 6% of
our GDP to being 25% – I want to see it match the primary sector in so far as
revenue goes, because then I’ll know we’ve done what we could to take our place
in the digital economy.

So full credit to the Greens for raising the bar and I’m
hoping we’ll see more of this kind of thinking from all the parties. Currently
we seem to have a “yes yes, ICT is important too” attitude that frankly won’t
change the world at all. I’d like to see us try and who knows where we might
end up.