- Low investment in capital, knowledge and research and development has left New Zealanders working longer and producing less than overseas counterparts.
- High-performing small advanced economies benefit from exposure to international competition and domestic innovation ecosystems which support businesses to innovate and grow.
- Investing in innovation now will unlock benefits and choice for New Zealand and add tens of billions per year to the economy, raising real GDP to $500 billion by 2045.
- Role for government and the finance sector is to ensure there are minimal barriers to businesses wanting to innovate.
- To support business growth, ASB announces $500 million in lending for productivity with grants to encourage business investment.
Increasing productivity growth by just one percent would unlock tens of billions in future value for Aotearoa New Zealand, according to research released today by ASB, and business not government needs to lead the charge.
The New Zealand Institute of Economic Research (NZIER) report, commissioned by ASB, shows the country is increasingly lagging international peers when it comes to productivity, with New Zealanders working harder and producing less.
According to the report, a lift in productivity growth from 1.5 to 2.5 percent would see real GDP hit $500 billion by 2045, an increase of about 5 percent on current projections.
NZIER Principal Economist Christina Leung says the report looked at growth opportunities and what business, government and banks can do to power productivity, comparing New Zealand to 12 other small advanced economies.
“When we look at other, more productive small advanced economies, business is leading the way with support from government and the finance sector.
“New Zealand business needs to be more ambitious, embrace innovation and invest in capital, knowledge and research and development as an engine for growth and sustainability.
“The country’s economic growth over the past two decades has been largely driven by adding more people to the workforce, and this needs to change, we need to work smarter.”
As New Zealand’s labour force participation declines with an ageing population, the report highlights the need to take action on productivity now to ensure the future sustainability of providing essential services like health and education.
The report shows the benefit of international competition in lifting overall performance, with businesses in the Nordic countries, Ireland and Singapore forced to innovate to remain globally competitive.
“Large, productive frontier firms, such as Nestlé in Switzerland and Maersk in Denmark compete at the international level and drive the spread of ideas and technology throughout their respective economies, lifting overall performance.”
New Zealand’s export earnings make an important contribution to the economy and have increased significantly over the last 30 years. However, relative to other small advanced economies, our level of exporting remains low, with export earnings accounting for less than a quarter of gross domestic product.
High-performing small advanced economies invest more in research and development (>2% of GDP) and this too drives innovation and export opportunities. New Zealand lags behind, investing just over 1% of GDP in research and development.
The report finds government has a role to play in creating the right environment for ambitious businesses to flourish, with policy and regulatory frameworks to support growth.
“A culture of innovation coupled with sustainable, domestic ecosystems, that bring together business, research institutes, government and the finance sector, create opportunities for business to share knowledge, innovate and grow.
“The government cannot fix New Zealand’s productivity problem on its own. It’s time for business and the non-government sector to take leadership by being more ambitious and collaborative with a focus on developing skills that would enable adoption of new technology.
“Business needs to clearly understand the benefits of investing in things like research and development to innovate products or improve processes. Once motivated to act, its important the necessary conditions for productivity growth are in place and there’s a clear path to investment,”
“Banks have a role in supporting businesses to innovate and scale by helping them to secure capital in mainstream and innovative financing solutions,” says NZIER Principal Economist Christina Leung.
ASB’s Executive General Manager for Business Banking Rebecca James says we have to become more productive to create a better future for the next generations of New Zealanders.
“We understand that it takes a certain level of bravery to be in business today, there are tough decisions to make, and it can be isolating. When we talk to business leaders 6-12 months after they have made a particular investment or growth decision, they often tell us they wish they’d made the move sooner. Our productivity initiative is aimed at removing barriers for leaders that choose to invest in both their business and the future of Aotearoa.
“The report shows a need for banks to help enable business innovation by stepping up with funding and support.
“We’re doing that through our lending for productivity, as well as initiatives already available for food and fibre exporters, clean tech innovators, and developers and investors in social, affordable and Māori housing.”
ASB has announced it will lend up to half a billion dollars to support businesses to drive productivity with the aim of helping to set New Zealand on a different, more prosperous path.
“All businesses should be thinking about how they can raise their productivity to help meet resource constraints and rising costs in order to improve the bottom line.
“Productivity improvements will look different for each business, depending on their sector, size and goals. At ASB, we have financial tools and insights to empower our customers in making the right decisions for their business. These range from our self-serve tools on ASB’s Business Hub website, to our unique Financial Diagnostic Report which helps customers understand the key drivers of their business and model scenarios to determine the impact these have on profitability, cashflow and debt capacity.
“We expect to be supporting our customers’ productivity growth through investments in things like efficiency improvements with monitoring and inspection technology, increasing output by adding robotics to production lines, reducing errors and admin by building in point-of-sale technology or investing in people with workforce training and capability.”
For a limited time, ASB business borrowers that invest in productivity initiatives will receive a grant, equal to one percent of their loan of up to $50,000 per business.
The full report can be read here: www.asb.co.nz/productivity
