Innovate, Don't Imitate: Rethinking NZ's Economic Strategy

Local headlines are constant harbingers of economic bad news: from productivity declines to persistent inflation and losing Kiwis to Australia where they’re paid more and their dollar goes further. It’s clear we’re in trouble - but we won’t fix these issues without a step change in productivity which will only be achieved if we completely rethink our economy and the role the Government plays in shaping the future.

Rupert Carlyon, Founder and Managing Director of Kōura Wealth, weighs in on the three key shifts in mindset that are essential to shifting the dial.

We cannot copy our way out of crisis

Lacking their own creativity, our politicians often look to other nations for solutions; pointing to foreign examples for answers. More often than not, they will look for countries where the ‘politics’ align with their own. National will hold up low-tax nations like Singapore or tax arbitrage havens like Ireland as their role models; while Labour often hold up high tax, high social welfare Scandinavian countries as their nirvana.

This, however, is akin to trying to fit a square peg into a round hole. Copying other nations' models might offer the appearance of a plan, but won’t lead to sustainable long-term success because we are extremely different.

Our starting point, instead of looking outward for a template, should be a hyper-focus on what makes us unique as a nation and how we can leverage that. We need solutions that are tailored to our unique circumstances and strengths rather than strategies that leverage other people’s successes.

New Zealand has always prided itself on its ingenuity and ability to punch above its weight. This is the time to double down on those strengths. Our homegrown businesses, world beating agriculture, thriving startup ecosystem and world-class research institutions offer a great starting point for nurturing expanding growth and job creation.

Time to pick some winners?

For 40-50 years, New Zealand’s economy has relied on growing raw commodities and exporting them. New Zealand meat, wool and wood are famous abroad; but albeit inspiring, this positions us at the very bottom of the financial food chain, despite having an enviable free market we are dependent on the cycles of commodity prices and other countries demand cycles.

Despite significant effort over the past 50 years, we have never managed to shift up the value chain and if anything, the share of raw materials sent offshore for processing continues to grow (some would argue because we have never really done it properly).

The antidote? A fundamental shift in our identity from a nation of ‘producers’ to experts in ‘production'. When we move on from exporting raw materials; to manufacturing high-value products, we’ll not only boost our economy but also create jobs, spur innovation and build a more resilient economic framework.

How do we do this? We need to be brave and very focused on making this happen. In practice, this means picking the areas we want to grow and creating an ecosystem around them. Using forestry as an example, we could create an ecosystem that:

• Focuses our country's universities to develop improvements in production techniques and products to ensure wood products are used more often and are cheaper to manufacture here than offshore.
• Makes the planning and resourcing requirements for building large scale manufacturing facilities easier.
• Uses state funds to support (via loans, not handouts) the significant investment required to build out or scale global facilities.
• Makes it more expensive to export raw logs (think levies on raw log exports) so domestic producers can get logs cheaper than their foreign competitors (who are often state sponsored).

It’s time to incentivise the right tech

Locally New Zealand’s tech ecosystem has outsized potential but is crying out for policies that actively support tech development, from grants and tax incentives to infrastructure investments and talent development programs. These are crucial, with any cuts in funding responsible for curtailing the industry’s ability to drive economic growth and position New Zealand as leaders in innovation. Every other country in the world has a plethora of tax incentives or other programmes in place to support tech innovation and small businesses.

In addition, we need to pick our winners and move away from generic support to being hyper-focused on technology in the industries and areas where we want to win. Given our agricultural strength, for instance, agritech might be a sure bet as the world wakes up to the need for more sustainable, climate friendly and data-driven methods of producing food. Alternatively, if we want to win in the Fintech world - we need a domestic regulatory regime that makes it easy for fintech businesses to innovate.

Amidst persistent economic challenges - from inflation battles to the Kiwi brain drain - NZ stands at an important crossroad: imitate; or innovate. Only one of those approaches represents an economic strategy with the power to bring about lasting and effective change.

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