Industry and Regional Development: Backgrounder

The Budget today announced the Government's funding for Vote Industry and
Regional Development

This backgrounder supplements information in the budget and associated news releases.

Funding

The Budget provides new funding of $331.875 million over the next four years for industry and regional development.

The Budget allocates funding for industry and regional development of $33.750 million in Year One; $73.125 million in Year Two and $112.5 million for each of the following two years.

The money will support a range of advice and practical assistance programmes.

Industry New Zealand

Legislation establishing Industry New Zealand is currently before Parliament. We intend that Industry New Zealand will be operating from September 2000.

Until it is passed, the Ministry of Economic Development will manage industry and regional development programmes.

New programmes will be rolled out progressively between July and September. Three of the new industry and regional development programmes will be launched through the Ministry of Economic Development from Monday, 3 July.

Details of industry and regional development programmes

Three major programmes will be available almost immediately:
 Regional Development Programme
 Early Stage Financing
 Incubator Development Programme

(1) Regional Development Programme

In conjunction with its industry development strategy, the Government will run a regional development programme aimed at strengthening regional economies. It will take a bottom-up approach, working with local communities to assist them to make best of the assets and advantages of their regions.

Criteria

To qualify, a proposal must:

 Involve a number of community groups;

 Emerge from an inclusive regional development consultative process;

 Have local funding of at least 25 percent of total cost.

 Be sustainable and consistent with the Government’s policies.

What is available?

 Funding of up to $100,000 will be available for any single strategic planning or audit initiative in any single regional.

 Up to $2 million will be available for major regional or community initiatives.

About $6 million will be available from Vote Industry and Regional Development for the Regional Development Programme.

(2) Early Stage Financing

Industry New Zealand will assist the development of innovative projects in the early stage by providing a grants programme. It will ensure that entrepreneurs with innovative ideas are not prohibited from realising the potential of those ideas by a lack of early stage finance.

Why is it needed?

The Government has consulted closely with the venture capital sector. The venture capital market has been growing very significantly over the last two years.

Although venture capital is much more available now, there are still difficulties raising capital for innovative projects and firms at the early stage of development.

This includes funding to:

 Develop existing research for commercial applications

 Establish a firm

 Expand a firm that is very small or has a limited track record.

There are clear reasons for the gap between the availability of venture capital and the ability of early-stage firms to access it. This level of investment is riskier. The costs of assessment and monitoring are higher. Companies often find that their lack of a track record or their reliance on intellectual property and untested technology makes investors unwilling to lend.

Often, firms are too busy to determine whether they need capital, they don't know how to get it, or it's too difficult to find out information.

Promoting projects and ideas to investors is a specialist skill. Someone who has a good idea for a business will not necessarily be skilled at understanding the implications of different forms of funding or presenting proposals.

This is the reason most early stage financing is provided from savings, friends and family. But in addition there is significant funding available from angel investors. These are high net worth individuals who invest directly into a business and often work in it in some capacity (including as a director). Consultation has revealed a need for better services to match early stage ventures with angels.

Criteria for early stage grants

 Grants for early stage ventures will be available to New Zealand resident individuals and businesses with well-developed early stage project proposals that are committed to growth.

 Initially, grants will limited to $10,000 in any one-year and will be available for obtaining advice and expertise to develop early stage projects.

 Grants will be paid on the basis of a minimum contribution of 50% from non-government sources.

 Over time, the grants programme will evolve into a more flexible scheme, with a limit of up to $50,000 for applicants to devote to early stage projects.

These criteria are indicative – not definitive.

About $5 million will be available from Vote: Industry and Regional Development for early stage grants in the 2000/01 financial year.

(3) Incubator Development Programme

The Incubator Development Programme will provide capable individuals and small businesses with skill-based assistance to develop their ideas to the point where others can invest in them.

It consists of:

a) Investment Readiness Services

A national programme of workshops and seminars will be delivered to provide information and training to small businesses about the requirements and implications of obtaining investment capital.

b) Ideas Brokers and Deal Making Services

The second element of the incubator programme will involve a national network of "ideas brokers" that will act as a focal point for innovative entrepreneurs and companies and help prepare firms to obtain investment funding.

These brokers will provide hands-on, in-depth assessment of the potential of ideas, deal-making expertise and assistance and co-ordinate and link in with other agencies and expertise (i.e. venture capitalists/angels, new capital market, technical expertise, stock brokers etc).

c) Support for Institutional Incubators

This component of the programme responds to the need to promote the development of incubators and enhance their ability to provide the services necessary to develop small businesses and innovators.

Support will be provided, either in the set-up phase or on an ongoing basis, to individual incubators or to facilitate resource and knowledge sharing amongst a network of incubators.

About $2 million will be available from Vote: Industry and Regional Development for early stage grants in the 2000/01 financial year.

But wait, there’s more

Industry New Zealand’s capacity will be built up over the next twelve months and further initiatives developed. These initiatives will include:

Industry Specialist Support

Industry Specialist Support can be broadly summarised as specialist expertise aimed at helping firms with high growth possibilities to realise their potential.

It consists of:

 specialists contracted by Industry New Zealand to provide analysis and advice, and
 grants to help firms employ their own specialist assistance.

Why do we need it?

Many innovative kiwi companies with high growth potential just don’t have the capability to manage or exploit that potential.

Even in firms where management does have skills or experience, they are often focussed on day to day operations. They don’t have the capacity or resources to focus on long-term strategic issues or to lift themselves to a new level of performance.

It’s true that there are advisory services in place already, such as economic development agencies, small business centres and BIZ providers. However, the provision varies from region to region. Advisory services typically target very small struggling firms rather than firms with high growth potential.

Specialist expertise: What will they do?

The industry specialist support programme will aim to make specialist expertise and information available to more firms.

Industry NZ will employ or contract with private sector industry specialists.
These are reputable experts who will identify firms with significant job and earnings growth potential.

They will appraise each firm’s requirement to reach that potential. They’ll help to facilitate the necessary resources to successfully grow the business and manage the growth stage.

Specialists will consider business processes, including:
 Business strategies
 Management and operational capability and systems
 Marketing, product and technology potential
 Financial needs, including the impact of growth in required working capital.

Once capabilities and business risks and opportunities have been identified, strategies to fill those gaps and respond to opportunities will be identified.

Industry specialists will also assist in facilitating access to the wider range of government industry development assistance programmes (such as Tech NZ, Trade NZ, and BIZ).

Specialist support grants

Firms will be able to get grants to help employ specialist support services that can help the business with:
· Raising venture capital or borrowing money
· Joint ventures or strategic alliances
· Strategic and business planning
· Market research
· Establishing a sound management team
· Intellectual property protection.

The details and criteria for the programme are currently being developed.

Strategic Investment Support Services

This is broadly described as the Government's strategy to identify major New Zealand investment opportunities.

New Zealand needs to do what it can to influence businesses to locate here and to expand. Industry New Zealand's Strategic Investment Support Service will be the arm that complements Trade NZ's efforts with overseas firms.

At the moment there is no one single agency coordinating the Government's interaction with businesses making significant investment decisions, such as decisions about where to locate or whether to expand. Trade NZ has offshore promotions responsibilities. These need to be supplemented by work with New Zealand firms.

Government initiatives will be put in place to influence investment decisions for companies to retain or expand their operations here.

Industry New Zealand's Strategic Investment Support Services, working together with the Ministry of Economic Development, will make it easier for firms to find out information they need from the Government to make their investment decisions. It'll be easier to deal with the Government, and it'll improve the links between national, overseas and regional promotion activities.

The sorts of things it can do include:

 Making it easier to connect investors with the right central and local government contacts.

 Providing information about regulations and how to speedily pilot your way through the Government's processes.

 Helping to make contact with potential suppliers or partners.

 Providing assistance with feasibility studies

 Promoting flexibility in operating policies where appropriate.

Grants

A strategic investment grants programme to support this service will make grants available for feasibility studies and significant implementation projects.

The details and criteria for the programme are currently being developed.

The Angel Network

The business angel network will include both network forums and a database of angels and opportunities.

Business angels seeking opportunities to invest funds will register directly with the national network and provide information on their preferences and criteria. Businesses seeking equity finance will provide information detailing their business funding requirements. Industry New Zealand will review these proposals and may be able to assist in bringing potential projects up to a stage suitable for investment.

The network would generally target businesses seeking funding of $50,000 to
$500,000.

The details and criteria for the programme are currently being developed.

Further details:

Further information on the programmes outlined in this backgrounder will be widely publicised over the coming weeks as they are launched.

When a business which reads about these details wants to find out more, who do they contact?

They can ring the Industry New Zealand Establishment Unit in the Ministry of Economic Development.

Businesses should wait until the programmes are officially launched before applying to the Ministry.

Alternatively, write to Jim Anderton, c/- Parliament Buildings, Wellington. He’ll forward your letter to the Ministry.

Industry development through programmes outside Vote: Industry and regional development

In addition to Industry New Zealand, the budget contains a broad-based set of policies to promote New Zealand’s economic development. Examples include:

 An extra $43.6 million in Year One for research, science and technology, including a record $20.3 million allocation to encourage R&D in the private sector.

 A national electronic commerce strategy, increased funding for e-commerce consumer protection and provision for Trade NZ to expand its Internet trade development network.

 A modern apprenticeship scheme to provide opportunities for young people to receive high-quality work-based education and for employers to gain skilled staff

 New funding for Work Track, an early intervention programme targeting newly enrolled job seekers who are identified as at risk of becoming long term unemployed.

 Measures to help lower the cost of tertiary education.

 An increase in the Industry Training Fund.

 A range of initiatives supporting Maori and Pacific Island economic development.

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