New Zealand challenged to raise economic growth

The New Zealand institute is urging local businesses to turn to ICT to improve productivity and economic growth.

The privately funded think-tank says New Zealand has generated strong economic growth over the past 15 years and the challenge now is to sustain this growth or even to raise it further.

It is a demanding challenge; New Zealand's per capita income ranks 21st out of 30 OECD countries and remains over a quarter lower than Australia's.

NZI chief executive David Skilling says there is a "pronounced link" between productivity growth and countries that were early adopters of ICT.

"The development of IT is an important part of raising productivity," he says.

Two thirds of the economic growth in New Zealand during the past 15 years has been due to growth in hours worked, and only one third has been due to labor productivity growth. Because hours worked will grow at a much slower rate over the next 15 years, this is not a sustainable growth strategy, says an OECD report on productivity. It concludes that increased exporting and international investment by local firms are crucial to achieving faster productivity growth.

"It seems reasonable that making increased investments both in hardware and software would help to create growth in New Zealand's IT sector and also in other sectors that use the technology to be more productive."

Skilling says that if New Zealand wants to increase its productivity then substantially increasing the amount of investments in IT will be important.

"And that is even more the case because of our location -- we are a small economy far away from other markets."

One of the optimistic scenarios is that technological progress will lessen the negative effects of distance. But Skilling warns that it will not happen automatically. Investments in technology have to be made and there has got to be a broad uptake of that technology across the community.

"Broadband is a good example," he says. "New Zealand has one of the lowest broadband penetration rates in the OECD. In principle broadband would be great. It enables all sorts of things that were impossible ten years ago, but if the use of broadband is not widespread in the economy the benefits we are going to get from it are much less than they could be."

Historically New Zealand has been a primary economy, driven by forestry and dairy, and it is still to a large extent a primary based economy, Skilling says. He says New Zealand has not made as much progress as one could expect in developing new aspects and strengths of the economy.

"New technology is a key priority if we are going to create a global New Zealand economy. There are only a few companies in the country that operate in that space, and looking ahead there is a huge growth opportunity for New Zealand in IT."

If no measures are taken to strengthen New Zealand's economic performance people are less likely to relocate here, and the exit of both people and businesses will continue, he says.

"New Zealand offers good lifestyle but we are struggling to offer good wages, good return, good opportunities for the next generation of New Zealanders. New Zealand needs to achieve higher rates of productivity growth in order to have an economy that generates world class opportunities," he says.

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