Productivity lacking in NZ's new economy

New Zealand companies are still missing out on the main benefit of the knowledge economy - productivity gains.

New Zealand companies are still missing out on the main benefit of the knowledge economy - productivity gains.

"There are a number of reasons why this is happening, but one of the primary ones is that New Zealand companies are relatively slow to adopt business-to-business [B2B] e-commerce opportunities compared with a country like the US," says ASB Bank economist Jennifer Innes. Innes says comparing the New Zealand version of the knowledge economy with the US makes for interesting reading.

"The biggest difference is that we are consumers or users of IT, not providers in the same way. We buy [IT equipment] and we use it but we don't produce it at the same level."

Innes's comments mirror an October Reserve Bank report that claims New Zealand companies are not making the productivity gains they would have expected. The report says this may help explain why the US market is so buoyant in general; it's not because of IT use but because of IT manufacturing. The New Zealand IT manufacturing sector is so small that it is making very little impact on the rest of the economy.

"There has been little improvement in productivity growth, possibly because businesses have not yet fully adopted information technologies," says the bank report. "There may be little scope for New Zealand ... to emulate the performance of the US economy".

But the news isn't all bad. New Zealand's technology sector is far larger than was previously thought and is growing quickly. The Reserve Bank claims the IT sector has grown by more than 60% between 1994 and 1999, to make up nearly 4% of GDP. Adding telecommunications to the mix pushes the IT sector up to nearer 7.5% of GDP in 1999. That puts us on a par with the US, where the IT and telecommunications sector makes up just over 8% of GDP.

Figures from research company IDC seem to agree: IT spending in New Zealand is up 8.2% on last year and weighs in at a hefty $4.1 billion. "That should continue at least until 2004," says analyst Mark Cribbens. He says this year's jump is higher than the forecast compound average growth rate and that's probably due to the influence of Y2K. "We're predicting a compound average growth of 4.9% until 2004 , and that's across all segments of the sector."

The Reserve Bank report says companies are not only spending more on IT than ever before, but the rate of adoption is accelerating.

"IT investment currently [makes] up around a third of investment in plant and machinery." Until 1994 IT spending roughly equated with non-IT plant and machinery spending; however, it has since taken off and is now nearly double that of its less intelligent cousin.

IT exports from New Zealand are still quite tiny, about the same as the kiwifruit export market at 1.7% of total exports. We are becoming somewhat smarter in our business management, however. Since the early 1990s the ratio of inventory stock to sales has dropped dramatically, pointing to improved stock management.

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