New ASB report reveals key to improving productivity in New Zealand

New research out of ASB today reveals that businesses and not government should be leading the charge when it comes to improving productivity outcomes and growth for the country.

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.

The report highlights the need for New Zealand to take action on productivity now to ensure the future sustainability of providing essential services like health and education.

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 five 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,” says Leung.

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.”

Investment in R&D

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,” explains Leung.

He goes on to say that business needs to clearly understand the benefits of investing in things like research and development to innovate products or improve processes. Noting that banks have a role in supporting businesses to innovate and scale by helping them to secure capital in mainstream and innovative financing solutions.

ASB’s Executive General Manager for Business Banking Rebecca James says the country 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,” says James.

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.

In March, NZBusiness will publish a Special Digital Issue focused on Growth in 2024, be sure to get your copy out soon. You can also read our Special Digital Issue on Future-proofing for Success, here.