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We need to produce more high-value goods and services more efficiently to become a wealthier nation, writes Dieter Adam.

The latest growth figures from Statistics New Zealand and the latest OECD report review of our economy, show that while our economy keeps growing, we’re lacking in areas that can really make us a wealthier nation.

Our GDP is rising, but on a per capita measure, it is much less impressive – we need to harness our potential and work on growing our high-value productive industries to improve this. Real GDP per capita growth in New Zealand is currently below the OECD average, and remains well below what we achieved for the 20 years up to 2007, as the latest OECD figures show. 

Productivity improvement is the core way to improve economic growth, incomes and wealth over time, however, it continues to lag in New Zealand.  For example, labour productivity in terms of GDP per hour worked, can be seen in the graph from the OECD. 
As Sir Paul Callaghan told us many times before his untimely death in 2012 – we’re not going to grow the value of what we create every hour from having more tourists and more cows in the country; hence the title of his last book “Get off the Grass”.

To really grow our economy, we need to produce and export more high-value goods and services, and we need to do so more efficiently, increasing productivity. Manufacturing and ICT, two sectors growing more and more intertwined as digital technologies penetrate our manufacturing businesses, already are key contributors to our economy, and they primarily are the ones to turn to when we look for more high-value products and services. 

The key to growth in manufacturing and ICT is innovation, and in the case of manufacturing, process innovation. There is a raft of new digital technologies coming to manufacturing, often referred to as Industry 4.0 or the Industrial Internet of Things. New Zealand needs to embrace these technologies, while at the same time investing in new and smarter products, services and business models.

The OECD report provides us with some pointers for how to achieve more innovation and productivity. For example, we need to increase non-residential investment, an area we are low at by international comparison, and we need to invest more in innovation activities – again an area we fare poorly compared to the rest of the OECD. 

The report recommends “More fiscal support for business research and development” – we believe that is best achieved through a general R&D tax credit replacing the cumbersome current grant scheme. But the report also points out that our corporate tax rate still is higher than most of our competitors – again a disincentive for more private investment in R&D. 

It will be interesting to see whether the Government takes any note of the sobering figures and sensible recommendations contained in this OECD report. Let us hope we’re not going to squander another opportunity to really put our economy on a stronger footing.

Dieter Adam is CEO of the NZ Manufacturers and Exporters Association.

1. Population-weighted average for the top 17 OECD countries for labour productivity, calculated using 2010 
purchasing power parity exchange rates. Source: OECD (2017), Productivity database; OECD (2017), Economic Policy Reforms: Going for Growth 2017.

Glenn Baker

Glenn is a professional writer/editor with 50-plus years’ experience across radio, television and magazine publishing.


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