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March 4, 2024
Any country known for hard work will struggle to stomach news that national productivity is actually declining – an ongoing issue hindering the economic prosperity of New Zealand.
On paper, the reasons are well-documented. Chiefly, a tendency to “work harder, not smarter” as well as the scale challenges associated with a small population that is geographically isolated.
“New Zealanders generate significantly less output than many other small advanced economies, despite working longer and harder comparatively as a nation,” said Jolie Hodson, CEO of Spark.
“Our productivity is a persistent challenge that has seen little change over many decades, but what is changing is the urgent need to address it.”
According to the Organisation for Economic Cooperation and Development (OECD), the Kiwi economy has slumped from being one of the most productive to one of the least productive.
First cited by Ganesh Nana as Productivity Commission Chair in July, the productivity numbers of New Zealand “leave a lot to be desired”. Notably, the Productivity Commission ceased operations on 1 March following the appointment of a new coalition government in mid-November and was replaced by the new Ministry for Regulation.
“Aotearoa is getting bigger, older and more diverse,” Hodson added. “Inflation is forcing a greater focus on efficiency and cost control and we are facing more frequent and extreme weather events.”
As outlined by Hodson, such challenges can be addressed by the acceleration of advanced digital technologies – such as artificial intelligence (AI), cloud and data analytics among others – which is forecast to provide a 20% uplift to the local economy. This is in addition to improved national benchmarking and increased research and development (R&D) investment.
That’s according to findings from joint research between Spark and the New Zealand Institute of Economic Research (NZIER) – Accelerating Aotearoa.
“The good news is that the pace of technological advancement globally is accelerating at an even faster rate, and advanced digital technologies are now reaching a level of maturity where they have the potential to solve business challenges where it wasn’t possible in the past,” Hodson added.
“How can technology help New Zealand organisations become more productive and sustainable, and in doing so, support Aotearoa to move forward one technology generation.”
The study combines insights from global research of small-advanced economies, economic modelling by NZIER and Spark’s knowledge of current and future opportunities enabled by digital technology.
“There are many business and policy decisions that need to be made to ensure that we benefit from the opportunities that digital transformation provides,” noted Jason Shoebridge, CEO of NZIER. “We have identified in our analysis the significant benefits in adopting digital technology and applications.”
For Shoebridge, the report has “national implications” with the key message anchored around organisations understanding that to grow New Zealand’s productivity, digital transformation is “critical”.
Yet unlike the European Union (EU) or other developed countries, New Zealand has no “robust or sustained way” of measuring digital adoption among businesses.
“This leads to a lot of talk and tactical stop-start initiatives, but no way of really knowing how we’re improving, if at all,” the report stated.
Furthermore, New Zealand does not rank highly in international comparisons of digital adoption and digitalisation. In 2022, the country dropped four places in the IMD World Digital Competitiveness Ranking from 23 to 27.
Despite holding one of the highest rates of digital infrastructure development – supported by formulated digital strategies and action plans – the Kiwi market has been unable to capitalise on the productivity benefits of digital technologies.
Breaking down the 20% uplift attributed to the use of advanced digital technologies, research and international modelling by NZIER estimated “clear and compelling” benefits:
“The key message for New Zealand organisations across the private and public sectors, is that digital transformation is not a matter of choosing ‘if’ but ‘when’ to proceed and that it is a continuous process,” outlined Christina Leung, Principal Economist at NZIER.
“Organisations choosing not to integrate digital technology into their operations will fall behind in their ability to meet their customers’ expectations.”
Tackling productivity with advanced tech
In response to the findings, Spark is rolling out a program of new initiatives designed to improve productivity through advanced technologies.
The first three initiatives are:
Specific to measuring progress, New Zealand has no robust or sustained way of benchmarking digital adoption or progress – “there is no way of tracking how we’re improving, if at all”.
As a result, Hodson said Spark supports the need for a digital transformation benchmark for New Zealand and recommends this is developed collaboratively between the private and public sectors as part of the next Digital Strategy for Aotearoa.
In the absence of a current benchmark however, NZIER and Spark have developed a spectrum of digital maturity.
Meanwhile – and according to NZIER findings – generative AI (GenAI) currently represents the biggest technology knowledge gap identified by Kiwi business leaders, with 44% lacking enough information to make strategic decisions.
Within that context, Hodson outlined support for the development of an AI Strategy for New Zealand through collaboration across the public, private and community sectors.
Following in the footsteps of Australia – which established an AI Action Plan in 2021 – the framework would support local growth and innovation to position the country as a “creator” of AI, rather than simply a “consumer or net importer”.
In response, Spark has rolled out a dedicated New Zealand AI for Business Mini MBA program in 2024. In collaboration with Section – a business education platform founded by NYU Stern Professor Scott Galloway – 150 sponsored places are available for the country-specific cohort.
From an R&D perspective, New Zealand has been “consistently below” the OECD average, with business expenditure “particularly low”. This means the country’s ability to transform businesses with technology is “under-leveraged”.
To help boost the adoption of advanced digital technologies, Spark has committed $15 million to an Innovation Fund for its business and government customers over the next three years. $12 million is allocated to customers already and an additional $3 million will be available for customers to apply for.
“Our country may be small but it can be mighty and we back our business community to rise to this challenge,” Hodson concluded.
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