Bold business can power productivity

It’s a question we have been grappling with for decades: how do we improve New Zealand’s lacklustre productivity performance?

It’s not about producing more, it’s about sustainably producing more for less, or making existing processes and products better. The answer lies with innovation.

A recent report commissioned by ASB has found that if we can invest in innovation and increase productivity growth by just one per cent, we would set New Zealand on a different, more prosperous path.

By lifting productivity growth from its existing 1.5 per cent to 2.5 per cent, real GDP would hit $500 billion by 2045, an increase of about five per cent on current projections, and adding tens of billions to the economy each year.

The report ‘Business productivity in New Zealand, assessing the drivers and barriers in the international context’, from the New Zealand Institute of Economic Research, was commissioned to identify growth opportunities for Aotearoa based on the success of other economies of similar size and population.

It found high-performing small advanced economies invest more in research and development and drive more of their income from exports than we do in New Zealand, which forces innovation as businesses strive for international market share.

Companies in these economies also benefit from innovation ecosystems that help to spread technology and ideas, further enabling them to compete in global markets.

Meanwhile, New Zealanders are working longer to make up for low investment in capital, knowledge and research and development, and we are producing less than our overseas counterparts.

We have an opportunity to turn that around. For New Zealand to increase productivity, the report says business leaders need to be more ambitious, be prepared to invest and innovate, and enable their workforce to adapt.

While government certainly has a role to play in creating the conditions for growth and innovation, policy and regulation on their own cannot fix our productivity problems.

What practical steps can business take? The report called for business and the non-government sector to take leadership by developing skills, adopting new technology and being more flexible and open.

Business can start by collaborating and building sustained ecosystems to support innovation like we see in the Nordic countries, Singapore and Ireland, which perform better. In these economies, innovation clusters have enabled the growth of large, competitive frontier firms that drive and support performance overall.

In New Zealand, we can look to the food and fibre sector for evidence of ecosystems lifting performance and helping to create and market new products for export, such as the gold kiwifruit, which now accounts for about $2 billion in export earnings.

This commitment to innovation needs to be applied across the economy. For business, that means building an understanding and appetite for innovation and investment as an engine for growth and sustainability.

Business leaders should ensure their workforce has the capability to develop and absorb new ideas and this will help to increase international competitiveness.

There is an urgent need for this to happen. As a country, we are facing environmental and resource constraints, rising costs and an ageing population.

Without innovation and productivity growth, incomes will be stagnant, and we will be unable to access essential services such as schools and hospitals, that we all need to live happy and healthy lives.

Of course, business cannot in isolation solve our productivity challenges. A supportive environment for growth and innovation is needed and once a decision to innovate is made, government and the finance sector must ensure there are minimal barriers to scale.

The report identified banks have a role in supporting businesses by helping them to secure capital through both mainstream and innovative financing solutions.

ASB has created productivity lending to encourage business customers to take action and invest in innovation. And the bank is being ambitious, targeting $500 million in productivity lending before the end of June.

Financial tools and insights are available to empower customers to make the right decisions for their business. Innovation is being embraced with the approach to business banking too, with a series of lending initiatives for changemakers.

In 2023, credit settings were adjusted to speed up the delivery of affordable, social and Māori housing with the Accelerated Housing Fund. The bank is also working with innovative and sustainable food and fibre exporters to provide lending and ecosystem support.

Lending for early-stage clean tech innovators to boost the sector’s growth has been announced, and supporting Te Ōhanga Māori (the Māori economy) with lending solutions, enabling whānau to build homes and return to living on ancestral land.

The potential exists and the best is yet to come. Investing for growth can be a big step and we are backing business to move New Zealand forward. 

Read the full ‘Business productivity in New Zealand’ report at nzier.org.nz