Forsyth Barr sponsored the recent Business East Tamaki breakfast the Prime Minister Christopher Luxon attended and spoke at. Earlier, ZOE WALLIS, an investment strategist for Forsyth Barr, gave succinct analysis of the economy with the east Auckland business leaders’ audience in mind. PJ TAYLOR talks with Wallis post-breakfast.
During your speech, you used screen statements. One stood out, though many understand the message and have for some time: “NZ Productivity Commission: Workers in New Zealand work longer hours and for less reward than workers in most OECD countries. In short, New Zealand works harder rather than smarter.” How do we change this?
There’s no magic cure to low productivity unfortunately, but a range of factors that could help lift it over time. Improving human capital through education, investing in infrastructure and new technologies/capital, reducing regulatory burdens, lifting R&D [research and development] and foreign direct investment (done well). Part of the issue is that even when we know what could help, many changes need to endure beyond the length of our political cycles – we need to be long-term in our thinking. Opportunities to create investment plans that are politically agnostic – for example around long-term infrastructure plans – should be seriously considered. Our current weak productivity position is the result of cumulative changes over decades – turning the ship around and fixing the problem will also take time.
Does our national geographical isolation, at the bottom of the earth away from markets, make it difficult for us to trade?
It certainly doesn’t help. Obviously it costs more to get goods from one side of the world to the other. There’s also some evidence that countries which share geographic borders with other countries benefit from a greater degree of knowledge transfer between countries that helps boost productivity. We also have a geographically spread out population meaning it costs more to transport goods round the country to everyone and we don’t see the same economies of scale that more highly-populated countries tend to.
We’re a nation of more than 5.5 million people, a long way from our trading partners, yet we still enjoy pretty good first-world living standards in comparison to other countries. It seems though we have to work harder nowadays to maintain our quality of living. How do you see it?
Part of it is working harder, i.e. longer hours, the other part is that we tend to have strong migration-driven population growth. Stronger growth tends to lift economic growth just through a sheer numbers game – more people in the economy spending money at the supermarket, needing housing etc. In recent years, GDP per capita has been falling at a faster pace than headline GDP growth – meaning actually our living standards have been going backwards. We’re obviously still a very privileged developed nation with many advantages, but it’s been a tough few years for a lot of people.
You had another screen presentation: “What’s the opportunity?” with business leaders in mind. It’s acknowledged that businesses across the country did it real tough during the Covid era. Are we through that?
Not yet, but getting there. The current conditions for most businesses remain tough, but we see some light at the end of the tunnel. Lower interest rates will start to provide stimulus for the economy, and businesses are already feeling more upbeat about the outlook heading into 2025.
How is the country fairing economically and what’s the outlook?
September quarter 2024 GDP data is likely to show New Zealand was back in recession through the June and September quarters, with negative economic growth. Things might be looking a little better as we head into the end of the year, but even though we’re seeing a notable pick up in business confidence, a meaningful pick-up in activity and sales volumes will take time to turn.
Expanding on Productivity headings:
Human capital
Raising the level of education for our children and continue to upskill our workforce.
Generally the higher levels of education and capabilities a country’s workforce has the greater their labour market contribution.
Lifting technological and capital investment can also assist how much output a worker can produce.
With our geographic distance, skilled migration is one way of supporting transfer of knowledge from other countries, and also supplementing the local skill base and fill gaps.
Regulatory burdens and bureaucracy
While often having good intentions, high levels of regulation can slow down production and hinder investment decisions and growth.
We need to strike the right balance of engagement and protection versus being able to get on with operating.
Regulatory burdens often fall the hardest on small businesses without the scale or tools to efficiently navigate them. Given that SMEs [Small and Medium Enterprises] make up the clear bulk of New Zealand businesses this is an important part of increasing productivity.
While New Zealand scores very highly in “ease-of-doing-business” surveys, we haven’t made it easy for offshore firms to invest here.
As we try to tackle big issues such as our infrastructure deficit, being able to attract international capital will be an important enabler for our growth.
Tax policies
With an ageing population and infrastructure deficits, we need to think about how we fund ourselves as a nation and provide the right incentives for businesses to grow and invest in New Zealand.
Research and development
The United States spends over 3.5 per cent of its GDP on R&D; New Zealand spends 1.5 per cent, well behind many of the countries we compare ourselves against.
Research suggests that R&D investment helps lift productivity through the discovery of new technologies, innovations and increased knowledge.
