Address to Wellington Chamber of Commerce

Thank you for the invitation to address the regional chamber today.

My task is to talk about Wellington and New Zealand’s future prospects in the global economy.

I do believe that both the Wellington region and New Zealand have sound reasons for being optimistic about our future economic prospects.

That’s not because the global economy is a pushover – it’s far from that. The global market place is highly competitive, and there are still too many barriers to New Zealand’s goods and services.

But what both Wellington and New Zealand as a whole are now showing is a determination to get out and make our luck. At the regional and national levels, we are employing much smarter strategies to position our goods and services ever higher up the value chain.

That means we increasingly recognise the value of a highly skilled and educated workforce, of research and development, of new technologies and innovation, and of design, quality, and entrepreneurship.

We are seeing the value of working together, in industry clusters bringing companies together, and in government-industry strategic partnerships for economic development, like that developed in tourism.

We know that when regional stakeholders in the private sector, education, the Crown research institutes, and local and central government work together, it is a powerful combination for growth and development.

And when our central focus is growth and development, we can see old issues in a new light and know that there is an urgency about tackling them. For example:

·By international standards, we have too many low or non-achievers. Boosting educational achievement becomes a priority in the knowledge economy.
·Supporting Maori and Pacific peoples’ economic and social development is a top priority, because our whole country is the loser if significant and growing parts of our population are not reaching their full potential.
·Immigration comes to the fore as an essential tool for economic development, because we need the skills and talents new New Zealanders bring.

Last year, when releasing the Growth and Innovation Framework, the government set out a vision for New Zealand being a great place to live, learn, work, and do business; a birthplace of world-changing people and ideas; a place where people invest in the future; and a land where diversity is valued and reflected in our national identity.

We went on to say that New Zealand must run smart enterprises, which are global in outlook, competitive, and growing in value.

Many of those companies will be based on our traditional excellence in land-based activity; others will be in new areas; but all in the new economy will be strongly connected with their customers, and all will place a heavy reliance on talented people and good ideas.

Co-operation and partnerships will be critical to their strength: co-operation with other firms, within sectors, at the local and regional level, and with central government.

In Wellington, businesses and regional economic organisations are well on the road to building a new economy.

The Wellington region has now posted seven consecutive quarterly rises in economic activity. That is the longest consecutive span of activity since 1995. In the last quarter, Wellington topped the National Bank’s quarterly growth profile, for the first time since 1998. And Wellington is also doing well in both business and consumer confidence polls.

So, why has Wellington’s economy turned the corner? The answer must surely lie in both smart strategies and in the amazing innovation and entrepreneurship of its up and coming companies.

Wellington has fought off the challenge of the consolidation and relocation of company headquarters elsewhere. It has rebranded as a smart, knowledge-based economy; as a centre of scientific, educational and creative excellence.

New firms and industries are mushrooming in areas as diverse as earthquake engineering, computer games, designer clothing, tourism, and creative services. Old industries have reinvented themselves – as shown by the creative manufacturing strategy. “Creative Capital” is not just a smart marketing slogan.

Wellington attracts highly educated, well-connected, and well travelled people – as visitors, as workers, and as entrepreneurs.

Wellington has seen a new generation of entrepreneurs emerge like:

·Jeremy Moon from Icebreaker, a clever company which has turned our outdoor heritage and merino wool into a fashion must-have;
·Mario Wynands from Sidhe Interactive, inventing computer games in demand around the world;
·Richard Taylor whose Weta Workshop is now the third largest special effects production studio in the world;
·Martin Simpson, from Fraser Engineering Group in Lower Hutt, exporting state of the art fire fighting appliances around the world;
·Emily Loughnan, from multimedia company Clicksuite.

The cities of Wellington have been marshalling forces to support business development activity. Positively Wellington Business has done a great job; for example, in fostering the development of clusters.

The sectors Wellington has focused on are the creative, professional services, manufacturing, and ICT; and there are examples of successes to be found in all these areas. For example:

·The Creative Capital cluster delivered $2.1 million worth of project services to the museum and attractions industry in Singapore this year.
·The Earthquake Engineering cluster, together with the National Hazards cluster, has won a World Bank funded disaster risk insurance scheme. Together the clusters are working on opportunities with a total value of over $25 million.
·Katipo Communications, a member of the ICT cluster, won an International Free Software Award with its library software system ‘Koha’.
·Metallion, a member of the Specialist Manufacturing cluster, has designed the seats for the Athens 2004 Olympics.

I know that Wellington’s Chambers of Commerce and many leading Wellington businesses have contributed to the development of the region’s strategies, and many Wellington business leaders have also helped with government taskforces.

The work which has been done to rebuild Wellington as a smart, networked, creative region is commendable, and sits very comfortably with the vision and strategies the government has for growth and development.

By comparison with other developed countries, New Zealand has been doing well in recent times. But the aim is to lift our trend growth rate so that we lift our living standards relative to those of others, and so that we generate the wealth to meet the aspirations of our people.

For that reason, the Growth and Innovation Framework identified four priority key areas for attention, covering skills and talent, the innovation system, strengthening international connections, and boosting enabling sectors with spillover effects for the wider economy and society.

In the last two months, we have reported progress on the Framework, and released a set of benchmark indicators which will be used to measure the country’s future economic performance. We will be monitoring especially the trends in labour productivity, educational attainment, research and development spending, and GDP per capita.

Highlights in areas addressed by the Framework to date include:

·The establishment of the new Tertiary Education Commission and the New Zealand Tertiary Education Strategy, both emphasising quality, access, and relevance in tertiary education.
·The strong emphasis on work-based training with greatly increased investment in apprenticeships and industry training generally. The aim is to meet industry’s needs for a skilled workforce.
·The new immigration policy which moves away from a poorly targeted points system to one focusing on the skills New Zealand needs to drive its development.
·The significant increase in R & D spending, especially in the private sector where it grew by over thirty per cent in the two years 2000 – 2002. Government increased the support it gave through research grants and research collaboration with the private sector, and the improved tax treatment also made a difference. But over and beyond that, I believe the increased spend also suggests a significant and positive change in business culture and strong recognition of the role R & D plays in business success.
·This year saw the merger of Trade New Zealand and Industry New Zealand to form the new Trade and Enterprise New Zealand. The aim is to offer the spectrum of services available to business under one umbrella. The change acknowledges that all our companies in this open economy need to be internationally competitive, that we need more of our companies to be exporters, and that in areas like new technology, new companies need to get out to the global market quickly.
·The taskforces we established in the ICT, biotechnology, and creative sectors have all reported, and we are in the process of issuing the government’s response to, and intentions to act on, their recommendations. Some of these sectors are of particular interest to Wellington; for example:

·ICT is becoming an important part of the Wellington economy. A good example of how the sector is growing is Media Lab, formed to conduct interdisciplinary research, development and commercialisation in the ICT industries.

Media Lab membership covers a wide spectrum of organisations including universities, New Zealand subsidiaries of multi-national companies, small to medium-sized New Zealand companies, research providers and local government. I understand that the member companies believe the research undertaken through Media Lab will result in significant growth in revenue, employment and technical capability for them.

·The Design Taskforce in the course of its inquiries met with the Wellington creative manufacturing cluster, and found many companies already well aware of the importance of design, and embracing it. Many Wellington companies are expected to attend the ‘Design in Business’ conference scheduled to take place in early 2004. There will be opportunities for many of them to take part in the ‘Design in Business’ programme which New Zealand Trade and Enterprise will be initiating soon thereafter.
·A major initiative to attract big budget film investment in New Zealand has already been announced, and the details around the new grants scheme are presently being finalised. This is especially good news for Wellington with its world class screen production facilities.

And Wellington has a huge opportunity to showcase its film potential and other strengths in December with the Lord of the Rings premiere being held here.

Over and above the strategies I have talked about today, the government aims to provide a stable environment for decision-makers. We run sound government finances, leaving a margin for safety in this uncertain world economy.

In key announcements yesterday, we outlined a path of further gradual tariff reduction, giving the affected sectors certainty about the next six years, and time to continue their repositioning up the value chain.

On the trade policy front, we continue to push for the best possible terms for New Zealand’s exporters. Yes, the failure of the Cancun talks was a disappointment, but it most certainly does not spell the end of the WTO Round. The last Round took years to conclude, but its outcome for New Zealand was estimated to be in the region of an extra billion dollars a year. Gains like that are worth fighting for in the multilateral system.

Right now New Zealand’s economic prospects look encouraging. Our growth rate topped the OECD last year. We seem to be rebounding well from a slow June quarter

·Unemployment is at its lowest level since before the 1987 stockmarket crash.
·Inflation is low.
·Net migration is high.
·The construction sector is strong, with dwelling consents in August at their highest since August 1975.
·The tourism sector continues to perform very well, against the odds of SARS and terrorism which have affected the sector internationally.
·Business confidence continues to improve markedly.
·Consumer confidence in the September quarter has reached its highest level since March 1996.

On the downside, the rapid appreciation of the New Zealand dollar against the US dollar and dairy prices coming off their peak have combined to drag export revenue down. The forestry sector is also facing considerable pressures. These factors are adversely affecting the merchandise trade deficit and the balance of payments.

The products and services most affected by these trends are those at the lower end of the value chain. The message we must take from that is the importance of moving our companies, our regions, and our national economy further upmarket to give us better insulation from the effects of currency appreciation and commodity price fluctuation. It makes Wellington’s smart strategies and the Growth and Innovation framework’s policy emphasis even more important.

Thank you for giving me the opportunity to comment on these important issues today.