Arc Economic Futures - Part 1

Economic Futures for the Auckland Region

Part 1: Knowledge base for scenarios development December 2008

This report was prepared by Penelope Tuatagaloa, Carole Canler and Dr Catherine Murray in the Economic and Social Policy Team at the Auckland Regional Council, December 2008.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Contents

1 INTRODUCTION ______________________________________ 3 1.1 1.2 1.3 1.4

Purpose Scope Reporting Methodology

3 3 3 4

2 THE CURRENT STATE __________________________________ 5 2.1 2.2 2.3. 2.4

The regional economy: Auckland’s place in New Zealand International context: Auckland’s place in an international context Industry sectors in the Auckland region Analysis of sectors of interest in the region

5 8 11 17

3 CONTEXT OF CHANGE AND FUTURE DIRECTIONS FOR AUCKLAND ___ 44 3.1 3.2 3.3 3.4 3.5 3.6

The changing nature of the Auckland region: Key economic drivers of change Future demographic changes in the Auckland region Societal adaptation to changes: lessons from New Zealand history The policy context Stakeholder consultations Future prospects: a view from Mäori, Pacific people and Asian communities.

44 48 51 53 58 61

4 APPENDICES _______________________________________ 65 Appendix 1: Auckland Region Economic Futures Project Steering and Advisory Group Members Appendix 2: Concordance relating ANZSIC Codes to the 48 Input-Output Industries Appendix 3: Concordance relating ANZSIC Codes to the Industry Sectors of Interest to the Auckland region Appendix 4: Interviewees for the Auckland region Economic Futures project Appendix 5: Summary of interviews with key regional stakeholders for the Auckland region’s Economic Futures Project

65 66 68 69 70

5 REFERENCES_______________________________________ 79

1

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

List of Figures Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Table 4: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12:

Purpose of Economic Futures Project The Auckland region Population growth, 1886 to 2006 Real Gross Domestic Product (GDP) and real Gross National Income (GNI) per capita, 2005 Employment in industries in Auckland, 2001 and 2006 Top ranking Auckland industries in terms of percentage contribution to national GDP, 2006 Bottom ranking Auckland industries in terms of percentage contribution to national GDP, 2006 Auckland region’s industries with comparative advantage and significant contribution to GRP, 2006 NZ marine industry forecast sales 2005–2020 ($ billion, March year ended) Age-sex structure, Auckland region and New Zealand (shaded) (2006) Structure of population for the Auckland region in 2006 (shaded) and projected for 2031 (lines) Projected age spread of Auckland regional labour force, 2006 and 2031 Regional Strategic Framework for Auckland Economic Futures

4 6 7 9 12 14 15 17 38 48 50 51 55

List of Tables Table 1: Table 2: Table 3: Table 5: Table 6: Table 8: Table 9: Table 10: Table 11: Table 12:

2

Contributions to Gross Regional Product by Auckland region’s top 20 industries, 2006 Auckland region’s top 20 employers by industry, 2006 Auckland region’s ‘strong’ industries by Location Quotient and Location Quotient results for comparable regions, 2006 Locations of creative sector businesses and employees, 2006 Air cargo exported year ended June 2007 New Zealand bio-technology industry – key statistics 2005 Largest exporters by industry sector in Auckland, 2006 Ethnic groupings in Auckland region, 2006 Auckland region’s population 1981 to 2031* AREDS platforms

13 14 16 25 31 34 47 49 50 56

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

1

Introduction

1.1 Purpose Current planning in the region is mainly based on the continuation of economic trends into the future. However, there is no agreed set of economic futures to guide planning and policy making. The Economic Futures Project is intended to enhance the quality and consistency of regional economic planning and policy by considering the past trends and amending these to take into account planned and expected future trends in the form of new policies, investments and changes in the region’s environment. The Economic Futures Project defines the likely trajectories that the economy of the Auckland region will take over the twenty-five-year period, from 2006 to 2031. The intention of the project is not to predict the future, but to assess the likely impact of a range of plausible scenarios on the economy. A set of regional economic futures will be produced to support regional policy and strategy development, and to guide the delivery of specific projects and actions.

1.2 Scope The project focuses on economic activities. It provides more sophisticated information than presently available on the future economic realities that need to be taken into account in the planning process. More specifically, it provides four sets of employment and output data by sectors of industry in the Auckland region, as well as their likely impacts on land use and transport, and on environmental aggregates. The information produced is constrained by the scope and range of the modelling tools available. For example, social and behavioural aspirations and changes associated with the scenarios cannot be directly fed into the model. It should also be noted that the model is not resources constrained. In other words, it assumes that there is no limit to the availability of skilled labour, energy or office space. These

assumptions, rather than being built into the model, are tested exogenously as part of the work. The project uses the Auckland region’s Economic Futures Model which was developed by Market Economics Limited. The model is based on a regional economic input–output table. It measures flows between different sectors, based on consumption patterns between 48 different industry sectors – for example, what is spent by agriculture on manufacturing products, or what is bought from the fishing sector by restaurants and bars.

1.3 Reporting The Economic Futures Project is reported in two parts. This report, Part 1: Knowledge base for scenarios development, encapsulates the current information available on the state of the Auckland economy and its future drivers. While the knowledge base is dynamic, this report builds the evidence that supports the development of the economic scenarios for the Auckland region. The second report, Part 2: Scenarios and modelling, will present a set of four economic scenarios for the Auckland region, and discuss their implications in terms of employment, output, export, occupation, environment and land use. The current period of economic and financial turmoil poses some added difficulties to this scenario-building exercise. Some of its anticipated effects will be discussed in Part 2. The second report will be published in March 2009.

3

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

1.4 Methodology The work to develop the economic futures was carried out in three phases: 1.

information gathering (report 1)

2.

development of scenarios and modelling (report 2), and

3.

identifying impacts and further work required to develop responses (part of Auckland Regional Economic Development Strategy (AREDS) refresh).

For the first phase, a stocktake of relevant economic research and information (e.g. academic articles, industry reports, economic commentaries and newspaper articles) and a summary of the strategy framework guiding the region were carried out. In addition, new research was commissioned as follows: •

The Outlook for Tourism in Auckland – undertaken by Covec Limited

•

Understanding the Business Services sector in the Auckland city-region – undertaken by ASCARI Partners, and

•

Rural economies in the Auckland region – undertaken by ASCARI Partners.

The first phase also involved consultation with a number of regional stakeholders, such as government officials, business organisations and unions, and a number of sector-specific representatives and businesses, through group meetings and one-on-one interviews.

This report presents the stocktake of existing information on the economy in the Auckland region. It provides a better understanding of the industrial structure of the regional economy by looking at changes in the Auckland region in the medium to recent past. It also identifies the economic drivers in the region and emerging industry sectors, as well as key international trends and influences. The results of the information-gathering phase provide the base information to develop the proposed scenarios. The project was driven by a cross-agencies steering group, providing access to information as well as regular feedback on the project’s progress (refer Appendix 1 for membership).

1.5 Users

.

It is envisaged that the Economic Futures Project will feed into a number of regional projects, as described in Figure 1, and provide a reference point for development of regional strategy and policy as well as guide the design and delivery of specific strategies and interventions. Secondary users will be external agencies such as Economic Development Agencies and local councils who should find the economic scenarios a useful tool to guide development of their strategies and policies, and to help ensure that their strategies and policies are consistent with the direction of the Auckland region. The Economic Futures Project has been developed alongside the ARC Growth Targets study and the Review of the Regional Land Transport Strategy (RLTS). These three projects are closely aligned and ultimately will inform the review of the Regional Policy Statement (RPS) in 2009.

Figure 1: Purpose of Economic Futures Project

Economic

Land use scenarios

RLTS

RPS

Futures Economic Scenarios

Energy Strategy

and Modelling AREDS refresh

4

Industry sector priorities Employment and Skills projections

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

2

The Current State

The Auckland region contributes: This section paints a picture of the economic activities currently taking place in the Auckland region, with a strong focus on industry sectors. Note that for the purpose of this analysis, economic activity is defined simply as the production and distribution of good and services at all levels. One frequently used measure of economic activity is Gross Domestic Product (GDP).1 This section provides summary information on: 1.

the regional economy – Auckland’s place in New Zealand

• contributes 35 per cent of New Zealand’s gross domestic product • contributed $3.8 billion of the government’s $6.2 billion 2005 fiscal surplus • is the gateway for 70 per cent of all international arrivals to the country • is home to two-thirds of the country’s top 200 companies • is home to one-quarter of New Zealand-based Fortune 500 companies • is destination for 26 international airlines • connects to 160 other ports • is the hub for 4 million tonnes of cargo, and • is the logistics centre for 40 per cent of exports through air and sea ports and 75 per cent of imports. Source: Committee for Auckland (2006). The Case for Auckland. pp. 10.

2.

international context – Auckland’s place in an international context

3.

industry sectors in the Auckland region, and

4.

an analysis of industry sectors of special interest in the region.

2.1 The regional economy: Auckland’s place in New Zealand This section is two-fold: first it provides a brief introduction to the structure of the Auckland region, and second it looks at the current economic performance of the region.

1

2.1.1 Structure of the Auckland region The Auckland region is New Zealand’s largest metropolitan urban area and the fastest growing region in the nation in terms of absolute growth. With a population of 1.37 million, it is home to 32.4 per cent of the national population and was nearly three times as populous as any other region. The region’s population is comparatively young: the proportion of people over the age of 65 years (10 per cent of the region’s population) is lower than the national average of 12 per cent. This indicates that the region has a large proportion of New Zealand’s working population.

At only 519,000 hectares, the Auckland region is the second smallest in the country. However, it is highly urbanised (urban areas accounted for 96 per cent of the total land area) and has the highest population density in the country, estimated at 2.6 people per hectare. A significant proportion of the region is occupied by the Auckland metropolitan urban area, stretching between the Manukau Harbour and the Hauraki Gulf. Large areas of farmland are located north and south of the metropolitan area, as well as tracts of indigenous and exotic forests, particularly in the western and northern parts of the region. The Auckland region has four cities – North Shore, Waitakere, Auckland and Manukau – and three districts – Rodney, Papakura and Franklin. It offers rural, island, coastal, suburban and inner-city living.

GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year). It is also considered the sum of the value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value.

5

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Figure 2: The Auckland region

Source: Auckland Regional Council The Auckland region contains New Zealand’s highest concentration of people, businesses and specialists, and is a knowledge base for education and research. It is also New Zealand’s hub and gateway to the international economy. The region is becoming an increasingly specialised and creative economy with a predominance of ICT, financial and creative industries. The Auckland region is also home to 132,000 businesses. This equates to approximately a third of all businesses in New Zealand. Auckland is the engineroom of the national economy, providing more than a third of all jobs. Home to Mäori and more than 180 other cultures, including New Zealand’s biggest Pasifika population,

6

the Auckland region is the chosen destination of most new migrants to New Zealand. With more than 400 new residents arriving each week, from elsewhere in New Zealand and overseas, the region is growing faster than other cities in the country. Indeed, Auckland is New Zealand’s only city region of international scale. It is the second fastest growing urban area in Australasia after Brisbane, and has become comparable in size with centres such as Perth and Adelaide2.

2

Auckland Regional Council (2007). Growth of Auckland Region: Dynamics of Population Change 2001 to 2006.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Figure 3: Population growth, 1886 to 2006

1,400

Population (000)

1,200

1,000

Auckland Wellington Christchurch Dunedin Hamilton

800

600

400

200

0 1886

1911

1921

1936

1961

1996

2001

2006

Year Source: Statistics NZ, 2006

2.1.2 Current economic performance The Auckland region’s economy has consistently grown at a greater rate than the rest of New Zealand during the current decade. As detailed in Business and Economy 2008,3 the region’s Gross Domestic Product has grown in real terms by an average of 3.6 per cent per annum since the March 2000 year, as against 3.2 per cent per annum nationally.4 The same report for the year ending March 2008, shows that: •

Regional GDP grew by an estimated 3.9 per cent, above the national growth rate of 2.9 per cent.

•

The above-average employment growth indicates that economic activity in the Auckland region was stronger than that nationally. Moreover, much of the region’s growth has been in high-valueadded industries, especially transport; storage and communications; and finance, insurance, property and business services.

•

3 4

There was a monthly average of 677,000 people employed in the region, representing growth of 3.8

per cent over the year. This was above the national employment growth over the year of 3.3 per cent. •

The growth in employment has attracted increasing numbers of people into the workforce. In the year to March 2008, an average 68.4 per cent of Auckland’s working-age population (persons aged 15 and over) were employed or actively seeking work – a record level.

•

The most important changes in employment were in: •

wholesale and retail trade; accommodation; cafés and restaurants: employment in these sectors increased by 16,300 (in spite of low growth in sales).

•

other manufacturing: an increase of 4,900 persons.

•

finance, insurance, property and business services: an increase of 4,900 persons, and

•

health and community services; personal and other services; and education: an increase of 2,700 persons.

New Zealand Institute of Economic Research (2008). ‘Recent Trends’ in Business and Economy 2008: The Auckland Region, pp 2–6. Excludes the effects of inflation.

7

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

These increases were partially offset by: • food, beverage and tobacco manufacturing where employment fell by 2,700. •

Retail sales in Auckland grew 2.2 per cent to $21.4 billion. Retail sales growth has been slowing in recent quarters, and this trend appears to have begun relatively early in the Auckland region.

A comparison of regional economic performance is not well developed in New Zealand because of a relative lack of official data at the regional level. Statistics New Zealand carried out a regional GDP feasibility study in 2005. However, while the study concluded that it was feasible to produce estimates of regional GDP, Statistics New Zealand did not go ahead with the production of a series. In 2005, G. Lewis and S. Stillman looked at productivity arising from agglomeration economies within large cities by measuring productivity levels and growth in New Zealand at a regional level.5,6 A key motivation for this study was to investigate the hypothesis that Auckland is ‘underperforming’. What the study found, however, was that Auckland and Wellington have the highest levels of productivity performance based on almost all measures of earnings. Auckland also experienced stronger growth in wages, in particular for wage/salary workers, compared with other regions. More recently, D. Mare argued that there is a sizeable productivity premium in Auckland, around half of which is due to industry composition. There is a cross sectional correlation between productivity and employment density, reflecting differences in both physical productivity and prices. However, those studies do not say how Auckland’s productivity performance compares with innovative, high-skill cities in other countries, an issue which is looked at in the next subsection.

5

6

8

Lewis, G and Stillman, S (Nov 2005). Regional Economic Performance in New Zealand: How does Auckland compare? New Zealand Treasury Working Paper 05/08. NZIER and National Bank have also developed their own methodology for measuring economic performance at a regional level and these are discussed in the report by Lewis and Stillman (2005).

2.2 International context: Auckland’s place in an international context It is essential to put the region in an international context. A country’s internationalisation can be gauged on three factors: flows of capital, flows of goods and services, and flows of people. This section looks firstly at New Zealand’s place in the international context and then at the Auckland region.

2.2.1 New Zealand’s place in the international context Information on New Zealand’s international competitiveness is taken from the recently published report ‘Economic Development Indicators 2007’ produced by the Ministry of Economic Development, Treasury and Statistics New Zealand.7 It identifies New Zealand’s progress towards a number of economic goals by benchmarking its performance against those of other countries in the Organisation for Economic Cooperation and Development (OECD).8 For the New Zealand economy: •

The recent growth rate in GDP per capita has been somewhat higher than the OECD average, but the level of GDP per capita remains low (New Zealand is ranked 22nd out of 30 countries, see Figure 4).

•

Improvements in material living standards (GDP per capita) can be attributed to increases in either labour utilisation or labour productivity (total income generated per hour worked). New Zealand has a relatively high labour utilisation rate compared with its OECD counterparts, but it has a relatively low labour productivity rate.

•

The level of New Zealand’s total fixed investment as a percentage of GDP is around the OECD average.

•

Household and national saving rates are low and have been falling more quickly in New Zealand than in benchmark economies, creating a need for

7

Ministry of Economic Development, Treasury, Statistics NZ (2007). Economic Development Indicators 2007. In general the report uses OECD countries, together with an OECD average or medium measure, as the comparison group. In comparing growth rates across time it focuses on Australia, the United Kingdom, United States and Denmark.

8

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

the OECD average. As a percentage of GDP, New Zealand’s share of exports and imports falls in the lower half of the OECD.

overseas funds to supplement domestic savings in financing domestic investment. •

•

•

Overall, New Zealand ranks low relative to other OECD countries on the formal measures of innovation activity, i.e. research and development (R&D), and patenting. This underperformance can be explained by distance from major world centres, lack of large firms and a relatively large primary sector, suggesting that New Zealand has to be better than other countries in promoting innovation. The level of high- and medium-technology products exported by New Zealand firms is also far behind the OECD average, although sophisticated technology underpins the primary sector, which the OECD classifies as a ‘low technology intensive’ sector.

•

High levels of inward and outward foreign direct investment (FDI) are important for small, open economies like New Zealand. The stock of New Zealand’s inward FDI is high by OECD standards, with ‘greenfield’ investment about average. Outward FDI is among the smallest in the OECD as a percentage of GDP.

•

Flows of people (and their knowledge) also contribute to economic growth in New Zealand. Net immigration has been high relative to the benchmark economies, with a significant share of these people educated to tertiary level.

•

The quality of much of New Zealand’s infrastructure appears to be at or below the OECD average.

New Zealand’s share in world trade is 0.36 per cent and has been relatively static, in line with

Figure 4: Real Gross Domestic Product (GDP) and real Gross National Income (GNI)9 per capita, 2005 75,000

US dollars, current prices and PPPs

65,000 55,000 45,000 35,000 25,000 15,000 5,000

G NI per capita

T urkey

P oland

Mexico

S lovak R epublic

P ortugal

Hungary

C zech R epublic

K orea

S lovenia

New Zealand New Zealand

Italy

S pain

F rance

G reece

G ermany

J apan

F inland

S weden

United K ingdom

C anada

B elgium

Denmark

Aus tria

Aus tralia

Netherlands

Iceland

S witzerland

Ireland

Norway

United S tates

Luxembourg

0

G DP per capita

Source: OECD Factbook 2007 9

GNI is a measure of the total income that accrues to New Zealand residents from domestic and foreign sources. In comparison, GDP is a measure of the total income earned from goods and services produced in New Zealand, including that produced by foreign-owned firms operating domestically. On both measures, New Zealand is ranked 22nd in the OECD. However, New Zealand’s GNI per capita is around 7 per cent below our GDP per capita. This difference between GDP and GNI reflects the fact that income accruing to foreign investments in New Zealand exceeds the income accruing from our own overseas investments. 10 ASCARI Partners (2006). Metropolitan Auckland Project: Background Paper. Report to Auckland Regional Council. pp. 9-10.

9

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

The Auckland Metropolitan Project background paper,10 which summarised a series of recent reports on international trade, provides a summary of the key issues associated with the New Zealand economy including: •

New Zealand lags behind in relation to the export performance of other small developed countries.

•

The scale of export activity in New Zealand is limited. Fewer than 4% of firms export, (although this might be fluctuating from year to year) and the top 10 exporters account for half of all exports.

•

The International Monetary Fund Selected Issues report (2004) attributes half of the difference in annual GDP growth between New Zealand and the OECD average between 1971 and 2002 to geographic isolation. In practice, isolation limits the potential for inter-regional linkages and spillovers. Reinforced by the limitations of a small domestic market, New Zealand must overcome its geographic separation and more actively participate in the global marketplace.

The same report also highlighted some of the reasons for New Zealand’s poor export performance relative to other OECD countries: •

Small and medium firms dominate the national economic landscape (in the Auckland region, 85% of firms employ 5 people or less), and these firms are not making sufficient connections with international markets.

•

High- and medium-tech businesses account for only a small proportion of exports. NZ ranks 29th out of 30 OECD countries in terms of the share of manufactured exports that are high or medium technology – although there has been a recent increase in exports with an additional 78 firms exporting more than $25 million in the year to September 2005. This also reflects a lower relative value-add proportion of exports.

•

•

The report also identifies New Zealand’s performance in relation to outward Foreign Direct Investment (FDI) as weak.11 As a share of gross domestic product over the past decade, New Zealand’s total outflows of outward FDI have amounted to just 3% of gross domestic product. Only five OECD countries came in lower – Poland, the Czech Republic, the Slovak Republic, Turkey and Mexico. Outward FDI has fallen back significantly since 1991. A substantial investment income deficit has arisen for two reasons: •

foreign investors into New Zealand generate higher returns than what New Zealand investors achieve on foreign investments, and

•

the stock of inward FDI is 40% higher than the stock of outward FDI.

2.2.2 Auckland’s place in the international context Auckland is a relatively small city by international standards. In the New Zealand context, however, Auckland is the only city that has the size necessary to provide the benefits that large cities can offer. Auckland’s performance is examined relative to other regions of New Zealand and to a small number of international benchmark cities of similar size, density and economic makeup.12 In terms of the Auckland region economy: •

Auckland’s GDP per capita is lower than all but one of the international benchmark cities chosen (Adelaide), but only slightly so in most cases. However, it is substantially lower than the cities (predominantly large) with the highest GDP per capita.

•

Auckland’s productivity levels (GDP per worker) are lower than the average of a sample of 78 metropolitan regions in the OECD and below most comparator cities (Brisbane, Melbourne, Adelaide, Seattle, Vancouver and Copenhagen).

•

The difference in productivity between Auckland and New Zealand as a whole – the Auckland ‘premium’ – is in the middle of the comparator cities, suggesting that, in the New Zealand context,

11

Ibid. pp. 10–11. Brisbane, Melbourne, Adelaide, Seattle, Vancouver and Copenhagen.

Emerging sectors such as the wine, information technology and biotechnology industries do not yet comprise a significant share of New Zealand’s exports, which remain dominated by land-based (particularly agricultural) exports. New Zealand has low levels of research and development relative to other OECD countries.

12

10

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Auckland is contributing normally to economic growth. •

Auckland’s population growth rate is very high by international standards. This is driven by high levels of inward international migration. Within New Zealand, Auckland has experienced low net population outflow over recent years relative to the region’s population.

•

With regard to the underlying factors that influence productivity growth, Auckland’s performance is mixed: •

Auckland’s level of patent applications per capita is relatively low by international standards, as is its share of the working-age population with a tertiary education.

•

Auckland city’s share of employment in high-tech services and goods manufacturing is broadly in the middle of the international comparator cities.

In summary: • Auckland is the most populous and main urban centre in New Zealand. It will play a key role in New Zealand’s future economic performance. • Auckland’s rapid population growth presents challenges and opportunities that are unique in New Zealand. • The Auckland economy grew by an annual average of 3.1% between March 2000 and 2004. Growth has largely been driven by population growth – not productivity improvements. • Auckland is New Zealand’s gateway to the world, its main commercial hub, and education centre. However, it still has a strong domestic focus. The region needs to ‘go global’ in order to expand its economic horizons.

The focus of the report will now shift from looking at the macro level and Auckland’s place in the international context to the micro level by analysing the different industry sectors which make up the Auckland region economy.

2.3. Industry sectors in the Auckland region This section analyses the Auckland region’s economy by looking at the industry sectors which make up the regional economy in terms of their contribution to the region, employment numbers and sectors of comparative advantage.

2.3.1 Recent trends: business and job creation Between 2000 and 2006, 23,486 new businesses were established in the region (an increase of 23 per cent).13 The most significant growth in the number of new businesses has been in: • • • • •

property and business services (+13,169) retailing (+2,016) construction (+1,470) finance and insurance (+1,485) hospitality – accommodation, pubs and taverns, cafés and restaurants (+809).

13

Capital Strategy (2007). Auckland’s Regional Economic Futures – Stock-take of Information on Business Sectors. Report to Auckland Regional Council.

• Infrastructure networks are a barrier to regional economic development. Auckland has the basics, but the quality of the transport and telecommunications networks and the reliability of the energy network need to be improved. • The Auckland labour market is changing. Skilled labour is hard to find. Immigration policies and weak skill-development programmes in small– medium businesses present significant challenges. • Auckland features strongly in national research and development funding, but there is still a need to raise the bar in this area if it truly wants to improve innovation. Source: ASCARI partners (2006). pp. 26.

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Over the same period, more than 119,000 new jobs were created. Property and business services contributed 31,760 (26.5 per cent) of the new jobs; 14,700 (12.3 per cent) were in retail; 11,870 (9.9 per cent) were in the construction sector; and 5,310 (4.4 per cent) were in finance and insurance. These trends in employment are illustrated in figure 5.

Figure 5: Employment in industries in Auckland, 2001 and 2006 Number of people employed

0

20,000

40,000

60,000

80,000

100,000

Mining E lectricity, G as and W ater S upply Agriculture, F ores try and F is hing C ommunication S ervices G overnment Adminis tration and Defence C ultural and R ecreational S ervices P ers onal and Other S ervices Trans port and S torage

2001

Accommodation, C afes and R es taurants

2006

F inance and Ins urance C ons truction Health and C ommunity S ervices E ducation W holes ale Trade R etail Trade Manufacturing P roperty and B us ines s S ervices

Source: Statistics New Zealand, Census 2001 and 2006 (people whose workplace address is in the region)

2.3.2 Economic production and employment According to the Auckland region Economic Futures Model (EFM), Auckland’s Gross Regional Product (GRP) for 2006 was estimated at $54.9 billion. This accounts for 35.4 per cent of total GDP estimated for New Zealand for that year, and is slightly higher than the region’s share of the national population (32.4 per cent). Economic activities are aggregated into 48 different industry sectors in the EFM. Appendix 2 provides a concordance relating standard industrial classification, the Australian and New Zealand Standard Industrial Classification (ANZSIC), to the 48 industries in the EFM.14 14

12

The Australian and New Zealand Standard Industrial Classification (ANZSIC) is used to compile and analyse industry statistics in New Zealand and Australia .

Table 1 lists the top 20 of these industries. They are ranked in terms of their contribution to Auckland’s GRP in 2006, as well as in terms of their contribution to the nation’s GDP.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Table 1: Contributions to Gross Regional Product by Auckland region’s top 20 industries, 2006 Industry

Auckland Region GRP$2004million

Auckland Ranking

New Zealand Ranking

Business services Wholesale trade Owner-occupied dwellings*

6670 5144 4109

1 2 3

1 3 2

Retail trade

3180

4

4

Finance Real estate Construction Health & community services Communication services Education Air transport, services to transport & storage Cultural & recreational services Central government Electricity generation & supply Machinery & equipment manufacturing Rubber, plastic & other chemical manufacturing Sheet & fabricated metal production manufacturing Accommodation, restaurants & bars Personal & other community services Printing, publishing & recorded media

3048 2958 2259 2202 2087 1880 1719 1652 1140 967 931 899 819 807 803 771

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

8 6 7 5 11 9 14 12 10 13 16 19 18 15 17 20

Source: Auckland region Economic Futures Model *Owner-occupied dwellings is an imputed rental value for people owning their own homes.

Auckland’s four largest industries in terms of GRP contribution were also the nation’s four largest industries in 2006. This reinforces the fact that Auckland, being the largest city-region in New Zealand, plays a significant role in the economy as a whole. Industries shown to be more important to the Auckland economy compared with the national economy in terms of GRP contributions are: • • • • • •

finance communication services air transport, services to transport and storage machinery and equipment manufacturing rubber, plastic and other chemical manufacturing, and sheet and fabricated metal production manufacturing.

The patterns are broadly similar with regards to employment. Table 2 lists Auckland region’s top 20 industries, but this time looking at the total number of full-time-equivalent employees (FTEs) in 2006.15 As with GRP, the ranking of each industry in terms of 15

employment in New Zealand is also shown. From the table, the two largest employers in the Auckland region are the same also for New Zealand. These are Business services and Retail trade. Industries shown to be more significant employers in the Auckland region than in New Zealand as a whole are: • • • • • •

rubber, plastic and other chemical manufacturing sheet and fabricated metal production manufacturing air transport, services to transport and storage printing, publishing and recorded media finance, and communication services.

On the other hand, the road transport industry was seen to be comparatively less significant in the Auckland economy than in the national economy in terms of employment.

Statistics New Zealand classification of FTEs: The number of fulltime employees plus half the number of part-time employees.

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Table 2: Auckland region’s top 20 employers by industry, 2006 Industry

Auckland Region FTE Employment

Auckland Ranking

New Zealand Ranking

Business services Retail trade Wholesale trade

96816 71226 59719

1 2 3

2 1 6

Construction Health & community services

40845 38568

4 5

4 3

Education Accommodation, restaurants

36334

6

5

& bars Air transport, services to

25127

7

7

transport & storage Cultural & recreational services Central government Personal & other community

16938 16678 16295

8 9 10

13 10 8

services Communication services Finance Machinery & equipment

15496 13372 12703

11 12 13

9 14 17

manufacturing Real estate Sheet & fabricated metal

12643 10771

14 15

12 15

production manufacturing Road transport Printing, publishing & recorded

10769 10744

16 17

18 11

media Other food manufacturing Rubber, plastic & other chemical

10390 8809

18 19

19 16

7778

20

20

manufacturing

Broadly speaking, these results show that the Auckland region is more oriented towards high-value-added type manufacturing and the business and finance services sector than the rest of the country. In addition, air transport, services to transport and storage, and printing, publishing and recorded media provide comparatively high contributions to the Auckland economy in terms of GRP and employment. As would be expected, the Auckland economy is comparatively weak in the primary production sector. To further illustrate the nature of Auckland’s economy, Figure 6 shows the 10 most significant industries in the region in terms of their contribution to the equivalent industry in the national economy (measured in terms of GRP contribution). For example, Auckland-based businesses in the air transport, services to transport and storage sector produced 55 per cent of the national GDP in this sector of industry. This denotes a strong concentration of this industry in the region.

Source: Auckland region Economic Futures Model

Figure 6: Top ranking Auckland industries in terms of percentage contribution to national GDP, 2006

Regional Average

Source: Auckland region Economic Futures Model

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

By comparison, the industries where contribution from the Auckland region to the national economy is of least importance are shown in Figure 7. Despite dairy cattle farming and livestock and cropping farming being among the most important industries in New Zealand, the Auckland region is responsible for very little of the total value-added contribution made by these industries, i.e. only 4.8 per cent and 2.5 per cent respectively. This would be expected in a region with a high degree of urban influence.

Figure 7: Bottom ranking Auckland industries in terms ofpercentage contribution to national GDP, 2006

Source: Auckland region Economic Futures Model

2.3.3 Economic specialisation and comparative advantage The comparative strength or weakness of an industry in a particular district, relative to the nation, can be further analysed through the use of location quotients. In this report we have used the Simple Location Quotient (SLQ) index, as it is based on readily available employment data.16 If the Simple Location Quotient calculated for an Auckland industry is greater than 1 (SLQ>1), then the industry is deemed to be ‘strong’ 16

(i.e. the industry is of comparatively high importance to the regional economy). Table 3 lists all the industries in Auckland for which the SLQ is greater than 1. In order to provide a means of comparison, the table also includes the SLQ calculated for the equivalent industries in a select number of other New Zealand regions.

Mathematically speaking, the SLQ for a given industry, i, is calculated as: (Empri / Empni) SLQi = (Empr / Empn) where Empri is the total number of people employed in the industry in the district or region in question, Empni is the total number of people employed in the industry in the nation, Empr is total employment in the region or district, and Empn is the total employment in the nation.

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Table 3: Auckland region’s ‘strong’ industries by Location Quotient and Location Quotient results for comparable regions, 2006 Industry

Auckland

Wellington

Canterbury Region

Air transport, services to transport & storage Rubber, plastic & other chemical manufacturing Wholesale trade Basic metal manufacturing Insurance Furniture & other manufacturing Beverage, malt & tobacco manufacturing Transport equipment manufacturing Water supply Services to finance & investment

1.67 1.54 1.54 1.51 1.48 1.43 1.39 1.38 1.37 1.37

0.61 1.10 0.74 0.53 2.27 0.70 0.37 0.27 1.56 1.59

0.36 0.68 0.74 1.22 0.42 0.59 0.16 0.75 1.17 0.53

1.10 1.22 0.91 0.46 0.88 1.19 0.72 1.43 0.30 0.92

Business services

1.37

1.47

0.71

0.87

Finance Printing, publishing & recorded media Sheet & fabricated metal production manufacturing Communication services Non-metallic mineral production manufacturing Textile & apparel manufacturing Machinery & equipment manufacturing Petroleum & industrial chemical manufacturing Cultural & recreational services Real estate Paper & paper production manufacturing Personal & other community services Retail trade

1.36 1.34 1.32 1.32 1.28 1.18 1.17 1.13 1.13 1.07 1.06 1.03 1.00

2.07 1.23 0.63 1.68 0.39 0.61 0.58 0.33 1.25 0.88 0.66 0.88 0.92

0.56 0.70 1.16 0.72 0.98 0.40 0.97 0.68 0.99 0.93 1.48 0.93 1.00

0.67 0.93 0.92 1.09 1.06 1.70 1.47 0.91 0.94 0.88 0.52 0.88 1.00

Source: Auckland region Economic Futures Model and Market Economics Ltd

While the SLQ is very helpful in determining industries in which there is a comparative strength, it is also important to keep the size of each industry in perspective. The petroleum and industrial chemical manufacturing industry in Auckland, for example, while calculated to have a SLQ greater than 1, is estimated to contribute only $120 million to Auckland’s total GRP or 0.23 per cent (ranked 37 out of 48 industries). Petroleum and industrial chemical manufacturing activities are therefore not actually of particular significance to the region. Overall, the industries that are of most importance to the Auckland economy are those which are both strong in the region (i.e. SLQ is greater than 1) and of significant size in terms of GRP contribution. It has been identified that there are a total of 13 industries in Auckland satisfying both of these criteria (Table 4). More information on these sectors of significance to the region is provided in the next subsection.

16

Waikato Region

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Table 4: Auckland region’s industries with comparative advantage and significant contribution to GRP, 2006 Industry

GRP Contribution ($2004mil)

Business Services Wholesale trade Retail Finance Real Estate Communications Services Air transport, services to transport and storage Cultural and recreational services Machinery and equipment manufacturing Rubber, plastic and other chemical manufacturing Sheet and fabricated metal production manufacturing Personal and other community services Printing, publishing and recorded media

6,670 5,144 3,180 3,048 2,958 2,087 1,719 1,652 931 899 819 803 771

Rank by GRP (out of 48 industries) 1 2 4 5 6 9 11 12 15 16 17 19 20

SLQ

1.37 1.54 1.00 1.36 1.07 1.32 1.67 1.13 1.17 1.54 1.32 1.03 1.34

Rank by SLQ (out of 48 industries) 9= 2= 24 12 21 14= 1 19= 18 2 14 23 13

Source: Auckland region Economic Futures Model

2.4 Analysis of sectors of interest in the region Businesses of interest to the Auckland region are analysed in this section focusing on past trends, value chain where possible, and growth drivers and constraints. These sectors or businesses of interest represent the 13 industries listed in Table 4, although some are not classified directly as such. The industries are classified according to current national and regional priorities for economic development. The focus of this report will remain on the 48 sectors of the EFM. However, given their importance to the Auckland region economy, the following industry sectors will be referred to throughout the report: 1. 2. 3. 4. 5. 6. 7. 8. 9.

10. 11.

Business and financial services Retail Information and Communication Technology (ICT) Creative Digital content Tourism Transport, transport services and logistics Biotechnology Specialised manufacturing i Marine ii Materials Food and beverage manufacturing, and Aquaculture.

The first step of this exercise was to define those sectors currently not classified as the 48 sectors in the EFM into the ANZSIC coding for consistency with other sectors in the model. This exercise was done in collaboration with a number of government ministries namely, Statistics New Zealand and the Ministry of Economic Development. Some sector definitions were also taken from a number of sector-specific studies undertaken for the region. The ANZISC concordance for the above sectors is provided in Appendix 3 for reference. It is important to note here that this list is not definite and that each organisation has its own definition of what should or should not be included. Another problem to note is the difficulty of identifying how much of a particular activity is undertaken by each sector. Most of the sectors also overlap or are subsets of each other; for example, marine is a subset of the specialised manufacturing sector, digital content is a subset of creative industries. Therefore, determining the exact activity for each of these sectors is based on the analysts’ own interpretation and methodology. This area of sector classification calls for further research and surveys to be conducted – an issue not addressed in this report. While the focus of this study is on the Auckland region and on specific business sectors, it is important to recognise that business in the region does not exist

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in isolation. Each current and prospective business in the Auckland region is part of both a global and New Zealand value and logistics chain from suppliers through to customers. Businesses operate in a global market for goods and services.

subsidiary role to the financial and business centres of Sydney and Melbourne.

Most of the analysis presented next is taken directly from research work commissioned by central and local government agencies, research institutions and industry sector groups. The degree of understanding and availability of information vary widely across industry sectors. Most of the available literature provides insight for the whole of New Zealand and does not have an Auckland focus. Even so, Aucklandspecific information is provided in this section whenever possible.

•

For this report, ‘business and financial services’ represent the following sectors in the EFM:

• • • •

Telecommunication services under the broad Communication Services sector Finance Insurance Services to Finance and Investment, and Business services.

The business and financial services sector in the Auckland region has: • strong contributions to GDP and value added, relative to other sectors. In 2006, the business and financial services sector contributed $13.2 billion or 24.0 per cent to total GRP in the region.

2.4.1. Business and financial services

• strong growth in employment numbers since 2000 and in 2006. The sector employed approximately 133,000 people or 22.2 per cent of all FTEs in the region.

Understanding the business services sector in the Auckland city-region was undertaken by ASCARI partners as part of this project with the key findings presented next.17

Source: ASCARI (2008) and EFM.

Sector trends Sector definition There is no single industrial logic for business and financial services. Rather, business and financial services is made up of a wide range of activities, participating in different markets that display different competitive pressures, investment trends and growth drivers. For example, ‘surveying services’ and ‘employment placement services’ both fall under the banner of business and financial services, yet the two will respond to very different drivers and processes. The only commonality between these activities is their production of non-tangible output. Given that business and financial services enable other economic activities (for example, providing accounting support for a manufacturing firm), they are more usefully considered as economic ‘functions’ rather than sectors. The Central Business District (CBD) is a key site for business and financial services in Auckland. Auckland’s position in the Australasian system of cities suggests that, while Auckland is a key centre for business and financial services in the New Zealand market, it plays a

17

18

ASCARI Partners (2008). Understanding the Business Services Sector in the Auckland City-Region. Report to Auckland Reghional Council.

At a national level, business and financial services show: •

higher multi-factor productivity than business and financial services in the United Kingdom

•

high firm turnover rates relative to other sectors, but little sign that turnover rates are enhancing productivity

•

a large number of small firms in existence (consistent with evidence overseas)

•

large contributions to company taxes (which provides an indication of strong profitability), and

•

activities that are spatially concentrated in urban areas, with the Auckland region housing a disproportionate share.

The business and financial services sector also shows other trends: •

The literature suggests that cities, through the spatial concentration of activity, provide key advantages to business and financial services.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

will provide significant additional capacity for service activities.

However, applied research in Auckland shows mixed results and is in an emergent stage. •

A large proportion of small firms may mean that innovative activities are constrained (i.e. firms may be focused on short-term outcomes), and that their inability to exploit economies of scale may lead to heightened vulnerability.

•

Technology is increasingly deployed in service activities. While some service firms use technologies to improve their day-to-day business, others are actively involved in the development of new technologies.

•

Services have a number of direct and indirect roles in the innovation life cycle. However, OECD data shows that innovation intensities in service firms are lower than in manufacturing firms when measured using traditional innovation statistics. Statistics New Zealand 2007 Innovation report suggests some services sectors, such as communication services, are very innovative.

•

Business services demonstrate strong forward and backward linkages in the economy. This may support notions of functional specialisation, as well as considerations of the sector as a product of derived demand.

•

Business and financial services are constituted by a myriad of effective markets, each with different competitive pressures and value-chain processes. This may not be captured when undertaking analysis using ANZSIC classifications.

•

Internationalisation, and increased competition from developing countries, may hasten the need for Auckland to specialise in knowledge-intensive business services. However, strong international exposure to date may have improved the competitive prospects of existing business and financial services firms.

Growth drivers and constraints In terms of investments and disinvestments, some of the key points raised in the ASCARI report include: •

Commercial property developments by developers provide a signal of the demand from financial and business services firms. There are a number of developments planned in Auckland’s CBD, which

•

Human capital investments, both within the sector and from outside the sector, may have critical effects in leading service activities into knowledgebased markets. However, as with all human capital effects, human capital investments are very difficult to clearly isolate and measure.

•

Technology is increasingly used in business services, so critical evolutions may provide a significant growth spur. However, given the importance of face-to-face contacts, increasing use of technological inputs does not inevitably lead to the dispersion of these activities away from urban areas.

•

Foreign direct investment through mergers and acquisitions may have a significant bearing on the prospects of service activities. Strong Australian relationships already exist in the banking sector, and with finance and insurance services in Auckland. Potential effects may include the rationalisation of activities between headquarters and subsidiaries (impacting potential for valueadded), as well as employment contractions stemming from the centralisation of processes within a single corporate structure.

•

Overall it is hard to determine the extent to which investments and disinvestments will shape the growth trajectories of the sector going forward. This is driven, in part, by the fact that some components of the business and financial services sector are closely tied to offshore investments.

Outlook Crude projections suggest that by 2024, GDP for business and financial service activities in Auckland will lie in the range of $14 billion to $16 billion. However, given issues around possible agglomeration effects in Auckland, as well as changing labour productivity performance over the coming years, such projections should be treated with caution. Auckland’s business and financial services enable other economic activities. As a result, such services are, in large part, a product of derived demand. This means that business and financial services growth over the next twenty years is likely to be strongly correlated to the overall output performance of the region.

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Business and financial services are showing sustained growth in Australia, with major growth in both employment and exports.

2.4.2 Retail

•

a weakening of the historical distinction between wholesale and retail activity

•

opportunities for retailers in supplying services, e.g. financial services

•

competition between retailers based on differentiation of retail format, customer experience and product mix

•

the growing importance of green products.

•

a steady reduction in the relative importance of the CBD as a retail destination compared with subregional and large suburban centres. These centres have attracted investment, major stores and a critical mass of smaller-format retailers, dominating the comparison retail sector

•

larger store size and retail chains, enabling individual outlets concentrated in larger centres to serve larger markets with competitive advantages of increased buying power and other scale economies

•

the emergence of stand-alone outlets in cheap locations to serve wide catchments

•

online retail sales capturing a growing (but still relatively small) share of the retail market. Multichannel businesses are also emerging, with the store and online experience an integral part of the brand, and

•

a decline in the retail importance of smaller centres, which have a developing focus on convenience goods and hospitality.

Sector definition The retail sector is an important part of the economy, responsible for a large component of household consumption as well as spending by international visitors. Retail is also a key driver of urban form and function.18 Because of the CBD, Auckland city has higher levels of retail employment and outlets per household than the rest of the region, indicating a net inflow of retail sales to the city. The EFM has a specific sector on ‘retail’.

The retail sector in 2006 was: • the fourth largest in the regional economy, contributing value-added of $3,180 million (or 5.8 per cent), and • the region’s second largest employer with 71,226 FTEs (or 11.8 per cent). Source: EFM

Sector trends A key trend in the retail sector over the last 15 years is the emergence of large-format retail, locating outside the established centres structure, often in cheaper locations such as general business zones or in standalone out-of-centre locations. This trend has been led by large discount supermarkets, cheap general merchandise stores, and retailers of large and bulky items such as furniture, appliances and hardware/Do It Yourself (DIY). This follows the international pattern in North America, United Kingdom and Australia. Between 2000 and 2004, the average store size was estimated to have increased by 10 per cent.19 The trend is expected to continue over the long term. Other retail trends include: •

an increase in hospitality and service spend based on changing social patterns and behaviour

•

a more mobile consumer market

18 19

20

Market Economics (2008). Excludes Accommodation, Cafes and Restaurants. Reserve Bank of New Zealand Bulletin, Vol 68, No.2.

On the demand side, there has been considerable growth in retail spend per household in real terms. Substantial population growth, strong economic growth, low unemployment, sustained house price rises and relatively low interest rates over the past decade resulted in an average per household retail demand growth of more than 3 per cent annually. This was at the same time as a decline in the costs of imported goods from a strong New Zealand dollar.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Value chain

Sector Interview

Retail sales estimates for the Auckland region indicate a net inflow of spending in both food and grocery (8–10 per cent) and comparison retail (11–12 per cent). The region serves retail from adjacent regions, mainly from Northland and Waikato as well as the Bay of Plenty.

The interview with the New Zealand Retailers Association confirmed that in the last 10 years retail has been growing strongly, especially in Auckland with 7 per cent growth year on year. This was largely driven by the strong population growth, the booming housing market (which is currently in a dip and may take a while to bounce back) and the steady growth in tourism. Other regions that also performed well were Wellington and Queenstown. The retail sector is an important contributor to the New Zealand economy – it is a $62 billion industry and employs about 20 per cent of the total workforce.

Productivity growth within the retail sector has been relatively modest. Between 1990 and 2004, productivity growth rates averaged 0.1 per cent per annum for retail compared with 1.1 per cent for the total economy.20 This is due to the increase in capacity in the retail sector and relatively low capital utilisation. Within the Auckland region, Auckland city accounts for the largest share (41 per cent) of retail sales because it contains the region’s CBD and is a focus of tourism activity. There is also a substantial share of retail in Manukau city (20 per cent) and North Shore city (18 per cent). Cafés and restaurants, and apparel retailers are concentrated in Auckland city, while supermarket and department stores more closely match the distribution of the regional population.

Growth drivers and constraints The main drivers of retail demand are population and household numbers, spending patterns, the economy at large and, to a lesser extent, tourism. Large-format outlets generally have lower sales productivity and employment intensity than smaller outlets, which means that land and building costs may be relatively more important drivers for this type of retail. The current slowdown in the economy has led to a significant contraction in the retail sector. The immediate growth outlook for retail is expected to be more in line with household growth. However, the longer term forecast following recovery is for an increase in retail spend of approximately 1 per cent per household annually.

Prior to high energy prices in 2008 and the current credit crisis affecting the economy, consumer confidence had been very good. Given the current situation, the industry predicts that there will be no growth in the retail sector in the next two years. This slow-down in retail activity will, in part, be assisted by malls being in saturation, slower migration to the region and an ageing population. However, it is expected that retail activity will pick up again after two years as the effects of the tax cuts kick in, tourism activity picks up, and with the excitement leading up to the Rugby World Cup (RWC) in 2011. The industry also foresees that persistently high oil prices may force people to work closer to home, and this may lead to the growth of community-type retailing and the development of infrastructure around these communities. The industry sees the lack of a single brand for Auckland as a major impediment to promoting Auckland as a World-Class Shopping City. Transport congestion continues to drive costs up, impacting on retail prices and inflation. Infrastructural development is very important and, in particular, broadband which is vital to the growth of on-line shopping. Skills requirements will increase as skills needs become more professional and there is a need to streamline processes and by-laws by local government. The industry has been very active in environmental awareness through its waste management programme.

The Auckland retail market is expected to grow substantially over the period 2006 to 2026. Retail sales are projected to grow by $15.2 billion to $36 billion.21 The projected growth ranges from 83 per cent for Manukau city to 63 per cent in Papakura district. The largest quantum of retail sales growth is projected in Auckland city, at $5.4 billion (or 71 per cent). 20 21

RBNZ ibid. Excluding automotive and hardware/DIY, the projected growth is $9.5 billion.

21

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2.4.3 Information and Communications Technology

ICT is an integral part of the New Zealand economy, contributing: • $6.2 billion, or 5.1 per cent to GDP. • the equivalent of 36,300 full-time jobs, and

Sector definition Information and Communications Technology (ICT) is a key sector in New Zealand’s economic well-being because of both its ability to lift productivity and its status as a powerhouse of economic growth in its own right. The HiGrowth Project used the following definition for the ICT Sector (OECD 1998): ‘The products of a candidate manufacturing industry must: •

•

Be intended to fulfil the function of information processing and communication, including transmission and display; or

• around 8,800 New Zealand companies, of which 8.5 per cent have annual revenues of more than $1 million. Source: www.nzte.govt.nz

Sector trends In 2005 the HiGrowth Project conducted a survey of 400 ICT companies within the New Zealand ICT sector.23 The survey findings included: •

The New Zealand ICT sector is dominated by software vendors; however, there is increasing hardware and services activity occurring within secondary and tertiary business lines.

•

One of the key differentiators between local and multinational companies (MNCs) is the lack of penetration local companies have within international markets. While penetration by local companies into the Australian market is far higher than that by MNCs, this market appears to be the sole focus for local companies.

•

47 per cent of ICT companies’ head offices were based in Auckland.

•

Auckland businesses contributed total revenue of $5,543 million (or 55.3 per cent of total ICT revenue nationwide), an average revenue per business of $32.8 million.

•

While the software market comprises more than 50 per cent of the total ICT sector in New Zealand, it accounts for only 7.5 per cent of the total ICT industry revenue.

•

The telecommunications industry accounts for only 7.5 per cent of the respondent population, but represents more than 60 per cent of the total ICT industry revenue. It was noted that this sector is heavily skewed by the presence of both Telecom and Vodafone.

•

According to Statistics New Zealand, the IT industry (excluding communications) contributed about $7 billion in 2004 to GDP.

23

Survey: The HiGrowth Project: New Zealand ICT Sector Profile. IDC #, Version : 1.4. February 2006.

Use electronic processing to detect, measure and/or record physical phenomena, or to control a physical process.

Components primarily intended for use in such products are also included. The products of a candidate service industry must: •

Be intended to enable the function of information processing and communication by electronic means; and,

•

The service provided must go beyond simply the supply of goods.’22

The ICT sector offers a high-value opportunity to help grow the Auckland and New Zealand economies. It is a key enabler and driver of productivity in the economy, such as through providing links in global value chains. In the EFM, ‘ICT’ is represented across a number of sectors including: • • •

22

22

Machinery and equipment manufacturing Communication services, and Business services.

Refer www.nzte.govt.nz

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

•

Australia is the top revenue-earner aside from New Zealand, accounting for almost 25 per cent of total ICT revenues. North America and Asia-Pacific also contribute more than 10 per cent of total industry revenues respectively.

million in sales per year by 2012. This means that ICT will increase from contributing 4.3 per cent of GDP to 10 per cent by 2012. Similarly, the report notes: •

Forecast levels of ICT employment in 2012 are 125,000, compared with the current level of approximately 41,000.

•

Export income from the ICT sector in 2001 was $0.9 billion and, if the growth target is achieved, should be in the order of $16 billion by 2012.

Growth drivers and constraints Growth drivers and constraints identified for this sector by the ICT taskforce include:24 •

High-value niche products and services have the greatest potential for the growth of New Zealand-based ICT companies. A number of these companies have already achieved major successes in the world marketplace. This illustrates the opportunities for those companies that can overcome the challenges of operating in the highly competitive global market. The critical success factor is having the necessary commercialisation experience and skills to go global; i.e. to scale up rapidly on a global basis.

•

The long-term need is to build and sustain a highly skilled ICT workforce. Based on existing levels of graduate supply and productivity, it appears that by 2012 sector growth will plateau at around 6 per cent of GDP, compared with the target 10 per cent of GDP. It is imperative that New Zealand takes urgent measures to address future ICT skill shortages, especially since ensuring an adequately trained and continuous supply of ICT talent will have a long lead-time. An expanded immigration programme, focused on ICT technical, marketing and commercial skills, is likely to be a major requirement in order to achieve the growth target.

•

Although the growth target needs to be industry driven, government has a role to play in terms of its procurement policy. It is a major purchaser of ICT (accounting for approximately 33 per cent of all ICT expenditure). Government purchase is often perceived overseas as a ‘vote of confidence’ in the technology and plays an important role in building the international credibility of New Zealand ICT. Procurement attitudes also need to change at the local government level.

Outlook The same report by the ICT Taskforce proposes growing 100 ICT companies, each earning over $100 24

In recognition of the small–medium enterprise (‘SME’) composition of New Zealand business, it is envisaged that the growth from the current level of contribution needed to reach the target will be largely achieved by an increase in the number of companies that operate at above $20 million of annual sales. Many of these companies are existing ones, although some will be start-ups. Some of this contribution is expected to arise from the New Zealand-based activities of the multinationals that currently comprise approximately half of the 16 companies that have a turnover exceeding $100 million per annum.

Sector Interview ICT offers the greatest potential for the region around innovation and new technologies. However, this potential is largely constrained by the lack of skilled labour, investment and collaboration in the region. According to the ICT sector manager for NZTE, the ICT sector is growing nationally at around 6.5 per cent per annum, with the region growing at 7 per cent. Auckland has a competitive advantage in the wireless, creative, enterprise, resource-planning and health IT areas, due to the sheer size of the region. Prospects for growth will be in wireless technologies, embedded systems and artificial intelligence. However, these will be driven by a majority of SME-type businesses. Innovation will remain to be the key area of growth for ICT companies. The pace of broadband deployment is just starting to take off in the region. ICT and, in particular, communication infrastructure will be a high priority for government investment over the next five years. One initiative is the recently announced Broadband Investment Fund (BIF), a major contestable fund aimed at facilitating high-speed broadband connection. The fund contains $325 million operating and $15 million capital funding over a maximum of five years. The BIF will be used to accelerate broadband investment in three critical areas:

ICT Taskforce (2003). Breaking Through the Barriers Report.

23

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•

facilitating high speed broadband to businesses and entities such as municipalities, universities, schools and hospitals in urban centres

•

performing arts, including services to the arts, performing arts venues, music and theatre productions, and performers, and

•

extending the reach of broadband into underserved regions, particularly in the rural sector, and

•

music, including composers, sound recording studios, and recorded media manufacturing and publishing.

•

improving the resilience of New Zealand’s international connections.

2.4.4 Creative

The ‘creative’ industries are represented across a number of sectors in the EFM including: • • •

Printing, publishing and recorded media Business services and Cultural and recreational services.

Sector definition The creative industries sector currently contributes:

The creative industries sector is important to New Zealand’s economy because of its potential for growth and its ability to enable innovation and improved productivity across other sectors within the economy.25 It was highlighted that ‘…New Zealand has already established competitive advantage in some niches within the sector, notably screen production and post production, and has a growing reputation across a number of other areas including fashion and design. In addition to our world class capability, the creative industries can leverage New Zealand’s unique culture and as [a] knowledge based sector, it has the potential to generate wealth on a sustained basis.’ Creative industries are defined as those industries that have their origin in individual creativity, skill and talent, and have a potential for wealth and job creation through generating and exploiting intellectual property26. The sector is made up of the following sub-sectors: •

design, comprised of advertising services, architectural services and graphic design

•

screen production and radio, including television, film, and video production and radio services

•

publishing, including newspaper printing or publishing, other periodical publishing, book and other publishing, and authors

•

visual arts, crafts and photography, including jewellery and silverware manufacturing, photographic studios, and visual arts and crafts

25 26

24

Creative Industries Sector Engagement Strategy 2005-06. NZTE Auckland City Council (2008). Auckland’s creative industries: The Numbers 2007.

• about $2.86 billion (3.1 per cent of total GDP). However, the sector is growing at a faster rate than the economy as a whole, at a rate of 9 per cent per annum. Source: www.nzte.govt.nz

Sector trends: Key facts associated with the creative sector in the Auckland region included:27 •

the Auckland region is the centre of the majority of New Zealand’s creative industries

•

Auckland is the centre of the television, advertising, commercial radio, commercial music and publishing industries, and the largest media market in New Zealand

•

Auckland is the home of:

27

•

the New Zealand fashion industry and Air New Zealand Fashion Week, and the Pasifika Auckland Festival

•

the major television broadcasters and production companies

•

the major record companies, live music performance, music video production, the Big Day Out, the New Zealand Music Awards, the centre of the commercial music industry and a national magnet for artists in the commercial music context

Auckland City Council (2005). Snapshot: Auckland’s Creative Industries.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

•

•

•

Growth drivers and constraints

the majority of the country’s architects, designers, film producers, directors and their crews, as well as the service agencies associated with these industries, and a number of highly innovative creative talents in areas such as digital animation, mixed-media event production, interactive media and games development.

Auckland is also a major market for the performing and visual arts. Artists, dealers and companies in these fields are here in number, fed continually by the prevalence of buyers, and by the arts and creative industries’ degree programmes delivered by the major tertiary institutions in the region.

Table 5 shows that 49 per cent of New Zealand’s creative businesses and creative sector employees are located in the Auckland region. The creative sector had 16,660 employees located in the region in 2006. This equates to 2.8 per cent of the region’s total employment compared to 1.9 per cent of total national employment. Table 5: Locations of creative sector businesses and employees, 2006 Auckland Auckland New city region Zealand Total number of creative sector businesses Total creative sector employees Creative sector’s share of total employment

3,855

6,571

13,396

13,118

16,660

33,658

4.3%

2.8%

1.9%

Source: Auckland City Council 2008 Most of the creative sector activity in the Auckland region occurs in Auckland city, which provides 79 per cent of the region’s employment in the creative industries. This concentration is greater in design, screen production, radio and performing arts, and lesser in publishing and visual arts, crafts and photography. The Auckland region had the greatest increase in employment in the creative sector between 2000 and 2006, up 13.8 per cent compared to 10.5 per cent for Auckland city and substantially greater than the 3.8 per cent employment increase in the national creative sector.

As with other sectors of the economy, the creative sector is developing new business models that enable New Zealand to produce unique products and sell them to the world. Interviews conducted for the Snapshot report identified that many of the creative sector’s needs are similar to those in other industries, including access to sizeable markets, appropriate development finance and venture capital, appropriately skilled labour, and business management skills and expertise. Auckland’s infrastructure issues such as transport, parking and the cost of business premises are also an issue for the sector. The sector also has specialist needs, in particular cheaper and easier access to enhanced broadband capacity, both outside and within the CBD. Some creative industries require substantial physical space and finding affordable spaces is increasingly difficult. According to the report, many of the creative industries have a distinctive mode of organisation: they are often micro-businesses, networked, commercially interdependent, and have the scale and commitment to creativity of the typical arts company but the ethos of commercial practice. It is increasingly a sector where people with creative industry skill sets work in both commercial and subsidised parts of the sector, and beyond the sector into other service and primary industries. The creative sector is built on talent. Models of economic development should consider the dynamics of creativity and those who make their living from it, in particular their attitude to growth and profit, their visionled nature, and the strong influences of peer approval, corporate social responsibility and social inclusion. International partnerships are increasingly common. Many creative businesses work via the internet, where geographical boundaries are no longer a barrier. Opportunities for international collaboration are greater than ever. Successful creative businesses are exporting more, so their leaders need a better understanding of overseas markets, their environments and cultures. Hence, any model for development should be informed by the links between the creative industry subsectors, the wider economy, and the public and private sectors. It should also be based on an understanding of how public sector infrastructure and investment feeds a creative economy.

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Sector Interview

It covers the following applications:

The creative industries sector in New Zealand has great potential in the entertainment industry; in particular screen production is seen to be where economic development for New Zealand will lie in the future. The NZTE sector manager for creative industries stated a global growth of about 8–10 per cent per annum for this industry. The creative industry in New Zealand currently is very small and therefore does not add much to the economy. However, the potential for growth and value-added for this industry is significant, especially in the Auckland region.

• • • • • • • • • • • • • • • •

Infrastructural development, in particular broadband and fast global-connected technology, is vital to the success of this industry. Innovation and New Zealand’s natural competitive advantage are also key drivers for this industry.

production design film and video services electronic media and film photographic studios computer games recorded media manufacturing and publishing music composition and publishing digital libraries and archives packaged software publishing and services commercial art and display services museum digital artefacts graphic design television and radio content production recorded performances newspaper printing or publishing electronic and reference book publishing.

Excluded applications are: There is expected to be increased foreign direct investment in screen production and diversification in films. Given the competitive global market, New Zealand businesses need to step up their game to remain competitive in the global market.

• • •

broadcasting recorded music retailing, and internet development.

Within the EFM, the “digital content” sector is represented in:

2.4.5 Digital Content

• • •

Cultural and recreational services Business services, and Communications services sectors.

Sector definition Sector trends The digital content sector has the potential to significantly transform traditional industry boundaries, models and how commercial activities take place, through the convergence of technology, skills and the use of creative content. Through the 2005 Digital Strategy, New Zealand has a vision of becoming a world leader in using information and technology to realise its economic, social, environmental, and cultural goals, to the benefit of all New Zealanders.28 The research undertaken by Deloitte (2008) defines digital content as the creation or production of content or tools that enable the delivery of digital material across a range of media.29

28

29

26

Government departments collaboratively (2005). The Digital Strategy: Creating our Digital Future. Wellington: New Zealand Government. Deloitte (2008). Auckland Regional Innovation Systems Review – Digital Content. Report commissioned by the Ministry of Economic Development.

The OECD Information Technology Outlook 2006 report identified that the digital content sector contains some of the most rapidly changing business models of any sector. Intellectual Property (IP) is easily poached and international competition is intense. Digital content has traditionally been considered a subsector of New Zealand’s creative industries and Auckland is regarded as an important centre of those creative industries (from previous section). In terms of digital content specifically (compared with the broader creative sector), the report to Positively Wellington Business (2006) gives national digital content sector employment of 28,415 and for Auckland this was estimated to be 14,565.30 In 2006 there were 2,052 active businesses in New Zealand in the screen industry, which includes production and post-production, television broadcasting, 30

O’Leary, C. et al. (2006). Mapping New Zealand’s Digital Content Industry: Part 1. Wellington: Positively New Zealand Business. p.10.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

film and video distribution, and film exhibition. Six of these firms earned over $50 million in revenue, 27 earned over $10 million, 288 earned over $500,000 and 1,764 earned less than $500,000. Of these businesses, 1,125 (55 per cent) were located in Auckland. The importance of this sector is underscored in the report by O’Leary and Duncan (2006) which highlights that the digital content sector impacts significantly on the performance of other sectors requiring digital technologies.31 For every dollar produced by the creative industries, 57 cents are generated in related sectors.32

Growth drivers and constraints The Deloitte research established that the sector is fragmented, experiences productivity problems, and operates within a boom-bust workflow. The research also established the sector has pockets of excellence and, with strong leadership and support, the sector could contribute significantly to the economy as it has the capability to innovate and grow rapidly, both locally and internationally. Key reasons for focusing on this sector reinforce those outlined in the government’s Digital Strategy (2005):

While reinforcing the potential contribution of the sector to Auckland’s regional economic transformation, the Deloitte research also identified problems within the sector. Firms have proved unable to break the boom–bust work cycles and therefore lack the ability to address wider problems confronting the sector. Inadequacies were identified in the management of internal innovation and commercialisation, as well as the lack of access to funding, and poor uptake and commercialisation of IP stemming from research institutions. The report also affirmed the ongoing importance of the digital content sector because of its broad applicability across other sectors. Further, OECD research suggests that it will only continue to become more important with the increasing economic participation of younger generations of ‘digital natives’. To address some of these impediments, the government has approved funding of up to $2 million for 2008/2009 for the region’s digital content sector. The initiative is designed to address key issues in the industry including improving collaboration, building capability and increasing commercialisation.

2.4.6 Tourism

•

It sets a clear vision for the sector’s contribution to economic growth.

Key findings from the report ‘The Outlook for Tourism in the Auckland Region’ undertaken by Covec as part of this project are summarised next.33

•

It identifies that innovation is alive and well in the region, but that it is often hidden and informal.

Sector definition

Regional digital content companies were seen as having a high degree of creativity in product development. However, there was no systematic approach to innovation and, due to the boom–bust work cycle, companies could not plan for innovation. The failure of firms to plan innovation affected their ability to access funding to support growth and innovation, to attract local and international investment, and to plan in advance to address lulls in work-flow. There are pockets of considerable strength in terms of technology platforms and research and development capability within the universities that have relevance to the sector, but these are not strongly connected with industry.

31

32

O’Leary, C. and Duncan, I. (2006). Valuing Digital Content: Economic Perspectives. Report commissioned to inform the development of the New Zealand Digital Content Strategy. New Zealand Digital Content Strategy Working Paper 3 Smith, J. et al. (2002). Economic Sector Assessment: Report to AREDS. Wellington: NZIER. p.10.

The World Tourism Organisation defines tourists as people who ‘travel to and stay in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited’. Tourism has become a popular global leisure activity, facilitated by the change in technology and advances in passenger travel, increases in disposable income in developed countries, increased leisure time and ability to take time away from other responsibilities, and facilities for visitors such as transport, accommodation and catering. ‘Tourism’ activity affects a numbers of sectors in the EFM including: • • • 33

Retail Accommodation, restaurants and bars, and Air transport, services to transport and storage. Covec (2008). The Outlook for Tourism in the Auckland Region. Report to Auckland Regional Council.

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Gross visitor expenditure in 2006 was distributed across industry sectors as follows: • retail – $687 million (18 per cent) • accommodation, restaurants and bars – $1.43 billion (37 per cent) • road transport – $415 million (11 per cent) • water and rail transport – $58 million (2 per cent) • air transport, services to transport and storage – $599 million (16 per cent) • education – $170 million (4 per cent), and • cultural and recreational services – $391 million (10 per cent). Source: Covec Report (2008)

Sector trends A visitor strategy was prepared in 2007 for the Auckland region: ‘Bringing the World to Auckland – The Case for Investment in Auckland’s Visitor Economy’. The extensive stakeholder consultation that underpinned the research for the strategy confirmed three main things about Auckland: 1.

The CBD is the focus of most visitor activity but in Auckland’s case delivers the lowest quality of visitor experience compared with the rest of the region.

2.

Auckland’s main strength is its hinterland which contains exceptional natural attractions and offers outstanding experiences. However, this strength is almost entirely negated by the lack of transport to these areas.

The economic analysis conducted for ‘Bringing the World to Auckland’ estimated that an additional $1.65 billion of public sector investment was required to realise Auckland’s visitor aspiration, and that this level of investment would result in a cumulative increase in the Auckland visitor economy of $7.21 billion. The research concluded that Auckland’s visitor economy is a premium investment opportunity for Auckland, and that it also represents a low-risk investment because making Auckland a more compelling destination will also make Auckland a better place to live, work and play. Investing in the visitor economy will therefore effectively subsidise Auckland’s transformation into a world-class city-region. Total visitor expenditure in the Auckland region was estimated by the Ministry of Tourism at $3.74 billion in 2006. International visitors accounted for $2.52 billion of this expenditure, with domestic visitors accounting for the remaining $1.22 billion. In aggregate, the $3.74 billion of gross visitor expenditure in the Auckland region generated total regional GDP of $2.99 billion in 2006. This implies an average expenditure per GDP multiplier of around 0.80, i.e. on average, every $1.00 of gross visitor expenditure in Auckland generates around $0.80 of regional GDP, including indirect and induced effects.

Growth drivers and constraints

3.

The key drivers of demand for tourism in the Auckland region include: •

Consumer Demand: The short-term outlook for consumer demand is quite negative. The combination of lower disposable income and higher airfares will most likely curb growth in tourism demand in the next 12–18 months. The long-term outlook for consumer demand is more optimistic, particularly since most of the factors that are currently having a negative impact on consumer demand are cyclical in nature. Therefore, consumer demand is likely to rebound in the next 24–36 months as economic conditions improve and new airline capacity is released.

•

The Success of New Zealand as a Destination: Auckland’s success as an international visitor destination, at least with its current visitor proposition, depends largely on New Zealand’s success as a destination. A key focus of ‘Bringing the World to Auckland’ is determining how Auckland can establish itself as a more independent (mono) destination within New

Auckland has a rich and interesting history that distinguishes it from other destinations.

Accordingly, the research identified the following key success factors for Auckland as a visitor destination: •

Revitalise the CBD, with a focus on pedestrian access and visitor (and resident) amenity.

•

Connect visitors to Auckland’s outstanding hinterland, i.e. make it easy for visitors to get from the CBD to key hinterland precincts, and to travel between precincts.

•

28

Tell Auckland’s stories to extract additional value from visitors and differentiate it from other destinations.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Zealand, but until the visitor proposition is much more compelling, international visitor activity in Auckland will continue to depend on the strength and popularity of the New Zealand brand. Auckland has experienced declining domestic visitation rates in recent years due to a marked increase in outbound travel activity (which competes directly with domestic tourism). The outlook for domestic tourism is relatively weak with the Ministry of Tourism predicting average growth in domestic visitor nights of around 0.8 per cent per annum for New Zealand over the next 7 years, and just 0.6 per cent for Auckland. The main reason for the low expected growth rate is New Zealand’s slow rate of population growth – less than 1 per cent per annum. In addition, outbound travel is expected to continue increasing, which will further suppress domestic demand. •

•

The Cost of Travel: Around 95 per cent of all domestic travel in New Zealand is conducted using private vehicles – mainly cars; hence fuel is a direct and significant component of the cost of domestic tourism. Practically all international tourism involves a flight to New Zealand, and the airfare can be anything from 20–60 per cent of the total cost of a trip to New Zealand; hence fuel is also a direct and significant component of the cost of international tourism. The general consensus among tourism operators in New Zealand is that we are entering a period of high fuel prices that could persist for some time, and that the tourism industry will need to find ways to reduce its consumption of, and exposure to, fossil fuels. Persistently high fuel prices will reduce New Zealand’s competitiveness in long-haul markets due to the large airfare component of a trip to New Zealand, but domestic tourism is likely to increase as overseas travel becomes relatively more expensive for New Zealanders. Climate Change: The perceived threat to the New Zealand tourism industry created by climate change is clearly emphasised by the prevalence of climate and environmental themes in the recently released New Zealand Tourism Strategy 2015. The general consensus within the tourism industry is that the issue of climate change is not yet having a material impact on travel or consumption behaviour, but that it definitely has the potential to do so. According to key industry stakeholders, the main risk to New Zealand, and therefore to Auckland, seems to be the perception that a lot of carbon is generated in getting to New Zealand. A further risk is the impact that emission trading

schemes may have on the price of getting to, and travelling within, New Zealand. The general view within the industry is that travel has become an important and essential part of modern life; hence it is unlikely that increasing awareness of climate change will curb aggregate travel activity. However, it is widely acknowledged that climate change has the potential to alter the pattern of tourism, i.e. it is anticipated that consumers will choose destinations that are perceived to be relatively more environmentally friendly than others. •

Aviation Capacity: Aviation capacity is currently constrained due to well documented wide-body aircraft production delays in both the Boeing and Airbus plants. These delays are affecting practically all major carriers, including Qantas and Air New Zealand. This has resulted in higher load factors for airlines and, consequently, higher airfares for consumers. Airlines will take delivery of pre-ordered A380s from late 2008 onwards, and pre-ordered 787s from late 2009 onwards, assuming there are no further production delays. Both Qantas and Air New Zealand expect a large increase in wide-body capacity internationally from 2010 onwards, which should result in greater seat availability and lower prices. The long-term outlook for aviation capacity is therefore very positive.

•

Exchange rates: The exchange rate affects inbound tourism by altering the price of a trip to New Zealand. It also affects domestic tourism by altering the price New Zealanders pay for an international trip. The strength of the New Zealand dollar has definitely played a part in the recent growth in outbound travel, and the corresponding slow-down in international arrivals. The New Zealand dollar is expected to weaken relative to major trading partners in 2008 and 2009 as economic growth slows and interest rates decline. A weak New Zealand dollar is positive for tourism in New Zealand for two reasons: it makes New Zealand a cheaper destination for international travellers, and it makes outbound travel more expensive, which induces more New Zealanders to travel domestically.

•

Major Events: Major events were identified as a key opportunity for Auckland in the ‘Metro Project’, and subsequently in ‘Bringing the World to Auckland’. At present Auckland will be the main host of two confirmed major events in the next decade: the Rugby World Cup in 2011 and the Cricket World Cup in 2015. In addition, there is a possibility that Auckland will submit a bid for

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

the Commonwealth Games in 2018. Auckland’s ability to expand its major events portfolio beyond these events will depend on its ability to invest in a dedicated regional major events office, develop the infrastructure required to attract and deliver large scale major events, and present a united front when bidding for major events. •

•

•

Cruise Ship Industry: Recent analysis suggests that the development of a new fit-for-purpose cruise ship terminal in Auckland has the potential to deliver major economic benefits to Auckland and New Zealand. Consultation with Cruise New Zealand confirms that with a new cruise ship terminal in Auckland, and with the existing facility at Princes Wharf used as overflow capacity, it is likely that the major cruise lines would deploy more ships to this region, i.e. at present, demand for cruises in New Zealand is constrained by Auckland’s cruise ship infrastructure. This would have an immediate impact on the number of cruises operating in New Zealand waters, and on the economic impact generated by the cruise ship industry. National Convention and Exhibition Centre: Local tourism industry stakeholders unanimously support the development of an internationally competitive convention and exhibition centre in Auckland to attract high-yielding visitors. A research report commissioned by Auckland City Council concluded that a convention centre of suitable scale would increase Auckland’s GDP by $67 million per annum at operational maturity, and New Zealand’s by $72 million per annum. Low Cost Air Travel: A study conducted by Business and Economic Research Limited (BERL) in 2002 concluded that significant economic benefits would be realised from greater lowcost airline activity in Auckland, driven mainly by greater visitor numbers out of Australia.34 This analysis was based on the development of a new commercial airport at Whenuapai Airbase, but could just as easily apply to greater low-cost airline activity at Auckland International Airport.

2013 – an increase of 13.4 per cent or 1.8 per cent per annum. International visitors are expected to increase by 33.7 per cent and domestic visitors by 8.1 per cent.35 Total visitor expenditure is forecast to increase from $3.74 billion in 2006 to $5.79 billion in 2013 – an increase of 54.6 per cent or 6.4 per cent per annum. International expenditure is expected to increase by 69.4 per cent to $4.28 billion in 2013 and domestic expenditure by 23.9 per cent to $1.51 billion in 2013.

2.4.7 Transport, transport services and logistics Sector definition Many businesses in the Auckland region rely on transport and logistics providers to move goods along the supply and logistics chain domestically, and the logistic hubs associated with Ports of Auckland and Auckland International Airport for import and export trade. The Auckland region is the predominant distribution hub for New Zealand, and is also integrated with the main distribution hubs on the eastern seaboard of Australia. In the EFM, the ‘transport, transport services and logistics’ sector is divided up as: • • •

Sector trends Auckland International Airport Limited (AIAL)

Outlook

Auckland International Airport is one of New Zealand’s most important transport and tourism infrastructural assets. Twelve million people pass through the airport annually. Seventy per cent of international visitors to New Zealand arrive or depart through Auckland airport. Auckland International Airport forecasts a 100 per cent growth in passengers by 2025 to 24 million.

According to the Ministry of Tourism’s regional forecasts, total visitor to Auckland region are forecast to rise from 12.09 million in 2006 to 13.71 million in

It is the country’s third-largest export cargo port by value.36 In the year ended June 2007, $4.4 billion of exports passed through Auckland International Airport, 35

34

30

Road transport Water and rail transport, and Air transport, services to transport and storage.

BERL (2002). A Rejuvenated Whenuapai Airport – A Focus for North/ West Auckland’s Balanced Growth and Economic Development.

36

Ministry of Tourism (2007). New Zealand Regional Tourism Forecasts 2007 – 2013. Statistics NZ Feb 2007.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

representing 81.5 per cent of New Zealand’s airfreighted exports (Table 6).

Ports of Auckland generates:

Auckland International Airport contributes:

• $11 billion annually to the Auckland regional economy through port operations and trade related businesses

• more than $19 billion annually to the New Zealand economy, and

• around 155,000 jobs (including 600 at the port itself), and

• employs the equivalent to 283,000 FTEs annually (directly and indirectly).

• 22% of the regional economy (13% of the New Zealand economy).

Almost half of this impact is within the Auckland regional economy ($10.7 billion and 153,900 FTEs). This equates to 25.1 per cent of the Auckland regional GDP and 25.2 per cent of employment.

Source: POA (2008). Port Development Plan

Source: AIAL (2007). Economic Impact of Auckland Airport.

Ongoing development of the Auckland International Airport includes the expansion and upgrade of airfield facilities to accommodate increased passenger numbers and larger aircraft. A new northern runway is being developed, with Stage 1 expected to be operational in 2010/11, freeing up capacity on the existing main southern runway. A new domestic terminal is planned after 2015.

Ports of Auckland’s long-term growth forecast for container volumes are 5 per cent per annum based on long-term trade volume growth (Table 7).39The port expects non-containerised volume growth to be considerably lower than container growth. Table 7: Ports of Auckland projected container volumes Year ended June

Table 6: Air cargo exported year ended June 2007 Tonnes AIAL All NZ airports

Value

86,838

$4.401 billion

104,120

$5.400 billion

TEU throughput

2008 2010 2015 2020 2025 2030

840,000 977,000 1,246,000 1,590,000 2,030,000 2,591,000

Source: Ports of Auckland

Source: Statistics NZ

The significant trends impacting on the Ports of Auckland Limited’s operations are:

Ports of Auckland Limited (POAL)

•

The past 20 years saw substantial trade growth and the transition of non-containerised cargoes into containers. Between 1988/89 and 2007/08, container volumes increased at an annual compound growth of over 7 per cent per annum. This growth rate exceeds that of GDP growth, which averaged less than 3 per cent per annum over the same period.

•

Global shipping trends are for larger ships that generate economies of scale and reduce unit freight costs. This supports hubbing, with shipping lines calling at one port in a country or region, rather than at several ports. A ‘hub & spoke’ network is developing with a small number of New Zealand ports acting as international hub ports and regional ports serviced by a coastal shipping network. This is consistent with government policy targets to double coastal shipping’s share of domestic freight transport, yielding significant

Ports of Auckland Limited is a vital economic driver, servicing New Zealand’s supply-chain links with the rest of the world.37 The port is New Zealand’s largest and most important international seaport, handling 37 per cent of New Zealand’s total container trade and 840,993 TEU38 in 2007/08. Around two-thirds of New Zealand’s imports and one-third of its exports (by value) pass through the Ports of Auckland. The cruise ship business is also an important element in the port’s portfolio. Auckland welcomed a record 73 ships in the 2007/08 season, an annual increase of 58 per cent. Passenger numbers were 112,000, each generating an estimated $1,670 in value added to the economy.

37 38

Ports of Auckland includes the Port of Auckland (the main gateway for international trade) and the Port of Onehunga. 20-foot equivalent unit is the international standard measure of containers.

39

Ports of Auckland (2008). Port Development Plan.

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improvements in carbon emissions. There has also been a strong renaissance in the cruise ship industry over the past decade. •

The port has been consolidating its activities in the eastern part of the port area, opening up the western areas for alternative uses. Seventy hectares of land were freed up for redevelopment between 1996 and 2007, including Viaduct Harbour, Princes Wharf and the western reclamation. The port will continue its consolidation and has identified Queens Wharf for redevelopment, potentially as a ferry terminal.

Domestic freight Around 24 per cent of all freight movements in New Zealand occurs within the Auckland region. Rail and road are the main modes used for the movement of freight within the region. Rail’s role in freight within the region is currently small as it struggles to be competitive over short distances and with the limited regional rail network, but it is important in longer distance interregional traffic, particularly of bulk cargo and in serving the port. The majority of freight is transported by road within the region (250 million tonnes in 2002).40 Road freight also dominates movements between Auckland and other New Zealand regions, accounting for about 60 per cent of total traffic. Rail and sea freight each account for around 20 per cent of freight traffic.

Ports of Auckland’s ambition is to be the best port in Australasia with world-class performance. This means that it will need to have the lowest cost supply chain for New Zealand trade, world-class productivity and Australasia’s premier container hub port. The port’s business is primarily focused on containers although bulk and break-bulk remain an important part of the port’s activities. New and used vehicles are the most significant component of non-containerised volumes. Ports of Auckland’s preferred options for future capacity enhancement are new terminal operating plant and systems, and incremental reclamation using dredging. The new terminal stacking operations that are planned to be introduced over the next 15–20 years can increase capacity per hectare of container terminals by 250 per cent. The port is currently planning how the investment should be phased. It is important for supply chain logistics that New Zealand develops the optimal hub and spoke configuration for its ports. Ports of Auckland views itself as the most viable option for an international hub port in the North Island. It is New Zealand’s premier container port, handling 30 per cent by value of import–export cargos. Port of Tauranga is the only other international port in the North Island and provides strong competition to the Ports of Auckland.41 While Ports of Auckland is currently not achieving the large productivity gains of the 1990s, staff hours per container continue to decrease.

Growth drivers and constraints Road freight is expected to continue to dominate the domestic logistics sector. However, there is potential for rail to move large volumes of containers efficiently between the port and the freight hubs served by rail and road.

The level of the New Zealand dollar and fuel costs has a strong impact on passenger movements through the airport. Other drivers of change for passenger movements are immigration, population growth, tourism growth, airline sales and marketing strategies, route development and aircraft capacity.

Value chain The modern supply chain is much more responsive to end-user needs than in the past. Whereas goods used to be produced in response to general demand, with inventories held at points along the production and distribution chain, today’s goods are produced and shipped as and when required by customers. Freight logistics aim to add value along the supply chain by streamlining the many processes involved in freight management. 40

32

Auckland Regional Council (2006). Auckland Regional Freight Strategy.

For freight, the drivers include import and export growth, trade characteristics, market share and alternative transport options. Congestion is the key issue for the regional road freight industry, impacting on operational efficiencies. It slows freight deliveries and reduces the reliability of delivery times so that more freight vehicles are required to undertake the same amount of work.

41

Rockpoint (2008). New Zealand Port Sector Report.

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Sector Interview Interview conducted with Ports of Auckland Limited showed that port activities in volume terms has grown strongly in the last 10 years, on average 6 per cent per annum. There has been strong competition with Port of Tauranga and shipping lines have consolidated, resulting in prices going down whilst costs of port operations go up. The current downturn in the economy will see growth of about 1 per cent for next couple of years. A great amount of investment is needed in the next two to three years to increase capacity at POAL, otherwise current capacity will restrain future growth in port activity. The major driver for this sector is trade and container growth, predicted at about 2½ times the rate of GDP. Transport is an issue for POAL and there is a need for better use of rail and trucking capacity. Currently the POAL is handling 40–45 per cent exports and 60–55 per cent imports. The future of air freight looks positive with expected growth in tourism to provide for increased freight capacity. According to the interview with Auckland International Airport Limited, about $80 million per annum was spent on capital investment for Auckland international airport in the last five years ; this amount is likely to decrease over the course of the next ten years as improvements to the airport come to an end. Threats to growth in the air transport industry are high fuel prices, climate change and carbon footprints. As with most sectors, AIAL also identified skills shortage as an impediment to the industry. For storage and logistics, it is expected that revenue will double over the next five years but the sector does not foresee an expansion in ‘footprint’. The increase will come from more value-added services, improved processes and productivity gains. There will be limited new construction, given that constraints on land and employment could increase by a possible 25 per cent. The industry is consolidating internationally with many businesses moving to outsource. Existing companies are either expanding or are being bought out by international companies and this trend is likely to continue. Customers will also increasingly be requiring international solutions.

as parts, products and models thereof, to alter living or non-living materials for the production of knowledge, goods and services’. The New Zealand Biotechnology overview on the New Zealand’s Biotechnology Industry Organisation (NZBIO) website notes that: ‘…New Zealand has one of the fastest growing biotech industries in the world. Its biotechnology sector comprises six public and 472 private core biotechnology companies. Almost 50 per cent of these 47 companies were created in the last three years. There are 28 research institutes, of which nine are Crown Research Institutes (‘CRIs’) and are primarily funded by the New Zealand Government. New Zealand’s geographic isolation and strict quarantine standards contribute to the best animal health rating in the world, uniquely positioning the country as a global leader in agricultural biotechnology research and application. This leadership position is greatly assisted by the R&D capabilities of sector leaders such as Fonterra, the CRIs, and the universities that undertake R&D specifically targeted at the primary industry sector.42 In the Auckland region, the biotech industry: • employed approximately 3,000 people in research, commercialisation, production or support/service capacity • generated revenue of $280 million in 2006 from core biotech R&D companies • attracted more than $300 million of overseas investment in the past five years, and • accounted for 34 per cent of the nation’s biotech expenditure and 34 per cent of its income. Source: LEK Consulting (2006). New Zealand Biotechnology Industry Growth Report.

NZBIO outlines New Zealand’s biotechnology strengths, and the principal areas of activity. These are: • • • • • •

large-animal based biotechnologies plant-based biotechnologies biomedical science and drug discovery bioprocessing technologies and biomanufacturing innovative foods and health, and biocontrol, biosecurity and bioremediation.

2.4.8 Biotechnology

The ‘biotechnology’ sector is represented across a numbers of sectors in the EFM including:

Sector definition

• • •

The OECD defines biotechnology as ‘the application of science and technology to living organisms as well 42

Dairy product manufacturing, Other food manufacturing, and Rubber, plastics and other chemical product manufacturing. Refer www.nzbio.co.nz

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Sector trends

innovative foods and human nutrition (57), and the plant-based areas of application (48).

There are some general trends and opportunities for biotech businesses in NZ, and within the Auckland region:

•

Biotechnology income in New Zealand for the 2005 financial year was valued at $855 million, of which $135 million can be attributed to the highereducation sector. Biotechnology income was measured at $675 million (excluding universities) in 2004.

•

Biotech has a close relationship with developments in other technology sectors, like information technology and nanotechnology.

•

There are growing convergences between biotechnology industry sectors. For example, the personalisation of treatment through genomic medicine is forecast to be mirrored in developments in the food and nutrition sector through advances in nutrigenomics.

•

Biotechnology expenditure in New Zealand for the 2005 financial year was valued at $642 million. Of this, $125 million can be attributed to the highereducation sector. Biotechnology expenditure was measured at $430 million (excluding universities) in 2004.

•

In a recent publication by the Ministry of Research Science and Technology, MoRST noted that trends in genomic medicine are indicating that:

•

Exports of biotechnology goods, services, processes and knowledge for the 2005 financial year were valued at $142 million, up from $108 million in the 2004 financial year.

•

•

diagnostics will become more predictive,

•

therapeutic interventions will become more preventive, and

•

healthcare (including diet) will become more personalised and tailored to the individual.

There are approximately 40 companies in the Auckland region involved in the research or production of biotechnology products. In addition there is a range of companies providing specialist services to the sector.

The Biotechnology Industry Growth Report highlighted a number of key findings: •

The sector continues to grow at a robust pace.

•

The sector encompasses a diverse range of activities. New Zealand has particular strengths in the fields of agriculture, animal health, forestry, human nutraceuticals and pharmaceutical medical research.

•

Funding remains an issue but overall trends are positive, with more venture capital funds available, an increase in public offerings, and the creation of the SciTech index on the NZX to increase profile in the public markets. The increasingly fluid exchange of public and private funds between Australia and New Zealand is also positive.

•

Products and technologies continue to mature and grow in commercial stature. New Zealand organisations currently have almost a dozen pharmaceutical products in advanced clinical development. In addition, momentum continues to build with key launches of agricultural, medical devices and industrial biotechnology products and diagnostics.

•

The sector continues to collaborate actively, with more than 75 per cent of collaborations involving international organisations. This has lead to a growing number of significant commercial

Table 8: New Zealand bio-technology industry – key statistics 2005 2005

Auckland New Zealand

%

Income (million) Expenditure (million)

280 220

810 640

35 34

FTEs Number of Organisations Number of Private

410 36

2424 126

17 29

30

87

34

Organisations

Source: Capital Strategy, Statistics New Zealand, MoRST, L.E.K. Consulting The key statistics on revenue, expenditure, and areas of application in the Statistics New Zealand survey results were: •

34

The main areas of application were the biomedical science and drug discovery area (60 organisations),

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

collaborations with both Australian (assisted by the trans-Tasman fund) and international organisations. •

Government funding and focus on the sector has also been positive.

•

The Biotechnology Taskforce set up in 2002 helped catalyse a variety of positive activities including the formation of NZBio. This organisation has been critical to enhancing the sector’s profile and building a community of participants which benefit from increasing critical mass.

•

Other policy trends are generally positive including tax reforms, regulatory changes and increasing harmonisation with Australian and international regulatory standards.

•

The most common areas of application in the public sector were found to be environmental technologies, and impact and integration of emergent technology. The private sector had a stronger focus on innovative foods and human nutrition, and biomedical science and drug discovery.43

•

Core biotechnology companies predict they will need to double the number of employees with tertiary qualifications within the next five years.

•

In the ‘Other Biotechnology’ category, respondents predicted that they will need more than 140 new staff with tertiary qualifications over the next five years. This category includes product-focused biotechnology organisations and a small number of pharmaceutical companies and organisations developing medical and veterinary devices (13 of the 26 ‘Other Biotechnology’ organisations were located in Auckland). In the Natural Products category, respondents predicted that they will require more than 180 new staff with tertiary qualifications over the next five years.

Sector Interview Almost all biotechnology entities sell high-value product. The export potential for the biotech sector is very high, with many New Zealand biotech companies exclusively focused on export markets. In addition to export of goods and services, the New Zealand biotechnology industry exports intellectual property in the form of licensing deals.

Growth drivers and constraints The main additional points raised in the New Zealand Biotechnology Industry Capability survey44 for BIOTENZ45 in 2003 were: •

Biotechnology in New Zealand is a growing industry with almost 50 per cent of the 42 core biotechnology companies being created in the last three years.

•

Core biotechnology companies expect to bring 750 products to market in the next five years.

•

There are many collaborations and joint projects within the industry, both with New Zealand and overseas organisations. Just as important, there is a willingness to develop even more partnerships.

•

At least 244 patents have been granted to core biotechnology companies during the last five years.

43

L.E.K. Consulting (2006). New Zealand Biotechnology Industry Growth Report. Report commissioned by NZBIO, NZTE and MORST. The New Zealand Biotechnology Industry Capability Survey. Report to New Zealand Trade and Enterprise. Prepared for BIOTENZ by Tradex NZ Ltd. July 2003. BIOTENZ is a group of leading New Zealand providers of biotechnology, natural products, pharmaceutical and biological products and services.

44

45

The other key drivers of growth for biotech industries include the global push towards environmental sustainability. New Zealand biotech companies have been developing a range of clean technologies for decades and, therefore, have an advantage in this area. The need for increased foreign investment is important as the biotech industry matures; this maturation will also lead to an increase in domestic investment prospects. Global connectedness is also essential for the success of biotech companies, as is the employment of experienced commercialisation staff. According to the biotech sector manager, the biotech sector underpins New Zealand’s agricultural and environmental primary sectors and will continue to increase their productivity and sustainability in the short and long term. The biotech sector focuses on high-value product and as the sector matures, more and more value will be retained in New Zealand. New Zealand has some smart biofuel technologies. However, the sector is constrained by lack of capital, lack of access to suitably qualified and experienced research and technology experts, lack of access to experienced life-science commercialisation experts, and lack of infrastructure such as specialised biomanufacturing facilities and large-scale clinical trial capabilities.

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

2.4.9 Specialised Manufacturing Sector trends The manufacturing sector is an important contributor to the Auckland region economy. Between 2000 and 2006, the total number of manufacturing firms in the region has remained relatively flat.46

sectors such as food and beverage which requires cost-effective as well as innovative packaging to assist in product branding. There are also many value chains within manufacturing itself, with a range of businesses producing components for products for subsequent assembly, or products as a means for production of components (e.g. tools and dies). Examples include: •

Plastics NZ indicates that about 50 per cent of polymers manufactured in New Zealand are used in agricultural packaging, compared with perhaps 25–30 per cent in other countries.

•

The aviation manufacturing sector has developed linkages with software development companies, boat manufacturers and electronic companies. Successes from these linkages include:

In 2006, total manufacturing activity in the Auckland region generated: • approximately 13.6 per cent of total GRP (or $7,458 million), and • 15.1 per cent of all FTEs in the region (or 90,783). Source: EFM

However, some categories have shown considerable growth over this period, such as: • • • • • •

publishing other food manufacturing recorded media manufacturing and publishing sheet metal product manufacturing photographic and scientific equipment, and cement, lime, plaster and concrete product manufacturing.

•

fitting tracing-software technology from the America’s Cup yachts into gliders

•

sourcing particular composites for aeronautical engineering from boat builders

•

sourcing skilled labour for fit-outs of corporate jets from boat building

•

marketing New Zealand-assembled aircraft to purchasers of New Zealand-built yachts, and

•

utilising software firms for flight-planning and in-flight cellular technologies.

Manufacturing categories on the decline were: • • •

furniture manufacturing knitting mills, footwear, leather products, and basic chemicals, rubber products, ceramics.

Manufacturing categories on the increase are in line with the findings of the report on manufacturing for Business NZ.47 The report states that many NZ firms are well suited to supply to high-value niche export markets, excelling in short-run production and quick turnaround times, and that there is a need to steadily move towards the ‘high end’, i.e. more processed, higher-value goods commanding higher prices. On the other end, high-volume low-value manufacturing will continue to become less competitive and move offshore to more competitive environments. This trend is also reflected in the manufacturing categories on the decline as shown above.

Value chain The interdependence between manufacturing and other industries is very important and can be seen in 46 47

36

Capital Strategy (2007). Business NZ. Manufacturing Perspectives – A New Zealand Perspective.

Specialised manufacturing is manufacturing on the higher end of the scale and is considered a high priority for investment by government in the next 2–3 years. It is a sector comprising of: • • • •

general manufacturing aviation marine, and materials including composites, plastics, light alloys, coatings, etc.

Sector Interview Specialised manufacturing according to the NZTE sector manager is nationally growing at around 0.5 per cent per annum. Hamilton is seen to be growing faster than parts of Auckland, particularly around medical devices, materials, and food and beverage equipment. However, Auckland has the competitive advantage in the marine sector. Prospects for growth in this sector are in electronics and high-tech manufacturing/

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

engineering. This sector comprises a majority of SMEtype businesses. Impediments to growth include the availability of labour, the standard of skills, transport logistics, lack of investment funds, and lack of collaboration between SMEs. Export potential is seen to be around supply-chain integration of components and services. Two subsectors of specialised manufacturing important to the Auckland region are marine and materials.

i. Marine Sector definition The marine sector comprises the following subsectors: • • • • • • •

trailer power boat manufacture launches/yachts and race yachts manufacture superyacht manufacture inflatables (RHIBs) manufacture refits services, supplies and components, and ‘Other’ which includes consumables, insurance, berthage etc.

The New Zealand marine industry (excluding shipbuilding) is diverse and highly interlinked.48

In 2005, the marine industry contributed: • $1,545 million of total marine activity in New Zealand. Of this, an estimated $890 million, or 58 per cent, occurred within the Auckland region. The three main contributors were:

In the EFM, the ‘marine’ industry is largely represented in the following sectors: • • •

Transport equipment manufacturing Machinery and equipment manufacturingn and Structural, sheet and fabricated metal manufacturing.

Sector trends According to the Deloitte (2008) report, the total recreational marine sector is valued at $1.6 billion in 2006 and has grown by 6 per cent in the last year and 20 per cent since 2003.49The largest subsector of the marine industry is ‘services, supplies and components’. This accounts for 30 per cent of total sales and is growing at 20 per cent per year. Other growth sectors are rigid-hull inflatable boats (RHIBs) and trailer power boats. Superyacht sales have remained relatively constant over the three years to 2006, but racing yacht sales have decreased. Domestic sales of locally produced boats totalled $250 million; refits totalled $96 million; equipment, $197 million; and services, $279 million. For boat sales, the majority ($129 million) were trailer power boats, followed by yachts and launches as the second highest-grossing category ($68 million). In the year to 2006, marine imports grew 15 per cent whereas exports grew only 4 per cent. Or, for every dollar earned from exports, $1.60 was spent on imports. Export sales of boats totalled $282 million; refits totalled $39 million; equipment, $230 million; and services, $6 million. However, a buoyant export performance (more than doubling in three years) of the equipment sector has gone some way to redress the trade imbalance, which has been largely driven by imports of trailer power boats, inflatables and RHIBs.

• services, supplies and components sector (35 per cent or $292 million) • launch and yacht production (19 per cent or $164.8 million), and • superyacht production (17 per cent or $150.8 million) • 2,870 full-time-equivalents working in 340 businesses in the Auckland region and more than 2,000 supporting industries agglomerated around the core marine industry businesses to directly benefit from close association with training institutes, skilled workers, and good road, port and airport infrastructure. Source: NZ Marine Industry Survey 2005.

48

New Zealand Marine Industry Survey 2005. Summary Report. Market Economics. Prepared for the Marine Industry Association, NZ Marine Export Group Inc., and the Boating Industry Training Organisation. February 2006.

Value chain The marine sector interacts with suppliers of new materials, advanced electronics and other new technologies to ensure production needs are met. These technologies have application in a range of sectors, including aviation, oil drilling and bridge building. The marine sector has been an early adopter of composites, at a stage when boat builders had difficulty convincing their customers to embrace the change.

49

Deloitte & Walker Projects (2008). Auckland Regional Innovation Systems Review – Marine. Report commissioned by the Ministry of Economic Development. pp.10.

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The sector requires input from designers, engineers, mechanics and architects; skilled carpenters, surveyors and painters; divers and drivers; specialised insurance assessors; computer programmers and chefs. The sector has major impacts on the New Zealand economy, creating demand for products such as sails and ropes, fitments and accessories, fine leather, foodstuffs, wine, flowers, furniture, plumbing fittings, linen, upholstery and carpets, pool chemicals and excursion craft. It involves regular and extensive refit and repair activity. It can be defined in terms of the types of boats manufactured, but this definition fails to capture the extensive value chain and the wide range of skills and technologies associated with the industry. A build or a refit project generates orders from diverse companies in Auckland, around New Zealand and offshore.

•

The growth in the size and sophistication of superyachts, requiring new engineering solutions in many areas.

•

The sophistication of marine electronics and other technologies to meet the communications, navigation and entertainment needs of customers is increasing at the same pace.

•

Analytical tools for testing (animation, simulation and modelling) are also increasingly used to meet changing demands, and are supporting a continuous chain of innovation.

•

Refit has become a more significant global-market opportunity and Auckland is playing a role to secure a larger share of this market.

•

More New Zealand marine companies are establishing or considering a presence in offshore markets.

•

Strong international recognition of the skills of the New Zealand marine industry continues following the successive America’s Cup challenges. As such, skill shortages have driven the need for productivity improvements such as the introduction of lean manufacturing in some companies.50

Growth drivers and constraints New Zealand’s marine industry has built a solid reputation by developing flexible production processes, with solutions-based approaches and a highly skilled workforce. New Zealand has also developed a sustainable competitive advantage in design and construction technology, e.g. New Zealand has three out of the five major carbon spa manufacturers in the world. However, marine firms are facing a number of global trends and challenges:

Over the last several years, concerns have arisen within the industry about the capacity for growth in Auckland, particularly with limitations being applied to the prime Westhaven/Wynyard Point/Viaduct Harbour cluster site, and with Hobsonville not being a viable

Figure 8: NZ Marine Industry Forecast Sales 2005–2020 ($ billion, March Year Ended)

Source: New Zealand Marine Industry Survey 2005 50

38

Deloitte and Walker Projects (2008). ibid.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

alternative for commissioning and refit due to the limited berthing and manoeuvring space.

•

$350 million in direct exports and $500 million in indirect exports, mainly in packaging (PlasticsNZ, 2006)

Outlook

•

38 per cent of manufacturing output used for packaging

•

an estimated $71.7 million was spent on R&D by the plastics industry in the 2004/05 financial year and this is expected to increase.52

The survey results also provided industry forecasts of growth in sales. By 2020 it is forecast that the marine industry turnover will have grown by over 100 per cent to $3.2 billion, with export sales of $1.8 billion.

ii. Materials

Plastics manufacturers:

Sector definition

• are predominantly based in the Auckland region. In 2006, 48 per cent of New Zealand’s plastic-product manufacturing enterprises were based in the Auckland region (267 of 555 enterprises), up from 36 per cent in 2000.

Advanced industrial materials are defined as: • • • • • •

plastics, coatings, polymers (including biopolymers) composites, ceramics metal alloys processed wood materials (e.g. Medium Density Fireboard) concrete, cement, steel, and any combinations of these.51

It does not include textiles, leather, rubber or unprocessed wood unless these were crucial components, substrates, or other inputs to the target advanced material grouping. In the EFM, ‘advanced materials’ is largely represented in the following sectors: •

Rubber, plastics and other chemical product manufacturing, and

•

Basic metal manufacturing.

• employed 5,850 people in 2006 in the Auckland region, up from 4,670 in 2000. Source: Statistics NZ (2007) Business Tables

Food, dairy and meat industries are key markets for plastics products. Based on a web-based questionnaire and a series of face-to-face interviews done for Plastics New Zealand, it was predicted that within ten years, the plastics industry could be a $4 billion industry.53 The industry’s annual sales are currently estimated at $2 billion. Composites About 20 per cent of the total composites industry in New Zealand is advanced composites (by value of material). There are approximately 400 New Zealand companies in the composites sector, across a wide range of applications from marine to aerospace.54 A significant majority of New Zealand’s 110 or so boat-building firms using composites are based in the Auckland region, as well as around 200 furniture manufacturers using composites, notably fibreglass.

Sector trends A regional snapshot of the advanced materials subsectors include:

Metal

Plastics

The Light Alloy Metals Technology roadmap cites a multiplicity of companies involved with light alloy metals.55 Firms surveyed included foundries (28 per

Key statistics for the plastics industry in New Zealand are:

52

•

50 per cent of sales are exported, with 20 per cent of exports direct

53

54 51

Deloitte and Vantage Consulting Group (2008). Auckland Regional Innovation Systems Review – Advanced Materials. Commissioned by the Ministry of Economic Development.

55

R&D projects were mainly designing and prototyping products and processes. Other R&D funds were used on attending international trade shows and development of networks and marketing channels. Unitec New Zealand (2005). Plastics led growth: Growth opportunities in the New Zealand Plastics Industry. Wellington: New Zealand Trade and Enterprise. Investment New Zealand (2007). Advanced composites for aerospace – New Zealand: A value proposition. Wellington: New Zealand Trade and Enterprise. Light Alloy Manufacturing New Zealand (2005), Mark Taylor and Ian Paine, Light Metals Research Centre, University of Auckland.

39

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cent), marine (23 per cent), industrial engineering (8 per cent), and transport (7 per cent). There were numerous subcategories including fabrication, distribution, automotive, aviation, architecture, construction, toolmakers, surface coatings, heat treatment, electronics, scrap, extrusion – the range reinforces the importance of light alloy metals across many important industries.

potential advanced-materials-focused innovation centre in the Auckland region.

2.4.10 Food and Beverage Manufacturing Sector definition

The Auckland region tends to account for 30–40+ per cent of firms in significant subsectors. The region dominates heat treatment, which means that firms from outside the region requiring these services send products to Auckland for heat treatment.

Value chain There is a high level of diversity in the advanced materials sector in the Auckland region. There are variations in materials: e.g. plastics, composites, metals and ceramics. There is also a plethora of supply chains: e.g. international metal auctions, specialist local suppliers, specialised coatings companies varying from owner-operated heat-treatment firms to overseasowned powder-coating firms, quartz (available only from a handful of Russian producers), multinational materials manufacturers who vary in their supply arrangements, and local importers. There is a wide range of firm sizes and ownership types, from major subsidiaries of overseas corporations to owner-operated enterprises, and very different end-users spanning large dairy- and meat-export firms, manufacturers, construction companies, furniture companies, marine companies, supermarkets, offshore materials companies, small retail companies, and individual consumers. This variety implies differing distribution channels and intermediaries.

The food and beverage (F&B) sector comprises dairy, meat, seafood (and aquaculture), horticulture (fruit and vegetables), wine, other alcoholic beverages, nonalcoholic beverages, processed foods, confectionery, honey, eggs, etc. Auckland appears to have a substantial number of food and beverage companies engaged in furtherprocessed foods and beverages, many of which are on a significant growth path and are also actively engaged in exporting. In the EFM, the ‘food and beverage’ sector is represented across: • • • •

Meat and meat product manufacturing, Dairy product manufacturing, Other food manufacturing, and Beverage,malt and tobacco manufacturing.

In 2006, the food and beverage sector: • contributed $1,501 million (or 2.7 per cent) to the region’s GRP, and • made up 2.4 pr cent (or 14,533) of FTEs in the region. Source: EFM.

Sector trends Firms need to embrace value webs within networks, whereby firms identify value-enhancing linkages with non-traditional technologies, competencies, materials and suppliers.

Growth drivers and constraints The proposed innovation centre focused on the theme of advanced materials and drawing particularly on the R&D capabilities at the University of Auckland’s Tamaki campus, represents a more promising path forward for the sector. Technical skills availability is a general issue confronting manufacturers and users of advanced materials, and is certain to be an important issue for the

40

The food and beverage sector is the lynchpin of New Zealand’s prosperity. It is the country’s largest manufacturing sector by total output, and through its contribution to a positive trade balance and the value of its exports, which have doubled since 1990 to $15 billion per annum. The sector contributes around 10 per cent of GDP and half of all New Zealand’s merchandise exports by value. Therefore, the food and beverage sector has a crucial effect on the nation’s economy. Key findings from a study into the level of value-added products in New Zealand food and beverage exports included:

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

•

•

Between 2000 and 2004, value-added products as a proportion of total exports grew nearly 10 per cent from 44.5 per cent to 54 per cent. This is a trend that has occurred year on year. It is expected to see the focus on value-added products continue into the future. Export revenue from food products and food ingredients increased from $11.9 billion in 2000 to approximately $17 billion in 2007. The food sector represents around 50 per cent of the total merchandise exports from New Zealand.56

At 2.4 per cent, New Zealand is a significant exporter of processed foods. No country has greater than a 10 per cent share of world trade. All the key markets are demanding product traceability, driven by issues such as biosecurity, food safety, physical security and brand/market protection.

Growth drivers and constraints Auckland is well serviced by the tertiary sector and crown research institutes. Those which play a key role in the development of the F&B sector are the University of Auckland and Auckland Uniservices, Massey University, Crop and Food, Horticulture Research, the National Institute of Water and Atmospheric Research (NIWA) and AgResearch (Hamilton). The F&B Taskforce set up in partnership with the industry, government, science and education is proposing the development of a Food Innovation Network New Zealand (FINNZ). FINNZ plans to address the various infrastructure and commercialisation hurdles in the F&B sector across the whole of New Zealand. Given the FINNZ establishment, early stage commercialisation of research could be a future opportunity and focus. Auckland is often the head-office location for a number of F&B companies including the wine sector which sources its raw or primary ingredients from other regions such as Canterbury, Hawke’s Bay, Waikato/ Hamilton and Nelson/Marlborough. Internationally, the key trends of health and wellness, and sustainability are reshaping how New Zealand companies respond. Awareness of these trends has greatly improved across the sector (especially at the 56

A Study into the Level of Value-added Products in New Zealand Food and Beverage Exports. Report prepared for New Zealand Trade and Enterprise. Professor Ray Winger. Institute of Food, Nutrition and Public Health. Massey University. 2005 update.

primary sector end), which has seen some companies now obtaining certification to show their green credentials to world markets. The F&B and primary sector are considered high priority for investment over the next 2–3 years by government. This led to the introduction of the Fast Forward Fund ($700 million over 15 years) in 2008 to boost innovation in pastoral and food industries. This may mean the development of a Food Innovation facility at Manukau specifically targeted to food processing and fast-moving consumer goods. Productivity (and process efficiency) needs to continue to improve dramatically across the sector if it is to remain competitive on the world stage. Auckland has a key role to play given the high percentage of manufacturing and further-processed companies based in the region. New Zealand Trade and Enterprise investment will continue to be with firms and subsectors which are actively seeking to transform themselves by moving up the value chain (from commodity to added-value). For example, wild catch seafood is restricted in growth by quota coupled with a depletion of natural resources, so the opportunity for transformation and growth of the seafood sector must be via aquaculture. Other opportunities are with the dairy, meat and horticulture sectors in particular. New Zealand Trade and Enterprise has also provided funding to specifically support international market development activities. This includes the Aquaculture Strategy Market Development Activities; trade fair participation in China, Japan and USA; and specific projects in the meat, horticulture and wine sectors.

Sector Interview The food and beverage sector makes up 10 per cent of the nation’s GDP with an export revenue of $17 billion (in the year to June 2007), and 20 per cent of all New Zealanders are either directly or indirectly employed in the sector according to the NZTE F&B sector manager. F&B products are either consumed through retail or foodservice, or are exported. Auckland is the main location for head offices, and the region has a substantial number of companies engaged in further-processed food and beverages, many of which are on significant growth paths and actively engaged in exports. The trends of health and well-being, and sustainability are reshaping the

41

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

sector, and the Free Trade Agreements are opening up opportunity for co-investment. Impediments to growth includes the availability of labour and the standard of skills, the distance to markets including domestic transport logistics (roading, rail and airport), the lack of investment funds, the low productivity levels, the lack of collaboration between SMEs, and the fact that too many companies export but not enough operate internationally. In terms of export potential, there is a need for collaboration and cooperation between firms to build critical mass and to focus on extracting and building new value from global value chains.

The combination of an export orientation and a focus on innovation was a factor in the aquaculture industry being targeted under the Economic Transformation Agenda. The Auckland region is not amongst the largest regional aquaculture producers in New Zealand but does have some significant farms. It is of strategic significance to the national industry. In particular, the sector sees the north-east of the country as vitally important in meeting its growth target, especially through the development of higher-value-added species and processes. Auckland has a range of strengths when it comes to aquaculture. These include: •

a large and physically diverse coastal marine area

•

highly productive water space

Sector definition

•

the largest local market for aquaculture products

Aquaculture is the practice of cultivating aquatic organisms for harvesting and sale. Within the Auckland region, there are 69 marine farms covering 330 hectares in total (largely mussels and oysters). There are other ‘exploratory’ farms in the region cultivating different species such as abalone, but they do not operate on a commercial basis at present. The industry in the Auckland region includes aquaculture processing plants and a research community based at Leigh Marine Laboratory and the University of Auckland. There are active aquaculture industries in neighbouring regions (Northland and Waikato) and inter-linkages between regions.

•

being close to local and international distribution points and infrastructure (including transport, marketing and research services)

•

warm water – Auckland’s warm temperature waters are ideal for a range of species including some very high-value-added species such as kingfish.

2.4.11 Aquaculture

In the EFM, ‘aquaculture’ is represented in the Fishing sector.

The New Zealand aquaculture industry: • produces around 0.2% of all global aquaculture sales by weight • produced an estimated $325 million in sales in 2005, 34 per cent being for domestic sales and the rest being sold to the export market. The United States is an important destination market for greenshell mussels, while Japan dominates as destination for salmon exports • is the fourth-largest agricultural export earner after dairy, meat and forestry in New Zealand • has many firms that are niche, export-oriented with a high degree of innovation. Source: The New Zealand Aquaculture Strategy (2006).

42

Sector trends

Growth drivers and constraints Drivers for growth in the aquaculture sector come from global trends in the demand for protein rich food57, and the benefits of seafood in general. The global aquaculture industry is estimated to be one of the world’s fastest growing primary industries. There is recognition that catching and harvesting seafood needs to be managed in such a manner to avoid collapse of wild fish stocks. Technical efficiencies can be harnessed giving the ability to control elements of the growing conditions, in contrast to harvesting wild stocks of fish. The aquaculture industry has articulated a desire for expansion of the sector in the Auckland region. The ARC has taken an initial precautionary position on the future management of aquaculture in the region’s 57

From United Nations Food and Agriculture Statistics, aquaculture provided 8 per cent of global fishery production (or 11 per cent of food fish) in 1984, and this rose to 22 per cent (or 26 per cent of food fish) in 1996. About 59 per cent of aquaculture production (15.6 million) was from inland waters and 41 per cent (10.8 million) from marine waters in 1996.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

coastal marine area, and is currently undertaking consultation as it develops its policy framework. There is also interest from within the sector to develop land-based aquaculture (on-land farms) and polyculture (farming two species alongside each other). Either of these could provide significant growth in the sector, without expansion of the area within the ‘Aquaculture Management Area’, which is the policy tool used to manage area under aquaculture.

Outlook A clear growth strategy for the aquaculture industry was articulated by the New Zealand Aquaculture Council in 2006, in collaboration with government departments, iwi, non-governmental organisations and research providers. The Council estimates that total aquaculture sales will reach $1,330 million by 2024.58 The vast majority of these ($1,038 million) are expected be export sales, suggesting a significant shift in the industry’s orientation towards international markets. There is increasingly recognition for kaitiakitanga and its importance to Mäori, whereby the cultural importance of collecting seafood as a customary practice is incorporated into the development of the sector. Thus, 20 per cent of any new development of an aquaculture management area is allocated to iwi. It is envisaged that productivity gains in the sector will be driven from efficiencies in marine farming and further industry innovation. There is potential for technological change within the sector, and also species change within the areas that are farmed. The vision for the sector, as outlined in the industry strategy, is to move toward high-quality environmentally sustainable products. There is also potential for innovative marketing, i.e. increasing the export value of the sector by marketing products as high-value niche foods. This has occurred in the last year with the value of exports increasing without an increase in the volume produced/harvested.

58

Macroplan Australia (2007). Quadruple Bottom Line Report Aquaculture in the Auckland Region. Preliminary Draft July 2007.

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3

Context of Change and Future Directions for Auckland

This section examines the factors that drive change and influence the future of the Auckland region’s economy. It provides summary information on: a.

the economic drivers in the Auckland region

The global drivers include:

b.

future demographic changes

c.

how New Zealand society has historically adapted and embraced changes. This provides some context for what is likely to happen in the future, be new technologies, or climate change policies

• • • •

d.

the national and regional policy context which provides a framework for economic development

e.

the views of key informants about the future focus of regional economic growth, and drivers and constraints, and

f.

economic aspirations of the community: the views of Mäori, Pacific and Asian communities around economic issues.

3.1 The changing nature of the Auckland region: Key economic drivers of change Auckland’s economy, its industries and firms are influenced by a number of economic drivers of change. These drivers can be global, national or local. They are interconnected and do not operate in isolation but culminate in a complex manner, with responses to the drivers taken at individual, business, industry and governmental levels. Those responses are shaped by Aucklanders’ attitude to change, which are highlighted in Section 3.3. Considering the drivers of Auckland’s recent economic growth helps understand the future prospects for the regional economy. This section provides an overview of what the main economic drivers of the Auckland economy are thought to be in the future.

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3.1.1 Global, national and local economic drivers

international business cycles international markets for commodities and money consumer demand for New Zealand products, and multi-lateral international agreements.

The level and use of technology also has a profound impact on the economy, and changes regarding technological development are perhaps the most certain, yet unpredictable. For example, recent advances in information and communications technology have been instrumental in the development of new business models, driving significant productivity gains. The national drivers of the Auckland region economy have evolved with both formal (legislation) and informal (norms within society) institutions, which directly affected the patterns of economic development. Included in the national drivers which are of particular relevance to Auckland (but this is by no means a definitive list) are: • • • •

immigration policy local government legislation infrastructure and energy policy, and the skills and innovation levels within the country.

The local drivers affecting the Auckland region economy include: •

infrastructure: Auckland is New Zealand’s most important cargo and transport centre with the nation’s largest port, and the country’s largest airport in terms of passenger numbers and cargo throughput

•

levels of public and private investment in construction: investment catalyses activity in the region, initially in the construction sector but with flow-on effects to other sectors

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

•

educational institutions and opportunities for young people

•

demand for housing and residential services in a region with sustained population and urban growth

•

agglomeration effects: evident with urban growth, making Auckland an attractive region for business and financial services, and

•

certain industries which benefit from economies of scale, relative to other locations in New Zealand, choosing to locate in the region.

3.1.2 Structural factors affecting the Auckland economy Evidence shows that city-regions play an important role in economic growth. The benefits of agglomeration mean that large, densely populated areas are often more productive and innovative, and have greater ability to attract people, capital and activity. Auckland, as the largest city-region in the country, is no exception.

institutes have campuses or satellite campuses here (unique in the New Zealand context). It supports an innovative research community, which is known for excellence in biotechnology, environmental science, material science, and health and medicine. Despite having these characteristics in its favour, other aspects of the regional economy provide clues as to the reason for Auckland’s low productivity growth by international standards – although it is worth noting that low productivity levels are a national issue, rather than solely a regional one. Over the last twenty years, two-thirds of the economic growth in New Zealand was generated by increases in the number of hours worked, and only one-third from increased labour productivity. This explains New Zealand’s limited improvements in income per capita. While the Auckland region enjoys higher labour productivity than the rest of the country, it remains low compared to the OECD average.59 A number of reasons can be cited in relation to this national issue that also affects Auckland. In a nutshell, they include: •

A small domestic market and geographic remoteness: The 2004 International Monetary Fund Selected Issues report attributes half of the difference in annual gross domestic product growth between New Zealand and the OECD average between 1971 and 2002, to geographic isolation.

•

A high proportion of small and medium enterprises: The regional economy remains dominated by small, domestically focused and locally owned firms. Small firms tend to be the least active in areas which will help lift New Zealand’s productivity, including research and development, skills development, and global engagement.

•

Low level of capitalisation: New Zealand has limited levels of private sector investment.

•

Skills shortages: Over the past six years, New Zealand businesses have consistently reported difficulties in finding labour, especially skilled labour. The economy is facing capacity constraints, although this might be somewhat softened by the current economic slowdown.

•

Low level of private sector investment in research and development: Business expenditure on research and development is only about 0.5 per

Auckland’s economy has many of the characteristics which one would expect to see in a successful regional economy: •

•

•

A major national gateway: The region is the major gateway to and from New Zealand. About threequarters of New Zealand’s imports and 40 per cent of exports pass through either the Ports of Auckland or Auckland International Airport. 70 per cent of all international visitors to New Zealand arrive at and depart from Auckland International Airport. A commercial hub: Despite there being a large number of small firms in the region, Auckland is also home to two-thirds of the country’s top 200 companies and 35 per cent of its firms overall. In this sense, Auckland is New Zealand’s commercial hub. In addition, the region has a large share of the nation’s employment in high-income service sectors and in many sectors of national significance, as discussed in Section 2. A key education and research centre: Auckland dominates the New Zealand education industry. Approximately one-third of the total national education industry is located within the region, and a number of regional universities and tertiary

59

New Zealand Treasury paper, 2008

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

cent of gross domestic product, which is low by OECD standards. Public sector expenditure on research and development accounts for approximately 1.15 per cent of gross domestic product. •

•

Deficient infrastructure: Adequate transport, energy and telecommunications infrastructure are all linked to productivity gains.

today. The scale of export activity is also limited. Only 50 New Zealand firms exported more than $75 million worth of goods and services in 2005. New Zealand firms that operate internationally do not tend to generate the shareholder returns achieved by domestic firms.’ •

A limited global engagement: Two of the biggest clues to our poor record of global engagement are low levels of export growth and outward foreign direct investment.60

This last point, given its importance as a driver of economic prosperity, is examined in more depth in the next section. The way the region addresses the issues listed above will be critical in defining our economic futures.

3.1.3 Signs of internationalisation of the regional economy As discussed above, exports are a major driver of economic growth and of productivity gains. Given the size of New Zealand’s market, international engagement is vital to lift the economic bar. The New Zealand Institute, in a number of recent reports, provides the following remarks on New Zealand’s export performance: •

•

‘Although early colonial New Zealand may have been a trading nation, it has had a much weaker record of international engagement in recent years. Although we have enthusiastically adopted liberal trade and economic policies, New Zealand firms have been slow to take on opportunities in the global marketplace. New Zealand is the only OCED country that has gone backwards in terms of internationalisation since 1990.’ ‘Exporting is important for small countries like New Zealand that do not have large domestic markets to fall back on. New Zealand’s share of world trade has dropped from 0.28 per cent in 1980 to 0.22 per cent in 2004. Had New Zealand’s exports matched the growth rate of world trade since 1971, our exports would be 66 per cent higher than they are

The New Zealand Institute paints a very alarming picture. It is difficult to fully gauge the contribution the Auckland economy makes to the national trade balance due to a lack of official export data at a regional level. However, there are clear signs that the regional economy has become increasingly oriented towards foreign markets. Many new industries have emerged over the past decade and have grown strongly (for example, software, biotechnology, electronics, marine, education exports, media/film and wine), all contributing to the region’s export portfolio. Here we examine the industrial composition of the Auckland region’s economy over the last twenty years, with a special interest to the markets they serve in order to assess the extent to which the economy has become more globally oriented. A trend analysis of industry sectors outputs between 1986 and 2001 using regional input–output models reveals significant changes in the market orientation of some industry sectors in the region.61 Industry 61

60

46

For further details, please refer to the ‘Background paper to the Metro project’, Ascari 2006.

‘One of the main reasons for this poor export performance has been an inability to ‘move with the times’. The composition of New Zealand’s exports looks similar to twenty-five years ago, and remains dominated by land-based (particularly agricultural) exports. A large portion of our ‘top 20’ export categories in 1980 were still on that list in 2004 and still accounted for 60 per cent of New Zealand’s goods exports. Emerging sectors such as the wine, information technology and biotech industries do not yet comprise a significant share of New Zealand’s exports (wine exports, for example, represent just 1 per cent of total exports, despite the rapid export growth of this industry). In addition, few improvements have been made to the value-added component of traditional exports. New Zealand ranks only 29th out of 30 OECD countries in terms of the share of manufactured exports that are either high tech or medium-high tech, and it has the largest share of low-tech manufactured exports in the OECD, with a share of 70 per cent.’

McDonald, G.W. and Patterson, M.G. 2008. Auckland’s Economy and its Interactions with the Environment: Insights from InputOutput Analysis. NZCEE Research Monograph Series – No. 10. Palmerston North: NZCEE

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

sectors are segmented according to the markets they serve: intermediate demand, local market, or export market (to include overseas and the rest of New Zealand). In 1986, the air transport sector was the only significant regional industry sector serving the export market. However, by 2000/01 a number of industry sectors based in Auckland had also become significant exporters, including basic metal manufacturing; textile and apparel manufacturing; beverage, malt and tobacco manufacturing; rubber, plastic and chemical products manufacturing; and machinery and equipment manufacturing. In 2006, eleven regional industry sectors produced exports valued at more than $300 million, as shown in Table 9. Table 9: Largest exporters by industry sector in Auckland, 2006 $m

Export

Gross output

1,175

4,519

manufacturing Other food manufacturing Wholesale trade Dairy produce manufacturing Textile & apparel manufacturing Basic metal manufacturing Accommodation, restaurants & bars Business services Transport equipment manufacturing Rubber, plastic & other chemical

919 659 595 583 432 426 402 369 322

1,905 2,319 11,708 1,319 854 1,036 1,577 11,707 1,354

manufacturing

317

1,774

Air transport, services to transport & storage Machinery & equipment

Note: export includes exports overseas and to regions outside Auckland Source: Auckland region Economic Futures Model This provides some perspective into the evolving regional export performance. However, it is clear that New Zealand businesses need to be more active in their international engagement for New Zealanders to fully benefit from globalisation.

3.1.4 Future drivers The primary driver of economic growth in the Auckland region in the last ten to fifteen years has been population growth. Demographic dynamics will still determine much of the Auckland region’s economy’s

future. Section 3.2 provides a review of those dynamics and their effects on the region. In the future, given changes in demographics, a higher proportion of economic growth needs to be generated by productivity improvements. This change will require New Zealand to lift its rates of capitalisation and its total factor productivity. In addition, the potential for big economic growth gains is limited unless Auckland can increase its access to global markets and international export activity. The challenge for the Auckland region in the next 25 years is to become an ‘internationally competitive, inclusive and dynamic economy’. Increasing globalisation, the opening up of the New Zealand economy to free trade agreements, the emergence of wireless systems and economies provides opportunities and challenges for the region. Auckland’s position and function within the Australasian region will clearly influence its economic growth potential and how it chooses to go global. Despite being the largest regional economy within New Zealand, it does not enjoy the same status within Australasia, being comparable to Brisbane or Perth, rather than Sydney or Melbourne. Successful innovation, particularly in the sectors of comparative growth, is fundamental to this success. The region by 2031 is expected to become more outward focused, more export-oriented, and supported by a highly innovative workforce. The sectors that will drive the region’s economy will have a strong focus around niche, high-tech value-added activities. It is expected that they will include ICT and related subsectors (creative and digital content), specialised manufacturing (including advanced materials, marine and advanced foods), and health technologies (including biotechnology). While this argument may be controversial, agriculture is expected to remain the backbone of the New Zealand economy, albeit with more processing taking place on our shores. Although the primary sector is not very prominent in the Auckland region (except for horticulture), its significance to the New Zealand economy will impact on the Auckland region economy through inter-linkages with other sectors of the economy. Given global trends in food shortages, high food prices and the need for food security, New Zealand needs to retain its comparative advantage. This requires New Zealand businesses to focus on innovation and raising productivity in an environmentally sustainable way.

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The international trends of health and wellness, and sustainability have become a major market force, at least in rich countries. It is forcing New Zealand businesses to rethink how best to position themselves in the global market. While these trends impact most sectors, their effects are most felt in the food and beverages industry where there are strong consumer pressures for healthy food and for products with lowcarbon footprint. Despite a resurgence of business resistance to climate-change policies in the rise of the current international financial crisis, it is anticipated that the trends started in the 1990s towards more environmentally friendly production processes will continue in the next 25 years. Sustainability will be a major driver of economic and employment growth in the next 25 years. Issues around rising oil prices, emissions-trading schemes, carbon footprints, climate change and the Kyoto Protocol will continue to influence consumer behaviour and preferences. They will shape future businesses practices and encourage productivity growth and innovation through the development and application of new technologies and practices.

cent of the population increase between 2001 and 2006 was the result of net gains from migration (both from within New Zealand and from international immigration) and 45 per cent was due to natural increase (births minus deaths of those resident in the region). Figure 9: Age-sex structure, Auckland region and New Zealand (shaded) (2006) Males

Females

85+ 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5- 9 0- 4 5

4

3

2

1

0

1

2

3

4

5

Percentages

Source: Statistics New Zealand 2006 Census

3.2 Future demographic changes in the Auckland region As mentioned earlier, population growth has been the primary driver of economic growth in the Auckland region since the mid 1990s. Demographics will continue to have a major impact on the region’s labour supply and on household consumption levels, and thus on future economic growth rates. This section therefore focuses on anticipated demographic changes and their likely impacts.

In 2006, there were 1.37 million people living in the Auckland region, that’s a third of all people in New Zealand. The region’s population grew by 12.4 per cent between 2001 and 2006, making it the most rapidly growing region in New Zealand. Nearly half (49.6 per cent) of the overall national population growth during this period occurred in the Auckland region. Over the decade from 1996 to 2006, growth in the Auckland region has accounted for over half (57.2 per cent) of the total national population growth.62 Approximately 55 per

Ethnic data needs to be interpreted with care as total responses add up to over 100 per cent. At the last census, the majority of the residents of the Auckland region identified themselves as New Zealand European (56.5 per cent).63 This proportion has decreased quite dramatically from previous years, dropping from 75.1 per cent in 1991. While this is partly a result of the separate classification of ‘New Zealander’ in the 2006 census, it also reflects the growth of other ethnic groups. The greatest increase of any ethnic group was of those of Asian origin. In 1991, 5.5 per cent of the region’s population identified themselves as Asian. A decade later, this figure reached 13.1 per cent and by

62

63

3.2.1 Population in 2006

48

Auckland has a relatively young population compared to New Zealand as a whole. As shown in Figure 9, Auckland is overrepresented in all age groups between 15 and 49 years (especially for those aged between 15 and 30 years) when compared with New Zealand’s national profile. This reflects the region’s prominence as a central location for immigration, study, employment and family formation. On the reverse, the Auckland region has a relatively smaller proportion of people aged 50 years and over when compared with the national profile. This suggests out-migration by people in these groups to other centres for life-style reasons and retirement.

Auckland Regional Council (2007).

ARC (2007).

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Table 10: Ethnic groupings in Auckland region, 2006 Total Total responses Ethnic group as responses, Auckland region a % of Auckland region’s population New Zealand NZ European Asian Pacific Peoples Mäori New Zealander Middle Eastern/ Latin American/ African Other ‘Other’ Ethnicity Total People

698,622 234,222 177,936 137,133 99,258 18,555 648 1,237,239

56.5 18.9 14.4 11.1 8.0 1.5 0.1 —

2,609,589 354,552 265,974 565,329 429,429 34,746 1,494 3,860,163

Auckland region’s population as a % of NZ total 26.8 66.1 66.9 24.3 23.1 53.4 43.4 32.1

Note: This data includes only those who specified at least one ethnicity (i.e. ‘not elsewhere included’ responses are excluded from the calculation). Total percentages add up to more than 100% because people could identify with more than one ethnicity. Source: Statistics New Zealand 2006 Population Census

2006 it had grown to 18.9 per cent. This change is the result of rapid increases in immigration, especially in the mid 1990s and then again early in the new century. This is accentuated by the fact that Asian migrants tend to settle in the Auckland region. In 2006, Auckland was home to two-thirds (66.1 per cent) of those of Asian ethnicity in New Zealand. Pacific populations also continued to increase as a proportion of the total Auckland population, from 11.9 per cent in 1991 to 14.4 per cent in 2006. This increase is mainly the result of natural increase. The period saw only modest levels of immigration from the Pacific Islands to New Zealand as well as some return movements to the Islands. Although the number of Mäori in the Auckland region has increased between each census, the proportion has remained relatively stable at around 11 per cent.

3.2.2 Population and labour force projections to 2031 The main demographic trends in the region for the next 25 years are: •

fast population growth, yet at a slower pace than that of the past 15 years

•

an ageing population, and

•

a more ethnically diverse population.

The latest ARC medium population projections indicate the regional population could reach 1.9 million by 203164. This would see an increase of around 500,000 people, or 40 per cent more than our current population of 1.37 million. This means that 38 per cent of all those residing in New Zealand in 2031 would live in the Auckland region, increasing the significance of the city-region as the main population and employment centre in the country. While the rate of population growth remains high by all standards, the pace of growth is not expected to be as high as previously experienced (see Table 11). The reason behind this slow-down in population growth is a lower replacement ratio in the coming years. With an ageing population, mortality rates are expected to increase while fertility rates are expected to decrease due to the growing trend for women to build their careers and have children later in life. Migration, on the other hand, is much more difficult to predict; however, it is assumed that there will be a growing demand worldwide for skilled migrants and this may result in the numbers of migrants slowing down in the next few years compared with the strong growth in the past.

64

Medium population projections, Auckland Regional Council 2008

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Table 11: Auckland region’s population 1981 to 2031* 1981

1986

1991

1996

2001

2006

2011

2016

2021

2026

2031

0.82

0.88

0.95

1.08

1.22

1.37

1.48

1.60

1.71

1.82

1.93

7.2

8.3

12.9

13.0

12.6

8.2

7.7

7.1

6.5

5.9

Population (millions) % change between periods

* Actuals 1981 to 2006 and medium ARC projections 2011 to 2031 Source: Auckland Regional Council

In line with other developed countries, the process of population ageing is occurring in New Zealand.65 Projections indicate that by 2031 the median age of the region’s population is expected to rise from 34 years (in 2006) to 38.4 years, and the proportion of the population aged 65 years and over could increase from 9.8 per cent to 17.1 per cent. The relative proportional changes across all age groups of the Auckland region is evident below, with the expansion of people in age groups over 50 years, and a corresponding contraction of younger age cohorts. Figure 10: Structure of population for the Auckland region in 2006 (shaded) and projected for 2031 (lines) Males

• •

the Asian population may grow by 75.6%, and the European and other population may grow by only 7.4%

This trend would dramatically change the composition of the labour force in Auckland, and presents both opportunities and challenges for the region’s businesses. As a note of caution, the ethnic population dataset sums to 110% of the total regional population as respondents are able to associate with more than one ethnicity. This creates issues for the ethnic projections summarised above.

3.2.3 Impacts of demographic changes

Females

85+

The demographic trends outlined above will have noteworthy impacts on domestic demand, as well as on the availability of labour. They present both opportunities and challenges for the region’s businesses and governing authorities.

80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5- 9 0- 4 5

4

3

2

1

0

1

2

3

4

5

Percentage of population

Source: Statistics New Zealand 2006 Census and ARC population projection model The ethnic mix is also predicted to change over the period. Between 2006 and 2021, the Mäori, Asian and Pacific Island populations are predicted to grow at a faster rate than the ‘European and other’ groups (Statistics NZ medium growth rate projections). By 2021: • • 65

50

the Pacific Island population may grow by 43.8% the Mäori population may grow by 28.8% This refers to the gradual rise of the average age of the population, and is caused by lower fertility rates and decreased mortality rates (people are generally living longer) resulting in an increase in the median age of the population, and in the number and proportion of older people.

The growing population will continue to fuel growth in the domestic market filtering through to the wholesale trade and retail services, construction and community services. However population-driven economic growth is anticipated to be lower than that of the recent past. Hence Auckland businesses will increasingly need to look to new and existing export markets for business opportunities. In addition to a lower population growth rate than previously experienced, demand in the domestic market will be somewhat hindered by the change in the population’s age profile. Those aged 25 to 49 years old represented 58.7 per cent of the regional labour force population in 2006. As these people are in their biggest income-earning years of life, this is a considerable driver of household consumption, and therefore of domestically driven economic growth. As the regional population is ageing, the proportion of those aged 25 to 49 years old in the labour force is expected to reduce to 54.3 per cent of the population in 2031. This change may impact household

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Figure 11: Projected age spread of Auckland regional labour force, 2006 and 2031

70.0 2006

58.7

60.0

54.3

2031

50.0 40.0 30.0 21.3 20.0

17.8

24.3

15.4

10.0

6.0 2.2

0.0 15 to 24

25 to 49

50 to 64

65 and over

Source: Statistics New Zealand (2008): based on resident population in the labour force at June 2006

consumption levels which can be expected to decrease in the next 25 years, suggesting more limited domestic growth opportunities. However, some industry sectors, such as health and community services, will benefit from the ageing of the population. Another impact of the population becoming older is that the labour market will grow at a lower rate than the population growth rate. This will increase the dependency ratio (i.e. the proportion of those in work supporting those not in work), and the population’s ability to pay for publicly funded services and infrastructure. The ageing of our population will also impact on the size of the labour market. In 2006, 68.5 per cent of Auckland’s total population was of working age; in 2031, this proportion is expected to decrease to 64.7 per cent.66 This suggests a need for more flexible work and employment practices in order to maximise labour participation rate, and retain older workers in the workplace. This relative contraction of the labour force may also lead firms to substitute capital for labour and to be increasingly dependent on global sourcing of labour. Migration will remain an important source of skilled labour in the region. However, given the global trend in ageing, the competition for talents with other countries will be acute. The labour force will become, on average, older and be very ethnically diverse. The changing face of the labour force will present both opportunities and challenges for the region’s businesses. With the ageing population, 66

it is anticipated that people will remain in work for longer, suggesting a need for constant upskilling to stay employable and productive. Moreover, given Auckland’s ethnic composition, a greater diversification of the labour force is also projected for the region by 2031. Ensuring high skills and participation levels of all ethnic groups will be essential in a labour force that is contracting comparatively to the population.

3.3 Societal adaptation to changes: lessons from New Zealand history The state of the regional economy is affected by a number of global, national and local drivers, as discussed in the Section 3.1. Many of those drivers are exogenous: we have limited control over factors such as migration trends, climate change, energy prices, the introduction of new technologies, global commodity prices, international money markets, foreign demand for our products and services, or geo-political alignments. While future changes cannot be controlled nor predicted, we can be certain that change will occur, be it in an incremental fashion or in a cataclysmic way. Here are a few past examples of change that could happen again:

Working age: those aged 15 to 65

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•

Economic shocks: global economic downturns in 1958, 1973–79, 1987, 1991, 1999 and 2008.

•

Energy shocks: geo-political situations result in upheaval to energy prices in 1973 and 2007.

•

Climate shock: •

•

Changing global perception of ecological issues (e.g. 1970s, 2005) and effect on products (new technologies replacing old waste technologies), carbon emissions etc. Specific climate shocks, such as the summer of 1998 and resulting serious infrastructure failure.

Some historical and current examples which reveal Aucklanders’ social norms are: •

The 1998 power outages resulting from a weak and unreliable infrastructure.

•

The poorly focused education sector which resulted in skill shortages for certain industries.

•

The investment infrastructure, which has in recent years resulted in capital investment in housing and property, rather than investment in sectors with higher employment and value-added potential.

•

Technology shock: radical changes due to computerisation, growth of web-based economy and wireless technologies. •

•

Political shocks: world wars, Britain entering the European Community, ‘nuclear fallout’ in 1984, and an increase in global terrorism with political and military responses from 2000.

The divergent response to 1990s immigration, which resulted in diversity within Auckland but also in opinion.

•

The response to connectedness issues, given lagging mobile and broadband services.

Natural phenomena: such as SARS, and the tsunami in 2006.67

•

Lack of robust industry clusters resulting in volatility in, for example, film and television, and food manufacturing.

•

Political will and lack of shared narrative, resulting in competing Auckland messages.

•

While we cannot predict changes, the way we react to, adapt to or anticipate these changes has significant implications for the future state of our economy. This section provides some insights into how New Zealanders, and in particular Aucklanders, have adapted to specific changes in the recent past. This provides some context for how unforeseen changes (caused by shocks) could be responded to, and thus how economically resilient the region and the country could be in responding to change. Adaptation to change is a social institution, dependent on the norms within the community or society at any given time. Institutions structure economic, political and social activity, by providing incentives and disincentives to behaviour. One cannot make sense out of economic facts and figures in isolation, for an understanding of behaviour within the economic, social and political spheres is required. Within a society as ethnically and culturally diverse as Auckland, there will not be one set of social norms, but a diversity of norms in operation at any point in time. However, there are discernible historical trends of behaviour and reactions to incidents which could provide indicators for behaviour in the future. 67

52

A strong trait of the regional population is its mobility. Aucklanders have responded to various economic shocks by migrating en masse to foreign countries, notably Australia and the UK, or to other parts of the country.

Kudos Ltd, 2008

In the future there is the potential for societal resistance to change. These can be brought about by: •

Social divisiveness: generational, political, philosophic, cultural

•

Lack of vision: when pragmatism hits a wall, where next?

•

Leadership: for example, clear (Lange 1984) or unclear (Lange 1987)

•

Decision-making skills as a society: •

The way we frame objectives: Is it economy versus environment? Is it progress versus heritage? How do we frame our choices and objectives?

•

Do we have clear, efficient processes for listening, consulting and reaching decisions?

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

•

Do we have fair systems for redressing poor decisions?

3.4 The policy context

•

Social fractiousness: due to weak perceived levels of fairness, amenity or safety.

•

Weak structures: that are ill-suited for change.

As a rapidly growing centre undergoing change, the Auckland region is facing a range of interconnected issues not previously grappled with by other New Zealand centres.

However, there is a set of conditions to prepare for change, to create a sustainable economy that can adapt to change and is resilient: •

People need a sense of safety that enables them to be free from the fear of crime. This sense of safety occurs through formal and informal interaction with their neighbours and the development of a strong community spirit, as well as a sense of belonging and attachment to the Auckland region. Their sense of belonging, participation and safety is reinforced through the region’s amenity value, as evidenced by Aucklanders’ regular use and enjoyment of Auckland’s built environment and the quality of the region’s unique natural environment.

A number of integrated strategies will influence how economic development takes place. The national and regional policy context affecting this issue is outlined next.

3.4.1 National policy framework In the 1980s, New Zealand moved rapidly from a relatively closed economy based on a small number of trading partners to an open market-based economy. Through this period, the focus was on providing a relatively limited set of broad-based, sector-neutral interventions. The government’s role was seen as establishing fair rules for the game and little more.

•

Aucklanders need to know that they are being heard through effective consultation and that they can participate effectively in decision-making processes that affect Auckland’s well-being, while also recognising the need for effective and resilient leadership with vision.

In the late 1990s there was a growing sense that this approach to industry and economic development, while important, was not sufficient in itself. It became clear that if New Zealand was to improve its economic wellbeing, it needed to participate more effectively in an increasingly dynamic global environment.

•

People require an income that sustains them, while providing opportunities for investing in their personal growth so enabling their continuing contribution to Auckland’s economy and society.

•

The sense of belonging and the ability to participate is enforced further through the provision of and access to services and facilities that support Aucklanders and visitors in their day-to-day activities. Ease and affordability of access to both hard and soft infrastructure facilities determine the ability and effectiveness of participation in all activities within Auckland. Unaffordable or difficult access to services and facilities deters participation and leads to social disengagement and unrest.

This required an economy built on innovation and entrepreneurship, and there was a concern that New Zealand lagged in the development of a knowledge economy. The government has therefore pursued a more active economic development policy with greater recognition of the need to partner with key actors within the economy. The Growth and Innovation Framework guided economic development between 2002 and 2006. This strategy emphasised that the foundations of the economy needed to be sustained and strengthened, and that these foundations include a stable macroeconomic framework, an open and competitive micro-economy, sound environmental management, and a more cohesive society. The Framework highlighted the importance of enhancing innovation, paying attention to skills, improving global connections and focusing effort in specific sectors. It identified three areas of focus where special attention was warranted: biotechnology,

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information and communications technology, and creative industries. This explicit focus on three sectors was a first step towards a more targeted government effort in areas that could influence economic growth. These areas were seen as important for building capability across the whole economy.

of the best places in the world to live, do business and visit. Families – Young and Old is about all families having the support and choices they need to be secure and be able to reach their full potential within New Zealand’s knowledge-based economy. Five sub-themes underpin this vision:

Today, these fundamentals are continued through the Economic Transformation Agenda. The Agenda’s priorities may differ, but the goal is still the same: to lift the living standards of New Zealanders through innovation and by raising productivity in an environmentally sustainable way. The Economic Transformation Agenda was one of three priorities for New Zealand announced by the Labour government in 2005; the other two were ‘Families – Young and Old’ and ‘National Identity’. Economic Transformation is about government working to transform New Zealand’s economy into a thriving and internationally competitive market economy that is both innovative and creative with a highly skilled workforce, and that provides a unique quality of life to all New Zealanders. In December 2007, the government announced a sharper focus on its Economic Transformation Agenda, by identifying six priorities that will work to advance the economic transformation agenda. These priorities are:

54

1.

World class infrastructure: improving access to quality, fast, reliable broadband services

2.

Environmental sustainability: positioning New Zealand as a world-leading exponent of smart and innovative responses to environmental issues

3.

Innovative and Productive Workplaces: underpinned by developing workplace skills, with an emphasis on basic literacy and numeracy

4.

Growing Globally Competitive Firms: supporting New Zealand businesses to go global and extract full value from the global supply chain

1. 2. 3. 4. 5.

Strong families Healthy confident kids Safe communities Better health for all Positive ageing

National identity is about New Zealanders being able to take pride in who we are, where we live, and what we do through our arts, culture, film, sports and music, as well as by way of our appreciating our natural environment, understanding of our history and of our stance on international issues. Four sub-themes underpin this vision: 1. 2. 3. 4.

Who we are What we do Where we live How we are seen by the world

Government has a strong interest in Auckland’s growth and development. Therefore it has established the Auckland-based Government Urban and Economic Development office, a shared policy office with staff from the Ministry of Economic Development, the Ministry for the Environment, the Ministry of Transport, the Ministry of Agriculture and Forestry, the Department of Internal Affairs, and the Department of Labour. The office recognises the interdependence of many issues faced by Auckland, and aims to bring greater focus on Auckland perspectives in central government policy-making.

Government innovation investment

5.

Focusing government investment: in areas that reflect and extend New Zealand’s strengths, and

The government proposes to target innovation investment within the themes of sustainable bioeconomy and building capabilities to support niche high-tech sectors.

6.

Auckland an internationally competitive city: transformed, Auckland will become the home of globally competitive firms supported by a first-class pool of skilled labour. Auckland will be seen as one

Sustainable bio-economy is about maintaining and extending the value gained from New Zealand’s strengths in pastoral and food production. The New Zealand Fast Forward partnership between government

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

the entertainment and health sectors and distance learning.

and industry will transform the pastoral and food sectors through a series of major projects. The areas of focus are: • •

Sustainable pastoral systems: New Zealand maintains its leading position in sustainable pastoral productivity and procession.

•

Added-value foods: Firms export added-value food products that deliver high margins by a combination of factors such as consumer brand appeal and significant new technology.

•

3.4.2 Regional Strategic Framework

Environmental solutions: Environmental verification and mitigation of the impact of pastoral and added-value food production to give New Zealand products and firms an international advantage and maintain market access.

New Zealand needs to build firm capabilities to support niche high-tech sectors, and this is supported by high technology platforms in the New Zealand Research Agenda. The New Zealand Skills Strategy seeks to support skills development in a number of hightechnology industries. Early indications point towards the following areas of focus in the Auckland region: •

•

Health technologies: Health technology and service innovation deployed for leading health delivery.

Application of materials technologies: Use materials in new and innovative ways, such as in plastics, marine and packaging, to improve the productivity and profitability of high-value industries. Digital content and tools: Develop New Zealand’s strong international reputation and core capability to capture global market niches. This encompasses

The Auckland Regional Council coordinates a variety of regional strategies affecting economic development and has an Economic Development Unit that undertakes targeted regional economic development activities. The following is a diagrammatic representation of the main strategies and tools that set the bones of the policy framework for the Auckland region.

Auckland Sustainability Framework The Auckland Sustainability Framework has been developed with the support of the Auckland Regional Growth Forum. It is a joint project by all the local authorities of the Auckland region. The concept of sustainability lies at the heart of this framework: it acknowledges social, cultural, environmental and economic interdependencies, and the need to work within ecological limits. The Framework’s 100-year vision and long-term goals facilitate effective long-term planning and allow for ongoing review of challenges and responses. It is flexible enough to allow for the fact that some shifts, especially those that challenge current societal

Figure 12: Regional Strategic Framework for Auckland Economic Futures

Vision and long term goals Strategic direction

Auckland S us tainability Framework

R GS

R LTS

Delivery

AR E DS

Regional Policy Statement

M etro One Plan Programmes

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norms, could take a generation to achieve. It also accommodates shifts that could be achieved within a decade and suggests a number of short- and mediumterm strategic responses. Shifts are significant or fundamental movements that must occur in our social values and expectations, and systems and processes needed in order for the changes to occur. The framework focuses on developing a resilient region that can adapt to change by building strong communities and robust ecological systems, and by designing flexibility into the Auckland regional economy, infrastructure and buildings. The framework identifies eight goals for achieving the vision:

A recent review of progress (Growing Smarter, 2007) showed an urgent need to move faster and more effectively to implement the RGS.

Auckland Regional Economic Development Strategy (2002) The AREDS vision for Auckland’s economic future is: ‘Auckland is an internationally competitive, inclusive and dynamic economy, a great place to live and conduct business; and a place buzzing with innovation, where skilled people work in world-class enterprises.’ To achieve this vision, eight platforms were identified, with both outward- and inward-facing focuses. Table 12: AREDS platforms

1. 2. 3. 4. 5. 6. 7. 8.

A fair and connected society Pride in who we are A unique and outstanding environment Prosperity through innovation Te puawaitanga o te tangata A quality, compact urban form Resilient infrastructure, and Effective, collaborative leadership.

This long-term framework is used to guide and assess the alignment of regional strategies, including the Auckland Regional Economic Development Strategy (AREDS).

Outward focus

Inward focus

• Promoting the

• Providing a high quality

Auckland region • Encouraging innovation and excellence • Developing overseas markets • Supporting exports

living environment • Building an entrepreneurial culture • Producing a skilled and responsive labour force • Delivering a high quality and responsive government

Source: AREDS, 2002

Auckland Regional Growth Strategy 2050 (1999) Metro Project Action Plan (2006) The focus of the strategy is a more compact settlement pattern with growth focused in a network of vibrant, walkable centres offering a diverse range of services and facilities connected by high-quality passenger transport. Underlying principles of the RGS are: •

intensified development in parts of the city where public transport and other services can be provided more easily

•

preservation of other areas so that they can develop in ways that retain their character and values, and

•

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development of identified areas outside the current city limits that will accommodate future growth.

In 2006 the Metro Project Action Plan was developed to give life and effect to the AREDS vision for Auckland’s economic future. The role of the Metro Project is to integrate existing and new regional activities into a single transformational economic delivery plan that reflects best practice around five key action-plan objectives. It also aims to align these objectives with the government’s Economic Transformation themes. The objectives of the Metro Project Action Plan are to: 1.

take effective and efficient action to transform Auckland’s economy

2.

develop world class infrastructure and world class urban centres

3.

transform Auckland in to a world class destination

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

4.

develop a skilled and responsive labour force, and

5.

increase Auckland’s business innovation and export strengths

be guided by the Auckland Sustainability Framework’s vision of a resilient region that can adapt to change. The three objectives are to: 1.

mplement seven programmes of action to drive the region forward in the short term

2.

develop an infrastructure plan (by August 2009), based on an inventory of currently identified priorities, and

3.

identify other priority areas that address important challenges and opportunities for inclusion in future versions of One Plan.

Auckland Regional Land Transport Strategy (2005) The Auckland Regional Transport Strategy (ARLTS) sets the high-level objectives and policies that govern the transport network in the region. It aims to increase travel choices for Aucklanders by providing and encouraging reliable, attractive and accessible alternatives to car travel. Recognising that transport has a major impact on the spatial development of the region, recent revisions of the strategy have attempted to ensure that it complements the Regional Growth Strategy. The successful development of the transport network in the region is key to overcoming some existing economic development barriers. A range of players, including the Auckland Regional Transport Authority, plan, fund, build and maintain different parts of the transport network in Auckland. The current strategy sets out an estimated $11 billion of transport funding over the next 10 years, of which approximately 62% is allocated to roading, 34% to passenger transport, and 4% to travel-demand management.68

The seven programmes of action will contribute to the goals and shifts described in the Auckland Sustainability Framework, support central government policy platforms to make a significant difference, be transformational and be both regionally and nationally significant in scale and impact. The One Plan’s seven programmes of action are: 1. 2. 3. 4. 5. 6. 7.

Improving public transport Completing the network Digital Auckland Destination Auckland CBD/Waterfront Building communities Growth through skills

Regional Policy Statement The Regional Policy Statement’s purpose is to manage the use, development and protection of the natural and physical resources of the region. It also clarifies the respective roles of the agencies with responsibilities under the Resource Management Act (RMA) in the Auckland region. The Regional Policy Statement is currently being reviewed with notification of the reviewed document expected in 2009/10.

One Plan (2008) One Plan is a single strategic framework and plan of action for the Auckland region. In the short term, it is about delivering better on existing decisions and commitments and setting a clear direction for how the region plans to achieve its aspirations for sustainable development. Longer term, it is about making and implementing better decisions. Those decisions will

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Auckland Regional Land Transport Strategy 2005

3.4.3 Summary of strategic themes There is a strong focus in national and regional policy on ensuring that the workforce has the skills necessary to drive future economic development. The government is undertaking interventions in the following high-growth-potential sectors: •

sustainable bio-economy, including added-value foods and sustainable pastoral systems

•

creative industries, including digital content and tools

•

advanced materials, such as in plastics, marine and packaging

•

environmental solutions, and

•

health technologies, including biotechnology.

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There is significant activity around building firm capability and the ability to meet the challenges of internationalisation in niche high-technology sectors. Investment in infrastructure focuses on transport and broadband. Building Auckland’s international competitiveness is also a priority of government policy. Regional policy intervention is aligned with the national focus. There is additional focus in the region on infrastructure development and the transformation of the Auckland region as a world-class visitor destination.

the region. However, interviewees were cautious about predicting longer-term trends and events.

3.5.1 General Interviews General interviews were conducted with the region’s territorial authorities and economic development agencies, central government, the Auckland Chamber of Commerce, the Employers and Manufacturers Association, the Council of Trade Unions and a representative of the Exporters Incorporated.

Current sectors of growth

3.5 Stakeholder consultations In order to augment and confirm the knowledge on the drivers of the regional economy, be it research or policy documents, a number of stakeholders were consulted through group meetings and one-on-one interviews in June and July 2008. The interviewees can be divided in two broad groups: those with in-depth knowledge of a ‘priority’ industry sector for the region,69 and those who have a good overall understanding of the region’s or local economy. A complete list of interviewees is provided in Appendix 4, and a summary of the interviews in matrix format as Appendix 5. The interviewees were asked to comment on: •

Auckland’s regional economy compared with the New Zealand economy

•

the Economic Transformation Agenda and its potential for the Auckland economy

•

major sectors or industries driving the regional economy

•

emerging and decreasing sectors, and

•

the key drivers of growth and/or impediments to growth.

It is worth noting here that most interviewees had a fair understanding of the regional economy in the nearto-medium future (usually out five years at the most), given known and proposed investments planned for 69

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One of the sectors that are thought to be driving growth within the Auckland region

Most territorial authorities identified the strong population growth over the last 25 years as the major driver behind local economies. This has been reflected in the strong growth in retail, construction, education, health and community services sectors to serve a growing local population base. Very strong growth was also experienced in the business services sector, largely reflecting the overall growth in the economy, and was more prominent in the CBD and CBD-fringe areas. Manufacturing continues to be a major part of the regional economy, although most of the people interviewed see this sector, especially low-value, high-volume manufacturing, declining in the future as operations move closer to markets. This is seen as not necessarily a bad thing for the region as most of the higher-end-value manufacturing will be retained; this includes design and R&D. The tourism sector has also performed strongly and the future potential for this sector in the region was seen as significant. Given that 70 per cent of all visitors to New Zealand pass through Auckland, the challenge now for the region is to move away from Auckland being the gateway to New Zealand to Auckland being the destination, with world-class and boutique visitor offerings. A number of initiatives are currently being implemented to this end including an Auckland brand and the ‘Bringing the World to Auckland’ strategy. Certain sectors are more established in some areas of the region than others. The following sectors were identified by each of the territorial authorities as particularly strong in their area:

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

•

While employment in North Shore city is currently concentrated in retail and business services, there is a growing specialised manufacturing and hightech sector. The city’s economy was also viewed as having a niche sport and health sector.

•

Waitakere city interviewees highlighted the importance of the marine and film industries to the city’s economy, and of specialised manufacturing.

•

The key point of difference for Auckland city is the CBD with its concentration of business and financial services. The city also has strong creative and advanced materials sectors.

•

Manufacturing is the largest employer in Manukau city. It has a dynamic food and beverage industry with solid growth prospects.

•

In the rural parts of the region, agriculture and horticulture sectors are still very prominent. Franklin district is considered the food bowl of the region and sees this as a key growth sector in the future, especially in the higher-end side of the food industry. Aquaculture is seen as a significant industry in Rodney district and is also considered to have a good growth outlook, particularly for landbased aquaculture.

Future growth sectors The sectors identified to be prominent in each of the respective territorial authorities above are the same sectors which the interviewees identified as future growth sectors. Most see these sectors as having the potential to lead the Auckland region economy in the future. The identified future growth sectors are: • • • • • • • •

advanced materials marine food and beverage digital content creative ICT biotech, and aquaculture.

In addition, the more traditional sectors such as tourism, business services, construction and retail are expected to continue to drive growth in the Auckland region’s economy over the next 20–25 years. The ageing population is also going to have implications on the region’s economy, particularly on health

services. Aged care, currently a small sector in the economy, is expected to become significant given the ageing population. Environmental solutions and green technologies is also an area expected to be significant in the future given the drive for sustainability and towards a greener environment. On the downside, all those interviewed foresee that high-volume manufacturing, including clothing manufacturing, easily substitutable products and heavy manufacturing, will decline in the future as these move offshore to be closer to their main markets.

Investments and events The lead up to the Rugby World Cup and the actual event in 2011 is expected to provide a much needed impetus to the current economic downturn. The impacts are to be most pronounced in the tourism and retail sectors. Interviewees foresee that the tourism sector will also be greatly boosted with the help of proposed additional amenities such as a convention centre and/or cruise ship terminal. The retail sector is expected to be boosted from late 2009 onwards as the effects of the tax cuts are felt. The major infrastructure plan developed for the region is expected to be the driving force behind growth in the construction, business services and communication services sectors. The plan will include investment in the waterfront, in roads, rail electrification, broadband, energy, and tourism amenity. Broadband in particular will be given priority over the next five years with the deployment of broadband in the region. All were identified by interviewees as essential for the region’s future economic growth. The New Zealand Innovation Centre and Precinct at Tamaki, with an initial focus on advanced materials and R&D in materials manufacturing, is seen as an important initiative of the government’s economic transformation agenda for a high-value niche and knowledge-intensive sector. The priority placed on high-value niche sectors such as marine, creative, digital content and biotechnology will also enable the transformation of these sectors within the Auckland region. For the primary sector, the recently announced Fast Forward Fund by government, intended to boost innovation in pastoral and food industries, could potentially lead to the establishment of a food

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processing centre in the region. This will greatly assist development of the food and beverage sector.

Impediments Impediments to growth identified by the interviewees have been well canvassed in the region’s strategic planning documents. These include: •

•

•

•

•

•

Skills: continues to be an issue of concern for most businesses in the region. The ability to attract and retain the right skills mix, the effective use of migrant skills and future skills needs are issues of real concern for most businesses in the region and they are likely to hamper efforts to transform the region into a knowledge-intensive and innovative economy. Infrastructure: deficient infrastructure in the region, in particular transport /logistics, roading, water, energy, and broadband, also remains an issue of concern. These infrastructure issues need to be seriously addressed if the region is to become an internationally competitive and dynamic economy. Size: the small scale of the domestic market and size of firms is prohibiting growth. This reinforces the need to look to new and existing export markets for business opportunities, and for businesses to collaborate, build capabilities and increase commercialisation. Regional governance: is greatly affecting business operations in the region. The Metropolitan Urban Limits, consents process, compliance costs, constrained business land and development cost are all issues identified by the interviewees as impeding growth in the region. Investment capital: a lack of capital and limited government investment in the region is also another issue identified by interviewees as limiting growth in Auckland. Most see Auckland as the driving force behind the New Zealand economy, yet this is not reflected in the level of government investment in the region. Demographics: the ageing population and slowdown in the population growth compared with the past is expected to affect growth in the region in the future.

The country’s low productivity levels was also an issue identified by the interviewees, as was uncertainties

60

around the impact of the emissions trading scheme and how this will affect businesses.

3.5.2 Sector-specific interviews Sector-specific interviews were conducted for a number of key sectors in the Auckland region. Interviews were held for the following sectors: •

creative, with NZTE sector manager

•

specialised manufacturing, which includes marine and advanced materials, with NZTE sector manager

•

ICT, with NZTE sector manager

•

food and beverage, with NZTE sector manager

•

biotechnology, with NZTE sector manager

•

retail, with the New Zealand Retailers Association

•

logistics, with Ports of Auckland, Auckland International Airport, and Keene and Nagel

•

dairy, with Fonterra

•

construction, with NZ Property Council, and

•

health, with the Auckland Regional Public Health Service.

Interviews for some of the sectors were undertaken as part of the research work commissioned for this project. These sectors and reports commissioned were: 1.

‘Understanding the Business Services Sector in the Auckland City-Region’ by ASCARI partners

2.

‘The Outlook for Tourism in the Auckland region’ by Covec Limited, and

3.

‘Rural economies in the Auckland region – Examining the transformational potential’ by ASCARI partners.

These sector-specific interviews have been compiled into Section 2 of this report on industry analysis. For a summary of the interviews, please refer to Appendix 5.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

to capitalise on Auckland’s multicultural identity need to be promoted and enhanced. For example, the annual Pasifika festival is unique to Auckland and could be developed into an internationally recognised event.

3.6 Future prospects: a view from Mäori, Pacific people and Asian communities. •

Pacific people are very creative and there is great potential for them to contribute to the economic development of the region in the creative industries. However, a number of constraints seen to be hindering their full potential: most lack initial capital or financial support to implement initiatives, and there is a lack of access to formal training as well as low levels of educational achievements for Pacific people.

•

Entrepreneurship is also an area where Pacific people could increase their contribution with the help of improved educational achievements. The Ministry of Pacific Island Affairs and Pacific Trust recognise this potential and are currently continuing work on SME start-ups to assist Pacific people develop small businesses.

•

Sports development is an area where Pacific people are fully engaged and where they may continue to provide a significant contribution given Pacific people’s natural physique and talent in this area.

•

Social services are expected to continue to grow in the region with the large percentage of Pacific people here in Auckland and with the ageing population. Social services include services to health and education undertaken by nongovernment organisations, community groups and others.

3.6.1 Economic Futures of the Pacific people and Asian communities Community sector interviews were conducted with representatives of the Pacific people community and the Asian community. The material summarised next provides at a glance the interviewees’ aspirations for their communities. However, it does not provide a comprehensive understanding of the place of these communities within Auckland society and the economy. Further research would help refine the potential future involvement of these diverse and varied communities in the Auckland economy.

Pacific Community Every community aspires towards an improved quality of life for its people through improved outputs and incomes, better quality employment, better housing, better health, personal safety, and access to education. These were the main issues identified by the interviewees for the Pacific sector who saw that the key to achieving an improved quality of life was to ensure that all, rather than a few, segments of society move up the prosperity ladder. Interviewees viewed the Economic Futures Project as a good starting point to reinforce Pacific people’s contribution to economic development in the region with the identification of economic sectors of growth through which Pacific people can add the most value. Some of the key sectors identified where Pacific people can make the most contribution to economic development in the Auckland region include: •

Tourism development, leveraging on Auckland’s multicultural population. An idea brought forth was setting up a Pacific Cultural Centre here similar to the one in Laie Hawaii which could provide that extra impetus for travellers to stay another night in Auckland. Cultural economic development has yet to be fully realised in the region and events

Given current skills levels, constant upskilling is very important for Pacific peoples to fully engage and/or re-engage back to communities and to the working environment. As such, education support and training programmes are expected to increase. Cultural obligations were identified as prohibiting economic growth for Pacific people, although this can be mitigated with increased income levels. Therefore, a growing economy with employment opportunities and increased incomes will help the Pacific people meet their cultural obligations as well as improve their quality of life. The challenge is to ensure that they are not left behind but have a leading role in the economic development of the Auckland region.

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Asian Community A great majority of Asian migrants tend to settle in Auckland where employment and businesses are concentrated. However, the interviewee does not foresee that the Asian population as predicted is going to overtake that of the Mäori population in the Auckland region. Asian migrants are largely dependent on government policy on skilled migrants as well as educational opportunities. For most Asian migrants, the language barrier is the major obstacle to finding employment in their area of expertise and, as a result, most become self-employed or are employed in lowskilled employment. Asians tend to participate more in education and also perform well. International student numbers are on the upswing and are expected to increase further, with most students settling in the region if they find employment. In businesses, networks already exist and there may be further opportunities opening up with the Free Trade Agreements with China and other countries in the Pacific–Asia rim. For the Asian community, the key sectors where the Asian population are concentrated in the Auckland region include: •

Retail: Asians are self-motivated and tend to pursue business opportunities, with most new migrants setting up small businesses, mostly in the retail trade.

•

Hospitality and property development: again, most own their own businesses in these industries.

•

Professional services: accountants, lawyers and IT specialists are also on the rise.

It is perceived that Auckland will remain the driving engine for the New Zealand economy. There are a lot of human resources from both the Asian and Pacific communities that could be utilised better. These are their greatest assets – the available level of human resource. This, however, would require high-level research and strategy with regards to the effective engagement of these communities in the economic development of the Auckland region.

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3.6.2 Mäori aspirations The information summarised here comes from two sources: 1.

interviews conducted in 2006 with senior representatives and leaders of Ngati Wai, Ngati Whatua, Pare Hauraki and Tainui as part of the development of the Metro Action Project Plan, and

2.

review and analysis of the following reports and follow-up interviews with some of the report writers: •

‘The Context for Mäori Economic Development: A background paper for the 2005 Hui Taumata’. Prepared by The NZ Treasury.

•

‘Mäori business and economic performance’ 2005. A summary report for Te Puni Kokiri by NZIER.

•

‘Mäori Commercial Asset Base’ 2007. A report by Te Puni Kokiri.

•

‘ForMäori Future Makers’ 2007. A report by Te Puni Kokiri.

It should be noted that Te Puni Kokiri will release by the end of 2008 a report on the role of Mäori in the economic future of New Zealand and the Auckland region. While Te Puni Kokiri’s input in the project would have been very valuable, they were not available for interview. We will review the in-coming report in due course and adjust the economic scenarios and modelling results as appropriate. The material gathered from the interviews conducted for the Metro Project Action Plan provides little explicit information on what the interviewees consider to be key economic sectors for Mäori in the region. However, there was consensus that the region needs to focus on developing its infrastructure in order for it to compete in the global economic markets and that iwi/Mäori have a role in developing the region’s infrastructure and in particular, infrastructure for supporting Mäori businesses to develop and grow. These interviews also identified innovation and skills as investment areas critical to Mäori, and Auckland’s, economic development. Currently large numbers of Mäori are in unskilled or semi-skilled occupations. However, this is slowly changing as a result of investment in skill and professional development in

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

certain sectors, resulting in approximately 10% of employed Mäori classified as professionals. The reports provided a high level overview of Mäori economic wealth and contribution to New Zealand’s GDP over the last decade. When economic futures was discussed, it was frequently within the national context and in the context of how Mäori can build on their entrepreneurial and creative talents, their leadership strengthens, and their strong and increasingly global cultural identity. Forty per cent of Mäori investment in New Zealand is in the trade and service sectors. These sectors are generally seen to be less volatile than the primary sectors (which have been experiencing general longterm downward price trends since the 1990s) and than the manufacturing and construction sectors. They are also viewed as providing more stable and full-time employment for Mäori . More specifically, much of this investment is in the property and business services, transport and storage, health and community, and education – these sectors employing close to twothirds of all Mäori. Investment is mainly driven by individuals starting up a business and by Treaty of Waitangi settlements.70

•

•

Discussions with report writers identified the following key sectors offering Mäori and the region a strong economic future focus and opportunities: •

Tourism and cultural services •

•

Mäori involvement in health-care provision will grow strongly for three reasons: Auckland’s Mäori population is growing in size, fewer older Mäori are returning to their ancestral lands so Auckland is becoming their turangawaewae, and Mäori are starting to want health care from a Mäori perspective.

•

•

There is anticipated growth in the wänanga (tertiary education) sector and the number of wänanga and private educational providers. Their goals are twofold: to get Mäori back to and to keep Mäori in education.

•

The first goal involves encouraging Mäori (particularly young males) who have left school with minimal or no educational qualifications and low skill levels back into the educational sector through Mäori tertiary education providers.

•

The second goal involves encouraging young Mäori school-leavers into tertiary education that is appropriate and suitable for them rather than leave school with minimal or no qualifications.

•

Mäori tertiary educational providers are likely to be either registered wänanga or private educational providers.

Financial services and property market •

70

•

This growth in health care will lead to more Mäori becoming involved in health-based ITC technology and a growth in Mäori participation in biotechnology products and bioactives existing in New Zealand’s native fauna and flora.

•

Health-based ITC technology will provide Mäori with the possibly of exporting this technology and its indigenous health-care services and programmes to other indigenous peoples.

•

This growth is likely to reflect Auckland Mäori providing cultural services for tourists and visitors, encouraging people to experience Mäori cultural entertainment programmes and dinners in Auckland rather than travel to, say, Rotorua. This will also result in tourists spending an additional bed night in Auckland.

Educational sector

Health-care provision and the associated health ITC sector •

With more Mäori aging ‘at home in Auckland’, there could be a rise in the number of Mäori retirement villages.

This will remain a significant sector for Mäori. Investment will be driven by the fact it provides Mäori with a strong asset base in New Zealand’s biggest and only truly internationally connected city. Investment in this sector is more a focus on a strong and safe investment portfolio.

Digital content and creative sectors •

These growing sectors have the potential for Mäori to create a niche market that reflects their creative and cultural talents and expertise. Investment in these sectors

Mäori Commercial Asset Base – TPK 2007

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for Mäori moves to other professions such as environment law, environmental conservation and management.

by Mäori is predicted to remain low until the sector has proved itself. However, this will not inhibit Mäori involved in the sector. The digital and creative sectors will help define the role of Mäori, particularly in the creative sector and especially in front of the camera. Such roles will raise the profile of Mäori both locally and internationally, and ensure they are participants than being just the subject matter.

•

•

Growth of the digital and creative sectors is seen as a key enabler in growing Mäori involvement and investment in the ITC healthcare and tertiary education sectors.

In conclusion, the success of the Auckland region’s economic future does rely on the participation of Mäori and on their capacity and skill to participate and encourage investment in existing and emerging sectors that will contribute to the region’s economic future.

•

These sectors are also crucial for the growth of social networks and social network platforms. These are now acknowledged as important drivers of economic growth and development. If the social network side can be integrated with economic development, then Mäori will be able to more freely participate in economic growth.

•

•

Marine •

This is likely to be a key sector of growth for Mäori, particularly in three areas: 1. aquaculture and marine farming 2. development of high-tech marine engineering and manufacturing facilities, and 3. greater participation in the application of the RMA, and in particular how it applies to the marine sector, rather than Mäori being ‘just a party to consult with’.

•

Recreational services •

This sector will continue to be strong and will continue to grow, particularly as it is significant for Mäori health-care and is a key component in Mäori social networking.

Areas of lessening Mäori involvement and therefore lessening role in economic futures: •

Law •

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It is likely that there will be a lessening in the numbers of Mäori law graduates as the focus

Low-value manufacturing

If Mäori are to truly participate in New Zealand’s and Auckland’s economic future then Mäori need to be better represented in the marine sector, as scientists, engineers and resource management consultants.

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

4

Appendices

Appendix 1: Auckland Region Economic Futures Project Steering and Advisory Group Members Name

Organisation

Steve Wilcox

Waitakere City Council

Gill Plume

North Shore City Council

Angela Goodwin

Rodney District Council

James Robinson

Auckland City Council

Geoff Cooper

Auckland City Council

James Rowe

Manukau City Council

Phyllis Anscombe

Franklin District Council

Lucy Baragwanath

AucklandPlus

Evelyn Marsters

AucklandPlus

Ram Padullaparty

New Zealand Trade and Enterprises

Eemun Chen

Ministry of Economic Development

Michael Tucker

Auckland Regional Council

Carole Canler

Auckland Regional Council

Catherine Murray

Auckland Regional Council

Penelope Tuatagaloa

Auckland Regional Council

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Appendix 2: Concordance relating ANZSIC Codes to the 48 Input-Output Industries Industry Sector

Corresponding 6-Digit ANZSIC Code

1 Horticulture and fruit growing

A011100-A011990

2 Livestock and cropping farming

A012100-A012500, A015910

3 Dairy cattle farming

A013000

4 Other farming

A014100-A015300, A015930-A016990

5 Services to agriculture, hunting and trapping

A021200-A022000

6 Forestry and logging

A030100-A030300

7 Fishing

A041100-A042000

8 Mining and quarrying

B110100-B110200, B131100-B142000, B151400-B152000

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9 Oil and gas exploration and extraction

B120000, B151100-B151200

10 Meat and meat product manufacturing

C211100-C211300

11 Dairy product manufacturing

C212100-C212900

12 Other food manufacturing

C213000-C217900

13 Beverage, malt and tobacco manufacturing

C218100-C219000

14 Textile and apparel manufacturing

C221100-C226200

15 Wood product manufacturing

C231100-C232900

16 Paper and paper product manufacturing

C233100-C233900

17 Printing, publishing and recorded media

C241100-C243000

18 Petroleum and industrial chemical manufacturing

C251000-C253500

19 Rubber, plastic and other chemical product manufacturing

C254100-C256600

20 Non-metallic mineral product manufacturing

C261000-C264000

21 Basic metal manufacturing

C271100-C273300

22 Structural, sheet and fabricated metal product manufacturing

C274100-C276900

23 Transport equipment manufacturing

C281100-C282900

24 Machinery and equipment manufacturing

C283100-C286900

25 Furniture and other manufacturing

C291100-C294900

26 Electricity generation and supply

D361000

27 Gas supply

D362000

28 Water supply

D370100

29 Construction

E411100-E425900

30 Wholesale trade

F451100-F479900

31 Retail trade

G511010-G532900

32 Accommodation, restaurants and bars

H571010-H574000

33 Road transport

I611000-I612300, I661100-I661900

34 Water and rail transport

I620000-I630300, I662100-I662900

35 Air transport, services to transport and storage

I640100-I650900, I663000-I670900

36 Communication services

J711100-J712000

37 Finance

K731000-K734000

38 Insurance

K741100-K742200

39 Services to finance and investment

K751100-K752000

40 Real estate

L771110-L772000

41 Ownership of owner-occupied dwellings

N/A

42 Business services

L773010-L786900

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Industry Sector

Corresponding 6-Digit ANZSIC Code

43 Central government administration, defence, public order and safety

M811100, M812000-M820000,

services

Q963100-Q963300

44 Local government administration services and civil defence

M811300

45 Education

N841000-N844000

46 Health and community services

O861100-O872900

47 Cultural and recreational services

P911100-P933000

48 Personal and other community services

D370200, Q951100-Q962900, Q963400-Q970000

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Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Appendix 3: Concordance relating ANZSIC Codes to the Industry Sectors of Interest to the Auckland region Industry Sector Business and financial services Retail ICT

Corresponding 6-Digit ANZSIC Code J712000, K731000- K734000, K741100- K742200, K751100-K752000, L773010-L786900. G511010-G532900 C2841, C2842, C2849, C2852, F4613, F4614, F4615, J7120, L7831, L7832, L7833, L7834, C2839, F4612 C242100, C242200, C242300 C243000, P911100, P912100, P912200,

Creative

P924100 , P924200 , P925100 , P925200, P925900 , L782100, L785100, L785200, L786900, Q952300 , C221500 , C222900 ,C232900, C261000 , C262900 ,C294100 G525900

Digital content

C243000, P911100, P911200, P911300, P925100, P924100, J712000, L782900, L783100, L783200, L783300, L783400, N844000,P924200 G511010-G532900, H571010-H574000, I611000-I612300, I661100-I661900,

Tourism

I620000- I 630300, I662100- I662900, I640100- I 650900, I663000-I670900, N841000-N844000, P911100-P933000

Transport, transport services and logistics

Biotechnology

I611000-I612300, I661100-I661900, I620000-I630300, I662100-I662900, I640100-I650900, I663000-I670900 A0301, B1101, B1200, C2121, C2129, C2161, C2182, C2183, C2331, C2543, C2544, L7810, L7829, N8431, O8611 C221200, C222100, C222300, C221500, C253300, C276200, C276300,

Marine

C276400, C276900, C282100, C282200, C283900, C284200, C285900, C286600, F461400, F461900, G524500, L782300 C221200, C232100, C232200, C253300, C256100, C256300, C256400,

Materials

C256500, C256200, C254200, C256600, C261000, C263200, C264000, C271200, C271300, C272100, C272200, C272300, C272900, C273300, C273100,C273200

Food and beverage manufacturing Aquaculture

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C211100-C211300, C212100-C212900, C213000-C217900, C218100-C219000 A042000

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Appendix 4: Interviewees for the Auckland region Economic Futures project Organisation / sector

Name

Designation

Auckland Chamber of Commerce

Michael Barnett

Chief Executive

Auckland City Council

James Robinson

Economic Strategy Manager

Stephen Cavanagh

Investment Manager

Janet Schofield

Business Development Area Manager

John McShane

Environment and Planning Manager

Don Huse

Chief Executive Officer

Andy Roche

Policy, Planning and Reporting Analyst

Ron King

GIS Consultant

Susan Milner

Manager, Business Capability and International

Auckland International Airport Limited Auckland Regional Public Health Service AucklandPlus

Connections Clyde Rogers

Group Manager

Asian community representative

Pansy Wong

Member of Parliament

Council of Trade Unions

Peter Conway

Policy Director / Economist

Creative sector

Dame Cheryll Sotheran

Sector Director, NZ Trade and Enterprise

Employers & Manufacturers Association

Bruce Goldsworthy

Manager, Advocacy Services

Peter Atkinson

Executive Officer, Advocacy Services

Astrid Lambert

Chief Executive

Enterprise Franklin Development Trust

Lynda Fleming

Economic Advisor

Enterprising Manukau

Gaelle Deighton

Chief Executive

Enterprise North Shore

Terry Hoskins

Chief Executive

Exporters Inc.

Lyall Pacey

Member & Manager, Export Actions

Franklin District Council

Phyllis Anscombe

Policy Team Leader

Fonterra

Dr Eric Hansen

Senior Advisor, Strategy and Growth

GUEDO (MED)

EeMun Chen

Senior Policy Analyst

Tanya Perrott

Chief Advisor

ICT, Food & Beverage, Specialised

Ram Padullaparty

Strategic Research Analyst, NZTE

Manufacturing and Biotechnology sectors

Adam Bennett

Regional Manager, NZTE

Kuehne & Nagel

John Payne

Manager

Pacific Economic Development Agency

Mose Saitala

Director

Manukau City Council

Filemoni Timoteo

Manager, Economic Development

Mäori

Tipa Campain

Mäori Planner - Kaiarahi

Ministry of Pacific Island Affairs

Fuimaono Tuiasau

Principal Analyst

North Shore City Council

Roger Matthews

Group Manager, Economic and Community Planning

NZ Retailers Association

Russell Sinclair

Northern Regional Manager

Ports of Auckland Limited

Wayne Thompson

Chief Financial Officer

Property Council of New Zealand

Connal Townsend

Chief Executive

Rodney District Council

Peter Vari

Manager, Policy Planning

Warren Maclennan

Assistant Chief Executive

Paul White

Manager, Strategic Projects

Anthony Dow

Manager, Economic and Community Development

Angela Goodwin

Policy Planner

Rodney Enterprise Development Trust

Valerie Freeman

Chief Executive Officer

Waitakere City Council

Steve Wilcox

Manager, Economic Development

Waitakere Enterprise

John Wadsworth

Chief Executive

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70

AucklandPlus

Auckland City Council

Key Drivers/Investments

Horizontal relationships are now more important (previously vertical relationships)

Currently building capabilities across the region – looking at global value chains

Main sectors in the region: • High-value-added manufacturing • Pastoral – bio sector • Digital content – screen post-production • Advanced materials (industrial materials) • Health technology – instruments • Marine – over 50% of superyachts built in Auckland • Food and beverage • ICT – more than 50% employed in Auckland

NZ is a commodity-based market and Auckland servicing the commodity sectors.

See great future for Auckland – very positive

Film and TV – investors interested

Key point of difference for Auckland city is the Investments proposed: CBD. • New Zealand Innovation Precinct (Tamaki) – focus on Main sectors: advanced materials • Business services – financial and • Convention Centre professional • Cruise ship Terminal • Education • Strong ICT sector • Creative – stronger than rest of country • Tourism including cafés and restaurants • Manufacturing headquarters more concentrated here • Advanced Materials

Current and future sectors of growth Impediments include: • Skills shortage • Infrastructure – water, congestion, shape of Auckland, broadband, reliable energy • Constraints on business land (MUL) • Cost of land • Community resistance to intensification around the CBD • Demographics – ageing • Lack of capital • Lack of investment infrastructure especially from central government Impediments: • Management structure of firms • Inability to attract international investment • Scale and size of firms – lesser extent due to networks • Consents process –compliance costs • Fragmentation of effort in different sectors – collaboration needed to exploit networks and horizontal opportunities

Impediments/Threats

Declining Sectors

Growth sectors: Declining sectors: • Environmental solutions • High-volume • Digital content manufacturing • Health solutions and • Heavy biotech manufacturing • Marine • Advanced materials • ICT and creative • Financial services • Food and beverage • Production and distribution • Retail • Business services • Renewable energy • Tourism Declining sectors: • Low-end manufacturing • Impact of carbon miles – could impact long-haul tourism.

Emerging Sectors

Appendix 5: Summary of interviews with key regional stakeholders for the Auckland region’s Economic Futures Project

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Employers & Manufacturers Association

Council of Trade Unions

Chamber of Commerce

Asian Community

Free trade agreements some potential there. Human capital – great potential to tap into the Asian community for needed skilled workers.

Many Asian migrants self-employed and setting up small businesses.

Largely engaged in the following sectors: • Retail • Property development and real estate • Hospitality

Agribusiness.

Public sectors – health and education.

Construction had very strong growth.

Dairy/agriculture will remain an important sector in NZ.

Central and local government – sets business environment to large extent.

Professional services also on the increase e.g. Education – Asians more engaged in education and also accountancy, lawyers perform well. Investments proposed: Main sectors in the region: • Infrastructure – waterfront, • Manufacturing – higher end road, rail • Tourism – moving from gateway to destination • Tourism – amenities • Research – changed with growth in • Broadband Universities • Energy – depends on government strategy Growth industries seen to be in Fashion, • Research – innovation Film, Design, Research centres by Universities Key sector will be food. Franklin considered food bowl for the region. Current and future sectors of growth seen to Labour force very important driver of economic growth. be those identified in government’s Growth Need both skilled and semiand Innovation Framework: skilled workers. • High value manufacturing Manufacturing will continue • Biotechnology to be important to New • ICT Zealand, especially higher-end • Creative • Food and beverage manufacturing. Services driving regional Main sectors: Manufacturing has changed – more economy: specialized manufacturing now. Advanced business services.

Key Drivers/Investments

Current and future sectors of growth

Declining sectors moving offshore or closing down mainly in: • Manufacturing – in particular, apparel. • Forestry

Emerging sectors seen to be in: • Food and beverages – higher-end and niche markets, e.g. wine • Marine

Human capital

Impediments: • Low productivity levels • Exchange rates (high NZ dollar) • Attitude – businesses reluctant to expand • Attraction and retention of the right skill • Business environment – too much compliance • Energy situation • Supply of business land

On the decline is lowcost labour-intensive manufacturing.

Declining Sectors

Those identified as sectors of Low-value growth. manufacturing as is currently happening in the economy.

Emerging sectors: • High niche products • High-value end of the food chain

Emerging Sectors

Impediments in the region: Infrastructure – congestion, broadband, etc.

Continued population growth

Major impediment seen to be skills, now and for the next 5-10 years, especially for engineers, project managers, etc..

Lack of support groups for new migrants.

Language seen to be a major impediment for Asian migrants to fully engage in the community and in the economy.

Impediments/Threats

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Manukau City Council

GUEDO (MED)

Franklin District Council

Exporters Inc.

Main sectors: • Manufacturing is a large employer • Construction – driven by population growth • Transport and storage – close to airport • Tourism – not quite there yet • Food and beverage – big sector with huge potential • Community services – ethnic population

Communications (www) and banking services – impacts on people’s ability to export. Main sectors: • Agriculture – exporters, processing, organic, dairy • Horticulture • Poultry, piggery, cut flowers • Services to agriculture • Tourism – food boutique • Construction – supply of aggregate • Equestrian community • Manufacturing – NZ Steel National priorities: • Environment solutions • Advance materials • Advance foods • Health solutions • Digital content • Pastoral solutions

Food products of all types

Higher-end manufacturing

Growth sectors: Should focus on what we get off the land – that is where New Zealand’s competitive advantage is.

Current and future sectors of growth

Investments: • Food Innovation Centre • Tertiary sector precinct • Tourism – initiative around gateway. Regional tourism development • Construction works • Innovation and production

Investments: • Broadband • Fast Forward Fund • NZ Innovation Centre –Tamaki. • R&D tax credits • Urban development • Transport works • Rugby World Cup 2011.

Investments: Innovation centre – target growers, R&D, processing and high value.

Growth in tourism.

Sea freight – whether enough product to export.

Need to increase air freight capacity.

Key Drivers/Investments

Impediments: • Public investment – limitation of vision, scale and size • Regional governance • Connectivity – closing the gaps (transport, communication, use of migrants) • Skills – some groups lacking behind • Urban amenity not competitive Impediments: • Land cost and availability • Productivity issues • Skills

Impediments: • Transport / Logistics • Water • Emissions trading scheme • Strategic location – rural context

Impediments: • Exchange rate • Low productivity rates • Resource Management Act – compliance costs • Stable domestic demand • Economies of scale in logistics • Shortage of skills • Price of land

Impediments/Threats

Emerging sectors: • Quick moving companies • Digital content

Manufacturing – low value.

Traditional exporting of raw materials – need to add value.

Niche markets – key

Green technologies

Declining Sectors

Emerging Sectors

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Waitakere City Council

Rodney District Council

Pacific Sector

Current main employer – retail and business services. Main sectors: • Tourism – cultural economic development yet to be fully developed by the region, e.g. Pasifika festival unique to Auckland • Social service delivery – Pacific island service provision, non-government organisations, services to health and education • Small businesses • Sports – natural physique. • Creative arts – great potential Main sectors: • Property services, construction, retail – driven by population growth • Retail – strong competition from North Shore malls. • Agriculture – high value organics, vineyards • Aquaculture – especially land based has high yield. Need to integrate environmental outcomes • Tourism – boutique tourism • Digital – key sector especially in animation • Business services Main sectors: • Retail, Social and Community services, Construction – serving growing population. • Manufacturing – metal/light engineering, plastics and packaging • Marine – industry underestimated • Film – small employer but high value-added • Education

North Shore City Sectors of growth: • Health – services, hospitals and auxiliary Council • Sport – niche sport health/medicine • Hi tech – niche manufacturing and ICT • Education

Current and future sectors of growth

Impediments/Threats

Emerging sectors: • Information technology service provision. • High quality protein food – use IP • Farming techniques – harnessed • Freight train transport • Renewable energy – tidal power Kaipara Harbour

Emerging sectors: • Specialist manufacturing – heating • Environmental technology • Medical plastics • Green Technology • Aged Care

Impediments: • MUL • Skills a big issue • Limited finance for council

Drivers: • Businesses of typical scale and innovation /R&D, niche competitive. • Change driven by exports • Land availability and SH18 and SH20 transport link • Change in occupation mix

Declining sectors: • Clothing manufacturing • Easily substitutable products

Again, low-value manufacturing is closing and moving offshore.

High volume manufacturing.

Niche value products.

Impediments: • Infrastructure – roading, wastewater. • Lack of zoned business land • Ability to fund developments • High environmental standards • Workforce skills • Security of power supply • Fast reliable broadband

Declining Sectors

Emerging Sectors

Treaty settlement – huge investment of government money.

Investments: Major impediments: • Education support and • Low skills levels. training programmes • Cultural obligations – can be • MPIA and Pacific Trust work mitigated by increased incomes on SME start-ups

Key driver: Educated labour force

Key Drivers/Investments

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Construction

Employs approximately 3000 people.

Biotechnology

Very strong growth in last 13 years in property and construction sectors.

The number of biotechnology patents granted increased by 12%, 2005–7.

Majority of growth from private sector consistent with vibrant industry in strong growth mode.

Export revenues grew by 30%, 2004/05.

FTEs increased by 20%, 2004/05.

The number of organisations increased 15% from 2004/05 and by a further 30%, 2005–7

Auckland accounts for 34% of the nation’s biotechnology expenditure and 34% of its income.

Attracted $300m overseas investment in past five years.

Core R&D companies generated revenue of $280m in 2006.

Sector Performance

Sector

Growth will be in green building – sustainable homes.

Building sector in contraction – flat growth expected over the next few years,

Currently, future very gloomy.

New Zealand has some smart biofuel technologies.

Underpins New Zealand’s agricultural and environmental primary sectors; will continue to increase their productivity and sustainability in the short and long terms.

Key drivers: • Population growth – migration • Australian superannuation • Green-building concept • Kiwisaver – next few years will help comeback in sector

Increase in global connectedness.

Increase in experienced commercialisation staff.

Increase in domestic investment prospects.

Increase foreign investment.

Replace commodity markets with added-value, knowledge based industries.

Sustainability push – NZ well positioned in this area.

High-value product. As sector matures, more and more value will be retained in New Zealand.

Key Drivers/Investments

Future Growth

Many companies exclusively focused on exports.

Lack of access to suitably qualified and experienced research and technology experts.

Impediments: • Compliance costs • Building Act requirements • Land constraint – running out of greenfield and brownfield quickly • Development contribution – new tax introduced by govt • Skills – all skills right through to semi-skilled

Lack of infrastructure, e.g. specialised biomanufacturing facilities and large scale clinical trial capabilities.

Lack of access to experienced life-science commercialisation experts.

Potential very high.

Lack of capital.

Very minimal

Exports goods and services as well as exports intellectual property in the form of licensing deals.

Export Potential

Impediments/Threats

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Dairy

Modelled increasing income levels and consumption of dairy – positive correlation.

Farms in China.

30–40% of world dairy production traded – Fonterra comprises 2%.

Head office in Auckland – close to professional labour force (additional 500–600 employed).

At the moment, sells 85% commodity, and15% valueadded; this composition could change.

Lots of potential for high-niche products – area of nutraceuticals, consumer demand for general health and well-being. Research into protein.

Consolidation of processing plants.

National growth of 2% p.a., dependent on amount of land converted, and innovation in cows per ha.

Screen production – economic development for NZ in the future

• Company is supply driven, i.e. depends on how much milk it gets • Investment at farm level in the North Island is slow growing compared with the South Island • Innovation and research – new research centres in Melbourne and Chicago exporting knowledge while developing research in tandem with overseas markets. • Sophisticated food preferences in overseas markets • Global drivers – global prices. • Outlook very positive • International opportunities associated with bio-fuels

Global growth of 8–10% p.a.

Sector made up of: • Conventional – arts, media and cultural production, screen, film advertisement, fashion, performing arts • Creativity – innovation and design as enabler of all sectors (Better by Design programme) • Convergence – innovation in digital space Entertainment has great potential

Drivers: • Broadband and fast global connected technology • Infrastructural development • FDI in screen • Diversification in film • Innovation and natural competitive advantage • New technology • Business model up to global economy

Emergence of content industry and intellectual property.

Sector is very small and does not contribute much to the economy.

Creative

Key Drivers/Investments

Future Growth

Sector Performance

Sector

• Competing urban use of land in the region – urban sprawl and forestry • Constraints to growth – environmental consideration and regulatory issues around climate change and water quality – can be overcome with science • Competing land uses for food crops driven prices high • Constant threat for substitute of dairy e.g. soy protein • Limitations to volumes produced • Environmental – methane, carbon, leaching and access to water • WTO requirements • Efficiency in ports and transport networks • Energy – security of supply and prices both of concern

Impediments: • Lack of investment • Business capability – not growth oriented • Business size in NZ is small • Competitive global market – compete in different global economy

Impediments/Threats

Current production 95% exported and 5% domestic.

Forecast sector growth all export-led – 2% steady growth. Domestic consumption to remain the same.

About 3% of exports (equivalent to 3% of GDP for the sector).

Minor except for screen (very small sector, therefore not a major contributor to the economy).

Export Potential

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Growing nationally at around 6.5% p.a.

ICT

Auckland has an advantage in wireless, creative, enterprise resource planning and Health IT.

Region growing at 7%.

Health services (hospitals) and health units (preventive community programmes)

Health

Innovation key area of growth.

Early-stage commercialisation could be future opportunity.

Prospects for growth – wireless technologies, embedded systems and artificial intelligence – mainly SMEs.

Holistic approach to tackling health issues.

Forward planning – focus on preventive and community health services.

• 10% of GDP • Trends of health and well-being • Export revenue of $17 billion and sustainability reshaping the (year to June 2007) sector • 20% of NZers directly or • Early stage commercialisation indirectly employed in sector of research – FINNZ • Products either consumed • FTE – opens up opportunity for retail, foodservice or exported co-investment • Auckland main location for head offices • Auckland – substantial number of companies engaged in further-processed food and beverages; many on significant growth path and also actively engaged in exports

Food and Beverage

Future Growth

Sector Performance

Sector

Sustainable technology driven by RWC 2011.

Invest in communication infrastructure.

High priority for government investment over the next five years.

Ten health targets adopted for funding.

Health problems mainly driven by poverty, increasing inequality, poor housing, lack of education – mainly impacts vulnerable parts of society

• Development of a Food Innovation Network NZ – to address various infrastructure and commercialisation hurdles • Development of a Food InnovationCentre in Manukau • High priority for government investment over next 2–3 yrs • Investments target firms moving up the value chain and to specifically support international market development activities

Key Drivers/Investments

• • • •

Skilled labour Transport Lack of investment Lack of collaboration

90% considerations out of the control of the health sector.

Limited budget.

• Availability of labour and standard of skills • Distance to markets including domestic transport logistics – roading, rail and airport • Lack of investment funds • Productivity levels low • Lack of collaboration between SMEs • Too many companies export – not enough operate internationally

Impediments/Threats

Great potential, especially around innovation and new technologies.

Potential especially with neighbouring island countries for exporting health services.

Focus on extracting and building new value from global value chains.

Great potential – need collaboration and cooperation between firms to build critical mass.

Export Potential

Economic Futures for the Auckland Region: Part 1 Knowledge base for scenarios development – Dec 08

Ports – grown strongly on average 6% p.a. in volume

Logistics

Path likely to continue.

Businesses moving to outsource – existing companies increasing and are being bought out by international companies.

Storage and Logistics – consolidation of the industry internationally

Shipping lines consolidated – resulted in prices down and cost of operation for ports going up

Strong competition with Port of Tauranga

Sector Performance

Sector

Increase in productivity too

Employment could increase by a possible 25%

Limited new construction

More value added services and improved processes.

Storage and Logistics – • Continuing expansion • Retail growth can affect business but normally companies downgrade product rather than decrease trade • Greater focus on efficiency, customer service and smarter about warehouse demand • Maturity in sector. • Customers increasingly requiring international solutions

Last 5 yrs - $80m/yr on capital invt for Akl airport – next 10yrs likely to decrease

Fuel prices

Airports - Growth in tourism provided for increased freight capacity

Storage and Logistics – Space – land coverage constraints • Different standards between organizations • Current investment climate (business cycle) affect growth • Compliance costs • Skilled staff – do own training • No industry sector group – not allowed by Commerce Commission • Transportation in Auckland a disaster – affects productivity levels • Port access needs to be sorted out • NZ businesses still not specialized – cannot gain from economies of scale

Skills

Airports - Climate change –carbon footprints

Container growth – 2 ½ rate of GDP

Storage and Logistics – Revenue likely to double over next 5 years – doesn’t foresee expansion in ‘footprint’

Governance of region

Major driver – NZ trade

Airports - Air freight future very positive

Ports - Issue of transport – better use of rail, trucking capacity

Impediments/Threats

Ports - Investment needed for increased capacity in next 2/3 years or won’t grow

Key Drivers/Investments

Ports – Current downturn in economy – growth of 1% for next couple of years

Future Growth

Ports - Currently handling 40/45% exports and 60/55% imports

Export Potential

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Specialised Manufacturing

Last 10 years – growing strongly especially in Auckland last 5-10yrs – 7% growth year on year

Retail

Key Drivers/Investments

Prospects for growth in Electronics and High tech manufacturing/Engineering –comprise majority of SME type businesses

Hamilton growing faster than parts of Akl particularly around medical devices, materials, f&b equipment. Early stage commercialization of research

Auckland competitive advantage in marine sector

continue to be major driver of economy.

After 2 year – tax cuts kick in, tourism picks up, lead up to RWC 2011

Impediments • No. of councils in Auckland – difficult to develop and inconsistency between councils – need one set of bylaws • No single “brand” for Auckland – councils doing own thing • Transport congestion – drives costs up and impacts on retail prices and inflation • Requirements for skills will increase – skills needs much more professional now.

Impediments/Threats

Impediments • Availability of labour • Standard of skills Invest in Aviation and marine at • Transport logistics event and industry level • Lack of investment funds • Lack of collaboration between Global Airport Infrastructure SMEs event

High priority of govt for next 2-3 years

• Housing market – currently in a dip and may take a while to bounce back • 2011 RWC – turning point for retail Community type retail will grow • Tax cuts – boost to shopping as high price of fuel force ppl to work closer to home lead to • Currently some firms expanding, some retrenching development of infrastructure • Infrastructural development around communities • Broadband – internet shopping Auckland as a World Class • Environment – waste Shopping city - Retail will management

Drivers Next 2 years – no growth, malls in saturation, falling out of • Population growth • Tourism sector migration, ageing population

Future Growth

Nationally growing at circa 0.5% pa.

In NZ- $62 billion industry, 20% of workforce, biggest contribution GST, income tax, etc. but not much recognition from govt

Prior to high energy prices & downturn in economy– consumer confidence very good

Other regions performing well – Wellington & Queenstown

Sector Performance

Sector

Great potential – around supply chain integration of components and services

Through tourism spending – high and potential to increase

Export Potential

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ISBN: 978-1-877483-93-6