Arc Economic Futures - Part 2

Economic Futures for the Auckland Region

Part 2: Scenarios for economic development April 2009

This report was prepared by the Economic and Social Policy team at the Auckland Regional Council. Contributors: Carole Canler, Penelope Tuatagaloa, Ana Ili , Dominic Foote and Dr Catherine Murray. Modelling advice from Market Economics, and input from Infometrics.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Contents Executive summary

1 2 3 4 5 6

3

Introduction

12

1.1 1.2 1.3 1.4 1.5 1.6

Context Purpose Scope Methodology for scenario development Users Stakeholders

12 12 12 13 14 15

Long-term impacts of the current economic crisis

16

2.1 2.2 2.3

16 17 20

Short-term impact of the economic crisis Outlook for the New Zealand and Auckland economies Long-term impacts of the economic crisis

Scenario 1: Horizon 2031

22

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9

22 24 25 26 27 29 31 34 41

The economic landscape by 2031: key drivers Assumptions Economic indicators in a nutshell, 2006 – 2031 Gross regional product and gross regional product per capita Export Employment and occupation Environmental indicators Sector-specific change in Auckland, 2006–2031 Sectors of interest to the Auckland region

Scenario 2: Digital Auckland

48

4.1 4.2 4.3 4.4 4.5

48 48 52 53 55

Background Scenario description Scenario assumptions Scenario results Conclusion

Scenario 3: Energy Efficiency

56

5.1 5.2 5.3 5.4 5.5

56 56 57 60 64

Background Scenario description Scenario assumptions Scenario results Conclusion

Implications for the region’s future economic performance

65

6.1 6.2 6.3 6.4 6.5 6.6 6.7

65 66 67 67 68 68 69

Demographic changes Labour force Internationalisation Business growth and innovation Environmental sustainability Industry structure Infrastructure

1

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendices Appendix 1: Appendix 2: Appendix 3: Appendix 4: Appendix 5: Appendix 6: Appendix 7: Appendix 8:

Economic Futures Model Medium population projections for the Auckland region Assumptions under Horizon 2031 Results under Horizon 2031 scenario Assumptions for the Digital Auckland scenario Results from the Energy Efficiency scenario Glossary of terms References

71 75 76 79 84 86 88 89

List of Figures Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure A.1:

Scenario development process Purpose of Economic Futures Project Auckland’s GRP, 2006–2031 Auckland’s GRP per capita, 2006–2031 Employment, 2006–2031 Occupational structure in the Auckland region, 2006–2031 Top 10 GRP contributors, 2006–2031 Auckland’s 10 industries with comparative advantage and significant contribution to GRP, 2006–2031 Top 10 employers, 2006–2031 Causal structure of the Auckland region Economic Futures Model

13 14 26 27 29 30 35 37 39 72

List of Tables Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table 16: Table 17: Table 18: Table 19: Table 20: Table 21: Table 22:

2

Projections in a nutshell, 2006–2031 New Zealand’s GDP annual growth rate, 1997–2011 Fast growing export sectors, 2006–2031 Demand for occupations in Auckland region, 2006–2031 Change in major occupation groups, 2006–2031 Sub-groups of occupations, 2006–2031 Top 10 energy-intense sectors in Auckland, 2006–2031 Change in the top 10 energy-intense sectors in Auckland, 2006–2031 Industry GRP contribution, 2006–2031 Industries with high value-added potential, 2006–2031 Employment projections in a nutshell, 2006–2031 Sectors with fastest growing employment, 2006–2031 GRP growth in sectors of interest to the Auckland economy, 2006–2031 SLQ for the industries of interest, 2006–2031 GRP results compared with the Horizon 2031 results Export results compared with the Horizon 2031 results Top industry growth Energy Efficiency scenario compared with the Horizon 2031 results Employment in the Energy Efficient scenario Changes in energy demand Comparison of energy use projections under Horizon 2031 and Energy Efficient scenarios Top 5 energy intensive industries

25 26 28 29 30 31 32 32 35 37 38 40 41 42 54 54 55 60 60 61 62 63

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Executive summary

Our world is changing rapidly. What we know and experience today may well be very different in a quarter of a century. Some significant forces, such as globalisation and demographic shifts, are already changing the face of the Auckland region. Many changes cannot be predicted. Some will bring opportunities; still more will bring challenges. Whatever form it takes, change is inevitable – and our region needs to be ready for it. A successful region is one that is able to reinvent itself in the face of change. Auckland’s future prosperity depends on its ability to do just that, with resilience and a commitment to innovation. As part of the Auckland Region Economic Futures Project, the Auckland Regional Council (ARC) is developing a number of economic scenarios that anticipate the changes ahead and their possible effects on the region. The aim is to better prepare the region to adapt to change, and to provide a sound basis upon which regional policies and strategic responses can be developed. This report is the second and final part of the Auckland Region Economic Futures project. The first report, titled Part 1: Knowledge base for scenarios development and published in December 2008, encapsulated the current information available on the state of the Auckland economy and identified future drivers of change. This report, Part 2: Scenarios for economic development, presents three regional economic scenarios and associated modelling results, and, where possible, identifies future challenges for the region. The three economic scenarios presented in this report are: • • •

the Horizon 2031 scenario the Digital Auckland scenario, and the Energy Efficiency scenario.

These projects are closely aligned and inform the current review of the Regional Policy Statement (RPS). The project will also support strategic planning for regional economic development. In addition, external agencies such as central government departments with a regional focus, economic development agencies and local councils may find the scenarios in this report a useful tool when developing strategies and policies. The current period of economic turmoil poses some added difficulties to this scenario-building exercise. Some of the anticipated effects of this crisis are discussed in the report.

Scenario 1: Horizon 2031 Horizon 2031 is the main (or baseline) scenario in this report and presents a major improvement on previous long-term employment and output forecasts for the Auckland region. It is based on our current knowledge and understanding of the region’s economy and economic drivers. It provides an outlook for the Auckland economy in the short, medium and long term (to 2011, 2016 and 2031, respectively). In developing the Horizon 2031 scenario, a series of factors, or drivers, were considered. Such factors include global economic forces, major changes to central government’s fiscal policies, infrastructural developments, and upcoming events. Industry and community insights into the region’s economic outlook as well as for specific industry sectors were also considered. These factors were translated into detailed assumptions and are reflected in the scenario results. The Horizon 2031 scenario assumes some of the main drivers shaping the Auckland region’s economic landscape by 2031 are: • Demographic changes • Changes in labour force

The Economic Futures Project will feed into a number of projects of regional scale. It has been developed alongside the Futures Land Use and Transport project.

• Internationalisation • Business innovation • Sustainable development

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Demographic changes Demographic dynamics will continue to determine much of the future economy of the Auckland region. According to the ARC’s medium population projections, an additional half a million people are expected to live in the Auckland region by 2031. While this growth is significant, it is not as rapid as that experienced in the last 20 years. The situation will be exacerbated as the proportion of those in the 40 to 50-years cohort, the largest earning bracket, reduces while the proportion of those in the 65 plus-years cohort expands. This will limit the extent to which domestic demand can drive economic growth in the future. If current rates of economic growth are to be sustained, a challenge for Auckland businesses is to develop existing and new markets overseas to sell their goods and services.

Changes in labour force The regional labour force is forecast to increase by nearly 40 per cent over the next 25 years. However, its profile is changing: the labour force is ageing and becoming more ethnically diverse. In the context of increasing international competition for skilled labour, educating and constantly up-skilling the regional labour force to meet business demand will remain a key challenge for Auckland.

Internationalisation The Auckland region plays an essential role in New Zealand’s connection with the world. Many of the country’s international linkages (i.e. trade, investment and people flows) are being conducted through the region. While by 2031 the region will be more exportoriented and outward focused, New Zealand’s remote geographical location will continue to disadvantage exports. The proposed investment in broadband is expected to somewhat counteract the cost associated with geographical remoteness.

Business innovation Knowledge and innovation are increasingly important drivers of productivity and competitiveness. Auckland’s economic growth in the future largely depends on business innovation. The region’s competitiveness in a number of niche sectors will be secured through innovation, leading to product and brand differentiation as well as higher productivity rates.

Sustainable development By 2031, the increased focus on sustainable development is expected to open new business opportunities at home and overseas, and to create new jobs in the areas of environmental technology and

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advice, waste reduction, recyclable/advanced materials, green building and energy conservation. Modelling results: the Auckland region economy, 2006–2031 2006

2011

2016

2031

$54.9

$61.8

$69.9

$97.9

Exports (billion)

$8.9

$10.6

$12.7

$21.2

GRP per capita

$40,033

$41,667

$43,763

$50,785

GRP (billion)

Population Employment (full time equivalent)

1,371,000 1,482,950 1,596,817 1,928,117 601,612

642,970

694,406

853,333

Source: Horizon 2031 scenario, ARC 2008 Note: Data for 2006 are estimates; 2006 is the base year in the Economics Future Model. GRP and export values are expressed in 2004$ constant prices

Gross regional product Auckland’s economy is forecast to grow at an annual average of 2.4 per cent between 2006 and 2011. Its gross regional product (GRP) will reach $61,790 million in 2011. This growth might be considered optimistic but it does represent a significant slow-down compared with the previous five years. Auckland is part of the global economy and, as such, is not immune from the current economic slow-down affecting the world’s economies. This global economic slow-down has resulted in a reduction in consumer and business confidence. The retail, tourism and construction sectors are the most affected because demand in these sectors is highly sensitive to changes in people’s income and their perceived financial security. Business investment decisions may also be delayed or lost as a result of the current turmoil. However, as the region’s businesses have primarily been serving the domestic market, the impact might be lessened. The longer-term implications of the current global economic slow-down are difficult to predict at this stage, but are not expected to have a major impact on Auckland’s economic performance past 2011. The Auckland region economy will be aided by the lead up to the 2011 Rugby World Cup, the impact of income tax cuts kicking in, and the home-loan deposit subsidy from the KiwiSaver scheme taking effect in 2010. Auckland’s GRP is projected to reach $69,882 million in 2016, an increase of nearly one-third over 2006. In the long term, Auckland’s GRP will have nearly doubled compared with 2006 to reach nearly $98 billion in 2031. This equates to a 2.27 per cent average annual growth rate between 2016 and 2031. This fairly modest

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

growth rate for the Auckland region is principally a result of the lowering population growth rate and the resulting impact on domestic demand. While the low degree of openness of the region’s economy might be a useful buffer in time of economic slow-down, Auckland businesses will have to become more aggressive in international markets as the domestic market will not be increasing as fast as in the recent past.

Gross regional product per capita In 2006 Auckland’s GRP per capita was estimated at $40,033. Under the Horizon 2031 scenario, Auckland’s annual GRP per capita will grow by an average of one per cent a year from 2006 to 2031 to reach $50,785 by 2031. The GRP per capita growth rate is decelerating over time, reflecting a lesser labour utilisation rate, itself a product of our changing demographics. While there is limited scope to increase labour participation in the future, a key to improving our living standard, as expressed by GRP per capita, is to increase labour productivity.

Exports Exports from the Auckland region are driven by the industry sectors in which the region has a competitive advantage, and supported by a number of Free Trade Agreements currently under development. Considered as an input in the Economic Futures Model Auckland’s exports in are projected to more than double by 2031 to reach $21,164 million, increasing their proportion of the total GRP from 16.2 per cent in 2006 to 21.6 per cent. This reflects Auckland’s vision of increasing global engagement as part of the Horizon 2031 scenario. Services exports will become increasingly important, driven by increased demand for professional and consultancy services and the projected growth in tourism, and aided by fast and efficient telecommunications links in the future. Commodity exports will be largely driven by an increase in exports of advanced manufacture.

Employment In 2006 there were 601,612 full-time equivalents (FTEs) employed in the region; by 2031 this will have increased by a further 250,000 or more than 40 per cent, representing an average employment increase of 1.40 per cent each year. This long-term growth is in line with the projected 1.32 per cent population growth.

Occupation Occupational structure is highly dynamic: changes in the industrial composition of the economy, in technology, and in business practices have a major impact on demand for occupations. As a result, occupation projections beyond 2021 should be considered with caution. Overall, demand for semi to highly skilled occupations are on the rise. Legislators, administrators and managers, professionals, and technicians and associate professionals will represent over 50 per cent of all occupations in 2031. Many of these jobs will be in the business services, retail, wholesale, education, and health and community services sectors. On the other hand, the most significant decline is expected to occur in the clerks and agriculture and fishery workers’ categories.

Environmental implications The Horizon 2031 scenario provides environmental forecasts but does not allow for improvements in energy efficiency. As such, it provides worst-case scenario results, a base on which to improve. Energy use in the region is projected to increase by 68.3 per cent between 2006 and 2031. Total energy consumption, which includes aviation fuel, black liquor (a derivative of paper production), coal, diesel, electricity, fuel oil, geothermal energy, liquefied petroleum gas, natural gas, petrol and wood, is projected to reach 319,183 terajoules (TJ) in 2031. However, because of the projected reduction in the importance of heavy manufacturing industries, energy use will decrease per unit of GRP. In other words, less energy will be consumed to produce $1 of output. The growth in the region’s population and economic activity will lead to increases in emissions, waste and water discharges. The total level of emissions in the region is forecast to increase by between 63 per cent (for nitrous oxide) and 67 per cent (for carbon dioxide). The average increase in total solid waste in the region from 2006 to 2031 is forecast to be approximately 70 per cent. Again, the amount of emissions, waste and water discharges for every $1 of output produced will decrease over time.

Sector specific analysis As New Zealand’s commercial and financial centre, Auckland’s economy is characterised by the dominance of the service sector. Indeed, wholesale, trade and distribution, and service-based industries generate over

5

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

two-thirds of the total industry GRP. The secondary sector, which manufactures finished goods, is also important, generating over 20 per cent of the total GRP. Not surprisingly for an urban centre, the primary sector is a small contributor to the region’s economy, with just above one per cent of GRP generated. Top 10 industries by GRP contribution, 2006 and 2031

2006

2031

Business services

Business services

Wholesale

Wholesale

Industries of scale and comparative advantages The most significant industries for the Auckland economy are those which are both comparatively strong in the region (i.e. Simple Location Quotient (SLQ)1 is greater than 1) and of significant size in terms of GRP contribution. These industries are shown in the following table. Top 10 industries with comparative advantage and significant contribution to GRP, 2031

2031

GRP

Retail

Retail

Rubber, plastic and other chemical manufacturing

$3,503

Finance

Air transport, services to transport, and storage

1.70

Finance

Communication services

1.56

$4,688

Real estate

Real estate Wholesale

1.49

$8,607

Construction

Communications services

Health and community services

Health and community services

Business services

1.43

$13,672

Communications services

Finance

1.35

$4,986

Construction Air transport, services to transport, and storage

Machinery and equipment manufacturing

1.14

$2,928

Education

Real estate

1.10

$4,942

Retail

1.04

$5,287

Cultural and recreational services

1.02

$2,917

Air transport, services to Machinery and equipment transport, and storage manufacturing

Source: Horizon 2031 scenario, ARC 2008 Over the next 25 years, the structure of Auckland’s economy will remain relatively unchanged. The Horizon 2031 scenario does not foresee the manufacturing sector decreasing. However, some changes are expected at the 48 industry-sector level, as classified by the Australian and New Zealand Standard Industrial Classification Code (ANZSIC).

1.71

$1,915

Source: Horizon 2031 scenario, ARC 2008 Note: GRP values are expressed in 2004$ constant prices (million) These industries support the notion that the Auckland region is New Zealand’s principal business and financial city-region and is a gateway to the rest of the world. The regional economy is becoming increasingly specialised, with a predominance of the information and communication technology (ICT), financial services and creative industries. Auckland will also retain its role as the country’s leading manufacturing centre, with a number of specialised advanced manufacturing sectors featuring in the top 10 sectors of comparative advantage.

1

6

SLQ

SLQ index gives the comparative strength or weakness of an industry in a particular area, relative to the nation.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Industries with fast-growing GRP It is expected that advanced manufacturing will be amongst the most promising industry sectors in Auckland. These sectors will be driven by high levels of innovation and they will serve international demand. High growth rates are predicted in: •

•

•

Top 10 employers in 2006 and 2031

2006

2031

Business services

Business services

Retail

Retail

machinery and equipment manufacturing, particularly production of optical, medical and surgical equipment, as well as professional and scientific equipment

Wholesale

Wholesale

Health and community services

Accommodation, restaurants and bars Health and community services

rubber, plastic and other chemical manufacturing, reflecting the effects of the proposed national innovation centre with a specific focus on advanced materials and the strong growth forecast for plastics

Education

Construction

transport equipment manufacturing, primarily boatbuilding activity, underscoring the region’s strong comparative advantage in the marine sector.

Employment The employment structure of Auckland’s economy is quite similar to the GRP contribution picture, with strong dominance in the logistics and services sectors. While manufacturing will remain a significant employer, by 2031 it will become less labour-intensive, reflecting a change towards higher-value products. An additional 80,000 people (FTEs) will be employed in the business services sector, which will remain the largest employer in the region, providing over 20 per cent of all jobs by 2031. Accommodation, restaurants and bars move up to fourth place in 2031 and will employ 5.3 per cent of all FTEs (compared with 4.2 per cent in 2006). Machinery and equipment manufacturing will move up to tenth position in terms of employment contribution, employing around 25,000 FTEs by 2031.

Construction

Accommodation, restaurants and bars Air transport, services to transport, and storage Cultural and recreational services Central government

Education Air transport, services to transport and storage Cultural and recreational services Machinery and equipment manufacturing

Source: Horizon 2031 scenario, ARC 2008

Declining employment sectors Increased overseas competition, offshore relocation of some labour-intensive activities, as well as the trend towards more sustainable practices and activities, will all contribute towards declining employment in some industry sectors. The highest job losses are expected in real estate, textile and apparel production, and basic metal production.

Sectors of interest to the Auckland region In Part 1 of the Economic Futures project, the following sectors were highlighted as sectors of interest to the Auckland region: • • • • • • • • • • •

business and financial services retail information and communication technology creative industries digital content tourism transport and logistics biotechnology marine advanced materials, and food and beverage.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

These sectors are characterised by their high concentration in the region in comparison with the rest of the nation (i.e. high SLQs), they are large producers of wealth or have the potential to be so, and/or are export oriented.

Digital content

Business and financial services

Tourism

The business and financial services sector will grow at a rate higher than the regional average, with projected average annual growth rates at 2.7 per cent by 2016 and 2.6 per cent by 2031. This sector will experience one of the fastest growing employment rates, at 2.1 per cent average annual growth rate over the 2006– 2031 period. By 2031 it is forecast to employ 208,539 FTEs. The business and financial services sector will be the largest employer in the region.

Tourism is affected by the current global economic recession: the United Nations World Tourism Organisation recently announced that international tourism may stay even or fall by up to two per cent in 2009. However, the sector is expected to pick up as Auckland hosts two major sporting events, the 2011 Rugby World Cup and the 2015 Cricket World Cup. Investment in the Convention Centre will also support this recovery. Tourism is expected to generate $4.7 billion GRP in 2016. Employment will increase by twothirds over a 25-year period, reaching 75,550 FTEs in 2031.

Retail Retail in Auckland is as concentrated as in the rest of the country and this trend is not expected to change much. However, this sector is a major wealth generator. By 2031 the sector’s GRP contribution of $6,239 million will be ranked at third highest. Employment will grow by over 60 per cent between 2006 and 2031, creating an extra 50,541 jobs (FTEs). Employing a total of 134,588 FTEs in 2031, the sector will account for 15.8 per cent of all employment in the region, compared with 14.0 per cent in 2006.

Auckland is home to many digital-content businesses. The sector is fast growing and is projected to generate $4.7 billion GRP and to employ 42,297 FTEs by 2031, compared with 26,872 FTEs in 2006.

Transport and logistics The region is projected to remain a major distribution centre, with the transport and logistics sector forecast to generate $4 billion GRP in 2011. This forecast represents seven per cent of the total GRP and reflects Auckland’s major role as a gateway for the rest of the country, with Auckland International Airport and the sea and inland ports playing a significant part. Employment in this sector is expected to grow by 50 per cent between 2006 and 2031, to reach 52,315 FTEs.

Information and communications technology New Zealand’s ICT sector is concentrated in the Auckland region, and is projected to become more important for the region in the future with ICT forecast to generate $5.3 billion of value-added by 2031. Employment will increase by more than 60 per cent between 2006 and 2031, representing an increase of 17,140 FTEs.

Creative industries The creative industries sector generated approximately $1.7 billion value-added in 2006. Growing at a conservative average rate of 2.5 per cent a year, its GRP should reach approximately $3.2 billion by 2031. It is ranked eighth GRP contributor in the list of important industries for the Auckland region. Employment is projected to reach 33,000 FTEs by 2031. This is double the 2006 employment figure.

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Biotechnology The biotechnology sector produced $1.9 billion GRP in 2006 and is projected to generate $2.2 billion valueadded in 2011 (or four per cent of the total GRP). There is considerable innovation in agriculture processing, food science and medicine within the Auckland region, all sectors having applied science and technology processes. This integration of applied science and technology increases competitiveness, particularly in international markets. Biotechnology is seen as important because of its high growth potential and its ability to contribute technologies and services across the economy, notably to the health and pastoral sectors. Employment in this sector is projected to grow by 23 per cent between 2006 and 2031, reaching 32,724 FTEs in 2031.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Marine industry The marine industry has high growth potential. It is projected to generate $2 billion value-added in 2011, $2.2 billion by 2016, and $3.4 billion by 2031. The sector employed 23,294 FTEs in 2006 and is projected to employ approximately 34,685 FTEs in 2031, an increase of 50 per cent.

Advanced materials The production of advanced materials was estimated to create $1 billion GRP in 2006, with projections of $1.2 billion for 2011 and $2 billion by 2031. Employment is projected to increase by approximately 30 per cent over this period, reaching 11,874 FTEs by 2031.

Food and beverage The food and beverage industry is forecast to generate $1.8 billion value-added in 2011, $2 billion by 2016, and $3 billion by 2031. Employment is projected to grow by approximately 60 per cent, from 14,533 FTEs in 2006 to 23,405 FTEs by 2031.

Scenario 2: Digital Auckland Information and communication technologies are transformational technologies and are a necessary national and regional investment in order to stay competitive on the international stage. Broadband is a particular technology which improves the performance of ICT. This scenario is formulated in recognition of the fundamental role of broadband as a catalyst for economic and social development. Implemented correctly, a widespread ultra-fast broadband infrastructure has the potential to lower transaction costs, increase efficiency gains, and provide faster and more effective access to larger global markets, while driving economic and social development and growth. The Digital Auckland scenario investigates how investment in ultra-fast broadband telecommunications in New Zealand and Auckland might impact on the future performance of the regional economy. The scenario considers the type of long-term regional economic benefits that should be expected from sustained investment in telecommunication networks and technologies that enable ultra-fast broadband. Under this scenario, it is assumed that a $4.5 billion investment, including $1.5 billion as part of the government’s Broadband Investment Initiative, will

support the deployment of an ultra-fast broadband network nationwide. Given Auckland’s size and its economic potential, it is assumed that 40 per cent of this package will be invested in the region. Ultrafast broadband technology in itself does not enhance economic performance: the real value is gained from the adoption of new technological applications. Such applications drive efficiencies in business, improve market access and generally change the way business is conducted, leading to positive impacts on economic activity. They cover a wide range of areas, such as IT infrastructure, communication, content, business operations support, inter and intra business collaboration, transaction and education. Under this scenario, businesses will continually adopt new applications and increasingly invest in more advanced access technologies to enable new applications to run. This, in turn, will lead to higher levels of IT use and penetration. In particular, sectors that rely on the provision of information (such as business services, education, health, tourism and trade), online data bases, banking and financial services, online marketing and new distribution channels will hugely benefit from the adoption of new applications and ultra-fast broadband networks. Research identifies that the benefits of broadband and broadband-based applications are instrumental in many aspects of business operation. Obvious improvements to operational activities occur in areas such as supplychain management, fleet management, e-procurement, e-invoicing and online payments, online recruitment, and customer and call-centre services. These services require the exchange of massive amounts of information through strong and secure data and information management systems, using an ultra-fast broadband network. Businesses especially benefit from the faster, more reliable and secure transactions. Greater vertical specialisation leads to more cost-effective sourcing of goods and services, and horizontal collaboration creates more efficient and innovative partnerships between organisations, thus enabling them to develop or deliver a new product or service. Under this scenario, significant economic benefits are expected. The deployment of ultra-fast broadband infrastructure will add 2.4 percentage points to the region’s GRP by 2031. The industry sectors that benefit most from the deployment of ultra-fast broadband in terms of absolute GRP growth are business services, health and community services, communication services, education, and cultural and recreational services.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

GRP results compared with the Horizon 2031 results 2011

2016

2021

2031

GRP (billion)

$62.0

$ 70.3

$ 79.3

$100.3

Additional (million)

$215

$430

$ 877

$2,389

Increase

0.3%

0.6%

1.1%

2.4%

Source: Auckland Digital scenario, ARC 2008 Note: In 2004$ constant prices The deployment of ultra-fast broadband supports the region’s efforts to develop overseas markets. In particular, ICTs and broadband facilitate the globalisation of services. Under this scenario, the region is forecast to export in total an extra $49.1 billion during the 2006–2031 period (using 2004$ constant prices). Exports will represent nearly one-quarter of our GRP by 2031. Specifically, export growth will occur in the following sectors: printing, publishing and recorded media, business services, education, health and community services, and cultural and recreational services. Export projections 2011

2016

2021

2031

Export (billion)

$12.6

$14.8

$ 17.1

$23.5

Represents: of total GRP

20.4%

21.0%

21.5% 23.5%

Source: Auckland Digital scenario, ARC 2008 Note: In 2004$ constant prices

Scenario 3: Energy Efficiency Energy comes in many forms. It is used by industry in the production of goods and services, and also by households as a function of the goods and services they buy and use. The intensity of energy use varies by industrial sector, as does the form of that energy. Energy described in this scenario relates to delivered energy to the region, as energy consumed by the region is more often generated elsewhere in New Zealand. This is particularly relevant for electricity generation as Auckland places substantial demands on other regions for electricity delivery. Energy plays a pivotal role in our lives and economy. Government, businesses and households are totally dependent on energy for physical and economic wellbeing and this reliance is not predicted to lessen over time. Demand for energy is predicted to grow and can only be met by an increase of 68 per cent in delivered energy to the region by 2031.

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While there is little difference in the rates of increase for energy demands by both household and industry, at 55 per cent and 56 per cent respectively, the model projects an increase of 12 per cent in household energy demand per capita. This is in line with Organisation for Economic Co-operation and Development (OECD) trends on energy intensity over time, as it is assumed that energy demand increases in developed economies due to improved standards of living, increasing demand for energy-intensive goods and services, and the purchasing of new equipment to replace technologically obsolete stock. The Horizon 2031 scenario identified that the region’s projected energy use is unsustainable and requires careful planning in light of what we know about fuel affordability and security of supply, inefficiencies in energy use, the robustness and capacity of Auckland’s electricity network, and international and national commitments to reduce air emissions. The Energy Efficiency scenario presumed less reliance on fossil fuels, enabled by continued technological substitution (innovation) and smarter design and use of energy systems. A change in behaviour toward energy use would also be required, specifically with regard to the conservation of energy. The Energy Efficiency scenario reduced the increase in household energy demand by 19 per cent after energy efficiency assumptions were modelled. The scenario also reduced industry energy demand by 10 per cent following the modelling of energy efficiency assumptions. As is expected with a growing economy there is still an increase in total energy demanded in the region (46% from 2006 levels) in the energy efficiency scenario, however the per capita total energy demanded is lower, increasing by four per cent in comparison to a 20 per cent increase in Horizon 2031. Under the Energy Efficiency scenario, there is still a projected increase in total energy demanded in the region (up 46 per cent from 2006 levels) – as would be expected with a growing economy. However, the per capita total energy demanded is somewhat lower: an increase of only four per cent under the Energy Efficiency scenario, compared with 20 per cent in Horizon 2031.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Changes in energy demand 2006

2031 Horizon 2031 scenario

Total energy demand (TJ)

189,702

319,183

277,604

-13%

0.138

0.165

0.143

-13%

129,264

224,088

200,588

-10%

60,438

95,095

77,6016

-19%

0.044

0.049

0.039

-20%

Total energy demand per capita Industry energy demand (TJ) Household energy demand (TJ)

% change brought Energy Efficiency about by Energy Efficiency scenario scenario

Household energy demand per capita

Source: Energy Efficiency scenario, ARC 2008

This table identifies that while there is little change between the two scenarios in the total energy demanded by industry, there will be a significant decrease in total household energy demand. It should be noted that in the Energy Efficiency scenario, the intensity of energy use per unit of output decreased for most industries, with the exception of the water and rail transport, air transport, services to transport and storage industries. Energy demand by industry varies considerably across the 48 sectors of the Economics Futures Model (EFM). In 2006, 57 per cent of total industry demand was accounted for by just five sectors: • • • • •

basic metal manufacturing (19 per cent), road transport (11 per cent), printing, publishing and recorded media (nine per cent), air transport services to air transport and storage (nine per cent), and paper and paper product manufacturing (nine per cent).

In Horizon 2031, the concentration of energy use within these five sectors is forecast to decline slightly

to 55 per cent by 2031, falling by a further 10 per cent in the Energy Efficiency scenario, though the concentration of energy use within these five sectors changes little. The road transport industry has the largest reduction in energy use, with a drop of total energy demand of 32 per cent brought about by the energy efficiency assumptions. In terms of the amount of energy required to produce $1 of output in the Auckland region it was calculated in 2006 that it took 1.3 joules (J) to produce $1 of output. By modelling the energy efficient assumptions, this figure is reduced to 1.1 J by 2031, indicating energy efficiency gains in industry, per unit of gross output. Finally, as the Energy Efficiency scenario was modelled with a focus on the use of energy, substantial effects on gross regional product were not envisaged. There were only marginal changes to gross regional product (under one per cent for all reporting periods). Similarly, there was very little change to employment after modelling the assumptions of the scenario. Interestingly, the EFM is projecting that energy efficiency gains can be made without impacting on economic growth – rather it is redistributing energy across industries.

Energy Efficiency scenario compared with the Horizon 2031 results 2011 GRP (billion) Less ( ) or additional ( ) million GRP per capita Decrease ( ) or increase ( )

2016

2021

2031

$61.76

$70.3

$78.6

$98.8

$30

$92

$168

$88

$41,651

$44,028

$45,961

$51,275

0.04%

0.61%

0.19%

0.97%

Source: Energy Efficiency scenario, ARC 2008 Note: In 2004$ constant prices

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

1

Introduction

1.1 Context There is a large amount of information available on the economy and the business environment in the region. However, there is no agreed set of economic futures to guide planning and policy making. Current planning for the region is mainly based on the continuation of economic trends into the future. The Economic Futures project is intended to enhance the quality and consistency of regional economic planning and policy. It considered past trends and amended these to take into account planned and expected future trends in the form of new policies, investments and changes in the region’s business environment.

set of regional economic futures for Auckland. These are: •

A view of the long-term impacts of the current financial and economic crisis on the regional economy.

•

Horizon 2031 scenario: this scenario represents our best interpretation of the likely economic future of the region given current knowledge and expert understanding and analysis of the regional economy. It provides a good base for future planning.

•

Two other future scenarios: the Digital Auckland scenario and the Energy Efficiency scenario. Data results from 2006 to 2031, at five-year intervals, from testing out the economic and environmental implications of the future scenarios.

The project was developed in two phases: •

Information gathering, which is summarised in the Economic Futures for the Auckland region – Part 1: Knowledge base for scenarios development.2

•

•

Development of scenarios and modelling.

The intention of the project is not to predict the future, but to assess the likely impacts on the economy from a range of plausible scenarios. This report describes possible futures and the impacts these can be expected to have on the economy and the environment. It also outlines a number of challenges the region might face in the future.

This report, Part 2: Scenarios for economic development, presents three regional economic scenarios and associated modelling results and, when possible, identifies future challenges for the region. This section features an overview of what the Economic Futures project intends to achieve, the purpose and scope of the project, the methodology for scenario development, and the main users and stakeholders for this project.

1.2 Purpose This project aims to define the likely trajectories that the economy of the Auckland region will take over a 25-year period, from 2006 to 2031. It aims to deliver a

2

12

Available on www.arc.govt.nz/economy/

The set of regional economic futures support regional policy and strategy development, and guide the delivery of specific projects and actions.

1.3 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 three sets of employment and output data by sectors for the Auckland region, as well as their

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

The second and third steps were the scenario development and the modelling using the Auckland Region Economic Futures Model.

likely impacts on environmental aggregates. It also informs land use and transport modelling. 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 resource constrained. In other words, it assumes that there is no limit to the availability of skills, energy or office space. These assumptions, rather than being built into the model, are tested exogenously as part of the work.

1.4 Methodology for scenario development Figure 1 outlines the process undertaken in the development of the regional economic scenarios. Three scenarios were developed and modelled following a phase of information gathering. This involved undertaking an extensive literature review as well as new research of the Auckland region economy, supplemented by stakeholder and community interviews to gather their views on the future prospects for Auckland. This information is presented in the Economic Futures for the Auckland region – Part 1: Knowledge base for scenarios development. The Part 1 report provides comprehensive economic information for the region, and a sound base informing the development for the regional economic scenarios.

1.4.1 Development of the scenarios Scenarios are tools for ordering perceptions about alternative future environments or events through the consideration of alternative outcomes. Scenario development is designed to facilitate improved decision-making by allowing more complete consideration of outcomes and their implications. Scenario thinking helps improve the quality of the way we think about the future by encouraging an analysis of past and current trends, and a framework to think creatively about the future. Scenario development answers the question of ‘Where are we heading?’ Three economic scenarios are developed as part of this project: •

Horizon 2031, our main scenario depicting the ‘most likely’ long-term economic futures for the region given current knowledge

•

Digital Auckland scenario, and

•

Energy Efficiency scenario.

Those scenarios are informed by Part 1 of the report, as well as additional qualitative information and research used to validate and change, as appropriate, the quantitative results from the model exercise.

Figure 1: Scenario development process

Social attitudes to change

Policy framework

Economic drivers and demographics

Stakeholders and community interviews

Industry research findings

Knowledge base Horizon 2031

Digital Auckland

Energy Efficiency scenario

Scenario development

Value added (GRP)

Employment

Occupation

Environmental indicators

Modelling to 2031

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

1.4.2 Modelling

•

Each scenario is modelled using the Auckland Region Economic Futures Model developed by Market Economics Ltd. This model is a classic input-output model which 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. It works by taking estimates of future household consumption and export demand for 2011, 2016, 2021, 2026 and 2031 and determining the economic activity required to produce these demands, including all of the associated flow-on implications. Growth in household consumption is based on population projections, while projections of export demand are derived using past economic trends. The outcomes initially derived from these projections are validated and adjusted as appropriate based on qualitative research. The repercussions or flow-on implications are then calculated using input-output mathematics, with growth rates by the 48 industries for each five-year period from 2006 to 2031 being the major output. These growth rates, with productivity allowances, are then used to estimate the future economic implications associated with growth. The outputs are: •

socio-economic measures, such as gross output, employment and type of occupation, and valueadded projections by sector, and

environmental measures such as land use, delivered energy type, energy related emissions and solid waste.

A more detailed outline of the model is presented in Appendix 1.

1.4.3 Challenges The data from the modelling process was analysed to establish the likely impacts of each scenario. The evaluation and identification of impacts was peer reviewed. This report outlines the probable implications of these impacts in a number of ‘challenges for the Auckland region’ to be taken into account in future strategic planning. Chapter 6 provides a summary of the high-level implications derived from the scenarios.

1.5 Users The Economic Futures Project feeds into a number of projects of regional scale, as described in Figure 2. The aim is for the economic scenarios detailed in this report to become a reference point for developing regional strategy and policy and for guiding the design and delivery of specific strategies and interventions. The project supports strategic planning for regional economic development.

Figure 2: Purpose of Economic Futures Project

Land use and transport modelling and strategy Futures Land Use and Transport project

Economic Futures

Regional policy statement

Evaluation of economic development strategy (AREDS)

Strategic planning for regional economic development

Other documents and strategies

E.g. Regional facilitation report for the Tertiary Education Commission

scenario

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

The Economic Futures project was developed alongside the Futures Land Use and Transport Project. These projects are closely aligned and inform the current review of the Regional Policy Statement (RPS). Secondary users are intended to be external agencies such as central government departments with a regional focus, economic development agencies, industry organisations and others. These organisations should find the economic scenarios a useful tool to guide development of their strategies and policies and to help ensure that their work takes into account how the regional economy is thought to be changing.

1.6 Stakeholders The development of the regional economic scenarios involved consultation with major regional stakeholders through group meetings and one-on-one interviews. Stakeholder representatives attended a workshop hosted by the Auckland Region Economic Development Forum to review and confirm the proposed scenarios. The key stakeholders in this project include the Auckland Regional Council, local councils, the Government Urban and Economic Development Office, New Zealand Trade and Enterprise, the Employers and Manufacturers Association, the Auckland Chamber of Commerce, Te Puni Kokiri, Mana Whenua, the Ministry of Pacific Island Affairs, the Pacific Island Chamber of Commerce, the Council of Trade Unions, AucklandPlus, local Economic Development Agencies, and a number of sector-specific representatives. In addition, the project was driven by a cross-agency steering group, providing access to information as well as regular feedback on the project’s progress.

15

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

2

Long-term impacts of the current economic crisis

As discussed in the previous chapter, the purpose of this report is to assess the likely impacts on the Auckland regional economy from a number of scenarios, rather than predicting the future. In developing these scenarios, consideration was given to the effects of the current global economic crisis on the New Zealand and Auckland economies. This section provides a synopsis of various economic reports, outlooks and opinion pieces to offer some context for the scenario development.

2.1 Short-term impact of the economic crisis 2.1.1 Domestic context The deteriorating and shrinking global economy is impacting on an already weak New Zealand economy that has been in recession since early 2008. While many forecasters, the Reserve Bank included, are forecasting a fragile recovery in the second half of 2009, some are now picking that New Zealand’s economy will stay in recession until the end of 2009. New Zealand’s economy has been weak and in negative growth since early 2008. The decline was initially triggered by the drought in early 2008, causing a fall in export earnings, particularly for dairy commodities, at a time when global prices and demand for commodities were increasing. Business and household expenditure also started falling rapidly, driven by high interest rates, sharply rising oil prices and increases in other commodity prices, particularly in the construction sector and in household groceries. The impact of high interest rates was also felt in the housing market, leading to a fall in residential property values by an average of 6.8 per cent in the 12 months to early 2009 (Reserve Bank).

16

The anticipated economic stimulus resulting from the predicted recovery in New Zealand’s agricultural sector failed to materialise when it was affected by a sharp decline in demand for commodities and falling commodity prices towards the end 2008. The rapid depreciation of the New Zealand dollar in early 2009 went some way to cushioning the fall in New Zealand commodity export earnings. However, as global demand for commodities continues to drop, New Zealand export earnings will continue to fall or, at best, remain static in some sectors. The January 2009 Quarterly Survey of Business Opinion (New Zealand Institute of Economic Research) recorded business and household confidence levels falling to record lows, with little expectation these levels would improve substantially during 2009. This is because despite falling business costs (lower interest rates, oil prices and labour costs), corporate profitability has fallen to its lowest levels in almost two decades. The survey also found that businesses were rapidly cutting back on spending, with record lows in investment and employment intentions, leading to further deterioration in business activity, investment and employment through 2009 and into 2010. Towards the end of 2008, New Zealand started to experience a substantial decline in manufacturing activity across nearly all industry sectors as consumer demand rapidly dried up. This decline was predominately driven by sharp falls in the construction sector, feeding quickly through to related industries. The weakness in the manufacturing and construction sectors explains the bulk of the decline in New Zealand’s GDP activity in the last quarter of 2008. The Reserve Bank’s March 2009 Monetary Policy Statement stated the New Zealand housing market was barely halfway through its forecasted 20 per cent peak-to-trough fall in house prices as housing demand softened. This is also reflected in the issuing of the lowest number of residential consents in New Zealand since 1991, as well as a 31 per cent drop in residential construction activity since February 2008, taking

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

residential construction activity back to levels not seen since the March 2002 quarter. These statistics suggest the construction sector will remain weak through 2010 and possibly through to 2011. However, one variable which affects this sector is a probable increase in the number of new migrants and New Zealanders returning home, combined with a fall in the number of migrating New Zealanders as global economic and employment conditions remain weak. An increase in migrants will result in an increase in demand for housing, as New Zealand, and Auckland in particular, does not have an over-supply of housing. A net increase in the number of migrants could cause an earlier growth in activity in the construction sector. During 2008, businesses coped with falling demand by ‘hoarding’ labour and avoiding redundancies in the anticipation that the economy would move out of recession. This was achieved by slashing overtime and reducing core working hours. However, with the global recession now impacting on New Zealand’s economy, many forecasters are predicting that New Zealand’s unemployment rate will head above seven per cent by the end of 2009 and possibly go as high as 10 per cent in 2010. The rise in unemployment coupled with small or no wage increases, a tight credit market and falling property values will mean that demand for both retail and residential properties will continue to weaken during 2009 and 2010.

2.1.2 International context Globally, economic activity shrunk sharply in late 2008 and into 2009, moving the global economy into its worst recession since the end of the Second World War. Bloomberg L.P. estimates that since mid-2007 the value of the world stock markets has approximately halved as investors move money into gold and government bonds. Consumer spending in many western economies has fallen sharply in response to asset prices falling, rising unemployment and the ongoing readjustment in household debt as consumers seek to reduce their debt exposure through increased savings. In March 2009 the World Bank revised down its expectations for the world’s economic activity in 2009, predicting it will be the worst period since the Second World War, with global economic activity forecast to be around five per cent below its potential. The

International Monetary Fund (IMF) forecasts that many of the world’s large economies could shrink in 2009 by as much as 3.5 per cent. New Zealand’s economy is forecasted to ‘only’ decline by up to two per cent during 2009. The World Bank also forecasts the worst shrinkage in world trade in 80 years. Similarly, the Reserve Bank predicts that growth in the economies of many of New Zealand’s trading partners will fall to rates not seen in several decades, leading to a larger and more sustained dampening effect in business investment and consumer activity within New Zealand’s economy than was predicted in 2008. The Reserve Bank also predicts that our trading partners’ economic activity will start growing modestly from 2010 onwards, driven by large fiscal packages and easing of monetary conditions. However, households and financial institutions are expected to continue slowly adjusting their debt positions through 2009 and 2010, causing a sustained dampening effect on global activity. New Zealand’s main Asian trading partners fared particularly badly in the last two quarters of 2008, with steep declines in industrial production and exports as, globally, household and business consumption and investment fell away. In particular, Japan, New Zealand’s fourth largest trading partner, has been badly hit with international demand for cars, domestic electronic consumerables, semiconductors, electrical machinery and ships collapsing in early 2009, and an 80 per cent collapse in housing starts.

2.2 Outlook for the New Zealand and Auckland economies 2.2.1 Business outlook Business outlook in 2009 and through to 2010, and possibly into 2011, remains weak for both domestic and global demand. This is likely to limit investment by businesses until there is tangible and sustainable growth in demand. The Reserve Bank predicts that core business investment will decline to levels similar to those in the 1991 recession. Further investment constraints are limited access to credit and the effects of a heavily depreciated New Zealand dollar, which increases the cost of imported plant and machinery.

17

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Both of these factors will severely restrict how and when businesses decide to invest. The decision to invest will initially be driven by improvements in business margins and profits as cost pressures ease. Furthermore, the low level of investment through 2008 to 2010 is likely to leave many firms with the need to replace rapidly wearing capital equipment. Low interest rates will also stimulate business activity.

2.2.2 The labour market The Reserve Bank estimates an annual decline in employment of 3.1 per cent over 2009, leading to an unemployment peak of 6.8 per cent early in 2010. This decline in employment is also matched by a projected fall in wage inflation as New Zealand experiences a substantial easing in skill shortages. The Reserve Bank predicts lower unemployment levels than other observers based on the prediction that firms will try to avoid redundancies by reducing the number of hours employees work. The Reserve Bank unemployment forecast peak of 6.8 per cent is viewed by some commentators as being optimistic in the light of the sharp economic decline of many of New Zealand’s trading partners (Australia, the USA, China, Japan, Singapore and the European Union), particularly as economic growth in 2010 for our trading partners, with the possible exception of Australia, is likely to be small and very fragile. Some commentators forecast that unemployment could potentially be as high as 11 per cent by the end of 2010.

2.2.3 Immigration New Zealand is likely to experience an increase in immigration numbers despite a lower volume of labour movement between countries as a result of the weakening global economy. Although the net number of migrants decreased in 2008, there has been a noticeable increase in the number of migrants arriving in New Zealand during the first months in 2009. The numbers arriving were significantly higher than 12 months earlier. This suggests that there is an increase in the number of returning New Zealanders, with less New Zealanders going overseas and more migrants in search of better economic opportunities. Several forecasters are predicting that New Zealand’s annual

18

net migration gain will head above New Zealand’s 10-year average of 10,000 migrants by at least 5,000 migrants by the end of 2009 (BNZ Weekly Overview). The consequences of such an increase are twofold: short-term pressure on unemployment levels, and a slow but persistent increase in household spending and demand for housing.

2.2.4 Trade volumes Although the New Zealand dollar has depreciated by 30 per cent since its 2008 highs, making New Zealand exports cheaper in overseas markets, export volumes are still expected to decline sharply through 2009 due to the weak global economy. Even when the global economy shows signs of growth, the Reserve Bank predicts that export demand will continue to be weak into 2010 and possibly 2011, due to high levels of stockpiles, particularly for manufactured goods and forestry. Dairy exports are expected to remain weak during 2009 and into 2010. Low levels of business investment, a reduction in household income and a heavily depreciated dollar will drive a sustained decline in imports, particularly of cars and household goods, during 2009 and into 2010.

2.2.5 Household spending and house price inflation Consumer spending is expected to remain very weak during 2009 and well into 2010, resulting in the level of per capita consumption remaining well below current levels (March 2009 Monetary Policy Statement). This is driven predominately by reduced household income caused by lower wages from declining employment and falling available working hours as well as lower income from lower interest rates. Furthermore, households are expected to continue reducing their levels of consumption as they seek to save more, paying off debt driven by worries of falling household wealth and an increasingly uncertain employment environment. The need to save is an example of the global de-leveraging process at work, as households stop leveraging off their decreasing equity value and start to save. This has been most noticeable in the USA and Australia, where by January 2009 American households had improved their saving rates from near zero to almost five per cent of their

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

disposable income. Similarly, Australian households had increased their saving to almost 8.5 per cent of disposable income. The trend in New Zealand has been a decrease in the dis-saving rate rather than an increase in the saving rate. New Zealand’s current account deficit is one of the highest deficits in the OECD. New Zealand has run a current account deficit for over 35 years, funded by a combination of overseas borrowings and direct foreign investment into business ventures or portfolios such as bonds and securities. Another way of looking at New Zealand’s current account deficit is to say that the easy supply of overseas capital over the last few years has sunk the account into higher levels of deficit. A reversal in household behaviour is predicted to occur. The Reserve Bank forecasts a sizeable improvement in household saving rate from around minus 10 per cent levels, to about minus two per cent of household disposable income by the end of 2010. Household spending is expected to recover only modestly in 2011. The recovery in household savings is supported by a weak but positive growth in inflation-adjusted household incomes, the eventual effects of the tax cuts in 2008 and 2009, and a slight or modest improvement in the housing market in 2011. While most commentators expect further falls in residential property values, there is now little evidence to support the forecasts of declines in property value of between 30 per cent and 40 per cent towards the end of 2009. While falls of these magnitudes might occur in the USA and parts of the UK, they are unlikely to occur in New Zealand given the fundamental differences between New Zealand’s housing market and overseas markets. The main differences are that New Zealand is facing a rapidly worsening shortage of residential property due to a dramatic drop in the construction of residential property and a predicted large increase in migration numbers. An absence in New Zealand of poor lending decisions seen overseas, particularly in the USA, means that banks operating in New Zealand can fund themselves and provide mortgages. The Reserve Bank’s interest-rate cuts have also flowed through into mortgage interest-rate cuts, helping to keep housing affordable.

2.2.6 Gross domestic product As described earlier, the Reserve Bank forecasts that exceptionally weak global demand, particularly from our main global trading partners, will impact heavily on

demand for New Zealand exports, and with significantly low business sentiment and rising unemployment there will be substantial downward pressure on economic growth during 2009. While in 2009 the private sector is not expected to contribute to economic growth, it is expected that the government’s fiscal stimulus and spending on key infrastructure projects will provide some economic support to generate an economic recovery, albeit a weak one in late 2009, early 2010. The Reserve Bank also forecasts that the recovery will gain impetus as export activity and business investment pick up, predominately driven by the stimulus of lower interest rates, the depreciation of the New Zealand dollar, infrastructure spending, ongoing government spending and an expected recovery in world growth. The Reserve Bank forecasts that by 2011 New Zealand’s economy will have recovered to an annual average growth of 4.8 per cent. However, there is the caveat from the Reserve Bank that ‘the timing and magnitude of an upturn is highly dependent on global economic developments during 2009 and the continued growth in government spending during 2009 and into 2010’. Many commentators believe that this forecast is too optimistic and does not take into account the dramatically weakening global economy, particularly those of our main trading neighbours such as the USA, Japan and China. Their predictions are for no growth at all during 2009 and only early signs of weak growth in 2010.

2.2.7 Government stimulus package In February 2009 the New Zealand Government announced a stimulus package as a means of injecting capital into the economy. The stimulus package supports the already planned April 2009 tax cuts, which are designed to maintain and support household demand, therefore lifting domestic demand for New Zealand’s commodities and services. The Government also introduced as part of its stimulus package the fasttracking of a number of large infrastructure projects. In an effort to ensure the credit markets continue to function, the Government has introduced two guarantees for New Zealand’s financial institutions: the Retail Deposit Guarantee Scheme and the Wholesale Funding Guarantee Facility. The New Zealand package, although small when compared with the Australian, USA and UK stimulus packages, is a means of stimulating the economy.

19

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Australia is the most likely of all New Zealand’s trading partners to start growing economically at a rate higher than most other OECD partners. This is partly due to its substantial fiscal stimulus, as well as enduring demand from China for Australia’s primary commodities. In addition, Australia, like New Zealand, still attracts new migrants. The potential economic turnaround in Australia’s economic growth is likely to drive New Zealand’s growth because Australia accounts for about 20 per cent of all New Zealand exports and 40 per cent of all foreign visitors originate from Australia. On the other hand, an Australian economy recovering sooner and stronger than New Zealand’s economy may detrimentally impact on New Zealand’s economic recovery because an Australian recovery is likely to attract skilled New Zealand labour from sectors such as construction, mining and manufacturing that are crucial to New Zealand’s economic recovery. However, while it is possible that this effect could be outweighted by higher export demand from Australia (as noted above), it is also possible Australia’s economic growth could significantly increase production costs in New Zealand.

Zealand (through their Australian owners) has four of the eleven AA-rated banks in the world. •

New Zealand’s fiscal accounts are in good condition, following 15 years of fiscal surpluses.

•

New Zealand is likely to see accelerating population growth as the migration cycle turns, and this will be affected by the lack of available residential property.

•

As the global economic recession has yet to fully reach New Zealand, the country has some time to prepare for it with a degree of control and foresight.

•

And finally, a sharp decline in the New Zealand dollar will help to protect the export sector while spreading the impact around the wider economy through reducing demand for overseas commodities. Exporters of some commodities and services, such as sheep, shellfish and education services, have already indicated that they have started to see improving returns since the start of 2009.

2.2.8 Key points In summary, it is highly likely New Zealand will remain in recession for most of 2009 with (weak) economic growth not occurring until 2010. This will be driven in part by a continuing decline in the economic growth of New Zealand’s major trading partners, and in part by falling household consumption as households continue the process of de-leveraging and start to improve their saving rates. New Zealand is also unlikely to suffer as deep a recession as its major economic trading partners for the following reasons:

20

•

There has been a substantial decline in nominal interest rates, supporting household demand.

•

New Zealand has an absence of large-scale manufacturers feeding into the rapidly declining global manufacturing chain as, globally and locally, retailers and producers slash orders.

•

New Zealand‘s financial services sector has not been badly hit by the financial crisis (at least comparatively) and, as a result of the lessons learnt from the 1980s, New Zealand has one of the steadiest banking systems in the world. New

2.3 Long-term impacts of the economic crisis The current drying-up of global financial liquidity is unlikely to impact on New Zealand in the medium- to long-term. New Zealand’s sovereign risk is low: it is unlikely that the government will default on its debt repayments, nationalise foreign-owned assets or introduce policies that create lower rates of return for assets and stocks. In addition, the rapid (and probable further) depreciation of the New Zealand dollar makes New Zealand attractive to foreign investors if the risk of investing in a highly indebted country is priced into the investment return. This is important for New Zealand businesses because in recent months they have struggled to attract and secure over the mediumto long-term appropriately priced capital to support their business operations and longer-term investment programmes. The rapid depreciation of the New Zealand dollar will improve the competitiveness of its export-focused firms and those firms that compete against imports into the New Zealand market. The depreciation of the dollar will result in ‘traded’ industries, such as

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

the primary product processing and foreign tourism sectors, being able to attract a far greater share of new investment and employment than non-traded industries such as housing and private services.3 This is particularly important for Auckland. Consequently, once overseas demand increases, New Zealand exporters will again start performing strongly, producing appropriate returns to their investors. With a lower exchange rate increasing the cost of imports, household consumption will decrease. While increasing New Zealand’s savings rate, this will lead to potentially significant reductions in the country’s current account deficit. Furthermore, as the deficit reduces over the next five to 10 years, there will be less of a need to access international capital markets to obtain investment capital (Infometrics Ltd). The current lack of global liquidity has affected the ability of New Zealand’s banks to access international short-term and long-term credit. There was a real concern that the banks would not be able to refinance their current loans. The government intervened in response, offering banks government depositguarantees and access to lines of credit. With international central banks looking more secure and major OECD governments pumping more credit into the financial markets, it is now very unlikely that banks will find themselves with insufficient funds. Indeed, over the next three to five years bank balance sheets will continue to improve. It is also unlikely that the current lack of global liquidity will have any major impact on the capacity of New Zealand banks to finance domestic businesses. Looking forward, a rapidly depreciating New Zealand dollar will reduce household consumption as imports increase in price and households start de-leveraging and commence a saving regime. The industries that will particularly benefit from a low dollar will be the manufacturing, primary products processing (meat and dairy), tourism and international education sectors. These are the industry sectors that Auckland is strong in and they are likely to generate higher rates of economic growth for Auckland, and therefore for New Zealand, once the current global liquidity and economic recession have passed.

3

Infometrics Ltd – The long-term consequences of the financial crisis on the availability of finance for productive purposes in New Zealand (and Auckland), 2009.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3

Scenario 1: Horizon 2031

Horizon 2031 is the main, or baseline, scenario as part of the Economic Futures Project. It presents a major improvement on previous long-term employment and output forecasts for the Auckland region. It is based on our current knowledge and understanding of the region’s economy and economic drivers. It provides an outlook for the Auckland economy in the short term (2006–2011), medium term (2006–2016), and long term (2006–2031). This chapter is organised as follows: Section 3.1 provides an insight into how some of the key drivers of Auckland’s economic growth are expected to change in the next 25 years. It is followed by the model’s assumptions in section 3.2. Section 3.3 summarises the main indicators of economic growth for the short, medium, and long term. Sections 3.4, 3.5 and 3.6 look at gross regional product and gross regional product per capita, exports and employment and occupational structure respectively. Section 3.7 looks at the environmental indicators, such as energy use, emissions, waste and water discharge. Section 3.8 provides sector-specific projections for the 48 sectors in the model and section 3.9 presents the outlook for a number of sectors of interest to the Auckland region.

3.1 The economic landscape by 2031: key drivers In today’s turbulent and dynamic world, what we know and experience may be very different in the not-sodistant future. Some significant forces, such as demographic changes and globalisation, are already changing the face of the Auckland region. These Key drivers of economic drivers – along with the growth: labour force changes, • Demographic changes business innovation, • Changes in the labour force and sustainable • Internationalisation development – are • Business innovation discussed in this • Sustainable development section.

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3.1.1 Demographic changes Demographic dynamics will continue to influence economic growth in the Auckland region. Assumptions for the Auckland region’s population projections can be found in Appendix 2. The main changes by 2031 are expected to be the following: •

The region’s population will increase from 1.37 million in 2006 to 1.93 million in 2031,4 at 1.32 per cent average annual growth rate. While this projected growth is significant, it is not as rapid as that experienced in the last 20 years. This limits the extent to which domestic demand can drive economic growth in 2031 the future. 1,928,117 2016

1,596,817 2011 1,482,950

•

The 2006 proportion 1,371,000 of people in the 40 to 50-years-old age group – the highest earning group – will reduce from 15.50 per cent of the total population in 2006 to 13.95 per cent in 2031. This may imply decreasing domestic consumption in the long term.

•

Auckland’s population is becoming older, with the proportion of people aged 65 years and more projected to increase from 10 per cent in 2006 to 17 per cent in 2031. This may have many implications, such as the increased need for new businesses to cater for older people, a heavier fiscal burden on those in work, and a higher demand for health and community services.

Challenge for Auckland: With the constraints on domestic demand to drive economic growth in the future, Auckland businesses will need to expand existing – and develop new – export markets to sell their goods and services.

4

Medium population projections, ARC.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

•

In the 2006 Census, 37 per cent of Auckland residents were born overseas and they identified with over 180 ethnicities. Out of all New Zealand residents who identified with Asian or Pacific ethnicities, over two-thirds live in the Auckland region. The ethnic structure is expected to change in favour of Asian, Maori and Pacific people, who will represent a larger portion of the population in the future. These ethnic groups will have a heightened degree of influence on consumption preferences and, as business owners or workers, on work practices.

3.1.3 Internationalisation The Auckland region is an essential spatial node for New Zealand’s connection with the world, with many of the country’s international linkages (e.g. trade, investment and people flows) being conducted through the region. It is part of the global economy and, as such, its economic outlook over the next few years will be impacted by the current global economic slow-down. However, as the region’s businesses have primarily been serving the domestic market, the impact might be lessened.

Challenge for Auckland:

3.1.2 Changes in the labour force

Auckland, as a geographically isolated region, needs to reinforce its links with the rest of the world in order to support the expansion of its economy. The seaport, airport and digital network are essential pieces of infrastructure. Trade links are also vital in ensuring access to overseas markets.

Currently, Auckland’s labour market is characterised by high labour force participation5 (68.4 per cent) and low unemployment rate (3.8 per cent). The Economic Futures Model projects, based on the ARC Population Model, the following labour force changes: •

The proportion of the working-age population6 in the total population will increase from 64 per cent in 2006 to 68 per cent in 2031.

•

As a result, Auckland’s labour force7 will increase from 732,000 in 2006 to more than a million people in 2031,8 an increase of nearly 40 per cent over the next 25 years.

•

The regional labour force will expand at a lower rate post-2016, as new entrants will be largely offset by retirements.

•

Auckland’s labour force will become older over the next few decades.

Challenge for Auckland: In the context of an ageing labour force, it may be more difficult for businesses to recruit skilled labour. This may constrain a business’s ability to grow and innovate, ultimately restricting production in the region. Auckland needs to remain an attractive place to work and do business. The region will compete with the rest of New Zealand and other developed countries for attracting new skilled workers. 5

6 7

8

The labour force participation rate is the percentage of all those aged 15 years and over who are in the labour force. The employment rate refers to the percentage of those aged 15 years and over who are employed full or part-time. Those aged 15 to 65. Statistics New Zealand defines the labour force as being made up of people aged 15 years and over who are working and people who are not in work but who are available and actively seeking work (the unemployed). Statistics New Zealand (2008) Labour Force Projections, according to assumptions agreed to by the Auckland Regional Council.

While the low degree of openness of the region’s economy might be a useful buffer in times of economic slow-down, Auckland’s businesses will have to become more aggressive in international markets, as the domestic market is not increasing as rapidly as in the recent past. By 2031, Auckland’s international role is expected to increase. The trade agreements with Pacific Rim countries and the growing relationship with the Australian economy will create new business opportunities as well as economies of scale. These new or stronger international linkages may also lead to some businesses (such as low-value manufacture) moving overseas. Although Auckland is expected to be more outwardfocused by 2031, its distance from global markets will continue to influence its economic performance because of the cost of doing business overseas; this, in turn, affects the international competitiveness of Auckland’s businesses. Nevertheless, it has been argued that the world is ‘becoming flatter,’9 based on the premise that technological advances in transportation and communications have reduced the cost of moving products and services across long distances to such an extent that distance now plays a minor role in international trade. The proposed investment in broadband is therefore expected to somewhat counteract the cost associated with Auckland’s geographical remoteness.

9

Friedman, T. (2005), The World is Flat. Farrar, Straus and Giroux

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3.1.4 Business innovation

3.1.5 Sustainable development

Auckland’s economic growth largely depends on business innovation. Business innovation encompasses product (goods and services) and process innovations, new marketing methods and organisational approaches, and implementation of advances in technology. Innovation is especially important for the sectors that drive the region’s economy.

Sustainable development is expected to be a major driver of the Auckland economy’s growth in the next 25 years. Due to factors such as rising oil prices, emissions trading schemes, carbon footprints, climate change and the Kyoto Protocol, it is expected that consumers’ preferences will increasingly move towards environmentally sound products and services, and business processes. Consumer preferences, together with tougher regulations, will drive businesses to focus on the development or adoption of sustainable technologies and practices.

The key sectors in Auckland’s economy that are expected to be driven by business innovation are the industries strongly focused on niche, high-tech, value-added activities. They include information and communication technologies and related sub-sectors (e.g. creative industries and digital content), specialised manufacturing (e.g. marine and advanced materials) and health technologies (e.g. biotechnology). Although deregulation during the 1980s and 1990s saw some decline in manufacturing, manufacturing has remained – and is likely to remain – a prominent feature of the region’s economy, with a greater focus on niche, value-added type manufacturing. The region’s competitiveness in a number of niche sectors will be secured through innovation, leading to product differentiation as well as higher productivity rates. Marine is an example where there is plenty of scope for better production systems to reduce production cost and time. The primary sector, although playing a relatively minor part of Auckland’s economy (with the exception of horticulture), will continue to have an impact on the region’s economy through its links with other sectors. The agriculture sector will be characterised by the rapid evolution and absorption of new technologies in agri-technology, animal remedies (including genetics), software, machinery and biochemical businesses.

Challenge for Auckland: Auckland businesses cannot solely compete on price. Product and service differentiation, driven by innovation, is the key to drive competitiveness. In addition, innovation supports productivity gains.

This approach is already evident among many of Auckland’s innovative businesses which use sustainable development, environmental responsibility and social awareness as strategic planning tools. By 2031, the increased focus on sustainable development is expected to open new business opportunities at home and overseas, and create new jobs in the areas of environmental technology and advice, waste reduction, recyclable/advanced materials, green building and energy conservation. New Zealand and Auckland are well placed to gain market shares offshore, based on their clean, green image.

Challenge for Auckland: The move towards a more sustainable economy requires Auckland to rethink how the region’s economy and society will operate within dynamic environmental and cultural settings.

3.2 Assumptions In developing the Horizon 2031 scenario, a series of factors were translated into detailed assumptions. In addition to the key drivers detailed above, factors such as global economic forces, major central government policy and fiscal changes, infrastructural developments and upcoming events, as well as industry and community insights into the outlook for the economy and specific industry sectors, were considered. Here are some of the principal assumptions made under Horizon 2031: •

24

Auckland is part of the global economy and, as such, its economic outlook over the next few years will be impacted by the current global economic slow-down. However, as the region’s businesses

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

have primarily been serving the domestic market, the impact might be lessened. The Horizon 2031 scenario modelled this economic slow-down using the October 2008 GDP forecast for the New Zealand economy (New Zealand Treasury), as well as forecasts from other reliable sources such as banks and the New Zealand Institute of Economic Research (section 3.4.1 provides further details). While the Horizon 2031 forecast might have been too optimistic in the short term, the modelling results in the medium and long term are only marginally affected. The effects of the economic slow-down were also considered for each of the 48 sectors in the model, assuming that all the sectors will not be affected equally. The retail, construction and tourism sectors were thought to be most affected and were thus adjusted appropriately. The consumption-effect variable and the infrastructure investment growth rate for (private) construction were adjusted down for the 2006–2011 period. Because of the interlinkages in the model, any changes in the growth rate of a particular industry sector also pass on to all other industries in the economy. •

Major fiscal and policy changes such as the tax credits and the research and development tax cuts were modelled.

•

Infrastructural developments planned or proposed for the region including rail electrification, investment in transport and energy transmission, deployment of faster broadband (based on the now cancelled Broadband Investment Fund), and development of the New Zealand Innovation Centre with a focus on advanced materials.

•

Productivity growth rates differ between industries and do not change over time. This is a major limitation as the model does not account for productivity improvements over time, but assumes that in the future, productivity will change at the same rate as in the recent past.

•

Major upcoming events that may have effects on the economy are the 2011 Rugby World Cup and the 2015 Cricket World Cup.

Assumptions are detailed in Appendix 3.

3.3 Economic indicators in a nutshell, 2006 – 2031 The key economic indicators for the Auckland region presented in this section are GRP, GRP per capita, export and employment (for definitions of these indicators, see Appendix 7: Glossary of terms).

Table 1: Projections in a nutshell, 2006–2031 2006

2011

2016

2031

$54.9

$61.8

$69.9

$97.9

Exports (billion)

$8.9

$10.6

$12.7

$21.2

GRP per capita

$40,033

$41,667

$43,763

$50,785

1,371,000

1,482,950

1,596,817

1,928,117

601,612

642,970

694,406

853,333

GRP (billion)

Population Employment (full time equivalent)

Source: Horizon 2031 scenario, ARC 2008 Note: Data for 2006 are estimates; 2006 is the base year in the Economics Future Model. GRP and export values are expressed in 2004$ constant prices.

25

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3.4 Gross regional product and gross regional product per capita

consumer and business confidence. These effects are likely to be felt most strongly in the retail, tourism and construction sectors, as demand for these industries is highly sensitive to changes in people’s income and their expected financial security. Business investment decisions may also be delayed or lost as a result of the current crisis.

3.4.1 Gross regional product

However, Auckland can be expected to fare better than the rest of New Zealand during this slowdown period because historically its economy has primarily been serving the domestic market. It is therefore less vulnerable to the international cycle than rural New Zealand which exports a significant proportion of its output.

The Horizon 2031 projections in the first period (2006– 2011) were influenced by the New Zealand Treasury October 2008 gross domestic product (GDP) forecast for the New Zealand economy, as well as forecasts from other reliable sources such as banks and the New Zealand Institute of Economic Research. The Treasury has since revised its nationwide forecasts downward in the light of the deepening global recession.

Figure 3: Auckland’s GRP, 2006–2031 Table 2: New Zealand’s GDP annual growth rate, 1997–2011 2. 27%

Based on Oct. 2008 forecast March years

Based on Dec. 2008 forecast

1997–2006

3.0%

3.0%

Actual

2006

2.0%

2.0%

2007

1.5%

1.5%

2008

3.0%

3.2%*

2009

0.1%

0.3%

2010

1.8%

0.8%

2011

3.3%

2.9%

2006–2011

1.9%

1.7%

Forecast

Average

2.40% $69, 882 $61,790 $54,885

GDP growth rate

Average

2006

26

2016

2031

•

By 2016 Auckland’s GRP will reach $69,882 million, an increase of nearly one-third of the 2006 GRP. It is projected to grow on average by 2.49 per cent annually from 2011.This increased growth rate is expected to be aided by the effects of the 2011 Rugby World Cup, the impact of income tax cuts, and the home loan deposit subsidy from the Kiwi Saver scheme taking effect in 2010. While it could take until 2010 for global economic growth to pick up significantly, it is expected that consumer and business confidence will begin recovering earlier.

•

By 2031 Auckland’s GRP will have nearly doubled to reach near $98 billion. This equates to an average annual growth rate of 2.27 per cent from 2016, a fairly average growth rate for the Auckland region.

The regional forecasts under the Horizon 2031 can be considered optimistic for the 2006–11 period. However, the longer term impact is minimal. By 2011 Auckland’s GRP will reach $61,790 million. This represents a 12.6 per cent increase from 2006, or an average annual growth of 2.40 per cent. Whether Auckland’s GRP will grow at 2.40 per cent per annum or at a lower rate, this growth will represent a significant slow-down when compared with the previous five years. This can partly be explained by the effects of the global economic slow-down and high oil and food prices in 2008/09, and the resulting reduction in

2011

Source: Horizon 2031 scenario, ARC 2008 Note: Absolute values expressed in 2004$ constant prices (million); percentages present average annual growth rates between periods.

Source: New Zealand Treasury (2008) * Revised growth rate

•

$97, 920

2. 49%

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

3.4.2 Gross regional product per capita

Challenge for Auckland:

In 2006 Auckland’s GRP per capita was $40,033, which is below that of most of the cities Auckland is traditionally compared with (e.g. Brisbane, Vancouver, Melbourne, Copenhagen and Seattle), but higher than Adelaide’s. Although Auckland’s GRP per capita was high relative to other New Zealand regions, it still ranks only eightieth out of 116 countries.10

A 2.4 per cent average annual economic growth rate (GRP) over the next 25 years is insufficient to ensure that our GRP per capita, a proxy for living standard, does not slip further down the OECD ranking. Given the limits to improving labour utilisation further, future improvements in GRP per capita must come primarily from labour productivity growth. Also, Auckland needs to use new telecommunication and transport technologies to increase export and direct investment levels.

The Horizon 2031 projections are: •

By 2011 Auckland will generate $41,667 GRP per capita11.

•

By 2016 Auckland’s GRP per capita will reach $43,763.

•

By 2031 Auckland’s GRP per capita will be $50,785, a total increase of around 27 per cent from the base year (2006), or a one per cent average annual growth.

Figure 4: Auckland’s GRP per capita, 2006–2031 1.00% 0.99% 0.80% $40,033

2006

$50,785 $41,667

2011

$43,763

2016

2031

Source: Horizon 2031 scenario, ARC 2008 Note: Absolute values expressed in 2004$ constant prices; percentages present average annual growth rates between periods. Under the Horizon 2031 scenario, Auckland’s annual GRP per capita growth rate is forecast to average 1 per cent from 2006 to 2031. For comparison, according to the IMF forecasts,12 New Zealand’s GDP per capita will increase 1.2 per cent each year from 2006 to 2013 (in constant prices). In the same period, Australian GDP per capita is forecast to grow by 1.9 per cent annually and the USA’s GDP per capita by 1.0 per cent.

10

11

12

http://www.med.govt.nz/templates/ MultipageDocumentPage____32731.aspx A definition of GRP per capita and its components can be found in Glossary of Terms, Appendix 7. http://www.imf.org/external/pubs/ft/weo/2008/02

Improvements in GDP per capita can be attributed to increases in either labour utilisation or labour productivity (total output or total income generated per hour worked). Under Horizon 2031, the GRP per capita growth rate is decelerating over time, reflecting a lesser labour utilisation rate, itself a product of our changing demographics (as discussed under section 3.1). In the previous two decades, New Zealand’s GDP per capita was mainly generated by increases in labour utilisation (the increase in the number of people working and the trend towards longer working hours), while only one-third of growth was driven by improvement in labour productivity (OECD, 2006).13 In 2006 Auckland’s labour productivity was lower than the OECD average of a sample of metropolitan regions, and all of the comparator cities other than Vancouver.14 While there is limited scope for increasing labour participation in the future, a key to improving our living standard, as expressed by GRP per capita, is to increase labour productivity. Moreover, underlying determinants of GDP per capita significant for both Auckland and New Zealand are the level of internationalisation and infrastructure development. New Zealand’s remoteness from markets is estimated to penalise its GDP per capita by around 10 per cent (OECD, 2008), and the country’s ICT infrastructure quality appears to be below that of most OECD countries. In this respect, investment in broadband looks encouraging.

3.5 Export The Auckland region plays a major role in New Zealand’s global engagement, being the essential

13

14

Some improvements in labour productivity were factored into the model. Methodology used and projected average labour productivity rates for 48 industries are enclosed in Appendix 3. http://www.med.govt.nz/templates/ MultipageDocumentPage____32731.aspx100

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

spatial node for the country’s connection with the rest of the world. Auckland’s role has been conceptualised as the international hub for the rest of New Zealand.

•

Many of New Zealand’s international linkages in trade, investment and people flows have been conducted through Auckland because of the region’s infrastructural capacity, the agglomeration of the business sectors, and population dominance. Exports from the Auckland region are driven by the industry sectors in which the region is thought 2031 $21.1 billion to have a competitive 2016 $12.7 billion advantage, and will 2011 $10.6 billion be supported by 2006 a number of $8.9 billion free trade agreements New Zealand is currently developing. Considered an input in the Economic Futures Model, the projected changes in exports in Auckland are the following: •

By 2011 Auckland’s exports will reach $10,608 million, which represents 17.2 per cent of total GRP.

•

By 2016 Auckland’s exports will reach $12,676 million, which represents 18.1 per cent of total GRP.

By 2031 Auckland’s exports will reach $21,164 million, which represents 21.6 per cent of total GRP. This reflects Auckland’s vision to increase global engagement as part of the Horizon 2031 scenario. This growth will mainly be driven by the increasing export of advanced manufacture sectors such as machinery and equipment production, transport equipment manufacture, and dairy and other food production. In addition, it will be driven by export growth in the services sectors, including business services and tourism (e.g. air transport services, accommodation, and restaurant and bars services).

This export growth is driven by a number of niche sectors in which the region has a competitive advantage: •

Export growth in machinery and equipment manufacturing is driven by exports in boats and associated marine equipment, as well as electronic medical equipment.

•

Export growth in air transport, accommodation, retail, restaurants and bars, and cultural and recreational services is driven by an increase in tourism.

•

Export growth in rubber, plastic and other chemical manufacturing is driven by export in advanced materials and related products.

•

Export growth in food and beverage.

Table 3: Fast growing export sectors, 2006–2031 % annual average growth rate 2006–2031

2006

2031

$919

$3,586

$2,667

5.60%

Air transport, services to transport, and storage

$1,175

2,791$

$1,615

3.52%

Total food and beverage manufacturing

Machinery and equipment manufacturing

$1,581

$4,392

$2,811

4.17%

Incl. beverage, malt and tobacco manufacturing

$200

$585

$385

4.39%

Meat and meat products manufacturing

$139

$269

$1,089

2.68%

Dairy product manufacturing

$583

$1,672

$1,207

4.31%

Other food manufacturing

$659

$1,866

$976

4.25%

Business services

$369

$1,346

$386

5.31%

Accommodation, restaurants, and bars

$402

$1,237

$313

4.60%

Transport equipment manufacturing

$322

$1,193

$871

5.38%

Rubber, plastic, and other chemical manufacturing

$317

$882

$565

4.18%

Cultural and recreational services

$167

$554

$387

4.91%

Retail

$229

$542

$313

3.51%

Source: Horizon 2031 scenario, ARC 2008

28

Absolute change 2006–2031

Note: In 2004$ constant prices (million)

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

3.6 Employment and occupation

Figure 5: Employment, 2006–2031 1.4% 853,333

1.6% 1.3%

3.6.1 Employment

694,406 601,612

642,970

As at 2006, approximately 601,612 people were employed in the Auckland region, and the unemployment rate was 3.6 per cent, slightly below the national average of 3.7 per cent.15 Estimated and projected employment data, expressed in Full-time Equivalent Employment (FTE),16 are illustrated in Figure 5. The figure shows that: •

By 2011 employment in Auckland is projected to reach 642,970 FTEs, a 6.87 per cent increase from the 2006 level representing an average annual growth rate of 1.34 per cent.

•

By 2016 employment in Auckland will reach 694,406 FTEs, which is a 15.42 per cent increase from 2006. During this period FTEs will grow on average by 1.44 per cent annually.

•

16

2011

2016

2031

Source: Horizon 2031 scenario, ARC 2008 Note: Absolute numbers present full-time equivalent (FTE) employment and percentages present average annual growth rates between periods.

3.6.2 Occupation

By 2031 employment is projected to be 853,333 FTEs. This represents an increase of over 40 per cent from the base year, meaning that employment will increase each year by an average of 1.40 per cent.

The annual projected growth rates in the short-term, medium-term, and long-term periods (1.34 per cent, 1.44 per cent, and 1.40 per cent, respectively), are in line with the forecast 1.32 per cent of population growth.

15

2006

This section discusses projected changes in the occupational structure of employment in the Auckland region over the 2006–2031 period. Note that projections beyond 2021 should be considered with caution. Within a 20-year period, there are likely to be major changes in occupations. It is therefore impossible to forecast the occupation structure of the future over such a long time frame.

Demand for occupations Absolute numbers for occupations in the Auckland regional economy are presented in Table 4. Note that 2031 data is for information only.

http://www.med.govt.nz/templates/ MultipageDocumentPage____32731.aspx For a definition of FTE, see Appendix 7: Glossary of Terms

Table 4: Demand for occupations in Auckland region, 2006–2031 Occupations Legislators, administrators, and managers Professionals

2006

2011

2016

2021

2031

108,550

120,903

135,045

148,957

178,334

98,199

108,771

121,448

134,713

164,768

Technicians and associated professionals

86,956

94,853

104,372

113,799

134,217

Clerks

78,482

77,512

77,272

76,665

75,890

Service and sales workers

75,932

81,150

87,414

92,886

104,226

Agriculture and fishery workers

11,432

11,382

11,430

11,349

11,038

Trades workers

51,387

51,667

53,451

54,928

57,539

Plant and machine operators, and assemblers

41,644

44,204

47,251

50,324

56,880

Elementary occupations

49,030

52,535

56,724

60,980

70,432

601,612

642,977

694,407

744,601

853,324

Total

Source: Horizon 2031 scenario, ARC 2008 Note: Occupations are based on the New Zealand Standard Classification of Occupations 1999 (NZSCO99).

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

100%

Elementary occupations

90%

Plant and machine operators and assemblers

80%

Trades workers

70%

Agriculture and fishery workers

60%

Service and sales workers

Source: Horizon 2031 scenario, ARC 2008 Note: Occupations are based on the New Zealand Standard Classification of Occupations 1999 (NZSCO99).

Clerks

50% 40%

Technicians and associate professionals

30%

Professionals

20%

Legislators, administrators, and managers

10% 0% 2006

2011

2016

2021

2031

Figure 6: Occupational structure in the Auckland region, 2006–2031

Occupational structure The occupational structure is highly dynamic: changes in the industrial composition of employment, technology, business practices and other factors have a major impact on the occupational structure. For example, retail banking jobs such as teller or phone customer service positions have significantly decreased in recent years due to new technology in the banking sector that has allowed customers to perform almost every common banking procedure remotely. Figure 6 illustrates the forecast occupational structure of Auckland’s economy in the 25-year period of study under the Horizon 2031 scenario.

The most important occupations in the period of study will be legislators, administrators and managers; professionals; and technicians and associate professionals. These three major categories of occupation will increase their contribution to all occupations from 48.9 per cent in 2006 to 52 per cent in 2031. On the other hand, the most significant decline of occupations is expected to occur in the clerks category, which will decline from 13 per cent in 2006 to 8.9 per cent in 2031. All other major occupation groups are not expected to experience significant changes.

Changes in demand for occupations This change in occupation demand is driven by many factors, such as sectors’ growth and innovation.

Challenge for Auckland: The fastest growing occupations in the long term are projected to be higher-skilled and thus higher-paying occupations:

Jobs in the Auckland region will increasingly require higher levels of skills, as reflected by the changes in the occupational structure.

Table 5: Change in major occupation groups, 2006–2031 Occupations

2006– 2011

2006– 2016

2006– 2021

2006– 2031

Legislators, administrators, and managers

12,353

26,495

40,407

69,784

Professionals

10,572

23,249

36,514

66,569

7,897

17,416

26,843

47,261

Technicians and associate professionals Clerks Service and sales workers Agriculture and fishery workers Trades workers Plant and machine operators, and assemblers Elementary occupations Total

30

-970

-1,210

-1,817

-2,592

5,218

11,482

16,954

28,294

-50

-2

-83

-394

280

2,064

3,541

6,152

2,560

5,607

8,680

15,236

3,505

7,694

11,950

21,402

41,365

92,795

142,989

251,712

Source: Horizon 2031 scenario, ARC 2008 Note: Occupations are based on the New Zealand Standard Classification of Occupations 1999 (NZSCO99).

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

•

Legislators, administrators, and managers – increasing 64.3 per cent.

•

Professionals – increasing 67.8 per cent.

•

Technicians and associate professionals – increasing 54.4 per cent.

Declining occupations in this period will be lower-skilled occupations: •

Clerks – decreasing 3.3 per cent.

•

Agriculture and fishery workers – decreasing 3.4 per cent.

More specifically, the forecast changes in these five occupation categories are illustrated in Table 6. The changes in occupation demand in the 25-year period of study are driven mostly by the changes in a few sectors: •

Half of all legislators, administrators, and managers will work in business services, retail and wholesale.

•

More than 60 per cent of professionals will work in the sectors of business services, education, and health and community services.

•

Fifty per cent of technicians and associated professionals will work in business services, retail, wholesale, and cultural and recreational services.

•

More than 25 per cent of clerks will work in the business services sector.

3.7 Environmental indicators The Horizon 2031 scenario is based on a static energy efficiency model that assumes there will be limited improvements in energy efficiencies to 2031.17 Such an outcome is evidently unlikely: improvements in energy efficiency and reductions in emissions and wastage are likely to occur (and probably quite substantially) between 2006 and 2031. The following projections may therefore be considered conservative as sustainability becomes an increasingly integral component of the Auckland region’s economy. 17

The model does assume eco-efficiency gains in electricity demand, provided by the Ministry of Economic Development. These are assumed to be brought about by technological change within the economy (at a rate of 0.75 per cent per annum).

Table 6: Sub-groups of occupations, 2006–2031 Occupations Legislators, administrators, and managers Legislators and administrators Corporate managers

2006

2011

2016

2021

2031

108,550

120,903

135,045

148,957

178,334

7644

8,737

10,064

11,487

14,829

100,906

112,166

124,981

137,470

163,505

Professionals

98,199

108,771

121,448

134,713

164,768

Physical, mathematical and engineering science professionals

24,975

28,572

32,853

37,488

48,510

Life science and health professionals

15,438

16,193

17,277

18,414

20,981

Teaching professionals

23,672

24,699

25,957

26,992

28,584

Other professionals

34,114

39,307

45,361

51,819

66,,693

Technicians and associate professionals

86,956

94,853

104,372

113,799

134,217

Physical science and engineering associate professionals

17,689

18,200

19,003

19,753

21,423

4,878

4,959

5,135

5,351

5,966

Other associate professionals

64,389

71,694

80,234

88,695

106,828

Clerks

78,482

77,512

77,272

76,665

75,890

Office clerks

57,146

55,724

54,530

52,863

49,237

Customer services clerks

21,336

21,788

22,742

23,802

26,653

Agricultural and fishery workers

11,432

11,382

11,430

11,349

11,038

Life science and health associate professionals

Source: Horizon 2031 scenario, ARC 2008 Note: Occupations are based on the New Zealand Standard Classification of Occupations 1999 (NZSCO99).

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3.7.1 Energy use When aggregated, the total energy use of the Auckland region’s economy in 2006 was 189,702 terajoules. This includes aviation fuel, black liquor, coal, diesel, electricity, fuel oil, geothermal energy, liquefied petroleum gas, natural gas, petrol and wood. Under the Horizon 2031 scenario, energy use in the region is projected to increase by 12.6 per cent in the short term (to 2011), 25.3 per cent in the medium term (to 2016), and 68.3 per cent in the long term to reach 319,183 TJ of total energy consumption in 2031. Average annual growth rates are forecast to be 2.4 per cent, 2.3 per cent, and 2.1 per cent in the short-, medium- and long-term periods, respectively. By 2031, industry will consume three-quarters of all energy consumed in the region, and households one-quarter.

The model, although conservative, forecasts a declining trend in energy use per unit of GRP in the long term. By 2031 energy use per unit of GRP is projected to have fallen to a ratio of 3.25 from a ratio of 3.45 in 2006. In other words, less energy is consumed to produce $1 of output. This can be explained by a change in the industrial structure of the economy, moving away from heavy manufacturing industries. As discussed previously, any efficiency gains in energy use are not taken into account in this model. The largest energy consumers in Auckland are: •

the basic metal manufacturing sector, which made up 13 per cent of the total 189,702 TJ consumed in 2006

Table 7: Top 10 energy-intense sectors in Auckland, 2006–2031 Energy (TJ, Oil Equivalents)

2006

2011

2016

2031

Basic metal manufacturing

24,761

28,704

30,303

36,540

Road transport

14,511

16,245

18,154

24,678

Air transport, services to transport, and storage

11,310

12,975

15,312

23,051

Printing, publishing, and recorded media

11,800

13,306

15,011

20,923

Paper and paper product manufacturing

11,613

13,035

14,387

19,065

Retail

6,386

7,124

7,979

10,617

Business services

4,992

5,751

6,665

10,233

Rubber, plastic, and other chemical manufacturing

3,507

4,295

4,800

7,474

Non-metallic mineral product manufacturing

4,425

4,756

5,386

7,421

Furniture and other manufacturing

3,942

4,461

4,923

6,324

Source: Horizon 2031 scenario, ARC 2008

Table 8: Change in the top 10 energy-intense sectors in Auckland, 2006–2031 % Change from base year

2006–11

2006–16

2006–31

Basic metal manufacturing

15.92%

22.38%

47.57%

Road transport

11.95%

25.11%

70.06%

Air transport, services to transport, and storage

14.72%

35.38%

103.81%

Printing, publishing, and recorded media

12.76%

27.21%

77.31%

Paper and paper product manufacturing

12.24%

23.89%

64.17%

Retail

11.56%

24.95%

66.25%

Business services

15.20%

33.51%

104.99%

Rubber, plastic, and other chemical manufacturing

22.47%

36.87%

113.12%

7.48%

21.72%

67.71%

13.17%

24.89%

60.43%

Non-metallic mineral product manufacturing Furniture and other manufacturing

Source: Horizon 2031 scenario, ARC 2008

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

•

road transport, which used 7.7 per cent in the same period, and air transport which used six per cent, and

•

printing, publishing and recorded media, and paper production, with each sector using more than six per cent of total energy consumption.

industries is forecast to increase from 2558 TJ in 2006 to 4291 TJ in 2031, a 67.8 per cent increase, while dairy products manufacturing is forecast to increase its coal needs from 710 TJ in 2006 to 1764 TJ in 2031, a 149 per cent increase. •

Electricity usage is projected to increase from 36,512 TJ in 2006 to 61,011 TJ in 2031. The manufacturing sector such as basic metal production, paper production, and rubber, plastic and other chemical production industries are the biggest users of electricity in both Auckland and New Zealand as a whole. Basic metal production is projected to consume 8.1 per cent of total electricity usage in the region in 2031. The business services sector is also a high electricity user, and by 2031 is forecast to consume 7.9 per cent of the region’s total electricity usage.

•

Natural gas consumption is projected to grow from 28,280 TJ in 2006 to 50,021 TJ in 2031, an increase of 77 per cent. More than 60 per cent of natural gas is consumed by manufacturing industries.

Manufacturing industries (e.g. basic metal production, paper production, rubber, plastic and other chemical production, non-metallic mineral product manufacturing, and furniture production) are generally energy intensive, and consequently substantial consumers of energy and significant contributors to the region’s ‘energy bill’. Specifically, consumption of different energy types is projected to be as follows18: •

Aviation fuel is mainly used by the air transport and storage sector. This sector accounted for 93 per cent of the total 9346 TJ of aviation fuel used in 2006 and is forecast to account for approximately 95 per cent of the estimated 18,744 TJ consumed in 2031.

•

Diesel consumption in 2006 was 27,563 TJ and by 2031 it is projected to increase by 76 per cent to 48,580 TJ. This will be driven mainly by an increase in road and air transport services, which account for half of all diesel consumption. This increase is based on the assumption that efficiencies will not be gained by changes in sustainable practices, an assumption that is unlikely over 25 years. In particular, by 2031 it is unlikely diesel will be used as a transport energy resource in the form it is now supplied in, and so this forecast in diesel consumption must be regarded with caution.

•

Petrol consumption is projected to grow from 39,620 TJ in 2006 to 63,400 TJ in 2031, a 60 per cent increase. Industry consumption is projected to be around 17 per cent of total petrol consumption in 2031, the rest being attributed to household consumption.

•

Coal is mainly consumed by secondary sectors. Total coal consumption in the region is projected to increase from 24,302 TJ in 2006 to 37,537 TJ in 2031. Basic metal manufacturing used 19,257 TJ of coal in 2006, and is projected to increase its coal usage by almost 50 per cent to 28,417 TJ in 2031. Coal usage by non-metallic mineral production

18

3.7.2 Emissions, waste and water discharges Increases in emissions, waste and water discharges will occur because of the forecast growth in the region’s population and economic activity. However, the amount of emissions, waste and water discharges for $1 of output produced is forecast to decrease over time. International evidence suggests that more highly concentrated regions and cities that focus on highervalue sectors produce smaller carbon footprints. The top 10 industry sectors by export value, valueadded and employment were assessed for future changes in emissions, solid waste and water discharges. The results indicate that output growth in those sectors will not be coupled with similar levels of growth in emissions, solid waste and water discharges. Note, however, that results do vary between the sectors. They are presented below. Emissions: During the 25 years to 2031, as Auckland’s population and economy expand there will be a steady increase in carbon dioxide, nitrous oxide and methane emissions. However, emissions are forecast to increase at a lower rate than the increase in valueadded. There is also a forecast reduction in the emission tonnage per employee by 2031. The total

Note that this energy usage does not take into account energy efficiencies.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

level of emission in the region is forecasted to increase by between 63 per cent, for nitrous oxide, to 67 per cent, for carbon dioxide: •

•

•

•

By 2031 the machinery and equipment manufacturing sector is predicted to be Auckland’s largest export sector by value, contributing $3,586 million to the Auckland economy, an increase of 390 per cent. However, during the same period its carbon emissions are forecast to increase by only 214 per cent. Another significant carbon dioxide emitter is the air transport and services to transport and storage sector. By 2031 this sector is forecast to be Auckland’s second largest export sector by value, contributing some $2,791 million to the Auckland economy, an increase of 237 per cent; however, its carbon emissions will have only increased by 104 per cent. Very similar levels of change are evidenced in the nitrous-oxide and methane emission levels, with absolute increases occurring, but at rates significantly below those increases in export value and value-added. Even with the smaller sectors such as dairy and cattle farming there is a noticeable widening gap between output growth rates and emissions growth rates.

Solid waste: The increase in total solid waste in the region from 2006 to 2031 is forecast to be approximately 70 per cent. The largest contributor to solid waste is the machinery and equipment manufacturing sector, and the amount of solid waste it produces is forecast to increase by 215 per cent by 2031. The second largest contributor to waste solids is the transport equipment manufacturing sector; this is forecast to increase its waste solids by 155 per cent over the 25-year period. Water discharges: The largest increase in water discharges comes from the machinery and equipment sector: its water discharges are forecast to increase by 214 per cent between 2006 and 2031. However, this is equivalent to only 30,000 cubic meters, which is small when compared to the 200,000 cubic meters of water discharged by the basic metal manufacturing sector and the 145,000 cubic meters of water discharged by the dairy and cattle farming sector. These forecasts of emissions, solid waste and water discharges may be viewed as a worst-case scenario for Auckland. Sustainable practices which

are expected to occur, driven in part by emissions policy and pricing framework and in part by customers demanding products produced in a more sustainable and environmentally friendly method, are incorporated in the Energy Efficiency scenario detailed in Chapter 5.

3.8 Sector-specific change in Auckland, 2006–2031 This section presents industry sectors forecasts for the Auckland region in the period from 2006 to 2031 under the Horizon 2031 scenario. Economic indicators examined here are gross regional product and employment. Additionally, projected simple location quotients (SLQ) for each sector are interpreted.19 This section covers the industry sectors that are projected to have one of the following: • • • • • •

3.8.1 Industry structure of the regional economy As New Zealand’s commercial and financial centre, Auckland’s economy is characterised by the dominance of the tertiary sector. Indeed, wholesale, trade and distribution industries and service-based industries generate over two-thirds of the total industry GRP. The secondary sector, which manufactures finished goods, remains an important sector contributing over 20 per cent to the GRP. Not surprisingly, the primary sector is a small contributor to the region’s economy with just above one per cent of GRP generated. Over the next 25 years, the structure of Auckland’s economy will remain relatively unchanged. The Horizon 2031 scenario does not foresee the manufacturing sector decreasing. However, some changes are expected at the 48 industry sector level. Figure 7 shows the top 10 industries in terms of their contribution to the Auckland GRP from 2006 to 2031. 19

34

highest GRP contribution highest SLQ fastest GRP growth rate fastest employment growth rate largest full-time equivalent employment (FTE) contribution, or declining employment requirements over the next 25-year period.

For definition see Appendix 1: Glossary of Terms

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Table 9: Industry GRP* contribution, 2006–2031 2006

2011

2016

2031

$600

$650

$700

$875

1.16%

1.12%

1.06%

0.95%

$10,885

$12,358

$14,106

$20,726

Primary sector (million) Total industry GRP contribution Secondary sector (million) Total industry GRP contribution

21.09%

21.26%

21.44%

22.40%

Wholesale, trade and distribution (million)

$11,700

$13,133

$14,842

$20,341

Total industry GRP contribution

22.67%

22.59%

22.56%

21.98%

Services (million)

$28,419

$31,990

$36,155

$50,583

Total industry GRP contribution

55.07%

55.03%

54.94%

54.67%

Source: Horizon 2031 scenario, ARC 2008. * Total industry GRP excludes GRP derived from final demands, or total GRP = total industry GRP + final demand. Note: Absolute numbers of GRP are expressed in 2004$ constant prices

Figure 7: Top 10 GRP contributors, 2006–2031

2006

Business services 12.15%

$6,670

Wholesale 9.37%

Business services 12.43%

$7,683

Wholesale 9.31%

$5,144

$5,750

Retail 5.79%

$3,180

Retail 5.74%

$3,548

Finance 5.55%

$3,048

Finance 5.48%

$3,385

Real estate 5.39%

$2,958

Real estate 5.37%

$3,316

Construction 4.12% Health and community services 4.01% Communication services 3.80% Education 3.43%

Communication services 4.03%

$2,490

$2,202

Health and community services 4.00%

$2,470

$2,087

Construction 3.90%

$2,259

$2,037

Air transport, services to transport and storage 3.19%

$1,972

Business services 12.74%

$8,905

Wholesale 9.20%

$6,428

Retail 5.69%

$3,973

Finance 5.39%

$3,770

Real estate 5.31%

$3,714

2031

Business services 13.96%

$5,287

Finance 5.09%

$4,986

Real estate 5.05%

$4,942 $4,688

Communication services 4.79%

Health and community services 4.03%

$2,818

Health and community services 4.23%

Air transport, services to transport and storage 3.33% Education 3.19%

$2,327 $2,228

$8,607

Retail 5.40%

$2,908

$2,774

$13,672

Wholesale 8.79%

Communication services 4.16%

Construction 3.97%

$2,412

Education 3.30%

$1,880

Air transport, services to transport and storage 3.13% $1,719

2016

2011

Construction 3.95%

$4,141 $3,869

Air transport, services to transport and storage 3.58%

$3,503

Machinery and equipment manufacturing 2.99%

$2,928

Source: Horizon 2031 scenario, ARC 2008 Note: Absolute numbers depict the size of the sector and are expressed in 2004$ constant prices (million); the percentage presents sectors’ contribution to total GRP.

35

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

•

•

•

By 2011 the first five GRP contributors will remain the same as in 2006. The highest GRP contribution is expected to be made by business services (12.43 per cent), wholesale (9.31 per cent), retail (5.74 per cent), finance services (5.48 per cent), and rental, hiring and real estate services (5.37 per cent). The construction sector is expected to decline from sixth place in 2006 to eighth place in 2011, and vice versa for communication services. By 2016 GRP contribution from business services will increase from 12.43 per cent in 2011 to 12.74 per cent. Likewise, communication services are expected to record a slight growth from 4.03 per cent in 2011 to 4.16 per cent. Finance services’ contribution to GRP will decline compared to 2011, but this sector will remain in the fourth position. A switch will occur between the sectors air transport, services to transport and storage, and education: the former will increase while the latter will decrease its GRP contribution. By 2031 business services will remain the highest GRP contributor, projected to more than double its 2006 GRP contribution to reach $13,672 million, or 14 per cent of total GRP. Communication services will also double its 2006 GRP contribution to reach $4,688 million, or 4.8 per cent of total GRP. Likewise, air transport, services to transport and storage will double its 2006 level and increase its GRP share to 3.6 per cent. Construction will contribute around four per cent of GRP. Machinery and equipment manufacturing will generate three per cent of Auckland’s GRP, or $3,503 million in 2031, making it the tenth highest GRP contributor in 2031.This sector is also expected to record the highest increase over its 2006 level (214.5 per cent).

3.8.2 Sectors with comparative advantage in the region The structure of Auckland industries with comparative advantage was assessed using GRP and SLQ indicators from the Auckland Region Economic Futures Model. This is because it is considered that the most significant sectors in the Auckland economy are those which are both of significant size in terms of GRP contribution and highly concentrated in the region. Figure 8 presents 10 sectors with the highest GRP contribution and also SLQs higher than 1.

36

Auckland industries with comparative advantage are projected to develop as follows: •

In the short term there will not be significant changes regarding sectors’ distribution in GRP contribution and specialisation in the region. The tertiary sector (the service sector) will continue to be the main industry in Auckland, represented by air transport and storage, business and financial services, investment, communication services, culture and recreation, hiring and real estate services, and wholesale and retail. Air transport, services to transport and storage will still have comparative advantage in the region because of the international airport’s presence. This means that Auckland will continue to lead in the distribution category, which serves both domestic and international trade.

•

The medium-term outlook is projected to be similar to the short term one, with the tertiary sector being a principal GRP contributor and the manufacturing industry being highly concentrated in the region.

•

In the long term the most significant change in the industry structure will be the secondary sector, i.e. manufacture, increasing its concentration in the region and, as a result, its share of GRP. The type of manufacturing activity on the increase will largely be high technology and value-added manufacturing activities such as production of transport equipment, health equipment and technologies, and advanced materials such as rubber, plastic, and other chemical products.

It is also interesting to note that the sectors in which Auckland has similar concentrations to the other parts of the country are those industries that are primarily serving their own population, namely ‘consumption’ (e.g. retail, accommodation, cafes and restaurants, culture and recreational services, personal and other services), and community services (e.g. education and health and community services). Not surprisingly, Auckland has a significantly lower concentration of primary industries (e.g. agriculture, forestry and fishing, mining), and low-level value-added manufacturing (e.g. wood processing, meat and dairy products manufacturing).

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

2006

2011

2016

Air transport, services to transport, and storage

1.67 $1,719

1.68 $1,972

1.69 $2,327

1.71 $1,915

Rubber, plastic and other chemical manufacturing

Wholesale

1.54 $5,144

1.62 $1,101

1.62 $1,230

1.70 $3,503

Air transport, services to transport, and storage

1.54 $899

1.53 $5,750

1.52 $6,428

1.56 $4,688

Communication services

Business services

1.37 $6,670

1.38 $7,683

1.42 $2,908

1.49 $8,607

Wholesale

Finance

1.36 $3,048

1.38 $2,490

1.39 $8,905

1.43 Business services $13,672

1.32 $2,087

1.36 $3,385

1.36 $3,770

1.35 $4,986

Finance

1.17 $931

1.17 $1,150

1.16 $1,447

1.14 $2928

Machinery and equipment manufacturing

Cultural and recreational services

1.13 $1,652

1.12 $1,855

1.11 $2,126

1.10 $4,942

Real estate

Real estate

1.07 $2,958

1.08 $3,316

1.08 $3,714

1.04 $5,287

Retail

Retail

1.00 $3,180

1.01 $3,548

1.02 $3,973

1.02 $2,917

Cultural and recreational services

Rubber, plastic and other chemical manufacturing

Communication services Machinery and equipment manufacturing

2031

Figure 8: Auckland’s 10 industries with comparative advantage and significant contribution to GRP, 2006–2031 Source: Horizon 2031 scenario, ARC 2008 Note: Absolute numbers of GRP are expressed in 2004$ constant prices (million) and SLQs greater than 1.

3.8.3 Industries with fast growing GRP rate than average in the region) have potential to develop as important industries in the region. In other words, the sectors that might become a focus of regional policy and strategy considerations.

This section identifies the sectors that were not significant contributors to Auckland’s GRP in the base year (i.e. generated less than $1 million value-added in 2006), but with fast growth (i.e. higher annual growth

Table 10: Industries with high value-added potential, 2006–2031 Industry

GRP

Increase in GRP over the period

2006

2006–2011

2006–2016

2006–2031

Machinery and equipment manufacturing

$931

$219

$516

$1,997

Rubber, plastic, and other chemical manufacturing

$899

$202

$331

$1,016

Other food manufacturing

$684

$121

$248

$743

Accommodation, restaurants, and bars

$807

$109

$253

$714

Personal and other community services

$803

$103

$226

$663

Beverage, malt, and tobacco manufacturing

$629

$102

$206

$496

Printing, publishing, and recorded media

$771

$98

$210

$596

Transport equipment manufacturing

$442

$96

$209

$685

Sheet and fabricated metal prod manufacturing

$819

$88

$208

$648

Services to finance and investment

$615

$74

$155

$425

Source: Horizon 2031 scenario, ARC 2008

Note: In 2004$ constant prices (million)

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

It is expected that advanced manufacturing will be the most promising industry regarding GRP growth. •

In the short term the sectors of machinery and equipment production, and manufacture of rubber, plastic and other chemical products will both experience annual growth higher than four per cent, each generating a further $200 million valueadded. The food and beverage sector is expected to grow at an annual rate higher than three per cent, creating more than $220 million of GRP.

•

Over the medium period this trend will continue. In addition, the accommodation, restaurants and bars sector is projected to grow strongly at 2.76 per cent annual rate to create more than $250 million value-added in these ten years.

•

In the long term the industry expected to experience the highest annual average rate of GRP from 2006 to 2031 is advanced manufacture. Innovation in ICT will mainly drive this growth in machinery and equipment manufacturing, particularly production of optical, medical and surgical equipment, and professional and scientific equipment. The projected fast growth in rubber, plastic and other chemical manufacturing reflects the effects of the proposed Innovation Centre with a specific focus on advanced materials and the strong growth forecasted for plastics. Growth in transport equipment manufacturing will primarily be driven by boat-building activity in the region, underscoring the region’s strong comparative advantage in the marine sector.

3.8.4 Job creation in the Auckland region

strong dominance of services industries and secondary sectors. However, the proportion of employment in the primary and service sectors is slightly higher than their respective contribution to the GRP due to the labourintensive characteristics of some of those industry sectors (e.g. horticulture or cultural services). By 2031 the largest employer in the Auckland region will be the tertiary sector. The secondary sector, comprising of manufacturing and construction, will also be a net job creator. Figure 9 illustrates the top 10 employers in the Auckland region economy. Details of employment projections for all 48 sectors can be found in Appendix 4. •

By 2011 the business services sector will remain the largest employer with 108,965 FTEs. The second biggest employer will be retail (78,866 FTEs), followed by wholesale (63,817 FTEs). Construction will remain at fourth place, with 39,516 FTEs. Other high-employing sectors include health and community services; education; accommodation, restaurants and bars; air transport, services to transport and storage; cultural and recreational services; and central government.

•

By 2016, the top 10 employers remained the same as in 2006, although the sectors’ contribution to total employment has changed for most. Business services, retail, accommodation, restaurants and bars, air transport, services to transport and storage, and cultural and recreational services all increased their contribution to total employment.

•

By 2031: •

The employment structure of Auckland’s economy is quite similar to the GRP contribution picture, with the

The business services sector will have created 80,000 jobs (FTEs) since 2006, a 2.4 per cent

Table 11: Employment projections in a nutshell, 2006–2031

Primary sector Contribution to total employment Secondary sector

2011

2016

2031

10,451

10,814

11,278

12,793

1.7%

1.7%

1.6%

1.5%

133,641

138,458

145,942

168,935

Contribution to total employment

22.2%

21.5%

21.0%

19.8%

Wholesale, trade and distribution

186,115

203,708

224,635

285,896

Contribution to total employment

30.9%

31.7%

32.4%

33.5%

271,405

289,990

312,551

385,709

45.1%

45.1%

45.0%

45.2%

601,612

642,970

694,406

853,333

Services Contribution to total employment Total employment

38

2006

Source: Horizon 2031 scenario, ARC 2008 Note: Absolute numbers present fulltime equivalent (FTE) employment figures

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

2006

96,816

Business services 16.09%

Business services 16.92%

108,965

Retail 12.27%

71,226

Retail 11.84% Wholesale 9.93%

2011

Wholesale 9.93%

59,719

78,866 63,817

Construction 6.79%

40,845

Construction 6.15%

39,516

Health and community services 6.41%

38,568

Health and community services 6.08%

39,074

Education 5.80%

37,286

Education 6.04%

36,334

Accommodation, restaurants and bars 4.18% 25,127

Accommodation, restaurants and bars 4.40% 28,308

Air transport, services tranport and storage 2.82% 16,938

Air transport, services tranport and storage

2.92% 18,758

Cultural and recreational services 2.77% 16,678

Cultural and recreational services 2.86% 18,416

Central government 2.71% 16,295

Central government 2.64% 16,993

2016

123,396

Business services 17.77% Retail 12.62% Wholesale 9.82% Construction 5.93%

2031

87,667

Business services 20.71% Retail 13.37%

176,728 114,058

Wholesale 9.95%

68,214 41,195

Accommodation, restaurants and bars 5.35% 45,614

Health and community services 5.80%

40,255

Health and community services 5.11% 43,578

Education 5.56%

38,616

Construction 5.01% 42,791

Accommodation, restaurants and bars 4.68%

32,529

Education 4.78% 40,770

Air transport, services tranport and storage

3.08% 21,369

Air transport, services tranport and storage

Cultural and recreational services 2.99% 20,762 Personal and other community services 2.56% 17,774

79,804

3.39% 28,938

Cultural and recreational services 3.17% 27,092 Machinery and equipment manufacturing

3.03% 25,881

Figure 9: Top 10 employers, 2006–2031 Source: Horizon 2031 scenario, ARC 2008 Note: The absolute numbers in the graph represent total jobs in each sector expressed in full-time equivalent (FTE) employment figures; the percentage presents sectors’ contribution to total employment.

average annual growth rate over the period. This compares with total employment having an average annual growth rate of only 1.4 per cent over the same period. Business services will remain the biggest employer in the region, providing over 20 per cent of all jobs. •

•

•

The retail sector will have created an extra 43,000 FTEs, employing 13.4 per cent of total FTEs, a 1.9 per cent average annual increase over the 25-year period of the study. Wholesale will require an additional 20,085 FTEs, but its contribution to total employment will decrease from 9.9 per cent in 2006 to 9.4 per cent in 2031.

with 4.2 per cent in 2006). Employment in the sector will grow by 2.4 per cent annually. •

Employment in health and community services will increase by just over 5,000 FTEs between 2006 and 2031, maintaining its position as the fifth largest employer in the Auckland region.

•

Construction will move down from fourth position in 2006 to sixth position in 2031, employing 42,791 FTEs (or 5.0 per cent of total employment in 2031).

•

Machinery and equipment manufacturing will move up to the tenth position in regards to employment contribution, employing some 25,000 FTEs by 2031.

Accommodation, restaurants and bars will employ 5.3 per cent of all FTEs (compared

39

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Employment ( FTEs)

Change 2006–2031

2006

2011

2016

2031

Net job creation (FTEs)

Business services

96,816

108,965

123,396

176,728

79,912

82.5%

Retail trade

71,226

78,866

87,667

114,058

42,832

60.1%

Accommodation, restaurants, and bars

25,127

28,308

32,529

45,614

20,487

81.5%

Machinery and equipment manufacturing

12,643

14,323

16,547

25,881

13,238

104.7%

Air transport, services to transport, and storage

16,938

18,758

21,369

28,938

12,000

70.8%

Cultural and recreational services

16,678

18,416

20,762

27,092

10,414

62.4%

Other food manufacturing

8,809

10,058

11,306

15,847

7,038

79.9%

Rubber, plastic, and other chemical manufacture

7,778

8,962

9,425

12,228

4,450

57.2%

Electricity generation and supply

1,569

1,749

1,938

2,544

975

62.1%

Meat and meat prod manufacturing

1,830

2,013

2,196

2,759

929

50.8%

601,612

642,970

694,406

853,333

251,721

41.8%

Industry

Total employment

% change

Table 12: Sectors with fastest growing employment, 2006–2031 Source: Horizon 2031 scenario, ARC 2008

3.8.5 Fastest growing sectors regarding employment This section identifies the 10 sectors with the fastest employment growth over the 25-year period of the study. In addition, absolute value of full-time equivalent employment requirements is taken into consideration, as fastest growth actually does not imply the highest number of FTEs, as illustrated in Table 12. •

•

40

In the short term advanced manufacturing is projected to record the fastest employment growth. Although these sectors might not create the highest number of jobs, their rate of growth is impressive at 15.2 per cent for rubber, plastic and other chemical production, 14.2 per cent for food production, and 13.3 per cent for machinery and equipment production. GRP growth in these sectors is expected to be largely driven by capital substitution as opposed to employment increase. In the medium term this trend is expected to continue, with machinery and equipment production expected to grow by 30.88 per cent compared with the 2006 level, requiring an additional 3,904 FTEs. The services industries

will record high employment growth too and, being labour intensive, it will require a significant increase in the FTEs. For example, the sectors of accommodation, restaurants and bars will grow by 29.46 per cent from 2006 and create an additional 7,402 FTEs. •

In the long term the highest increase in employment is expected to be in advanced manufacture: by 2031, machinery and equipment will have a more than doubled its FTEs from its 2006 leve1.

3.8.6 Sectors with declining employment Apart from identifying the sectors that are projected to have the highest growth in employment over the 25-year period, it is important to identify the sectors that are expected to have declining requirements for employees. Sectors with a negative annual average employment growth rate are listed in Appendix 4. However, even a fast declining employment rate does not necessarily mean a high decrease in employment numbers. The most significant projected changes are the following:

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

•

By 2011 the most significant decline in employment will occur in the construction and real estate sectors,20 with a decrease of 1,500 FTEs compared with 2006. This decline may be attributed to the effects of the current economic slow-down and adjustments in the property sector related to a lack of confidence in the future and a tightening of bank lending.

•

By 2016 employment in the real estate sector will continue to decline by an average annual rate of 0.5 per cent. Other job losses worth mentioning are in textile and apparel production, and basic metal production.

•

By 2031 the highest job losses are projected to occur in real estate (-1,790 FTEs from 2006), textile and apparel production (-1,080 FTEs), and basic metal production (-863 FTEs). This decline reflects trends in manufacturing, with many of the low-value manufacturing businesses continuing to move offshore to lower cost-operating environments. This issue is expected to be exacerbated by the increasing opening of the New Zealand economy through Free Trade Agreements. Some of the declining sectors are also a reflection of the trend towards more sustainable practices and activities.

20

The real estate sector includes lending, renting and sales of real estates and other property.

3.9 Sectors of interest to the Auckland region Sectors of interest to the Auckland region, as identified in the Economic Futures for the Auckland Region – Part 1: Knowledge base for scenario development (December 2008), are: • • • • • • • • • • •

business and financial services retail information and communication technology (ICT) creative industries digital content tourism transport and logistics biotechnology marine advanced materials, and food and beverage.

Each sector comprises a certain percentage of the relevant sectors from the ANZSIC coding. It should be acknowledged that some of the sectors overlap or are subsets of each other. For example, there is an overlap between digital content, business services and ICT, as all these sectors comprise of 100 per cent telecommunication services, data processing services, information storage services and so on. Furthermore, both creative industries and digital content contain 100 per cent of sound recording services and creative

Table 13: GRP growth in sectors of interest to the Auckland economy, 2006–2031 Sectors

Absolute increase

% change

2006– 2011

2006– 2016

2006– 2031

2006– 2011

2006– 2016

2006– 2031

$1,661

$3,603

$10,828

13.95%

30.27%

90.96%

Retail

$435

$936

$2,487

11.59%

24.95%

66.28%

ICT

$412

$880

$2,749

15.98%

34.12%

106.59%

Creative industries

$231

$516

$1,483

13.34%

29.79%

85.62%

Digital content

$358

$769

$2,335

15.33%

32.93%

100.00%

Tourism

$266

$607

$1,691

12.69%

28.96%

80.68%

Transport and logistics

$543

$1,187

$3,576

15.56%

34.01%

102.46%

Biotechnology

$261

$545

$1,567

13.77%

28.76%

82.69%

Marine

$242

$534

$1,673

14.13%

31.17%

97.66%

Advanced materials

$176

$303

$903

17.58%

30.27%

90.21%

Food and beverage

$260

$528

$1,445

17.32%

35.18%

96.27%

Business and finance services

Source: Horizon 2031 scenario, ARC 2008 Note: In 2004$ constant prices (million)

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

arts. On the other hand, tourism is a subset of other sectors, defined as consisting of 13 per cent of retail, 35 per cent of road transport, and 17 per cent of water and rail transport, etc. Therefore, it is not possible to set up clear boundaries between these sectors, and the data for each of them cannot be summed up. This also implies that the data interpretation for the sectors of interest should be understood as only estimates that point out certain tendencies, rather than an exact analysis. The sectors described in this section are expected to grow strongly over the next 25 years. They have been identified for the purpose of guiding regional and national development strategies. Table 13 highlights GRP growth in each of these targeted sectors. In addition, all these sectors are highly concentrated in the region, as can be seen in Table 14 which lists SLQ numbers from 2006 to 2031. Tourism, biotechnology, and food and beverage have SLQ slightly lower than 1, meaning that these sectors are not more concentrated in Auckland than in other regions, but they are still important contributors to GRP and significant regional employers. Table 14: SLQ for the industries of interest, 2006–2031 Industry

2006

2011

Business and finance services

1.37

1.38

1.39

1.43

Retail

1.00

1.01

1.02

1.04

ICT

1.40

1.41

1.42

1.44

Creative industries

1.28

1.28

1.28

1.27

Digital content

1.23

1.25

1.26

1.31

Tourism

0.97

0.96

0.95

0.89

Transport and logistics

1.30

1.32

1.35

1.41

Biotechnology

0.94

0.97

0.98

1.06

Marine

1.37

1.37

1.37

1.39

Advanced materials

1.41

1.45

1.45

1.53

Food and beverage

0.90

0.90

0.89

0.87

The business and financial services sector is made up of a wide range of activities, which have in common the production of non-tangible output. For the purposes of modelling Economics Future for the Auckland Region, business and financial services represent the following sectors: • • • • •

telecommunication services (under the broad communication services sector) finance (eg, banks and money markets dealers) insurance services to finance and investment, and business services (eg, legal and accounting services, market research, business management, advertising, and cleaning).

Challenge for Auckland There is global competition for jobs and location of business and financial sector firms. While Auckland and New Zealand benefit from skills imported through this mobile workforce, the challenge is to ensure the continuity of local hubs of this sector. The skills required by employees within the business and financial sector are highly mobile internationally, this can be a double-edged sword in terms of skills development and retention.

2016 2031

Source: Horizon 2031 scenario, ARC 2008 The SLQ for three sectors – food and beverage, creative industries, and tourism – will fall slightly over the period to 2031. This is an indication that these sectors are becoming relatively more important in other regions, notwithstanding the substantial growth rates in the Auckland region. The following sections discuss projected GRP and employment growth of all these sectors individually.

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3.9.1 Business and financial services

The business and financial services industry is concentrated in Auckland (SLQ=1.37 in 2006), and the projections are that the business and financial services will become more important for the region in both the short- and long-term future (i.e. SLQ is projected to grow). GRP contribution: The business and financial services sector generated $12 billion GRP in 2006, reflecting the role Auckland plays as New Zealand’s commercial and financial heart. Auckland is forecast to remain the commercial heart of New Zealand, strongly focused on services and advanced manufacture. Business and financial services are projected to generate $13.6 billion in 2011, contributing 23 per cent to Auckland’s GRP. Growth of value-added by business and financial services over the 2006–31 period will be steady, with the sector forecast to have a 2.7 per cent average annual growth by 2016 and 2.6 per cent by 2031. Employment: It is estimated that in 2006 the business and financial services sector had 125,268 full-time equivalent employees, representing one-fifth of total employment in the region. It is projected that

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

this sector will record one of the fastest growing employment rates, with an average annual growth rate of 2.1 per cent over the 2006–31 period. By 2031 the business and financial services sector is forecast to be employing 208,539 full-time employees and be the largest employer in the region.

3.9.2 Retail The retail sector consists of the sale of goods directly to consumers and in the Economic Futures Model it covers sectors as diverse as supermarkets, groceries, department stores, clothes and footwear retailing, home appliances and automobile sales.

3.9.3 Information and communications technology The information and communications technology (ICT) sector is defined as including products and services which are intended to fulfil the function of information processing and communication, and/or which use electronic processing to detect, measure or record a physical phenomenon or to control a physical process. In the model, ICT is represented across a number of sub-sectors, including: •

production and wholesaling of machinery and equipment (such as computers, telecommunication and electronic equipment)

•

telecommunication services (under the broad communication services sector), and

•

business services (e.g. data processing and information storage).

Challenge for Auckland It is surprising that retail is not more prominent in the region as Auckland contains the largest urban area in the country. The challenge to the retail sector is to overcome problems associated with access to retail areas, in terms of geographical spread and travel costs.

Retail in Auckland is as concentrated as it is in the rest of the country (SLQ=1 in 2006). However, there is a trend of its importance to the region increasing slightly. This is due to the effects of urban agglomeration and also reflects Auckland’s role as a business and commercial hub in New Zealand. GRP contribution: The retail sector generated $3.8 billion GRP in 2006. The GRP of the retail sector will be the second highest after business and financial services (contributing 7 per cent of the region’s total GRP) and its relative contribution will be the same in 2016. It is projected to generate $4,187 million in 2011 and $4.7 billion in 2016. By 2031 retail is forecast to generate $6,239 million, which will still represent 7 per cent of the total GRP, but by then the sector’s GRP contribution will be ranked at third highest, replaced by transport and logistics. Employment in the retail sector amounts to 84,047 FTEs in 2006. By 2031 this sector is forecast to have created an extra 50,541 FTEs, an increase of more than 60 per cent over its 2006 level. Employing a total of 134,588 FTEs in 2031, the sector will account for 15.8 per cent of all employment in the region, compared with 13.97 per cent in 2006 and 14.90 per cent in 2016.

The ICT sector is concentrated in Auckland (SLQ = 1.40 in 2006), and the projections are that it will become more important for the region in the short- and longterm future (i.e. SLQ is projected to grow). Challenge for Auckland It is expected that there will be strong employment opportunities in the ICT industry, requiring the adequate supply of skilled labour. There is an additional challenge of encouraging businesses to adapt to new technology and ensuring optimal use of technologies. Access to ICT services may be a challenge, particularly for rural businesses in the region who have signalled strong growth potential from provision of ICT.

GRP contribution: ICT generated $2.6 billion in 2006 (about five per cent of total GRP). Its value added will grow in a long-term, reflecting Auckland’s focus to innovation and public and private commitment to invest in broadband and other high technologies. By 2011, the sector is projected to generate approximately $3 billion GRP, remaining on fourth position with five per cent contribution to the total GRP. The Horizon 2031 scenario projects growth of ICT of approximately three per cent in the 25 years period of study. ICT will generate $5.3 billion value added in 2031. Employment: ICT is an important employer in the region, employing 28,227 FTEs in 2066. Employment requirements in this sector are projected to grow by 10 per cent in the short term: by 2011 an additional 2,840

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

FTEs will be required. Employment is forecast to have increased by more than 20 per cent by 2016 when compared with the base year, and more than 60 per cent over its 2006 level by 2031. In absolute numbers, this represents an increase of 17,140 FTEs from 2006 to 2031.

3.9.4 Creative industries The creative industries are defined in the Knowledge Base for Scenarios 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 property. The sector is represented across a number of sectors in the model, such as:

3.9.5 Digital content The digital content sector is defined as the creation or production of content or tools that enable the delivery of digital material across a range of media. In the model this sector is represented across the following services: •

cultural and recreational services (such as music and film production)

•

printing, publishing and recorded media (such as books and newspapers printing)

•

business services (e.g. data processing and computer maintenance services)

•

business services (such as architectural services, advertising, and commercial art and display), and

•

communication services (a sub-sector of telecommunication services)

•

cultural and recreational services (including film and music production, and radio, television, and theatre services).

•

printing, publishing and recorded media, and

•

education.

Creative industries are concentrated in Auckland, with the SLQ being 1.28 in 2006; this is projected to slightly decrease to 1.27 by 2031. GRP contribution: It is estimated that this sector generated approximately $1.7 billion value-added in 2006, and its annual average growth over the 25 years of study is projected to be 2.5 per cent. That means that by 2011 it will generate around $2 billion, by 2016 around $2.2 billion, and by 2031 approximately $3.2 billion. With this estimated and projected GRP, creative industries are ranked as eighth GRP contributor in the list of important industries for the Auckland region. Employment: Creative industries are ranked as ninth in terms of employment, with more than 21,000 FTEs in 2006. Employment in this sector is projected

Challenge for Auckland The creative industries have by their nature an element of innovation and regeneration. Internationally, the sector still retains a cost advantage over other English speaking countries, particularly in screen production. Although strong growth is projected for this sector, the industry needs support. A challenge is to keep bureaucratic obstructions to a minimum, enabling the industry to adapt and recreate itself.

44

to increase by 8.2 per cent in the short term to reach 23,676 FTEs by 2011. By 2016 employment is projected to reach 25, 915 FTEs, and by 2031 more than 33,000 FTEs. This means a doubling of the 2006 level of employment.

Challenge for Auckland The strong growth expected in the digital content industry requires complementary behavioural change and business learning to maximise the potential productivity gains that this sector can generate. With increased use of digital technology, inevitably there will be international competition for certain services. This displacement should be identified and managed, with opportunities exploited for Auckland businesses.

Digital content was estimated to have an SLQ of 1.23 in 2006, which means that it was more concentrated in Auckland than in the rest of the country. Projections are that this concentration will remain the same in the short and medium term, and get slightly higher in the long term. GRP contribution: It was estimated that this section created $2.3 billion in 2006, and the Horizon 2031 projections are that it will have an average annual growth rate of 2.81 per cent through to 2031. This means that this sector is projected to create $2.7 billion by 2011, $3.1 billion by 2016, and $4.7 billion by 2031. Employment: In 2006 digital content was ranked sixth highest employer when compared with the industries of interest to Auckland, having employed 26,872 FTEs.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

By 2031 this sector is projected to increase by 57.4 per cent its full-time equivalent employees, reaching 42,297 FTEs.

3.9.6 Tourism The tourism sector covers a number of sectors, including: •

accommodation, restaurants and bars (95 per cent)

•

air transport, services to transport and storage (20 per cent)

•

retail (13 per cent), and

•

cultural and recreational services (including libraries, museums, and recreational parks and gardens).

GRP contribution: Tourism is projected to remain a significant part of Auckland’s economy, generating $2.4 billion value-added or 4 per cent of GRP. This projection has taken into consideration the possible effects of the current crisis on international tourists’ decisions to visit Auckland. However, it may be considered as optimistic in the light of the announcement from the United Nations World Tourism Organization (UNWTO) that international tourism will stay even or fall by up to two per cent in 2009. Opportunities for Auckland’s tourism will come from attracting more domestic travellers to the region, and motivating them to stay longer. In the medium term, the economic landscape of the sector will not change significantly. With two major upcoming events (i.e. the 2011 Rugby World Cup and the 2018 Cricket World Cup), and possible investment in the Convention Centre, tourism’s contribution to GRP is forecast to increase by three per cent by 2016, generating $4.7 billion, which will represent 7.11 per cent of GRP. Employment: The tourism sector employed 45,111 full-time equivalent employees in 2006, accounting for

Challenge for Auckland The inter-linkages between the tourism sector and other sectors of the Auckland economy are constantly changing. These need to be understood to enable appropriate marketing of the region. The challenge for the sector is to create more ‘hooks’ for visitors to the region, broadening their experiences while in the region.

7.5 per cent of total employment in the region. Under the Horizon 2031 scenario, employment numbers in this sector are projected to increase by two-thirds over the 25-year period to reach 75,550 FTEs in 2031. Tourism’s contribution to total employment is projected to increase to 8.12 per cent in 2016 and to 8.85 per cent in 2031.

3.9.7 Transport and logistics In the Economic Futures Model (EFM), transport and logistics is divided up as: •

road transport (including parking services, road freight transport and bus transport)

•

water and rail transport (e.g. international sea transport, coastal water and inland water transport)

•

air transport, services to transport and storage (e.g. domestic and international air transport, and customs agency services), and

•

communication services (postal and courier services). Challenge for Auckland The population increase projected for the Auckland region up to 2031 poses logistical challenges in terms of transport and congestion. These are substantial costs to Auckland’s businesses, in terms of the opportunity cost of employees’ time and lost production. The Auckland region faces challenges regarding competing pressures on its ports. The way this is managed will have an impact on the economic competitiveness and attractiveness of the region.

GRP contribution: The transport and logistics sector created $3.5 billion value-added in 2006. In the short term the region is projected to remain a distribution centre, with the transport and logistics sector – estimated to generate $4 billion of GRP in 2011 (seven per cent of the total GRP) – being placed immediately after retail. This projection reflects Auckland’s major role as a gateway for the rest of the country, with the international airport and seaport playing a significant part in this sector. By 2031 it is estimated that the transport and logistics sector will increase by 2.9 per cent and thus contribute 7.64 per cent to the total GRP. Employment: It is estimated that 34,746 FTEs were employed in the transport and logistics sector in Auckland in 2006. This sector is projected to

45

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

experience employment growth of 50.6 per cent by 2031, to reach an employment figure of 52,315 FTEs.

Employment: The sector employed 26,599 FTEs in 2006. It is projected to have an increase of employment of 23 per cent by 2031, reaching 32,724 FTEs.

3.9.8 Biotechnology The OECD defines biotechnology as the application of science and technology to living organisms as well as parts, products and models thereof, to alter living or non-living materials for the production of knowledge, goods and services. This sector is represented across the following sectors in the EFM:

The marine industry is largely represented by the following sectors: •

transport equipment manufacturing (ship and boat building)

•

machine and equipment manufacturing (e.g. manufacturing pumps and compressors, and electrical equipment)

•

dairy product manufacturing

•

other food manufacturing

•

rubber, plastic, and other chemical product manufacturing

•

sheet and fabricated metal manufacturing, and

•

business services (such as scientific research)

•

textile and apparel manufacturing.

•

health and community services

•

forestry, and

•

oil and gas extraction.

GRP contribution: The marine industry is projected to generate $2 billion value-added in 2011, $2.2 billion by 2016, and $3.4 billion by 2031. By 2031, its growth will be 97.7 per cent from the base year of 2006. This sector is seen as important because of its high growth potential.

GRP contribution: The biotechnology sector contributed $1.9 billion to the GRP in 2006. It is projected to generate $2.2 billion value-added in 2011 (four per cent of GRP). The application of science and technology to agriculture processing, food science and medicine can be associated with innovative activities, and innovation has been cited as a primary factor in sustaining economic growth and in developing a more flexible Auckland economy capable of competing successfully on the international stage. This sector is seen as important due to its high growth potential and its ability to contribute technologies and services across the economy, notably the health and pastoral sectors.

Challenge for Auckland Continued competitiveness in the biotechnology sector requires careful integration of research institutes with industry. It is a challenge to get skill spill-over between research in agricultural sciences, food production, healthcare services and business, in the co-development of marketable products. The challenge is to continue to create advantage for new research output from the biotechnology sector which has a proven track record in research and development to date.

46

3.9.9 Marine industry

Challenge for Auckland Expansion of the marine industry requires significant investment and management of skilled labour. The scenario developed is based largely on growth in export demand, and does not have production constraints. Balancing these constraints, particularly marine industry infrastructure, will pose a challenge to the sector.

Employment: The sector employed 23,294 FTEs in 2006. It is projected to have an increase of employment of approximately 50 per cent by 2031, reaching 34,685 FTEs.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

3.9.10 Advanced materials In the EFM advanced materials are represented by: •

rubber, plastic and other chemical product manufacturing, and

•

basic metal manufacturing.

It includes production of plastics, polymers, ceramics, metal alloys, processed wood materials, concrete, cement, steel, and any combinations of these.

Challenge for Auckland

Challenge for Auckland Food production is dependent on the rest of the country. Growth in this sector is highly exportdependent, and so sustainability issues come to the fore. It requires quality assurance in the industry and then leveraging on quality aspects of the region’s food and beverage production. Downstream industries such as packaging will be required to support changes in the industry, so a challenge is how to integrate other sectors.

Employment: The sector employed 14,533 FTEs in 2006. It is projected to have an increase of employment of approximately 60 per cent by 2031, reaching 23,405 FTEs.

Investment in research and development (R&D) is a challenge for the entire economy, and affects the advanced materials sector in particular. The low level of R&D investment by New Zealand businesses places an onus on the industries that are active in R&D, as they do not benefit from inter-industry R&D spill-over.

GRP contribution: The production of advanced materials is estimated to have created $1 billion in 2006, while projections for 2011 are $1.2 billion. In the medium term, this sector is projected to generate $1.3 billion, and in the long term $2 billion value-added. Employment: The sector employed 9,167 FTEs in 2006. It is projected to have an increase of employment of approximately 30 per cent by 2031, reaching 11,874 FTEs.

3.9.11 Food and beverage The food and beverage (F&B) sector comprises dairy, meat, seafood and aquaculture, horticulture (fruit and vegetable), wine and other alcoholic beverages, nonalcoholic beverages, processed food, confectionary, eggs, honey, etc. In the EFM, it is represented across: •

manufacturing of meat and products from meat

•

dairy products manufacturing

•

other food manufacturing, and

•

beverage, malt and tobacco manufacturing.

GRP contribution: The food and beverage industry is projected to generate $1.8 billion value-added in 2011, $2 billion by 2016, and $3 billion by 2031. By 2031, its average annual growth rate will be 2.73 per cent.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

4

Scenario 2: Digital Auckland

4.1 Background Information and Communication Technologies (ICTs) are considered a necessary investment for a region to stay competitive on the international stage. Broadband is a particular technology which improves the performance of ICTs.

What speed for broadband? Mbps, or megabits per second, is a data transfer rate. Between cable, DSL, fibre, and a variety of wireless technologies, consumers do often have multiple choices for 1Mbps or more service. However, out of those technologies, only fibre to the home offers 100 Mbps speed to consumers. Fibre is also future-proof as it does not know any real capacity limitation.

The need to act swiftly and deploy a widespread ultra-fast broadband infrastructure becomes apparent when the performance of Auckland and New Zealand is compared against other OECD countries. Despite being one of the highest internet users in the world, New Zealand only ranks 19 out of 30 OECD countries on broadband adoption. It is easy to equate this ranking with our slow speeds, high prices and heavy data caps. This ranking will not allow New Zealand and the Auckland region to achieve their economic potential. By 2014 the Auckland region will require a broadband capacity of more than 100 Mbps if it is to be ranked in the top half of the OECD and achieve its economic potential. This will still be beyond the capacity of the VDSL2 super-fast broadband that Telecom is currently rolling out. The drive to deploy fibre optic is well established internationally. Japan, Hong Kong and Singapore are looking to achieve 100 Mbps in the very near future, and Europe and parts of America are rapidly developing their fibre assets. Beyond the performance constraints of fibre to the cabinet infrastructure, our broadband service also suffers from other limitations. For example, VDSL2 will still not support the download/upload symmetry required for businesses engaging in knowledge economy applications such as videoconferencing. These constraints and limitations reinforce the argument of the need for a ‘fibre to the premises’ solution if we are to have internationally competitive telecommunications in Auckland and New Zealand.

48

Auckland and New Zealand have lagged behind in the deployment of very fast and ultra-fast broadband, which requires large scale infrastructure investment in order to deploy ‘fibre to the premises’. The limited competition in the sector, until recently, and the drive for short-term return on investment, have slowed private sector investment in ‘fibre to the premises’.

To achieve the ultra-fast speeds of 100 Mbps required by 2014 to enable New Zealand to be in the top half of the OECD countries, there needs to be infrastructure investment in delivering ‘fibre to the premises’. This is now a high priority for the government and is reflected in the One Plan for Auckland Region – Digital Auckland programme.

4.2 Scenario description This scenario is formulated in recognition of the fundamental role that broadband plays as a catalyst for economic and social development. Implemented correctly, a widespread ultra-fast broadband infrastructure will lower transaction costs, increase efficiency gains and provide faster and more effective access to global markets, while driving economic and social development. The Digital Auckland scenario investigates how investment in ultra-fast broadband telecommunications in New Zealand and Auckland would impact on the performance of the regional economy in the medium and long term. The scenario looks into the type of benefits that can be expected from such an investment. It paints a picture of what the region’s economy would look like in the future following sustained investment in telecommunications networks and technologies.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

This scenario is formulated after consideration of the economic and social benefits derived from investment in ICTs and broadband. However, it should be noted that interest in this topic is relatively recent and little information is yet available. Certainly, there is limited understanding of the long-term effects of investment in broadband telecommunications, given the recent advance of this technology. Moreover, little information is specific to New Zealand or to Auckland. However, theoretical discussions added to empirical studies are relevant and significant enough to start a reflection on the impacts on Auckland of such broadband deployment. This scenario is therefore based on evidence gained through literature and case studies (see Appendix 8 for references). Below is the description of the Digital Auckland scenario under a number of headings. The next section provides a summary of the related assumptions inputted into the model to provide the results highlighted in section 4.4.

4.2.1 An increased rate of investment in infrastructure deployment

programme of broadband applications to a wide range of users, will facilitate high levels of up-take.

4.2.2 ICT applications Downloading files quickly is generally better, but it may not yield higher productivity for an individual or an organisation. The real value is gained from the adoption of new technological applications that change the way we do business. In other words, the availability of broadband is not enough to guarantee positive impacts on economic activity. To be efficient, broadband needs to be available, adopted and used. The deployment of infrastructure supports the development and up-take of new applications for both the home and business, which in turn drives demand for broadband infrastructure. Infrastructure and applications are complementary: improvements in one bringing improvements in the other. Those applications are in a range of areas, such as IT infrastructure, communications, content, business operations support, collaboration, transactions and education.

Adoption of ICT applications In excess of $4.5 billion of public and private investment in broadband telecommunications is expected in New Zealand over the next few years. This includes a $1.5 billion investment in ultra-fast broadband by central government under the Broadband Investment Initiative, and an assumed $3 billion of private investment. Recognising the huge potential that could be gained from investing in Auckland, the city-region, as the country’s main economic centre and its international gateway, will obtain 40 per cent of this investment envelope. This investment will be directed into a fibre-optic network, now ‘the leading next-generation broadband technology’, and into wireless technologies. Over the next five years, efforts will focus on deploying fibre to ‘MUSH’ premises (municipalities, utilities, schools and hospitals) and businesses, as well as up-to-date mobile technologies. Over time, ultra-fast (or true) broadband infrastructure will be delivered to most homes in the region. Open to third-party service providers (i.e. open access network), the improved fibre network will enable increased competition (leading to better pricing), and an abundance of retail voice, data and video services to end users. This, together with an aggressive promotion

Businesses across the economy will benefit from better telecommunications infrastructure. However benefits are expected to be greater in some industry sectors, such as business services, education, health, tourism, some manufacturing (those less resource dependent), wholesale and retail trade. The industry sectors that will particularly benefit from better broadband communications as those relying on: •

provision of information, such as financial markets, insurance and accounting firms, consultancies, forecasters, and researchers (professional, academic, R&D)

•

online databases

•

banking

•

marketing and online advertising

•

advertising and graphics design, and

•

new distribution channels.

Businesses in those sectors continually adopt new or improved ICT applications. Many of these applications

49

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

are becoming increasingly sophisticated, as faster telecommunication technologies enable new levels of performance. Businesses therefore increasingly invest in more advanced access technologies that enable these new applications to run. Overall this will lead to a higher degree of IT use and penetration.

of easy-to-use technologies and widespread internet access. This removes barriers and allows individuals from around the globe to be innovators, traders and information creators. •

Increased sharing of scientific knowledge across disciplines and with a larger audience: this supports the advance of science, research and education.

•

Telecommuting and working ‘on the go’: time and place become less relevant.

Development of ICT applications New applications are being developed as a result of faster telecommunication technologies. Many of them will be developed overseas. This will fuel an increase in our import of ICT software and electronic and telecommunication equipment, but also fuel an increase in related domestic trade and wholesale. However, as research on New Zealand’s innovation system highlighted,21 there are a number of niches in which New Zealand and the Auckland region have a comparative advantage, such as banking IT, health IT and digital content. These sectors will greatly benefit from better broadband communications networks as the domestic market expands.

4.2.4 New business models The most important channel whereby broadband, combined with ICTs, enhances growth is through the adoption of new business models. Two kinds of behaviour by businesses can be distinguished: •

The ‘IT-using’ firm uses internet applications (internet browser, email) to make current processes more productive. For example, due to use of internet applications, firms improve their capacity to communicate with suppliers and customers, thereby reducing their costs of production.

•

The ‘IT-enhancing’ firm adopts complex internet applications like ‘e-business’. These applications can enable whole new business processes and models, such as automated online supply-chain management and online sales within geographically distant markets. This requires the right level of skills and education amongst management.

4.2.3 Behaviour change The adoption of the new generation technologies is going to affect the way we do things. However, natural (or, at least, strongly socialised, conventional, or classic) human ways of doing things are slow to change. In other words, we will still want to meet, go for coffee, and have face-to-face interaction. Social interactions remain essential to business networks and productivity. It is assumed that this digital world will, however, promote or precipitate the way we do things in the arenas of business, culture and society, some of which are already emerging. Here are a few examples: •

Online collaboration in the areas of innovation, production, research, education and entertainment: online collaboration supports new business models, such as outsourcing and offshoring of some services.

•

Culture mix and exchange of ideas: this leads to globalisation of business norms and standards and therefore supports the removal of informal barriers to international trade.

•

21

50

Non-hierarchical media content development: the explosion of user-generated content (for example, ‘YouTube’) will continue due to a combination Ministry of Economic Development, 2008

Broadband communications networks are instrumental in many aspects of business operations: ‘supply chain management, fleet management, e-procurement, e-invoicing, online recruitment, customer service, call centres, online payment systems, e-commerce, coordination of fragmented production processes both within and between firms, and the connections of teleworkers to their employers’ networks’ (OECD, 2007). Wireless broadband particularly benefits small and medium enterprises (SMEs) because of the benefits that the mobility aspect of wireless broadband provides, such as not having to staff a head office, increased ready access to corporate information, field service automation and better use of travel time. This is pertinent to the Auckland economy which is dominated by SMEs.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Consequently, this leads to enhanced collaboration and the adoption of new business models: massive amounts of information is exchanged which will require strong data and information management systems, and new collaboration tools that filter, analyse and customise information to individual firms and industries. This will have major implications for the domestic software industry, as well as for the information retailing sector (for example, data banks).

and shared information, and online collaboration between different health practitioners. New applications will also ensure access to better care from home. An example of this is the development of an ‘SMS GeoChat’ application for the iPhone: emergency responders and aid workers will be able to communicate their exact location and message recipients will be able to view the sender’s location in Google Earth, Google Maps, Live Earth, etc. Another example is the development of a home health-care plan for older people where sensors can detect any abnormal activities and send a signal to emergency services.

4.2.5 Outsourcing Outsourcing is an example of a new business practice enabled by the advancements in telecommunications. Outsourcing mainly involves highly skilled and relatively higher value-added services such as legal services, accounting, advertising, design, R&D, IT-related services (e.g. software programming, IT support or consultancy), technical testing and analysis services, marketing and advertising, management consultancy, human resource management and labour recruitment. Some lower-skill services such as back office and administrative functions and call centres might also be outsourced. Providers might be local or based overseas. Economies such as China, Russia and India, with a relatively highly educated workforce, emerged in the 1990s and are now major providers of low-cost services to Western corporations. For example, Bangalore-based accountants processed around 100,000 American tax returns in 2004 on behalf of US companies. In 2005, this figure reached 400,000.22 This has been enabled by reliable, cheap and instantaneous broadband communications, as well as the development of the appropriate global software technologies (in this example, of a global accountancy software product). The service offerings are becoming increasingly sophisticated as technologies develop, with the emergence of video-based tools to communicate with customers in a contact centre environment, for example.

4.2.6 Emerging sector trends

•

The deployment of better broadband networks and mobile technologies will increase teleworking. More people will work from remote locations such as the home, remote offices, customer sites or on the road. This is associated with a reduction in the need to travel, and possibly a reduction in demand for office-based accommodation.

•

The increasing sophistication of remote learning: while remote learning is not new, advanced telecommunications are essential to support the advancement of ‘digitally mediated learning and teaching’23 (e-learning). This impacts on how we learn: education and training will be more tailored to learners’ needs. This also impacts on where we learn: large corporates already conduct most training in-house using video-based tools, and some course materials can now be downloaded on a MP3 device. The quality of education will increase thanks to shared materials, and through more customised teaching and training.

•

Shared knowledge and information may support better decision-making and consultation in the public sector. It will also help reduce transaction costs (e.g. through e-payments).

4.2.7 Productivity gains Changes in business models, such as outsourcing and offshoring, are the key to unlocking productivity gains. This requires a combination of the right infrastructure, new ICT applications, and the right management

Other emerging trends are: •

22

Health care will largely benefit from improved broadband networks through lower transaction costs due to shared communication channels Friedman, T. (2005). The World is Flat. Farrar, Straus and Giroux

23

‘E-learning is learning that is enabled or supported by the use of digital tools and contents. It typically involves some form of interactivity, which may include online interaction between the learner and their teacher or peers. E-learning opportunities are usually accessed via the internet, though other technologies such as CD-ROM are also used.’ New Zealand’s Ministry of Education.

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to drive change through an organisation. These productivity increases are linked to: •

adoption of new business models, helping businesses to do things faster and reduce wasted efforts

•

efficiency and market access, reducing the costs and increasing the speed and reliability of transactions

•

vertical specialisation, leading to the more cost effective sourcing of goods and services as part of the production process

•

horizontal collaboration, leading to more efficient and innovative partnerships between organisations to develop or deliver a new product or service, and

•

modification of workers’ practices.

An example is how the changes in the booking and check-in systems in the air transport sector have driven major cost reductions, created instant information flows and driven productivity gains. It takes time for new business practices to spread across economies. The deployment of ultra-fast broadband, together with the adoption of new technologies and business models, will enhance productivity improvements over time.

4.3.2 Effects on business productivity levels Broadband is important in all sectors that rely on the provision of information. Therefore the impacts of broadband infrastructure deployment are felt across the whole economy – well beyond just the telecommunications industry. The industry sectors assumed to benefit the most are: food and beverage manufacturing, digital content, rubber, advanced materials manufacturing, wholesale trade, transport, communication services, finance, insurance, and business services, education, and health and community services. The main impact modelled is productivity gains derived from the deployment of ultra-fast broadband and the up-take of software and other IT applications. For example, the Net Impact Study (Varian et al., 2002), found that the development of internet business solutions (IBSs) could generate substantial productivity gains, and forecasts that by 2010, up to 48 per cent of the USA’s productivity growth will be due to those IBSs. Given the time frame for investment, it is likely that effects will be mostly felt between 2011 and 2021. Post 2021, these effects are halved. The model is limited here as it provides linear projections at five-year intervals.

4.3.3 Impact on trade

4.3 Scenario assumptions The Horizon 2031 scenario is the base for this Digital Auckland scenario. Therefore assumptions under the Horizon 2031 scenario still apply, unless they are superseded by the new assumptions summarised in Appendix 5.

4.3.1 Investment This scenario is driven by a mix of public and private sector investment in broadband infrastructure, as well as associated up-take in software and other IT applications, which are reflected in the model by increasing gross fixed capital formation.

ICTs and broadband facilitate the globalisation of services (OECD, 2008c). Services account for up to 20 to 25 per cent of international trade in OECD countries. This percentage might seem modest but is explained by the fact that most of services have only recently become tradable. Nonetheless, rapid broadband diffusion and the on-going liberalisation of trade and investment of services make more and more services tradable. These technological advances lead to an increased share of business services in total exports and imports. For example, the share of exports of business services in total UK exports has multiplied by two between 1995 and 2003, although this share still remains a small percentage of total trade (11.5 per cent). In New Zealand, services represented around 24 per cent of exports in 2008 (Statistics New Zealand, 2008). Broadband networks make international outsourcing possible. Indeed, a broadband network reduces distance between people and, in fact, supplier and

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customer can be in two different places without any harmful consequences. Broadband communications have already enabled businesses to outsource basic services, such as accountancy or administration. For example, British companies using fast or ultra-fast broadband outsource 10 per cent more than others. It is therefore expected that outsourcing of business services in New Zealand will increase as a result of better telecommunication services. The sector assumed to be the most affected is the business services sector in Auckland, which may lose some domestic market shares to the benefit of businesses in emerging economies such as China, India and the Philippines. However, the deployment of broadband infrastructure also offers this industry sector many business opportunities. On the other hand, exports are expected to grow as the cost associated with our remoteness is in part alleviated by the deployment of advanced ICTs and broadband. Specifically, export growth was modelled in the following sectors: printing, publishing and recorded media; business services; education; health and community services; and cultural and recreational services. Overall, all studies on broadband found that investment in broadband infrastructure was positively associated with economic growth. For example, in an evaluation of the economic impacts of broadband adoption in Victoria (Australia), ACIL Tasman (2004) estimated that between 2004 and 2015, the average contribution of broadband to GDP growth would be between 0.47 and 0.82 percentage points per annum.

4.3.4 Impact on household consumption Household consumption is assumed to increase as households consume more communication services, cultural and recreational services, health and community services, and education. For example, broadband internet connections bring many new ways of entertainment: downloading motion pictures or other video materials, interactive television, interactive games, home editing of digitised entertainment material, and all of the other possibilities offered by web 2.0 such as social-networking sites, video-sharing sites, wikis, web-blog, etc. Crandall and Jackson (2001) compare all these new technologies to the multi-video channel revolution of the 1980s and 1990s. This last one ‘created between US$77 billion and US$142 billion in annual value beyond the costs of

the service’; the authors are expecting the same value for the ‘broadband revolution’.

4.3.5 Impact on employment Broadband has a dual impact on employment: on one hand, broadband might stimulate overall economic activity resulting in job growth while, on the other hand, it might facilitate capital-labour substitution, resulting in slower job growth. Typically low-skills jobs performing repetitive and non-cognitive tasks might be cut while high-skills jobs might be created. Overall broadband is shown to positively impact on job and enterprise creation. For example, employment increased by almost 1.5 per cent in the USA between 1998 and 2002 as a direct result of broadband deployment. According to the ACIL Tasman report (2004), 330,000 jobs will be created in the Australian state of Victoria between 2004 and 2015, directly attributable to broadband adoption. This represents an average annual growth of 0.5 per cent in the number of persons employed over that period. However, labour force supply is constrained by demographic changes in the model, and therefore employment does not vary hugely under this scenario.

4.4 Scenario results As discussed before, there is a high degree of uncertainty related to the long-term impacts of investment in broadband infrastructure. The results should therefore be read as guidance only. They provide an indication of the potential scale of the impacts and are here to support a reflection on the topic as well as policy development. It should be noted that these results are largely aligned with the New Zealand Institute’s findings or with the finding that every dollar invested in broadband infrastructure generates approximately $3 of output.

4.4.1 Gross regional product Under the Digital Auckland scenario, investment in ultra-fast broadband infrastructure, coupled with investment in associated hardware and software

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applications, drives productivity gains and industry competitiveness. The resulting regional economic benefits are in the range of $2 billion by 2031. This is equivalent to a two per cent increase over the GRP under the Horizon 2031 scenario (i.e. the base scenario). The economic impacts of broadband deployment are substantial. As a point of comparison, the construction sector generated $2.2 billion of GRP in 2006. Table 15: GRP results compared with the Horizon 2031 results 2011

2016

2021

2031

GRP (billion)

$62.0

$70.3

$79.3

$100.3

Additional (million)

$215

$430

$877

$2,389

Increase

0.3%

0.6%

1.1%

2.4%

4.4.2 Exports Under the Digital Auckland scenario, export values are about $2 billion higher each year than under the Horizon 2031 scenario. Over the 2006–2031 period, it is forecast that the region will export an additional $49.1 billion. This is nearly five times what the region exported in 2006. Specifically, export growth will occur in the following sectors: printing, publishing and recorded media; business services; education; health and community services; and cultural and recreational services. For example, exports in business services, cultural and recreation services, and health and community services are projected to be around 12 per cent higher in 2031 than under the Horizon 2031 scenario. Table 16: Export results compared with the Horizon 2031 results

Source: Auckland Digital scenario, ARC 2008 Note: GRP is expressed in 2004$ constant prices The cumulative economic benefits over the 2006–2031 period are considerable. They amount to over 22 billion in additional GRP as shown in the following diagram.

2011

2016

2021

2031

Export (billion)

$12.6

$14.8

$17.1

$23.5

Represents: of total GRP

20.4%

21.0%

21.5%

23.5%

Source: Auckland Digital scenario, ARC 2008 Note: In 2004$ constant prices Investment in ultra-fast broadband and in associated applications

Change in business operations and models, leading to productivity growth

Total increase in GRP between 2006 and 2031 of $22 billion

Higher household demand for communication enabled goods and services

54

Higher export in goods and services in which Auckland has a comparative advantage

Higher import due to outsourcing some services

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

4.4.3 Fastest growing sectors of industry The industry sectors that will benefit the most from the deployment of ultra-fast broadband in Auckland in terms of absolute GRP growth are: business services, health and community services, communication services, education, and cultural and recreational services. This growth is driven by growing demand here and overseas, as well as by productivity gains derived from the adoption of different business models. Table 17: Top industry growth GRP in 2031 (million)

Horizon 2031 scenario

Business services

Digital Auckland scenario

Difference (% increase)

$13,672

$14,383

5.2%

Health and community services

$4,141

$4,545

9.8%

Communication services

$4,688

$4,989

6.4%

Education

$2,768

$3,017

9.0%

Cultural and recreational services

$2,917

$3,158

8.3%

Source: Auckland Digital scenario, ARC 2008 Note: In 2004$ constant prices

4.5 Conclusion Research into the impacts of deploying ultra-fast broadband infrastructure is still in its infancy as the technology is relatively recent. However, there seems to be a consensus in the literature that substantial economic and social benefits can be derived. The Digital Auckland scenario shows that, under relatively conservative assumptions, the Auckland region could increase its GRP by over 2 per cent by 2031 as a direct consequence of investment in ultra-fast broadband, and that cumulative effects could reach $22 billion over the 2006-2031 period.

This scenario explored the effects in the Auckland economy of widespread use of ultra-fast broadband technology. No supply-side constraints were factored in. For the region to realise the benefits modelled under this scenario, the adequate supply of management and technical skills across all industry sectors is prerequisite.

Fibre networks are recognised as instrumental in fostering productivity and competitiveness. Governments around the developed world are in a race to support the deployment of faster telecommunication networks. There is a sense of urgency around the subject. The Broadband Investment Initiative and the One Plan Digital Auckland programme are therefore of real relevance to the region’s future outlook.

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5

Scenario 3: Energy Efficiency

5.1 Background

Defining energy Energy encapsulates primary energy sources, such as coal, oil (petrol, diesel, fuel oil, aviation fuel), liquid petroleum gas, natural gas, renewable energy (wind, solar, wave, biomass including wood), and geothermal. It also includes secondary energy sources such as electricity and heat.

This scenario is formulated in recognition of the pivotal role that energy plays in our lives and economy, our dependence on energy for physical and economic wellbeing, and in recognition of the challenges posed by our current level of energy use.

A distinction is made between the use of energy in industry and commerce (for the production of goods and services) and its use in households (residential energy use and private transport).

Auckland’s total energy demand (industry and households) in 2006 was estimated at 190,000 TJ (terajoules, oil equivalent).24 Seventy per cent of this was used by industry and 30 per cent by households. Under the Horizon 2031 scenario, by 2031 the region’s energy demand is projected to increase to 319,000 TJ. This is a 68 per cent increase in delivered energy to the region (see Table 20). The problem associated with security of energy supply is well documented in the literature (Foran and Poldy, 2002; Leyland, 2008; McCormacRankinCagney, 2008), and has been experienced in the region. Market volatility in energy pricing (particularly in oil), interruptions in energy supply (electricity transmission and capacity of the Auckland grid), and the ability to mitigate the environmental effects of carbonbased energy sources (air pollution from fuel burning and transport) have highlighted the shortcomings of our method of energy use. Compounding the region’s current energy requirements is the projected population growth over the next decades, which is encapsulated in the Horizon 2031 energy projections. The Auckland Sustainability Framework,25 which has a 100-year vision, has a goal of ‘resilient infrastructure’, which recognises energy provision as a crucial component of the region’s infrastructure. Energy comes in many forms. It is used by industry in the production of goods and services, and also by households as a component of the goods and services they buy and use. 24

25

56

This figure was generated by the energy accounts within the Economic Futures Model, which is based on updated Energy Efficiency Conservation Authority accounts for the region. Auckland Regional Growth Forum (2007) Auckland Sustainability Framework – An agenda for the future.

The energy described in this scenario relates to delivered energy to the region. This energy may be generated in other regions of New Zealand. This point is particularly relevant to electricity, gas and transport fuel, given that Auckland places substantial demands on other regions for energy services. The units of energy used within this scenario are terajoules (TJ), on a gross calorific value as delivered basis. (One TJ equals one trillion (1 x 1012) joules which approximates to 28,000 kilowatt-hours (kWh)).

The intensity of energy use varies by end-use sector, as does the form of that energy. Resilience supposes an ability to survive through shocks, and planning for energy demand changes is a mechanism to increase resilience in the system. This scenario is developed to explore the projected pressures associated with energy delivery and use in the region, while exploring possibilities to make the sector more resilient.

5.2 Scenario description This scenario investigates and queries the effects on the economy and energy demand if there is: •

more efficient use of transportation fuels

•

an increase in public transport investment and use

•

an increase in housing stock insulation

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Drivers of the Energy Efficiency scenario 1. Leadership in public policy: including the New Zealand Energy Efficiency and Conservation Strategy; commitments within the Intergovernmental Panel on Climate Change; standards such as those set in the NZ Building Code; regional initiatives such as the Auckland Sustainability Framework. 2. Social norms: increased awareness of the negative impact on environmental and ecosystems change social values and subsequent behaviour. Process of social conformity and/or collective learning occurs. 3. Market signals: Changes in the relative prices of energy (particularly oil) induce change or a switch to alternative energy sources. Businesses internalise social values, in particular long term-investment into sustainable activities within the private sector.

•

an increase in renewable energy investment and micro-energy generation, and

•

smarter use of energy, in particular electricity across the economy and industrial sectors.

demand in 2006. In comparison, electricity makes up only 25 per cent of household total energy demand.26 The road transport industry was second to basic metal manufacturing in terms of total energy (all forms) used per industry.

5.3 Scenario assumptions As with the Digital Auckland scenario, the Horizon 2031 scenario is the base for this scenario. Therefore assumptions under the Horizon 2031 scenario still apply. Under this Energy Efficiency scenario the industry structure is identical to that under Horizon 2031. However, assumptions are made as to how goods and services are produced and consumed. This scenario explores the required energy demands to deliver this economic activity, including consumption. Importantly, supply of energy is not constrained in the model. Specific assumptions of the model are detailed below.

The environmental and energy component of the Economic Futures Model was pivotal in this scenario, linking the projected industrial production and household consumption to resource use – particularly energy in its various forms. The Horizon 2031 scenario projects energy use in the Auckland region assuming unchanged energy efficiency ratios, given our current knowledge of how energy is used. This seems a very unlikely future given uncertainty over how supply could be met. There is volatility in security of oil supply and issues of fuel affordability, constraints on the region’s electricity network, and regional, national and international commitments to reduce air pollutants which are associated with our energy use. The Energy Efficiency scenario presumes less reliance on fossil fuels, enabled through continued technological substitution (innovation) and smarter design and use of energy systems. However, a change in behaviour towards energy use is also required, specifically with regards to energy conservation. This scenario was formulated after consideration of energy use by different industrial sectors and households, and after identifying areas of high potential for energy efficiency gains. Of particular importance to households in the Auckland region is the energy required for transportation. This constituted 63 per cent of total household energy

Developing the Energy Efficiency scenario An energy model, describing energy use by economic sector, fuel type and mode of transport was constructed for both 2006 (base year) and 2031 (final year). The projections were developed using information gathered from various sources including the Ministry of Economic Development (electricity demand), Energy Efficiency Conservation Authority (Energy End-Use Database), the Auckland Regional Transport Model (based on a ‘gold-plated’ public transport scenario), Beacon Pathways Ltd and the Economic Futures Model. Assumptions pertaining to changes in the rates of eco-efficiency, and substitution between particular fuel types, all by industry, were based on a literature search. The energy model was used to provide projections of the delivered energy types required to meet industry and household energy demand over the next 20 years.

5.3.1 Public transport and transportation The scenario uses an Auckland Regional Transport Model scenario of maximised public transport use, which would coincide with the 2040 targets set by the Ministry of Transport (2008). As such, it assumes heavy investment in public transport infrastructure and services in order to ‘pull’ people from cars and 26

Households within the Auckland region spend more on petrol per week than New Zealand as a whole, but spend less on average on household energy. Statistics New Zealand (2008).

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into public transport. However, it does not exclude investment in roads, such as completing roading networks and improving rural transport. Public transport network improvements would be in terms of services (e.g. integrated ticketing and fares), and additional infrastructure (e.g. considerable rail expansion), and would be supported by travel demand management measures (e.g. walking and cycling infrastructure improvements), road safety improvements, engine technology improvements and high levels of town centre amenity. The ‘business as usual’ scenario incorporated planned transport expenditure, according to the Auckland Regional Transport Authority. However, in addition this scenario assumes the construction of a CBD rail loop, a second harbour crossing and the Waterview tunnel. It is assumed that bus vehicle kilometres (VKM) travelled would increase by 85 per cent over 2006 levels by 2031, ferry VKM would increase by 216 per cent and rail VKM would increase by 1157 per cent. These transport assumptions were used to derive: •

health respiratory effects as a result of improvements to air quality (reduction of PM10)27

•

changes in transport mode energy-use by fuel type, and

•

substitution between transport inputs by economic sectors.

After an analysis of hospital admissions relating to air quality, the public health savings (200 extra hospital admissions per year) were deemed negligible, as they constituted 0.06 per cent of total hospital admissions in the region. The scenario assumed no overall change in the government’s final demands for health services as any reduction in government expenditure on hospital admissions would be reinvested in the health sector. However, it can be assumed that the level of service provided to the public would be expected to improve as a result of the reallocation of funds within the sector to alternative services. In the case of private expenditure on health care, it was assumed that any reduction in expenditure resulting from air quality improvements would be reallocated by consumers to the purchase of other goods and services. This reallocation was assumed to be negligible in the overall model. The increase in the public transport scenario assumes significantly lower energy demands for fossil fuels. 27

58

The notation PM10 is used to describe particles matter of 10 micrometers or less. It has health impacts, and is one of the targets of air pollution reduction campaigns.

Notable was the substantial substitutions between household car use and bus/commuter rail transport modes. This assumes a behavioural change, invoked through changes in relative prices of public and private transport (incorporating opportunity and time costs of travel by each mode). The rail transport network was assumed to be electrified, leading to efficiencies in energy use, given the losses through heat associated with fossil fuel. A change in the demand for transportation fuels and a switch between fuel types (given changes in technology) was assumed. An eco-efficiency gain to buses of 0.5 per cent and to cars of 0.65 per cent per annum was assumed. In addition, an annual growth rate of one per cent in demand for diesel as a fuel for car transportation was assumed, partially offset by a 0.2 per cent decrease in demand for diesel buses and a one per cent decrease in petrol cars.

5.3.2 Housing energy It is assumed that the residential construction industry would modify its practices to reduce housing energy consumption. Two types of household energy efficiencies were assessed: the insulation of new and retrofitting of old housing, and the uptake of solar water heating at the household level. •

It was assumed that the number of insulated houses would increase from 55 per cent of the housing stock in 2006 to 63 per cent of the future stock in 2031. The potential number of insulated homes in the next 20 years was calculated using a combination of current and estimated dwellings and the split between owner-occupied dwellings and rental properties in the region (it is assumed that owner-occupied dwellings will have a higher rate of insulation retrofitting). In spite of the large rise in retrofitting, it was not assumed that this would cause a substantial increase in the the overall construction activity. Horizon 2031 has significant technical change built in, so the increases in retrofitting will have already been captured within the model.

•

It has been estimated by the Energy Efficiency Conservation Agency that approximately 55 per cent of household water heating demands could be met by solar water heating systems, assuming optimal use of the technology. The potential for installation in new homes, as well as for retrofitting, was estimated. Installation is projected

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

to increase from three per cent of the current housing (estimated 12,250 solar water heating systems in the region in 2006) to 23 per cent of all dwellings by 2031 (i.e. 132,725 dwellings to have solar heating systems). These projections imply an average annual growth rate of 10 per cent for installed solar heating systems in the region. As with insulation, the economic impact of solar water heating (output, value-added and jobs) was assumed to be small, and within the margin of error of the model. No change was made to gross fixed capital formation (investment) of the construction sector. The main changes to the model are assumed to be a decrease in domestic demand for energy. The improvements to health as a result of improved insulation were also investigated in this scenario as there is a well established link between inadequately insulated, cold and mouldy houses and poor health outcomes. The New Zealand study on the effect of insulating existing houses on health inequality provides data on the differences in visits to the general practitioners (GP) for two trial groups, with one group consisting of persons residing in newly insulated homes and the other group residing in poorly insulated homes (Howden-Chapman et al, 2007). The calculations described above, of the number of insulated houses under the Horizon scenario versus the number of insulated homes under the Energy Efficiency scenario, were used to estimate the difference in visits to the GP between the two scenarios. A change in public and private health expenditure was estimated as a result of the assumed changes to GP visits. As with the beneficial health effects attributed to a reduction in PM10 from the transport sector, reductions in expenditure were assumed to be redistributed to other consumer items. The change did not produce significant impacts on the model. A limitation of the model is acknowledged in that it cannot capture wellbeing effects, such as those associated with improved health and increasing longevity of residents.

5.3.3 Electricity demand Electricity demand projections were provided by the Ministry of Economic Development.28 These projections provided the basis for a national energybased Business-as-Usual Scenario29, accounting for natural economic growth at a rate of 2.5 per cent per 28 29

See www.med.govt.nz It is important to note that this is not the same as the EFM Horizon 2031 scenario.

annum and likely eco-efficiency gains brought about by technological change within the economy at a rate of 0.75 per cent per annum. The growth in electricity demand in the Auckland region between 2006 and 2031, as projected by the EFM, was in line with national-level findings. However, the EFM-based Energy Efficiency scenario goes further than the Ministry’s projections, by assuming that the region has an additional eco-efficiency gain in electricity of 0.5 per cent for the residential sector and 0.25 per cent for the industrial and commercial sectors. This assumption is based on increased awareness of energy bottlenecks, and a conscientious effort (behavioural change) to reduce energy demand. Horizon 2031, based on historical trends, had overall growth rates in electricity sector investment of around 2.15 per cent per annum. It was assumed that an additional two per cent per annum growth rate above the average growth rate in gross fixed capital formation (i.e. infrastructure investment) within the model was required to ensure effective supply of electricity to the region. The energy efficiency scenario assumes that basic steel manufacturing remains in the Auckland region, despite its consumption of 13 per cent of total energy demand and nine per cent of the region’s electricity demand.

5.3.4 Consumption of energy commodities Following the results of the Energy Efficiency scenario and the analysis of future electricity demands, adjustments were needed to the output trends of industries producing energy commodities. It should be noted that while the Energy Efficiency scenario still projects growth in energy commodities over time, it is at a smaller growth rate than that projected under the Horizon 2031 scenario. Any savings in expenditure on energy commodities were assumed to provide additional disposable income for expenditure on other goods and services. Therefore, when compared with the Horizon scenario, the Energy Efficiency scenario projects an increase in final demands for non-energy commodities with resulting value-added and employment impacts. In the case of the industries producing energy commodities, there is some reduction in output, value-added and other employment as a result of the

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reduction in consumption compared with the Horizon Scenario. However, because many of the energy commodities used in the Auckland region are produced outside of the region (e.g. coal and petroleum), changes in consumption of these energy commodities produced relatively little economic impact for the region.

5.3.5 Construction impacts The impacts of construction can be significant on any economy, particularly in the short term. Nevertheless, construction impacts typically represent spikes in economic activity lasting only as long as the construction activity is in progress. This assumption was used in the Energy Efficiency scenario when trying to determine how the proposed energy and transport investment would affect the construction industry. A number of (planned) energy projects had been previously identified for inclusion in the Horizon 2031 scenario. As stated above, to ensure security of electricity supply an adjustment of two per cent per annum increase in capital investment was modelled, assuming the movement toward more centralised sources of energy, namely electricity for transport, rail in particular and some electrification of buses.

This scenario is also dependent upon a number of major transport network projects being undertaken within the scenario’s time frame. These projects include the CBD rail loop (approximately $1 billion), Waterview tunnel (approximately $2.7 billion), and a second harbour crossing (approximately $3.7 billion). For the purpose of the study each of these projects were assumed to take five years to complete from final design to completion. Furthermore, as these projects are tiered to start throughout the projection period, several of the project years exhibit large one-off construction impacts, but no two in any one reporting projection year.

5.4 Scenario results 5.4.1 Gross regional product and employment As the scenario is modelled with a focus on the use of energy, substantial effects on gross regional product (GRP) were not envisaged, and nor did they emerge – there were only marginal changes to GRP (under one per cent for all reporting periods – Table 18). Similarly, there was very little change to employment after modelling the assumptions of the scenario (Table 19).

Table 18: Energy Efficiency scenario compared with the Horizon 2031 results

GRP (billion) Less ( ) or additional ( ) million GRP per capita Decrease ( ) or increase ( )

2011

2016

2021

2031

$61.76

$ 70.3

$ 78.6

$98.8

$30

$92

$168

$88

$41,651

$44,028

$45,961

$51,275

0.04%

0.61%

0.19%

0.97%

Source: Energy efficiency scenario, ARC 2008 Note: In 2004$ constant prices

Table 19: Employment in the Energy Efficient scenario

Total FTEs Changes between Horizon 2031 and Energy Efficiency scenario

Source: Energy Efficiency scenario, ARC 2008

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2011

2016

2021

2031

642,566

699,498

745,662

860,782

-0.06%

0.7%

0.1%

0.8%

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

scenario decoupled household energy use, and resulted in a reduction (nine per cent) in per capita energy demand from the base year.

5.4.2 Energy demand This scenario is revealing in terms of the difference between energy demand in the Horizon 2031 scenario, and elaborating on where these demands are lowered in this scenario As the model is demand driven, there are no constraints on energy required and no changes have been made to the model to constrain energy supply into the region. Taking the assumptions of the Energy Efficiency scenario into account, there is still an increase in total energy demand in the region (up 46 per cent from 2006 levels). However, this compares favourably to an increase of 68 per cent in Horizon 2031. Taking into account expected population increases, this is an increase of 20 per cent per capita of total delivered energy. The energy efficiency changes reduced this increase to only four per cent per capita from 2006 levels (Table 20). Economic growth and energy demand are linked (Energy Information Administration, 2008), for it is assumed in developed economies that energy demands increase despite increasing energy efficiency (eco-innovations) in technology and appliances. This is because as standards of living improve, then demand for energy-intensive goods and services, including purchases of new equipment to replace old stock, increases. This is the reason the percentage change from the base year is given in Table 20 below. There was a projected increase in household energy demand per capita of 12 per cent in the Horizon 2031 scenario, which puts it in line with OECD trends on energy intensity over time. However, the energy efficiency

There is little change in the total energy demanded by industry between the Horizon 2031 scenario (56 per cent increase) and Energy Efficiency scenario (55 per cent increase), relative to the base year – but a 10 per cent decrease brought about by the energy efficiency scenario. These industry changes relate mainly to efficiencies in transportation. The reduction in household energy demand is much more pronounced, with the growth from base year curbed to 27 per cent in this scenario, down from a growth of 57 per cent in Horizon 2031. This represents a difference of 19 per cent for household demand between the two scenarios, and represents the most significant changes in energy use modelled.

5.4.3 Changes in types of energy Despite the improvements brought about by the Energy Efficiency assumptions, there are still positive annual average growth rates in energy demand of one per cent per annum over the scenario period.

Table 20: Changes in energy demand Base year

2006 Total energy demand (TJ) Total energy demand per capita Industry energy demand (TJ) Household energy demand (TJ) Household energy demand per capita

2031 (% changes from base in brackets) % change brought Horizon 2031 Energy Efficiency about by Energy scenario scenario Efficiency scenario

189,702

319,183 (68%)

0.138

0.165 (20%)

129,264

277,604 (46%) 0.143

-13%

(4%)

-13%

224,088 (56%)

200,588 (55%)

-10%

60,438

95,095 (57%)

77,016 (27%)

-19%

0.044

0.049 (12%)

0.039 (-9%)

-20%

Source: Energy Efficiency scenario, ARC 2008

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Table 21: Comparison of energy use projections under Horizon 2031 and Energy Efficiency scenarios Type of energy

Diesel

Energy projections to 2031 (TJ) Energy Efficiency 2006 Horizon scenario Base year 2031 Industry

41,380

30,077

-27%

1%

4,576

7,200

10,185

41%

1%

27,563

48,580

40,262

-17%

1%

6,340

11,037

7,602

-31%

1%

Household

33,280

52,363

35,347

-32%

1%

Total

39,620

63,400

42,949

-32%

1%

Total

Electricity

Natural gas

Industry

Industry

21,225

36,959

31,730

-14%

1%

Household

15,287

24,052

20,570

-14%

1%

Total

36,512

61,011

52,300

-14%

1%

Industry

24,441

43,980

41,692

-5%

1%

3,839

6,041

5,755

-5%

1%

Total

28,280

50,021

47,447

-5%

1%

Industry

24,120

37,251

35,357

-5%

1%

Household Coal

Household Total Aviation fuel

Industry Household Total

Wood

Industry Household Total

LPG

Industry

273

-5%

1%

35,630

-5%

1%

9346

18,744

21,324

14%

1%

0

0

0

9346

18,744

21,324

14%

1%

10,036

14,962

14,306

-4%

1%

0%

2621

3724

3551

-5%

1%

12,657

18,686

17,857

-4%

1%

2,581

2,271

-12%

1%

1,429

1,335

-7%

1%

Total

2,362

4,010

3,606

-10%

1%

Industry

2,588

4,267

5,744

35%

1%

0

0

0

Total

2,588

4,267

5,744

35%

1%

Industry

6735

11,431

10,436

-9%

1%

-9%

1%

Household Total Total

286 37,537

736

Household Black liquor

182 24,302

1,446

Household Fuel oil

Average annual growth rate

22,987

Household Petrol

Differences between scenarios in 2031

Industry Household Total

0

0

0

6,735

11,431

10,436

0%

129,264

224,088

200,588

-10%

1%

60,438

95,095

77,016

-19%

1%

189,702

319,183

277,604

-13%

1%

Source: Energy Efficiency scenario, ARC 2008

5.4.4 Household energy demand The drop in household energy demand is significant as it lowers the household demand per capita from the base year. This would imply a decoupling of energy use at household level, or significant energy efficiencies permeating in household demand.

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In terms of fuel types, the main reductions between Horizon 2031 and this scenario were in the use of petrol (-32 per cent) and electricity (-14 per cent), with reductions of between five and seven per cent in natural gas, coal, wood and LPG. There was an increase or a switch in fuel use to more diesel (41 per cent increase). This result was a consequence of an assumed move toward engines that would burn diesel more efficiently and effectively.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

The increase of solar heating was not captured in the model as a separate energy/fuel category, but was modelled in the reduction in electricity demand. The other changes in fuel types are attributed to a reduction in household fires, replaced with electric heating systems, and a switch away from private vehicle transport to public transport. Table 21 compares the changes in energy demand for industry and households, according to type of energy.

5.4.5 Energy use by industry The energy demanded by industry varies considerably across the 48 sectors of the EFM. In 2006, 57 per cent of total industry demand was accounted for by just five sectors. In order of total energy use, these were: •

basic metal manufacturing (19 per cent)

•

road transport (11 per cent) 30

•

printing, publishing and recorded media (nine per cent)

•

air transport, services to air transport and storage (nine per cent), and

•

paper and paper product manufacturing (nine per cent).

The other industries largely used less than one per cent of industry total each, with the exception of retail trade, business services, and wholesale trade, which used five, four and three per cent respectively. Under the Horizon 2031 scenario, the concentration of energy use within these five dominant sectors declines slightly to 55 per cent of the total. By modelling the Energy Efficiency scenario assumptions above, the concentration of energy use within these five industries changes little. However, there is a projected 10 per cent reduction in total energy used by all industry and the relative proportions of total energy use are forecast to change slightly with the energy efficiency assumptions.

Table 22: Top 5 energy intensive industries

2006 Horizon (Base year) 2031

Energy Efficiency 2031

Basic metal manufacturing

24,761 (19%)

36,540 (16%)

34,026 (17%)

Road transport

14,511 (11%)

24,678 (11%)

16,686 (8%)

Air transport, services to transport and storage

11,310 (9%)

23,051 (10%)

24,878 (12%)

Printing, publishing and 11,800 recorded media (9%)

20,923 (9%)

18,310 (9%)

Paper and paper product manufacturing

19,065 (9%)

17,228 (9%)

11,013 (9%)

Source: Energy Efficiency scenario, ARC 2008 Note: Units are TJ (oil equivalents) and proportion of total industry energy use in brackets There are significant changes to each industry’s energy use, as a result of the energy efficiency assumptions in this scenario. The road transport industry has the largest reduction in energy use, with a drop of total energy demand by 32 per cent. Communication services decreases energy use by 23 per cent. Similarly wholesale trade, personal and other community services, and business services all decrease their energy use by approximately 20 per cent. This scenario projects increased energy demand in the water and rail transport industry (75 per cent increase including 181 TJ of electricity) and the air transport, services to transport and storage industry (eight per cent increases).31 These increases are not surprising, given the focus on increased public transport in the scenario, and alternatives to road freighting which would be substituted with water and rail transport. These industries would increase their use of fuel oil and electricity.

5.4.6 Energy use per dollar of output.

While the projections are for a relative decrease in the proportion of total energy used by the road transport industry, indicating a switch to rail, the proportion of energy used by the air transport industry will increase. Overall, these five industries will remain the most energy intensive.

In 2006 it was calculated that it took 1.3 TJ to produce $1m of output in the Auckland region. By modelling the energy efficient assumptions, this figure was reduced to 1.1 TJ by 2031, indicating energy efficiency gains in industry per unit of gross output.32 The intensity of energy use per unit of output varies widely

30

31

Note: The road transport industry does not include private vehicles, which are captured in the model under household consumption. This industry sector includes road freight, buses, taxies and services to road transport, such as parking.

32

For further detail about the changes in energy demand by industry brought about by the Energy Efficiency scenario, see Appendix 6. Gross output roughly equates to the total sales value.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

across industries from 23.9 TJ/$m for basic metal manufacturing, 12.3 TJ/$m for paper and paper product manufacturing and 10.9 TJ/$m for road transport, down to less than 0.1 TJ/$m for services provided by the finance, insurance investment and real estate industries. The fishing industry was in the top five industries for highest energy use per unit of output, which was surprising given that primary manufacturing processes are considered the most energy intensive. In the Energy Efficiency scenario, the intensity of energy use per unit of output decreased for most industries, with the exception of the water and rail transport, air transport and services to transport, and storage industries.

5.5 Conclusion Both the Horizon 2001 and Energy Efficiency scenarios project an increase in energy use in the region from the base year. However, the assumptions in the Energy Efficiency scenario decrease overall energy demand per capita in the region by 13 per cent in 2031. Household energy demand drops by 19 per cent, while industry by 10 per cent. The Energy Efficiency scenario projects a region that is less reliant on fossil fuels, a result brought about by improvements in technology, smarter design, energy conservation and behaviour changes, most noticeablely in transport. The scenario projects increases in the use of public transport and corresponding declines in private transport, supported by significant increases in investment in more sustainable modes of transport.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

6

Implications for the region’s future economic performance

Chapters 3, 4 and 5 in this report outlined possible economic growth paths for the Auckland region under a number of economic scenarios. They are predicated on generic growth paradigms within neo-classical economic theory. These are supported by evidence from the last 100 years in developed countries, where economic growth has led to massive improvements in standards of living. However, it is recognised that alternative growth paradigms are possible, such as steady-state growth theories and constrained resource limits to sustained growth. Indeed, due to the current global economic crisis, these sentiments are currently being given a predominant place in the media. The effects of emerging developing economies may also be a further constraint to current growth theories. This section provides a high level assessment of the implications of the scenario findings in the light of our current vision for the region’s economy, as articulated in the Auckland Regional Economic Development Strategy (AREDS) and the Metro Project Action Plan. This vision is for the Auckland region to be an internationally competitive, inclusive and dynamic economy. The following sections examine the changes expected in a number of drivers of the regional economy.

6.1 Demographic changes Changes in Auckland’s demographic profile and labour force will significantly impact the region’s ability to improve its economic performance. Based on the Horizon 2031 scenario, the region’s annual GRP growth rate will average 2.4 per cent over the 2006–2031 period. This equates to an average annual GRP per capita growth rate of one per cent over the period, a lower growth rate than that projected by the International Monetary Fund for New Zealand and other competitor countries. In other words, a 2.4 per cent average annual GRP growth rate over the next 25 years is insufficient to ensure that our GRP per capita, a proxy for living standards, does not slip further down

the OECD ranking. Increasing our GRP per capita can be achieved through two channels: increasing our output – and given the limits of our domestic market, this means exporting more – and/or increasing how much wealth each of us produce, which requires productivity gains. The region’s population will continue to grow fast, but at a lesser rate than that previously experienced. Indeed, while the region’s population is predicted to grow by more than 1.3 per cent per annum to reach 1.97 million by 2031, this rate is not as rapid as previously experienced growth rates. A decelerating population growth rate limits the extent by which domestic demand drives the region’s economic growth. The region’s economic growth will be further limited by its aging population. The number of people aged 65 and older is projected to account for 17 per cent of the region’s population by 2031, up from 10 per cent in 2006. This trend puts further fiscal pressure on the employed. It also increases demand on health and community services and facilities, implying a change in government’s spending plans and programmes. As reflected in the Horizon 2031 scenario, further investment will be needed in the health, community and social sectors, but this investment will have to be funded from a proportionally smaller tax base. The 40 to 50-years-old age group, the highest earning age group, is falling as a proportion of the region’s total population. This will lead to lower consumption levels. Furthermore, it is possible that given changing consumption and personal debt and fiscal patterns, this group will have lower levels of disposal income in 2031 than they did in 2006. This may further reduce domestic demand, limiting the region’s economic growth. Auckland is already host to a very diverse population. By 2031, Auckland’s ethnic structure will be characterised by larger proportions of Maori, Pacific Islanders and Asians. These ethnic groups will have stronger degrees of influence on Auckland’s domestic

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

demand and consumption patterns. Businesses may choose to tailor their goods and services to service these markets. In addition, this cultural diversity that already characterises Auckland’s population offers intangible linkages to overseas markets. This social capital offers growth opportunities not captured in the scenarios. A challenge for businesses is to make use of the connections new migrants have with their countries of origin to grasp opportunities in overseas markets. Given the constraints on domestic demand, it is essential that Auckland businesses expand existing export markets, and/or develop new ones. Increased exports are essential to lessen the effects of lower domestic demand and hence increasingly drive Auckland’s economic growth.

6.2 Labour force 6.2.1 Labour force supply The labour force is expected to grow at a fast rate over the next 25 years. However, its profile is changing: the labour force is becoming older and its ethnic composition is changing. Another uncertainty is our ability to retain skilled labour in the region, and to attract overseas talent in a context of heightened international competition for skilled and experienced workers and entrepreneurs. The proportion of the working-age population will increase from 64 per cent of the total population in 2006 to 68 per cent in 2016, and the labour force is forecast to increase from 732,000 in 2006 to over one million by 2031. It is assumed that labour force participation will remain high. However, following demographic trends, the rate of increase in the labour force is projected to slow down post 2016. The labour force will be ageing as fewer younger people enter the workforce and the number of new entrants is largely offset by those retiring. Given this trend, retaining and attracting talents in the region becomes increasingly important. Another characteristic of Auckland’s labour force is its changing ethnic composition. Significantly larger proportions of Maori, Pacific Islanders and Asians will populate the region. Currently both Maori and Pacific Islanders tend to have low levels of formal qualifications and are over-represented in low-skilled

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occupations. A failure to increase both educational achievements and participation in higher-skilled occupations poses two challenges for the future. Firstly, businesses face a potential shortage of skilled labour within the domestic market, a real constraint on growth. Auckland could consequently appear to be a less desirable place for businesses to locate to. Secondly, individuals in those communities will have less work opportunities as the nature of work is changing and increasingly requires higher levels of skills. This may lead to a number of negative economic and social effects, both for those individuals as well as for the entire community. Social cohesion has been positively linked to economic growth and prosperity. Historically, the region’s economy has been fuelled by high level of labour utilisation rather than by productivity gains. Given the constraints noted above, the region’s economic production can no longer be primarily driven by increased labour utilisation. The challenge for the region’s economy is to become more productive. There already exists considerable academic literature and many policy documents focusing on ways of improving multi-factor or labour productivity. Yet this is a difficult challenge and it requires a multi-facetted strategy to be implemented at every level, from central government right down to individual businesses. The prosperity of the Auckland region and its community depends primarily on our ability to lift productivity levels across all industry sectors.

6.2.2 Labour force demand To sustain production levels, it is estimated that the region’s businesses will require over one-quarter of a million additional full-time equivalents by 2031. This represents a 40 per cent increase from 601,612 FTEs in 2006. The industry sectors with the fastest employment growth rates are the machinery and equipment manufacturing, business services, accommodation, restaurants and bars, and other food manufacturing sectors. The business services sector is projected to remain the largest regional employment sector. A strong trend across all industry sectors is an increase in demand for skilled and semi-skilled occupations. A big unknown for the future is whether Aucklanders will have the skills required to respond to opportunities in these high-skilled occupations. These will be limited to those with the right education credentials, effectively foreclosing an attractive and growing segment of the job market to those with low educational attainment. Those entering the labour market with no or low levels

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

of educational achievement, as well as those employed in low-skilled occupations in declining employment sectors, are particularly vulnerable in this changing labour market. The need for more highly qualified secondary and tertiary education graduates, as well as for ongoing educational training and upskilling of the work force, is becoming increasingly important. This is a major challenge for education and training organisations, as well as for businesses. In addition, workers in skilled and semi-skilled occupations tend to be mobile, operating in an international labour market. Given trends amongst OECD countries for an ageing labour force, we can expect increased international competition for talents. A failure to attract and retain talents will impact on our ability to attract businesses and investment into our shores. A challenge for the region is to develop, retain and attract skilled and innovative workers and entrepreneurs to support projected economic growth.

6.3 Internationalisation Increasing exports is a major focus of both AREDS and the Metro Project Action Plan. Internationalisation has been positively linked with productivity and business competitiveness. Servicing overseas markets is an important driver of economic growth. However, Auckland has not yet fully seized the opportunities of globalisation. Contrary to popular belief, the Auckland economy is not very open but remains mainly focused on servicing the New Zealand market. New Zealand’s remoteness from overseas markets acts as a real trade barrier and is estimated to penalise its GDP per capita by around 10 per cent (OECD, 2008). In addition, the small size of many Auckland firms makes it difficult for the region to compete in the global economy. As discussed previously, for Auckland to increase its output and ultimately its GRP per capita, it needs to become a more active participant in the international economy. Under the Horizon 2031 scenario, exports are a major contribution of economic growth. They are projected to reach $21,164 million in 2031, a 138 per cent increase from its 2006 level. This equates to exports as a percentage of total GRP increasing from 16.2 percent in 2006 to 21.6 per cent in 2031. Business services and tourism will be an increasingly important part of our export basket. Exports will also increase in commodities where the region has a competitive advantage, such as boats and other marine equipment, processed food and beverage, advanced materials, and electronic medical equipment.

In order to reach this increase – and rise above it – Auckland faces many challenges. One challenge is to provide adequate support for those industry sectors with export potential. The question arises whether Auckland firms receive adequate assistance to export, and what kind of assistance is most beneficial. An additional challenge is to minimise the costs associated with our geographical remoteness for both investors into the region and for exporters. This can be achieved through the deployment of fast and efficient transport and communication networks, associated with a reduction of transportation costs. Given the recent important fluctuations in transport costs, telecommunication networks offer an attractive alternative. There is a large consensus about the positive impacts of broadband on economic activity. Under the Digital Auckland scenario, which investigates the impact of investment in ultra-fast broadband telecommunications on regional economic growth, export values are about $2 billion higher each year than under the Horizon 2031 scenario. Over the 2006–2031 period, the region is projected to export an additional $49.1 billion, nearly five times the 2006 exports level. This increase is driven by an explosion in service exports, supporting the rise of the weightless economy. Given the significant potential of ultra-fast broadband and associated applications, a role for government is to encourage the development and best usage of these technologies.

6.4 Business growth and innovation For Auckland businesses to successfully compete internationally, a strong culture of innovation, continuous improvement and connection to global thinking is required. This means enabling and encouraging the development of new – and improvement of existing – products, services and processes now and in the future. Auckland’s businesses cannot solely compete on price. Product or brand differentiation, driven by innovation, is the key to drive competitiveness. Innovation occurs in all industry sectors. However, Auckland has potential in niche, high-value-added activities such as in the creative industries, digital content, marine and biotechnology sectors. The food and beverage industry is also expected to be characterised by the absorption of new technologies in software, machinery, and

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biochemical businesses, and to increasingly produce high-value products. The 2007 OECD Review of Innovation Policy examines the strengths and weaknesses of New Zealand’s innovation system and recommends steps that central and local government could take to increase the impact of innovation on the country’s future prosperity. In the Auckland region, work is underway to create the best possible conditions in a number of industry sectors of particular significance for the region’s future economic performance. The challenge for Auckland is how to develop and maintain a well-functioning innovation system that supports private sector’s research and development and better usage of public sector institutions’ knowledge. This includes how to deploy the infrastructure essential for an innovative and dynamic knowledge economy, develop high educational standards, equip the labour force with a strong science, engineering and technology base, and support efficient knowledge-transfer mechanisms between research institutes and firms to facilitate commercialisation of ideas The challenge for Auckland is how to develop and maintain a well-functioning innovation system that supports the private sector’s research and development and better use of its public sector institutions’ knowledge. This includes: to deploy the infrastructure essential for an innovative and dynamic knowledge economy, to develop high educational standards, to equip the labour force with a strong science, engineering and technology base, and to support efficient knowledge transfer mechanisms between research institutes and firms to facilitate commercialisation of ideas.

6.5 Environmental sustainability Sustainability means different things to different people, and is often used as a substitute for environmental sustainability. Here it is defined as a way of using our natural resources more efficiently, a process that can be driven by regulation, consumer preference or philosophical belief. Sustainability is an increasingly strong force from which the region’s economy cannot escape. The region needs to adapt to this challenge as it presents both economic opportunities and costs.

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There is a growing trend in consumers’ preferences towards environmentally sound products and services and for businesses with a green image or a social conscience. While price remains a prime determinant of consumer choice, consumers of the future will also be able to base their purchase decision on carbon footprints. Auckland and New Zealand firms have the opportunity to build on our clean, green image as part of their marketing tactics. This trend is expected to drive businesses to adapt their production processes to remain competitive and to focus on the development or adoption of sustainable technologies and practices. Tourism is an industry sector particularly impacted by this trend, and has already shown signs of adaptation. The development of ‘green technologies’ is already a major industry; it attracted half of all venture capital funds in the USA in 2008 and is still growing. A challenge for Auckland is to capture a part of this emerging industry. Sectors in advanced materials and biotechnology are especially well placed to realise these opportunities.

6.6 Industry structure Auckland is expected to remain the main commercial and financial centre of New Zealand. The business services sector will remain the main wealth creator and the main employer in the region. By 2031 wholesale, trade and distribution will contribute 22 per cent of the region’s GRP, and business and community services over half of the region’s GRP. Nearly eight in ten workers (FTEs) will work in either of those two sectors. Auckland is also expected to remain a major manufacturing centre, and the sector will contribute almost one-quarter of the region’s GRP by 2031. However, the face of manufacturing is changing, and this is reflected by the change in occupations servicing this sector. Low-value manufacturing, with the exception of those reliant on natural resources, is expected to continue to move overseas to take advantage of lower production costs and/or to be closer to markets. As discussed under the Digital Auckland scenario, this division of labour will be supported by major improvements in our communications services. Inadequate infrastructure is potentially a major constraint to the development of those industry sectors. There are significant implications arising from changes in the region’s industrial structure:

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

•

The need to better understand the face of the ‘new’ manufacturers, as well as their infrastructure and land-use requirements.

•

The increasing importance of fast, reliable and cost-effective transport and communication networks to move goods and services within a global supply chain or to markets.

•

The recognition of the need for public intervention to provide industry-specific infrastructure where there is a market failure (e.g. large haulage equipment serving the region’s marine industry).

As highlighted in section 6.2, a skilled labour force is also essential to the region’s economic growth. In addition, the changing industrial structure of the region points to the need to retrain those traditionally employed in low-value manufacturing. This challenge is not unique to Auckland, and lessons can be learnt from programmes in other OECD countries. The Horizon 2031 scenario identifies ICT, creative industries, digital content, biotechnology, tourism, marine, advanced materials, and food and beverage as sectors of interest for the Auckland region. Businesses in these sectors will require larger numbers of highly skilled and innovative workers in both development and production, along with significant levels of investment in new technology and distribution channels. Access to a skilled labour force is essential for the region if it is to succeed in having a competitive economic advantage in sectors such as specialised manufacturing (advanced materials and marine), ICT and related sub-sectors (creative industries and digital content), biotechnology, and the food and beverage sector. A skilled labour force is essential if the region is to utilise economic drivers of growth, such as labour productivity.

and transport and logistic services. Investment in transport infrastructure leads to reduced effective distances between partners, helping to overcome geographical disadvantages and improve the efficiency of transport services. Thus, it enables a decrease in delivery time and, therefore, a decrease in transportation costs. This is very pertinent for New Zealand and Auckland, given the country’s relatively isolated geographical position. The OECD points out that transportation costs constitute a barrier to trade at least as large as, or even larger than, tariff barriers. A good quality transport network enhances opportunities to both export and import. Hence the Auckland International Airport, the Auckland and Tauranga seaports, and the region’s transport network are all important for our future economic performance. Ultra-fast telecommunications have similar effects on our ability to trade and do business in a costefficient way. Investment in ultra-fast broadband networks, associated with the adoption of new applications and business models, has the potential to drive our economic performance. As described in the Digital Auckland scenario, investment in ultra-fast broadband infrastructure, associated with investment in associated hardware and software applications, provides regional economic benefits in the range of $2 billion by 2031. The cumulative economic benefits over the 2006–2031 period are considerable: more than $22 billion in additional GRP. Exports are also boosted by a significant improvement in telecommunications services. The government has recently announced details around its Broadband Investment Initiative. A challenge for the region’s businesses is to maximise the opportunities associated with better broadband connection, and adapt new business models capable of significantly increasing productivity levels. Some industry sectors are deemed to benefit more than others from this improvement in communications, i.e. those sectors operating as part of a global supply chain, and those operating in the business services industry.

6.7 Infrastructure 6.7.2 Energy 6.7.1 Transport and telecommunication With the phenomenon of global fragmentation of production processes, time has become a major factor of business success.33 Delivery time depends on different factors such as distance between trading partners, geographical and institutional characteristics, 33

The supply of energy is a basic premise to doing business. However, internationally and regionally, energy supply is at risk because there might be problems regarding fuel affordability and security of supply, and there are also concerns over New Zealand’s generation capacity as well as the capacity of Auckland’s electricity network. If no energy efficiency

Nordas, H. K., (2008).Transport Time as a Trade Barrier, in 17th ITF/ OECD Symposium on Transport Economics and Policy: Benefiting from Globalisation, OECD.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

gains are made, the energy demand in the region is expected to increase by 68.3 per cent between 2006 and 2031, to reach 319,183 TJ (oil equivalent) by 2031.34 There are questions as to our ability to secure such a high level of energy in the future. The Energy Efficiency scenario models potentials for energy savings through efficiency gains, behaviour changes and investment in the public sector. This would reduce our energy demand by 13 per cent over that period. Like all the governments in today’s world, New Zealand’s government faces the complex challenge of finding the right balance of meeting increasing global pressures for better environmental performance without sacrificing economic growth. The challenge for Auckland is to figure how the region’s economy will operate given future energy constraints.

34

70

This includes aviation fuel, black liquor (a derivative of the paper production), coal, diesel, electricity, fuel oil, geothermal energy, liquefied petroleum gas, natural gas, petrol, and wood.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendices

Appendix 1: Economic Futures Model The Economic Futures Model (EFM) was developed by Market Economics Limited and is widely used throughout the region and elsewhere in New Zealand for forecasting. This section provides a general introduction to the Economic Futures Model, followed by a description of the basic causal structure of the EFM and the data set and assumptions behind the model.

Introduction to the EFM model The Economic Futures Model is based on a multiregional economic input-output table.35 The model is multi-regional in the sense that it captures economic and environmental implications of growth feedbacks between the Auckland region and the rest of the country. A notable feature of the model is that it can be used to evaluate not only the direct economic and environmental effects of growth in final consumption, but also the associated indirect (i.e. through supply chain) and induced (i.e. through consumer spending) economic and environmental effects. The model is run using scenarios. The model maps the growth path of each scenario for 48 sectors and for households over 25 years. For each sector and for households it identifies major economic indicators (i.e. GRP, employment and occupations), indicators of environmental resource requirements,36 and indicators of environmental residuals.37 Depending on the nature of the investigation, other indicators can also be included in the analysis. These might be floor space requirements, social infrastructure requirements, and various financial measures such as development contributions.

35

36

37

For more information on input-output modelling refer to texts such as Richardson (1972) “Input-output and regional economics”or O’Connor, R & Henry, E.W (1975) “Input-Output Analysis and it’s applications.” For example, delivered energy use by type (e.g. petrol, diesel and electricity). For example, energy-related air emissions by delivered energy type (eg CO2, CH4) and solid waste, by type.

All scenarios are established by generating projections of final consumption (i.e. household consumption, export consumption and gross fixed capital formation (GFKF)) over a 25-year period. Scenarios are further refined through supplementing the quantitative data used in establishing the scenario with qualitative analysis (for example, from interviews and leading literature sources). It is important to note that the EFM is not a crystal ball – no model can predict the future. Rather, the EFM simply evaluates economic and environmental impacts under a restricted set of consumption assumptions formulated as a scenario. Nevertheless, evaluation of each scenario provides critical insights into the potential economic and environmental trade offs which may exist.

Model structure Figure A.1 sets out the basic causal structure of the EFM model. It depicts the way in which outputs for a given year are derived from the model, based on data and assumptions for that same year. As shown in the left side of the figure, the primary drivers of the model are future estimates of final demand for goods and services. These estimates are, in turn, made up of three principal categories of final demand: • • •

consumption of goods and services by households consumption of goods and services for the purposes of capital formation, and exports of goods and services to other nations.

With estimates of total final demand for a given year, the input-output structure of the model is then able to generate estimates of total output for each of the 48 industry groups described by the model. Finally, industry output is translated to three major economic indicators: value-added by industry, employment by industry, and employment by occupation by industry.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Consumption Population effect Consumption profile base year

Base year ratios of FTEs to output by industry

Age structure

Base year occupation structure by industry

Labour productivity

Household final demand

Employment by industry

Exports base year

Export final demand

Export growth rates

GFKF base year

Total final demand

Input-Output Framework

Employment by occupation by industry

Total output by industry

Value added by industry

GFKF final demand Base year ratios of value added to output by industry

GFKF growth rates

Figure A.1: Causal structure of the Auckland region Economic Futures Model

Assumptions and data Input-output framework Assumptions The input-output framework utilised in the EFM model is derived from a multi-regional input- output table generated for a single base year (2003/04). In the EFM model, the derivation of the base input-output table and the coefficients relies on three important assumptions: •

Homogeneity: This states that each industry in an input-output table produces only one output. Implicit in this assumption is the notion that all businesses that constitute an industry use the same product mix in the production of this one output.

•

Linearity: This presumes that the ratio of inputs to outputs decreases and increases in a linear structure. Inherently, this assumes that there are constant returns to scale in production and that the elasticity of substitution between inputs is zero. This linear assumption is necessary in order to derive the direct and indirect coefficients.

•

72

Constant coefficients: The direct and indirect requirements coefficients are assumed to stay constant over time. This assumption ignores the effects of technological change and price occurring over time.

•

Instantaneous Adjustment: The estimates of industry output generated by the EFM model are based on static snapshots of future final demand. The model is not able to represent delays or bottlenecks in the availability of inputs or in the production of outputs. Thus, in effect, the model assumes instantaneous adjustment.

Data The base input-output tables utilised in the EFM model are for the year 2003/04. These tables are derived from the latest New Zealand input-output table found in the 1995–96 Inter-Industry Study of the New Zealand Economy published by Statistics New Zealand (SNZ). The process in generating these input-output tables involves updating the data in the 1995–96 input-output table to the 2003/04 year, and then regionalising the national table, using the Generating Regional InputOutput Tables (GRIT) procedure.

Output indicators Assumptions In addition to the assumptions described above, there are assumptions incorporated in the model that allow for the industry output estimates generated by the model to be transferred to the following economic indicators: value-added by industry, employment by industry, and employment by industry by occupation. The relevant assumptions are as follows:

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

•

Value-added by industry: It is assumed that for any given industry and year, the ratio of value-added contributed by that industry ($) to total output by that industry ($) remains the same as the base-year data (2003/04). The base-year data pertaining to value-added by industry is derived from the base input-output table.

•

Employment by industry: Initial estimates of employment are derived for each industry by multiplying the estimated output for each industry by the respective industry’s base-year ratio of fulltime equivalent employees (FTEs) to total output. These estimates are then adjusted according to an assumed labour productivity rate for each sector.

•

Employment by industry by occupation: The derived estimates of employment by industry are transformed to estimates of employment (FTEs) by occupation by industry by assuming a constant structure of occupations within each industry.

Data •

Value-added: The base-year data pertaining to value-added by industry is derived from the base input-output table.

•

Employment: Base-year data pertaining to employment by industry is derived from Statistics New Zealand’s Business Frame, Full-time Equivalent Employees time-series.

•

Occupations: The structure of occupations within each industry is derived from occupationby-industry data extracted from the Statistics New Zealand’s 2006 Census of Population and Dwellings.

Final demand Final demand is made up of final demand by households, not-for-profit private organisations, government consumption and export. Final demand is directly impacted by demographic changes in the Auckland region, as well as in the rest of New Zealand.

New Zealand.38 Except as qualified below by the consumption effect and the population-ageing effect, it is assumed that each person within the Auckland region consumes a constant mix of goods and services. Thus any population growth for the region will result in a proportional increase in the amount of goods and services consumed. As the EFM model is based on a multi-regional framework, population growth within other New Zealand regions or territorial authorities also constitutes part of the household final demand driver. The household consumption effect has been incorporated within the model to account for the fact that over recent years households have been consuming more per year.39 This trend is thought to be a result of several factors including increases in income through salary increases, leveraging off house price gains (i.e. debt-based borrowing), redirection of income from savings to disposable income, and increases in government transfers. Population age structure also has important implications for consumption levels and economic growth. This is because each age group in a population tends to behave differently, with distinct economic consequences: the young require intensive investment in education and health, ‘prime age’ adults supply labour and savings, and the aged require health care and retirement income. Therefore when the relative size of any of these groups in a population changes, so too does the relative intensity of these economic behaviours. In order to account for the implications of changing demographics, the model assigns differing consumption scalars to each population cohort.40

Gross fixed capital formation Future Gross Fixed Capital Formation (GFKF) estimates were generated by applying long-run average growth rates to the Auckland region’s 2006 GFKF estimates by sector, as obtained from the multi-regional inputoutput table. The growth rates are determined from statistical time-series (econometric) analysis. Selection of the time-series technique applied depends on the underlying dynamic behaviour of the sector output 38

Households In order to derive estimates of future change in household demand for goods and services, the model relies primarily on projections of future population growth within the Auckland region and the rest of

39

40

The estimates of population growth for the Auckland Region by age sex cohort are derived from ARC’s 2006 age-sex medium population projections. Population projections by age sex cohort for the remaining regions of New Zealand are derived from Statistics New Zealand’s 2006–31 Sub-national Population Projections by Age and Sex. The baseline setting for the household consumption effect is 1.4 per cent per year. In other words, it is assumed that each person, on average, will consume 1.4 percent more goods and services each year. The value of total consumption for each person in the 5–9 year age group is, for example, assumed to be approximately 81.5 percent of that of persons in the 40–44 year age group. The scalars are derived from the NZ Treasury’s study on the implications of population ageing (Guest, Bryant and Scobie, 2003).

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

being analysed. Where historical observations fluctuate around a long-run mean, stationary time-series methods are applied (for example, the AMRA process). However, where historical observations indicate a consistent upwards or downwards movement, nonstationary time-series methods are used (for example, Holt’s method). The data utilised in the time-series analysis for GFKF is derived from Statistics New Zealand’s National Accounts Gross Fixed Capital Formation by Industry.41

Exports Like GFKF, future export projections are generated by applying the national long-run average growth rates for export commodities by sector to the 2004 international export estimates obtained from the multi-regional input-output table. Again, as with GFKF, the long-run growth rates by export commodity are determined according to econometric analysis. The data utilised in this time-series analysis is derived from Statistics New Zealand’s Overseas Trade Exports.42

41 42

74

Spreadsheet nayrendmar07capitalstock.xls Trade, Merchandise: Monthly Estimates of all Harmonised System Items 1989–07 (reference no. KAS20503).

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendix 2: Medium population projections for the Auckland region

Period to March

Usually resident population

Population change

Natural increase

Absolute

Rate of

Average

increase

growth

annual

Births

Deaths

Net migration

Absolute

Rate of

increase

growth

growth

2006

1,371,000

2011

1,482,950

111,950

8.2%

1.6%

110,964

37,594

73,370

5.1%

38,580

2016

1,596,817

113,867

7.7%

1.5%

112,352

40,065

72,287

4.7%

41,580

2021

1,709,679

112,862

7.1%

1.4%

114,671

43,389

71,282

4.3%

41,580

2026

1,820,565

110,885

6.5%

1.3%

117,184

47,879

69,305

3.9%

41,580

2031

1,928,117

107,553

5.9%

1.2%

120,205

54,232

65,973

3.5%

41,580

Source: Auckland Regional Council, 2007 Notes: Change compared to the previous period. Population growth = natural increase + net migration

The Auckland Regional Council population projections are based on the Statistics New Zealand population projections, under the following assumptions: Assumptions used in projections: Medium age specific fertility rates Medium survival rates per males Medium survival rates per females Medium migration male Medium migration female

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 3: Assumptions under Horizon 2031

In developing the Horizon 2031, the main assumptions taken into account were perceived external factors influencing Auckland’s economy, central government’s policy changes, planned infrastructural developments, confirmed large (tourism) events occurring in Auckland, and perceived changes identified by industry and stakeholders. These are described in the body of the report.

General assumptions The Horizon 2031 scenario is constrained by the model, as are all the scenarios in this report. The ‘assumptions and data’ section in Appendix 1 provides an overview of the general assumptions driving the model. In addition, the ARC medium population projections to 2031 were inputted into the model; they are provided in Appendix 2. A number of general assumptions were made: Consumption: Household consumption ratios were decreased over time to reflect the changing demographics, and their impact on household consumption. Government spending was increased to reflect the increasing demand for health and related services driven by an ageing population. The effects of the current economic slow-down were considered with the consumption-effect variable adjusted downwards for the 2006–11 period. Export: Export was assumed to be growing in those sectors in which Auckland has a comparative advantage, as a result of the competitiveness of firms in those sectors as well as opportunities offered through Trade Agreements.

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Gross Fixed Capital Formation: Some of the major infrastructural developments proposed for the region were included. In addition, the effects of the current economic slow-down were considered with the infrastructure investment growth rate for (private) construction adjusted downwards for the 2006–11 period. Gross fixed capital formation was also changed on an industry-sector basis based on the information gathered in the Part 1 report. Productivity: Under the Horizon 2031 scenario, productivity growth rates were developed for the industries specific to the Auckland region. For this purpose we relied on national-level information on growth in capital productivity, and on data on changes in income for people employed in each industry as a proxy for estimating changes in labour productivity. Although growth in income is a relatively well recognised proxy for estimating the growth in labour productivity, the quality of the results varied somewhat between industries. Therefore, the estimated productivity changes were examined in detail and it was decided, in particular, that the productivities estimated for central government, local government and education were probably too high (i.e. growth in income did not appear to provide a good estimate of productivity change). Therefore the results were substituted with an estimated average for these industries of 1.1 per cent. Adjustments were also made to a few other industries (particularly agriculture) where the results did not appear reasonable.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Projected annual average labour productivity Industry sector

Labour Industry sector productivity

Labour productivity

Horticulture and fruit growing

0.4%

Furniture and other manufacturing

1.1%

Livestock and cropping farming

0.4%

Electricity generation and supply

0.0%

Dairy cattle farming

0.4%

Gas supply

0.1%

Other farming

0.4%

Water supply

1.9%

Services to agriculture, hunting and trapping

0.4%

Construction

1.9%

Forestry and logging

4.0%

Wholesale trade

0.9%

Fishing

0.4%

Retail trade

0.2%

Mining and quarrying

0.6%

Accommodation, restaurants and bars

0.2%

Oil and gas exploration and extraction

0.0%

Road transport

1.1%

Meat and meat product manufacturing

0.4%

Water and rail transport

0.4%

Dairy product manufacturing

4.5%

Air transport, services to transport and storage

0.7%

Other food manufacturing

0.6%

Communication services

1.7%

Beverage, malt and tobacco manufacturing

1.0%

Finance

2.1%

Textile and apparel manufacturing

1.6%

Insurance

2.0%

Wood product manufacturing

1.2%

Services to finance and investment

1.1%

Paper and paper product manufacturing

2.2%

Real estate

2.7%

Printing, publishing and recorded media

2.5%

Owner-occupied dwellings

1.0%

Petroleum and industrial chemical manufacturing

1.9%

Business services

0.5%

Rubber, plastic and other chemical manufacturing

1.2%

Central government

1.1%

Non-metallic mineral product manufacturing

1.8%

Local government

1.1%

Basic metal manufacturing

2.8%

Education

1.1%

Sheet and fabricated metal product manufacturing

1.2%

Health and community services

2.0%

Trans equipment manufacturing

2.4%

Cultural and recreational serivces

0.3%

Machinery and equipment manufacturing

1.7%

Personal and other community serivces

1.1%

Effects of the economic recession: Growth rates were decreased for the 2006–2011 period to reflect the current economic slow-down. More details on the assumptions for this period are provided in Chapter 3.

Industry-specific assumptions In addition, the following assumptions were made with regards to the industry sectors within the model: Agriculture: The growth rates in value-added of livestock and cropping were reduced to take into account that these sectors are not major land users in the region. Given the competition between land uses in the region, household consumption was adjusted to reflect this change. No adjustment was made to horticulture and fruit growing in the region. However, recent gains in commodity exports (capsicums and onions in particular at present) offset losses in other areas. It was considered that horticulture is a dynamic sector, with growers able to switch crop production in

line with (export) market opportunity. The growth rates of the baseline setting were considered sustainable. The national figures for dairy cattle farming were adjusted to reflect the industry’s projections for growth. With regards to dairy product manufacturing, projected export figures were explored from the MAF forecast, and the model figures reduced to reflect the projected trend for the period up to 2011. For the following periods, an export growth rate between MAF’s forecasts and the long-run projections under the EFM was assigned. These growth rates were applied to the country as a whole, not just the Auckland region. Transport and equipment manufacturing: The growth rates within this sector were adjusted upwards to reflect the marine subsector within the Auckland region – it has 60 per cent of national production and, therefore, a higher representation in the region than nationally. A mini-model of the sector was developed, incorporating data from marine sector forecasts, and export values were adjusted upwards until the output for the sector matched that projected under the sector’s mini-model.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Transport: The road transport sector was verified using data from the ARC’s transport model. The results were in line with those projected under the EFM and so no adjustment was needed. However, water and rail transport was explored using a mini-model and populated with data on projections of growth in rail passenger numbers from the ARC’s regional transport model, and an analysis of past and projected growth in containers at the Ports of Auckland. Household consumption for this sector was adjusted upward for each year, so that the overall growth rates derived were in line with those derived under the mini-model. The final growth rate was estimated to be 11 per cent total growth between each period, which is in line with growth rates for other sectors in the Auckland economy. Tourism: A small model for tourism was developed to include the two major events that will take place in Auckland: the 2011 Rugby World Cup (with an estimated direct tourism spend of $262 million) and the 2015 Cricket World Cup (with an estimated direct tourism spend of $75 million). As tourism does not exist as an independent sector within the model, it was integrated into the EF model through injections into retail trade, accommodation, restaurants and bars, air transport and services to transport, and cultural and recreational services sectors. Communications: The Broadband Investment Fund was factored into the EFM. It was assumed that half of the investment would be GFKF within the communications sector in the period between 2006 and 2011. The remainder was assumed to be picked up under the construction sector, and therefore already incorporated into the model. Quantifying the growth in the communications sector output was difficult because there was little on which to base projections. The household consumption growth rates were adjusted until the annual average output growth for the sector equated to 3.3 per cent per annum. This adjustment was made prior to adjusting the GFKF. Advanced materials: The building of the Tamaki Innovation Centre was incorporated into the model. It was assumed that this would lead to growth in two major industries: business services, and rubber, plastics and other chemical product manufacturing. The business services sector was not assumed to require adjustment as it already had high growth rates in the model. For the plastics sector, it was assumed that the growth projected would occur in the period 2011 to 2016. Both exports and household demand were adjusted so that the final growth rate for the industry was 4.4 per cent for this period.

78

Construction: Detailed accounts of past public and private expenditure on construction were developed. These showed that construction expenditure was highly volatile and cyclical. No adjustments were made to the baseline projections in the EFM except in regards to the GFKF for the first period. This was to reflect the current economic situation – the global financial crisis and limitations in access to credit which directly dampen investment in the construction sector. In order to determine an appropriate adjustment to be made to the GFKF for construction (at the time of modelling in October 2008), a mini-model was constructed that examined GFKF during the last recession of 1998. This resulted in an overall growth rate of GFKF for the period 2006–2011 of 1.2 per cent. Education: A separate education module was developed to deal with household consumption of education. The module replaced the ageing-effect assumptions applied to the other commodities because access and use of education facilities is particular to enrolment patterns by age. This adjustment was considered necessary given the ageing process of the population. A small increase was made to the consumption of education services (but only education services excluding early childhood care, primary and secondary schooling), based on the assumption that the relative consumption of these education services would increase in the future. Exports of education were deemed too high under the model because a recent report showed that the number of foreign students studying in New Zealand has been declining over recent years. No data or commentary on future foreign student numbers could be found. Overall it was decided to make export growth zero per cent for the first period (because numbers declined) and low growth afterwards (0.5 per cent per annum). Health: As with education, a detailed module was developed to deal with the influence of ageing on household consumption of health. This was attached to the EFM baseline model. The model used data on hospital bed days by age-sex cohort as a proxy to estimate the changing consumption of health care services by cohort, and effectively increased the consumption of healthcare, given the ageing population structure of Auckland.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendix 4: Results under Horizon 2031 scenario

GRP contribution GRP (2004$ million)

GRP (2004$ million) Sectors

2006

2011

2016

2031

Horticulture and fruit growing

164

169

181

221

Dairy cattle farming

117

130

144

191

94

106

118

159

94

119

144

235

85

99

105

132

67

74

82

108

Meat and meat product manufacturing Dairy product manufacturing Forestry and logging Svcs to agriculture, hunting and trapping Livestock and cropping farming

64

67

69

75

Mining and quarrying

48

53

59

80

Other farming

24

24

24

26

Fishing Oil and gas exploration and extraction Construction Gas supply Petroleum and industrial chemical manufacturing Non-metallic mineral product manufacturing Textile and apparel manufacturing Paper and paper product manufacturing Wood product manufacturing Water supply Electricity generation and supply Machinery and equipment manufacturing Rubber, plastic and other chemical manufacturing Sheet and fabricated metal product manufacturing Printing, publishing and recorded media

Sectors

2006

2011

2016

2031

684

805

932

1,427

629

731

835

1,125

442

538

651

1,127

399

452

498

640

357

413

436

526

Business services

6,670

7,683

8,905 13,672

Wholesale

5,144

5,750

6,428

8,607

Retail

3,180

3,548

3,973

5,287

Finance

3,048

3,385

3,770

4,986

Real estate

2,958

3,316

3,714

4,942

2,202

2,470

2,818

4,141

2,087

2,490

2,908

4,688

1,719

1,972

2,327

3,503

1,652

1,855

2,126

2,917

807

916

1,060

1,521

803

906

1,029

1,466

Insurance

751

830

920

1,193

Other food manufacturing Beverage, malt and tobacco manufacturing Trans equipment manufacturing Furniture and other manufacturing Basic metal manufacturing

23

26

28

32

Health and community services

8

8

8

10

Communication services

2,259

2,412

2,774

3,869

31

34

38

49

120

130

139

179

348

374

423

583

345

370

389

444

Air transport, services to transport and storage Cultural and recreational services Accommodation, restaurants and bars Personal and other community services

328

368

406

538

Services to finance and investment

615

689

770

1,040

198

213

234

305

Road transport

499

559

624

849

Water and rail transport services

351

388

430

574

170

189

210

275

967

1,077

1,194

1,568

931

1,150

1,447

2,928

899

1,101

1,230

1,915

819

907

1,027

1,467

771

869

981

Education

1,880

2,037

2,228

2,768

Central government

1,140

1,255

1,382

1,747

504

555

612

772

Local government Industry Total

51,604 58,131 65,803 92,525

Total (including Final Demands)

54,885 61,790 69,882 97,920

1,367 Source: Horizon 2031 scenario, ARC 2008

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Employment contribution Employment (FTEs) Sectors

2006

2011

2016

2031

2006

2011

2016

2031

Horticulture and fruit growing

3,783

3,822

4,014

4,577

0.6%

0.6%

0.6%

0.5%

Livestock and cropping farming

1,218

1,241

1,254

1,288

0.2%

0.2%

0.2%

0.2%

Dairy cattle farming

1,733

1,891

2,050

2,544

0.3%

0.3%

0.3%

0.3%

Other farming

975

942

928

948

0.2%

0.1%

0.1%

0.1%

1,475

1,601

1,736

2,140

0.2%

0.2%

0.2%

0.3%

Forestry and logging

514

488

426

289

0.1%

0.1%

0.1%

0.0%

Fishing

388

441

452

498

0.1%

0.1%

0.1%

0.1%

Mining and quarrying

347

371

400

487

0.1%

0.1%

0.1%

0.1%

18

17

18

22

0.0%

0.0%

0.0%

0.0%

1,830

2,013

2,196

2,759

0.3%

0.3%

0.3%

0.3%

932

931

893

728

0.2%

0.1%

0.1%

0.1%

Other food manufacturing

8,809

10,058

11,306

15,847

1.5%

1.6%

1.6%

1.9%

Beverage, malt and tobacco manufacturing

2,962

3,266

3,539

4,071

0.5%

0.5%

0.5%

0.5%

Textile and apparel manufacturing

7,353

7,269

7,027

6,273

1.2%

1.1%

1.0%

0.7%

Wood prod manufacturing

3,417

3,462

3,582

3,903

0.6%

0.5%

0.5%

0.5%

Services to agriculture, hunting and trapping

Oil and gas exploration and extraction Meat and meat product manufacturing Dairy product manufacturing

Paper and paper product manufacturing

2,103

2,110

2,082

1,970

0.3%

0.3%

0.3%

0.2%

Printing, publishing and recorded media

10,390

10,330

10,276

9,818

1.7%

1.6%

1.5%

1.1%

Petroleum and industrial chemical manufacturing

1,571

1,544

1,512

1,461

0.3%

0.2%

0.2%

0.2%

Rubber, plastic and other chemcal manufacturing

7,778

8,962

9,425

12,228

1.3%

1.4%

1.4%

1.4%

Non-metallic mineral product manufacturing

3,005

2,948

3,047

3,192

0.5%

0.5%

0.4%

0.4%

Basic metal manuf

3,065

3,077

2,813

2,202

0.5%

0.5%

0.4%

0.3%

10,769

11,239

12,014

14,396

1.8%

1.7%

1.7%

1.7%

6,539

7,059

7,585

9,171

1.1%

1.1%

1.1%

1.1%

Sheet and fabricated metal product manufacturing Trans equipment manufacturing Machinery and equipment manufacturing

12,643

14,323

16,547

25,881

2.1%

2.2%

2.4%

3.0%

Furniture and other manufacturing

7,617

8,151

8,508

9,245

1.3%

1.3%

1.2%

1.1%

Electricity generation and supply

1,569

1,749

1,938

2,544

0.3%

0.3%

0.3%

0.3%

23

25

27

35

0.0%

0.0%

0.0%

0.0%

Gas supply Water supply

421

426

430

420

0.1%

0.1%

0.1%

0.0%

Construction

40,845

39,516

41,195

42,791

6.8%

6.1%

5.9%

5.0%

Wholesale

59,719

63,817

68,214

79,804

9.9%

9.9%

9.8%

9.3%

Retail

71,226

78,866

87,667 114,058 11.8%

12.2%

12.6%

13.3%

Accommodation, restaurants and bars

25,127

28,308

32,529

45,614

4.2%

4.4%

4.7%

5.3%

Road transport

10,744

11,409

12,093

14,027

1.8%

1.8%

1.7%

1.6%

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

2,361

2,550

2,763

3,455

0.4%

0.4%

0.4%

0.4%

16,938

18,758

21,369

28,938

2.8%

2.9%

3.1%

3.4%

Communication services

13,372

14,607

15,619

19,323

2.2%

2.3%

2.2%

2.3%

Finance

12,703

12,666

12,661

12,113

2.1%

2.0%

1.8%

1.4%

Insurance

3,856

3,853

3,860

3,695

0.6%

0.6%

0.6%

0.4%

Services to finance and investment

6,642

7,028

7,417

8,415

1.1%

1.1%

1.1%

1.0%

Real estate

10,771

10,506

10,240

8,981

1.8%

1.6%

1.5%

1.0%

Business services

96,816 108,965 123,396 176,728 16.0%

16.9%

17.7%

20.7%

Health and community services

38,568

39,074

40,255

43,578

6.4%

6.1%

5.8%

5.1%

Cultural and recreational services

16,678

18,416

20,762

27,092

2.8%

2.9%

3.0%

3.2%

Personal and other community services

15,496

16,554

17,774

21,455

2.6%

2.6%

2.6%

2.5%

Central government

16,295

16,993

17,733

19,037

2.7%

2.6%

2.5%

2.2%

Local government Education Total

Source: Horizon 2031 scenario, ARC 2008

80

Contribution to total employment

3,874

4,042

4,218

4,522

0.6%

0.6%

0.6%

0.5%

36,334

37,286

38,616

40,770

6.0%

5.8%

5.5%

4.8%

603,618 644,981 696,422 855,364

100%

100%

100%

100%

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Industries with projected decline in employment Annual average Absolute change growth rate (FTEs) 2006–2011 Construction

-0.66%

-1329

Real estate

-0.50%

-265

Textile and apparel manufacturing

-0.23%

-84

Printing, publishing and recorded media

-0.12%

-60

Non-metallic mineral product manufacturing

-0.38%

-57

Finance

-0.06%

-37

Other farming

-0.69%

-33

Petroleum and industrial, chemical manufacturing

-0.35%

-27

Forestry and logging

-1.03%

-26

Insurance

-0.02%

-3

Oil and gas exploration and extraction

-1.14%

-1

Dairy product manufacturing

-0.02%

-1

Real estate

-0.50%

-531

Textile and apparel manufacturing

-0.45%

-326

Basic metal manufacturing

-0.85%

-252

Printing, publishing and recorded media

-0.11%

-114

Forestry and logging

-1.86%

-88

Petroleum and industrial, chemical manufacturing

-0.38%

-59

Other farming

-0.49%

-47

Finance

-0.03%

-42

Dairy product manufacturing

-0.43%

-39

Paper product manufacturing

-0.10%

-21

Forestry and logging

-2.28%

-225

Basic metal manufacturing

-1.31%

-863

Dairy product manufacturing

-0.98%

-204

Real estate

-0.72%

-1790

Textile and apparel manufacturing

-0.63%

-1080

Petroleum and industrial, chemical manufacturing

-0.29%

-110

Paper product manufacturing

-0.26%

-133

Printing, publishing and recorded media

-0.23%

-572

Finance

-0.19%

-590

Insurance

-0.17%

-161

Other farming

-0.11%

-27

Water supply

-0.01%

-1

2006–2016

2006–2031

Source: Horizon 2031 scenario, ARC 2008

81

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Employment and GRP for the sectors of interest to Auckland GRP (2004$ million) 2006

2011

2026

2031

$11,904

$13,565

$20,012

$22,732

2.65%

2.68%

2.62%

Retail

$3,752

$4,187

$5,699

$6,239

2.22%

2.25%

2.05%

Transport and logistics

$3,490

$4,033

$6,155

$7,066

2.93%

2.97%

2.86%

ICT

$2,579

$2,991

$4,605

$5,328

3.01%

2.98%

2.94%

Digital content

$2,335

$2,693

$4,070

$4,670

2.89%

2.89%

2.81%

Tourism

$2,096

$2,362

$3,387

$3,787

2.42%

2.58%

2.39%

Biotechnology

$1,895

$2,156

$3,096

$3,462

2.61%

2.56%

2.44%

Creative

$1,732

$1,963

$2,856

$3,215

2.54%

2.64%

2.51%

Marine

$1,713

$1,955

$2,950

$3,386

2.68%

2.75%

2.76%

Food and beverage

$1,501

$1,761

$2,617

$2,946

3.25%

3.06%

2.73%

Advanced materials

$1,001

$1,177

$1,678

$1,904

3.29%

2.68%

2.61%

Business and finance services

Employment (FTEs)

% Change from base year

2006

2011

2016

2031

2006–11

2006–16

2006–31

125,268

138,248

153,468

208,539

10.36%

22.51%

66.47%

Retail

84,047

93,062

103,447

134,588

10.73%

23.08%

60.13%

Tourism

45,111

50,048

56,398

75,550

10.94%

25.02%

67.48%

Transport and logistics

34,746

37,803

41,398

52,315

8.80%

19.14%

50.56%

ICT

28,227

31,067

34,230

45,367

10.06%

21.27%

60.72%

Business and finance services

Digital content

26,872

29,426

32,378

42,297

9.50%

20.49%

57.40%

Biotechnology

26,599

27,701

28,979

32,724

4.14%

8.95%

23.03%

Marine

23,294

25,114

27,281

34,685

7.81%

17.12%

48.90%

Creative

21,880

23,676

25,918

33,002

8.21%

18.46%

50.83%

Food and beverage

14,533

16,268

17,934

23,405

11.94%

23.40%

61.05%

Advanced materials

9,167

9,924

10,172

11,874

8.26%

10.96%

29.53%

Source: Horizon 2031 scenario, ARC 2008

82

Annual average growth from base year 2006–11 2006–16 2006–31

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Energy use projections Type of Energy

Diesel

Terajoules (Oil equivalents)

Industry Household Total

Petrol

Electricity

Natural gas

Industry

2031

22,987

41,380

80%

4,576

7,200

57%

27,563

48,580

76%

6,340

11,037

74%

33,280

52,363

57%

Total

39,620

63,400

60%

Industry

21,225

36,959

74%

Household

15,287

24,052

57%

Total

36,512

61,011

67%

Industry

24,441

43,980

80%

3,839

6,041

57%

Total

28,280

50,021

77%

Industry

24,120

37,251

54%

182

286

57%

24,302

37,537

54%

9,346

18,744

101%

Household Total Aviation Fuel

2006

Household

Household

Coal

Industry Household

0

0

9,346

18,744

101%

10,036

14,962

49%

2,621

3,724

42%

12,657

18,686

48%

1,626

2,581

59%

736

1,429

94%

Total

2,362

4,010

70%

Industry

2,588

4,267

65%

0

0

2,588

4,267

65%

953

1,501

58%

Total Wood

Industry Household Total

LPG

Industry Household

Fuel Oil

Household Total Geothermal

Industry Household Total

Black Liquor

Industry

0

0

953

1,501

58%

7,815

11,431

46%

0

0

Household Total Total

Relative increase 2006–2031

Industry Household Total

7,815

11,431

46%

129,264

244,088

89%

60,438

75,095

57%

189,702

319,183

68%

Source: Horizon 2031 scenario, ARC 2008

83

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 5: Assumptions for the Digital Auckland scenario

Horizon 2031 provides the base scenario for the Digital Auckland scenario, with the following changes as described below. Effects will be mostly felt between 2011 and 2021.

Investment in infrastructure

Investment in software and other IT applications Assume growth in business services’ Gross Fixed Capital Formation of an additional one per cent per annum for 2011–2016, then at 0.5 per cent for 2016– 2031.

Assume nation-wide investment of $4.5 billion made up of:

Investment in hardware and other IT applications

•

$1.5 billion from Government, based on the Broadband Investment Initiative.

•

$2.5 billion private investment in infrastructure, based on known commitments from the major telecommunication companies (for example, Telecom cabinetisation programme is expected to cost $1.2 billion)43 as well as future private funding matching the government’s investment as part of the Broadband Investment Initiative.

Assume growth in machinery and equipment manufacturing’s Gross Fixed Capital Formation of an additional 0.5 per cent per annum for 2011–2016, then at 0.25 per cent for 2016–2031.

•

$500 million investment on associated applications from the major telecommunication companies and Internet Service Providers.

Assume Auckland gets 40 per cent of total investment package, as a reflection of its population base as well as the potential benefits (or externalities) that can be derived from an ultra-fast broadband network in Auckland. Assume that this investment will mainly take place over a five-year period, 2008–2014, when the cabinetisation programme started and networks became unbundled. Auckland is assumed to be amongst the first cities where deployment under the Broadband Investment Initiative takes pace.

Productivity changes Assume an average annual increase in productivity of 0.20 per cent between 2011 and 2021 and 0.10 per cent between 2021 and 2031 in the following sectors: meat and meat product manufacturing, dairy product manufacturing, other food manufacturing, beverage, malt and tobacco manufacturing, printing, publishing and recorded media, rubber, plastic and other chemical manufacturing, wholesale trade, road, water and rail transport, communication services, finance, insurance, services to finance and investment, business services, education, and health and community services: Assume an average annual increase in productivity of 0.10 per cent between 2011 and 2021 and 0.05 per cent between 2021 and 2031 in the following sectors: horticulture and fruit growing, livestock and cropping farming, dairy cattle farming, other farming, fishing, air transport, services to transport and storage, retail, and cultural and recreational services. Assume an average annual increase in productivity of 0.05 per cent between 2011 and 2021 and 0.025 per cent between 2021 and 2031 in all other sectors.

43

84

Deployment of telecommunication cabinets to deliver ADSL2.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Outsourcing of finance, insurance and business services – imports Assume average annual growth of one per cent in the import of finance, insurance and associated services, business services, and printing, publishing and recorded materials.

Household consumption Assume an average annual increase of 0.4 per cent between 2011 and 2021 and 0.5 per cent between 2021 and 2031in household consumption of communication services, cultural and recreational services, health and community services and education.

Export growth Assume an average annual increase of 0.002 per cent in export in the following sectors: printing, publishing and recorded media, business services, education, health and community services, and cultural and recreational services. Assume an average annual increase of 0.002 per cent in export in all other sectors from 2011.

85

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 6: Results from the Energy Efficiency scenario

Proportional changes in energy use by industry in the Energy Efficiency scenario, in 2031 Changes in energy demand brought about by Energy Efficiency scenario, in 2031

86

Road transport

-32%

Accommodation, restaurants and bars

-10%

Communication services

-23%

Central government

-10%

Wholesale

-21%

Paper and paper product manufacturing

-10%

Personal and other community services

-20%

Meat and meat product manufacturing

-9%

Business services

-18%

Finance

-9%

Trans equipment manufacturing

-17%

Textile and apparel manufacturing

-9%

Machinery and equipment manufacturing

-17%

Insurance

-9%

Local government

-17%

Services to finance and investment

-9%

Dairy cattle farming

-16%

Beverage, malt and tobacco manufacturing

-9%

Horticulture and fruit growing

-16%

Education

-8%

Retail

-16%

Dairy product manufacturing

-8%

Forestry and logging

-16%

Health and community services

-8%

Services to agriculture, hunting and trapping

-16%

Other food manufacturing

-8%

Livestock and cropping farming

-16%

Real estate

-8%

Sheet and fabricated metal product manufacturing

-15%

Basic metal manufacturing

-7%

Other farming

-15%

Furniture and other manufacturing

-6%

Water supply

-15%

Non-metallic mineral product manufacturing

-4%

Fishing

-14%

Wood product manufacturing

-3%

Construction

-14%

Oil and gas exploration and extraction

0%

Cultural and recreational services

-13%

Electricity generation and supply

0%

Mining and quarrying

-13%

Gas supply

0%

Printing, publishing and recorded media

-12%

Owner-occupied dwellings

0%

Petroleum and industrial chemical manufacturing

-12%

Air transport, services to transport and storage

8%

Rubber, plastic and other chemical manufacturing

-12%

Water and rail transport

75%

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Energy intensity in industry: Energy per unit of gross output (TJ/$m) Horizon 2031 2006

2031

Energy Efficiency scenario 2031

Change from Horizon 2031 to Energy Efficiency Intensity %

Basic metal manufacturing

23.90

23.90

22.14

-1.76

-7%

Paper and paper product manufacturing

12.33

13.00

11.64

-1.36

-10%

Road transport

10.92

10.91

9.20

-1.71

-16%

Printing, publishing and recorded media

6.86

6.86

5.95

-0.91

-13%

Fishing

6.75

6.76

5.82

-0.94

-14%

Non-metallic mineral product manufacturing

6.10

6.10

5.60

-0.51

-8%

Mining and quarrying

5.35

5.34

4.50

-0.84

-16%

Furniture and other manufacturing

4.53

4.53

4.20

-0.33

-7%

Wood product manufacturing

3.39

3.39

3.14

-0.25

-8%

Water and rail transport

2.57

2.57

2.97

0.40

16%

Air transport, services to transport and storage

2.50

2.50

2.69

0.19

7%

Rubber, plastic and other chemical manufacturing

1.98

1.98

1.73

-0.25

-13%

Accommodation, restaurants and bars

1.84

1.84

1.64

-0.20

-11%

Retail

1.31

1.31

1.09

-0.22

-17%

Services to agriculture, hunting, trapping

1.30

1.29

1.08

-0.21

-17%

Textile and apparel manufacturing

1.29

1.29

1.16

-0.13

-10%

Dairy product manufacturing

1.28

1.28

1.17

-0.11

-9%

Petroleum and industrial chemical manufacturing

1.19

1.19

1.04

-0.15

-13%

Central government

1.19

1.19

1.07

-0.12

-10%

Dairy cattle farming

1.00

0.99

0.83

-0.17

-17%

Horticulture and fruit growing

0.96

0.96

0.80

-0.16

-17%

Other farming

0.96

0.96

0.80

-0.16

-16%

Other food manufacturing

0.86

0.86

0.79

-0.07

-8%

Local government

0.76

0.76

0.63

-0.13

-17%

Livestock and cropping farming

0.73

0.73

0.61

-0.12

-17%

Machinery and equipment manufacturing

0.57

0.57

0.47

-0.10

-17%

Health and community services

0.55

0.55

0.51

-0.05

-8%

Personal and other community services

0.51

0.51

0.41

-0.10

-20%

Forestry and logging

0.48

0.48

0.40

-0.08

-17%

Meat and meat product manufacturing

0.48

0.48

0.43

-0.05

-10%

Education

0.48

0.48

0.44

-0.04

-9%

Sheet and fabricated metal product manufacturing

0.47

0.47

0.40

-0.08

-17%

Water supply

0.45

0.45

0.38

-0.07

-16%

Transport equipment manufacturing

0.45

0.45

0.37

-0.08

-17%

Business services

0.43

0.43

0.35

-0.08

-19%

Construction

0.41

0.41

0.32

-0.08

-20%

Beverage, malt and tobacco manufacturing

0.38

0.38

0.35

-0.04

-9%

Wholesale

0.28

0.28

0.22

-0.06

-22%

Communication services

0.22

0.22

0.17

-0.05

-23%

Oil and gas exploration and extraction

0.19

0.15

0.15

0.00

0%

Cultural and recreational services

0.12

0.12

0.10

-0.02

-13%

Services to finance and investment

0.09

0.09

0.08

-0.01

-10%

Real estate

0.07

0.07

0.07

-0.01

-8%

Finance

0.07

0.07

0.06

-0.01

-10%

Insurance

0.07

0.07

0.06

-0.01

-10%

Electricity generation and supply

0.00

0.00

0.00

0.00

0%

Gas supply

0.00

0.00

0.00

0.00

0%

Industry total

1.31

1.26

1.12

-0.14

-11%

87

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 7: Glossary of terms

Full-Time Equivalent Employment (FTE) is the number of full-time equivalent jobs, defined as total hours worked divided by average annual hours worked in full-time jobs. Gross Regional Product (GRP) is the total market value of all final goods and services produced within the region in a given period of time (usually a calendar year). It is also considered as the sum of value-added at every stage of production (i.e. the intermediate stages) of all final goods and services produced within the region in a given period of time, and it is given a money value. Gross Regional Product per capita (GRP per capita) is an approximation of the value of goods produced per person in the region, equal to the GRP divided by the total number of people in the region. GRP per capita provides a pointer as to whether investment is sufficient to sustain economic growth into the future, and it is commonly used as a measure of prosperity. Growth of GRP per capita is the sum of growth in labour utilisation and growth in labour productivity. Hence, a long-term trend rate of economic growth can be achieved through population increase, growth in labour utilisation, and/or increased labour productivity. Labour Force comprises people aged 15 years and over who regularly work for one or more hours per week for financial gain, or work without pay in a family business, or are unemployed and actively seeking part-time or full-time work. People not in the labour force include people under 15 years of age, students who do not work for pay, people who are unemployed and not actively seeking work, people with child-rearing responsibilities, people who work without pay (but not in a family business), and people who have retired.

88

Labour Force Participation Rate is the ratio between the labour force and the overall size of their cohort (i.e. the national population of the same age range). It explains how an increase in the unemployment rate can occur simultaneously with an increase in employment. If a large number of new workers enter the labour force but only a small fraction become employed, then the increase in the number of unemployed workers can outpace the growth in employment. Labour Utilisation is a measure of the total amount of paid work done in the economy, and as such is a component of material living standards and has a direct influence on growth. It is usually measured in hours worked per head of population per year. Components of labour utilisation include the participation rate, the proportion of the population of working age, the unemployment rate and the average number of hours worked per year per person employed. Simple Location Quotient (SLQ) is a statistical measurement of the relative concentration of a given industry in a given place. It is calculated by dividing the proportion of the area’s economic activity in an industry by the proportion of the nation’s economic activity in that same industry.

Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendix 8: References

References for the Digital Auckland scenario Abramovitsky, L. and Griffith, R. (2005). Outsourcing and offshoring of business services: How important is ICT? Institute for fiscal studies, Working Paper WP05/22.

Forman, C., Goldfarb, A., and Greenstein, S. (2005). Geographic Location and the Diffusion of Internet Technology. Electronic Commerce Research and Applications (4): 1–113

ACIL Tasman (2004). Economic Impacts of Broadband Adoption in Victoria. Final Report. Australia.

Fuss, M. and Waverman, L. (2006), Canada’s productivity dilemma: The role of computers and telecom. Report prepared for Bell Canada’s submission to the Telecommunications Policy Review Panel, 2006.

Autor, D., Levy, F., and Murnane, R. (2003). The Skill Content of the Technology Change. Quarterly Journal of Economics, November, 118(4): 1279– 1333 Bureau of Economic Advisors, Input-Output Accounts Data: 1999 Annual I-O Table Two Digit. Available at http://www.bea.doc.gov/bea/dn2/I-ohtm#annual Carlaw, K.I., Lipsey, R.G. and Webb, R. (2007). The past, present and future of the GPT-driven modern ICT revolution. Final Report, Industry Canada, 27 March 2007. CISCO (2002). The Importance of Broadband Policy in Productivity Growth and Social and Governmental Progress. San Jose, USA: Cisco System. Correa, D. (2007). The Road to Next-Generation Broadband. USA: ITIF. Crandall, R.W. and Jackson, C.L. (2001). The $500 billion Opportunity: The potential economic benefit of widespread diffusion of broadband internet access, Criterion Economics, Washington DC, USA. Crandall, R.W., Lehr, W. and Litan, R. (2007). The Effects of Broadband Deployment on Output and Employment: A Cross-sectional Analysis of U.S. Data. Issues in Economic Policy, The Brooking institution, Number 6, July 2007.

Gramlich, E.M. (1994). Infrastructure Investment: A Review Essay. Journal of Economic Literature (32): 1176–1196 International Telework Association and Council (2000). Telework America, USA. Koellinger, P. (2005). Why IT matters - An empirical study of e-business usage, innovation and firm performance. DIW Berlin Discussion Paper 495. Koellinger, P. (2006), Impact of ICT on Corporate Performance, Productivity and Employment Dynamics. Special Report No. 01/2006, e-Business Watch. Lehr, W., Osorio, C., Gillett, S. and Sirbu, M. (2006). Measuring Broadband’s Economic Impact. Paper prepared for the 33rd Telecommunications Policy Research Conference, Arlington, VA, USA. Matson, M. and Mitchell, R. (2006). Study on Local Open Access Networks for Communities and Municipalities. InfoDev program, The Oplan Foundation, USA. Nichols, M. (2008). E-learning in context. E-Prime Series, No. 1, New Zealand.

89

Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

O’Beirne C. Assessment of Business Broadband Infrastructure Needs by Sector. Bentley Consultants Ltd for the Auckland Regional Council, September 2004.

References for the Energy Efficiency scenario

OECD (2001). The New Economy: Beyond the Hype. Paris, France.

Beacon Pathways Ltd. (2009) Large Scale Renovation is BIG on Job

OECD (2003).The Sources of Economic Growth in the OECD Countries. Paris, France.

Creation., Input into Jobs Summit, February 2009

OECD (2008a). Broadband and the Economy. OECD Digital Economy Papers, No. 146. Paris, France. OECD (2008b). Broadband Growth and Policies in OECD Countries. Paris, France. OECD (2008c). Information Technologies Outlook 2008. Paris, France. OVUM (2008). The Increasingly Important Impact of Wireless Broadband Technology and Services on the U.S. Economy. Boston, USA.

Energy Information Administration (2008). International Energy Outlook 2008. U.S. Department of Energy. Document sourced at: http://www.eia.doe.gov/oiaf/ ieo/index.html. Foran, B. and Poldy, F. (2002). Future Dilemmas: Options to 2050 for Australia’s population, technology, resources and environment. CSIRO Sustainable Ecosystems Working Paper 02/01. Howden-Chapman, P. et al. (2007). Effect of insulating existing houses on health inequality: cluster randomized study in the community. British Medical Journal. February 2007.

Roller, L-H. and Waverman, L. (1996). The Impact of Telecommunications Infrastructure on Economic Development. In Howitt P. (ed.) The implications of knowledge-based growth for micro-economic policies. University of Calgary Press: 363–387

Leyland, B. (2008). ‘New Zealand’s Electricity Market: Why it failed’. III Network Planning Conference. Available at http://homepage.mac.com/ bryanleyland/

Roller, L-H. and Waverman, L. (2001). Telecommunication Infrastructure and Economic Development: A simultaneous Approach. The American Economic Review, 91(4): 909-923

McCormacRankinCagney (2008). Transport fuels and other energy forms. Price forecasts to 2060. Report prepared for the Auckland Regional Council by McCormicRankinCagney. 26 November 2008

Romp, W. and de Haan, J. (2005). Public Capital and Economic Growth: A Critical Survey. EIB Papers, 10(1/2005). European Investment Bank, Luxemburg.

Ministry for the Environment (2003). Health Effects of PM10 in New Zealand. Air Quality Technical Report No. 39. Ministry for the Environment.

Statistics New Zealand. Global New Zealand. June 2008. Straub, S. (2008), Infrastructure and Development: A Critical Appraisal of the Macro Level Literature. Policy Research Working Paper Series 4590. The World Bank, Washington DC. The New Zealand Institute. Defining a broadband aspiration: how much does broadband matter and whar does New Zealand needs? September 2007. Varian, H., Litan, R., Elder, A. and Shutter, J. (2002). The Net Impact Study. Available from: http://www. netimpactstudy.com/NetImpact_Study_Report.pdf

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Auckland Regional Growth Forum (2007). Auckland Sustainability Framework

Ministry of Health (2008). A Portrait of Health: Key results of the 2006/07 New Zealand Health Survey. Wellington: Ministry of Health. Ministry of Transport (2008). The New Zealand Transport Strategy (2008). Statistics New Zealand (2008) Household Economic Survey 2007.

ISBN: 978-1-877483-93-6