Strategic Priorities
We have identified five strategic priorities in order to focus the Ministry's effort sharply on those areas that are most likely to yield dividends in terms of our major outcomes. These represent the activities which the Ministry considers will make the biggest contribution to improving the conditions for business, and therefore achieving the Economic Development outcome.
There is no simple or clear-cut answer as to what are the most important policy changes for achieving faster growth. Our response is based on professional judgement - informed by the theoretical and empirical economic literature - and on our practical experience of economic development.
The Ministry is currently developing action plans in relation to each of these strategic priorities. These will be cross-Ministry and medium term, but will include clear objectives and milestones for the current year and beyond. These plans will represent the core elements of the Ministry's economic development strategy. They will also be the focus of our "managing for outcomes" efforts in the future.
1. Facilitate the Alignment of Economic Development Activities across the Public Sector
The Ministry of Economic Development can directly affect many of the conditions in the business environment, but we have less influence over other factors such as labour market and educational outcomes, and environmental management. Therefore, we need to co-operate and collaborate with agencies that can more directly influence these variables in order to achieve the alignment upon which improved growth depends.
Alignment between agencies' outputs has the potential to:
- improve the effectiveness of policy, and therefore improve our chances of increasing growth in New Zealand;
- improve service delivery to businesses, consumers and other groups; and
- reduce the costs of policy development and service delivery by improving the focus of all agencies involved; reducing duplication/overlaps of effort, and enabling agencies to make the best use of available knowledge and skills.
The more that policies influencing economic development are aligned and consistent with each other, the greater the likely impact on productivity and thus income growth.
The alignment challenge is relevant to all of our business environment outcomes, and is a theme that runs across all of our strategic priorities - all of which involve us working with other agencies in different ways. The Ministry already does a lot of work jointly with other agencies, and we seek to influence and inform on a wider scale. We have also done a considerable amount to develop processes that encourage alignment, notably in relation to the Growth and Innovation Framework (GIF) and the Budget process. We will continue to build on this work, but there may be additional opportunities to improve whole-of-government alignment. Some of these relate to overcoming obstacles to alignment; others to increasing incentives for the change in behaviour that alignment requires. This is underpinned by two ideas:
- effective whole-of-government alignment requires a systemic approach, identifying the levers of change in the system and working with them to facilitate the achievement of common goals; and
- improving alignment is as much about communicating and promoting ideas and managing relationships as it is about policy development and project management.
A key part of our work under this strategic priority will therefore be to explore the potential for the Ministry to adopt a more proactive, comprehensive and co-ordinated approach to inter-agency alignment. On the basis of this analysis, we will then develop an alignment work programme to give effect to the Ministry's leadership role.
Other Key Activities
Because alignment cuts across many of our outcomes and a great deal of our work, it would be possible to group many of the Ministry's activities under this strategic priority. Clearly there is an overlap between this and other priorities, but we have restricted ourselves here to those activities that are more cross-cutting, including in particular those concerned with the Ministry's leadership role in relation to economic development processes across the whole of government. This includes, for example:
- our Chief Executive's co-chairing the economic development departments' and delivery agencies' CEs' Group;
- the co-ordination and implementation of the GIF, and alignment of associated budget processes to assist economic development;
- working with other agencies to identify joint outcomes relating to economic development, and
- raising the profile of the economic development agenda across the public sector.
2. Improve International Connectedness, Particularly with Australia
This priority reflects the Ministry's medium-term strategic agenda to improve the effectiveness of New Zealand's international connections, as a key contributor to improving growth. This will be achieved by seeking to co-ordinate and integrate with key trading partners or new trading partners with high potential, while maintaining an open economy and promoting New Zealand's interests through international fora.
An important aspect of this work is providing an effective voice in the international institutions that establish regulatory frameworks. An increasing number of the regulations applying in New Zealand are based on norms or rules that are developed in these institutions, or in the jurisdictions of our major trading partners. The Ministry is continuing to make a major investment in influencing the development of such regulatory frameworks in order to ensure that the rules relating to international commerce are transparent and apply consistently across borders. This includes:
- a wide-ranging contribution to New Zealand's participation in the Doha Round. The Ministry will provide input on tariffs, rules of origin, technical barriers to trade, services, competition policy, government procurement and intellectual property;
- contributing to the development of a number of Closer Economic Partnerships with key trading partners;
- completing the Tariff Review; and
- work on reduction of technical barriers to trade (standards and conformance issues) through APEC and in forthcoming CEP negotiations.
A Focus on Australia
The relationship with Australia is New Zealand's most important economic and political relationship. Australia is New Zealand's nearest large market, our largest bilateral trading partner and major source of, and destination for, investment. By deepening the relationship under the Australia and New Zealand Closer Economic Relations Trade Agreement (CER), New Zealand's economy will benefit from increasing scale, scope and diversity that would otherwise be difficult to obtain. This will place New Zealand in a better position to benefit from growth in the Australian economy, and will also provide a platform for expansion into world markets.
The easy gains under CER have largely been made, as we have achieved free trade in goods and services between the two countries and general mutual recognition of regulatory regimes for goods and occupations. At this stage further development of the relationship raises the prospect of much closer co-ordination of economic and social policies across the board. We will be looking to integrate further in ways that yield the greatest benefits to New Zealand, and enhance the ability of both Australia and New Zealand to integrate with the rest of the world.
Over the next few years we will be working to improve our understanding of the impact of further integration, in particular areas, on growth in New Zealand. This will involve addressing a number of important issues, such as:
- whether we can achieve critical mass or economies of scale through closer collaboration in areas like publicly funded research and development and investment attraction;
- the need to maintain a clear view of the alternatives in thinking about regulatory integration with Australia. Integration can be achieved through mutual recognition, unilateral recognition, harmonisation or effective institutional co-operation;
- closer co-operation between regulatory agencies such as the securities and competition commissions, even where regulatory integration does not take place; and
- human capital issues associated with further integration.
Key Activities
Our programme of work in this area will include:
- advancing the work programme under the Memorandum of Understanding on business law, including on capital markets;
- participating with Australia on a fundamental review of the CER Rules of Origin;
- promoting New Zealand's interests under the Trans-Tasman Mutual Recognition Arrangement review; and
- increasing the focus in the trans-Tasman relationship on issues that promote economic development (e.g. policies relating to industry development and attracting investment) by identifying and building on areas of common interest at both the Commonwealth and State levels.
3. Stimulate Enhanced Entrepreneurial and Innovative Capability of New Zealand Firms
The capacity of the economy to develop or adapt new technologies depends on highly skilled people and enterprising managers. It also requires them to be well connected - connected with centres of research excellence, with other businesses, and with markets. Ultimately, how far and how fast this adaptation takes place will reflect individual and firm level choices over which the government has only limited influence. However, governments in most countries that have recently experienced exceptional rates of growth have pursued facilitative policies to promote economic growth. This suggests that such policies may be required for New Zealand to have the best chance of achieving the Government's growth goal.
The Government's role here extends beyond firms to their environment. In this context the strength of our regional and local government institutions is particularly important. In Auckland, especially, alignment within local government and between local and central government is likely to be critical for sustainable growth.
Whether focussed on the firm, the sector or geographic region, facilitative economic development policies tend to be more complex to implement, depend heavily on particular contexts, and require considerable judgement about where to apply resources. Some will be high risk but offer potentially high rewards. Inevitably, the judgements made about which policies to pursue will sometimes be wrong. Evaluation of policies and adjustment in the light of experience is therefore vital.
New Zealand's recent experience with the design, implementation and evaluation of such policies is limited, and a key priority for the Ministry is to improve our own and others' understanding and expertise in these areas. A particular focus will be working with the Ministry of Foreign Affairs and Trade and the recently formed Trade and Enterprise New Zealand to ensure domestic and international policies to promote economic development are well designed, implemented, aligned and evaluated.
Key Activities
Our programme of work in this area will focus on:
- co-ordinating the Government's response to the recommendations of the ICT, Screen Production and other high growth sector task forces convened under the Growth and Innovation Framework;
- working with other central government organisations and regional stakeholders to implement refinements following the review of the Regional Partnership Programme. This programme is aimed at building and strengthening institutional structures in the regions;
- working through the Ministry of Tourism with Local Government New Zealand to build networks between tourism organisations and local authorities;
- providing strategic advice on investment attraction including: evaluation of the implementation of Investment New Zealand promotion and facilitation support; and advice on the longer-term strategic direction of Investment New Zealand within Trade and Enterprise New Zealand;
- utilising the extended small and medium enterprise (SME) programme (which includes the Small Business Advisory Group, the Ministerial Group on Small Business and the Senior Officials Small and Medium Business Group) to improve the focus within government on small business issues and the co-ordination of government-wide initiatives for, and communication with, small businesses;
- ensuring that the maximum benefits are realised through, and following, the Project Probe roll-out of broadband internet access to all schools and communities in New Zealand; and
- together with Statistics New Zealand, conducting a demand-side survey of SME finance in New Zealand. The survey will provide detailed information on the capital structure, sources of finance, and funding decisions of New Zealand enterprises. It will fill a gap in the collection of statistics on small business in New Zealand and will permit significant further research in the area of access to finance in New Zealand.
4. Improve the Regulatory Environment for Business
Differing levels of regulation have important interactions with each other, and regulatory interventions can have a cumulative impact on the environment for business. The Ministry does not have the lead role on all the significant elements of the regulatory environment for business. However, we recognise that regulation across the public sector needs to be high quality and aligned with the Government's Growth and Innovation Framework objectives if it is not to frustrate other policies to promote economic development.
Through its oversight of Regulatory Impact Statements (RIS), and the Business Compliance Costs Statements (BCCS), the Ministry has a significant lever to promote an on-going improvement in the quality of regulation across the public sector. The RIS/BCCS processes are gaining traction on new regulatory proposals or proposals to change existing legislation, ensuring that the impact of regulation on business is made transparent to decision-makers and to the public.
The Ministry will continue its education programme on regulatory and compliance costs in 2003/2004 and will focus on supporting departmental capability building in this area. We will also be placing particular emphasis on ensuring that RIS/BCCS work takes full account of SME issues associated with policy development. The Ministry's guidelines on RIS/BCCS will be amended to emphasise and promote this.
We will also be continuing work aimed at improving our understanding of the impact of regulation on business by synthesising and analysing research that has already been undertaken, both by the Ministry and others, such as the pilot perception study on the impact of regulation on business performance and the Business Practices Survey. This will enable us to provide better advice to the Government on the impact of existing regulation on business.
Other Key Activities
Other areas of work which contribute to this strategic priority include:
- enhancing our evaluation of, and comment on, Regulatory Impact Statements and Business Cost Compliance Statements, in particular by receiving input from the Small Business Advisory Group;
- follow-up work identified by the report back on progress in implementing the recommendations of the Ministerial Panel on Business Compliance Costs;
- specific resources devoted to improvements to the Resource Management Act and Hazardous Substances and New Organisms Act; and
- further progress, through amendments to securities law, in improving the regulatory environment for capital markets.
5. Improve Quality and Reliability of Key Infrastructure Services
Improve the Functioning of Electricity and Gas Sectors
The importance of the reliability and cost of infrastructure has been emphasised in recent months in the energy sector by the combined effect of increasing demand for electricity and uncertainties about generation fuel availability arising from an unexpectedly early reduction in the recoverable quantities of gas from the Maui field. This has highlighted questions about both the governance and operation of energy markets. The Ministry will work to develop an electricity sector that achieves the objectives of the Government's Policy Statement of December 2000. In particular, we will focus on:
- ensuring good arrangements for security of electricity and gas supply in the short term;
- governance and operation of the electricity market in the medium term to ensure supply security and price risk management;
- facilitating gas market participants to improve the functioning of the gas market and ensure a smooth transition to the post-Maui environment, through delivery of the Government Policy Statement on gas; and
- ensuring that the broader regulatory environment in which the sector operates is aligned with the needs of the market (this relates to the business regulation strategic priority outlined above).
Assessing the Infrastructure Changes Needed to Better Enable Economic Development in New Zealand
Network infrastructure - such as transport, electricity, communications and water distribution systems - are critical components of a country's productive capacity. Often, firms are dependent on one or a few inter-linked suppliers to provide them with services that are critical to producing and servicing their customers. This contrasts with most goods and services, where firms typically have ready access to a number of competing suppliers. In addition, there are often long lead times in providing new capacity, so that any failures in the system or supply constraints (caused for example by errors in forecasting demand) can impact adversely on productivity for extended periods. Finally, the demands for various sorts of infrastructure are interdependent. For example, a factory will set up in a particular location only if it has both the electricity it needs to produce and the roads to transport its goods to markets. Providing one without the other is of no use.
For these reasons, there is a premium on ensuring that firms and consumers have available to them the infrastructure services they need. Some co-ordination may be required. For example, many other jurisdictions have mechanisms involving the Government, the providers of infrastructure, infrastructure users and local government to look at and share views about future infrastructure needs.
The Government has asked the Ministry to co-ordinate advice on the overall management and adequacy of national, regional and local infrastructure including:
- assessing the cost and quality of existing infrastructure;
- identifying the potential impact of increased tourism on key infrastructure;
- a high-level review of various policy approaches to infrastructure and the possible development of an infrastructure policy framework; and
- assessing possible initiatives to address any identified problem areas.
The infrastructure policy stock-take will test whether existing policy settings take account of economic development objectives, and will seek to address areas where concerns are evident and how those concerns might best be dealt with in the future.
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