Cabinet Paper
Proposal
1. This paper seeks Cabinet Committee's agreement to an initial package of new industry development initiatives to be delivered by Industry New Zealand in 2000/2001.
Executive Summary
2. On 22 May 2000, Cabinet directed the Ministry of Economic Development in consultation with relevant departments, to report back to Cabinet Economic Development Committee by 31 May with detailed proposals on new industry development initiatives, including work on:
- Industry Specialists to work in Industry New Zealand
- Strategic Investment Service
- Early-stage financing initiatives.
3. Industry New Zealand will manage and administer a range of Government industry initiatives aimed at New Zealand enterprises and start-up businesses. As Industry New Zealand can not itself deliver services to all sizes and types of firms, it will focus on delivering specialist facilitation services to businesses that have the greatest potential to deliver sustainable job and earnings growth. However, it will also manage a range of more generic information and assistance programmes aimed at the wider population of businesses, through contracted providers, to help build a base of capable and well-performing small and medium enterprises. It will leverage off these networks of contracted providers, such as BIZ providers and Economic Development Agencies, to identify businesses with high growth potential.
4. The paper proposes that Cabinet Economic Development Committee agree that the following activities and programmes be delivered by Industry New Zealand:
- Industry Specialists that will identify firms or groups of firms with significant growth potential, appraise each firm's requirement to reach that potential, and facilitate the necessary resources and expertise to successfully grow the business and manage the growth stage
- to support this, a specialist support grants programme to help firms employ the specialist services they need to develop and implement strategies for sustainable business growth such as joint ventures, strategic and business planning, or establishing a supportive management team.
- A strategic investment support service to identify and promote major investment opportunities in New Zealand, to complement and support Trade New Zealand's efforts to attract offshore investment into New Zealand. This will include coordinating and connecting New Zealand firms making significant investment decisions with the right central and local government and iwi contacts, providing information on relevant regulations and processes and how to deal with them quickly and efficiently, facilitating contacts with potential key suppliers or partners, and assisting with pre-feasibility and feasibility studies for major investments.
- a strategic investment grants programme to support the implementation of these services including:
- grants for pre-feasibility and feasibility studies, and
- grants for implementing significant investment projects.
- A grants programme to ensure that entrepreneurs with innovative ideas are not prohibited from realising the potential of those ideas by a lack of early stage finance. This will include funding for early stage projects and new business development.
- Facilitating the development of angel networks on a national basis through a national matching website/database of angels and opportunities, and network forums.
5. The new industry development initiatives will ensure that Industry New Zealand is able to conduct business as soon as possible. Industry New Zealand will also have responsibility for the existing BIZ, Incubator Development Programme and ISO initiatives and, as indicated in the accompanying paper, for the Regional Development Programme. This is not the end point. Further work will need to be undertaken over the next 12 months on building Industry New Zealand's capacity, including additional industry development initiatives. New initiatives and developments to existing initiatives will be informed by the stocktake of existing government industry development assistance to be completed by 1 October 2000.
6. The Ministry of Economic Development will have responsibility in the interim for implementing the new industry development initiatives until Industry New Zealand is established. Further detailed design and implementation work on the new initiatives still needs to be undertaken by the Ministry of Economic Development before specific baselines and appropriations either within Vote Industry and Regional Development or though another Vote can be finalised.
7. It is clear that there will be potential areas of overlap with the clients of other government industry assistance delivery agencies, although new programmes have been designed to ensure minimal overlap in service provision. It is crucial that all government industry assistance measures appear as a seamless package to end-clients. This will require a greater level of cooperation and coordination across the range of government industry development initiatives than in the past. There are a number of processes underway which will identify ways in which delivery agencies will achieve a higher level of interaction and cooperation, including:
- the Board of Industry New Zealand will include representatives of the Tourism Board, Trade NZ and Technology New Zealand
- one of the key functions of Industry New Zealand as provided by legislation is to facilitate and encourage cooperation and coordination among different Crown agencies in the delivery on industry and regional development programmes
- one of the key questions the stocktake of business assistance will report back on in October is how well existing programmes are coordinated and how this can be improved.
8. Designing effective programmes are not easy. Programme evaluation is a crucial device for bringing greater coherence to industry development programmes and ensuring they are effective. The paper recommends a set of design and evaluation principles which will be applied to the implementation of all new activities and programmes.
9. The Ministry of Economic Development, in consultation with relevant government departments, will report back to Cabinet Economic Development Committee by 28 June 2000 on the implementation of the new industry development initiatives and the proposed appropriations. It is intended to have the early stage grants programme available from July 2000. The industry specialist support services are being developed and the specialist supports grants will be operational in July 2000.
Background
10. Industry development initiatives aim to increase the international competitiveness of New Zealand's business environment in order to generate more wealth, create more jobs and promote New Zealand as an attractive place to invest and do business. Industry development embraces all sectors of the economy.
11. Industry development initiatives help overcome the difficulties associated with our small scale and scope of activities (small firms, small regions, small markets) and in improving the government's own activities that constrain business activity (e.g. accessing government-held information and reducing compliance costs). They can do this through providing access to resources (information, expertise, capital), building capability, creating a more responsive public sector and developing effective partnerships between central and local government, industry organisations and individual enterprises. This should be both at the regional level and across groups in society in the context of Closing the Gaps.
12. Cabinet has directed officials to undertake a stocktake of existing industry development initiatives, with a report back by 1 October 2000, to allow Ministers to make decisions on the future of these programmes in the context of the 2001 budget, along with how the $39.4 million (GST included) of additional money for industry and regional development in 2001/2002 will be spent (CAB (00) M 16/6 (29) refers).
13. On 22 May, Cabinet directed the Ministry of Economic Development, in consultation with relevant departments, to report back to the Cabinet Economic Development Committee by 31 May with detailed proposals on new industry development initiatives, including work on:
- Industry Specialists to work in Industry New Zealand
- Strategic Investment and Major Events Service
- Early-stage Financing initiatives, including consideration of a grants programme and angel networks.
14. This paper responds to that directive and focuses on industry development programmes. Ministers should note that work on the role of Industry New Zealand in major events is being undertaken separately in consideration of the role of the Office of Tourism and Sport. This paper does not consider wider industry development policy efforts, such as measures aimed at reducing compliance costs.
Industry New Zealand and Industry Development Initiatives
15. Industry New Zealand will manage and administer a range of Government industry and regional development initiatives. This will involve:
- making expertise and information available to improve industry performance and market prospects, and to provide access to key resources into the innovation process
- catalysing investments in New Zealand to exploit significant opportunities that do not come often
- developing effective partnerships between central and local government, industry organisations and individual enterprises
- facilitating and encouraging cooperation and coordination among different government delivery agencies in the delivery of industry and regional development programmes.
16. In terms of industry development assistance (rather than regional development assistance), Industry New Zealand's client base is the population of New Zealand enterprises and start-up businesses. However, Industry New Zealand can obviously not itself deliver services to all sizes and types of firms and will, within its limited resources, focus on businesses that have the greatest potential to deliver sustainable job and earnings growth. In practical terms it is proposed that Industry New Zealand will deliver a combination of:
- focused "lot for a little" initiatives, through its own specialist staff providing in-depth facilitation assistance and information to a relatively small number of high growth potential, job rich companies (over time this may build up to 3000-5000). This will be Industry New Zealand's core business
- a range of "little for a lot" initiatives, through electronic servicing and contracting with existing organisations across New Zealand to deliver more generic information and assistance to as many small and medium enterprises (SMEs) as possible. Examples of this are BIZ and the Incubator Development Programme. Industry New Zealand will leverage off these networks of providers, such as BIZ providers and Economic Development Agencies, to help identify high growth potential businesses.
17. It is clear that there will be potential areas of overlap with the clients of other government industry assistance delivery agencies, although the programmes have been designed to ensure that there is minimal overlap in service provision. For example, a rapidly growing company could face the challenge of completing the commercialisation process of a new product with major export potential. Industry New Zealand could bring its industry specialist service to bear by providing support for the company to bring in expertise to manage the company through the growth phase. Trade New Zealand could have a role in assisting the company in making links to companies, investors and distributors overseas. Technology New Zealand could also play a role in providing funding and assistance for completing the research and development.
18. It is crucial that the services appear as a seamless package to the end client. This will mean that irrespective of the agency that initially interacts with the client, they will need to have the capability, knowledge and the relationships to be able to proactively refer clients to and bring in other agencies and programmes as appropriate. In a sense each of the agencies should be taking information on the full range of government assistance to their clients. It would not be effective or efficient for a business to be approached by a range of different agencies at the same time.
19. This has implications for both the Government's promotional efforts on industry development assistance and the relationships between the agencies. The ad-hoc and discrete promotion of programmes will no longer be sufficient, nor is the traditional patch-protectionist behaviour of the different agencies appropriate. The end clients of the services, New Zealand businesses, should be the paramount focus of all the providers.
20. The Government should expect a higher level of interaction and cooperation amongst these agencies than in the past. There are a number of processes in train which will identify ways in which this will be achieved:
- the Board of Industry New Zealand will include representatives of the Tourism Board, Trade NZ and Technology New Zealand. This should see the promotional and implementation strategies of the agencies more closely aligned
- one of the key functions of Industry New Zealand as provided by legislation is to facilitate and encourage cooperation and coordination among different Crown agencies in the delivery of industry and regional development programmes. Industry New Zealand will be expected to lead the efforts in coordinating service delivery
- one of the key questions the stocktake of business assistance will report back on in October) is how well existing programmes are coordinated and how this can be improved (CAB (00) M 17/1 D refers).
21. The diagram in Annex A illustrates the proposed role of Industry New Zealand and the interface with clients and other delivery agencies.
New Industry Development Initiatives
22. In the first instance, the following package of new activities and programmes is proposed:
Industry Specialist Support
23. Industry New Zealand will employ and/or contract with expert Industry Specialists that will identify and work with firms or groups of firms (e.g. clusters) with significant job and earnings growth potential, appraise each firm's requirement to reach that potential, and facilitate the necessary resources to successfully grow the business and manage the growth stage. This work will be supported by a specialist support grants programme to help firms employ the specialist services they need to develop and implement strategies for business growth such as joint ventures, strategic and business planning, establishing a supportive management team etc.
24. Details on the proposed objectives, principles and parameters of this activity are attached as Annex B.
Strategic Investment Support Service
25. Industry New Zealand will operate a strategic investment support service to identify and promote major New Zealand investment opportunities, to complement and support Trade New Zealand's efforts to attract offshore investment into New Zealand. It would do this by:
- coordinating and connecting New Zealand firms making significant investment (e.g. expansion, location) decisions with the right central and local government and iwi contacts
- providing information on relevant regulations and processes and how to deal with them quickly and efficiently
- facilitating contacts with potential key suppliers or partners (e.g. educational institutions)
- assisting with pre-feasibility and feasibility studies for major investments
- working closely with the Ministry of Economic Development to promote flexibility in the operation of policy where that flexibility is consistent with the principles and objectives underlying the policy. Examples here could be the operation of immigration policy or specific tax rules. Examples of what would not be acceptable would be granting preference in competitive processes or preferential tax treatment
- working in partnership with Trade NZ.
26. It is also proposed that Industry New Zealand provide a strategic investment grants programme to support the implementation of these services including:
- grants for pre-feasibility and feasibility studies, and
- grants for implementing significant investment projects.
27. Details on the proposed objectives, principles and parameters of these initiatives are attached as Annex C.
Early Stage Financing
28. It is proposed that Industry New Zealand:
- deliver a grants programme to ensure that entrepreneurs with innovative ideas are not prohibited from realising the potential of those ideas by a lack of early stage finance. This will include funding for early stage projects and new business development to support:
- Market research into new markets
- Protection of intellectual property rights
- Commercialising ideas.
- facilitate the development of angel networks on a national basis through a national matching website/database of angels and opportunities, and network forums
29. Details on the proposed objectives, principles and parameters of these initiatives are attached as Annex D.
Design Principles and Evaluation
30. Designing effective interventions is not easy. There have been many examples of programmes that have failed to achieve their objectives. Applying a set of design principles can increase the chances of interventions that work. Such principles, which are outlined in Annex E, will be applied to the design of the operational detail of all new activities and programmes.
31. Programme evaluations conducted both on individual programmes, and groups of programmes, are a crucial device for bringing greater coherence to industry development policy. A programme evaluation is fundamentally about measuring the impact of a programme on its participants. A best practice approach, as described in Annex E, will be applied to the development of new industry development initiatives
32. The Ministry of Economic Development will be responsible for managing the evaluation of Industry New Zealand's industry and regional development initiatives.
Next Steps and Further Work on Industry Development Initiatives
33. The Ministry of Economic Development will have responsibility in the interim for the detailed design and implementation of the new industry development initiatives until Industry New Zealand is established. Industry New Zealand will be responsible for operationalising the programmes once established.
34. As indicated, this paper has focused on the introduction a small range of new industry development initiatives to ensure that Industry New Zealand is able to conduct business as soon as possible. Industry New Zealand will also have responsibility for the existing BIZ, Incubator Development Programme and ISO initiatives and, as indicated in the accompanying paper, for the Regional Development Programme. This is not the end point. Further work will need to be undertaken over the next 12 months on building Industry New Zealand's capacity, including additional industry development initiatives. New initiatives and developments to existing initiatives will be informed by the stocktake of existing government industry development assistance to be completed by 1 October 2000. Further work for consideration will include:
- support for major events, business excellence awards and small business promotion e.g. a small business month/week
- a programme to support the development of innovations and business practices which contribute to environmentally sustainable development
- a contestable enterprise education building programme to provide funding for building active networks and partnerships between business, schools and the community, and the development and delivery of enterprise education programmes
- further financing initiatives including consideration of joint government/private sector venture capital funds and loan schemes
- an expanded BIZ programme (including consideration of support for a national mentoring programme, start-up services, and e-commerce upskilling initiatives)
- an expanded Incubator Development Programme (the tender process currently suggests that demand for support for institutional incubators will far exceed supply).
35. This work will be progressed in consultation with relevant government departments and agencies such as the Ministries of Education and Environment.
Fiscal Implications
36. The attached annexes provide estimates of funding for the new industry development initiatives in 2000/2001. In summary, these are:
| Programme | Estimated Funding 2000/2001
(GST inclusive) |
|---|
| Industry Specialists | $3m |
| Specialist Support Grants Programme | $3m |
| Early stage grants | $5m |
| Angel networking | $0.2m |
| Strategic Investment Service | $2m |
| Strategic Investment Support Grants | $3m |
| Total | $16.2m |
37. When approving the baselines for Industry and Regional Development, Cabinet agreed that funding will not be released for specific initiatives until it has approved the details of the specific policies, costs and other details (CAB (00) M 16/6 (29) refers). Further detailed design and implementation work on the new industry development initiatives still needs to be undertaken by the Ministry of Economic Development before specific baselines and appropriations either within Vote Industry and Regional Development or through another Vote can be finalised. In addition, funding needs to be allocated for both setting up Industry New Zealand and providing some scope for expanding existing programmes and developing any new programmes. Funding for the initiatives could also increase in subsequent years subject to agreement by Cabinet.
38. The Ministry of Economic Development, in consultation with relevant government departments, will report back to Cabinet Economic Development Committee by 28 June 2000 on the implementation of the new industry development initiatives and the proposed appropriations. It is intended to have the early stage grants programme and the industry specialist support services and grants operational after 3 July 2000.
39. The accompanying paper discusses the proposed funding for the Regional Development Programme.
Implications for Closing the Gaps
40. Industry Development initiatives provide an opportunity for Government to make a considered commitment to Maori and Pacific peoples in economic development and capacity building in light of Closing the Gaps. It will be a key principle for the development of new industry development initiatives that they are flexible, accessible and relevant to the needs of Maori and Pacific peoples. The stocktake of existing industry development programmes will include consideration of the effectiveness of these programmes for Maori and Pacific peoples.
Consultation
41. The following departments have been consulted in the preparation of this paper: The Treasury, the Ministries of Education, Agriculture and Forestry, Youth Affairs, Women's Affairs, Maori Affairs, Pacific Island Affairs, Environment, Fisheries, Foreign Affairs and Trade, Health, Housing, Justice, Research, Science and Technology, Transport, Cultural Affairs, Defence, Social Policy; the Departments of Prime Minister and Cabinet, Labour, Conservation, Inland Revenue, Internal Affairs, Corrections, Statistics, Courts, Child, Youth and Family; the State Services Commission, Audit Office, New Zealand Customs Service, Land Information New Zealand, National Library, Public Trust Office, Work and Income New Zealand, and the Education Review Office.
Legislative Implications
42. There are no legislative implications associated with this proposal.
Publicity
43. A communications strategy around Economic, Industry and Regional Development issues is being prepared in consultation with my office.
Recommendations
44. It is recommended that the Committee:
- agree that Industry New Zealand will deliver a combination of:
- focused "lot for a little" initiatives, through its own specialist staff or contracted experts providing in-depth facilitation assistance and information to a relatively small number of high growth potential, job rich companies
- a range of "little for a lot" initiatives, through electronic servicing and contracting with existing organisations across New Zealand to deliver more generic information and assistance to as many SMEs as possible;
- note that government industry development initiatives should be designed and coordinated to appear as a seamless package to the end clients, so that all delivery agencies will need to have the capability, knowledge and the relationships to work effectively together;
- note that there are a number of processes underway which will identify ways in which delivery agencies will achieve a higher level of interaction and cooperation, including:
- the Board of Industry New Zealand will include representatives of the Tourism Board, Trade NZ and Technology New Zealand
- one of the key functions of Industry New Zealand as provided by legislation is to facilitate and encourage cooperation and coordination among different Crown agencies in the delivery of industry and regional development programmes
- one of the key questions the stocktake of business assistance will report back on in October is how well existing programmes are coordinated and how this can be improved;
- agree that the following industry development initiatives for delivery by Industry New Zealand be subject to further detailed design and implementation work:
- Industry Specialists that will identify and work with firms or groups of firms with significant growth potential, appraise each firm's requirement to reach that potential, and facilitate the necessary resources to successfully grow the business and manage the growth stage
- a specialist support grants programme to help firms employ the specialist services they need to develop and implement strategies for sustainable business growth such as joint ventures, strategic and business planning, or establishing a supportive management team
- a strategic investment support service to identify and promote major New Zealand investment opportunities, to complement and support Trade New Zealand's efforts to attract offshore investment into New Zealand
- a strategic investment grants programme to support the implementation of these services including:
- grants for pre-feasibility and feasibility studies, and
- grants for implementing significant investment projects
- a grants programme to ensure that entrepreneurs with innovative ideas are not prohibited from realising the potential of those ideas by a lack of early stage finance. This will include funding for early stage projects and new business development
- facilitating the development of angel networks on a national basis through a national matching website/database of angels and opportunities, and network forums;
- agree that the following principles be applied to the design and implementation of all industry development programmes:
- programme objectives are clearly defined and able to be evaluated
- programmes are accurately targeted
- the compliance costs are as low as possible (programmes are easily accessible, eligibility requirements are clear)
- programmes create "additionality". This means that they encourage activity that would not otherwise have taken place
- programmes are flexible to meet differing and evolving needs (one size does not fit all). In particular, it is important that all programmes are accessible and relevant for the needs of Maori, Pacific Peoples and women
- programmes are effectively evaluated
- using public-private sector partnerships wherever possible (contestable delivery, cost-sharing, sponsorship etc)
- consideration of capability development for programme deliverers
- effective co-ordination between programmes
- consistency with New Zealand's international obligations
- consistency with the Government's goals for sustainable development;
- agree that all industry development programmes be subject to regular evaluations incorporating the following components:
- Implementation Evaluation - is the delivery and administration system adequate; do providers have the capability to deliver; are they meeting their targets?
- Impact Evaluation - does the programme achieve its objectives?
- Efficiency Evaluation - does the programme, or elements of the programme, achieve the objectives at a lower cost than other feasible alternatives, or at least a low cost for the return provided?
- Policy Evaluation - assesses the validity of the rational behind the programme; are the market failures/problems the programme is designed to meet being addressed and do the failures still exist?
- agree that the following principles be applied to the evaluation of industry development programmes:
- Independence of Approach - a review of programme effectiveness is best undertaken by groups independent of the administration and delivery of the programme
- Resourcing - ensuring adequate funding and resources for evaluation at the outset
- Range of Methodologies - a variety of methodologies should be adopted to evaluate programmes as no one methodology is ideal and outcomes will vary according to different and evolving needs
- Design - evaluations are designed together with the development of programmes
- Timeliness - implementation, impact and efficiency should be reviewed annually, and more detailed impact and policy analysis should be considered at least three-yearly;
- note that the Ministry of Economic Development will have responsibility in the interim for implementing the new industry development initiatives until Industry New Zealand is established;
- note that further detailed design and implementation work on the initiatives outlined in recommendation (d) still needs to be undertaken by the Ministry of Economic Development before specific baselines and appropriations either within Vote Industry and Regional Development or though another Vote can be finalised;
- direct the Ministry of Economic Development, in consultation with relevant government departments, to report back to Cabinet Economic Development Committee by 28 June 2000 on the implementation of the new industry development initiatives and the proposed appropriations.
Jim Anderton
Minister for Industry and Regional Development
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