Comment
13. The August 2006 Cabinet paper sets out the government's goal for refreshed regional policy as: "improving the quality of the regional business environment to support the development, attraction and retention of globally competitive firms." This approach is a significant change in focus for regional policy, but firmly aligns regional policy with the achievement of the government's broader economic goals as articulated through the economic transformation agenda, particularly, the sub-theme of "growing globally competitive firms".
14. The focus on the "regional business environment" and "globally competitive firms" means thinking about the drivers of firm performance or productivity through a location specific lens.2 The Cabinet agreed approach to "growing globally competitive" firms as set out in the economic transformation agenda will apply,3 with existing regional policy programmes and tools reshaped to support these outcomes.
15. The refreshed approach recognises that, while central government can influence a number of productivity drivers at the national level, some issues affecting firm productivity can only be addressed at the regional level. Similarly, local government plays a key role in influencing the regional business environment through activities such as funding infrastructure, urban planning, regulatory functions and regional marketing. However, like central government, local government is unable to influence all of the necessary productivity drivers and must balance the achievement of economic outcomes with other outcomes sought by its communities. Furthermore, some location specific determinants of firm productivity may cross multiple local government boundaries.
16. Indeed, many economic agents have a role in achieving regional economic development, not just central and local government, with individual firms and industry playing a vital role. As such, fundamental to the refreshed approach to regional policy is the recognition that a broad range of stakeholders have the ability to influence the regional business environment. This reconfirms the underpinning of the RPP that successful regional economic outcomes can only be achieved through collaborative partnerships between a range of stakeholders, including central and local government, economic development agencies (EDAs), Regional Tourism Organisations (RTOs), business and industry groups, Maori/iwi, and research and training organisations.
17. This paper sets out some of the activities that the government will undertake to help achieve the refreshed regional policy goal, including reshaping the existing funding programmes. NZTE, as the government's principal economic development agency, will play an important role in the delivery of these. However, it is also important to acknowledge that, at both the regional and local level, there are a number of other activities undertaken by a broad range of central and local government agencies and private sector organisations, that currently, and will continue to, play a crucial role in achieving regional economic outcomes.
Building strategic capability
18. In August 2006, Cabinet noted that the refreshed approach to regional policy will require existing RPP strategy and capability funding to be revised to get more focus on building capability to undertake strategic planning for economic development. In addition, it noted that the number of regions for the purposes of NZTE funding will be consolidated from 26 to about 14. This reflects the view that the RPP has been successful in building collaborative regional economic development partnerships and enhancing their ability to think and plan strategically, but that existing partnerships lack the size and scale required for regional development outcomes aligned with economic transformation.
Moving to about 14 regions
19. The immediate priority for implementing refreshed regional policy is transitioning from the current 26 regions to about 14,4 based broadly around regional council boundaries. Conceptually, these regional groupings can be thought of as a working partnership of regional stakeholders, each of which retains its own purpose, functions and governance structures (as occurred under the RPP). However, scale will be insufficient in itself for achieving regional development outcomes and good governance structures supporting the regional groupings will be vital for providing stability, longevity, leadership, and functionality.
20. In general, MED and NZTE do not envisage significant difficulties in moving to a new regional formation. The existing RPP partnerships provide a strong platform for further aggregation, and the formation of the new groupings based broadly around regional council boundaries means that many of the linkages between the affected RPP regions already exist. Indeed, discussions with key regional stakeholders indicate goodwill towards the move, with a number already in the new formation5 or actively moving towards it. However, it is possible that a small number of RPP regions that have historically faced complex governance issues may take longer to merge. For these regions, it is proposed that the need to build regional size and scale be strongly enforced through the incentives associated with the provision of any government funding under the refreshed regional programme.
21. NZTE, through its regional presence, and with the support of MED (where appropriate), will work with all RPP regions in moving to the new arrangements, with particular attention given to regions that may experience more difficulties. NZTE has experience in this activity due to its role in helping form the original 26 RPP groupings. As with the RPP, it is not proposed that any specific governance models be imposed on regions, as experience confirms that the best arrangements will vary on a region by region basis to meet varying needs. However, it is expected that, where possible, relationships and networks established under the RPP will be adapted. In addition, the need for a collaborative approach to effective regional economic development as outlined in paragraph 16 confirms that governance arrangements should provide for the representation of a broad range of stakeholders.
22. Discussions with regional stakeholders have indicated that there are likely to be some one-off costs in moving to the new arrangements. To ensure that this does not create a disincentive to regional aggregation, I propose that NZTE be given flexibility in 2007/2008 only to offer existing RPP regions up to $0.05m to meet one-off costs directly caused by the aggregation of RPP regions and the establishment of the associated governance structures. Note that it is not expected that regions already in the new formation will require this funding. The funding will be subject to grant management criteria and processes to be determined by NZTE and in accordance with this paper.
Enterprising Regions Fund
23. The August 2006 Cabinet paper confirmed the government's role in supporting regions to build economic development capability. Experience with the RPP confirms that regional economic development strategies ("strategies") are a key mechanism for achieving this. As such, funding for their ongoing development will retained under refreshed policy. The existing RPP strategy and capability funding will be reconfigured to form the Enterprising Regions Fund. Through funding criteria and administration, the Enterprising Regions Fund will:
- encourage regions to take a medium to long-term approach to their economic development strategic planning by developing strategies that reflect the full range of opportunities and activities that will contribute to the achievement of their economic goals and priorities (not just those influenced by central and local government), with a clear implementation path against which progress can be monitored and reviewed;
- encourage regions to take a productivity based approach to improving the quality of the regional business environment to support the development, attraction and retention of globally competitive firms;
- ensure regions involve all relevant government and non-government stakeholders in the development and implementation of strategies and utilise any existing resources, skills and expertise that they can provide (for example, NZTE business assistance programmes, and Ministry of Social Development (MSD) and Department of Labour (DOL) labour market activities);
- reinforce appropriate regional governance structures for long-term regional economic development; and
- ensure strategies take into account and, where relevant, are consistent with, the government's broader national economic goals, strategies and priorities, and other relevant regional and local policies and processes (for example, LTCCPs, and regional transport, tourism and labour market strategies)
24. Funding will be available for regional (or joint regional) activities associated with the development, implementation and maintenance of strategies and the associated action plan, including: research, data collection, consultation, communication and monitoring; aligning strategies with other relevant regional decision-making processes and planning documents (including LTCCPs); and implementing projects identified in the strategies' action plan.6
25. It is proposed that $0.75m be available per region, over three years (with the exception of the Chatham Islands, as discussed below). However, the amount of funding available for each region in any one financial year will be limited to 50% of the total to ensure sufficient funding remains available over the three year period. This will provide funding certainty for regions and enable more effective planning around strategy development and implementation. It also provides regions with flexibility to allocate funding between strategy development and implementation, provided these activities are consistent with the intent and objectives of the fund.
26. NZTE, through their regional presence, will continue to work proactively with regions over the development and implementation of strategies. They will also work closely with regions to manage the budgetary implications of flexible funding.
27. Funding will be granted by NZTE for projects that clearly align with the intent and objectives of the fund. Regions will be required to make a financial (cash) contribution equivalent to no less than 20% of the total cost of each project funded. In-kind contributions will not be considered as part of the financial contribution, but will be encouraged, and taken into account when assessing applications for funding. The funding will be subject to standard grant management processes to be determined by NZTE. MED and NZTE, in consultation with Treasury, will report to the Minister of Industry and Regional Development by 30 April 2007 on the detailed criteria and operation of the Enterprising Regions Fund.
28. It should be noted that under the current RPP funding arrangements, each of the 26 regions is able to apply for up to $400,000 over 3 years (i.e. strategy and capability funding), with some larger, more complex regions able to apply for greater amounts. Under the proposals contained in this paper, some regions will be eligible for more funding than they currently are, while others will be eligible for less. Officials consider that the proposals contained in this paper will be sufficient to enable regions to respond to the government's refreshed approach and recognise the complexity inherent in moving to fewer, larger regions.
Chatham Islands
29. At present the Chatham Islands are considered one of the regions under the RPP. The greater emphasis on location specific drivers to regional economic development under the refreshed approach means that it may not make sense for the Chatham Islands to merge with other regions, such as Otago or Christchurch. The small scale of the Chatham Islands alone, means that funding of $0.75m over three years cannot be justified. However, the Chatham Islands do have some distinct issues, some of which are best addressed through a regional development approach. Also, it may make sense for them to work with other regions on specific projects. As such, it is proposed that, should the Chatham Islands be unable to merge with one of the 14 regions (or should this not be in their best interests), they be eligible for up to $0.15m every three years for strategic capability development and working with other regions on specific projects, as appropriate. The same criteria and principles that apply to administration of the Enterprising Regions Fund will apply.
Regional Engagement
30. Under the RPP, the government, through NZTE, has supported regions in project management support and best practice advice, as well as providing a national and international perspective to regional development. This role for NZTE will continue under the refreshed approach to regional policy. However, the change in focus of regional policy (i.e. to improving the quality of the regional business environment to support the development, attraction and retention of globally competitive firms) will align more clearly with the firm, sector and international activities undertaken by NZTE, and therefore assist in their ability to undertake effective regional engagement.
Enterprising Partnerships
31. As well as building regional capability, the government has an interest in regional economic development because of the tendency for transformative economic activity to have a spatial or location specific component. In particular, the types of innovative and creative processes that grow globally competitive firms are often created as a result of the collaborative partnerships and networks that are established through the concentration of certain industries, and associated institutions, in certain locations. The government therefore has an interest in facilitating and building on these relationships.
32. Cabinet has agreed to make changes to the current MRI funding under the RPP [CAB Min (06) 31/4 refers]. I propose to reshape the MRI funding into a new fund to be called the Enterprising Partnerships Fund that makes funding available for initiatives that:
- further the creation or exploitation of regionally based7 collaborative partnerships and networks, and other regional institutions, that promote knowledge sharing, facilitate innovation processes and grow international connections;
- involve and benefit multiple regional stakeholders (rather than focus on individual firms or sectors), with evidence of meaningful and useful collaboration required;
- are commercially driven and have a strong commercial component, while building on areas of economic opportunity identified through a region's (or regions', where more than one region is involved) strategies and generating substantial economic benefits and opportunities for the region(s); and
- align with the government's national economic goals and priorities, where these have been articulated, and are consistent with the government's broader economic, social and environmental goals and New Zealand law and international obligations.
33. In addition, initiatives to be funded should be financially self-sustainable at the completion of government support. Initiatives will also be based on partial funding, with participants in the project making a financial (cash) contribution equivalent to no less than 30% of the total cost of each project funded (i.e. the 30% is to exclude any in-kind contribution that may also be provided).
34. The Enterprising Partnerships Fund will be a contestable fund as previously agreed by Cabinet. This means that regions will not be assured of accessing funding for a significant regional project every three years as occurred under the RPP. Projects to be funded will be selected based on their merits relative to other projects, as well as their ability to contribute to both regional and national economic outcomes. It is expected that the new Enterprising Regions Fund and moving from 26 to about 14 regional groupings will grow all regions' capability with respect to accessing this fund. However, the operational criteria associated with the fund will need to ensure that larger regions do not have an undue advantage in accessing funding.
35. It is proposed that up to two funding rounds be held per year, with funding decisions made by Cabinet. To reflect the significant scale of the projects that this fund is targeting, the amount of funding per project will be limited only by the amount available in the fund. The decision to hold the second funding round of the year, and the amount of funding available in that round, will depend on the amount of funding remaining in the annual appropriation following Cabinet decisions in the first funding round. The total amount of funding available per year will vary subject to the other commitments outlined in this paper, and will be approximately $9m in 2007/2008, $10.5m in 2008/2009 and 2009/2010, and $11.5m in 2010/2011 and outyears.
36. In order to ensure consistency with the Crown Entities Act 2004, MED will be responsible for providing advice to Cabinet and making any funding payments. NZTE will have a role in communications regarding the fund, working with applicants to develop proposals, and jointly managing contracts with funding recipients with MED. The NZTE Board will also contribute to the advice to Cabinet on funding proposals that will be prepared by MED, in consultation with other departments. It is anticipated that the first funding round will be held before the end of 2007. MED and NZTE, in consultation with Treasury, will report to the Minister for Industry and Regional development by 18 May 2007 on the detailed criteria and operation of the fund.
37. The Enterprising Partnerships Fund is different from other government funds that facilitate large scale economic projects because it targets projects for which success is significantly influenced by the networks and relationships facilitated by geographical location. The fund also aims to develop and strengthen regional strategic capability, including ensuring linkages to regional strategies.
38. The process of preparing advice for Cabinet and the Cabinet decision making process will help to ensure alignment in funding decisions between this fund and other central government funds for economic development. However, the broader policy issue around the alignment of various government funding streams, and the transaction costs applicants face in accessing multiple funds, is the subject of further work by MED arising out of the review of business assistance programmes [EXG Min (06) 3/7 refers]. The Enterprising Partnerships fund will be considered as part of that work.
Enhancing co-ordination
39. A key element of boosting the impact of regional economic development is recognising that many central government agencies contribute to regional economic development, and that it is not a role for NZTE alone. For example, MSD and DOL undertake a number of activities at the regional level, and funding decisions by agencies such as the Foundation for Research, Science and Technology (FRST) and the Tertiary Education Commission (TEC) can significantly shape the regional business environment.
40. Previous experience with the RPP and ongoing discussions with regional stakeholders suggests that improved coordination between central government agencies involved in regional economic development would be beneficial. I was asked to report back on ways to improve co-ordination through either a focus on priority regions or priority issues.
Priority Regions
41. In March 2006, Cabinet agreed that an internationally competitive city - Auckland - would be one the five sub-themes of the government's economic transformation agenda [CAB Min (06) 7/22 refers]. A key reason for this is that international evidence highlights the important role that outward-facing, global cities play in leading a nation's economic development.
42. Many outcomes sought from the economic transformation agenda work on Auckland will be consistent with and complementary to regional policy outcomes. As such, I intend to ring fence $1.0m per annum of the RPP appropriation for three years starting 2007/08 to fund activities that reinforce the linkages between Auckland's economic transformation and regional economic development.
43. The decisions regarding the allocation of this funding will be made by the Minister of Industry and Regional Development, with advice from the Government's Urban and Economic Development Office (GUEDO) in Auckland and NZTE. MED and NZTE will report to the Minister of Industry and Regional Development on the operation of this fund by 30 April 2007.
44. It should be noted that other regions have expressed concern at the government's focus on Auckland. At this stage, MED consider that there is a strong rationale for focusing on Auckland through the economic transformation agenda as outlined in paragraph 41 above. To simultaneously focus on additional regions to the same extent, at this time, risks diluting the impact of the economic transformation work, both in terms of signalling the desired outcomes and the potential diversion of resources.
Priority issues
45. Regions report mixed experiences in dealing with central government agencies at the regional level over the development of strategies and the pursuit of economic opportunities more generally. Some of these experiences are extremely positive, but others are not so good. Many agencies have undertaken a lot of work to improve the level of coordination between themselves and other regional stakeholders and some useful models have been developed to facilitate this (for example, the Bay of Plenty Community Outcomes Working Group, which consists of local government and 17 government agencies).
46. However, the effectiveness of central government coordination at the regional level continues to vary for a range of reasons, including varying regional capability, the strength of regional governance arrangements, the level of regional cohesion and the personalities involved. As such, there is a need to determine whether there is more that can be achieved, while building on what is already in place. A key part of this will involve working with regional stakeholders, such as local government and EDAs, to determine their views. Three key pieces of further work are outlined below.
1 Communicating National Goals and Priorities
47. In August 2006, Cabinet agreed that government has a key role in communicating national level priorities to regions. This helps build the economic development capability of regions by ensuring that they have access to the best information for developing strategies and identifying and exploiting economic opportunities. It also helps ensure that regional activity is aligned with the achievement of national economic goals.
48. Some regional stakeholders have commented that it can be difficult to identify and access all of the relevant national information when preparing strategies. Therefore, MED, in consultation with relevant agencies, LGNZ and EDANZ will undertake further work to:
- identify national level information about the government's economic goals, priorities and strategies most relevant to regional economic development; and
- determine and implement the most effective mechanism(s) for communicating this to regional stakeholders.
49. This will build on the work previously done by MED on best practice guidelines for strategies. MED will report to the Minister of Industry and Regional Development on the outcome of this work by 30 December 2007.
2 Stocktake of Current Activity
50. MED, in consultation with NZTE, DOL and MSD and other relevant agencies (such as LGNZ and EDANZ), will undertake a stocktake of current central government activity at the regional level to:
- determine the range of existing activities undertaken by central government at the regional level that affect the regional business environment, including any funding and services provided;
- assess how these activities align and whether there are any gaps, overlaps or inconsistencies that need to be addressed or managed;
- identify the mechanisms currently in place for enabling central government agencies to input into regional economic development processes, including the development of strategies, and if and how agencies coordinate their input; and
- identify what improvements can be made to enhance the coordination of central government input into regional economic development processes.
51. The stocktake will help to inform future policy development as well as providing useful information to regional stakeholders about the roles and responsibilities of different government agencies at the regional level, how these fit together and the resources offered. It will also incorporate one of the recommendations of the review of business assistance programmes, which requires MED to comprehensively map all local and regional provision of business assistance [EXG Min (06) 3/7 refers]. MED will report to the Minister of Industry and Regional Development on the outcome of this work by 30 December 2007.
3 Regional Coordination Models
52. There are currently a range of different models in place for coordinating central government input into regional economic development processes, including the development of strategies. The usefulness and effectiveness of these models vary in large part according to unique regional circumstances. However, officials consider that there is likely to be significant value in analysing the different models to determine what works and what doesn't work in different circumstances, as well as capturing some of the learnings and experiences from implementing and working with different models. Overseas experience and practice may also provide some valuable insights into what might work well in New Zealand.
53. MED, in consultation with relevant agencies, including LGNZ and EDANZ, will undertake a review of existing and potential models for coordinating central government input to regional economic development processes, with a view to making this information available to stakeholders as best practice advice. However, it is not the intention of this work to identify and impose any one model on all regions, as the appropriate model will vary on a region by region basis. This work will build on the stocktake of current activity outlined above. MED will report to the Minister of Industry and Regional Development on the outcome of this work by 30 December 2007.
Transition and Communications
54. The remainder of 2006/2007 and 2007/2008 will form the transition period for the changes. Regions will be able to access the RPP as per current arrangements until 30 June 2007. The RPP will be disestablished from 30 June 2007, and the new programme will come into effect on 1 July 2007. From 1 July 2007 until 30 June 2008, RPP regions will be able to access the funding to meet costs associated with the movement to 14 regions. In addition, those regions in a position to will be able to access the Enterprising Regions Fund from 1 July 2007, provided that they have adequate governance arrangements in place8.
55. MED will continue to work with NZTE, government agencies involved in economic development activities, LGNZ and EDANZ to grow the understanding of the rationale for the policy and programme changes, what is expected from regions under the refreshed programme, and how the funding streams will operate.
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