Priority Areas for the Next Steps of the ET Agenda
20. Given these points, I propose that the next steps of the ET Agenda should aim to achieve a step change in New Zealand's productivity and economic growth, which builds on New Zealand's unique strengths, and which advances New Zealand towards a sustainable future. I have held a series of meetings with other Ministers on each of the five ET sub-themes. In these meetings, we have identified the following six priorities with associated actions for progressing the ET agenda and achieving this step change. This is in addition to other ongoing and planned work which will also make an important contribution to ET and which is listed in the last column of Annex A.
21. Broadband is key to enabling a small, geographically distant country like New Zealand to participate successfully in the global knowledge economy. It enables firms, including SMEs, to reach and be successful in global markets. It also enables high-value, weightless products such as research, design, broadcast programming (including Māori programming), branding and marketing to be effectively provided to customers anywhere in the world.
22. In New Zealand the lack of high-speed broadband, caused in part by limited competition and underinvestment in telecommunications infrastructure relative to OECD benchmarks, is limiting the growth of New Zealand firms.1The regulatory reforms introduced through the Telecommunications Amendment Act (No. 2) 2006 were designed to increase competition in telecommunications, and incentivise the industry, and particularly the incumbent, to increase investment.
23. These regulatory reforms have yet to be fully implemented and the new regulated services will not be in the market until late 2007. Nevertheless, it is unlikely that it will be commercially viable for traditional telecommunications service providers, such as Telecom, to make investments in key infrastructure bottlenecks in areas outside major urban centres in the next three years.
24. The challenge of meeting New Zealand's telecommunications needs will be a key priority for November's Digital Future Summit 2.0 and the subsequent refresh of the Digital Strategy. The government will aim to stimulate a constructive national debate about building the pathway to New Zealand's broadband future and further fibre infrastructure investment. This debate will require the engagement of telecommunications providers, local government, and the businesses, Māori interests, communities and individuals that want improved connectivity.
25. The Government will continue to monitor levels of investment in broadband infrastructure and will initiate a process for engaging with the private sector on this issue.
26. Concerns about environmental sustainability are creating new economic opportunities for countries such as New Zealand that are biologically-based and which have high per capita renewable energy resources.
27. In particular, New Zealand has the opportunity to be a leader in the mitigation of agricultural greenhouse gas emissions, areas of bio-energy, soil carbon sequestration and engagement with Māori to apply traditional knowledge to environmental management. We are well-positioned to take a lead in becoming a sustainable economy and society.
28. However, Ministers believe we need to make more progress on the institutional frameworks that encourage changes in behaviour; the direction of investment; and the pattern of technological innovation.
Action: Implement emissions trading and associated carbon markets to reduce net greenhouse gas (GHG) emissions
29. The Government recently announced its intention to introduce a cost for GHG emissions from 2008. This will create incentives for least cost emission reductions and, over time, trigger changes in patterns of investment, technological innovation and resource allocation.
30. While carbon markets aligned with the Kyoto Protocol framework are government's paramount concern, "voluntary markets" for carbon, outside the framework, are also emerging. These are being created by consumer demands for "carbon neutrality" from firms or products, and by consumers who want to offset their own GHG emissions. Government can influence the development of these voluntary market responses by providing supporting eco-verification infrastructure based on internationally recognised standards and approaches, and through its commitment to a carbon neutral public service.
31. I propose that MED and MfE, in conjunction with MAF and DoC, be directed to develop a framework for identifying the government's role in supporting the effective development of these voluntary markets, paying particular attention to issues such as emerging market platforms, the capability and application of eco verification methods and clear messaging in engagement with business and households.
Action: Advance environmental solutions, including sustainable land management, eco-verification and test beds for sustainability
32. Consumer acceptability and market access will increasingly demand verification of claims relating to environmental and broader sustainability impacts. Increasingly, major retail chains are demanding evidence of the impacts of products on the environment. Multinational global supply chains are requiring evidence of verifiable environment management practices based on international standards. The "food miles" arguments highlight the potential risk to NZ's food and beverage exports in key markets – but conversely, the focus on carbon footprinting provides real opportunities.
33. The integrity of environmental and sustainability claims also needs to be upheld through standards and verification methods that are accepted by our major trading partners. If New Zealand firms are to utilise standards and conformity assessment methodologies, these need to be easily accessible and internationally-recognised. New Zealand needs to accelerate the uptake of eco-verification in environmental management systems and products through appropriately designed stair-casing instruments designed to lift performance over time. Robust eco-verification systems will support our environmental integrity in world markets. This includes the environmental certification of seafood products and carbon reduction efforts. A comprehensive report back to Ministers on progress in marshalling eco-verification expertise, leveraging existing eco-verification infrastructures and supporting uptake of eco-standards and eco-labels, is due by 30 April 2008.
34. Because of New Zealand's small size, and willingness to embrace sustainability there may also be opportunities for New Zealand to be promoted as an internationally- recognised test bed for emerging sustainable technologies. This could support the positioning of New Zealand as a sustainable nation, as well as addressing highly visible aspects of environmental performance. I propose that officials report back by February 2008 on these opportunities.
35. Finally, the sustainable land management (hill country erosion) programme also needs to be expanded to more effectively address soil erosion, flood risk, and the downstream impacts of erosion on infrastructure and water quality.
Action: Develop instruments to provide for water quality and future demand for freshwater
36. This action focuses on developing instruments to complement regulation and other tools to ensure the sustainability of New Zealand's water resources by managing water quality, and providing for future demand for freshwater. These instruments may include institutional frameworks, new approaches to water storage and management, pricing mechanisms, enhanced user pays charging, and liability mechanisms to enhance water quality and encourage the efficient use of water.
37. Regional councils have faced challenges in implementing their responsibilities for water quality management in catchments. This is partly because of a lack of appropriate tools to change behaviour. Regulation and voluntary improvements to land management practice are the current core tools in protecting water quality. These tools could be complemented by instruments to protect water quality in an efficient way. Such instruments could form part of the "tool box" that can be applied by regional councils in a way that reflects their particular circumstances and which support behavioural changes to protect and enhance water quality.
38. When water is scarce the means must also be found to manage competing interests. Institutional frameworks governing water use must reflect the fundamental importance of water to biophysical functioning and human needs and values as well as aiming to improve economic efficiency. A mix of regulatory and/or market-based instruments can be used to manage water. These instruments are interlinked – market instruments depend on regulatory frameworks. Instruments such as consumptive water charging, in conjunction with enhanced transferability, are tools for encouraging efficiency over the use of abstracted freshwater in catchments where water is a scarce resource that is subject to competing demands and values.
39. However, market instruments can lead over time to a few economic agents accumulating excessive control over water permits. This can threaten social cohesion. Market instruments also raise issues around the limitations of water permits, how the taking of water should initially be assigned, and how it could be reassigned. Issues also arise when changes in scientific understanding or in social norms mean that water permits need to be changed - for example, to reduce the taking of water because a water resource has been over-allocated. For all these reasons, market instruments need to be developed within a set of clear institutional limits that harmonise economic efficiency and the social and environmental outcomes that government seeks.
40. Water storage and management systems (including infrastructure investment and institutional rules) can also help manage demand for water while protecting environmental and social "bottom lines". New approaches to storage and management can help resolve potential conflicts over water in ways that meet environmental, economic, social and cultural aspirations.
41. In the light of these points, I propose that officials from MfE, MAF and MED should be asked to report back to Ministers with proposals for instruments to provide for water quality and future demand for freshwater by 31 March 2008.
Other Actions:
42. In addition to the above actions, I propose that officials should report back on setting further medium-long term targets for sustainability.
43. In the launch of the emissions trading scheme on 20 September, the Prime Minister announced a number of medium to long term targets to move New Zealand towards greater sustainability:
- by 2025, have ninety per cent of electricity generated from renewable sources;
- by 2040, reduce by half per capita emissions from transport;
- be one of the first countries to introduce electric cars widely;
- by 2020, achieve a net increase in forest area of 250,000 hectares.
44. Setting realistic, achievable and consistent targets provides a powerful means of galvanising change. Targets provide a firm basis on which the government and business can partner to achieve change, and which businesses can take into account in their decision-making.
45. In my view, there is scope to establish further high level targets in specific areas as a way of completing an overall picture of what a sustainable New Zealand looks like, thus helping to make that vision compelling.
46. In May, in the context of setting a goal to position New Zealand as a world-leading exponent of smart, innovative and business-savvy responses to environmental issues, officials were asked to report back with advice on how progress towards this goal could be measured. Work on targets is also underway in respect of land management, energy, transport, water and waste. I consider it would make sense to combine these efforts so that Ministers can consider the question of targets in respect of sustainability as a whole.
47. A central component of how productivity improvement can be achieved is through improving the human capability of our workers, managers and industry leaders.
48. Ministers have directed officials in consultation with the social partners, NZCTU and Business NZ, and the Industry Training Federation to design a comprehensive Skills Strategy aimed at future proofing the economy against inevitable labour shortages. This strategy will build on the new approach to education and training investment delivered through the tertiary education reforms. A paper to progress the development of the strategy will be provided to Cabinet by the end of the year.
49. While such a strategy aims to build employers' and employees' interest in skills and life long learning, an essential prerequisite is improving workforce literacy, language and numeracy (LLN). About one third of our 3.25 million strong working age population have LLN skills below those needed to participate fully in a knowledge society.
50. Low levels of LLN skills contribute to error, wastage, re-work and poor health and safety outcomes. Workforces with low LLN skills are less able to build the capability to be internationally competitive; and lack effective governance, strong management, innovative workplace cultures and skilled and motivated staff. International evidence shows increases in LLN contribute to firms' productivity.
51. Officials from MoE, DoL and TEC are due to report to Cabinet by the end of October on a strategy to "Upskill the workforce" which will examine proposals for putting significant effort into workplace LLN development. This paper, which is likely to form a key component of the Skills Strategy, will identify the need for controlled interventions on:
- Demand: A focus on priority industries is proposed as a practical way to manage growth in the short to medium-term and allow government to focus resources on clusters of vulnerable workers and firms and leverage its existing engagements with industries.
- Supply: The proposal for increasing the supply of learning opportunities has a three-staged approach to increasing provision from July 2008 through 2011 onwards, where LLN would be fully integrated into the reformed tertiary strategy funding system and the Investing in the Plan process.
- Capability: It is proposed that funding be made available for ITPs and wananga through the Tertiary Education Organization Component (TEOC) to support the organisational change that is required to deliver high-quality embedded LLN delivery. This will be accompanied by an intensive focus on increasing the number of trained educators and the trusted advisory services to bed-in the infrastructure and quality assurance processes.
52. Other significant work that will support the Innovative and Productive Workplaces Theme focuses on firm capability, including exploring opportunities to improve cross agency co-ordination of firm capability services (particularly between DoL, MED, NZTE and TEC), enhancing the involvement of social partners and key stakeholders to build consensus on specific gaps and priorities for action, and getting better traction from existing services by leveraging off existing trusted advisor networks.
53. The key challenges arising from international integration are for New Zealand to:
- Position itself as an attractive location for investment and skills and for those parts of international supply chains that relate to high-value products and activities and that provide the greatest return (e.g. R&D and design). This includes an imperative to develop more and/or larger internationally successful New Zealand businesses, networks of businesses, and segments of the economy; and
- Capture the best return through our businesses being part of international value chains offshore (returning profits to New Zealand), through developing new business models of operating internationally (such as investing directly in offshore product and distribution chains), rather than transferring valuable activities offshore.
Action: More sophisticated and integrated in-market business support.
54. I propose that we make a significant investment in shared services and/or infrastructure in a few key markets offshore, drawing on in-market sources of advisory and business services and networks as much as possible. The idea is to create in-market ‘eco-systems' and centres of support for New Zealand firms and business opportunities, with private sector services (such as distribution services, research providers, banks, professional services, and investment companies) supporting government provided services (such as technology partnerships and market development).
Action: Integrated and targeted onshore support for internationalising firms and business opportunities with international potential, with a focus on capability development.
55. I propose three inter-related initiatives:
- Case managed and tailored support from NZTE for up to 10 New Zealand medium to large internationalising businesses (per annum) over the next three years, to enable them to make a significant move into global value chains and market opportunities. The businesses targeted will need to have the capability, desire and long-term commitment to be global players and be at the vanguard of a step change in our foreign exchange earnings (at the multi-hundred million if not billion dollar level). Engagement may involve working with a significant New Zealand company in conjunction with its domestic supply partners to secure international opportunities for the wider value chain.
- Improving the delivery of support for New Zealand's SME emerging international businesses and business opportunities with international potential to develop capability in understanding and managing the requirements of market development and global value chains. This will involve a clearer and integrated "internationalising support pathway" service facilitated by NZTE (and other agencies) in partnership with the private sector and industry groups, to provide initial diagnostic and ongoing mentoring support for emerging international SMEs and business opportunities, and to facilitate access to relevant government and non-government services.
- Advancing a more applied form of business management education, focused on internationalisation, in partnership with 1-2 tertiary education providers.
56. A number of considerations drove the development of these priority actions, including ensuring that:
- New initiatives help New Zealand firms address the key challenges arising from international integration;
- Support for internationalising firms does not represent an onshore vs. offshore dichotomy, but rather a seamless transition of support between onshore and offshore;
- The insights gained from dialogue with international businesses during Export Year inform future government policy and decision-making (and the priorities are included in the companion paper on the Export Year Platform and are referred to in the public/private sector Platform document); and
- The proposals build on the investments that government has already made but represent a step-change in New Zealand's approach to business internationalisation.
57. I propose that officials from MED, MFAT and NZTE, in consultation with the Treasury, should report back to Cabinet by 15 December with further details on the nature and implications of these actions.
58. Further options on initiatives to transform SME capability, productivity and potential for internationalisation are being considered by ET Ministers. The Minister for Small Business and I will report back to the Cabinet Policy Committee by early November on any further initiatives arising from this consideration which should be incorporated into the ET Agenda.
59. Cabinet has agreed in principle on a number of areas of focus representing economic development priorities for Vote Economic, Industry and Regional Development, Vote RS&T and the tertiary education component of Vote Education (CAB Min (07) 34/5 and POL Min (07) 21/7 refer). The Government's investment in these areas of focus should build on New Zealand's existing strengths and reputation, have significant market opportunities, and also extend the economy into higher-value products and services. Cabinet has agreed in principle to focusing investment on:
(i) segments that extend our biological sector strengths through the application of human capital, innovation and technology. This includes a proposed focus on pastoral systems, environmental solutions, health solutions, and advanced foods and derivatives;
(ii) niches where small-scale or technology-driven (rather than labour intensive) production is a source of advantage or not a disadvantage. This includes a proposed focus on smart materials and digital content and tools.
60. As previously noted, small open economies like New Zealand usually innovate and grow on the basis of resource advantages and long-standing and mature industries. More focused investment across government in key areas that build on these industrial and resource strengths will enable us to create the necessary scale and depth to support economic transformation. It will enable New Zealand to be recognised as a world leader in a small number of priority technology areas through the development of clusters of world class firms, research institutions, tertiary education organisations, and private businesses that collaborate to drive innovation. Targeting of resources into more productive industrial and technology areas will lead to greater overall productivity as there are flow-on or ‘pull' effects from these activities to the wider economy. Building critical mass in these areas will help to attract globally competitive talent, R&D and businesses.
61. Such increased focus is also an important theme in the companion paper "A New Agenda for New Zealand Research, Science and Technology". It corresponds to recommendations by the OECD's review of innovation in New Zealand to produce a clear statement of national policy towards innovation, science and technology, which recognises the wide range of government policies that affect innovation and serves to foster coherence and co-operation among the various departments and agencies involved.
62. Officials are scheduled to report back to the Ministers for Industry and Regional Development, Research, Science and Technology, and Tertiary Education, with final proposals for areas of focus by 31 October 2007 and on mechanisms for implementation by 15 December 2007.
63. In addition, in response to the OECD review, Cabinet has directed MoRST and MED, in consultation with relevant agencies, to report to the Minister of Research, Science and Technology and the Minister of Economic Development on future opportunities to further improve the innovation system [EDC Min (07) 13/3 refers]. This work includes consideration of different ways to govern innovation at Ministerial level and a proposed innovation policy strategy. Such a strategy could consolidate recent and planned RS&T, and broader innovation, initiatives into a clear statement of the direction in which we plan to develop our innovation policy.
64. Other significant work that will support the Globally Competitive Firms Theme includes:
- Financial Sector Development - work is currently underway by the Treasury and MED on assessing a range of possible measures to further promote the development of New Zealand's financial system, including programmes to boost independent equity research on New Zealand firms, an integrated finance sector industry body and education initiatives to boost human capability in the sector.
- Knowledge Transfer – options for extending and refining services (such as FRST's) to better assist New Zealand firms and industries to locate, transfer and absorb new knowledge and technologies from overseas are being explored.
65. The most successful city-regions overseas function increasingly as regional hubs of the global economy via networks of local relationships linked with more extended worldwide networks and value chains. In particular, two essential elements of world-class cities that act as hubs of innovation and internationalisation are:
- Well developed regional innovation systems, including a strongly networked grouping of local businesses and public institutions acting in a supportive manner with one another on R&D and technology transfer; and
- Smart and effective port and waterfront developments, which contribute to the international image of the city reflecting cultural diversity and lift city-regions' economic performance. This is achieved by ensuring that cities' waterfront developments provide urban amenity that help attract knowledge workers and high value firms, and that support the effectiveness and efficiency of domestic and international supply chains.
Action: Auckland Innovation Precinct
66. Ministers have already agreed to work on developing a feasibility study and business case for an Auckland Innovation Centre at Tamaki. This is currently being progressed by MED and NZTE with the University of Auckland and other stakeholders. It has become apparent that the potential benefits of the proposal could be significantly increased by assisting Auckland stakeholders with the development of the wider Tamaki Innovation Precinct, including the Tamaki revitalisation initiative. Beyond facilitating the development of the feasibility study and business case for the centre and potential initial seed funding, a broader vision and plan for the Innovation Precinct could entail an expanded role for government, including:
- Alignment and provision of government RS&T, business and export/market development services to businesses in the precinct
- Supporting activities that facilitate greater networking and collaboration between industry and research in the precinct
- Attracting major investment into the precinct
- Facilitating sector development, including the provision of sector-specific infrastructure, in the precinct
- Ensuring that the precinct helps to regenerate Glen Innes, Panmure, Tamaki and Point England and that the economic and employment benefits from the regenerated precinct provide real opportunities for communities in these areas.
67. I propose that officials from MED and NZTE, in consultation with MoRST, TEC, DOL, FRST and the Treasury, report back to the Ministers of Finance/Tertiary Education, Economic Development and Research Science and Technology by 15 December, on the role for government in relation to the wider Innovation Precinct, as part of their report back on the feasibility study for the Auckland Innovation Centre.
Action: Auckland's Waterfront and Supply Chain Effectiveness.
68. I propose that officials work with Auckland stakeholders to provide high level strategic guidance on the future of the waterfront redevelopment, with the aim of facilitating urban transformation that will attract high value firms and skilled workers, and creating an efficient cost and environmental supply chain both regionally and nationally. This would include:
- Working with Auckland Regional Council and Auckland City Council on the strategic context for future waterfront development. This would entail an expressed view from government on the aspirational development of all the current waterfront projects (Westhaven Marina, Wynyard Point, the Finger Wharves, the Port, as well as the interface with the CBD). This could include the provision of urban design protocols, assessing international redevelopments, or identifying clustering and agglomeration opportunities. It would not necessarily lead to government funding of individual waterfront projects.
- Working with Māori and Pasifika to integrate cultural diversity as a point of competitive advantage.
- Leveraging off a proposed freight study to help officials assess supply chain choices and port access in the city-region.
- Working with Ports of Auckland to consider support for a short haul inland rail service which would ease pressure on road use in the CBD area and act as an environmental exemplar.
69. I propose that officials report back to the Ministers of Finance, Economic Development, Transport, Environment and Local Government by March 2008 on a recommended action plan for ongoing engagement with local and regional stakeholders on these issues. In the interim, officials will be holding exploratory discussions with controlling parties of waterfront assets (principally Auckland Regional Holdings, Auckland Regional Council and Auckland City Council).
70. A number of the other proposed priorities (e.g. broadband, workforce upskilling and focusing government investment) will also support the development of Auckland as a hub of innovation and internationalisation as they will have a significant Auckland dimension.
71. I propose that future transformational actions to progress the Auckland Theme be worked up as part of a more comprehensive package via One Plan for Auckland. Government has agreed to contribute to the development of One Plan, recognise its significance, and engage in discussions with Auckland councils on how priorities in One Plan might be achieved. This could provide a vehicle for agreement on priorities, strategies and options for funding from central and local government and the private sector towards Auckland. Local government officers suggest that the first draft, focused on selective infrastructure related actions, be completed by September 2008. In that context we will need to assess the economic benefits of "agglomeration" alongside the marginal costs of infrastructure and other required developments.
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