Recommendations

1. Note that there are currently unresolved issues around sector engagement including the role of sector policy in economic development, inconsistent selection criteria and lack of effective prioritisation and co-ordination across government;

2. Agree to continue high-level whole-of-government vertical sector engagement as an economic development tool with the objective of raising the sustainable rate of economic growth;

3. Agree that the rationale for high-level vertical sector engagement is to:

1. facilitate economic development, by encouraging an increase in the proportion of firms in each sector pursuing high value added activities;
2. ensure that generic policies and institutional arrangements are impacting on a sector in a consistent and mutually reinforcing way;
3. improve co-ordination, linkages and networks between government and the sector; and
4. ease the social impact of sectors in transition and help find sustainable activities in that sector;

4. Agree that high-level vertical sector engagement should be a rolling process with the objective of progressively engaging all sectors of economic significance over time;

5. Agree to the following criteria for selecting and prioritising vertical sectors and assessing requests for high-level engagement:

1. the sector's contribution to GDP, and potential to grow (material impact);
2. the value that a sector will add across a range of other sectors (spillover effects);
3. the commitment of the sector to work in partnership with government, its ability to develop a vision and strategy, and implement action points; and
4. the ability of the government agencies to add value, recognising the costs and risks of sector engagement;

6. Agree that the aim of high-level sector engagement should be the development of a vision for the sector, a sector-led strategy and supporting plan of action;

7. Agree that high-level vertical sector engagement should not preclude engagement with firms in regions, clusters (or other groupings), ongoing engagement with sectors by New Zealand Trade and Enterprise, the Foundation for Research Science and Technology and the Tertiary Education Commission, or ongoing issue-specific sector engagement;

8. Agree that high-level engagement should not lead to any substantial re-allocation of resources in favour of particular sectors, unless there are exceptional and overriding reasons for addressing a market failure or spillover;

9. Agree that the Ministry of Economic Development take the lead role in the development and co-ordination of sector policy;

10. Agree that, on a case-by-case basis, the lead agency for high-level vertical sector engagement should be the agency with the best overview of the sector;

11. Agree that proposals for high-level vertical sector engagement require Cabinet approval, and that approval be sought well in advance of engagement to enable agencies to allocate or seek resources, build up sector expertise and incorporate sector engagement into output planning;

12. Agree that Cabinet submissions identify the lead agency, the rationale and objectives of engagement, the mechanisms for engagement and co-ordination, provide a timeline for engagement, set key milestones (including disengagement), identify how the risks of engagement would be addressed, and include an evaluation plan;

13. Note that high-level sector engagement raises a number of risks and costs including the risk of engagements leading to poor decisions on resource allocation;

14. Agree that to help ameliorate the risks and potential costs of high-level sector engagement, engagement should focus on:

• improving generic interventions that address impediments to growth and which do not distort investment decisions or programmes in favour of particular sectors;
• improving co-ordination and utilisation of government resources already available to a sector; and
• ensuring that initial interventions are modest in size, and that engagement is subject to evaluation;

15. Note that government should remain open to identifying and promoting new general purpose technologies (GPTs) because of their potential impact on productivity across sectors;

16. Note that the distinction between GPTs and vertical sectors will not always be clear-cut, and there will be some sectors that have general purpose technology characteristics that make them candidates for diffusion;

17. Note that government can promote diffusion of GPTs through facilitative policies to:

• spread the benefits of the GPT across the economy (for example, helping small business assess the opportunities of e-business); and
• overcome information asymmetries by co-ordinating and disseminating information about the benefits of the GPT to sectors;

18. Agree that, at the outset of engagement, government needs to be clear whether the objective is to promote the uptake and adaptation of GPTs (or sectors with horizontal impacts), or whether the objective is facilitate vertical sector growth;

19. Note that the Ministry of Research, Science and Technology and the Ministry of Economic Development are developing policy options aimed at promoting the diffusion of biotechnology and will update Biotechnology Ministers (the Ministers for Research, Science and Technology, Finance, Health, Agriculture and Forestry, Environment and Economic Development) on this work by 30 May 2004;

20. Note that the Ministry of Economic Development is developing a new ICT strategy aimed at promoting the uptake and use of ICT in New Zealand and will report back to Cabinet with a draft strategy by 30 May 2004;

21. Agree that the Ministry of Economic Development take the lead role in monitoring and evaluating high-level sector engagement by monitoring the performance of engaged sectors over a three to five year period against specified expectations and milestones set out in sector strategies;

22. Note that, using the vertical sector selection and prioritisation criteria, a preliminary assessment of sectors for high-level engagement has identified the food and beverage sector;

23. Direct the Ministry of Economic Development, Ministry of Agriculture and Forestry and New Zealand Trade and Enterprise, in consultation with the Treasury, to report to the Ministers of Economic Development and Agriculture with a proposal for engaging with the food and beverage sector by 30 August 2004, with a subsequent report to Cabinet by 30 September 2004; and

24. Direct the Ministry of Economic Development, in conjunction with the Treasury, New Zealand Trade and Enterprise, the Foundation for Research Science and Technology and the Tertiary Education Commission, in consultation with other agencies, to report to Economic Development Ministers (Finance, Economic Development, Research, Science and Technology, Trade Negotiations, Tertiary Education, and Associates Industry and Regional Development) on further sectors for high-level engagement by 30 December 2004.