2015

It’s time to close the productivity gap

Why, in the last 40 years, has New Zealand’s GDP per capita slipped from being 20% above the OECD average to now being approximately 30% below?

There are many contributing factors, but one of the key reasons is that as a country we are just not productive enough.

It’s part of our boat, bach, BMW culture, where we like to ‘work at play and play at work’. We lack the business edge and drive that is evident in other countries.

The Government is well aware of this, and as far back as the 2012 Budget one of its four main priorities is creating a more productive and competitive economy. While this is a positive step forward, the slide continues. More action is needed.

Many SME owners are ambitious, entrepreneurial, hardworking and smart, but as a culture, as a nation, those attributes apply less here than they do in other OECD countries, despite individual exceptions.

For every business where these skills are in abundance, there are others where owners have little or no skills. They prefer to work in the business and not on the business. The large number of companies that have gone bust in the construction sector as part of the Canterbury rebuild is stark evidence of a lack of business skills.

It seems strange that agriculturally we are one of the most productive countries in the world, but this is not apparent in the businesses that make up the towns and cities of the nation.

Skills and training must be a key focus of the Budget to help us fight our way up the OECD ladder.

An immediate target for the Budget could be to tackle market failures by increasing investment in Government programmes for SMEs. To create the best growth environment for businesses to thrive, we need to understand the characteristics of our small and medium sized businesses, what determines their success, what holds them back and how they work; and take effective, targeted action.

Take for example the UK Government’s business growth services. Like New Zealand, the UK also has an ambitious business growth agenda and they have been addressing a number of market failures related to the uptake of business support. The UK Government is targeting support for businesses which are more likely to deliver additional economic growth and targeting areas that will have the greatest impact, as opposed to a shotgun approach, scattering small programmes over a large number of businesses. The UK’s business growth strategies have assisted thousands of businesses, helped them create tens of thousands of jobs and delivered a high and measureable return on public investment.

Apart from agriculture, where we are amongst world leaders in efficiency and productivity, New Zealand is slowly slipping down the productivity ladder. The Government can help with changes in the Budget, but there also needs to be dramatic psychological shift amongst business owners.

It’s okay to give advice and receive feedback. It’s fine to seek help from experts. Rather than driving down production costs, time spent looking to add value is more important. The world does not stand still; you have to continually upskill to keep pace.

We need rapid and decisive action to deliver on New Zealand’s economic ambitions and to steer the economy on a path to strong and sustainable growth. Budget 2015 is a good starting point.

Further enquiries, please contact:

Paul Kane
Partner, Privately Held Business
Grant Thornton New Zealand
T +64 (0)9 308 2576
E  paul.kane@nz.gt.com