Kate MacNamara: What Jacinda Ardern misses in hopes of tech rivers of gold

Prime Minister Jacinda Ardern and Minister of Digital Economy David Clark. Photo / Mark Mitchell

OPINION:

Prime Minister Jacinda Arden is "utterly convinced" that "the digital space" has the potential to be a golden economic ticket for New Zealand products.

"Already our technology sector is New Zealand's third-largest exporter," the newly re-elected Ardern told a business audience in her first serious post-election speech earlier this month, "with ICT [information and communication technologies] alone representing $6.7 billion worth of revenue in 2019."

That sounds terrific, though of course we can do better; that's why the Government has created the post of Minister of Digital Economy and Communications, Ardern said.

The job went to David Clark, who resigned the health portfolio in July following a series of blunders including flouting his own Covid lockdown rules.

Clark's now returned to the Government front bench wearing a number of hats, among them Digital Economy, as well as Minister of Statistics.

That's a relief. His first job as Minister of Statistics should be to tell the Minister of Digital Economy that the only people (beyond politicians) who think the tech sector is New Zealand's third largest exporter work for an industry group called the Technology Investment Network (TIN).

A TIN report appears to be the source of those extraordinary export numbers (though TIN reported that ICT represented $4.6b in revenue in 2019, the prime minister's media team couldn't immediately identify the source of her $6.7b figure). A 2020 version of TIN's annual report tracking the tech sector was just released yesterday.

TIN arrives at an export figure for New Zealand's tech sector by identifying the 200 largest New Zealand-linked technology companies. To make the list firms must generate at least 10 per cent of revenue overseas, originate in New Zealand and retain a meaningful presence here, among other factors.

TIN then takes the total overseas revenue for these companies and describes it as the export value of the country's tech sector. The total reached $8.7b in 2019.

And in TIN's newly released update, that figure climbed more than 10 per cent to $9.4b. National leader Judith Collins also recently used TIN's 2019 $8b export figure.

By plopping that undigested global revenue figure for New Zealand-linked tech companies alongside Stats NZ figures for the country's most valuable exported commodities and services, TIN determines that tech is our third largest export after dairy and tourism.

Asked about the nature of the export total, TIN founder and managing director Greg Shanahan said the report describes exports only in a "colloquial sense".

That's fair. But the comparison made between TIN's tech tally and the country's other exports is less so. Stats NZ doesn't describe exports colloquially. Indeed, by its count ICT exports reached just $1.45b for the year ended June, 2020, and $1.22b a year earlier.

That makes ICT our 13th most valuable export, right after fish, crustaceans and molluscs.

Partly, Stats NZ uses a smaller basket of goods and services to consider ICT. And some parts of tech services are captured elsewhere, for example, in the figures for financial services, management and intellectual property fees.

TIN also includes high tech manufacturing and biotech goods and services in total tech sector exports, while Stats NZ spreads those transactions across other categories.

But a significant part of the difference between TIN and Stats NZ figures likely results from TIN's use of undigested global revenue figures to describe exports.

TIN (Technology Investment Network) principal Greg Shanahan. Photo / File

The point of official export figures is to capture transactions between New Zealanders and the world (resident to non-resident transactions). Where goods like dairy products are produced in New Zealand and sold overseas the export value that accrues is pretty clear. But where New Zealand businesses deliver a product or service through staff and facilities based overseas, that transaction is not simply tallied as an export.

According to Stats NZ, the revenue from such sales would only enter in New Zealand BOP (balance of payments) as flows between the NZ parent company and the overseas subsidiary in the form of dividends or distributed branch profits. Some might also flow directly back through fees, for management, licences and other intellectual property.

But the resident to non-resident transaction at the heart of exports is important; it is what connects these transactions directly to jobs for Kiwis. And the limited nature of that connection becomes clear when you look at particular companies.

Accounting software firm Xero, for example, is a great New Zealand tech success (it remains headquartered in Wellington though it trades on the ASX) and it's among the largest firms on TIN's list.

In the first half of the current financial year Xero made roughly $350m in global revenue. But only half of the company's roughly 3200 staff are based in New Zealand. Where staff abroad deliver a product or service (a large number are software and data engineers, architects and developers and not simply in sales) the value flows only indirectly to New Zealand.

Fisher & Paykel Appliances is also high on TIN's list. The company, now Chinese owned, retains both headquarters and design jobs in New Zealand, while all of its manufacturing is in China, Italy, the US and Mexico. Of over 4000 staff, an estimated three quarters are based overseas.

Similarly, a raw global revenue figure for Fisher & Paykel Appliances captures the size of the company but it's not particularly useful for understanding the value to New Zealand.

Indeed, much of the export value for the company's products must accrue to China, Italy, the US and Mexico which ship Fisher & Paykel fridges and dishwashers around the world.
None of that is to say that New Zealand's tech sector is unimportant.

A thriving sector, including multinationals that provide the opportunity for Kiwis to gain global experience and that tend to anchor an "ecosystem" of suppliers and to throw off small groups of smart people who, in turn, found new companies is worth encouraging.

It's the export tally that should be dispensed with, and the apples to oranges comparisons that it invites.