Local investors key to sector's growth: Swain

By MICHAEL FOREMAN

New Zealand cannot rely on overseas finance for the development of its information technology sector, says Commerce and Information Technology Minister Paul Swain.

Mr Swain, back from a two-week trip to the United States, Britain, Ireland and Chile, said the journey had opened his eyes to the true nature of the venture capital market.

"This idea of being able to tap into a single huge pool of United States funds is a myth, otherwise every country would be doing it."

%In reality, the venture capital mar%ket was very regional in nature, and operated through a variety of formal and informal networks on a local level.

"Investors need to be close to where their money is. The further away they are from their investments, the higher their risk.

"This was not something I fully understood before," Mr Swain said, promising the lessons he had learned would help to shape Government policy.

In Britain and Ireland, meetings with telecommunications regulators had reinforced his feeling that the Government was right not to have forced Telecom to give up its monopoly on connections between subscribers and local exchanges.

"I came away with the feeling that the unbundling of the local loop - such a big part of the debate - has not gone smoothly.

"In Europe, where the EU [European Union] had mandated unbundling, every country is struggling. It's been an enormously litigious process and little real progress has yet been made."

In Britain, Mr Swain was told there was evidence that the incumbent telco was not opening up the most suitable exchanges to competition, while in Ireland entrants to the market were not interested in serving unprofitable rural communities.

"Everyone wants to compete in Dublin but anywhere outside it gets much more difficult."

But Mr Swain said the issue of unbundling had "not been put aside forever" and he would continue to monitor developments overseas.

While Britain was ahead of New Zealand in the area of e-government, he believed that this country could leapfrog Britain as it did not have the same problems of scale.

Mr Swain said most UK citizens did not want to deal directly with the Government so the British were exploring how businesses could be used as e-government intermediaries.

"For example, if you book a seat on a plane, a duly authorised travel agent would check your passport status."

While he believed such indirect relationships could be the next level of e-government, he doubted such complexity would be required here.

"We should not oversell this stuff. We'll have achieved our goals when New Zealanders can pay their tax online and a small company can do business over the internet with other companies in New Zealand and overseas."

In Seattle, Mr Swain attended a Microsoft-organised Government Leaders Conference that left him with the impression that many countries were trying to attract direct foreign investment in information and communications technology.

He said New Zealand could compete by encouraging high-end niche technologies such as software, biotechnology, small test runs and research and development.

And in California, a meeting with Oracle founder Larry Ellison impressed on him how the America's Cup had focused the attention of the world on New Zealand technology.

"Not only was the world learning of our boat design technology, but Virtual Spectator was the locally developed software that enabled people to view it."

Mr Swain said Mr Ellison had told him New Zealand could become a haven for disaffected California-based IT entrepreneurs.

Since the collapse of the Nasdaq, Silicon Valley had become very flat and it was very expensive to live there.

New Zealand had a huge marketing opportunity here to promote its safer and better lifestyle.