Apps and data centres key to local AI success

Published on the 24/06/2025 | Written by Heather Wright


People moving

But worker ‘reallocation’ could be blocker…

New Zealand can’t realistically compete when it comes to developing new AI models or a microchip industry with countries and companies with their seemingly bottomless pockets, vast natural resources and larger populations. But the country can focus on specific sectors and kinds of AI investment to gain a competitive position, according to a new report.

And those area where we should be ‘investing big’? AI-powered applications and sustainable data centre infrastructure.

“A focus on cost-cutting automation would limit productivity gains.”

That’s according to new research from economics, policy and strategy consultancy Mandala, commissioned for Microsoft, which claims investment in those areas will help generate more than NZ$3 billion in new revenues and productivity savings.

The Australian equivalent report, released late last year, flagged applications and AI data centres as key areas of opportunity for Australia too, but Australia’s areas of opportunity also include data, according to that report. Together, the three areas represent 90 percent of the projected AU$18.8 billion in annual revenue Australia could generate across the entire generative AI tech stack by 2035.

The Kiwi report, released today, follows Microsoft-commissioned research late last year, this time done by Accenture, which suggested AI could contribute $76 billion to $108 billion annually to the Kiwi economy by 2038.

But that value will only be unlocked through widespread adoption of GenAI – and effective ‘worker reallocation’.

“A moderate case, where automation is balanced with workforce automation, could deliver $76 billion annually by 2038,” New Zealand’s Opportunity in the New AI Economy says. “In contrast, if AI is used mainly for automation without balancing with effective worker reallocation, the benefit drops to $39 billion.”

The conservative case could stem from an underdeveloped AI economy with limited infrastructure, skill shortages, regulatory barriers and unequal access.

“In this case, a focus on cost-cutting automation would limit productivity gains. The labour market would reshuffle based on automation alone, with workers unable to adapt, leading to higher unemployment.”

This, the report notes, would leave New Zealand lagging in global AI innovation and missing out on key economic benefits.

On the flip side, a strong AI economy, driven by investment in infrastructure, talent and smart regulation creating an environment where AI augments roles and the labour market efficiently reallocates workers. That’s a scenario the report says would boost productivity, drive innovation and unlock significant economic value.

The new report follows the pattern of serving up some big figures, in this case the claim that New Zealand’s AI tech stack could generate $3.4 billion in revenue in 2035. The figures, as always, aren’t necessarily quite what they seem, with the $2.1 billion in applications coming from New Zealand-based applications and global companies with Kiwi operations. A further $1 billion revenue is forecast from the AI data centres component.

Unsurprisingly, applications are the largest and fastest-growing component of the AI tech stack for New Zealand with a projected 13.0x growth in annual revenue from 2025 to 2035.

“Local startups can leverage existing foundation models to build industry-specific applications, utilising expertise in sectors where the country is already strong, such as agriculture, health and public services,” the report says.

Vanessa Sorenson, Microsoft New Zealand managing director, notes local companies are already delivering AI-powered solutions globally, including cancer and heart disease detection specialists Volpara; Techion, which is enabling remote lab diagnostics, Xero and HyperCinema which is ‘reimagining’ the visitor experience at museums and other venues through personalised, AI-driven storytelling.

The report says AI data centres will likely be another major revenue source, attracting 9.0x growth in annual revenue from 2025 to 2035. Alongside Australia, New Zealand is one of the world’s most attractive locations for sustainable AI datacentres, with 88 percent of electricity generated from renewable sources, a stable political environment, trusted global reputation and proximity to big markets in Asia. Those factors are attracting multinationals to invest and bring technology to the country.

Microsoft’s hyperscale data region, which opened at the end of 2024, naturally, gets a push in the report.

While New Zealand’s chips component market is forecast to grow strongly, it is starting from a ‘very low’ base, and the report notes New Zealand is unlikely to focus on the capital intensive sector, or on R&D intensive foundation model development.

But the report notes there are big hurdles to be overcome before New Zealand can fully capitalise. While the country has strong institutions and renewable infrastructure (all the better for the data centre potential) and ranks well for operating environment, especially ease of doing business, the country falls behind international peers in AI readiness and training its workforce for AI.

Public scepticism and lack of trust contributes to limited social license, while less regulation has created regulatory uncertainty and the country is lagging when it comes to AI research.

Standford’s Global Vibrancy Tool, which uses 42 indicators to rank countries for their AI economic competitiveness, has New Zealand at a dismal 35 out of 36 countries. Australia fares slightly better at 28.

Lagging local investment in AI startups is also an issue. The report says just 10 percent of the $219 million venture capital investment in New Zealand AI startups in 2023 came from local investors, well behind international peers such as Australia, with its 40 percent.

“Increasing local VC investment would strengthen the AI startup environment by leveraging knowledge of local market dynamics and opportunities.

“Maintaining significant international partnerships and investment will be particularly important in the AI tech stack components most promising to New Zealand and could foster export opportunities in the long term.”

The report includes a range of actions for both industry and government, including work to enhance national workforce readiness and talent development initiatives with a focus on upskilling the existing workforce as well as training those entering or re-entering the workforce.

A call for industry and government to work together to accelerate AI applications, including supporting government agencies to adopt AI and fostering AI development through public research and funding is included along with growing and promoting the AI startup ecosystem to attract and grow investment, talent and innovation and supporting applications in the priority sectors to start-up, scale up and go global and identifying and leveraging existing expertise to attract investment.

Doubling down on data centres is also advocated for. Among the recommendations there are fast-tracking data centre approvals, supporting the scale up of firm renewable electricity and promoting hyperscale cloud and high-speed network access across the region.

“Building anything strong and resilient needs a plan,” Sorenson says. “As a small but mighty country, it makes sense to stick to our strengths, and the foundations we’ve already laid in app development, datacentres and of course, our core sectors. With our renewable energy advantage, strong institutions, and innovative local companies, we can build an AI-powered economy that’s the envy of all the neighbours.”

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