Published on the 29/02/2024 | Written by Heather Wright

The big dollars to be gained through tech-enabled productivity uplift…

New research on both sides of the Tasman is touting the economic benefits to New Zealand and Australia of boosting technology uptake in business with Kiwi businesses being urged to own the productivity problem and take action, rather than waiting for government.

Both countries are struggling with woeful productivity. Australia’s productivity growth has slumped to a 60-year low, with a record 3.5 percent drop in the average output per hour worked recorded in 2022, while New Zealand’s productivity is among the worst of developed countries.

“Most of the productivity improvement will come through embracing technology – but technology on its own won’t get us there.”

But three new reports are all pointing to technology as a way forward for both countries.

A New Zealand Institute of Economic Research (NZIER) study, commissioned by telco Spark, says a 20 percent uplift in the use of advanced digital technologies, such as AI, IoT, data analytics, advanced robotics and 3D printing, would increase industry output by up to $26 billion over the next decade, and GDP by as much as 2.08 percent per year.

Also coming from NZIER, but this time commissioned by ASB, is a report suggesting increasing productivity growth by just one percent would unlock tens of billions in future value for the country, raising real GDP to $500 billion by 2045. That’s a five percent increase on current projections.

Ben Speedy, ASB general manager of commercial banking, told iStart most of that productivity improvement will come through embracing technology – but technology on its own won’t get us there.

“It is reliant on lifting capability of people to utilise the technology. But equally important is how do we innovate around new and emerging technologies to be able to lift the productivity of New Zealand,” Speedy says.

NZIER principal economist Christina Leung says in more productive small advanced economies, it is business that is leading the way with support from government and the finance sector.

“New Zealand business needs to be more ambitious, embrace innovation and invest in capital, knowledge and research and development as an engine for growth and sustainability,” Leung says.

“The country’s economic growth over the past two decades has been largely driven by adding more people to the workforce, and this needs to change, we need to work smarter.”

It’s a similar story in Australia, where a McKinsey report says generative AI has the potential to increase productivity by up to 1.1 percentage points a year through to 2030. When combined with other automation technologies, that productivity growth could reach as high as 4.1 percent a year in the late and midpoint adoption scenarios – that’s four time greater than recent historical productivity levels (and, to be fair, something McKinsey acknowledges is a potential ‘unlikely to be fully realised’ because of ‘significant’ transition costs and second-order effects.

It notes that the benefits may only be realised if employers, governments and educators are able to adopt the technology in a ‘bold and thoughtful’ way.

Despite that, McKinsey says if Australia were to achieve even half of the potential productivity uplift, it could be on track to rekindle the faster economic growth of the post-1990s heyday.

“Such strategic action could ensure that future generations of Australians benefit from the same prosperity that the country has experienced over the past three decades,” Generative AI and the Future of Work in Australia says.

The McKinsey report highlights three examples of genAI opportunities, including automation improving inventory, back office and supply chain management and genAI augmenting key functions such as customer service and marketing and sales in retail.

The NZIER/Spark report also features a big AI push. When it comes to digital technology, generative AI was identified by Kiwi business leaders as the biggest knowledge gap, with 44 percent saying they lack enough information.

But the NZIER/Spark report also highlights another key opportunity – that to be gained by actually measuring digital adoption of local businesses at a national level.

“Unlike the European Union and many other developed countries, New Zealand has no robust or sustained way of measuring digital adoption or progress. As a result, there is no way of tracking how we’re improving, if at all,” Spark says.

It’s calling for a digital transformation benchmark for New Zealand, which it recommends be developed collaboratively between private and public sectors as part of the next Digital Strategy for Aotearoa.

Both the Spark and ASB reports are also putting the focus back on R&D investment.

“We don’t invest enough in R&D,” Speedy says, bluntly.

“We invest about one percent of GDP into R&D versus other smaller advanced economies which are near double that,” he says.

“The positioning we’re trying to take off the back of the research and our productivity grant is we really want this to be business led. Government does have a role to play. It’s really important that government continues to ensure that NZ is a good place to do business. We need the government to continue to invest in infrastructure and foster and encourage R&D and innovation, but fundamentally businesses are the ones that need to do that themselves. Because fundamentally if businesses aren’t investing in innovation, they’re the companies or individuals who are going to be impacted.”

As part of that, Speedy is calling on companies to consider how they can start creating products for the international market and gain greater understanding of what is happening globally, innovating as close to the customer as possible.

The report shows the benefits of international competition in lifting overall performance, with businesses in Nordic countries, Ireland and Singapore forced to innovate to remain globally competitive.

“Large, productive frontier firms, such as Nestlé in Switzerland and Maersk in Denmark compete at the international level and drive the spread of ideas and technology throughout their respective economies, lifting overall performance,” Cheung says.

New Zealand’s export earnings, while increasing significantly over the last 30 years, remain low relative to other small advanced economies, with export earnings accounting for less than a quarter of gross domestic product.

Speedy says ASB is also keen to businesses working together with both the government and other businesses, creating clusters of innovation such as Zespri’s G3.

“But we also need to ensure that businesses are thinking about how they are educating their people and themselves to be able to better utilise the technology that is available,” he says.

“That’s going to become even more important when you think about how quickly the world is moving in regards to genAI etc.

“What we will be able to do and what customers are going to be expecting is going to evolve very quickly so we need to ensure we understand and build capability to be able to leverage that technology to actually create value.”

Rounding out his suggestions are that companies think about efficiencies within their business and how they can use technology to support them to achieve that.