Category Archives: Economy

Seismic Survey Data Decision Rocks

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In what amounts to the first substantial new investment by the government in economic development since last year’s election Minister Gerry Brownlee has announced a spend up of $20 million on the acquisition of geophysical data in New Zealand’s offshore petroleum bearing ocean basins.

With a government services spending drought firmly in place one has to admire whatever MED mandarin it was that managed to make the business case for the project. National are claiming it as an election promise delivered, but the reality is that it needed to happen no matter which government was in power and here’s why. In 2006 Crown Minerals went to Court to force petro-giant Exxon Mobil to hand over data that had been generated by the company and its partners but not exploited. About the same time the government began undertaking its own surveys. In 2007 there was another tender round for fresh exploration blocks but the response from major players was muted.

Notwithstanding that legal action by the Crown raises questions about ownership rights and foreign investment; by owning the survey data, the Crown has far greater influence over how it is used. It also mitigates the risk of any further expensive and wasteful Court actions by multi-nationals keen to defend their patch. Exploration companies build survey estimates into their financial reporting data, but will quite happily sit on this information until it suits them to act on it, possibly for decades. The Great South Basin is by far the most promising of New Zealand’s licence areas, but is also the most treacherous. At $55 per barrel small players could not possibly justify the several hundred million dollar invest required to bring a deep water well into production.

Offshore oil exploration is a dirty business and Exxon-Mobil in particular have an appalling environmental track record for which they make few apologies. So the government needs to be careful about how it spreads the financial and environmental risk associated with this game. On the upside, making the survey data available could potentially lead to a multi billion dollar exploration and production investment once the oil price rises again (which it no doubt will). Unfortunately because of the development timeframes involved, it is unlikely to contribute to the economic recovery in the short term.

Innovation, Property Rights and the Political Economy

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In recent months I have noticed an elevated volume of commentary relating to the overlap between economic development and the political expression of property ownership rights. Part of this debate has been driven by sea changes on the political landscape and new analysis of the role previous governments have played through intervening in markets. Last week’s OECD report card on New Zealand fanned the flames of this debate to a new level.

The report suggests that previous governments have consistently failed to address historically poor levels of productivity and innovation. In the face of a global economic emergency there is a strong call for urgent action to reconfigure policy on this front.

“New Zealand’s living standards remain well below the OECD average. This is entirely attributable to persistently low labour productivity, which in turn is related to economic geography as well as structural policy factors. The small size and remoteness of the economy diminish its access to world markets, the scale and efficiency of domestic businesses, the level of competition and proximity to the world’s technology frontier. This points to the need for a “New Zealand policy advantage”, that is, a set of structural policies attractive and welcoming enough to overcome the geographic handicap and attract the drivers of prosperity – investment, skills and ideas – to New Zealand.”

Innovation, property rights and the political economy are intertwined. For example without a robust framework for the protection of intellectual property there is little incentive to innovate and generate economic returns from new ideas. But implicit in the OECD calls for macroeconomic restructuring is the suggestion that Crown assets be sold to address fiscal debt. This remarkably unoriginal idea seems to mysteriously surface every time a National government is elected.

Some have argued that New Zealand’s historically interventionist approach has discouraged investment in innovation and critical infrastructure. However, hurried or ill considered sales of State assets (originally funded by taxpayers) in some respects seems contradictory to ongoing academic arguments that favour less intervention, more consistency and the protection of unalienable rights to property. How do we reconcile these positions? Should we be doing so? As was once proposed, would it not be better to leverage the capital invested in State owned enterprises to create new, high value spin-off ventures?

Of course the situation is complicated in New Zealand by the fact that Maori have strong views in terms of property rights, securing favourable State regulation and the connection this makes with their own economic development aspirations. But can we promote a free and unfettered market with strongly protected property rights on the one hand whilst at the same time contemplating separate justice and electoral systems and the wholesale transfers of property assets based on race? External investors no doubt also weigh these risks when considering New Zealand as a destination.

Rural Towns Left to Wither

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I had occasion to head home to the provinces for a family visit last weekend. What always strikes me is the character of the little towns along the way. Some of them have been dying off for years, only kept alive of late by the fact that the surrounding rural economy has been booming. But with commodity prices plunging, the underlying support from dairy (and oil) is falling away.

If city dwellers are feeling the pinch now, spare a thought for the rural towns. For some, almost nothing has changed since the 1950s. Their central business districts generally comprise a petrol station, convenience store and a public bar. Now with falling trade even some of the pubs and petrol stations have passed on. Weeds creep insidiously through gaping holes in ramshackle corrugated iron fences that surround overflowing car wrecking yards and the odd farm machinery repair workshop. It’s not rustic or charming, it’s decay; and it’s a testament to how decades of questionable government economic policy has left such towns unimproved.

The one beacon of hope amongst this desolation is the local school. Tidy, manicured grounds surround the elderly buildings, replete in yet another coat of standard issue Ministry paint. The school is the last remaining focus point for the community. But even the school is at risk as roll numbers dwindle and the same Ministry casts its bureaucratic ruler over the books. Not even community pride in the school can prevent the young people from leaving town as soon as they are able – there is nothing to hold them.

Some of the troubles faced by rural towns are simply geographical. No amount of government intervention can compensate for poor soil, challenging climate or remoteness. For those towns that do not have viticulture or glaciers or fishing quota, the future looks rather bleak. On a broader front, the withering of our small towns is related to the fact that New Zealand in general continues to lag behind in GDP per capita. There is simply not enough cash to go around, largely because we have underinvested in innovation as a nation. Our small provincial towns are a metaphor for the wider economy.

I mentioned that education is a beacon of hope, there was also another glimmer of light on the horizon last week. McKinsey run an annual exercise involving mapping global innovation. Auckland was the only New Zealand city that was polled, but it showed up in the top left corner of the data as a “hot spring” of innovation. In other words we are registering more technology patents each year, but only in a small number of areas. Now, it turns out that bubbling hot springs generally host a thriving microcosm of life. On that basis investing in science and technology innovation as a means to generate economic wealth seems like a good idea. So why is the government heading in the opposite direction?

Local Tech Rejected for Auckland Transport Solution

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Infotech are reporting that a French firm has been identified as “preferred provider” for an integrated smart card solution across the Auckland region. If NZX listed local company Infratil misses out, it underlines the continuing struggle faced by local technology firms to secure major publicly funded contracts.

The Auckland Regional Transport Authority (ARTA) has been assessing tender responses for a much needed smartcard solution that would provide considerable relief for beleagured commuters in the City of Sails. But ARTA appears to have already flagged Thales as the most likely candidate in the project, which is reportedly valued at up to $100 million. At a time when everyone is concerned about preserving jobs, you would think that local contractors would receive favourable consideration. But – as in the past – local component is not a criteria for assessing public spending.

The stakes are high for the companies concerned. Wellington is considering extending to a region-wide solution and Christchurch is looking for a system that is compatible with whatever technology Auckland settles upon. The New Zealand implementations will also be excellent business case studies to support future export sales.

So perhaps the local technology is inferior? Not so. Last year Infratil, in a joint venture with ANZ bank, developed and launched the Snapper smartcard on its bus network across the Wellington region. Apart from some minor teething problems at the outset, the product has proven a success amongst Wellington’s commuters and usage continues to grow. The swipe cards can be recharged periodically and also used for small purchases at convenience store outlets.

Perhaps the chief criticism of Infratil’s solution involves concerns about monopolistic practices, because only Infratil buses currently have the Snapper technology installed. However that argument seems like a moot point given that ARTA have complete control over the scope of the solution for Auckland. Infratil will also draw upon the experience of it’s Australian project partner, infrastructure giant EDI Downer. So there is little doubt about the vendor’s ability to stay the course. Having eliminated the usual arguments – what is it that stops NZ public agencies from supporting local businesses? Outdated attitudes towards procurement of local technology should be confined to history.

Jobs Summit Lacked Innovation

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Predictably the sketchy proposals emerging from last week’s “Jobs Summit” ranged from mildly interesting to the completely ridiculous and I’m left wondering how many will actually come to pass. But the ideas fest, hosted at Manukau City, was not actually about generating sensible approaches to the economic crisis, it was about putting on a display of unity and generating some positive buzz. Ironically, the business leaders at the conference will likely preside over hundreds of layoffs themselves in the coming months.

I like that John Key is an ideas man and is prepared to entertain novel concepts. But his sidekick Bill English made it very clear going into the summit that the state of the nation’s finances would not allow for a great deal of additional expenditure. By lowering expectations ahead of the summit he allowed the government to wiggle out of addressing any meaningful economic reform. His comments may even foreshadow some backpeddling on big ticket sacred cows like tax cuts, broadband and superannuation.

I guess my real concern is that the Jobs Summit hoopla has eclipsed the fact that economic realities have shifted so much that we really need to make a quantum leap in how we approach investing in our future as a nation. I’m not convinced that the summit properly addressed these issues. Borrowing cash to dig cable trenches and build a cycleway will simply not cut the mustard in my opinion.

Since it was elected, the government has astutely avoided making any comments about the need to invest in research, science and technology innovation. In fact the only promise they have made in this area is to kill off the R&D tax credit. They still don’t get it. The only businesses that are growing right now are precisely those that have invested in technology research and development. For example colostrum manufacturer New Image have exploded onto the Asian market. Even the horrendous balls-up in China by dairy commodity behemoth Fonterra has failed to suppress the demand for this high end, added value product.

Saving jobs in the breakfast cereal factories and assembly lines of South Auckland is important. But even more important is creating more high tech companies and developing our largely under-educated workforce. The lack of aspiration we currently demonstrate as a nation is reflected more and more in the ugly twin cultures of ethnic gangs and idiot boyracers that are furtively permeating our society and populating our streets with a generation of social rejects. What we really needed was an all encompassing social, economic and technological Innovation Summit.

The Digital Innovation Terminator

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With the squashing of the R&D tax credit, the biffing of BIF and the annihilation of the Digital Development Council one could be forgiven for thinking the incoming government is auditioning for a role in the forthcoming Terminator movie. Of even more concern is a blatant lack of understanding about where the Internet is taking us, as witnessed by their trashing of the Digital Forum.

Don’t they get that distributed problem-solving by communities and networks is the way forward now? When the Minister states that the government will now consult individually with the parties concerned, what he really means is that he will open the door to the best corporate lobbyists around town. Joe public, small business and the creative sector won’t get a look see. The Digital Forum wasn’t perfect, but at least it gave voice to a wide range of users and producers of digital innovation and creative content.

The axing of the government shared network represents yet another another milestone in the government’s ideological war being waged on every last programme or initiative that had Labour’s brand on it. This leads one to the disturbing conclusion that the KAREN research network might be the next target on the chopping block. Established as a Crown entity, the network was supposed to turn a profit whilst delivering high bandwidth capability to the already under-funded research agencies and universities. But poor demand modelling and underinvestment in marketing new services left the network underutilised.

Given the already woeful levels of research, science and technology investment by government, it would be a disaster to let KAREN go. In fact the government should be fully funding its owner REANNZ as a matter of course, as part of a wider commitment to building up RS&T capability. The potential in terms of research and science outcomes from a properly wired and (socially) networked science and technology community has yet to be fully tapped.

Will the “Jobs Summit” Deliver?

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Almost everybody with half a clue accepts that another round of economic reform is required to address the challenges ahead. But the National government’s “100 days of (in)action” will soon look like an opportunity lost unless John Key can execute rapidly on some good ideas following next month’s “job summit”.

In case you hadn’t noticed, the perfect storm is gathering. Melting commodity prices, a tidal wave of leveraged debt plus cooling consumer spending has all but evaporated economic growth. The rainy day has arrived. The good news is that previous governments have been fiscally responsible by putting some of their pocket money in the piggy bank. The bad news is that they gave up on attempting to diversify the economy away from logs and animal protein, despite all the advice to do so.

Whatever happens, the prime ministerial “jobs summit” planned for next month will not be a panacea. However it is better than doing nothing, which is what the government appears to have been doing since the election in early November last year. A quick flick through government Minister’s press releases reveals that almost no new ideas or economic strategies have been announced since the election. What are they waiting for? Management theory suggests that business turnarounds succeed best when there are early wins and momentum for change is built up rapidly. Economic turnarounds are surely subject to the same laws of physics. So far the signs are not very promising

The “jobs summit” needs to be rebranded more broadly as a societal forum because it is not just about jobs or even money any more. It’s about dealing with a paradigmatic shift in how business, government and society operate within economies. If the government don’t understand this, we have a real problem. That’s why it troubles me that the forum has been proposed by a former investment banker and will be chaired by a stock exchange CEO. Aren’t these just the kind of people who got us into this mess in the first place?

Boardroom Boo-boos Beggar Belief

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Questions being raised over the standards of corporate governance in Australia are a timely warning to boards and CEOs on this side of the Tasman.

The shock departure of ex-All Black and Kiwi Rhodes Scholar David Kirk from Fairfax demonstrated how far the rumblings of discontent in Australia about executive and boardroom performance have spread. With commodity prices on the wane and a global recession lapping at Australia’s shores, corporate decision-making has come under more intense scrutiny. Until now shareholders have enjoyed booming profits and were happy to go along with board decisions on strategy and governance. Only now are they being awakened from their stupor.

David Kirk may simply be a scapegoat for an industry struggling to come to terms with the proliferation of web based media services that have nibbled away at a previously dominant market position. But there are probably more fireworks to come. Outspoken Telstra CEO Sol Trujillo might have a blowtorch turned on him after his antics in Canberra estranged the new government and resulted in Telstra being excluded recently from bidding in Australia’s broadband network lolly scramble. Colourful Qantas board member and recently retired CEO Geoff Dixon might also be in the gun having presided over an alleged collusion scam with other airlines, the costs of which have yet to appear on the books.

Episodes like these raise serious questions about accountability and shoot dead the concept of sacred cows when it comes to board appointed management. In New Zealand we only need to look as far as our largest exporter. Fonterra chair Henry van der Heyden in a recent radio interview calmly discusses shareholder value offsets and the non-impact of San Lu on the company’s overall global strategy. No mention of the enormous human cost due to poor management practices inherent within China’s milk supply chain. For $4 million per annum in salary, you’d think their CEO would have taken a more active interest in how quality control and risk would be handled in their China venture.

Opening Fonterra’s share register to the public would be one step towards greater accountability and it would allow the wider public to participate directly in one of our few truly global entities. Fonterra’s farmer shareholders seem unlikely to sanction for change however, even though their conflict of interest as both suppliers and beneficiaries smells rather like a fresh cowpat. In that kind of perverse culture, it is unsurprising that the company has been all but silent on the fallout in China.

2008 Round-Up and Festive Cheer

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I’m pleased to report that (in stark contrast to 2007) this year was filled with achievements and a reaffirmed sense that our ideas on knowledge sharing and community building have even more relevance than ever before. This year also saw some big changes on the political landscape and darkening clouds of recession wrought by the purveyors of greed who suddenly found the debt taps had been turned off.

On a more positive note, with the mainstream embracing cloud computing and social media, there was mounting evidence of a paradigmatic shift towards conceptualising the Internet as an all encompassing virtual operating system. The hope is that creative digital enterprises that generate real value will survive beyond the nuclear winter.

Teaming up with some talented guys to form domain industry technology services provider ideegeo was certainly the highlight of the year and the fulfilment of a personal ambition of mine. The new company is an umbrella for a number of interesting spinoff projects, the first of which is iWantMyName our global domain registrar site. Strategising how we use this venture to leverage the aforementioned paradigm shift will occupy much of my time in 2009.

I was also invited to join the Unlimited Potential committee and was consequently able to put my organisational skills to good use helping another talented team to bring several key projects to fruition. UP is Wellington’s leading provider of live networking events to the technology community. I obtained a huge amount of satisfaction from project managing our wonderfully successful final event for the year – Wellington to the World and establishing a template for future advances.

But despite being rich with all this enthusiastic talent, New Zealand continues to suffer from being somewhat removed from the global epicentres of technology investment. Sometimes we are so busy even that we forget to chat to our neighbours and colleagues across the fence. We hope UP events in 2009 will continue to build a sense of community in the technology sector and catalyse new connections and creativity. We hope too that the change in government will result in the development of a truly inspirational national blueprint for innovation that retains incentives for research and development.

Most importantly, 2008 has been a year for many new friendships as a result of participating in the business and being actively engaged in community events and even social media channels like Twitter. Best wishes to all readers and their families. Keep safe and be well over the festive season.

A Shaping Strategy for Technology Innovation

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Instead of retrenching, businesses are now being encouraged to use “shaping strategies” to navigate their way forward through uncertainty, so why couldn’t we apply this approach in the broader economy?

I’ve discussed at length the need for a unified national strategic blueprint for research, science and technology innovation. In difficult economic times this is more important than ever, because a ship without a rudder goes around and around in ever decreasing circles. But during an economic downturn is the perfect time to build capability in preparation for the next up cycle. This applies as much to a national economy as it does to  a small business. So we need to look at how we formulate innovation strategy both within our technology ventures and as a nation.

Shaping strategies eschew Darwinian styled adaptation to rapidly changing environments in favour of a vision that inverts the traditional risk/reward pyramid. Shaping strategists argue that by defining the market and offering a compelling case for investment, companies can leverage extraordinary returns.  For example in the confusing world of carbon trading and taxation of emissions, traditional polluters such as energy providers are now investing in disruptive clean technologies as a new source of revenue. The entrepreneurs who saw the change coming and established solar and wind energy technology ventures five to ten years ago are now reaping the rewards.

Shaping strategies are exemplified by involving large and diverse ecosystems of participants but within which profitable niches are established. So in the same way that Apple and Microsoft defined desktop computing, Google is now embarked upon a strategy to reshape how consumers perceive enterprise software. And although not every business has the resources to shape the market, there is lots of space to occupy the various niches that emerge within the new paradigm. For example at ideegeo we are carving out a space through which we can utilise our expertise in domain related technologies to support the transformation from proprietary software to hosted services.

So could we use this model to address strategic deficiencies in our own economy? I say yes, but it calls for a grand vision that previous governments never quite delivered on. A national shaping strategy that includes addressing infrastructure shortcomings whilst simultaneously raising research, science and technology output would create many new niches for businesses and individuals to occupy. Unfortunately politicians and civil servant bureaucrats are somewhat risk averse and therein lies the problem.