Paper to a breakfast session of New Thinking ‘06 a conference promoting New Zealand’s latest biotech, creative and technological capabilities. Lead sponsor: New Zealand Trade and Enterprise. Auckland 27 February- 2 March, 2006.

Keywords: Growth & Innovation;

David Skilling’s presentation is pessimistic because its message was known twenty and more years ago and little seems to have changed. [1] Then we had poor global connectedness with an overemphasis on resource exports. Twenty years later we still have poor global connectedness with too high a proportion of resource based exports.

I could, in another context, explain how we wasted the two decades, but this morning I am going to talk about what at last we are doing about it. Note there is nothing wrong with primary exports per se, and we expect them to flourish in the future, especially if we get a sensible outcome from the Doha trade liberalisation round. However countries which depend upon resource based exports tend to grow more slowly that those with sophisticated manufactures and service exports where there are greatest dynamism and productivity gains.

Exporting such sophisticated products need not be at the expense of primary production. Were New Zealand in the middle of OECD countries on an export to GDP it would be exporting about 40 percent more. That is another $20 billion of exports a year on the most conservative assumptions. The additional exports cant come from primary sector, because there are resource constrained.

What the NZI report does not capture is the economic transformation that is underway. That’s what this conference is about. Its about developing certain capabilities which already exist into major export industries.

I’ll talk mainly about biotechnology, the theme of the day. New Zealand has a long and proud record in biotechnological innovation. We have a capable, skilled ,and technologically savvy work force, we have world class research laboratories, and we have a strong tradition of private public partnership. But with the molecular revolution, biotechnology is changing and we have to too.

So the industry is going to look different. Some will continue to be an enabler to the primary sector. But much will strike out to sell biotechnological products directly overseas. For us the technological transformation involves producing high value but light products. Auckland International Airport is already our third largest exporter of goods, while broadband is about as high value to lightweight as you can get.

Unlike the old biotech industry the new one will be more located in Auckland. That means ensuring that Auckland is a global city. The current priorities are infrastructure – transport, broadband and energy security – plus the airport and university. But because New Zealand is a small country expect to find contributors in other centres. An Auckland biotech company I’ve worked with gets some of its testing done in Wellington. Dunedin is likely to be a strong biotech centre too..

There are many things which have to be done to maintain the transformation’s momentum. Let me finish by mentioning something that key people in this audience have to contribute. New Zealand does not just need direct investment in the firms in the biotech and other transformational industries. It needs the commercial intelligence that the investors bring with them. We know that many of the ventures are going to fail – that is the nature of this sort of innovative industry. We dont want to waste resources in these failing industries – the trick is moving your quality resources into the most profitable industries. But it is difficult to make good judgements. Investors putting up their funds are helping the selection of successful firms, in that decentralised way which the market does.

So the economic transformation requires investors not just for their funds but for their judgements. Let me say to them, let me say to all of us embarked on this exciting structural transformation, ‘bon voyage’.

[1] Based on the New Zealand Institute report Dancing with the Stars: The International Performance of the New Zealand Economy. (December 2005)