NZ Manufacturers and Exporters Association's Election 2017 wish list: A focus on tertiary education, a targeted immigration policy, and an understanding of how automation will affect the sector

By Alex Tarrant

New Zealand’s manufacturers have issued a series of challenges to politicians on both sides of the aisle, saying leadership is needed on tertiary training to close skills shortage gaps, on research and development (R&D) incentives, and on readying the economy for the growth of automation.

In a Double Shot Interview with Interest.co.nz, New Zealand Manufacturers and Exporters Association (NZMEA) CEO Dieter Adam told Alex Tarrant that his organisation’s members were crying out to be heard on issues central to the future of the sector.

The NZMEA on Monday was set to host Finance Minister Steven Joyce, Labour’s finance spokesman Grant Robertson and Green Party co-leader James Shaw for a panel on how the various parties would help sustain and grow New Zealand’s manufacturing base.

From 26% of the country’s gross domestic product (GDP) 40 years ago, the manufacturing sector’s contribution to the overall economy has fallen to 10% of GDP today. Even over the past four years, the trend is evident, falling steadily each year from 10.5% of GDP in 2012 to 10% now despite the sector itself continuing to grow.

It may not seem much but we’re talking in the hundreds of millions of dollars as domestic consumption and the services sector, including services exports like tourism, jump up the list. While that’s all well and good for those industries, Adam argues government needs to focus on policies to allow his sector to flourish. “I’m not aware of any reasonably wealthy country that doesn’t have a strong manufacturing sector.”

Above all, the NZMEA is seeking acknowledgement from government that the sector exists. “When we talk to government, we talk to a lot of people but there’s no coordinated view about manufacturing. There isn’t a single entity anywhere in government that’s got the name manufacturing in it,” he says.

The Greens have an explicit policy for the Cabinet to have a Manufacturing Minister. Whether it’s this or some coordinating agency, Adam says something needs to be in place to help coordinate on issues across the board, from training to infrastructure needs. After all, we have a Ministry for Primary Industries.

If that’s one of the high-level solutions government could bring to the table, what are the more detailed policy changes the NZMEA would like to see?

Skills shortages & training

Manufacturers across the country – particularly in the sector’s Auckland and Christchurch heartlands – tell Adam constantly that the biggest handbrake on growth is skills. “We have a significant skills shortage. It is getting worse all the time,” he says.

NZMEA members overall have somewhat limited expectations of what the government can do for them, Adam says. They’re aware that the success of their business largely depends on what they do, and their own skills. “But we have to recognise that tertiary education and…secondary education, that is the domain of the state and the government spends a lot of money in this area.”

Manufacturing, along with construction and the primary industries, are saying New Zealand’s tertiary education system doesn’t produce the people that these sectors need. I remind him of the OECD recently saying maths tuition should be boosted in secondary schools and that this could lend itself to a greater number of engineering students attending and graduating from university.

But Adam says even though that sounds like a plan – that’s not what manufacturers are calling for. The government a few years ago threw a bunch of money at exactly that – boosting the number of engineering graduates. “We’ve now got engineering students coming out of the system that can’t find a job, because the shortage is not at the graduate engineer level, as much as the levels below,” he says.

What manufacturing businesses need are trained technicians – as in, at polytech level rather than Bachelor. Adam told Tertiary Education and Skills Minister Paul Goldsmith as much in a meeting last week. Not enough has been done to study exactly where the skills gaps are, he says.

Whenever we mention skills shortage gaps, conversation now inevitably drifts to immigration policy. Are the government’s proposals to tweak the skilled visa settings useful? Unsurprisingly, Adam says they were not.

One of the changes will see a proportion of migrant workers being required to leave the country for two years after any three-year stint. “It doesn’t make any sense. You just trained them up and then you have to send them back.”

The NZMEA’s primary interest is changing the skills mix that comes out of New Zealand’s tertiary education system. “But that’s not going to happen overnight. In the meantime, if we want to keep the factories running, we need to fill the gaps with a mix of local – preferred – but also migrant workers.”

“Look, I don’t know anybody who says, ‘I want to employ a migrant [over a local].’ People need skilled workers. It is so desperate. They’ll happily employ a Kiwi, but in most cases there’s no Kiwi available.”

New Zealand needs more targeted training and education policies, Adam says. So, is he more confident after that meeting with Goldsmith? “Yes and no.”

“The problem I have is, I can’t go to the Minister and say, ‘this is exactly what needs changing,’ because we don’t have the analytical power ourselves to say [that definitively]. I couldn’t tell you exactly how many skilled workers are missing in what particular roles.”

The government is in the best position to conduct such research, which would help it to make intelligent policy decisions. “That needs to be the first step.”

Guys in white coats govt’s typical R&D target, but process innovation just as important

Another key election issue for the sector is how to better incentivise business to risk extra spending on research and development. This seems to be more favourite of the Left, although the current government has made changes since coming to power, away from Labour’s R&D tax credit stance.

The ‘new’ current system isn’t working for all companies, Adam says. Larger companies can tap a ‘Callaghan Growth Grant’, which is just an R&D tax credit in drag, he says. But, while they’re happy, smaller companies – the majority – aren’t eligible. They have to try and tap ‘project grants’; a lot have just given up on them because they are so administratively cumbersome.

A bigger problem is that the government appears to have quite a narrow view of what innovation is. “Innovation [to government] is a guy with a PhD and a white coat, developing some fancy new product,” Adam says.

But in “real business,” innovation comes in different forms – process innovation is just as important as product innovation. NZMEA and its members have held discussions with the Callaghan Institute in the past where they were told process innovation wasn’t a focus. It should be, Adam argues.

“It really comes down…to an understanding and interpretation of innovation that’s very much driven by the fancy TV programmes, rather than really understanding what innovation means for business.”

“Innovation is a means to an end,” Adam says. “We talk about globally competitive companies, because that’s what our manufacturers need to be, and they innovate to stay globally competitive; they don’t innovate because they like innovating.”

The rise of automation

On the subject of innovation, automation is an increasingly important topic not just for the owners of manufacturing companies, but their employees as well. Interest.co.nz has looked at the topic here. Read economist Matt Nolan’s ‘Top 10’ on the economics of automation here.

Yes, it certainly is a critical issue for the industry and our political leaders to understand, Adam says. Automation is part of the story of manufacturers trying to find which innovative technologies and processes will help them stay globally competitive.

A message for Joyce, Robertson and Shaw: “In terms of the political debate, I can’t really see any good evidence of us having an intelligent debate about the future of work and the future of the economy,” he says. “Changes are going to happen, and if we’re not prepared for them then we’re going to be worse off.”

“Manufacturing will look quite different in ten years’ time, I’m sure of that.” What will it look like? We’re still not sure. Some studies suggest it could lead to job growth, while others suggest heading towards an employee-free industry as robots take over.

New Zealand has a productivity problem. We’re told that constantly, most recently by the OECD. Adam says this could partly be down to activity turning towards less productive industries like tourism.

That’s where automation should come in to help drive manufacturing growth. Adam says innovative technologies have allowed companies to become more productive and grow, giving them the ability to keep hold of their workers and even employ them more gainfully.

“If we want to become a wealthier country, we need to increase productivity in terms of GDP per hour worked. But if we create jobs that are lowly paid, like on the minimum wage, we’re going to go down rather than up.”