Budget 2015: Is Kiwi ingenuity in danger of becoming a distant memory?

The criteria and processes of Callaghan Innovation grants have been called into question recently by opposition MPs.

Irrespective of whether Callaghan is contributing to our economy’s productivity or generating a significant return on investment for every dollar granted, it’s a positive step in the right direction. The bigger issue is the actual lack of R&D and innovation activity in New Zealand businesses and our lack of presence on the world’s business stage. 

Is Kiwi ingenuity becoming a thing of the past? Hopefully not.

The government is ahead of the eight ball here. Minister Bill English has already stated that this year’s budget will continue to support the government’s business growth agenda. This is crucial in making the most of the opportunities available to New Zealand businesses in international markets to build the economy and increase investment in skills and innovation.

But is it enough? We are a nation of SMEs but what is the level of business acumen among these businesses? Unfortunately not as high as we would like and we are not really looking to “upsmart” our business practices. 

Latest data from Statistics New Zealand shows in the period between 2012 and 2014, investment in basic and applied research has dropped by $17 million to $658 million and $61 million to $1019 million respectively. Expenditure in experimental development has increased by $71 million to $942 million in the same period. However, the data also shows that R&D has grown at a slower rate than GDP. Expenditure as a percentage of GDP has fallen from 0.57% to 0.54% in these two years. 

Recent research conducted by Grant Thornton shows at the end of the 2014 fourth quarter, only 18% of businesses surveyed are expecting to increase their expenditure in R&D, and we are spending less than our major trading partners who predict more R&D spending; China (37%), the US (37%) and the UK (23%).

An area of focus for Budget 2015 could be driving innovation through the education system and stepping outside the realms of the core curriculum and conventional teaching practices. A good example here is Unitec’s partnership with Mindlab, a new facility that teaches educators and young people key digital and technological literacy capabilities. This is a great pre-emptive strike against lack of job security for future generations.  

We should also be thinking about:

• the relevance of the traditional skills being taught at university and if they are fit for purpose in today’s business world; 
• building stronger relationships and better programmes between the business and education sectors;
• what we can do to better educate business owners; and
• incentivising business owners to set aside time and space for employees to innovate and upskill.

But that’s not to say New Zealand businesses are not aware of the importance of being innovative. 

Another survey conducted late last year by Grant Thornton showed only 8% of businesses surveyed place low importance on innovation. The remainder stated it was important (28%), very important (56%) or critically important (8%). So what’s the holdup? The same survey revealed respondents felt certain aspects of their business model needed improvement; the top four areas of concern were business strategy (63%), digital strategy (53%), internal processes (55%) and go to market plans (33%). That is why any boost from the government will be well received

And when asked what they feared would derail their growth plans, a staggering 38% of businesses cited the capability of their people.  

Many businesses owners are ambitious, hardworking and smart and they are aware of their shortcomings, so any assistance the budget can give them to help overcome these will be repaid many times over in boosting the New Zealand economy.

The time to reignite the fire we once had for ingenuity and innovation is now. Budget 2015 is a prime opportunity for the government to fan the flames.

Vanessa Black is an partner, audit, at Grant Thornton New Zealand, chartered accountants and business advisers.