Covid-19 has helped Kiwi tech companies – but could they become our biggest export sector?

Technology  is  leading  NZ’s  economic  growth and  the  tech   sector could be on track   to  become the  country’s  biggest   export  industry, according  to some  familiar with the  breadth  of the industry here.

Not  surprisingly,  perhaps, Covid-19 travel restrictions levelled the playing field for Kiwi tech companies as companies around the world were forced to communicate online.

Authorities  within  the  sector  say  companies  in the   industry  have been growing faster than ever and profitability which grew three-fold between 2018 and 2019, according to the Ministry of Business, Innovation and Employment (MBIE), is still  accelerating.

Again, Covid-19  has   been  a  factor,  particularly  for Fisher  and  Paykel  Healthcare,  whose  technology   has been  in  heavy demand.,  as a  result of  the  pandemic.

A report, by global financial services group Western Union, is forecasting the economy to grow by nearly a quarter (23%) in the next eight years, with a shift away from basic production to services.

The report says faster digitalisation could result in fewer jobs in some sectors, such as retail wholesale and manufacturing and more in information & technology (IT) services.

Western Union Business Solutions Asia Pacific region currency strategist Steven Dooley sees NZ as an outlier in the region with technology leading the economic growth.

“It is quite unique.  NZ seems really well primed for growth in the technology sectors and it’s something that we’ve seen as quite different to some of the other regions that we’ve looked at,” Dooley said.

Production of electronic components was expected to grow by 52% in the 2029 growth forecasts, with medical and surgical equipment close behind at 47 %.

IT services and telecommunications services are expected to grow by a third.

The report says the growth in business to business services (B2B) would outpace the global trade, with the faster outsourcing of legal, financial and payroll services.

NZ’s manufacturing, agricultural, forestry and fisheries will grow slower than the overall economy, along with accommodation and catering, although food and agricultural technology sectors were expected to grow 27%.  The only drags on NZ’s economic growth are oil and natural gas products and services, which are expected  to  show  negative growth over  the  next  eight years.

Whether  the  tech  sector  will  become  NZ’s  biggest   export   industry, as  some have  suggested, is  a  moot point.

The  problem  is  that tech companies struggle to raise money in NZ as investors typically  regard  money invested  in residential property and land as  “safer”. That’s  why  so many NZ tech companies, including Xero and Rocket Lab, have gone offshore.

It’s  a concern  to  some  observers that  highly  successful  tech  companies  are  sold  off  to  eager buyers  abroad.  The  NZ  Herald  recently   headlined  the  sale  for  $1.45bn of  a  NZ company  no-one, it said, has  ever heard of.  Christchurch-based geoscience  software  company Seequent  was  sold  to  Nasdaq-listed  Bentley Systems  for  $US1.05bn.

One  of  the  shareholding  firms  in Seequent is  Pencarrow   whose  managing  partner,  Nigel  Bingham, was  quoted  as  saying  one of the  reasons  for  Seequent’s  relative obscurity  is that 99% of  its   business  is  offshore.

“It’s  been  a  continually growing software  business  so  in that  context it’s been a  great  NZ  success  story”.

Seequent’s  chief  operating officer  Graham Grant  told  the  Herald  a  sharemarket  listing had  been considered  but the logic of   being part of a  far larger  organisation like Bentley  was “too compelling”.

Grant  said Seequent’s  software “helps people  understand  the  underground”.

“The  problem is  you can’t see  the  underground. So  if  you  want to draw water, want to  build a  structure,  or if you want to build a tunnel, you’ve got to  know  what  you are drilling through. All of that  requires an understanding of the underground but  it is unbelievably complicated. Our software makes sense of that.

“Essentially the firm started  with a  new  class of  product  which did not  exist before  in  the tech space. There  is no other tech company with the  breadth of  geoscience  we  have”.

Another software  company, Auckland-based  Vend,   has  been  sold to  a  US-based  company   for  $US350m.  Its  founder, Vaughan Fergusson, said:

“When we  started  (In 2009) there was  essentially just Xero  and they weren’t  that  big.  Now there’s  this  whole  vibrant ecosystem of hundreds  of  (NZ tech)  companies.”

The  sale  of  these  companies  has  reignited debate   about  why  so many  tech  companies are  lost  to  overseas  buyers.

Yet  the  evidence   is  that  the proceeds  fund  the  next  generation of  startups.

Rod Drury, who  founded  Xero, is  the  tech archetype. His  first  software  company,  Glazier,  was  sold  in 1999. It was  followed by  email technology firm Aftermail before Drury launched Xero in 2006.

Now  retired as  chief   executive, Drury  has  reaped  $700m  from  the  sale of  Xero shares through  his  trust — but  the trust  still has 8%  of  the  stock.

Let’s  believe  there  are  many more Xeros  to come.

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