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.