Jump to-
Recent key developments in MAKE│NZ
•Over the past few weeks we’ve been introducing you to our directors in the form of five question interviews. Something that came to light about half way through, for me at least, was the amount of overlap in some of their answers – especially when asked what they see as future challenges and opportunities for the industry, and what advice they have to offer. With that in mind, I thought we should look to a classic way to easily visualise the overlapping thoughts – Word Clouds.
What do you think is the biggest opportunity—or challenge—for manufacturing in the next 5 years?
If you could offer one piece of advice to emerging leaders in manufacturing, what would it be?
Recent key developments in New Zealand
•Among the New Zealand government’s direct measures to support ‘Innovation’ in business, two budget items stand out as being directly attributable to the goal of supporting what is called Business R&D and Innovation: Direct grants for the latter, and the Research and Development Tax Incentive [RDTI], a 15% tax credit on eligible expenditure. Among the two, the RDTI clearly is the heavyweight, with a $590.5m allocation in FY2024/25, while the former had a $209.5m allocation.
Because there has been a proliferation of government programmes to support innovation over the past 15 years-plus, this diagram might help in explaining where the RDTI fits in:
A few days ago, MBIE published a five-year review of the RDTI initiative, which came into effect on April 1, 2019. The review was conducted by Motu Economic and Public Policy Research and The University of Otago on behalf of the government.
A review like this ought to answer three basic questions:
- Did the programme provide tangible benefits to the intended recipients – businesses, and, in our case, manufacturers in particular?
- Did the programme provide an acceptable return on investment to the funder, ultimately New Zealand taxpayers?
- How did the programme perform in respect to the above when compared to similar programmes in other countries?
First, uptake: How did manufacturers compare to other industry groups when it comes to making claims under the RDTI? The survey groups manufacturers into three groups, based on their two-digit HS Codes: Food & Beverage (C11), Group C1 (Simply transformed manufactures; C12-C19) and Group C2 (elaborately transformed manufactures; C20-C25):
This is interesting when compared to the data on overall Business R&D expenditure [BERD]: according to the latest Stats NZ Research and Development Survey, in 2024 Manufacturing at $1,156m was the third-largest sector behind Professional, Scientific, and Technical Services and Education and Training when it comes to total R&D expenditure, and a further breakdown shows that within manufacturing, Machinery and Equipment Manufacturing (part of Group C2 above) is the biggest contributor by far:
What this data tells us is that while manufacturing in general, and machinery and equipment manufacturing in particular, spends a lot of their own money on BERD, their RDTI uptake is the lowest across all sectors. Add to that the conjecture that BERD data for manufacturing – especially the elaborately transformed part – is a significant underestimate, as many firms simply don’t separately account for – or even identify – their R&D expenditure, especially if they are not intending to make use of the RDTI. Compare that to the computer services sector, which spends a lot on BERD, but is also a heavy user of the RDTI – and that in spite of the fact that, arguably, the eligibility criteria for software research are quite tight.
In general terms, across sectors, the review shows an increasing tendency for participants in the scheme to be at the larger end of town in terms of their BERD – n.b. the caveat in the Notes:
This is corroborated by the evidence in the report, including qualitative (interviews) and quantitative (surveys) research, that compliance costs are disproportionally high for smaller claims, providing a poor Return-on-Investment [RoI] for applicants. As the report puts it: “There was broad agreement across stakeholders interviewed that the main reason for nonengagement was a gradual realisation that the scheme was not sufficiently financially beneficial to justify the compliance costs.”
The use of external consultants to help with filing applications is proportional to the size of the credit applied for: “Our interviews suggested that advisory firms were utilised as follows based on the level of firms’ R&D expenditure:
- 100% of firms with >$5m eligible R&D expenditure
- 88% of firms with $1m–$5m eligible R&D expenditure
- 50% of firms with $300k–$1m eligible R&D expenditure
- 43% of firms with $100k–$300k eligible R&D expenditure
- 25% of firms with <$100k eligible R&D expenditure”
The study included 38 ‘mini’ businesses case (company) analyses examining the appropriateness of the compliance costs to the benefit received. The result:
Good enough?
In terms of RoI for the taxpayer the report provides two summary estimates on the basis of some quite detailed analysis. One is related to leverage: how much more of their own money are those receiving RDTI credits spending on R&D. Their estimate is $1.4 for every $1 of RDTI credit. The second is the impact on GDP, which is much harder to estimate with high levels of confidence. The report settles here on a midrange estimate of $4.2 of additional GDP for every $1 spent by government on the RDTI.
The authors undertook a fairly exhaustive literature review and found the performance of the New Zealand scheme being generally in line with international results, keeping in mind the difficulty of finding ‘apples-for-apples’ comparisons in this field. A recent study from Australia found additional BERD of $1.61 and an impact on GDP of $3.10, both in relation to every $1 spent by government.
Recent key developments in the World
•For the fifth year in a row, The Economist has published an economic performance ranking for the top 36 OECD countries, using an aggregate score based on the following criteria: inflation, ‘inflation breadth’, GDP, jobs and stock market performance. Inflation breadth measures the share of categories in the inflation basket for which inflation exceeded 2%. This is an arbitrary selection of parameters, of course, and nor does the The Economist disclose the weightings put on each of these when calculating the aggregate score. Also, this is not a comparison of absolute performance for these criteria. The ranking is simply based on how much better – or worse – countries did compared to a year earlier.
And the winners are? Portugal, Ireland, Israel, Colombia, and Spain. The largest OECD economies are all middling performers (ranks): USA (17), Germany (20), Japan (12), France (11), UK (27). And New Zealand? It is ranked 31st out of 36, but still above countries like Austria and Finland.
•We’ve published this graph before:
For Asia/Australia read ‘China’: 54% of all robots installed worldwide in 2024 ended up in China: Installations were up 7% to 295,045 units. Installations in Japan were down 4% to 44,453 units; South Korea installed around 31,000 units.
While robots individually don’t require a huge amount of electricity to operate, en masse the growth in robotics in China would not have been possible without an equivalent increase in the supply of electricity. In the first six months of 2025 alone, China has added 290 Gigawatt of generation, almost 90% of that from renewable sources. Most of these are located in the west of the country, and China has recently added 42 Ultra High Voltage [UHV] transmission lines to the grid; this represents about 80% of the global installation of UHV lines. These lines are essential for the transportation of electricity over large distances with minimal loss. China’s largest electricity grid operator, State Grid Corp. of China, announced it will spend more than 650 billion yuan ($89 billion) in 2025. Last year, the company announced capital expenditures of about 600 billion yuan.
Availability is one thing, cost another. Industrial electricity (USD/MWh) in China costs about $88 in 2024; in the USA there is considerable regional (State-by-State) variation, with the national average for 2024 at $130. In Germany it is close to $210, but prices vary significantly based on energy usage, sector, and eligibility for tax/fee reductions. Wholesale prices in Australia vary regionally between $53 and $82, with commercial contracts around $130, but high-usage industrial users can often negotiate tailored contracts for better rates. That applies to New Zealand as well, with averages of around $115.
Leave a Reply
You must be logged in to post a comment.