Manufacturing Matters- Tuesday Top-Up 98

In terms of an analysis of current constraints, the proposals reach essentially the same conclusion, describing low capital intensity, inadequate investment in advanced machinery and weak commercialisation of R&D as major constraints.

Moreover, there is a shared particular emphasis on the skills area: There is a simultaneous unemployment and skills scarcity. The documents identify substantial labour-market slack while noting shortages in particular technical occupations. Unemployment sits at 5.6% and underutilisation at 13.8%, while we have tightness in particular trades and engineering disciplines. The implication across the proposals is that New Zealand does not simply need more workers. It needs a better match between workers’ skills and the capabilities required by higher-productivity industries.

When it comes to the need to “capture substantially more value before (primary) products leave the country”, there is a consensus recommendation to add value to dairy meat and forestry products – from functional foods to engineered wood products.

For non-food manufacturing there is broad agreement that New Zealand should not try to recreate mass manufacturing. Instead, the target is high-value, relatively low-volume production where New Zealand can exploit engineering and scientific capabilities. Again, the usual list – medical devices, aerospace, specalised equipment, etc.

All documents argue that New Zealand manufacturers need to become more capital intensive and technologically sophisticated to solve the capital/productivity problem.

In terms of government policies to support productivity improvements, the consensus is on a targeted approach: accelerated depreciation only for machinery, robotics, software, laboratories and R&D equipment – a targeted top-up to the existing Investment Boost for downstream processing and manufacturing capital.

The common policy direction is therefore: Don’t subsidise business activity generally; make productive capital investment substantially more attractive, particularly where it increases export capability and value-added products and services.

There is consensus that the commercialisation gap must be addressed. One policy proposal suggests extending support along the chain: a specific Prototype-to-Export Grant, taking firms from technology demonstration through to full-scale production and international regulatory compliance. It also proposes support for international patenting and market-entry approvals.

The documents identify declining domestic gas supply and rising industrial energy costs as a potentially binding constraint on the entire high-value manufacturing strategy.

Their conclusion is consequential: There is little point encouraging energy-intensive downstream processing if New Zealand simultaneously allows its energy supply to become too expensive or unreliable for those industries. It follows that energy security is a precondition for industrial policy. Proposals include accelerated electrification, renewable generation and storage near industrial users, grid connections, and careful consideration of the consequences of LNG imports.

All proposals advocate a much closer connection between education and the requirements of high-value exporting industries. The specific measures recommended again contain the usual suspects, from advanced apprenticeships to micro-credentials in smart manufacturing, CAD/CAM, precision machining and industrial AI.

One specific proposal in this area is linking polytechnic funding to employment outcomes rather than simply enrolments.

The proposals collectively suggest that the skills system should be organised around the capabilities required to build internationally competitive industries, rather than treating tertiary education, vocational education and migration as largely separate systems.

All proposals favour selective skilled migration rather than a general increase or decrease in migration. Specific measures include

• specialised pathways for automation engineers, mechatronics specialists, systems architects and international technology sales personnel; and
• adjusting the Green List and Accredited Employer Work Visa settings toward engineering, food science and advanced-manufacturing occupations, while explicitly pairing this with apprenticeships because of current labour-market slack

Skills development and immigration policies should be based on a three-tier model:

1. occupations that should primarily be trained domestically;
2. occupations requiring domestic training plus international recruitment;
3. highly specialised capabilities that need to be recruited internationally.

Taken together, the documents can be distilled into eight major policy pillars:

1. Energy security and industrial competitiveness

Secure affordable, reliable energy while accelerating industrial electrification and renewable generation.

2. Value-chain transformation

Move dairy, meat, forestry and other existing strengths into higher-value processed, engineered and technology-intensive products.

3. Capital deepening

Use Investment Boost and related tax settings to accelerate investment in automation, robotics, advanced machinery, digital systems and industrial electrification.

4. R&D-to-commercialisation

Build a much stronger bridge between research, prototypes, certification, production and international sales.

5. High-value manufacturing and technology clusters

Concentrate resources on areas where New Zealand possesses existing capabilities and plausible international advantages rather than attempting to build every industry.

6. Skills and workforce development

Redirect vocational education, apprenticeships, university-industry collaboration and targeted migration toward the skills these industries require.

7. Internationalisation and scale

Help firms obtain international customers, capital, distribution networks, certification and management capability, while attracting FDI that adds technology and market access.

8. Disciplined governance and evaluation

Use existing institutions wherever possible, coordinate them around a common strategy, and withdraw support where programmes fail to demonstrate additionality.

The most important insight emerging from the three documents is that none of the individual policies is sufficient. What is required is a systems strategy:

Energy → capital → technology → skills → advanced production → commercialisation → international scale → high-value exports → productivity → higher real incomes.