PIVOT POINT

New Zealand is going through a once-in-a-generation economic transformation as our tech industry soars. So why is it growing so fast? Why do the foreigners love us so much? And can we preserve our uniqueness in the face of international pressure? TIN Network’ s

Greg Shanahan gives his state of the sector address. Despite being a significant economy and a country of influence, New Zealand has only recently become part of the worldview of our major trading partners. And this isn’t just due to the attractiveness of our country as a destination, but because of the sophistication of the Kiwi technology now being taken to the world.

Our days as a spectator are over and the numbers we’re seeing from the technology sector are increasingly painting a picture of economic growth that is poised to continue for the foreseeable future. Consider the following:

I T’S BI G

In 2016, the TIN200, New Zealand’s 200 leading technology exporters, grew revenues by over

$1 billion for the first time.

I T’S ACCELERATING

The $1 billion increase in revenues represented a massive 1 2 percent growth in revenue – up from seven percent the previous year and five percent the year before that.

I T’S SPREADING

The number of hyper-growth companies (TIN’s Rising Stars) is expanding and achieving critical mass. In 2016 there were 27 TIN200 companies with a three-year compound growth of more than 20 percent ( 30 percent for smaller companies) vs. 23 the previous year. Their combined revenues were just under $ 1 billion, growing by 41 percent on the previous year; i .e. doubling in size every two years!

THEY’RE BI G

For the first time i n 2016 a second TIN200 company – Datacom – achieved revenues of over $ 1 billion, j oining Fisher & Paykel Appliances. By the end of the current financial year, F& P Healthcare could well become the third.

I T’S EVERYWHERE

For TIN200 companies, doubledigit growth was universal across all size categories and in almost every region of the country.

I T’S OVERSEAS

TIN200 North American, European and Asian markets all grew by double digits in 2016. North America accounted for over 40 percent of the growth in 2015/2016. If sustained in the 2016/2017 year, North America will overtake Australia as the TIN200’s largest market.

THEY’RE I NVESTING

TIN200 companies grew R&D spend by 16 percent to over $800 million last year. This spend will likely pass $1 billion this year.

I T’S MUSHROOMING

Over the past 17 years New Zealand has invested heavily in its national innovation ecosystem. Because of this, New Zealand now enjoys a deep network of funding mechanisms, incubators, collaborative spaces and tertiary training initiatives designed to foster an innovation economy. This network continues to grow, expanding into provincial areas such as Taranaki and Hawkes Bay.

I T’S APPEALLING

Since 2000 the number of private equity firms globally has more than tripled. According to The Economist, 620 private equity firms were founded globally in 2015 alone. As competition for deals intensifies globally, more money is finding its way to New Zealand. This is supporting the strong growth of local investments in our technology sector. In 2016: • Angel Investment rose by

19 percent to $69 million • VC Investment rose by

47 percent to $92 million • Private Equity firms raised over $1 billion – more than double the previous record • Investment from foreign venture capital firms rose by 239 percent to $173 million (FY2016/17)

UNCERTAINTY I S OUR FRIEND

In the Post-Trump, Post-Brexit world, New Zealand is gaining the attention of a small number of elite top-tier private equity firms. Over 40 global private equity/venture capital firms now have investment in New Zealand tech ventures. Over 50 percent of these have made investments in the past three years. They represent both old family money with names such as Carnegie, Hearst and Murdoch, combined with Silicon Valley and Asia’s new money tech investors, including Peter Thiel, Vinod Khosla, Mark Zuckerberg and Baidu Capital (China’s Google). The parallel foreign interest in Kiwi property is getting serious attention in US media. A story in The New Yorker that painted New Zealand as something of a bolthole for titans of Silicon Valley concerned about the imminent collapse of society pointed out that in the “the first 10 months of 2016 foreigners bought nearly 1,400 square miles of New Zealand, more than quadruple what they bought in the same period the previous year” and in the first week after Donald Trump’s election, “13,401 Americans registered with New Zealand’s immigration authorities, the first official step toward seeking residency – more than 17 times the usual rate”.

IT’S A COHESIVE PARADISE

So why the interest? As judged by a host of global business benchmarking surveys, New Zealand is recognised as the number one country across a range of measures including transparency, ease of starting a business and doing business and protecting minority interests. Beyond these metrics is New Zealand’s small size, desirability as a place to live, diversity of population and general equity of economic opportunity. Without

the entrenched social divisions of larger economies, smaller economies have competitive advantages in terms of innovation.

“In this next century or two it is a huge liability to be a big country,” said Salim Ismail at a Singularity University TINTalk in July 2015. “[Big countries] have fundamental structural issues… so there’s an enormous opportunity for smaller adaptable, flexible countries”

Because of the above reasons New Zealand is increasingly a place where talent wants to invest, reside and compete on the global stage. As MediaWorks’ American chairman Jack Matthews told The New Yorker: “The difference between New Zealand and the US to a large extent, is that people who disagree with each other can still talk to each other.”

For example, in the whitehot sectors of FinTech and Digital Media, TIN200 revenue growth was 31 percent and 24 percent respectively, assisted by investment and partnerships with Asian and US collaborators.

Ashlee Vance, author of Elon Musk: Tesla, SpaceX and the Quest for a Fantastic Future, visited some of the country’s best innovators for a Bloomberg show called Hello World in 2016. And, as he summarised: This country of 4.5 million people has started to churn out some awfully polished, extraordinary products …They’re world class technical achievements; the work of a welleducated creative people bent on competing on the world stage.”

I T’S NOT STOPPING

This year TIN200 revenue will likely surpass $10 billion for the first time with exports heading towards $8 billion. The acceleration in breadth and momentum of growth, coupled with the rapid increase of investment funds in the technology sector bodes well for continued acceleration. Businesses are broadly embracing market leadership, efficient business models and strategies for up-scaling. Northern Hemisphere growth is only just touching the sides of its potential and showing little sign of abating. The same can be said for offshore investment.

The massive opportunities in the high-growth markets of healthcare, FinTech and digital media will continue to fuel TIN200 investment and growth.

Short of catastrophic global turmoil, the biggest challenge may be our ability to support that growth.

As New Zealand is witnessing a once-in-ageneration transformation we need to be mindful of preserving the uniqueness that sustains our competitive advantages. We need to retain the environmental, social and economic virtues that make New Zealand unique while intensifying our ability to compete.

Success will help secure long-term prosperity and further enhance our growing global reputation as a hotbed for innovation.