Final report released on services sector productivity
What is very big, diverse and full of promise - but underperforming? No, we’re not referring to the Auckland Blues.
Rather, it is New Zealand’s services sector – representing around 70% of New Zealand’s GDP, deeply intertwined with our
primary and manufacturing industries and, like the Blues, full of individual stars, but collectively off the pace in
terms of meeting its performance potential.
The Productivity Commission has just released its final report on boosting productivity in the services sector. The
report shines a spotlight on the critical role that the sector plays in the New Zealand economy and includes a raft of
recommendations to lift its performance. Implementing these recommendations would sharpen competition in the sector and
help firms in the services sector to more effectively harness information and communications technology (ICT). The
Commission believes that these recommendations can make a significant contribution to lifting the sector’s productivity,
and to New Zealand’s overall economic performance.
The services sector now accounts for around 70% of GDP and this share is continuing to grow. Despite this, the sector
has traditionally received less attention than the primary and manufacturing sectors. “A thorough examination of the
services sector was long overdue”, says Commission Chair Murray Sherwin.
“What surprised us most about the services sector was its deep and extensive linkages with the rest of the economy.
Firms on average spend around 40% more on services than they do on wages and salaries. And services now account for over
50% of the value of New Zealand’s exports when you include the value of services, such as transport and finance, that
are embedded in goods exports.
“Given the centrality of services to our economy, a high-productivity services sector is a must. But unfortunately the
productivity performance of New Zealand’s services sector lags behind that of other developed countries and shows little
sign of catching up. On the plus side, the scope for improvement is significant.
“A healthy level of competition is an important pre-requisite for lifting productivity. It drives innovation and gives
consumers more choice, better products and lower prices. But in some parts of the sector competition is subdued – in
part a consequence of New Zealand’s small market size and geographic isolation.
“The Commission recommends helping consumers drive competition, enabling the Commerce Commission to make greater use of
market studies of competition issues in service markets, and reducing barriers to overseas firms supplying services in
New Zealand. We also need to be at the top of our game when it comes to competition law and resolve the long-standing
debate around section 36 of the Commerce Act.
“ICT is the modern-day equivalent of earlier revolutionary technologies like steam engines and electricity. Embracing
ICT and the opportunities it creates is particularly important for New Zealand’s service firms. But firms will struggle
to make effective use of ICT if they are unable to access the right mix of business and technical skills. There is scope
to improve the supply of ICT skills, for example by enhancing links between business and tertiary education providers.
“Getting the most out of ICT will require flexibility and changes to the way that we do business. New Zealand needs to
be open to these changes and embrace the opportunities that they present. Cloud computing is a good example of the
productivity benefits that ICT can create. The Commission has made a number of recommendations on regulatory issues
that, if left unaddressed, are likely to slow the uptake of cloud computing in New Zealand."
ends