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Growing Hawke's Bay: Beyond agriculture

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Contributor:
Matt Harman
Matt Harman

Hawke’s Bay residents may not be ones to toot their own horn - but this is getting ridiculous.

Job growth is stagnant and household income is below average.

Our working age population as a percentage of the total is well below average.

And yet the Bay is the very embodiment of the perfect epicurean lifestyle.

We’re surrounded by life’s greatest indulgences - spectacular wine and food, beautiful scenery, the opportunity to live an active, healthy existence - all largely free from the fear that comes from things like high crime rates.

For the most part we’re a happy and contented lot - and yet all the stats suggest that the Bay is failing to hang on to its best and brightest. And as for attracting people from other regions and overseas - Hawke’s Bay isn’t even considered by most as the place they should create a home.

Hawke’s Bay - like most provincial centres - is falling into the economic doldrums. It’s by no means at the bottom of NZ economic rankings - but we could and should be doing so much better.

In the six months since I moved back to the Hawke’s Bay, I’ve done my best to work out why - given all the advantages we enjoy - our region is stagnating. It’s not a problem with a simple answer - but bit by bit, the situation is becoming clearer:

1) We’re overly dependent on one sector - horticulture

2) The economic development agenda of our political leaders is largely focused on doubling down on that one sector

The Hawke’s Bay Regional Council strategic plan includes a total of two focus areas related to its goal of a ‘resilient economy’ - Water Security, Natural Hazards & Infrastructure.

3) That sector creates relatively low wage jobs

4) ‘More of the same’, or ‘the same, but bigger’ can’t produce the step change the region needs. Here’s why:

The move away from primary sector jobs towards the services sector isn’t an NZ specific change - it’s happening in all developed countries.

Here’s what’s happening in the United States.

So what are these ‘services’ jobs?

Well some of them aren’t terribly glamorous - the first thing that probably comes to mind is the hospitality industry and check out operators. But there’s a lot more too it. Telecom’s a service company, so is Xero, and Kiwibank.

As noted on Boundless.com:

“The growth of the service sector has long been considered as an indicator of a country's economic progress.

Services are continually being launched to satisfy our existing needs and to meet needs that we did not even know we had.

Service organizations can vary in size from large corporations to small, locally owned businesses.“

This is a structural shift in the job market - and we’re getting left behind.

So where are those services jobs? They are primarily in Auckland and Wellington - and that’s connected to the type of employers we have in Hawke’s Bay - small ones.

We have a below average number of employers who employ 100+ people and that’s significant, because as noted in the recently released ‘Regional Economic Activity Report’:

“Large firms are more likely to engage in innovation and R&D activities...and create more jobs. While firms with 100+ employees only comprise one percent of all companies, they generate 64 percent of New Zealand’s net job growth in the last decade”

The report also argues:

“Larger firms tend to locate in urban centres because cities provide larger markets, more skills and supplier choice, and key infrastructure”.

There’s a sound historical basis for that argument - but in the new economy it’s much less true - and that creates a massive opportunity for Hawke’s Bay.

Lets take apart the ‘advantages of big cities’ one by one.

Larger markets

The size of a company’s home market really only matters if you can’t sell outside that market. ie: all other things being equal - a cafe in Takapuna is likely to create more revenue and jobs than one in Twizel.

But New Zealand companies know a thing or two about selling beyond their home markets - we’re an export economy and beyond that - those big service sector employers in Auckland are selling to the entire country. They just need phones and internet.

More skills

This is really a chicken and egg argument - people go where the jobs are. It is true that Hawke’s Bay occupation mix is underwhelming, with a below average percentage of highly skilled and skilled jobs, but it’s also true that NZ’s will move to wherever those skilled jobs happen to be (mainly Auckland):

And it’s not as if we are an uneducated lot. We’re actually above average when it comes to school level achievement - we just don’t have the employers and tertiary education institutions to capitalise on those smarts.

Greater supplier choice

Again this is relevant if you can only buy from companies in your home market - and that’s simply not the case.

Our big services sector employers not only buy from around New Zealand - but they pick and choose from the best the world has to offer.

Key infrastructure

In the old economy - this meant ports, airports and roads. If you’re selling milk - proximity to your customers really does matter - but with services - not so much.

The infrastructure that most matters in a services economy is broadband and...well really just broadband - everything else relies on that.

Hawke’s Bay is very much a part of the ultra fast broadband rollout. It’s happening. And it’s every bit as game changing as promised.

What we need an influx of services businesses into the region to make the most of it.

To summarise

1) As a region our economic development focus is wrong - services not agriculture is what’s needed for Hawke’s Bay to grow and prosper.

Given the structural shift in the job market towards services - doubling down on agriculture, is doubling down on the likelihood of failing as a region.

2) We have everything we need to compete successfully for large services businesses in the region - minus perhaps the political focus to make it happen (market size, supplier choice, infrastructure and skills are really non-issues in the global economy).

Perhaps most importantly - if you could get a great job in Hawke’s Bay - what rational reason is there to live in Auckland or Wellington?

Hawke’s Bay offers an amazing lifestyle, cheaper houses, lower living costs, low traffic congestion, great climate - all in all a great recipe for happy and productive employees.

We need to make more big companies realise that

There is already some work being done to encourage big employers to set up shop in Hawke’s Bay.

While the Hawke’s Bay Regional Council persists with its focus on making the Ruataniwha dam a reality - seemingly oblivious to any opportunity that doesn’t involve crops or cows - the Hastings District Council has achieved a big win, coaxing Kiwibank to create 100 new jobs in the region.

It’s exactly the sort of major services sector employer Hawke’s Bay needs to prosper in the new economy.

The question is how do you take one isolated win and turn it into a trend?

To be successful - a co-ordinated approach from both central and local government is likely needed.

I’m not claiming to have all the answers - but here’s a few thought starters for our political leaders to consider:

1) Make attracting large employers to the region a singular focus.

Big employers want to know their problems are your problems - that you can and will clear a path for them. Given the desperate need for Hawke’s Bay to adapt its economy - this would seem like a fairly reasonable expectation.

2) In a world where jobs are increasingly in the services sector - at least consider the possibility that if your answer is ‘more agriculture’ - you may be asking the wrong question.

This comes back to focus - do you want more cows, or more high paying and sustainable jobs?

While some would argue that the two aren’t mutually exclusive - the current reliance of the Hawke’s Bay economy on agriculture, combined with our household incomes being below the national average - prove fairly conclusively that these objectives are wildly divergent.

Attracting big services employers to the region is about being able to tell a coherent and appealing Hawke’s Bay story. A big part of that is about the healthy, clean green lifestyle.

Agriculture intensification is not compatible with that. It undermines our value proposition as a region.

3) Incentivise employers to move here.

This is partly the responsibility of local government - but also likely requires new thinking from central government.

For local government

a) Whether council amalgamation happens or not - increased coordination and consistency between the councils is important.

Having the regional council resolutely focused on agriculture and the Hastings council thinking differently/more broadly isn’t helpful for the region. We all need to be singing from the same songsheet re economic development.

b) Be prepared to spend money to attract big employers. That’s partly about the costs involved in finding and chasing opportunities - but it likely also means considering incentives like rates waivers, prioritising infrastructure investment based on business needs, fast tracking building resource consents etc.

As more businesses make the call to set up in Hawke’s Bay, less incentives are required. Creating the trend though - will cost real cash dollars - and ratepayers will need to be sold on this approach is the right one for Hawke’s Bay.

For central government

The growth of the Auckland region is costing New Zealanders dearly.

From the Auckland Council long term plan:

“Auckland’s population is forecast to increase by 15.6 per cent (235,800) from 1.51 million to 1.75 million over the next 10 years. This implies additional housing needs of about 20 per cent (approximately 99,000 dwellings). Council also projects 14 per cent growth in the floor areas covered by industrial and commercial activities in the region. The council estimates that capital expenditure of $4.5 billion and operating expenditure of $2.3 billion is required over the period of this plan to provide for these changes in population and land use.”

Central government infrastructure spending (ie: roads) is over and above that.

The wastage in this is staggering.

Every year more money needs to be poured into Auckland’s infrastructure to keep up with the population growth (because that’s where the services sector jobs are) - while at the same time, infrastructure usage in regions like Hawke’s Bay has capacity to spare.

Getting people to move to and stay in the regions - saves that infrastructure spend - which gives government the cash to do something big and bold. I’d consider this:

Give tax breaks to large companies operating in regional New Zealand.

Now I realise that giving tax breaks to large employers isn’t likely to garner the instant support of small employers or ‘middle New Zealand’ - but...

Imagine if the composition of our country changed so that Auckland wasn’t the first and (largely) only choice for people that want a decent paying job.

Imagine if people working in the rapidly growing services sector didn’t need to spend 6-7 times their household income to buy a house (versus 3-4x in Hawke’s Bay).

Imagine if services sector workers (again in Auckland) didn’t waste on average an hour a day getting to and from work.

Imagine if all that money being spent on new infrastructure in Auckland didn’t need to be spent.

Imagine if small locally focused businesses in the regions found themselves rapidly expanding as more people choose the regions as home.

Imagine if middle New Zealand had the choice to raise their families in the beautiful Hawke’s Bay, secure in the knowledge that neither they or their family is missing out on opportunities as a result.

At the moment the New Zealand story has two parts: Auckland and everywhere else.

It’s a story that has the potential to radically change New Zealand for the worst. Stories of economic disparity tend to change over time into ones of increasing crime rates, to tales of social unrest.

These are stories that don’t have a happy ending - but it’s not too late to create one.

The numerous graphs and charts linked to in the post come from the 2013 Regional Economic Activity Report. It's well worth a read.

Matt Harman is the co-founder of Fuseworks Media, which provides innovative news tools to media and communications professionals. He is based in the Hawke's Bay.

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