Global Value Chains take many shapes and sizes. Twenty years ago very few of us had ever heard of Hobbits in New Zealand but today the country is known as an international movie and TV series production center. That all started with one small step, a very small Hobbit step, with the first Lord of the Rings movies.
Likewise very few people in New Zealand would have believed that the country would become a space industry participant. A domestically based business, Rocket Lab, is regularly launching satellites and is planning a Venus mission. How has this sleepy remote country at the bottom of the world, previously known for sheep and dairy products, transformed into a tech hub and developed two leading Global Value Chains (GVCs)?
Having just completed the World Bank Trading For Development online course on GVCs it is an appropriate time to consider if these examples are a positive development for New Zealand. GVCs grew dramatically prior to 2008, substantially boosting trade activity, but then stagnated. The World Bank research shows that participation in GVCs boosts growth, creates new jobs and reduces poverty. Following the dramatic economic impact of COVID19 there are increased calls around the world for more self-determination and protectionism, moving away from global trade to reduce dependencies, however at the same time many countries continue to compete vigorously with incentive schemes such as tax breaks and subsidies to attract them. This article considers the merits or otherwise of New Zealand’s domestic policies to promote participation in Global Value Chains.
Technology and personnel expertise had to be imported to develop both of these export products. The Government was also very proactive in steps to encourage the industries. Subsidies for the companies such as production grants, technology funding and differential tax treatments were introduced for the industries.
The New Zealand Government has faced criticism for allowing these favorable sector specific rules. Even recently, under tight Covid 19 immigration rules which closed the borders, an exception was made for 56 staff coming into the country for the new Avatar series.
In an earlier NZ Herald interview Avatar producer Jon Landau said
“These are the people that will unlock the door to millions of dollars flowing into the economy.”
But he added that their return wasn’t just because of New Zealand’s leadership in tackling Covid-19. He is upfront that the real reason the production is here in the first place is New Zealand’s generous screen production grant, whereby productions are able to claim back large amounts of the money they spend here. The Avatar producers have made four interim applications under the scheme and have been awarded $41 million from the Government so far, with the option of applying for even more. The Hobbit films were given 8 lots of funding.
The space sector progress also faces attacks. The NZ Taxpayers Union rebuked the Rocket Lab CEO who had claimed they operate without support – “The Government has multiple funding and subsidy programs for the space industry. It beggars belief that Mr Beck would have forgotten this, considering his own company received $25 million from Callaghan Innovation in 2013.”
A 2019 Deloitte report indicated the New Zealand space sector was worth $1.69 billion in 2018-19 and supported 12,000 jobs. The report’s key findings are that New Zealand’s space sector:
- Is ‘New Space’-driven, characterized by a mix of start-up and well-established entrepreneur-driven and privately-funded space companies
- Has strong space manufacturing and space applications sub-sectors, and cutting-edge research and development capability within several universities across the country; and
- Draws on local as well as international talent, and has strong connections with the global space economy.
While debated by many as a market distortion the incentives have arguably proved successful in the space sector, based on these results. Also the film sector grants have resulted in more ongoing activity. Now we have the upcoming Lord of the Rings TV series, Avatar and new Disney productions such as the recent Mulan movie produced here.
Historically New Zealand has an active role in international trade development having been closely involved in multiple trade agreements, one of the first countries to have a free trade agreement with China and recently establishing a Trade For All Advisory Group to address mounting protectionism around the World. Other key export sectors such as international education courses and tourism have been severely affected by the Covid crisis and technology sectors are one opportunity for continued growth.
New Zealand has many natural endowments to encourage participation in these GVCs. We have spectacular scenery for the films, remoteness for rocket launches, a highly educated workforce, strong IT and data frameworks, plus international first place rankings for the lowest corruption and the World Bank’s Ease of Doing Business. So with those advantages are the subsidies really needed at all? That debate continues but on balance it appears that the commitments have been worth it and the country has developed two new GVCs that most living here would not have anticipated a few years before. Perhaps we will see our Prime Minister Jacinda Ardern get a starring role as an Avatar? And given that we have these industries here now we should promote them. If Elon Musk can put a car into space why don’t we put a Hobbit in a rocket?