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Economic Futures

for the Auckland Region

Part 2: Scenarios for economic development


April 2009
This report was prepared by the Economic and Social Policy team at the Auckland Regional Council.
Contributors: Carole Canler, Penelope Tuatagaloa, Ana Ili , Dominic Foote and Dr Catherine Murray.
Modelling advice from Market Economics, and input from Infometrics.
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Contents
Executive summary 3

1
Introduction 12
1.1 Context 12
1.2 Purpose 12
1.3 Scope 12
1.4 Methodology for scenario development 13
1.5 Users 14
1.6 Stakeholders 15

2
Long-term impacts of the current economic crisis 16
2.1 Short-term impact of the economic crisis 16
2.2 Outlook for the New Zealand and Auckland economies 17
2.3 Long-term impacts of the economic crisis 20

3
Scenario 1: Horizon 2031 22
3.1 The economic landscape by 2031: key drivers 22
3.2 Assumptions 24
3.3 Economic indicators in a nutshell, 2006 – 2031 25
3.4 Gross regional product and gross regional product per capita 26
3.5 Export 27
3.6 Employment and occupation 29
3.7 Environmental indicators 31
3.8 Sector-specific change in Auckland, 2006–2031 34
3.9 Sectors of interest to the Auckland region 41

4
Scenario 2: Digital Auckland 48
4.1 Background 48
4.2 Scenario description 48
4.3 Scenario assumptions 52
4.4 Scenario results 53
4.5 Conclusion 55

5
Scenario 3: Energy Efficiency 56
5.1 Background 56
5.2 Scenario description 56
5.3 Scenario assumptions 57
5.4 Scenario results 60
5.5 Conclusion 64

6
Implications for the region’s future economic performance 65
6.1 Demographic changes 65
6.2 Labour force 66
6.3 Internationalisation 67
6.4 Business growth and innovation 67
6.5 Environmental sustainability 68
6.6 Industry structure 68
6.7 Infrastructure 69

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendices
Appendix 1: Economic Futures Model 71
Appendix 2: Medium population projections for the Auckland region 75
Appendix 3: Assumptions under Horizon 2031 76
Appendix 4: Results under Horizon 2031 scenario 79
Appendix 5: Assumptions for the Digital Auckland scenario 84
Appendix 6: Results from the Energy Efficiency scenario 86
Appendix 7: Glossary of terms 88
Appendix 8: References 89

List of Figures
Figure 1: Scenario development process 13
Figure 2: Purpose of Economic Futures Project 14
Figure 3: Auckland’s GRP, 2006–2031 26
Figure 4: Auckland’s GRP per capita, 2006–2031 27
Figure 5: Employment, 2006–2031 29
Figure 6: Occupational structure in the Auckland region, 2006–2031 30
Figure 7: Top 10 GRP contributors, 2006–2031 35
Figure 8: Auckland’s 10 industries with comparative advantage and significant
contribution to GRP, 2006–2031 37
Figure 9: Top 10 employers, 2006–2031 39
Figure A.1: Causal structure of the Auckland region Economic Futures Model 72

List of Tables
Table 1: Projections in a nutshell, 2006–2031 25
Table 2: New Zealand’s GDP annual growth rate, 1997–2011 26
Table 3: Fast growing export sectors, 2006–2031 28
Table 4: Demand for occupations in Auckland region, 2006–2031 29
Table 5: Change in major occupation groups, 2006–2031 30
Table 6: Sub-groups of occupations, 2006–2031 31
Table 7: Top 10 energy-intense sectors in Auckland, 2006–2031 32
Table 8: Change in the top 10 energy-intense sectors in Auckland, 2006–2031 32
Table 9: Industry GRP contribution, 2006–2031 35
Table 10: Industries with high value-added potential, 2006–2031 37
Table 11: Employment projections in a nutshell, 2006–2031 38
Table 12: Sectors with fastest growing employment, 2006–2031 40
Table 13: GRP growth in sectors of interest to the Auckland economy, 2006–2031 41
Table 14: SLQ for the industries of interest, 2006–2031 42
Table 15: GRP results compared with the Horizon 2031 results 54
Table 16: Export results compared with the Horizon 2031 results 54
Table 17: Top industry growth 55
Table 18: Energy Efficiency scenario compared with the Horizon 2031 results 60
Table 19: Employment in the Energy Efficient scenario 60
Table 20: Changes in energy demand 61
Table 21: Comparison of energy use projections under Horizon 2031 and
Energy Efficient scenarios 62
Table 22: Top 5 energy intensive industries 63

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Executive summary

Our world is changing rapidly. What we know and These projects are closely aligned and inform the
experience today may well be very different in a current review of the Regional Policy Statement (RPS).
quarter of a century. Some significant forces, such The project will also support strategic planning for
as globalisation and demographic shifts, are already regional economic development. In addition, external
changing the face of the Auckland region. Many agencies such as central government departments with
changes cannot be predicted. Some will bring a regional focus, economic development agencies and
opportunities; still more will bring challenges. local councils may find the scenarios in this report a
useful tool when developing strategies and policies.
Whatever form it takes, change is inevitable – and our
region needs to be ready for it. A successful region is The current period of economic turmoil poses some
one that is able to reinvent itself in the face of change. added difficulties to this scenario-building exercise.
Auckland’s future prosperity depends on its ability Some of the anticipated effects of this crisis are
to do just that, with resilience and a commitment to discussed in the report.
innovation.

As part of the Auckland Region Economic Futures Scenario 1: Horizon 2031


Project, the Auckland Regional Council (ARC) is
developing a number of economic scenarios that Horizon 2031 is the main (or baseline) scenario in
anticipate the changes ahead and their possible effects this report and presents a major improvement on
on the region. The aim is to better prepare the region previous long-term employment and output forecasts
to adapt to change, and to provide a sound basis upon for the Auckland region. It is based on our current
which regional policies and strategic responses can be knowledge and understanding of the region’s economy
developed. and economic drivers. It provides an outlook for the
Auckland economy in the short, medium and long term
This report is the second and final part of the Auckland (to 2011, 2016 and 2031, respectively).
Region Economic Futures project. The first report, titled
Part 1: Knowledge base for scenarios development and In developing the Horizon 2031 scenario, a series of
published in December 2008, encapsulated the current factors, or drivers, were considered. Such factors
information available on the state of the Auckland include global economic forces, major changes to
economy and identified future drivers of change. This central government’s fiscal policies, infrastructural
report, Part 2: Scenarios for economic development, developments, and upcoming events. Industry and
presents three regional economic scenarios and community insights into the region’s economic outlook
associated modelling results, and, where possible, as well as for specific industry sectors were also
identifies future challenges for the region. considered. These factors were translated into detailed
assumptions and are reflected in the scenario results.
The three economic scenarios presented in this report
are: The Horizon 2031 scenario assumes some of the
main drivers shaping the Auckland region’s economic
• the Horizon 2031 scenario landscape by 2031 are:
• the Digital Auckland scenario, and
• the Energy Efficiency scenario. • Demographic changes
• Changes in labour force
The Economic Futures Project will feed into a number • Internationalisation
of projects of regional scale. It has been developed • Business innovation
alongside the Futures Land Use and Transport project. • Sustainable development

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Demographic changes advice, waste reduction, recyclable/advanced materials,


Demographic dynamics will continue to determine green building and energy conservation.
much of the future economy of the Auckland region.
According to the ARC’s medium population projections, Modelling results: the Auckland region economy,
an additional half a million people are expected to live 2006–2031
in the Auckland region by 2031. While this growth is
significant, it is not as rapid as that experienced in the 2006 2011 2016 2031
last 20 years. The situation will be exacerbated as the GRP (billion) $54.9 $61.8 $69.9 $97.9
proportion of those in the 40 to 50-years cohort, the
Exports (billion) $8.9 $10.6 $12.7 $21.2
largest earning bracket, reduces while the proportion
of those in the 65 plus-years cohort expands. This GRP per capita $40,033 $41,667 $43,763 $50,785
will limit the extent to which domestic demand can Population 1,371,000 1,482,950 1,596,817 1,928,117
drive economic growth in the future. If current rates of Employment (full
601,612 642,970 694,406 853,333
economic growth are to be sustained, a challenge for time equivalent)
Auckland businesses is to develop existing and new
markets overseas to sell their goods and services. Source: Horizon 2031 scenario, ARC 2008
Note: Data for 2006 are estimates; 2006 is the base
year in the Economics Future Model. GRP and export
Changes in labour force values are expressed in 2004$ constant prices
The regional labour force is forecast to increase by
nearly 40 per cent over the next 25 years. However,
its profile is changing: the labour force is ageing and Gross regional product
becoming more ethnically diverse. In the context of Auckland’s economy is forecast to grow at an annual
increasing international competition for skilled labour, average of 2.4 per cent between 2006 and 2011. Its
educating and constantly up-skilling the regional labour gross regional product (GRP) will reach $61,790 million
force to meet business demand will remain a key in 2011. This growth might be considered optimistic
challenge for Auckland. but it does represent a significant slow-down compared
with the previous five years. Auckland is part of the
global economy and, as such, is not immune from the
Internationalisation current economic slow-down affecting the world’s
The Auckland region plays an essential role in New economies. This global economic slow-down has
Zealand’s connection with the world. Many of the resulted in a reduction in consumer and business
country’s international linkages (i.e. trade, investment confidence. The retail, tourism and construction
and people flows) are being conducted through the sectors are the most affected because demand in
region. While by 2031 the region will be more export- these sectors is highly sensitive to changes in people’s
oriented and outward focused, New Zealand’s remote income and their perceived financial security. Business
geographical location will continue to disadvantage investment decisions may also be delayed or lost as a
exports. The proposed investment in broadband is result of the current turmoil. However, as the region’s
expected to somewhat counteract the cost associated businesses have primarily been serving the domestic
with geographical remoteness. market, the impact might be lessened.

The longer-term implications of the current global


Business innovation economic slow-down are difficult to predict at this
Knowledge and innovation are increasingly important stage, but are not expected to have a major impact
drivers of productivity and competitiveness. Auckland’s on Auckland’s economic performance past 2011. The
economic growth in the future largely depends on Auckland region economy will be aided by the lead up
business innovation. The region’s competitiveness to the 2011 Rugby World Cup, the impact of income
in a number of niche sectors will be secured through tax cuts kicking in, and the home-loan deposit subsidy
innovation, leading to product and brand differentiation from the KiwiSaver scheme taking effect in 2010.
as well as higher productivity rates. Auckland’s GRP is projected to reach $69,882 million in
2016, an increase of nearly one-third over 2006.

Sustainable development In the long term, Auckland’s GRP will have nearly
By 2031, the increased focus on sustainable doubled compared with 2006 to reach nearly $98 billion
development is expected to open new business in 2031. This equates to a 2.27 per cent average annual
opportunities at home and overseas, and to create growth rate between 2016 and 2031. This fairly modest
new jobs in the areas of environmental technology and

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

growth rate for the Auckland region is principally a Occupation


result of the lowering population growth rate and the Occupational structure is highly dynamic: changes
resulting impact on domestic demand. While the low in the industrial composition of the economy, in
degree of openness of the region’s economy might technology, and in business practices have a major
be a useful buffer in time of economic slow-down, impact on demand for occupations. As a result,
Auckland businesses will have to become more occupation projections beyond 2021 should be
aggressive in international markets as the domestic considered with caution. Overall, demand for semi to
market will not be increasing as fast as in the recent highly skilled occupations are on the rise. Legislators,
past. administrators and managers, professionals, and
technicians and associate professionals will represent
over 50 per cent of all occupations in 2031. Many
Gross regional product per capita of these jobs will be in the business services, retail,
In 2006 Auckland’s GRP per capita was estimated at wholesale, education, and health and community
$40,033. Under the Horizon 2031 scenario, Auckland’s services sectors. On the other hand, the most
annual GRP per capita will grow by an average of one significant decline is expected to occur in the clerks
per cent a year from 2006 to 2031 to reach $50,785 by and agriculture and fishery workers’ categories.
2031. The GRP per capita growth rate is decelerating
over time, reflecting a lesser labour utilisation rate,
itself a product of our changing demographics. While Environmental implications
there is limited scope to increase labour participation
in the future, a key to improving our living standard, The Horizon 2031 scenario provides environmental
as expressed by GRP per capita, is to increase labour forecasts but does not allow for improvements in
productivity. energy efficiency. As such, it provides worst-case
scenario results, a base on which to improve.

Exports Energy use in the region is projected to increase by


Exports from the Auckland region are driven by the 68.3 per cent between 2006 and 2031. Total energy
industry sectors in which the region has a competitive consumption, which includes aviation fuel, black
advantage, and supported by a number of Free Trade liquor (a derivative of paper production), coal, diesel,
Agreements currently under development. Considered electricity, fuel oil, geothermal energy, liquefied
as an input in the Economic Futures Model Auckland’s petroleum gas, natural gas, petrol and wood, is
exports in are projected to more than double by 2031 projected to reach 319,183 terajoules (TJ) in 2031.
to reach $21,164 million, increasing their proportion However, because of the projected reduction in the
of the total GRP from 16.2 per cent in 2006 to 21.6 importance of heavy manufacturing industries, energy
per cent. This reflects Auckland’s vision of increasing use will decrease per unit of GRP. In other words, less
global engagement as part of the Horizon 2031 energy will be consumed to produce $1 of output.
scenario. Services exports will become increasingly
important, driven by increased demand for professional The growth in the region’s population and economic
and consultancy services and the projected activity will lead to increases in emissions, waste and
growth in tourism, and aided by fast and efficient water discharges. The total level of emissions in the
telecommunications links in the future. Commodity region is forecast to increase by between 63 per cent
exports will be largely driven by an increase in exports (for nitrous oxide) and 67 per cent (for carbon dioxide).
of advanced manufacture. The average increase in total solid waste in the region
from 2006 to 2031 is forecast to be approximately 70
per cent. Again, the amount of emissions, waste and
Employment water discharges for every $1 of output produced will
In 2006 there were 601,612 full-time equivalents decrease over time.
(FTEs) employed in the region; by 2031 this will have
increased by a further 250,000 or more than 40 per
cent, representing an average employment increase of Sector specific analysis
1.40 per cent each year. This long-term growth is in line
with the projected 1.32 per cent population growth. As New Zealand’s commercial and financial centre,
Auckland’s economy is characterised by the dominance
of the service sector. Indeed, wholesale, trade and
distribution, and service-based industries generate over

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

two-thirds of the total industry GRP. The secondary Industries of scale and comparative
sector, which manufactures finished goods, is also advantages
important, generating over 20 per cent of the total GRP.
Not surprisingly for an urban centre, the primary sector The most significant industries for the Auckland
is a small contributor to the region’s economy, with just economy are those which are both comparatively
above one per cent of GRP generated. strong in the region (i.e. Simple Location Quotient
(SLQ)1 is greater than 1) and of significant size in
Top 10 industries by GRP contribution, 2006 and terms of GRP contribution. These industries are shown
2031 in the following table.

Top 10 industries with comparative advantage and


2006 2031
significant contribution to GRP, 2031

Business services Business services


2031 SLQ GRP
Wholesale Wholesale
Rubber, plastic and other chemical
1.71 $1,915
Retail Retail manufacturing
Air transport, services to
1.70 $3,503
Finance Finance transport, and storage

Communication services 1.56 $4,688


Real estate Real estate
Wholesale 1.49 $8,607
Construction Communications services

Health and community Health and community Business services 1.43 $13,672
services services
Communications Finance 1.35 $4,986
Construction
services
Machinery and equipment
Air transport, services to 1.14 $2,928
Education manufacturing
transport, and storage
Air transport, services to Machinery and equipment Real estate 1.10 $4,942
transport, and storage manufacturing
Retail 1.04 $5,287

Source: Horizon 2031 scenario, ARC 2008 Cultural and recreational services 1.02 $2,917

Over the next 25 years, the structure of Auckland’s


economy will remain relatively unchanged. The Horizon Source: Horizon 2031 scenario, ARC 2008
2031 scenario does not foresee the manufacturing Note: GRP values are expressed in 2004$ constant
sector decreasing. However, some changes are prices (million)
expected at the 48 industry-sector level, as classified
by the Australian and New Zealand Standard Industrial These industries support the notion that the Auckland
Classification Code (ANZSIC). region is New Zealand’s principal business and
financial city-region and is a gateway to the rest of the
world. The regional economy is becoming increasingly
specialised, with a predominance of the information
and communication technology (ICT), financial services
and creative industries. Auckland will also retain its
role as the country’s leading manufacturing centre,
with a number of specialised advanced manufacturing
sectors featuring in the top 10 sectors of comparative
advantage.

1
SLQ index gives the comparative strength or weakness of an
industry in a particular area, relative to the nation.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Industries with fast-growing GRP Top 10 employers in 2006 and 2031

It is expected that advanced manufacturing will be


2006 2031
amongst the most promising industry sectors in
Auckland. These sectors will be driven by high levels
Business services Business services
of innovation and they will serve international demand.
High growth rates are predicted in: Retail Retail

• machinery and equipment manufacturing, Wholesale Wholesale


particularly production of optical, medical and Accommodation,
Construction
surgical equipment, as well as professional and restaurants and bars
scientific equipment Health and community Health and community
services services
• rubber, plastic and other chemical manufacturing, Education Construction
reflecting the effects of the proposed national
Accommodation,
innovation centre with a specific focus on advanced Education
restaurants and bars
materials and the strong growth forecast for plastics
Air transport, services to Air transport, services to
transport, and storage transport and storage
• transport equipment manufacturing, primarily boat- Cultural and recreational Cultural and recreational
building activity, underscoring the region’s strong services services
comparative advantage in the marine sector. Machinery and equipment
Central government
manufacturing

Employment Source: Horizon 2031 scenario, ARC 2008

The employment structure of Auckland’s economy is


quite similar to the GRP contribution picture, with strong Declining employment sectors
dominance in the logistics and services sectors. While
manufacturing will remain a significant employer, by Increased overseas competition, offshore relocation of
2031 it will become less labour-intensive, reflecting a some labour-intensive activities, as well as the trend
change towards higher-value products. towards more sustainable practices and activities, will
all contribute towards declining employment in some
An additional 80,000 people (FTEs) will be employed industry sectors. The highest job losses are expected
in the business services sector, which will remain the in real estate, textile and apparel production, and basic
largest employer in the region, providing over 20 per metal production.
cent of all jobs by 2031. Accommodation, restaurants
and bars move up to fourth place in 2031 and will
employ 5.3 per cent of all FTEs (compared with 4.2 per Sectors of interest to the Auckland region
cent in 2006). Machinery and equipment manufacturing
will move up to tenth position in terms of employment In Part 1 of the Economic Futures project, the following
contribution, employing around 25,000 FTEs by 2031. sectors were highlighted as sectors of interest to the
Auckland region:

• business and financial services


• retail
• information and communication technology
• creative industries
• digital content
• tourism
• transport and logistics
• biotechnology
• marine
• advanced materials, and
• food and beverage.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

These sectors are characterised by their high Digital content


concentration in the region in comparison with the rest Auckland is home to many digital-content businesses.
of the nation (i.e. high SLQs), they are large producers The sector is fast growing and is projected to generate
of wealth or have the potential to be so, and/or are $4.7 billion GRP and to employ 42,297 FTEs by 2031,
export oriented. compared with 26,872 FTEs in 2006.

Business and financial services Tourism


The business and financial services sector will grow at Tourism is affected by the current global economic
a rate higher than the regional average, with projected recession: the United Nations World Tourism
average annual growth rates at 2.7 per cent by 2016 Organisation recently announced that international
and 2.6 per cent by 2031. This sector will experience tourism may stay even or fall by up to two per cent in
one of the fastest growing employment rates, at 2.1 2009. However, the sector is expected to pick up as
per cent average annual growth rate over the 2006– Auckland hosts two major sporting events, the 2011
2031 period. By 2031 it is forecast to employ 208,539 Rugby World Cup and the 2015 Cricket World Cup.
FTEs. The business and financial services sector will be Investment in the Convention Centre will also support
the largest employer in the region. this recovery. Tourism is expected to generate $4.7
billion GRP in 2016. Employment will increase by two-
thirds over a 25-year period, reaching 75,550 FTEs in
Retail 2031.
Retail in Auckland is as concentrated as in the rest
of the country and this trend is not expected to
change much. However, this sector is a major wealth Transport and logistics
generator. By 2031 the sector’s GRP contribution The region is projected to remain a major distribution
of $6,239 million will be ranked at third highest. centre, with the transport and logistics sector forecast
Employment will grow by over 60 per cent between to generate $4 billion GRP in 2011. This forecast
2006 and 2031, creating an extra 50,541 jobs (FTEs). represents seven per cent of the total GRP and reflects
Employing a total of 134,588 FTEs in 2031, the sector Auckland’s major role as a gateway for the rest of the
will account for 15.8 per cent of all employment in the country, with Auckland International Airport and the sea
region, compared with 14.0 per cent in 2006. and inland ports playing a significant part. Employment
in this sector is expected to grow by 50 per cent
between 2006 and 2031, to reach 52,315 FTEs.
Information and communications technology
New Zealand’s ICT sector is concentrated in the
Auckland region, and is projected to become more Biotechnology
important for the region in the future with ICT forecast The biotechnology sector produced $1.9 billion GRP in
to generate $5.3 billion of value-added by 2031. 2006 and is projected to generate $2.2 billion value-
Employment will increase by more than 60 per cent added in 2011 (or four per cent of the total GRP).
between 2006 and 2031, representing an increase of
17,140 FTEs. There is considerable innovation in agriculture
processing, food science and medicine within the
Auckland region, all sectors having applied science
Creative industries and technology processes. This integration of applied
The creative industries sector generated approximately science and technology increases competitiveness,
$1.7 billion value-added in 2006. Growing at a particularly in international markets.
conservative average rate of 2.5 per cent a year, its
GRP should reach approximately $3.2 billion by 2031. It Biotechnology is seen as important because of its
is ranked eighth GRP contributor in the list of important high growth potential and its ability to contribute
industries for the Auckland region. Employment is technologies and services across the economy, notably
projected to reach 33,000 FTEs by 2031. This is double to the health and pastoral sectors. Employment in this
the 2006 employment figure. sector is projected to grow by 23 per cent between
2006 and 2031, reaching 32,724 FTEs in 2031.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Marine industry support the deployment of an ultra-fast broadband


The marine industry has high growth potential. It is network nationwide. Given Auckland’s size and its
projected to generate $2 billion value-added in 2011, economic potential, it is assumed that 40 per cent
$2.2 billion by 2016, and $3.4 billion by 2031. The of this package will be invested in the region. Ultra-
sector employed 23,294 FTEs in 2006 and is projected fast broadband technology in itself does not enhance
to employ approximately 34,685 FTEs in 2031, an economic performance: the real value is gained
increase of 50 per cent. from the adoption of new technological applications.
Such applications drive efficiencies in business,
improve market access and generally change the way
Advanced materials business is conducted, leading to positive impacts on
The production of advanced materials was estimated to economic activity. They cover a wide range of areas,
create $1 billion GRP in 2006, with projections of $1.2 such as IT infrastructure, communication, content,
billion for 2011 and $2 billion by 2031. Employment is business operations support, inter and intra business
projected to increase by approximately 30 per cent over collaboration, transaction and education.
this period, reaching 11,874 FTEs by 2031.
Under this scenario, businesses will continually
adopt new applications and increasingly invest in
Food and beverage more advanced access technologies to enable new
The food and beverage industry is forecast to generate applications to run. This, in turn, will lead to higher
$1.8 billion value-added in 2011, $2 billion by 2016, and levels of IT use and penetration. In particular, sectors
$3 billion by 2031. Employment is projected to grow by that rely on the provision of information (such as
approximately 60 per cent, from 14,533 FTEs in 2006 to business services, education, health, tourism and
23,405 FTEs by 2031. trade), online data bases, banking and financial
services, online marketing and new distribution
channels will hugely benefit from the adoption of new
Scenario 2: Digital Auckland applications and ultra-fast broadband networks.

Information and communication technologies are Research identifies that the benefits of broadband and
transformational technologies and are a necessary broadband-based applications are instrumental in many
national and regional investment in order to stay aspects of business operation. Obvious improvements
competitive on the international stage. Broadband is a to operational activities occur in areas such as supply-
particular technology which improves the performance chain management, fleet management, e-procurement,
of ICT. e-invoicing and online payments, online recruitment,
and customer and call-centre services. These
This scenario is formulated in recognition of the services require the exchange of massive amounts
fundamental role of broadband as a catalyst for of information through strong and secure data and
economic and social development. Implemented information management systems, using an ultra-fast
correctly, a widespread ultra-fast broadband broadband network.
infrastructure has the potential to lower transaction
costs, increase efficiency gains, and provide faster and Businesses especially benefit from the faster, more
more effective access to larger global markets, while reliable and secure transactions. Greater vertical
driving economic and social development and growth. specialisation leads to more cost-effective sourcing of
goods and services, and horizontal collaboration creates
The Digital Auckland scenario investigates how more efficient and innovative partnerships between
investment in ultra-fast broadband telecommunications organisations, thus enabling them to develop or deliver
in New Zealand and Auckland might impact on the a new product or service.
future performance of the regional economy. The
scenario considers the type of long-term regional Under this scenario, significant economic benefits are
economic benefits that should be expected from expected. The deployment of ultra-fast broadband
sustained investment in telecommunication networks infrastructure will add 2.4 percentage points to the
and technologies that enable ultra-fast broadband. region’s GRP by 2031. The industry sectors that benefit
most from the deployment of ultra-fast broadband in
Under this scenario, it is assumed that a $4.5 billion terms of absolute GRP growth are business services,
investment, including $1.5 billion as part of the health and community services, communication
government’s Broadband Investment Initiative, will services, education, and cultural and recreational
services.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

GRP results compared with the Horizon 2031 While there is little difference in the rates of increase
results for energy demands by both household and industry,
at 55 per cent and 56 per cent respectively, the model
2011 2016 2021 2031 projects an increase of 12 per cent in household energy
GRP (billion) $62.0 $ 70.3 $ 79.3 $100.3 demand per capita. This is in line with Organisation
for Economic Co-operation and Development (OECD)
Additional (million) $215 $430 $ 877 $2,389
trends on energy intensity over time, as it is assumed
Increase 0.3% 0.6% 1.1% 2.4%
that energy demand increases in developed economies
Source: Auckland Digital scenario, ARC 2008 due to improved standards of living, increasing
Note: In 2004$ constant prices demand for energy-intensive goods and services,
and the purchasing of new equipment to replace
The deployment of ultra-fast broadband supports technologically obsolete stock.
the region’s efforts to develop overseas markets.
In particular, ICTs and broadband facilitate the The Horizon 2031 scenario identified that the region’s
globalisation of services. Under this scenario, the projected energy use is unsustainable and requires
region is forecast to export in total an extra $49.1 billion careful planning in light of what we know about fuel
during the 2006–2031 period (using 2004$ constant affordability and security of supply, inefficiencies in
prices). Exports will represent nearly one-quarter of energy use, the robustness and capacity of Auckland’s
our GRP by 2031. Specifically, export growth will electricity network, and international and national
occur in the following sectors: printing, publishing and commitments to reduce air emissions.
recorded media, business services, education, health
and community services, and cultural and recreational The Energy Efficiency scenario presumed less reliance
services. on fossil fuels, enabled by continued technological
substitution (innovation) and smarter design and use of
Export projections energy systems. A change in behaviour toward energy
use would also be required, specifically with regard to
2011 2016 2021 2031 the conservation of energy.
Export (billion) $12.6 $14.8 $ 17.1 $23.5
The Energy Efficiency scenario reduced the increase
Represents:
20.4% 21.0% 21.5% 23.5% in household energy demand by 19 per cent after
of total GRP
energy efficiency assumptions were modelled. The
Source: Auckland Digital scenario, ARC 2008 scenario also reduced industry energy demand by 10
Note: In 2004$ constant prices per cent following the modelling of energy efficiency
assumptions.

Scenario 3: Energy Efficiency As is expected with a growing economy there is still an


increase in total energy demanded in the region (46%
Energy comes in many forms. It is used by industry from 2006 levels) in the energy efficiency scenario,
in the production of goods and services, and also by however the per capita total energy demanded is
households as a function of the goods and services lower, increasing by four per cent in comparison to a 20
they buy and use. The intensity of energy use varies per cent increase in Horizon 2031.
by industrial sector, as does the form of that energy.
Energy described in this scenario relates to delivered Under the Energy Efficiency scenario, there is still a
energy to the region, as energy consumed by the projected increase in total energy demanded in the
region is more often generated elsewhere in New region (up 46 per cent from 2006 levels) – as would
Zealand. This is particularly relevant for electricity be expected with a growing economy. However, the
generation as Auckland places substantial demands on per capita total energy demanded is somewhat lower:
other regions for electricity delivery. an increase of only four per cent under the Energy
Efficiency scenario, compared with 20 per cent in
Energy plays a pivotal role in our lives and economy. Horizon 2031.
Government, businesses and households are totally
dependent on energy for physical and economic well-
being and this reliance is not predicted to lessen over
time. Demand for energy is predicted to grow and can
only be met by an increase of 68 per cent in delivered
energy to the region by 2031.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Changes in energy demand

2006 2031 % change brought


Horizon 2031 Energy Efficiency about by Energy
scenario scenario Efficiency scenario

Total energy demand (TJ) 189,702 319,183 277,604 -13%


Total energy demand per capita 0.138 0.165 0.143 -13%
Industry energy demand (TJ) 129,264 224,088 200,588 -10%
Household energy demand (TJ) 60,438 95,095 77,6016 -19%
Household energy demand per capita 0.044 0.049 0.039 -20%

Source: Energy Efficiency scenario, ARC 2008

This table identifies that while there is little change to 55 per cent by 2031, falling by a further 10 per
between the two scenarios in the total energy cent in the Energy Efficiency scenario, though the
demanded by industry, there will be a significant concentration of energy use within these five sectors
decrease in total household energy demand. It should changes little. The road transport industry has the
be noted that in the Energy Efficiency scenario, the largest reduction in energy use, with a drop of total
intensity of energy use per unit of output decreased for energy demand of 32 per cent brought about by the
most industries, with the exception of the water and energy efficiency assumptions.
rail transport, air transport, services to transport and
storage industries. In terms of the amount of energy required to produce
$1 of output in the Auckland region it was calculated in
Energy demand by industry varies considerably across 2006 that it took 1.3 joules (J) to produce $1 of output.
the 48 sectors of the Economics Futures Model (EFM). By modelling the energy efficient assumptions, this
In 2006, 57 per cent of total industry demand was figure is reduced to 1.1 J by 2031, indicating energy
accounted for by just five sectors: efficiency gains in industry, per unit of gross output.

• basic metal manufacturing (19 per cent), Finally, as the Energy Efficiency scenario was modelled
• road transport (11 per cent), with a focus on the use of energy, substantial effects
• printing, publishing and recorded media (nine per on gross regional product were not envisaged.
cent), There were only marginal changes to gross regional
• air transport services to air transport and storage product (under one per cent for all reporting periods).
(nine per cent), and Similarly, there was very little change to employment
• paper and paper product manufacturing (nine per after modelling the assumptions of the scenario.
cent). Interestingly, the EFM is projecting that energy
efficiency gains can be made without impacting on
In Horizon 2031, the concentration of energy use economic growth – rather it is redistributing energy
within these five sectors is forecast to decline slightly across industries.

Energy Efficiency scenario compared with the Horizon 2031 results

2011 2016 2021 2031


GRP (billion) $61.76 $70.3 $78.6 $98.8
Less ( ) or additional ( ) million $30 $92 $168 $88
GRP per capita $41,651 $44,028 $45,961 $51,275

Decrease ( ) or increase ( ) 0.04% 0.61% 0.19% 0.97%

Source: Energy Efficiency scenario, ARC 2008


Note: In 2004$ constant prices

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

1 Introduction

1.1 Context set of regional economic futures for Auckland. These


are:
There is a large amount of information available on the
economy and the business environment in the region. • A view of the long-term impacts of the current
However, there is no agreed set of economic futures financial and economic crisis on the regional
to guide planning and policy making. Current planning economy.
for the region is mainly based on the continuation
of economic trends into the future. The Economic • Horizon 2031 scenario: this scenario represents
Futures project is intended to enhance the quality and our best interpretation of the likely economic
consistency of regional economic planning and policy. future of the region given current knowledge and
It considered past trends and amended these to take expert understanding and analysis of the regional
into account planned and expected future trends in the economy. It provides a good base for future
form of new policies, investments and changes in the planning.
region’s business environment.
• Two other future scenarios: the Digital Auckland
The project was developed in two phases: scenario and the Energy Efficiency scenario.

• Information gathering, which is summarised in the • Data results from 2006 to 2031, at five-year
Economic Futures for the Auckland region – Part 1: intervals, from testing out the economic and
Knowledge base for scenarios development.2 environmental implications of the future scenarios.

• Development of scenarios and modelling. The intention of the project is not to predict the future,
but to assess the likely impacts on the economy
This report, Part 2: Scenarios for economic from a range of plausible scenarios. This report
development, presents three regional economic describes possible futures and the impacts these
scenarios and associated modelling results and, when can be expected to have on the economy and the
possible, identifies future challenges for the region. environment. It also outlines a number of challenges
the region might face in the future.
This section features an overview of what the
Economic Futures project intends to achieve, the The set of regional economic futures support regional
purpose and scope of the project, the methodology policy and strategy development, and guide the
for scenario development, and the main users and delivery of specific projects and actions.
stakeholders for this project.

1.3 Scope
1.2 Purpose
The project focuses on economic activities. It provides
This project aims to define the likely trajectories that more sophisticated information than presently available
the economy of the Auckland region will take over a on the future economic realities that need to be taken
25-year period, from 2006 to 2031. It aims to deliver a into account in the planning process. More specifically,
it provides three sets of employment and output data
by sectors for the Auckland region, as well as their
2
Available on www.arc.govt.nz/economy/

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

likely impacts on environmental aggregates. It also The second and third steps were the scenario
informs land use and transport modelling. development and the modelling using the Auckland
Region Economic Futures Model.
The information produced is constrained by the scope
and range of the modelling tools available. For example,
social and behavioural aspirations and changes
associated with the scenarios cannot be directly fed 1.4.1 Development of the scenarios
into the model. It should also be noted that the model
is not resource constrained. In other words, it assumes Scenarios are tools for ordering perceptions about
that there is no limit to the availability of skills, energy alternative future environments or events through
or office space. These assumptions, rather than being the consideration of alternative outcomes. Scenario
built into the model, are tested exogenously as part of development is designed to facilitate improved
the work. decision-making by allowing more complete
consideration of outcomes and their implications.
Scenario thinking helps improve the quality of the way
we think about the future by encouraging an analysis
of past and current trends, and a framework to think
1.4 Methodology for scenario creatively about the future. Scenario development
answers the question of ‘Where are we heading?’
development
Three economic scenarios are developed as part of this
Figure 1 outlines the process undertaken in the project:
development of the regional economic scenarios. Three
scenarios were developed and modelled following • Horizon 2031, our main scenario depicting the
a phase of information gathering. This involved ‘most likely’ long-term economic futures for the
undertaking an extensive literature review as well region given current knowledge
as new research of the Auckland region economy,
supplemented by stakeholder and community • Digital Auckland scenario, and
interviews to gather their views on the future
prospects for Auckland. This information is presented • Energy Efficiency scenario.
in the Economic Futures for the Auckland region –
Part 1: Knowledge base for scenarios development. Those scenarios are informed by Part 1 of the report,
The Part 1 report provides comprehensive economic as well as additional qualitative information and
information for the region, and a sound base informing research used to validate and change, as appropriate,
the development for the regional economic scenarios. the quantitative results from the model exercise.

Figure 1: Scenario development process

Social attitudes Economic Policy Stakeholders Industry


to change drivers and framework and community research
demographics interviews findings

Knowledge base

Horizon 2031 Digital Auckland Energy Efficiency scenario

Scenario development

Value added Employment Occupation Environmental


(GRP) indicators

Modelling to 2031

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

1.4.2 Modelling • environmental measures such as land use,


delivered energy type, energy related emissions
Each scenario is modelled using the Auckland Region and solid waste.
Economic Futures Model developed by Market
Economics Ltd. This model is a classic input-output A more detailed outline of the model is presented in
model which measures flows between different Appendix 1.
sectors based on consumption patterns between 48
different industry sectors. For example, what is spent
by agriculture on manufacturing products, or what
is bought from the fishing sector by restaurants and 1.4.3 Challenges
bars. It works by taking estimates of future household
consumption and export demand for 2011, 2016, 2021, The data from the modelling process was analysed
2026 and 2031 and determining the economic activity to establish the likely impacts of each scenario. The
required to produce these demands, including all of the evaluation and identification of impacts was peer
associated flow-on implications. Growth in household reviewed. This report outlines the probable implications
consumption is based on population projections, while of these impacts in a number of ‘challenges for the
projections of export demand are derived using past Auckland region’ to be taken into account in future
economic trends. strategic planning. Chapter 6 provides a summary of
the high-level implications derived from the scenarios.
The outcomes initially derived from these projections
are validated and adjusted as appropriate based on
qualitative research. The repercussions or flow-on
implications are then calculated using input-output
mathematics, with growth rates by the 48 industries 1.5 Users
for each five-year period from 2006 to 2031 being the
major output. These growth rates, with productivity The Economic Futures Project feeds into a number
allowances, are then used to estimate the future of projects of regional scale, as described in Figure 2.
economic implications associated with growth. The The aim is for the economic scenarios detailed in this
outputs are: report to become a reference point for developing
regional strategy and policy and for guiding the design
• socio-economic measures, such as gross output, and delivery of specific strategies and interventions.
employment and type of occupation, and value- The project supports strategic planning for regional
added projections by sector, and economic development.

Figure 2: Purpose of Economic Futures Project

Land use and transport modelling and strategy Regional policy


Futures Land Use and Transport project statement

Evaluation of
Economic economic
Strategic planning for regional
development
economic development
Futures strategy
(AREDS)
scenario

Other
E.g. Regional facilitation report for
documents and
the Tertiary Education Commission
strategies

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

The Economic Futures project was developed


alongside the Futures Land Use and Transport Project.
These projects are closely aligned and inform the
current review of the Regional Policy Statement (RPS).

Secondary users are intended to be external agencies


such as central government departments with a
regional focus, economic development agencies,
industry organisations and others. These organisations
should find the economic scenarios a useful tool to
guide development of their strategies and policies and
to help ensure that their work takes into account how
the regional economy is thought to be changing.

1.6 Stakeholders
The development of the regional economic scenarios
involved consultation with major regional stakeholders
through group meetings and one-on-one interviews.
Stakeholder representatives attended a workshop
hosted by the Auckland Region Economic Development
Forum to review and confirm the proposed scenarios.

The key stakeholders in this project include the


Auckland Regional Council, local councils, the
Government Urban and Economic Development Office,
New Zealand Trade and Enterprise, the Employers and
Manufacturers Association, the Auckland Chamber of
Commerce, Te Puni Kokiri, Mana Whenua, the Ministry
of Pacific Island Affairs, the Pacific Island Chamber of
Commerce, the Council of Trade Unions, AucklandPlus,
local Economic Development Agencies, and a number
of sector-specific representatives.

In addition, the project was driven by a cross-agency


steering group, providing access to information as well
as regular feedback on the project’s progress.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

2 Long-term impacts of the current


economic crisis

As discussed in the previous chapter, the purpose The anticipated economic stimulus resulting from
of this report is to assess the likely impacts on the predicted recovery in New Zealand’s agricultural
the Auckland regional economy from a number sector failed to materialise when it was affected by a
of scenarios, rather than predicting the future. In sharp decline in demand for commodities and falling
developing these scenarios, consideration was given to commodity prices towards the end 2008. The rapid
the effects of the current global economic crisis on the depreciation of the New Zealand dollar in early 2009
New Zealand and Auckland economies. This section went some way to cushioning the fall in New Zealand
provides a synopsis of various economic reports, commodity export earnings. However, as global
outlooks and opinion pieces to offer some context for demand for commodities continues to drop, New
the scenario development. Zealand export earnings will continue to fall or, at best,
remain static in some sectors.

The January 2009 Quarterly Survey of Business


Opinion (New Zealand Institute of Economic Research)
2.1 Short-term impact of the recorded business and household confidence levels
falling to record lows, with little expectation these
economic crisis levels would improve substantially during 2009. This
is because despite falling business costs (lower
interest rates, oil prices and labour costs), corporate
profitability has fallen to its lowest levels in almost two
2.1.1 Domestic context decades. The survey also found that businesses were
rapidly cutting back on spending, with record lows in
The deteriorating and shrinking global economy is investment and employment intentions, leading to
impacting on an already weak New Zealand economy further deterioration in business activity, investment
that has been in recession since early 2008. While and employment through 2009 and into 2010.
many forecasters, the Reserve Bank included, are
forecasting a fragile recovery in the second half of Towards the end of 2008, New Zealand started to
2009, some are now picking that New Zealand’s experience a substantial decline in manufacturing
economy will stay in recession until the end of 2009. activity across nearly all industry sectors as
consumer demand rapidly dried up. This decline was
New Zealand’s economy has been weak and in predominately driven by sharp falls in the construction
negative growth since early 2008. The decline sector, feeding quickly through to related industries.
was initially triggered by the drought in early 2008, The weakness in the manufacturing and construction
causing a fall in export earnings, particularly for sectors explains the bulk of the decline in New
dairy commodities, at a time when global prices and Zealand’s GDP activity in the last quarter of 2008.
demand for commodities were increasing. Business
and household expenditure also started falling rapidly, The Reserve Bank’s March 2009 Monetary Policy
driven by high interest rates, sharply rising oil prices Statement stated the New Zealand housing market
and increases in other commodity prices, particularly was barely halfway through its forecasted 20 per cent
in the construction sector and in household groceries. peak-to-trough fall in house prices as housing demand
The impact of high interest rates was also felt in the softened. This is also reflected in the issuing of the
housing market, leading to a fall in residential property lowest number of residential consents in New Zealand
values by an average of 6.8 per cent in the 12 months since 1991, as well as a 31 per cent drop in residential
to early 2009 (Reserve Bank). construction activity since February 2008, taking

16
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

residential construction activity back to levels not seen International Monetary Fund (IMF) forecasts that many
since the March 2002 quarter. These statistics suggest of the world’s large economies could shrink in 2009
the construction sector will remain weak through 2010 by as much as 3.5 per cent. New Zealand’s economy
and possibly through to 2011. is forecasted to ‘only’ decline by up to two per cent
during 2009. The World Bank also forecasts the worst
However, one variable which affects this sector is a shrinkage in world trade in 80 years.
probable increase in the number of new migrants and
New Zealanders returning home, combined with a fall Similarly, the Reserve Bank predicts that growth in the
in the number of migrating New Zealanders as global economies of many of New Zealand’s trading partners
economic and employment conditions remain weak. will fall to rates not seen in several decades, leading
An increase in migrants will result in an increase in to a larger and more sustained dampening effect in
demand for housing, as New Zealand, and Auckland in business investment and consumer activity within New
particular, does not have an over-supply of housing. A Zealand’s economy than was predicted in 2008. The
net increase in the number of migrants could cause an Reserve Bank also predicts that our trading partners’
earlier growth in activity in the construction sector. economic activity will start growing modestly from
2010 onwards, driven by large fiscal packages and
During 2008, businesses coped with falling demand easing of monetary conditions. However, households
by ‘hoarding’ labour and avoiding redundancies in and financial institutions are expected to continue
the anticipation that the economy would move out of slowly adjusting their debt positions through 2009 and
recession. This was achieved by slashing overtime and 2010, causing a sustained dampening effect on global
reducing core working hours. However, with the global activity.
recession now impacting on New Zealand’s economy,
many forecasters are predicting that New Zealand’s New Zealand’s main Asian trading partners fared
unemployment rate will head above seven per cent by particularly badly in the last two quarters of 2008, with
the end of 2009 and possibly go as high as 10 per cent steep declines in industrial production and exports
in 2010. as, globally, household and business consumption
and investment fell away. In particular, Japan, New
The rise in unemployment coupled with small or Zealand’s fourth largest trading partner, has been
no wage increases, a tight credit market and falling badly hit with international demand for cars, domestic
property values will mean that demand for both retail electronic consumerables, semiconductors, electrical
and residential properties will continue to weaken machinery and ships collapsing in early 2009, and an
during 2009 and 2010. 80 per cent collapse in housing starts.

2.1.2 International context


2.2 Outlook for the New Zealand and
Globally, economic activity shrunk sharply in late 2008
and into 2009, moving the global economy into its Auckland economies
worst recession since the end of the Second World
War. Bloomberg L.P. estimates that since mid-2007 the
value of the world stock markets has approximately
halved as investors move money into gold and 2.2.1 Business outlook
government bonds. Consumer spending in many
western economies has fallen sharply in response to Business outlook in 2009 and through to 2010, and
asset prices falling, rising unemployment and the on- possibly into 2011, remains weak for both domestic
going readjustment in household debt as consumers and global demand. This is likely to limit investment
seek to reduce their debt exposure through increased by businesses until there is tangible and sustainable
savings. growth in demand. The Reserve Bank predicts that
core business investment will decline to levels similar
In March 2009 the World Bank revised down its to those in the 1991 recession. Further investment
expectations for the world’s economic activity in 2009, constraints are limited access to credit and the effects
predicting it will be the worst period since the Second of a heavily depreciated New Zealand dollar, which
World War, with global economic activity forecast increases the cost of imported plant and machinery.
to be around five per cent below its potential. The

17
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Both of these factors will severely restrict how and net migration gain will head above New Zealand’s
when businesses decide to invest. 10-year average of 10,000 migrants by at least 5,000
migrants by the end of 2009 (BNZ Weekly Overview).
The decision to invest will initially be driven by The consequences of such an increase are twofold:
improvements in business margins and profits as short-term pressure on unemployment levels, and a
cost pressures ease. Furthermore, the low level of slow but persistent increase in household spending and
investment through 2008 to 2010 is likely to leave demand for housing.
many firms with the need to replace rapidly wearing
capital equipment. Low interest rates will also
stimulate business activity.
2.2.4 Trade volumes
Although the New Zealand dollar has depreciated by
2.2.2 The labour market 30 per cent since its 2008 highs, making New Zealand
exports cheaper in overseas markets, export volumes
The Reserve Bank estimates an annual decline in are still expected to decline sharply through 2009 due
employment of 3.1 per cent over 2009, leading to an to the weak global economy. Even when the global
unemployment peak of 6.8 per cent early in 2010. This economy shows signs of growth, the Reserve Bank
decline in employment is also matched by a projected predicts that export demand will continue to be weak
fall in wage inflation as New Zealand experiences into 2010 and possibly 2011, due to high levels of
a substantial easing in skill shortages. The Reserve stockpiles, particularly for manufactured goods and
Bank predicts lower unemployment levels than other forestry. Dairy exports are expected to remain weak
observers based on the prediction that firms will try to during 2009 and into 2010.
avoid redundancies by reducing the number of hours
employees work. Low levels of business investment, a reduction in
household income and a heavily depreciated dollar will
The Reserve Bank unemployment forecast peak of 6.8 drive a sustained decline in imports, particularly of cars
per cent is viewed by some commentators as being and household goods, during 2009 and into 2010.
optimistic in the light of the sharp economic decline
of many of New Zealand’s trading partners (Australia,
the USA, China, Japan, Singapore and the European
Union), particularly as economic growth in 2010 for 2.2.5 Household spending and house price
our trading partners, with the possible exception of
Australia, is likely to be small and very fragile. Some
inflation
commentators forecast that unemployment could
potentially be as high as 11 per cent by the end of Consumer spending is expected to remain very weak
2010. during 2009 and well into 2010, resulting in the level of
per capita consumption remaining well below current
levels (March 2009 Monetary Policy Statement). This
is driven predominately by reduced household income
2.2.3 Immigration caused by lower wages from declining employment
and falling available working hours as well as lower
New Zealand is likely to experience an increase in income from lower interest rates.
immigration numbers despite a lower volume of
labour movement between countries as a result of the Furthermore, households are expected to continue
weakening global economy. Although the net number reducing their levels of consumption as they seek
of migrants decreased in 2008, there has been a to save more, paying off debt driven by worries of
noticeable increase in the number of migrants arriving falling household wealth and an increasingly uncertain
in New Zealand during the first months in 2009. The employment environment. The need to save is an
numbers arriving were significantly higher than 12 example of the global de-leveraging process at work,
months earlier. This suggests that there is an increase as households stop leveraging off their decreasing
in the number of returning New Zealanders, with less equity value and start to save. This has been most
New Zealanders going overseas and more migrants noticeable in the USA and Australia, where by January
in search of better economic opportunities. Several 2009 American households had improved their saving
forecasters are predicting that New Zealand’s annual rates from near zero to almost five per cent of their

18
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

disposable income. Similarly, Australian households demand for New Zealand exports, and with significantly
had increased their saving to almost 8.5 per cent of low business sentiment and rising unemployment there
disposable income. The trend in New Zealand has been will be substantial downward pressure on economic
a decrease in the dis-saving rate rather than an increase growth during 2009. While in 2009 the private sector
in the saving rate. is not expected to contribute to economic growth, it
is expected that the government’s fiscal stimulus and
New Zealand’s current account deficit is one of the spending on key infrastructure projects will provide
highest deficits in the OECD. New Zealand has run a some economic support to generate an economic
current account deficit for over 35 years, funded by a recovery, albeit a weak one in late 2009, early 2010.
combination of overseas borrowings and direct foreign
investment into business ventures or portfolios such as The Reserve Bank also forecasts that the recovery
bonds and securities. Another way of looking at New will gain impetus as export activity and business
Zealand’s current account deficit is to say that the easy investment pick up, predominately driven by the
supply of overseas capital over the last few years has stimulus of lower interest rates, the depreciation of the
sunk the account into higher levels of deficit. New Zealand dollar, infrastructure spending, ongoing
government spending and an expected recovery in
A reversal in household behaviour is predicted to occur. world growth. The Reserve Bank forecasts that by
The Reserve Bank forecasts a sizeable improvement 2011 New Zealand’s economy will have recovered to
in household saving rate from around minus 10 per an annual average growth of 4.8 per cent. However,
cent levels, to about minus two per cent of household there is the caveat from the Reserve Bank that ‘the
disposable income by the end of 2010. Household timing and magnitude of an upturn is highly dependent
spending is expected to recover only modestly in on global economic developments during 2009 and the
2011. The recovery in household savings is supported continued growth in government spending during 2009
by a weak but positive growth in inflation-adjusted and into 2010’.
household incomes, the eventual effects of the
tax cuts in 2008 and 2009, and a slight or modest Many commentators believe that this forecast is
improvement in the housing market in 2011. too optimistic and does not take into account the
dramatically weakening global economy, particularly
While most commentators expect further falls in those of our main trading neighbours such as the USA,
residential property values, there is now little evidence Japan and China. Their predictions are for no growth at
to support the forecasts of declines in property value of all during 2009 and only early signs of weak growth in
between 30 per cent and 40 per cent towards the end 2010.
of 2009. While falls of these magnitudes might occur in
the USA and parts of the UK, they are unlikely to occur
in New Zealand given the fundamental differences
between New Zealand’s housing market and overseas 2.2.7 Government stimulus package
markets. The main differences are that New Zealand
is facing a rapidly worsening shortage of residential In February 2009 the New Zealand Government
property due to a dramatic drop in the construction announced a stimulus package as a means of injecting
of residential property and a predicted large increase capital into the economy. The stimulus package
in migration numbers. An absence in New Zealand of supports the already planned April 2009 tax cuts,
poor lending decisions seen overseas, particularly in which are designed to maintain and support household
the USA, means that banks operating in New Zealand demand, therefore lifting domestic demand for New
can fund themselves and provide mortgages. The Zealand’s commodities and services. The Government
Reserve Bank’s interest-rate cuts have also flowed also introduced as part of its stimulus package the fast-
through into mortgage interest-rate cuts, helping to tracking of a number of large infrastructure projects.
keep housing affordable.
In an effort to ensure the credit markets continue
to function, the Government has introduced two
guarantees for New Zealand’s financial institutions: the
2.2.6 Gross domestic product Retail Deposit Guarantee Scheme and the Wholesale
Funding Guarantee Facility. The New Zealand package,
As described earlier, the Reserve Bank forecasts that although small when compared with the Australian,
exceptionally weak global demand, particularly from USA and UK stimulus packages, is a means of
our main global trading partners, will impact heavily on stimulating the economy.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Australia is the most likely of all New Zealand’s trading Zealand (through their Australian owners) has four
partners to start growing economically at a rate higher of the eleven AA-rated banks in the world.
than most other OECD partners. This is partly due to its
substantial fiscal stimulus, as well as enduring demand • New Zealand’s fiscal accounts are in good
from China for Australia’s primary commodities. In condition, following 15 years of fiscal surpluses.
addition, Australia, like New Zealand, still attracts
new migrants. The potential economic turnaround • New Zealand is likely to see accelerating
in Australia’s economic growth is likely to drive New population growth as the migration cycle turns,
Zealand’s growth because Australia accounts for about and this will be affected by the lack of available
20 per cent of all New Zealand exports and 40 per cent residential property.
of all foreign visitors originate from Australia.
• As the global economic recession has yet to fully
On the other hand, an Australian economy recovering reach New Zealand, the country has some time
sooner and stronger than New Zealand’s economy to prepare for it with a degree of control and
may detrimentally impact on New Zealand’s economic foresight.
recovery because an Australian recovery is likely to
attract skilled New Zealand labour from sectors such as • And finally, a sharp decline in the New Zealand
construction, mining and manufacturing that are crucial dollar will help to protect the export sector
to New Zealand’s economic recovery. However, while while spreading the impact around the wider
it is possible that this effect could be outweighted by economy through reducing demand for overseas
higher export demand from Australia (as noted above), commodities. Exporters of some commodities and
it is also possible Australia’s economic growth could services, such as sheep, shellfish and education
significantly increase production costs in New Zealand. services, have already indicated that they have
started to see improving returns since the start of
2009.

2.2.8 Key points


In summary, it is highly likely New Zealand will remain
in recession for most of 2009 with (weak) economic 2.3 Long-term impacts of the economic
growth not occurring until 2010. This will be driven in
part by a continuing decline in the economic growth of crisis
New Zealand’s major trading partners, and in part by
falling household consumption as households continue The current drying-up of global financial liquidity is
the process of de-leveraging and start to improve their unlikely to impact on New Zealand in the medium- to
saving rates. long-term. New Zealand’s sovereign risk is low: it is
unlikely that the government will default on its debt
New Zealand is also unlikely to suffer as deep a repayments, nationalise foreign-owned assets or
recession as its major economic trading partners for introduce policies that create lower rates of return for
the following reasons: assets and stocks. In addition, the rapid (and probable
further) depreciation of the New Zealand dollar makes
• There has been a substantial decline in nominal New Zealand attractive to foreign investors if the risk
interest rates, supporting household demand. of investing in a highly indebted country is priced
into the investment return. This is important for New
• New Zealand has an absence of large-scale Zealand businesses because in recent months they
manufacturers feeding into the rapidly declining have struggled to attract and secure over the medium-
global manufacturing chain as, globally and locally, to long-term appropriately priced capital to support
retailers and producers slash orders. their business operations and longer-term investment
programmes.
• New Zealand‘s financial services sector has not
been badly hit by the financial crisis (at least The rapid depreciation of the New Zealand dollar will
comparatively) and, as a result of the lessons improve the competitiveness of its export-focused
learnt from the 1980s, New Zealand has one of firms and those firms that compete against imports
the steadiest banking systems in the world. New into the New Zealand market. The depreciation of
the dollar will result in ‘traded’ industries, such as

20
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

the primary product processing and foreign tourism


sectors, being able to attract a far greater share of
new investment and employment than non-traded
industries such as housing and private services.3 This
is particularly important for Auckland.

Consequently, once overseas demand increases, New


Zealand exporters will again start performing strongly,
producing appropriate returns to their investors. With
a lower exchange rate increasing the cost of imports,
household consumption will decrease. While increasing
New Zealand’s savings rate, this will lead to potentially
significant reductions in the country’s current account
deficit. Furthermore, as the deficit reduces over the
next five to 10 years, there will be less of a need
to access international capital markets to obtain
investment capital (Infometrics Ltd).

The current lack of global liquidity has affected the


ability of New Zealand’s banks to access international
short-term and long-term credit. There was a real
concern that the banks would not be able to refinance
their current loans. The government intervened
in response, offering banks government deposit-
guarantees and access to lines of credit. With
international central banks looking more secure and
major OECD governments pumping more credit into
the financial markets, it is now very unlikely that banks
will find themselves with insufficient funds. Indeed,
over the next three to five years bank balance sheets
will continue to improve. It is also unlikely that the
current lack of global liquidity will have any major
impact on the capacity of New Zealand banks to
finance domestic businesses.

Looking forward, a rapidly depreciating New Zealand


dollar will reduce household consumption as imports
increase in price and households start de-leveraging
and commence a saving regime. The industries that
will particularly benefit from a low dollar will be the
manufacturing, primary products processing (meat
and dairy), tourism and international education sectors.
These are the industry sectors that Auckland is strong
in and they are likely to generate higher rates of
economic growth for Auckland, and therefore for New
Zealand, once the current global liquidity and economic
recession have passed.

3
Infometrics Ltd – The long-term consequences of the financial crisis
on the availability of finance for productive purposes in New Zealand
(and Auckland), 2009.

21
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3 Scenario 1: Horizon 2031

Horizon 2031 is the main, or baseline, scenario as part 3.1.1 Demographic changes
of the Economic Futures Project. It presents a major
improvement on previous long-term employment and Demographic dynamics will continue to influence
output forecasts for the Auckland region. It is based economic growth in the Auckland region. Assumptions
on our current knowledge and understanding of the for the Auckland region’s population projections can be
region’s economy and economic drivers. It provides an found in Appendix 2. The main changes by 2031 are
outlook for the Auckland economy in the short term expected to be the following:
(2006–2011), medium term (2006–2016), and long term
(2006–2031). • The region’s population will increase from 1.37
million in 2006 to 1.93 million in 2031,4 at 1.32
This chapter is organised as follows: Section 3.1 per cent average annual growth rate. While
provides an insight into how some of the key drivers of this projected growth is significant, it is not as
Auckland’s economic growth are expected to change rapid as that experienced in the last 20 years.
in the next 25 years. It is followed by the model’s This limits the extent to which
assumptions in section 3.2. Section 3.3 summarises domestic demand can drive
the main indicators of economic growth for the short, economic growth in
2031
medium, and long term. Sections 3.4, 3.5 and 3.6 the future. 1,928,117
2016
look at gross regional product and gross regional 2011 1,596,817
product per capita, exports and employment and • The 1,482,950
occupational structure respectively. Section 3.7 looks proportion 2006
1,371,000
at the environmental indicators, such as energy use, of people
emissions, waste and water discharge. Section 3.8 in the 40
provides sector-specific projections for the 48 sectors to 50-years-old age group – the highest earning
in the model and section 3.9 presents the outlook for a group – will reduce from 15.50 per cent of the total
number of sectors of interest to the Auckland region. population in 2006 to 13.95 per cent in 2031. This
may imply decreasing domestic consumption in
the long term.

• Auckland’s population is becoming older, with


3.1 The economic landscape by 2031: the proportion of people aged 65 years and more
projected to increase from 10 per cent in 2006
key drivers to 17 per cent in 2031. This may have many
implications, such as the increased need for new
In today’s turbulent and dynamic world, what we know businesses to cater for older people, a heavier
and experience may be very different in the not-so- fiscal burden on those in work, and a higher
distant future. Some significant forces, such as demand for health and community services.
demographic changes and globalisation, are already
changing the face of the
Key drivers of economic Auckland region. These Challenge for Auckland:
growth: drivers – along with the With the constraints on domestic demand to drive
• Demographic changes labour force changes, economic growth in the future, Auckland businesses
business innovation, will need to expand existing – and develop new –
• Changes in the labour force
export markets to sell their goods and services.
• Internationalisation and sustainable
• Business innovation development – are
• Sustainable development discussed in this
section. 4
Medium population projections, ARC.

22
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

• In the 2006 Census, 37 per cent of Auckland 3.1.3 Internationalisation


residents were born overseas and they identified
with over 180 ethnicities. Out of all New Zealand The Auckland region is an essential spatial node
residents who identified with Asian or Pacific for New Zealand’s connection with the world, with
ethnicities, over two-thirds live in the Auckland many of the country’s international linkages (e.g.
region. The ethnic structure is expected to change trade, investment and people flows) being conducted
in favour of Asian, Maori and Pacific people, who through the region. It is part of the global economy
will represent a larger portion of the population and, as such, its economic outlook over the next few
in the future. These ethnic groups will have a years will be impacted by the current global economic
heightened degree of influence on consumption slow-down. However, as the region’s businesses have
preferences and, as business owners or workers, primarily been serving the domestic market, the impact
on work practices. might be lessened.

Challenge for Auckland:


3.1.2 Changes in the labour force Auckland, as a geographically isolated region, needs
to reinforce its links with the rest of the world in order
Currently, Auckland’s labour market is characterised to support the expansion of its economy. The seaport,
airport and digital network are essential pieces of
by high labour force participation5 (68.4 per cent) and
infrastructure. Trade links are also vital in ensuring
low unemployment rate (3.8 per cent). The Economic access to overseas markets.
Futures Model projects, based on the ARC Population
Model, the following labour force changes:

• The proportion of the working-age population6 in While the low degree of openness of the region’s
the total population will increase from 64 per cent economy might be a useful buffer in times of economic
in 2006 to 68 per cent in 2031. slow-down, Auckland’s businesses will have to
become more aggressive in international markets, as
• As a result, Auckland’s labour force7 will increase the domestic market is not increasing as rapidly as in
from 732,000 in 2006 to more than a million people the recent past. By 2031, Auckland’s international role
in 2031,8 an increase of nearly 40 per cent over is expected to increase. The trade agreements with
the next 25 years. Pacific Rim countries and the growing relationship
with the Australian economy will create new business
• The regional labour force will expand at a lower opportunities as well as economies of scale. These
rate post-2016, as new entrants will be largely new or stronger international linkages may also lead
offset by retirements. to some businesses (such as low-value manufacture)
moving overseas.
• Auckland’s labour force will become older over the
next few decades. Although Auckland is expected to be more outward-
focused by 2031, its distance from global markets
will continue to influence its economic performance
Challenge for Auckland: because of the cost of doing business overseas; this,
In the context of an ageing labour force, it may be in turn, affects the international competitiveness of
more difficult for businesses to recruit skilled labour. Auckland’s businesses. Nevertheless, it has been
This may constrain a business’s ability to grow and argued that the world is ‘becoming flatter,’9 based
innovate, ultimately restricting production in the
on the premise that technological advances in
region. Auckland needs to remain an attractive place
to work and do business. The region will compete transportation and communications have reduced
with the rest of New Zealand and other developed the cost of moving products and services across
countries for attracting new skilled workers. long distances to such an extent that distance now
plays a minor role in international trade. The proposed
5
The labour force participation rate is the percentage of all those aged investment in broadband is therefore expected to
15 years and over who are in the labour force. The employment rate somewhat counteract the cost associated with
refers to the percentage of those aged 15 years and over who are
employed full or part-time. Auckland’s geographical remoteness.
6
Those aged 15 to 65.
7
Statistics New Zealand defines the labour force as being made up
of people aged 15 years and over who are working and people who
are not in work but who are available and actively seeking work (the
unemployed).
8
Statistics New Zealand (2008) Labour Force Projections, according to 9
Friedman, T. (2005), The World is Flat. Farrar, Straus and Giroux
assumptions agreed to by the Auckland Regional Council.

23
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3.1.4 Business innovation 3.1.5 Sustainable development


Auckland’s economic growth largely depends on Sustainable development is expected to be a major
business innovation. Business innovation encompasses driver of the Auckland economy’s growth in the next
product (goods and services) and process innovations, 25 years. Due to factors such as rising oil prices,
new marketing methods and organisational emissions trading schemes, carbon footprints, climate
approaches, and implementation of advances in change and the Kyoto Protocol, it is expected that
technology. Innovation is especially important for the consumers’ preferences will increasingly move
sectors that drive the region’s economy. towards environmentally sound products and services,
and business processes. Consumer preferences,
The key sectors in Auckland’s economy that are together with tougher regulations, will drive businesses
expected to be driven by business innovation are to focus on the development or adoption of sustainable
the industries strongly focused on niche, high-tech, technologies and practices.
value-added activities. They include information and
communication technologies and related sub-sectors This approach is already evident among many
(e.g. creative industries and digital content), specialised of Auckland’s innovative businesses which use
manufacturing (e.g. marine and advanced materials) sustainable development, environmental responsibility
and health technologies (e.g. biotechnology). and social awareness as strategic planning tools. By
2031, the increased focus on sustainable development
Although deregulation during the 1980s and 1990s is expected to open new business opportunities
saw some decline in manufacturing, manufacturing at home and overseas, and create new jobs in the
has remained – and is likely to remain – a prominent areas of environmental technology and advice, waste
feature of the region’s economy, with a greater focus reduction, recyclable/advanced materials, green
on niche, value-added type manufacturing. The region’s building and energy conservation. New Zealand
competitiveness in a number of niche sectors will and Auckland are well placed to gain market shares
be secured through innovation, leading to product offshore, based on their clean, green image.
differentiation as well as higher productivity rates.
Marine is an example where there is plenty of scope
for better production systems to reduce production
cost and time. Challenge for Auckland:
The move towards a more sustainable economy
The primary sector, although playing a relatively minor requires Auckland to rethink how the region’s
part of Auckland’s economy (with the exception of economy and society will operate within dynamic
environmental and cultural settings.
horticulture), will continue to have an impact on the
region’s economy through its links with other sectors.
The agriculture sector will be characterised by the
rapid evolution and absorption of new technologies in
agri-technology, animal remedies (including genetics), 3.2 Assumptions
software, machinery and biochemical businesses.
In developing the Horizon 2031 scenario, a series of
factors were translated into detailed assumptions. In
addition to the key drivers detailed above, factors such
Challenge for Auckland: as global economic forces, major central government
Auckland businesses cannot solely compete on policy and fiscal changes, infrastructural developments
price. Product and service differentiation, driven by and upcoming events, as well as industry and
innovation, is the key to drive competitiveness. In community insights into the outlook for the economy
addition, innovation supports productivity gains.
and specific industry sectors, were considered.

Here are some of the principal assumptions made


under Horizon 2031:

• Auckland is part of the global economy and, as


such, its economic outlook over the next few years
will be impacted by the current global economic
slow-down. However, as the region’s businesses

24
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

have primarily been serving the domestic market, • Infrastructural developments planned or proposed
the impact might be lessened. The Horizon 2031 for the region including rail electrification,
scenario modelled this economic slow-down investment in transport and energy transmission,
using the October 2008 GDP forecast for the New deployment of faster broadband (based on the
Zealand economy (New Zealand Treasury), as well now cancelled Broadband Investment Fund),
as forecasts from other reliable sources such as and development of the New Zealand Innovation
banks and the New Zealand Institute of Economic Centre with a focus on advanced materials.
Research (section 3.4.1 provides further details).
While the Horizon 2031 forecast might have been • Productivity growth rates differ between industries
too optimistic in the short term, the modelling and do not change over time. This is a major
results in the medium and long term are only limitation as the model does not account for
marginally affected. The effects of the economic productivity improvements over time, but assumes
slow-down were also considered for each of the 48 that in the future, productivity will change at the
sectors in the model, assuming that all the sectors same rate as in the recent past.
will not be affected equally. The retail, construction
and tourism sectors were thought to be most • Major upcoming events that may have effects on
affected and were thus adjusted appropriately. The the economy are the 2011 Rugby World Cup and
consumption-effect variable and the infrastructure the 2015 Cricket World Cup.
investment growth rate for (private) construction
were adjusted down for the 2006–2011 period. Assumptions are detailed in Appendix 3.
Because of the interlinkages in the model, any
changes in the growth rate of a particular industry
sector also pass on to all other industries in the
economy.
3.3 Economic indicators in a nutshell,
• Major fiscal and policy changes such as the tax
credits and the research and development tax cuts 2006 – 2031
were modelled.
The key economic indicators for the Auckland region
presented in this section are GRP, GRP per capita,
export and employment (for definitions of these
indicators, see Appendix 7: Glossary of terms).

Table 1: Projections in a nutshell, 2006–2031

2006 2011 2016 2031


GRP (billion) $54.9 $61.8 $69.9 $97.9
Exports (billion) $8.9 $10.6 $12.7 $21.2
GRP per capita $40,033 $41,667 $43,763 $50,785
Population 1,371,000 1,482,950 1,596,817 1,928,117

Employment (full time equivalent) 601,612 642,970 694,406 853,333

Source: Horizon 2031 scenario, ARC 2008


Note: Data for 2006 are estimates; 2006 is the base year in the Economics Future Model.
GRP and export values are expressed in 2004$ constant prices.

25
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3.4 Gross regional product and gross consumer and business confidence. These effects
are likely to be felt most strongly in the retail,
regional product per capita tourism and construction sectors, as demand for
these industries is highly sensitive to changes
in people’s income and their expected financial
security. Business investment decisions may also
3.4.1 Gross regional product be delayed or lost as a result of the current crisis.

The Horizon 2031 projections in the first period (2006– However, Auckland can be expected to fare better
2011) were influenced by the New Zealand Treasury than the rest of New Zealand during this slow-
October 2008 gross domestic product (GDP) forecast down period because historically its economy has
for the New Zealand economy, as well as forecasts primarily been serving the domestic market. It is
from other reliable sources such as banks and the New therefore less vulnerable to the international cycle
Zealand Institute of Economic Research. The Treasury than rural New Zealand which exports a significant
has since revised its nationwide forecasts downward in proportion of its output.
the light of the deepening global recession.
Figure 3: Auckland’s GRP, 2006–2031
Table 2: New Zealand’s GDP annual growth rate,
1997–2011
2. 27%
$97, 920
2. 49%
Based on Based on
Oct. 2008 Dec. 2008 2.40%
$69, 882
forecast forecast $61,790
$54,885
March years GDP growth rate
Average 1997–2006 3.0% 3.0%

Actual 2006 2.0% 2.0%

2007 1.5% 1.5%

2008 3.0% 3.2%* 2006 2011 2016 2031

Forecast 2009 0.1% 0.3% Source: Horizon 2031 scenario, ARC 2008
2010 1.8% 0.8% Note: Absolute values expressed in 2004$ constant
prices (million); percentages present average annual
2011 3.3% 2.9%
growth rates between periods.
Average 2006–2011 1.9% 1.7%
• By 2016 Auckland’s GRP will reach $69,882
Source: New Zealand Treasury (2008) million, an increase of nearly one-third of the 2006
* Revised growth rate GRP. It is projected to grow on average by 2.49 per
cent annually from 2011.This increased growth rate
The regional forecasts under the Horizon 2031 can be is expected to be aided by the effects of the 2011
considered optimistic for the 2006–11 period. However, Rugby World Cup, the impact of income tax cuts,
the longer term impact is minimal. and the home loan deposit subsidy from the Kiwi
Saver scheme taking effect in 2010. While it could
• By 2011 Auckland’s GRP will reach $61,790 take until 2010 for global economic growth to pick
million. This represents a 12.6 per cent increase up significantly, it is expected that consumer and
from 2006, or an average annual growth of 2.40 business confidence will begin recovering earlier.
per cent.
• By 2031 Auckland’s GRP will have nearly doubled
Whether Auckland’s GRP will grow at 2.40 per to reach near $98 billion. This equates to an
cent per annum or at a lower rate, this growth average annual growth rate of 2.27 per cent from
will represent a significant slow-down when 2016, a fairly average growth rate for the Auckland
compared with the previous five years. This can region.
partly be explained by the effects of the global
economic slow-down and high oil and food
prices in 2008/09, and the resulting reduction in

26
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

3.4.2 Gross regional product per capita Challenge for Auckland:


A 2.4 per cent average annual economic growth rate
In 2006 Auckland’s GRP per capita was $40,033, (GRP) over the next 25 years is insufficient to ensure
which is below that of most of the cities Auckland is that our GRP per capita, a proxy for living standard,
does not slip further down the OECD ranking. Given
traditionally compared with (e.g. Brisbane, Vancouver,
the limits to improving labour utilisation further, future
Melbourne, Copenhagen and Seattle), but higher than improvements in GRP per capita must come primarily
Adelaide’s. Although Auckland’s GRP per capita was from labour productivity growth. Also, Auckland
high relative to other New Zealand regions, it still ranks needs to use new telecommunication and transport
only eightieth out of 116 countries.10 technologies to increase export and direct investment
levels.

The Horizon 2031 projections are:


Improvements in GDP per capita can be attributed
• By 2011 Auckland will generate $41,667 GRP per to increases in either labour utilisation or labour
capita11. productivity (total output or total income generated
per hour worked). Under Horizon 2031, the GRP per
• By 2016 Auckland’s GRP per capita will reach capita growth rate is decelerating over time, reflecting
$43,763. a lesser labour utilisation rate, itself a product of our
changing demographics (as discussed under section
• By 2031 Auckland’s GRP per capita will be 3.1).
$50,785, a total increase of around 27 per cent
from the base year (2006), or a one per cent In the previous two decades, New Zealand’s GDP
average annual growth. per capita was mainly generated by increases in
labour utilisation (the increase in the number of
Figure 4: Auckland’s GRP per capita, 2006–2031 people working and the trend towards longer working
hours), while only one-third of growth was driven by
1.00%
improvement in labour productivity (OECD, 2006).13 In
0.99%

0.80%
2006 Auckland’s labour productivity was lower than the
$50,785

$43,763
OECD average of a sample of metropolitan regions,
$41,667
$40,033 and all of the comparator cities other than Vancouver.14

While there is limited scope for increasing labour


participation in the future, a key to improving our
living standard, as expressed by GRP per capita, is
to increase labour productivity. Moreover, underlying
determinants of GDP per capita significant for
2006 2011 2016 2031
both Auckland and New Zealand are the level of
internationalisation and infrastructure development.
Source: Horizon 2031 scenario, ARC 2008 New Zealand’s remoteness from markets is estimated
Note: Absolute values expressed in 2004$ constant to penalise its GDP per capita by around 10 per cent
prices; percentages present average annual growth (OECD, 2008), and the country’s ICT infrastructure
rates between periods. quality appears to be below that of most OECD
countries. In this respect, investment in broadband
Under the Horizon 2031 scenario, Auckland’s annual looks encouraging.
GRP per capita growth rate is forecast to average 1 per
cent from 2006 to 2031. For comparison, according to
the IMF forecasts,12 New Zealand’s GDP per capita will
increase 1.2 per cent each year from 2006 to 2013 (in
constant prices). In the same period, Australian GDP 3.5 Export
per capita is forecast to grow by 1.9 per cent annually
and the USA’s GDP per capita by 1.0 per cent. The Auckland region plays a major role in New
Zealand’s global engagement, being the essential

10
http://www.med.govt.nz/templates/ 13
Some improvements in labour productivity were factored into the
MultipageDocumentPage____32731.aspx model. Methodology used and projected average labour productivity
11
A definition of GRP per capita and its components can be found in rates for 48 industries are enclosed in Appendix 3.
Glossary of Terms, Appendix 7. 14
http://www.med.govt.nz/templates/
12
http://www.imf.org/external/pubs/ft/weo/2008/02 MultipageDocumentPage____32731.aspx100

27
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

spatial node for the country’s connection with the rest • By 2031 Auckland’s exports will reach $21,164
of the world. Auckland’s role has been conceptualised million, which represents 21.6 per cent of total
as the international hub for the rest of New Zealand. GRP. This reflects Auckland’s vision to increase
global engagement as part of the Horizon 2031
Many of New Zealand’s international linkages in scenario. This growth will mainly be driven by the
trade, investment and people flows have been increasing export of advanced manufacture sectors
conducted through Auckland because of the region’s such as machinery and equipment production,
infrastructural capacity, the agglomeration of the transport equipment manufacture, and dairy and
business sectors, and population dominance. other food production. In addition, it will be driven
by export growth in the services sectors, including
Exports from the Auckland region are business services and tourism (e.g. air transport
driven by the industry sectors in services, accommodation, and restaurant and bars
which the region is thought 2031 services).
to have a competitive $21.1 billion
2016
advantage, and will 2011 $12.7 billion This export growth is driven by a number of niche
be supported by $10.6 billion sectors in which the region has a competitive
a number of 2006 advantage:
$8.9 billion
free trade
agreements • Export growth in machinery and equipment
New Zealand is currently developing. Considered an manufacturing is driven by exports in boats and
input in the Economic Futures Model, the projected associated marine equipment, as well as electronic
changes in exports in Auckland are the following: medical equipment.

• By 2011 Auckland’s exports will reach $10,608 • Export growth in air transport, accommodation,
million, which represents 17.2 per cent of total retail, restaurants and bars, and cultural and
GRP. recreational services is driven by an increase in
tourism.
• By 2016 Auckland’s exports will reach $12,676
million, which represents 18.1 per cent of total • Export growth in rubber, plastic and other chemical
GRP. manufacturing is driven by export in advanced
materials and related products.

• Export growth in food and beverage.

Table 3: Fast growing export sectors, 2006–2031

Absolute % annual average


change growth rate
2006 2031 2006–2031 2006–2031
Machinery and equipment manufacturing $919 $3,586 $2,667 5.60%
Air transport, services to transport, and storage $1,175 2,791$ $1,615 3.52%
Total food and beverage manufacturing $1,581 $4,392 $2,811 4.17%
Incl. beverage, malt and tobacco manufacturing $200 $585 $385 4.39%
Meat and meat products manufacturing $139 $269 $1,089 2.68%
Dairy product manufacturing $583 $1,672 $1,207 4.31%
Other food manufacturing $659 $1,866 $976 4.25%
Business services $369 $1,346 $386 5.31%
Accommodation, restaurants, and bars $402 $1,237 $313 4.60%
Transport equipment manufacturing $322 $1,193 $871 5.38%
Rubber, plastic, and other chemical manufacturing $317 $882 $565 4.18%
Cultural and recreational services $167 $554 $387 4.91%
Retail $229 $542 $313 3.51%

Source: Horizon 2031 scenario, ARC 2008 Note: In 2004$ constant prices (million)

28
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

3.6 Employment and occupation Figure 5: Employment, 2006–2031


1.4%
1.6% 853,333
1.3%

3.6.1 Employment 601,612


642,970
694,406

As at 2006, approximately 601,612 people


were employed in the Auckland region, and the
unemployment rate was 3.6 per cent, slightly below
the national average of 3.7 per cent.15

Estimated and projected employment data, expressed


2006 2011 2016 2031
in Full-time Equivalent Employment (FTE),16 are
illustrated in Figure 5. The figure shows that: Source: Horizon 2031 scenario, ARC 2008
Note: Absolute numbers present full-time equivalent
• By 2011 employment in Auckland is projected to (FTE) employment and percentages present average
reach 642,970 FTEs, a 6.87 per cent increase from annual growth rates between periods.
the 2006 level representing an average annual
growth rate of 1.34 per cent.
3.6.2 Occupation
• By 2016 employment in Auckland will reach
694,406 FTEs, which is a 15.42 per cent increase This section discusses projected changes in the
from 2006. During this period FTEs will grow on occupational structure of employment in the
average by 1.44 per cent annually. Auckland region over the 2006–2031 period. Note
that projections beyond 2021 should be considered
• By 2031 employment is projected to be 853,333 with caution. Within a 20-year period, there are likely
FTEs. This represents an increase of over 40 per to be major changes in occupations. It is therefore
cent from the base year, meaning that employment impossible to forecast the occupation structure of the
will increase each year by an average of 1.40 per future over such a long time frame.
cent.

The annual projected growth rates in the short-term, Demand for occupations
medium-term, and long-term periods (1.34 per cent,
1.44 per cent, and 1.40 per cent, respectively), are Absolute numbers for occupations in the Auckland
in line with the forecast 1.32 per cent of population regional economy are presented in Table 4. Note that
growth. 2031 data is for information only.

15
http://www.med.govt.nz/templates/
MultipageDocumentPage____32731.aspx
16
For a definition of FTE, see Appendix 7: Glossary of Terms

Table 4: Demand for occupations in Auckland region, 2006–2031

Occupations 2006 2011 2016 2021 2031 Source: Horizon 2031


Legislators, administrators, and managers 108,550 120,903 135,045 148,957 178,334 scenario, ARC 2008
Professionals 98,199 108,771 121,448 134,713 164,768 Note: Occupations
are based on the New
Technicians and associated professionals 86,956 94,853 104,372 113,799 134,217
Zealand Standard
Clerks 78,482 77,512 77,272 76,665 75,890
Classification of
Service and sales workers 75,932 81,150 87,414 92,886 104,226
Occupations 1999
Agriculture and fishery workers 11,432 11,382 11,430 11,349 11,038
(NZSCO99).
Trades workers 51,387 51,667 53,451 54,928 57,539
Plant and machine operators, and assemblers 41,644 44,204 47,251 50,324 56,880
Elementary occupations 49,030 52,535 56,724 60,980 70,432
Total 601,612 642,977 694,407 744,601 853,324

29
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

100% Elementary occupations Source: Horizon 2031


90% Plant and machine operators scenario, ARC 2008
and assemblers
Note: Occupations are based
80% Trades workers
on the New Zealand Standard
70% Agriculture and fishery workers
Classification of Occupations
Service and sales workers
60% 1999 (NZSCO99).
Clerks
50%
Technicians and associate
40% professionals

30% Professionals

20% Legislators, administrators, and


managers
10%

0%
2006 2011 2016 2021 2031

Figure 6: Occupational structure in the Auckland region, 2006–2031

Occupational structure The most important occupations in the period


of study will be legislators, administrators and
The occupational structure is highly dynamic: managers; professionals; and technicians and
changes in the industrial composition of employment, associate professionals. These three major categories
technology, business practices and other factors have of occupation will increase their contribution to all
a major impact on the occupational structure. For occupations from 48.9 per cent in 2006 to 52 per cent
example, retail banking jobs such as teller or phone in 2031. On the other hand, the most significant decline
customer service positions have significantly decreased of occupations is expected to occur in the clerks
in recent years due to new technology in the banking category, which will decline from 13 per cent in 2006 to
sector that has allowed customers to perform almost 8.9 per cent in 2031. All other major occupation groups
every common banking procedure remotely. are not expected to experience significant changes.

Figure 6 illustrates the forecast occupational structure


of Auckland’s economy in the 25-year period of study Changes in demand for occupations
under the Horizon 2031 scenario.
This change in occupation demand is driven by many
factors, such as sectors’ growth and innovation.
Challenge for Auckland:
Jobs in the Auckland region will increasingly require The fastest growing occupations in the long term are
higher levels of skills, as reflected by the changes in projected to be higher-skilled and thus higher-paying
the occupational structure. occupations:

Table 5: Change in major occupation groups, 2006–2031

Occupations 2006– 2006– 2006– 2006– Source: Horizon 2031


2011 2016 2021 2031 scenario, ARC 2008
Legislators, administrators, and managers 12,353 26,495 40,407 69,784 Note: Occupations
Professionals 10,572 23,249 36,514 66,569 are based on the New
Technicians and associate professionals 7,897 17,416 26,843 47,261 Zealand Standard
Clerks -970 -1,210 -1,817 -2,592 Classification of
Occupations 1999
Service and sales workers 5,218 11,482 16,954 28,294
(NZSCO99).
Agriculture and fishery workers -50 -2 -83 -394
Trades workers 280 2,064 3,541 6,152
Plant and machine operators, and assemblers 2,560 5,607 8,680 15,236
Elementary occupations 3,505 7,694 11,950 21,402
Total 41,365 92,795 142,989 251,712

30
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

• Legislators, administrators, and managers – • More than 60 per cent of professionals will work
increasing 64.3 per cent. in the sectors of business services, education, and
health and community services.
• Professionals – increasing 67.8 per cent.
• Fifty per cent of technicians and associated
• Technicians and associate professionals – professionals will work in business services, retail,
increasing 54.4 per cent. wholesale, and cultural and recreational services.

Declining occupations in this period will be lower-skilled • More than 25 per cent of clerks will work in the
occupations: business services sector.

• Clerks – decreasing 3.3 per cent.

• Agriculture and fishery workers – decreasing 3.4


per cent. 3.7 Environmental indicators
More specifically, the forecast changes in these five The Horizon 2031 scenario is based on a static energy
occupation categories are illustrated in Table 6. efficiency model that assumes there will be limited
improvements in energy efficiencies to 2031.17 Such an
The changes in occupation demand in the 25-year outcome is evidently unlikely: improvements in energy
period of study are driven mostly by the changes in a efficiency and reductions in emissions and wastage
few sectors: are likely to occur (and probably quite substantially)
between 2006 and 2031. The following projections may
• Half of all legislators, administrators, and therefore be considered conservative as sustainability
managers will work in business services, retail and becomes an increasingly integral component of the
wholesale. Auckland region’s economy.

17
The model does assume eco-efficiency gains in electricity demand,
provided by the Ministry of Economic Development. These are
assumed to be brought about by technological change within the
economy (at a rate of 0.75 per cent per annum).

Table 6: Sub-groups of occupations, 2006–2031

Occupations 2006 2011 2016 2021 2031


Legislators, administrators, and managers 108,550 120,903 135,045 148,957 178,334
Legislators and administrators 7644 8,737 10,064 11,487 14,829
Corporate managers 100,906 112,166 124,981 137,470 163,505
Professionals 98,199 108,771 121,448 134,713 164,768
Physical, mathematical and engineering science 24,975 28,572 32,853 37,488 48,510
professionals
Life science and health professionals 15,438 16,193 17,277 18,414 20,981
Teaching professionals 23,672 24,699 25,957 26,992 28,584
Other professionals 34,114 39,307 45,361 51,819 66,,693
Technicians and associate professionals 86,956 94,853 104,372 113,799 134,217
Physical science and engineering associate 17,689 18,200 19,003 19,753 21,423
professionals
Life science and health associate professionals 4,878 4,959 5,135 5,351 5,966
Other associate professionals 64,389 71,694 80,234 88,695 106,828
Clerks 78,482 77,512 77,272 76,665 75,890
Office clerks 57,146 55,724 54,530 52,863 49,237
Customer services clerks 21,336 21,788 22,742 23,802 26,653
Agricultural and fishery workers 11,432 11,382 11,430 11,349 11,038

Source: Horizon 2031 scenario, ARC 2008


Note: Occupations are based on the New Zealand Standard Classification of Occupations 1999 (NZSCO99).

31
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

3.7.1 Energy use The model, although conservative, forecasts a declining


trend in energy use per unit of GRP in the long term.
When aggregated, the total energy use of the Auckland By 2031 energy use per unit of GRP is projected to
region’s economy in 2006 was 189,702 terajoules. have fallen to a ratio of 3.25 from a ratio of 3.45 in
This includes aviation fuel, black liquor, coal, diesel, 2006. In other words, less energy is consumed to
electricity, fuel oil, geothermal energy, liquefied produce $1 of output. This can be explained by a
petroleum gas, natural gas, petrol and wood. Under change in the industrial structure of the economy,
the Horizon 2031 scenario, energy use in the region is moving away from heavy manufacturing industries. As
projected to increase by 12.6 per cent in the short term discussed previously, any efficiency gains in energy use
(to 2011), 25.3 per cent in the medium term (to 2016), are not taken into account in this model.
and 68.3 per cent in the long term to reach 319,183 TJ
of total energy consumption in 2031. Average annual The largest energy consumers in Auckland are:
growth rates are forecast to be 2.4 per cent, 2.3 per
cent, and 2.1 per cent in the short-, medium- and • the basic metal manufacturing sector, which made
long-term periods, respectively. By 2031, industry will up 13 per cent of the total 189,702 TJ consumed
consume three-quarters of all energy consumed in the in 2006
region, and households one-quarter.

Table 7: Top 10 energy-intense sectors in Auckland, 2006–2031

Energy (TJ, Oil Equivalents) 2006 2011 2016 2031


Basic metal manufacturing 24,761 28,704 30,303 36,540
Road transport 14,511 16,245 18,154 24,678
Air transport, services to transport, and storage 11,310 12,975 15,312 23,051
Printing, publishing, and recorded media 11,800 13,306 15,011 20,923
Paper and paper product manufacturing 11,613 13,035 14,387 19,065
Retail 6,386 7,124 7,979 10,617
Business services 4,992 5,751 6,665 10,233
Rubber, plastic, and other chemical manufacturing 3,507 4,295 4,800 7,474
Non-metallic mineral product manufacturing 4,425 4,756 5,386 7,421
Furniture and other manufacturing 3,942 4,461 4,923 6,324

Source: Horizon 2031 scenario, ARC 2008

Table 8: Change in the top 10 energy-intense sectors in Auckland, 2006–2031

% Change from base year 2006–11 2006–16 2006–31


Basic metal manufacturing 15.92% 22.38% 47.57%
Road transport 11.95% 25.11% 70.06%
Air transport, services to transport, and storage 14.72% 35.38% 103.81%
Printing, publishing, and recorded media 12.76% 27.21% 77.31%
Paper and paper product manufacturing 12.24% 23.89% 64.17%
Retail 11.56% 24.95% 66.25%
Business services 15.20% 33.51% 104.99%
Rubber, plastic, and other chemical manufacturing 22.47% 36.87% 113.12%
Non-metallic mineral product manufacturing 7.48% 21.72% 67.71%
Furniture and other manufacturing 13.17% 24.89% 60.43%

Source: Horizon 2031 scenario, ARC 2008

32
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

• road transport, which used 7.7 per cent in the industries is forecast to increase from 2558 TJ in
same period, and air transport which used six per 2006 to 4291 TJ in 2031, a 67.8 per cent increase,
cent, and while dairy products manufacturing is forecast to
increase its coal needs from 710 TJ in 2006 to
• printing, publishing and recorded media, and paper 1764 TJ in 2031, a 149 per cent increase.
production, with each sector using more than six
per cent of total energy consumption. • Electricity usage is projected to increase
from 36,512 TJ in 2006 to 61,011 TJ in 2031.
Manufacturing industries (e.g. basic metal production, The manufacturing sector such as basic metal
paper production, rubber, plastic and other production, paper production, and rubber, plastic
chemical production, non-metallic mineral product and other chemical production industries are the
manufacturing, and furniture production) are generally biggest users of electricity in both Auckland and
energy intensive, and consequently substantial New Zealand as a whole. Basic metal production
consumers of energy and significant contributors to the is projected to consume 8.1 per cent of total
region’s ‘energy bill’. electricity usage in the region in 2031. The
business services sector is also a high electricity
Specifically, consumption of different energy types is user, and by 2031 is forecast to consume 7.9 per
projected to be as follows18: cent of the region’s total electricity usage.

• Aviation fuel is mainly used by the air transport • Natural gas consumption is projected to grow
and storage sector. This sector accounted for from 28,280 TJ in 2006 to 50,021 TJ in 2031, an
93 per cent of the total 9346 TJ of aviation fuel increase of 77 per cent. More than 60 per cent
used in 2006 and is forecast to account for of natural gas is consumed by manufacturing
approximately 95 per cent of the estimated 18,744 industries.
TJ consumed in 2031.

• Diesel consumption in 2006 was 27,563 TJ and by


2031 it is projected to increase by 76 per cent to 3.7.2 Emissions, waste and water discharges
48,580 TJ. This will be driven mainly by an increase
in road and air transport services, which account Increases in emissions, waste and water discharges
for half of all diesel consumption. This increase will occur because of the forecast growth in the
is based on the assumption that efficiencies will region’s population and economic activity. However,
not be gained by changes in sustainable practices, the amount of emissions, waste and water discharges
an assumption that is unlikely over 25 years. In for $1 of output produced is forecast to decrease over
particular, by 2031 it is unlikely diesel will be used time. International evidence suggests that more highly
as a transport energy resource in the form it is concentrated regions and cities that focus on higher-
now supplied in, and so this forecast in diesel value sectors produce smaller carbon footprints.
consumption must be regarded with caution.
The top 10 industry sectors by export value, value-
• Petrol consumption is projected to grow from added and employment were assessed for future
39,620 TJ in 2006 to 63,400 TJ in 2031, a 60 per changes in emissions, solid waste and water
cent increase. Industry consumption is projected to discharges. The results indicate that output growth in
be around 17 per cent of total petrol consumption those sectors will not be coupled with similar levels of
in 2031, the rest being attributed to household growth in emissions, solid waste and water discharges.
consumption. Note, however, that results do vary between the
sectors. They are presented below.
• Coal is mainly consumed by secondary sectors.
Total coal consumption in the region is projected Emissions: During the 25 years to 2031, as Auckland’s
to increase from 24,302 TJ in 2006 to 37,537 TJ in population and economy expand there will be a
2031. Basic metal manufacturing used 19,257 TJ steady increase in carbon dioxide, nitrous oxide and
of coal in 2006, and is projected to increase its coal methane emissions. However, emissions are forecast
usage by almost 50 per cent to 28,417 TJ in 2031. to increase at a lower rate than the increase in value-
Coal usage by non-metallic mineral production added. There is also a forecast reduction in the
emission tonnage per employee by 2031. The total
18
Note that this energy usage does not take into account energy
efficiencies.

33
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

level of emission in the region is forecasted to increase are expected to occur, driven in part by emissions
by between 63 per cent, for nitrous oxide, to 67 per policy and pricing framework and in part by customers
cent, for carbon dioxide: demanding products produced in a more sustainable
and environmentally friendly method, are incorporated
• By 2031 the machinery and equipment in the Energy Efficiency scenario detailed in Chapter 5.
manufacturing sector is predicted to be Auckland’s
largest export sector by value, contributing $3,586
million to the Auckland economy, an increase of
390 per cent. However, during the same period its
carbon emissions are forecast to increase by only 3.8 Sector-specific change in Auckland,
214 per cent.
2006–2031
• Another significant carbon dioxide emitter is the
air transport and services to transport and storage This section presents industry sectors forecasts for
sector. By 2031 this sector is forecast to be the Auckland region in the period from 2006 to 2031
Auckland’s second largest export sector by value, under the Horizon 2031 scenario. Economic indicators
contributing some $2,791 million to the Auckland examined here are gross regional product and
economy, an increase of 237 per cent; however, its employment. Additionally, projected simple location
carbon emissions will have only increased by 104 quotients (SLQ) for each sector are interpreted.19 This
per cent. section covers the industry sectors that are projected
to have one of the following:
• Very similar levels of change are evidenced in
the nitrous-oxide and methane emission levels, • highest GRP contribution
with absolute increases occurring, but at rates • highest SLQ
significantly below those increases in export value • fastest GRP growth rate
and value-added. • fastest employment growth rate
• largest full-time equivalent employment (FTE)
• Even with the smaller sectors such as dairy and contribution, or
cattle farming there is a noticeable widening gap • declining employment requirements over the next
between output growth rates and emissions 25-year period.
growth rates.

Solid waste: The increase in total solid waste in


the region from 2006 to 2031 is forecast to be 3.8.1 Industry structure of the regional
approximately 70 per cent. The largest contributor
to solid waste is the machinery and equipment
economy
manufacturing sector, and the amount of solid waste
it produces is forecast to increase by 215 per cent by As New Zealand’s commercial and financial centre,
2031. The second largest contributor to waste solids Auckland’s economy is characterised by the dominance
is the transport equipment manufacturing sector; this of the tertiary sector. Indeed, wholesale, trade and
is forecast to increase its waste solids by 155 per cent distribution industries and service-based industries
over the 25-year period. generate over two-thirds of the total industry GRP. The
secondary sector, which manufactures finished goods,
Water discharges: The largest increase in water remains an important sector contributing over 20 per
discharges comes from the machinery and equipment cent to the GRP. Not surprisingly, the primary sector is
sector: its water discharges are forecast to increase by a small contributor to the region’s economy with just
214 per cent between 2006 and 2031. However, this is above one per cent of GRP generated.
equivalent to only 30,000 cubic meters, which is small
when compared to the 200,000 cubic meters of water Over the next 25 years, the structure of Auckland’s
discharged by the basic metal manufacturing sector economy will remain relatively unchanged. The Horizon
and the 145,000 cubic meters of water discharged by 2031 scenario does not foresee the manufacturing
the dairy and cattle farming sector. sector decreasing. However, some changes are
expected at the 48 industry sector level. Figure
These forecasts of emissions, solid waste and 7 shows the top 10 industries in terms of their
water discharges may be viewed as a worst-case contribution to the Auckland GRP from 2006 to 2031.
scenario for Auckland. Sustainable practices which
19
For definition see Appendix 1: Glossary of Terms

34
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Table 9: Industry GRP* contribution, 2006–2031

2006 2011 2016 2031


Primary sector (million) $600 $650 $700 $875
Total industry GRP contribution 1.16% 1.12% 1.06% 0.95%
Secondary sector (million) $10,885 $12,358 $14,106 $20,726
Total industry GRP contribution 21.09% 21.26% 21.44% 22.40%
Wholesale, trade and distribution (million) $11,700 $13,133 $14,842 $20,341
Total industry GRP contribution 22.67% 22.59% 22.56% 21.98%
Services (million) $28,419 $31,990 $36,155 $50,583
Total industry GRP contribution 55.07% 55.03% 54.94% 54.67%

Source: Horizon 2031 scenario, ARC 2008.


* Total industry GRP excludes GRP derived from final demands,
or total GRP = total industry GRP + final demand.
Note: Absolute numbers of GRP are expressed in 2004$ constant prices

Figure 7: Top 10 GRP contributors, 2006–2031

2006 Business services 12.15% $6,670 2011 Business services 12.43% $7,683

Wholesale 9.37% $5,144 Wholesale 9.31% $5,750

Retail 5.79% $3,180 Retail 5.74% $3,548

Finance 5.55% $3,048 Finance 5.48% $3,385

Real estate 5.39% $2,958 Real estate 5.37% $3,316

Construction 4.12% $2,259 Communication services 4.03% $2,490

Health and community services 4.01% $2,202 Health and community services 4.00% $2,470

Communication services 3.80% $2,087 Construction 3.90% $2,412

Education 3.43% $1,880 Education 3.30% $2,037

Air transport, services to transport and storage 3.13% $1,719 Air transport, services to transport and storage 3.19% $1,972

2016 Business services 12.74% $8,905 2031 Business services 13.96% $13,672

Wholesale 9.20% $6,428 Wholesale 8.79% $8,607

Retail 5.69% Retail 5.40% $5,287


$3,973

Finance 5.39% $3,770


Finance 5.09% $4,986

Real estate 5.31% $3,714


Real estate 5.05% $4,942

Communication services 4.16% $2,908 Communication services 4.79% $4,688

Health and community services 4.23% $4,141


Health and community services 4.03% $2,818

Construction 3.97% $2,774


Construction 3.95% $3,869

Air transport, services to transport and storage 3.33% $2,327 Air transport, services to transport and storage 3.58% $3,503

Machinery and equipment manufacturing 2.99% $2,928


Education 3.19% $2,228

Source: Horizon 2031 scenario, ARC 2008


Note: Absolute numbers depict the size of the sector and are expressed in 2004$ constant prices (million); the
percentage presents sectors’ contribution to total GRP.

35
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

• By 2011 the first five GRP contributors will remain Auckland industries with comparative advantage are
the same as in 2006. The highest GRP contribution projected to develop as follows:
is expected to be made by business services
(12.43 per cent), wholesale (9.31 per cent), retail • In the short term there will not be significant
(5.74 per cent), finance services (5.48 per cent), changes regarding sectors’ distribution in GRP
and rental, hiring and real estate services (5.37 contribution and specialisation in the region. The
per cent). The construction sector is expected to tertiary sector (the service sector) will continue to
decline from sixth place in 2006 to eighth place in be the main industry in Auckland, represented by
2011, and vice versa for communication services. air transport and storage, business and financial
services, investment, communication services,
• By 2016 GRP contribution from business services culture and recreation, hiring and real estate
will increase from 12.43 per cent in 2011 to 12.74 services, and wholesale and retail. Air transport,
per cent. Likewise, communication services are services to transport and storage will still have
expected to record a slight growth from 4.03 per comparative advantage in the region because
cent in 2011 to 4.16 per cent. Finance services’ of the international airport’s presence. This
contribution to GRP will decline compared to 2011, means that Auckland will continue to lead in the
but this sector will remain in the fourth position. A distribution category, which serves both domestic
switch will occur between the sectors air transport, and international trade.
services to transport and storage, and education:
the former will increase while the latter will • The medium-term outlook is projected to be
decrease its GRP contribution. similar to the short term one, with the tertiary
sector being a principal GRP contributor and the
• By 2031 business services will remain the highest manufacturing industry being highly concentrated
GRP contributor, projected to more than double its in the region.
2006 GRP contribution to reach $13,672 million, or
14 per cent of total GRP. Communication services • In the long term the most significant change in
will also double its 2006 GRP contribution to the industry structure will be the secondary sector,
reach $4,688 million, or 4.8 per cent of total GRP. i.e. manufacture, increasing its concentration in
Likewise, air transport, services to transport and the region and, as a result, its share of GRP. The
storage will double its 2006 level and increase type of manufacturing activity on the increase
its GRP share to 3.6 per cent. Construction will will largely be high technology and value-added
contribute around four per cent of GRP. Machinery manufacturing activities such as production of
and equipment manufacturing will generate three transport equipment, health equipment and
per cent of Auckland’s GRP, or $3,503 million in technologies, and advanced materials such as
2031, making it the tenth highest GRP contributor rubber, plastic, and other chemical products.
in 2031.This sector is also expected to record the
highest increase over its 2006 level (214.5 per It is also interesting to note that the sectors in which
cent). Auckland has similar concentrations to the other parts
of the country are those industries that are primarily
serving their own population, namely ‘consumption’
(e.g. retail, accommodation, cafes and restaurants,
3.8.2 Sectors with comparative advantage in culture and recreational services, personal and other

the region services), and community services (e.g. education


and health and community services). Not surprisingly,
Auckland has a significantly lower concentration of
The structure of Auckland industries with comparative primary industries (e.g. agriculture, forestry and fishing,
advantage was assessed using GRP and SLQ mining), and low-level value-added manufacturing
indicators from the Auckland Region Economic Futures (e.g. wood processing, meat and dairy products
Model. This is because it is considered that the most manufacturing).
significant sectors in the Auckland economy are those
which are both of significant size in terms of GRP
contribution and highly concentrated in the region.
Figure 8 presents 10 sectors with the highest GRP
contribution and also SLQs higher than 1.

36
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

2006 2011 2016 2031


Air transport, services to transport, and storage 1.67 1.68 1.69 1.71 Rubber, plastic and other chemical manufacturing
$1,719 $1,972 $2,327 $1,915

1.54 1.62 1.62 1.70 Air transport, services to transport, and storage
Wholesale
$5,144 $1,101 $1,230 $3,503

1.54 1.53 1.52 1.56


Rubber, plastic and other chemical manufacturing Communication services
$899 $5,750 $6,428 $4,688

1.37 1.38 1.42 1.49 Wholesale


Business services
$6,670 $7,683 $2,908 $8,607

Finance 1.36 1.38 1.39 1.43 Business services


$3,048 $2,490 $8,905 $13,672

1.32 1.36 1.36 1.35 Finance


Communication services $3,770 $4,986
$2,087 $3,385

1.17 1.17 1.16 1.14 Machinery and equipment manufacturing


Machinery and equipment manufacturing
$931 $1,150 $1,447 $2928

1.13 1.12 1.11 1.10 Real estate


Cultural and recreational services $1,855 $2,126 $4,942
$1,652

1.07 1.08 1.08 1.04 Retail


Real estate $3,316 $3,714
$2,958 $5,287

Retail 1.00 1.01 1.02 1.02 Cultural and recreational services


$3,180 $3,548 $3,973 $2,917

Figure 8: Auckland’s 10 industries with comparative advantage and significant contribution to GRP,
2006–2031
Source: Horizon 2031 scenario, ARC 2008
Note: Absolute numbers of GRP are expressed in 2004$ constant prices (million) and SLQs greater than 1.

3.8.3 Industries with fast growing GRP


This section identifies the sectors that were not rate than average in the region) have potential to
significant contributors to Auckland’s GRP in the base develop as important industries in the region. In other
year (i.e. generated less than $1 million value-added in words, the sectors that might become a focus of
2006), but with fast growth (i.e. higher annual growth regional policy and strategy considerations.

Table 10: Industries with high value-added potential, 2006–2031

Industry GRP Increase in GRP over the period


2006 2006–2011 2006–2016 2006–2031
Machinery and equipment manufacturing $931 $219 $516 $1,997
Rubber, plastic, and other chemical manufacturing $899 $202 $331 $1,016
Other food manufacturing $684 $121 $248 $743
Accommodation, restaurants, and bars $807 $109 $253 $714
Personal and other community services $803 $103 $226 $663
Beverage, malt, and tobacco manufacturing $629 $102 $206 $496
Printing, publishing, and recorded media $771 $98 $210 $596
Transport equipment manufacturing $442 $96 $209 $685
Sheet and fabricated metal prod manufacturing $819 $88 $208 $648
Services to finance and investment $615 $74 $155 $425

Source: Horizon 2031 scenario, ARC 2008 Note: In 2004$ constant prices (million)

37
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

It is expected that advanced manufacturing will be strong dominance of services industries and secondary
the most promising industry regarding GRP growth. sectors. However, the proportion of employment in the
primary and service sectors is slightly higher than their
• In the short term the sectors of machinery and respective contribution to the GRP due to the labour-
equipment production, and manufacture of rubber, intensive characteristics of some of those industry
plastic and other chemical products will both sectors (e.g. horticulture or cultural services).
experience annual growth higher than four per
cent, each generating a further $200 million value- By 2031 the largest employer in the Auckland region
added. The food and beverage sector is expected will be the tertiary sector. The secondary sector,
to grow at an annual rate higher than three per comprising of manufacturing and construction, will also
cent, creating more than $220 million of GRP. be a net job creator.

• Over the medium period this trend will continue. Figure 9 illustrates the top 10 employers in the
In addition, the accommodation, restaurants and Auckland region economy. Details of employment
bars sector is projected to grow strongly at 2.76 projections for all 48 sectors can be found in
per cent annual rate to create more than $250 Appendix 4.
million value-added in these ten years.
• By 2011 the business services sector will remain
• In the long term the industry expected to the largest employer with 108,965 FTEs. The
experience the highest annual average rate of second biggest employer will be retail (78,866
GRP from 2006 to 2031 is advanced manufacture. FTEs), followed by wholesale (63,817 FTEs).
Innovation in ICT will mainly drive this growth Construction will remain at fourth place, with
in machinery and equipment manufacturing, 39,516 FTEs. Other high-employing sectors
particularly production of optical, medical and include health and community services; education;
surgical equipment, and professional and scientific accommodation, restaurants and bars; air
equipment. The projected fast growth in rubber, transport, services to transport and storage;
plastic and other chemical manufacturing reflects cultural and recreational services; and central
the effects of the proposed Innovation Centre with government.
a specific focus on advanced materials and the
strong growth forecasted for plastics. Growth in • By 2016, the top 10 employers remained the same
transport equipment manufacturing will primarily as in 2006, although the sectors’ contribution to
be driven by boat-building activity in the region, total employment has changed for most. Business
underscoring the region’s strong comparative services, retail, accommodation, restaurants
advantage in the marine sector. and bars, air transport, services to transport and
storage, and cultural and recreational services all
increased their contribution to total employment.

3.8.4 Job creation in the Auckland region • By 2031:

The employment structure of Auckland’s economy is • The business services sector will have created
quite similar to the GRP contribution picture, with the 80,000 jobs (FTEs) since 2006, a 2.4 per cent

Table 11: Employment projections in a nutshell, 2006–2031

2006 2011 2016 2031 Source: Horizon 2031


Primary sector 10,451 10,814 11,278 12,793 scenario, ARC 2008
Note: Absolute
Contribution to total employment 1.7% 1.7% 1.6% 1.5%
numbers present full-
Secondary sector 133,641 138,458 145,942 168,935
time equivalent (FTE)
Contribution to total employment 22.2% 21.5% 21.0% 19.8% employment figures
Wholesale, trade and distribution 186,115 203,708 224,635 285,896
Contribution to total employment 30.9% 31.7% 32.4% 33.5%
Services 271,405 289,990 312,551 385,709
Contribution to total employment 45.1% 45.1% 45.0% 45.2%
Total employment 601,612 642,970 694,406 853,333

38
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

2006 Business services 16.09% 96,816 2011 Business services 16.92% 108,965

Retail 11.84% 71,226 Retail 12.27% 78,866

Wholesale 9.93% 59,719 Wholesale 9.93% 63,817

Construction 6.79% 40,845 Construction 6.15% 39,516

Health and community services 6.41% 38,568 Health and community services 6.08% 39,074

Education 6.04% 36,334 Education 5.80% 37,286

Accommodation, restaurants and bars 4.18% 25,127 Accommodation, restaurants and bars 4.40% 28,308

Air transport, services tranport and storage 2.82% 16,938 Air transport, services tranport and storage 2.92% 18,758

Cultural and recreational services 2.77% 16,678 Cultural and recreational services 2.86% 18,416

Central government 2.71% 16,295 Central government 2.64% 16,993

2016 Business services 17.77% 123,396


2031 Business services 20.71% 176,728

Retail 12.62% 87,667 Retail 13.37% 114,058

Wholesale 9.82% 68,214 Wholesale 9.95% 79,804

Construction 5.93% 41,195 Accommodation, restaurants and bars 5.35% 45,614

Health and community services 5.80% 40,255 Health and community services 5.11% 43,578

Education 5.56% 38,616 Construction 5.01% 42,791

Accommodation, restaurants and bars 4.68% 32,529 Education 4.78% 40,770

Air transport, services tranport and storage 3.08% 21,369 Air transport, services tranport and storage 3.39% 28,938

Cultural and recreational services 2.99% 20,762 Cultural and recreational services 3.17% 27,092

Personal and other community services 2.56% 17,774 Machinery and equipment manufacturing 3.03% 25,881

Figure 9: Top 10 employers, 2006–2031

Source: Horizon 2031 scenario, ARC 2008


Note: The absolute numbers in the graph represent total jobs in each sector expressed in full-time
equivalent (FTE) employment figures; the percentage presents sectors’ contribution to total employment.

average annual growth rate over the period. with 4.2 per cent in 2006). Employment in the
This compares with total employment having sector will grow by 2.4 per cent annually.
an average annual growth rate of only 1.4 per
cent over the same period. Business services • Employment in health and community services
will remain the biggest employer in the region, will increase by just over 5,000 FTEs between
providing over 20 per cent of all jobs. 2006 and 2031, maintaining its position as the
fifth largest employer in the Auckland region.
• The retail sector will have created an extra
43,000 FTEs, employing 13.4 per cent of total • Construction will move down from fourth
FTEs, a 1.9 per cent average annual increase position in 2006 to sixth position in 2031,
over the 25-year period of the study. employing 42,791 FTEs (or 5.0 per cent of total
employment in 2031).
• Wholesale will require an additional 20,085
FTEs, but its contribution to total employment • Machinery and equipment manufacturing will
will decrease from 9.9 per cent in 2006 to 9.4 move up to the tenth position in regards to
per cent in 2031. employment contribution, employing some
25,000 FTEs by 2031.
• Accommodation, restaurants and bars will
employ 5.3 per cent of all FTEs (compared

39
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Employment ( FTEs) Change 2006–2031

Net job
creation
Industry 2006 2011 2016 2031 (FTEs) % change
Business services 96,816 108,965 123,396 176,728 79,912 82.5%

Retail trade 71,226 78,866 87,667 114,058 42,832 60.1%

Accommodation, restaurants, and bars 25,127 28,308 32,529 45,614 20,487 81.5%

Machinery and equipment manufacturing 12,643 14,323 16,547 25,881 13,238 104.7%

Air transport, services to transport, and storage 16,938 18,758 21,369 28,938 12,000 70.8%

Cultural and recreational services 16,678 18,416 20,762 27,092 10,414 62.4%

Other food manufacturing 8,809 10,058 11,306 15,847 7,038 79.9%

Rubber, plastic, and other chemical manufacture 7,778 8,962 9,425 12,228 4,450 57.2%

Electricity generation and supply 1,569 1,749 1,938 2,544 975 62.1%

Meat and meat prod manufacturing 1,830 2,013 2,196 2,759 929 50.8%

Total employment 601,612 642,970 694,406 853,333 251,721 41.8%

Table 12: Sectors with fastest growing employment, 2006–2031


Source: Horizon 2031 scenario, ARC 2008

3.8.5 Fastest growing sectors regarding will record high employment growth too and,

employment being labour intensive, it will require a significant


increase in the FTEs. For example, the sectors of
accommodation, restaurants and bars will grow by
This section identifies the 10 sectors with the 29.46 per cent from 2006 and create an additional
fastest employment growth over the 25-year period 7,402 FTEs.
of the study. In addition, absolute value of full-time
equivalent employment requirements is taken into • In the long term the highest increase in
consideration, as fastest growth actually does not employment is expected to be in advanced
imply the highest number of FTEs, as illustrated in manufacture: by 2031, machinery and equipment
Table 12. will have a more than doubled its FTEs from its
2006 leve1.
• In the short term advanced manufacturing is
projected to record the fastest employment
growth. Although these sectors might not create
the highest number of jobs, their rate of growth 3.8.6 Sectors with declining employment
is impressive at 15.2 per cent for rubber, plastic
and other chemical production, 14.2 per cent for Apart from identifying the sectors that are projected
food production, and 13.3 per cent for machinery to have the highest growth in employment over the
and equipment production. GRP growth in these 25-year period, it is important to identify the sectors
sectors is expected to be largely driven by capital that are expected to have declining requirements for
substitution as opposed to employment increase. employees. Sectors with a negative annual average
employment growth rate are listed in Appendix 4.
• In the medium term this trend is expected However, even a fast declining employment rate does
to continue, with machinery and equipment not necessarily mean a high decrease in employment
production expected to grow by 30.88 per cent numbers. The most significant projected changes are
compared with the 2006 level, requiring an the following:
additional 3,904 FTEs. The services industries

40
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

• By 2011 the most significant decline in 3.9 Sectors of interest to the Auckland
employment will occur in the construction and
real estate sectors,20 with a decrease of 1,500 region
FTEs compared with 2006. This decline may be
attributed to the effects of the current economic Sectors of interest to the Auckland region, as identified
slow-down and adjustments in the property sector in the Economic Futures for the Auckland Region –
related to a lack of confidence in the future and a Part 1: Knowledge base for scenario development
tightening of bank lending. (December 2008), are:

• By 2016 employment in the real estate sector will • business and financial services
continue to decline by an average annual rate of • retail
0.5 per cent. Other job losses worth mentioning • information and communication technology (ICT)
are in textile and apparel production, and basic • creative industries
metal production. • digital content
• tourism
• By 2031 the highest job losses are projected • transport and logistics
to occur in real estate (-1,790 FTEs from 2006), • biotechnology
textile and apparel production (-1,080 FTEs), and • marine
basic metal production (-863 FTEs). This decline • advanced materials, and
reflects trends in manufacturing, with many of the • food and beverage.
low-value manufacturing businesses continuing
to move offshore to lower cost-operating Each sector comprises a certain percentage of the
environments. This issue is expected to be relevant sectors from the ANZSIC coding. It should
exacerbated by the increasing opening of the New be acknowledged that some of the sectors overlap
Zealand economy through Free Trade Agreements. or are subsets of each other. For example, there is an
Some of the declining sectors are also a reflection overlap between digital content, business services
of the trend towards more sustainable practices and ICT, as all these sectors comprise of 100 per cent
and activities. telecommunication services, data processing services,
information storage services and so on. Furthermore,
both creative industries and digital content contain
20
The real estate sector includes lending, renting and sales of real
100 per cent of sound recording services and creative
estates and other property.

Table 13: GRP growth in sectors of interest to the Auckland economy, 2006–2031

Sectors Absolute increase % change


2006– 2006– 2006– 2006– 2006– 2006–
2011 2016 2031 2011 2016 2031
Business and finance services $1,661 $3,603 $10,828 13.95% 30.27% 90.96%
Retail $435 $936 $2,487 11.59% 24.95% 66.28%
ICT $412 $880 $2,749 15.98% 34.12% 106.59%
Creative industries $231 $516 $1,483 13.34% 29.79% 85.62%
Digital content $358 $769 $2,335 15.33% 32.93% 100.00%
Tourism $266 $607 $1,691 12.69% 28.96% 80.68%
Transport and logistics $543 $1,187 $3,576 15.56% 34.01% 102.46%
Biotechnology $261 $545 $1,567 13.77% 28.76% 82.69%
Marine $242 $534 $1,673 14.13% 31.17% 97.66%
Advanced materials $176 $303 $903 17.58% 30.27% 90.21%
Food and beverage $260 $528 $1,445 17.32% 35.18% 96.27%

Source: Horizon 2031 scenario, ARC 2008


Note: In 2004$ constant prices (million)

41
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

arts. On the other hand, tourism is a subset of other 3.9.1 Business and financial services
sectors, defined as consisting of 13 per cent of retail,
35 per cent of road transport, and 17 per cent of water The business and financial services sector is made up
and rail transport, etc. Therefore, it is not possible to of a wide range of activities, which have in common the
set up clear boundaries between these sectors, and production of non-tangible output. For the purposes of
the data for each of them cannot be summed up. This modelling Economics Future for the Auckland Region,
also implies that the data interpretation for the sectors business and financial services represent the following
of interest should be understood as only estimates sectors:
that point out certain tendencies, rather than an exact
analysis. • telecommunication services (under the broad
communication services sector)
The sectors described in this section are expected • finance (eg, banks and money markets dealers)
to grow strongly over the next 25 years. They have • insurance
been identified for the purpose of guiding regional and • services to finance and investment, and
national development strategies. Table 13 highlights • business services (eg, legal and accounting
GRP growth in each of these targeted sectors. services, market research, business management,
advertising, and cleaning).
In addition, all these sectors are highly concentrated in
the region, as can be seen in Table 14 which lists SLQ
numbers from 2006 to 2031. Tourism, biotechnology, Challenge for Auckland
and food and beverage have SLQ slightly lower than 1, There is global competition for jobs and location of
meaning that these sectors are not more concentrated business and financial sector firms. While Auckland
in Auckland than in other regions, but they are still and New Zealand benefit from skills imported through
this mobile workforce, the challenge is to ensure the
important contributors to GRP and significant regional
continuity of local hubs of this sector.
employers.
The skills required by employees within the business
and financial sector are highly mobile internationally,
Table 14: SLQ for the industries of interest, this can be a double-edged sword in terms of skills
2006–2031 development and retention.

Industry 2006 2011 2016 2031


Business and finance The business and financial services industry is
1.37 1.38 1.39 1.43
services concentrated in Auckland (SLQ=1.37 in 2006), and the
Retail 1.00 1.01 1.02 1.04 projections are that the business and financial services
ICT 1.40 1.41 1.42 1.44 will become more important for the region in both the
short- and long-term future (i.e. SLQ is projected to
Creative industries 1.28 1.28 1.28 1.27
grow).
Digital content 1.23 1.25 1.26 1.31
Tourism 0.97 0.96 0.95 0.89 GRP contribution: The business and financial services
Transport and logistics 1.30 1.32 1.35 1.41 sector generated $12 billion GRP in 2006, reflecting the
Biotechnology 0.94 0.97 0.98 1.06 role Auckland plays as New Zealand’s commercial and
Marine 1.37 1.37 1.37 1.39 financial heart.
Advanced materials 1.41 1.45 1.45 1.53
Auckland is forecast to remain the commercial heart
Food and beverage 0.90 0.90 0.89 0.87
of New Zealand, strongly focused on services and
Source: Horizon 2031 scenario, ARC 2008 advanced manufacture. Business and financial services
are projected to generate $13.6 billion in 2011,
The SLQ for three sectors – food and beverage, contributing 23 per cent to Auckland’s GRP. Growth of
creative industries, and tourism – will fall slightly over value-added by business and financial services over the
the period to 2031. This is an indication that these 2006–31 period will be steady, with the sector forecast
sectors are becoming relatively more important in other to have a 2.7 per cent average annual growth by 2016
regions, notwithstanding the substantial growth rates and 2.6 per cent by 2031.
in the Auckland region.
Employment: It is estimated that in 2006 the business
The following sections discuss projected GRP and and financial services sector had 125,268 full-time
employment growth of all these sectors individually. equivalent employees, representing one-fifth of
total employment in the region. It is projected that

42
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

this sector will record one of the fastest growing 3.9.3 Information and communications
employment rates, with an average annual growth rate
of 2.1 per cent over the 2006–31 period. By 2031 the
technology
business and financial services sector is forecast to
be employing 208,539 full-time employees and be the The information and communications technology (ICT)
largest employer in the region. sector is defined as including products and services
which are intended to fulfil the function of information
processing and communication, and/or which use
electronic processing to detect, measure or record a
3.9.2 Retail physical phenomenon or to control a physical process.
In the model, ICT is represented across a number of
The retail sector consists of the sale of goods directly sub-sectors, including:
to consumers and in the Economic Futures Model it
covers sectors as diverse as supermarkets, groceries, • production and wholesaling of machinery and
department stores, clothes and footwear retailing, equipment (such as computers, telecommunication
home appliances and automobile sales. and electronic equipment)

• telecommunication services (under the broad


Challenge for Auckland communication services sector), and
It is surprising that retail is not more prominent in the
region as Auckland contains the largest urban area • business services (e.g. data processing and
in the country. The challenge to the retail sector is to information storage).
overcome problems associated with access to retail
areas, in terms of geographical spread and travel
costs. The ICT sector is concentrated in Auckland (SLQ = 1.40
in 2006), and the projections are that it will become
more important for the region in the short- and long-
Retail in Auckland is as concentrated as it is in the rest term future (i.e. SLQ is projected to grow).
of the country (SLQ=1 in 2006). However, there is a
trend of its importance to the region increasing slightly. Challenge for Auckland
This is due to the effects of urban agglomeration It is expected that there will be strong employment
and also reflects Auckland’s role as a business and opportunities in the ICT industry, requiring the
commercial hub in New Zealand. adequate supply of skilled labour. There is an
additional challenge of encouraging businesses to
adapt to new technology and ensuring optimal use of
GRP contribution: The retail sector generated $3.8 technologies.
billion GRP in 2006. The GRP of the retail sector will
Access to ICT services may be a challenge,
be the second highest after business and financial particularly for rural businesses in the region who
services (contributing 7 per cent of the region’s total have signalled strong growth potential from provision
GRP) and its relative contribution will be the same in of ICT.
2016. It is projected to generate $4,187 million in 2011
and $4.7 billion in 2016. By 2031 retail is forecast to
generate $6,239 million, which will still represent 7 GRP contribution: ICT generated $2.6 billion in 2006
per cent of the total GRP, but by then the sector’s GRP (about five per cent of total GRP). Its value added
contribution will be ranked at third highest, replaced by will grow in a long-term, reflecting Auckland’s focus
transport and logistics. to innovation and public and private commitment to
invest in broadband and other high technologies. By
Employment in the retail sector amounts to 84,047 2011, the sector is projected to generate approximately
FTEs in 2006. By 2031 this sector is forecast to have $3 billion GRP, remaining on fourth position with five
created an extra 50,541 FTEs, an increase of more than per cent contribution to the total GRP. The Horizon
60 per cent over its 2006 level. Employing a total of 2031 scenario projects growth of ICT of approximately
134,588 FTEs in 2031, the sector will account for 15.8 three per cent in the 25 years period of study. ICT will
per cent of all employment in the region, compared generate $5.3 billion value added in 2031.
with 13.97 per cent in 2006 and 14.90 per cent in 2016.
Employment: ICT is an important employer in the
region, employing 28,227 FTEs in 2066. Employment
requirements in this sector are projected to grow by 10
per cent in the short term: by 2011 an additional 2,840

43
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

FTEs will be required. Employment is forecast to have to increase by 8.2 per cent in the short term to
increased by more than 20 per cent by 2016 when reach 23,676 FTEs by 2011. By 2016 employment is
compared with the base year, and more than 60 per projected to reach 25, 915 FTEs, and by 2031 more
cent over its 2006 level by 2031. In absolute numbers, than 33,000 FTEs. This means a doubling of the 2006
this represents an increase of 17,140 FTEs from 2006 level of employment.
to 2031.

3.9.5 Digital content


3.9.4 Creative industries
The digital content sector is defined as the creation or
The creative industries are defined in the Knowledge production of content or tools that enable the delivery
Base for Scenarios as those industries that have their of digital material across a range of media. In the
origin in individual creativity, skill and talent, and have a model this sector is represented across the following
potential for wealth and job creation through generating services:
and exploiting intellectual property. The sector is
represented across a number of sectors in the model, • cultural and recreational services (such as music
such as: and film production)

• printing, publishing and recorded media (such as • business services (e.g. data processing and
books and newspapers printing) computer maintenance services)

• business services (such as architectural services, • communication services (a sub-sector of


advertising, and commercial art and display), and telecommunication services)

• cultural and recreational services (including film and • printing, publishing and recorded media, and
music production, and radio, television, and theatre
services). • education.

Creative industries are concentrated in Auckland, with Challenge for Auckland


the SLQ being 1.28 in 2006; this is projected to slightly The strong growth expected in the digital content
decrease to 1.27 by 2031. industry requires complementary behavioural change
and business learning to maximise the potential
productivity gains that this sector can generate. With
GRP contribution: It is estimated that this sector
increased use of digital technology, inevitably there
generated approximately $1.7 billion value-added in will be international competition for certain services.
2006, and its annual average growth over the 25 years This displacement should be identified and managed,
of study is projected to be 2.5 per cent. That means with opportunities exploited for Auckland businesses.
that by 2011 it will generate around $2 billion, by 2016
around $2.2 billion, and by 2031 approximately $3.2
billion. With this estimated and projected GRP, creative Digital content was estimated to have an SLQ of 1.23
industries are ranked as eighth GRP contributor in the in 2006, which means that it was more concentrated
list of important industries for the Auckland region. in Auckland than in the rest of the country. Projections
are that this concentration will remain the same in the
Employment: Creative industries are ranked as ninth short and medium term, and get slightly higher in the
in terms of employment, with more than 21,000 long term.
FTEs in 2006. Employment in this sector is projected
GRP contribution: It was estimated that this section
created $2.3 billion in 2006, and the Horizon 2031
Challenge for Auckland projections are that it will have an average annual
The creative industries have by their nature an element growth rate of 2.81 per cent through to 2031. This
of innovation and regeneration. Internationally, the means that this sector is projected to create $2.7 billion
sector still retains a cost advantage over other English by 2011, $3.1 billion by 2016, and $4.7 billion by 2031.
speaking countries, particularly in screen production.
Although strong growth is projected for this sector,
the industry needs support. A challenge is to keep Employment: In 2006 digital content was ranked sixth
bureaucratic obstructions to a minimum, enabling the highest employer when compared with the industries
industry to adapt and recreate itself. of interest to Auckland, having employed 26,872 FTEs.

44
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

By 2031 this sector is projected to increase by 57.4 7.5 per cent of total employment in the region. Under
per cent its full-time equivalent employees, reaching the Horizon 2031 scenario, employment numbers in
42,297 FTEs. this sector are projected to increase by two-thirds
over the 25-year period to reach 75,550 FTEs in 2031.
Tourism’s contribution to total employment is projected
to increase to 8.12 per cent in 2016 and to 8.85 per
3.9.6 Tourism cent in 2031.

The tourism sector covers a number of sectors,


including:
3.9.7 Transport and logistics
• accommodation, restaurants and bars (95 per cent)
In the Economic Futures Model (EFM), transport and
• air transport, services to transport and storage (20 logistics is divided up as:
per cent)
• road transport (including parking services, road
• retail (13 per cent), and freight transport and bus transport)

• cultural and recreational services (including • water and rail transport (e.g. international sea
libraries, museums, and recreational parks and transport, coastal water and inland water transport)
gardens).
• air transport, services to transport and storage
GRP contribution: Tourism is projected to remain a (e.g. domestic and international air transport, and
significant part of Auckland’s economy, generating $2.4 customs agency services), and
billion value-added or 4 per cent of GRP. This projection
has taken into consideration the possible effects of the • communication services (postal and courier
current crisis on international tourists’ decisions to visit services).
Auckland. However, it may be considered as optimistic
in the light of the announcement from the United Challenge for Auckland
Nations World Tourism Organization (UNWTO) that The population increase projected for the Auckland
international tourism will stay even or fall by up to two region up to 2031 poses logistical challenges in
per cent in 2009. Opportunities for Auckland’s tourism terms of transport and congestion. These are
substantial costs to Auckland’s businesses, in terms
will come from attracting more domestic travellers to
of the opportunity cost of employees’ time and lost
the region, and motivating them to stay longer. In the production.
medium term, the economic landscape of the sector
The Auckland region faces challenges regarding
will not change significantly. With two major upcoming competing pressures on its ports. The way this
events (i.e. the 2011 Rugby World Cup and the 2018 is managed will have an impact on the economic
Cricket World Cup), and possible investment in the competitiveness and attractiveness of the region.
Convention Centre, tourism’s contribution to GRP is
forecast to increase by three per cent by 2016,
generating $4.7 billion, which will represent 7.11 per GRP contribution: The transport and logistics sector
cent of GRP. created $3.5 billion value-added in 2006. In the short
term the region is projected to remain a distribution
Employment: The tourism sector employed 45,111 centre, with the transport and logistics sector –
full-time equivalent employees in 2006, accounting for estimated to generate $4 billion of GRP in 2011 (seven
per cent of the total GRP) – being placed immediately
after retail. This projection reflects Auckland’s major
role as a gateway for the rest of the country, with the
Challenge for Auckland international airport and seaport playing a significant
The inter-linkages between the tourism sector and part in this sector. By 2031 it is estimated that the
other sectors of the Auckland economy are constantly transport and logistics sector will increase by 2.9 per
changing. These need to be understood to enable cent and thus contribute 7.64 per cent to the total GRP.
appropriate marketing of the region. The challenge
for the sector is to create more ‘hooks’ for visitors to
the region, broadening their experiences while in the Employment: It is estimated that 34,746 FTEs
region. were employed in the transport and logistics sector
in Auckland in 2006. This sector is projected to

45
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

experience employment growth of 50.6 per cent by Employment: The sector employed 26,599 FTEs
2031, to reach an employment figure of 52,315 FTEs. in 2006. It is projected to have an increase of
employment of 23 per cent by 2031, reaching 32,724
FTEs.

3.9.8 Biotechnology
The OECD defines biotechnology as the application of 3.9.9 Marine industry
science and technology to living organisms as well as
parts, products and models thereof, to alter living or The marine industry is largely represented by the
non-living materials for the production of knowledge, following sectors:
goods and services. This sector is represented across
the following sectors in the EFM: • transport equipment manufacturing (ship and boat
building)
• dairy product manufacturing
• machine and equipment manufacturing (e.g.
• other food manufacturing manufacturing pumps and compressors, and
electrical equipment)
• rubber, plastic, and other chemical product
manufacturing • sheet and fabricated metal manufacturing, and

• business services (such as scientific research) • textile and apparel manufacturing.

• health and community services GRP contribution: The marine industry is projected
to generate $2 billion value-added in 2011, $2.2 billion
• forestry, and by 2016, and $3.4 billion by 2031. By 2031, its growth
will be 97.7 per cent from the base year of 2006. This
• oil and gas extraction. sector is seen as important because of its high growth
potential.
GRP contribution: The biotechnology sector
contributed $1.9 billion to the GRP in 2006. It is
projected to generate $2.2 billion value-added in 2011 Challenge for Auckland
(four per cent of GRP). The application of science and Expansion of the marine industry requires significant
technology to agriculture processing, food science and investment and management of skilled labour.
medicine can be associated with innovative activities, The scenario developed is based largely on growth
and innovation has been cited as a primary factor in in export demand, and does not have production
constraints. Balancing these constraints, particularly
sustaining economic growth and in developing a more
marine industry infrastructure, will pose a challenge to
flexible Auckland economy capable of competing
the sector.
successfully on the international stage. This sector
is seen as important due to its high growth potential
and its ability to contribute technologies and services Employment: The sector employed 23,294 FTEs
across the economy, notably the health and pastoral in 2006. It is projected to have an increase of
sectors. employment of approximately 50 per cent by 2031,
reaching 34,685 FTEs.

Challenge for Auckland


Continued competitiveness in the biotechnology
sector requires careful integration of research
institutes with industry. It is a challenge to get skill
spill-over between research in agricultural sciences,
food production, healthcare services and business, in
the co-development of marketable products.
The challenge is to continue to create advantage for
new research output from the biotechnology sector
which has a proven track record in research and
development to date.

46
Economic Futures for the Auckland Region: Scenarios for economic development – April 09

3.9.10 Advanced materials Challenge for Auckland


Food production is dependent on the rest of the
In the EFM advanced materials are represented by: country. Growth in this sector is highly export-
dependent, and so sustainability issues come to the
fore. It requires quality assurance in the industry and
• rubber, plastic and other chemical product
then leveraging on quality aspects of the region’s food
manufacturing, and and beverage production.
Downstream industries such as packaging will be
• basic metal manufacturing. required to support changes in the industry, so a
challenge is how to integrate other sectors.
It includes production of plastics, polymers, ceramics,
metal alloys, processed wood materials, concrete,
cement, steel, and any combinations of these. Employment: The sector employed 14,533 FTEs
in 2006. It is projected to have an increase of
employment of approximately 60 per cent by 2031,
Challenge for Auckland reaching 23,405 FTEs.
Investment in research and development (R&D) is
a challenge for the entire economy, and affects the
advanced materials sector in particular. The low level
of R&D investment by New Zealand businesses
places an onus on the industries that are active in
R&D, as they do not benefit from inter-industry R&D
spill-over.

GRP contribution: The production of advanced


materials is estimated to have created $1 billion in
2006, while projections for 2011 are $1.2 billion. In the
medium term, this sector is projected to generate $1.3
billion, and in the long term $2 billion value-added.

Employment: The sector employed 9,167 FTEs


in 2006. It is projected to have an increase of
employment of approximately 30 per cent by 2031,
reaching 11,874 FTEs.

3.9.11 Food and beverage


The food and beverage (F&B) sector comprises dairy,
meat, seafood and aquaculture, horticulture (fruit and
vegetable), wine and other alcoholic beverages, non-
alcoholic beverages, processed food, confectionary,
eggs, honey, etc. In the EFM, it is represented across:

• manufacturing of meat and products from meat

• dairy products manufacturing

• other food manufacturing, and

• beverage, malt and tobacco manufacturing.

GRP contribution: The food and beverage industry is


projected to generate $1.8 billion value-added in 2011,
$2 billion by 2016, and $3 billion by 2031. By 2031, its
average annual growth rate will be 2.73 per cent.

47
Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

4 Scenario 2: Digital Auckland

4.1 Background What speed for broadband? Auckland and New Zealand have lagged
Mbps, or megabits per second, behind in the deployment of very fast and
Information and Communication is a data transfer rate. Between ultra-fast broadband, which requires large
Technologies (ICTs) are considered cable, DSL, fibre, and a variety scale infrastructure investment in order to
of wireless technologies,
a necessary investment for a deploy ‘fibre to the premises’. The limited
consumers do often have
region to stay competitive on the multiple choices for 1Mbps or competition in the sector, until recently,
international stage. Broadband more service. However, out of and the drive for short-term return on
is a particular technology which those technologies, only fibre investment, have slowed private sector
improves the performance of ICTs. to the home offers 100 Mbps investment in ‘fibre to the premises’.
speed to consumers. Fibre
is also future-proof as it does
The need to act swiftly and deploy To achieve the ultra-fast speeds of 100
not know any real capacity
a widespread ultra-fast broadband limitation. Mbps required by 2014 to enable New
infrastructure becomes apparent Zealand to be in the top half of the OECD
when the performance of Auckland countries, there needs to be infrastructure
and New Zealand is compared against other OECD investment in delivering ‘fibre to the premises’. This is
countries. Despite being one of the highest internet now a high priority for the government and is reflected
users in the world, New Zealand only ranks 19 out of in the One Plan for Auckland Region – Digital Auckland
30 OECD countries on broadband adoption. It is easy programme.
to equate this ranking with our slow speeds, high
prices and heavy data caps. This ranking will not allow
New Zealand and the Auckland region to achieve their
economic potential.
4.2 Scenario description
By 2014 the Auckland region will require a broadband
capacity of more than 100 Mbps if it is to be ranked This scenario is formulated in recognition of the
in the top half of the OECD and achieve its economic fundamental role that broadband plays as a catalyst
potential. This will still be beyond the capacity of the for economic and social development. Implemented
VDSL2 super-fast broadband that Telecom is currently correctly, a widespread ultra-fast broadband
rolling out. The drive to deploy fibre optic is well infrastructure will lower transaction costs, increase
established internationally. Japan, Hong Kong and efficiency gains and provide faster and more effective
Singapore are looking to achieve 100 Mbps in the access to global markets, while driving economic and
very near future, and Europe and parts of America are social development.
rapidly developing their fibre assets.
The Digital Auckland scenario investigates how
Beyond the performance constraints of fibre to the investment in ultra-fast broadband telecommunications
cabinet infrastructure, our broadband service also in New Zealand and Auckland would impact on
suffers from other limitations. For example, VDSL2 the performance of the regional economy in the
will still not support the download/upload symmetry medium and long term. The scenario looks into the
required for businesses engaging in knowledge type of benefits that can be expected from such an
economy applications such as videoconferencing. investment. It paints a picture of what the region’s
These constraints and limitations reinforce the economy would look like in the future following
argument of the need for a ‘fibre to the premises’ sustained investment in telecommunications networks
solution if we are to have internationally competitive and technologies.
telecommunications in Auckland and New Zealand.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

This scenario is formulated after consideration of the programme of broadband applications to a wide range
economic and social benefits derived from investment of users, will facilitate high levels of up-take.
in ICTs and broadband. However, it should be noted
that interest in this topic is relatively recent and little
information is yet available. Certainly, there is limited
understanding of the long-term effects of investment 4.2.2 ICT applications
in broadband telecommunications, given the recent
advance of this technology. Moreover, little information Downloading files quickly is generally better, but it
is specific to New Zealand or to Auckland. However, may not yield higher productivity for an individual or an
theoretical discussions added to empirical studies are organisation. The real value is gained from the adoption
relevant and significant enough to start a reflection of new technological applications that change the way
on the impacts on Auckland of such broadband we do business. In other words, the availability of
deployment. This scenario is therefore based on broadband is not enough to guarantee positive impacts
evidence gained through literature and case studies on economic activity. To be efficient, broadband needs
(see Appendix 8 for references). to be available, adopted and used.

Below is the description of the Digital Auckland The deployment of infrastructure supports the
scenario under a number of headings. The next section development and up-take of new applications for both
provides a summary of the related assumptions the home and business, which in turn drives demand
inputted into the model to provide the results for broadband infrastructure. Infrastructure and
highlighted in section 4.4. applications are complementary: improvements in one
bringing improvements in the other. Those applications
are in a range of areas, such as IT infrastructure,
communications, content, business operations support,
4.2.1 An increased rate of investment in collaboration, transactions and education.

infrastructure deployment
Adoption of ICT applications
In excess of $4.5 billion of public and private
investment in broadband telecommunications is Businesses across the economy will benefit from
expected in New Zealand over the next few years. better telecommunications infrastructure. However
This includes a $1.5 billion investment in ultra-fast benefits are expected to be greater in some industry
broadband by central government under the Broadband sectors, such as business services, education, health,
Investment Initiative, and an assumed $3 billion of tourism, some manufacturing (those less resource
private investment. Recognising the huge potential dependent), wholesale and retail trade. The industry
that could be gained from investing in Auckland, the sectors that will particularly benefit from better
city-region, as the country’s main economic centre and broadband communications as those relying on:
its international gateway, will obtain 40 per cent of this
investment envelope. • provision of information, such as financial markets,
insurance and accounting firms, consultancies,
This investment will be directed into a fibre-optic forecasters, and researchers (professional,
network, now ‘the leading next-generation broadband academic, R&D)
technology’, and into wireless technologies. Over the
next five years, efforts will focus on deploying fibre to • online databases
‘MUSH’ premises (municipalities, utilities, schools and
hospitals) and businesses, as well as up-to-date mobile • banking
technologies. Over time, ultra-fast (or true) broadband
infrastructure will be delivered to most homes in the • marketing and online advertising
region.
• advertising and graphics design, and
Open to third-party service providers (i.e. open access
network), the improved fibre network will enable • new distribution channels.
increased competition (leading to better pricing), and
an abundance of retail voice, data and video services to Businesses in those sectors continually adopt new or
end users. This, together with an aggressive promotion improved ICT applications. Many of these applications

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

are becoming increasingly sophisticated, as faster of easy-to-use technologies and widespread


telecommunication technologies enable new levels of internet access. This removes barriers and allows
performance. Businesses therefore increasingly invest individuals from around the globe to be innovators,
in more advanced access technologies that enable traders and information creators.
these new applications to run. Overall this will lead to a
higher degree of IT use and penetration. • Increased sharing of scientific knowledge across
disciplines and with a larger audience: this
supports the advance of science, research and
Development of ICT applications education.

New applications are being developed as a result • Telecommuting and working ‘on the go’: time and
of faster telecommunication technologies. Many of place become less relevant.
them will be developed overseas. This will fuel an
increase in our import of ICT software and electronic
and telecommunication equipment, but also fuel an
increase in related domestic trade and wholesale. 4.2.4 New business models
However, as research on New Zealand’s innovation
system highlighted,21 there are a number of niches in The most important channel whereby broadband,
which New Zealand and the Auckland region have a combined with ICTs, enhances growth is through
comparative advantage, such as banking IT, health IT the adoption of new business models. Two kinds of
and digital content. These sectors will greatly benefit behaviour by businesses can be distinguished:
from better broadband communications networks as
the domestic market expands. • The ‘IT-using’ firm uses internet applications
(internet browser, email) to make current
processes more productive. For example, due
to use of internet applications, firms improve
4.2.3 Behaviour change their capacity to communicate with suppliers
and customers, thereby reducing their costs of
The adoption of the new generation technologies is production.
going to affect the way we do things. However, natural
(or, at least, strongly socialised, conventional, or classic) • The ‘IT-enhancing’ firm adopts complex internet
human ways of doing things are slow to change. In applications like ‘e-business’. These applications
other words, we will still want to meet, go for coffee, can enable whole new business processes and
and have face-to-face interaction. Social interactions models, such as automated online supply-chain
remain essential to business networks and productivity. management and online sales within geographically
It is assumed that this digital world will, however, distant markets. This requires the right level of
promote or precipitate the way we do things in the skills and education amongst management.
arenas of business, culture and society, some of which
are already emerging. Here are a few examples: Broadband communications networks are instrumental
in many aspects of business operations: ‘supply chain
• Online collaboration in the areas of innovation, management, fleet management, e-procurement,
production, research, education and entertainment: e-invoicing, online recruitment, customer service, call
online collaboration supports new business centres, online payment systems, e-commerce, co-
models, such as outsourcing and offshoring of ordination of fragmented production processes both
some services. within and between firms, and the connections of tele-
workers to their employers’ networks’ (OECD, 2007).
• Culture mix and exchange of ideas: this leads to
globalisation of business norms and standards and Wireless broadband particularly benefits small and
therefore supports the removal of informal barriers medium enterprises (SMEs) because of the benefits
to international trade. that the mobility aspect of wireless broadband
provides, such as not having to staff a head office,
• Non-hierarchical media content development: the increased ready access to corporate information, field
explosion of user-generated content (for example, service automation and better use of travel time. This is
‘YouTube’) will continue due to a combination pertinent to the Auckland economy which is dominated
by SMEs.
21
Ministry of Economic Development, 2008

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Consequently, this leads to enhanced collaboration and shared information, and online collaboration
and the adoption of new business models: massive between different health practitioners. New
amounts of information is exchanged which will applications will also ensure access to better
require strong data and information management care from home. An example of this is the
systems, and new collaboration tools that filter, development of an ‘SMS GeoChat’ application
analyse and customise information to individual firms for the iPhone: emergency responders and aid
and industries. This will have major implications for workers will be able to communicate their exact
the domestic software industry, as well as for the location and message recipients will be able to
information retailing sector (for example, data banks). view the sender’s location in Google Earth, Google
Maps, Live Earth, etc. Another example is the
development of a home health-care plan for older
people where sensors can detect any abnormal
4.2.5 Outsourcing activities and send a signal to emergency services.

Outsourcing is an example of a new business practice • The deployment of better broadband networks
enabled by the advancements in telecommunications. and mobile technologies will increase teleworking.
Outsourcing mainly involves highly skilled and relatively More people will work from remote locations such
higher value-added services such as legal services, as the home, remote offices, customer sites or on
accounting, advertising, design, R&D, IT-related the road. This is associated with a reduction in the
services (e.g. software programming, IT support or need to travel, and possibly a reduction in demand
consultancy), technical testing and analysis services, for office-based accommodation.
marketing and advertising, management consultancy,
human resource management and labour recruitment. • The increasing sophistication of remote learning:
Some lower-skill services such as back office and while remote learning is not new, advanced
administrative functions and call centres might also telecommunications are essential to support the
be outsourced. Providers might be local or based advancement of ‘digitally mediated learning and
overseas. teaching’23 (e-learning). This impacts on how we
learn: education and training will be more tailored
Economies such as China, Russia and India, with to learners’ needs. This also impacts on where
a relatively highly educated workforce, emerged in we learn: large corporates already conduct most
the 1990s and are now major providers of low-cost training in-house using video-based tools, and
services to Western corporations. For example, some course materials can now be downloaded
Bangalore-based accountants processed around on a MP3 device. The quality of education will
100,000 American tax returns in 2004 on behalf of US increase thanks to shared materials, and through
companies. In 2005, this figure reached 400,000.22 more customised teaching and training.
This has been enabled by reliable, cheap and
instantaneous broadband communications, as well as • Shared knowledge and information may support
the development of the appropriate global software better decision-making and consultation in the
technologies (in this example, of a global accountancy public sector. It will also help reduce transaction
software product). The service offerings are costs (e.g. through e-payments).
becoming increasingly sophisticated as technologies
develop, with the emergence of video-based tools
to communicate with customers in a contact centre
environment, for example. 4.2.7 Productivity gains
Changes in business models, such as outsourcing and
offshoring, are the key to unlocking productivity gains.
4.2.6 Emerging sector trends This requires a combination of the right infrastructure,
new ICT applications, and the right management
Other emerging trends are:

• Health care will largely benefit from improved


23
‘E-learning is learning that is enabled or supported by the use
broadband networks through lower transaction of digital tools and contents. It typically involves some form of
costs due to shared communication channels interactivity, which may include online interaction between the
learner and their teacher or peers. E-learning opportunities are
usually accessed via the internet, though other technologies such as
22
Friedman, T. (2005). The World is Flat. Farrar, Straus and Giroux CD-ROM are also used.’ New Zealand’s Ministry of Education.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

to drive change through an organisation. These 4.3.2 Effects on business productivity levels
productivity increases are linked to:
Broadband is important in all sectors that rely on
• adoption of new business models, helping the provision of information. Therefore the impacts
businesses to do things faster and reduce wasted of broadband infrastructure deployment are felt
efforts across the whole economy – well beyond just the
telecommunications industry. The industry sectors
• efficiency and market access, reducing the assumed to benefit the most are: food and beverage
costs and increasing the speed and reliability of manufacturing, digital content, rubber, advanced
transactions materials manufacturing, wholesale trade, transport,
communication services, finance, insurance, and
• vertical specialisation, leading to the more cost business services, education, and health and
effective sourcing of goods and services as part of community services.
the production process
The main impact modelled is productivity gains derived
• horizontal collaboration, leading to more efficient from the deployment of ultra-fast broadband and the
and innovative partnerships between organisations up-take of software and other IT applications. For
to develop or deliver a new product or service, and example, the Net Impact Study (Varian et al., 2002),
found that the development of internet business
• modification of workers’ practices. solutions (IBSs) could generate substantial productivity
gains, and forecasts that by 2010, up to 48 per cent
An example is how the changes in the booking and of the USA’s productivity growth will be due to those
check-in systems in the air transport sector have driven IBSs.
major cost reductions, created instant information
flows and driven productivity gains. It takes time for Given the time frame for investment, it is likely that
new business practices to spread across economies. effects will be mostly felt between 2011 and 2021.
The deployment of ultra-fast broadband, together Post 2021, these effects are halved. The model is
with the adoption of new technologies and business limited here as it provides linear projections at five-year
models, will enhance productivity improvements over intervals.
time.

4.3.3 Impact on trade


4.3 Scenario assumptions ICTs and broadband facilitate the globalisation of
services (OECD, 2008c). Services account for up to 20
The Horizon 2031 scenario is the base for this Digital to 25 per cent of international trade in OECD countries.
Auckland scenario. Therefore assumptions under This percentage might seem modest but is explained
the Horizon 2031 scenario still apply, unless they are by the fact that most of services have only recently
superseded by the new assumptions summarised in become tradable. Nonetheless, rapid broadband
Appendix 5. diffusion and the on-going liberalisation of trade and
investment of services make more and more services
tradable. These technological advances lead to an
increased share of business services in total exports
4.3.1 Investment and imports. For example, the share of exports of
business services in total UK exports has multiplied
This scenario is driven by a mix of public and private by two between 1995 and 2003, although this share
sector investment in broadband infrastructure, as still remains a small percentage of total trade (11.5 per
well as associated up-take in software and other IT cent). In New Zealand, services represented around 24
applications, which are reflected in the model by per cent of exports in 2008 (Statistics New Zealand,
increasing gross fixed capital formation. 2008).

Broadband networks make international outsourcing


possible. Indeed, a broadband network reduces
distance between people and, in fact, supplier and

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

customer can be in two different places without any the service’; the authors are expecting the same value
harmful consequences. Broadband communications for the ‘broadband revolution’.
have already enabled businesses to outsource basic
services, such as accountancy or administration. For
example, British companies using fast or ultra-fast
broadband outsource 10 per cent more than others. 4.3.5 Impact on employment
It is therefore expected that outsourcing of business
services in New Zealand will increase as a result Broadband has a dual impact on employment: on one
of better telecommunication services. The sector hand, broadband might stimulate overall economic
assumed to be the most affected is the business activity resulting in job growth while, on the other hand,
services sector in Auckland, which may lose some it might facilitate capital-labour substitution, resulting in
domestic market shares to the benefit of businesses slower job growth. Typically low-skills jobs performing
in emerging economies such as China, India and the repetitive and non-cognitive tasks might be cut while
Philippines. However, the deployment of broadband high-skills jobs might be created.
infrastructure also offers this industry sector many
business opportunities. Overall broadband is shown to positively impact on
job and enterprise creation. For example, employment
On the other hand, exports are expected to grow as increased by almost 1.5 per cent in the USA between
the cost associated with our remoteness is in part 1998 and 2002 as a direct result of broadband
alleviated by the deployment of advanced ICTs and deployment. According to the ACIL Tasman report
broadband. Specifically, export growth was modelled (2004), 330,000 jobs will be created in the Australian
in the following sectors: printing, publishing and state of Victoria between 2004 and 2015, directly
recorded media; business services; education; health attributable to broadband adoption. This represents an
and community services; and cultural and recreational average annual growth of 0.5 per cent in the number of
services. persons employed over that period.

Overall, all studies on broadband found that investment However, labour force supply is constrained by
in broadband infrastructure was positively associated demographic changes in the model, and therefore
with economic growth. For example, in an evaluation employment does not vary hugely under this scenario.
of the economic impacts of broadband adoption in
Victoria (Australia), ACIL Tasman (2004) estimated that
between 2004 and 2015, the average contribution of
broadband to GDP growth would be between 0.47 and
0.82 percentage points per annum. 4.4 Scenario results
As discussed before, there is a high degree of
uncertainty related to the long-term impacts of
4.3.4 Impact on household consumption investment in broadband infrastructure. The results
should therefore be read as guidance only. They
Household consumption is assumed to increase provide an indication of the potential scale of the
as households consume more communication impacts and are here to support a reflection on the
services, cultural and recreational services, health and topic as well as policy development. It should be
community services, and education. noted that these results are largely aligned with the
New Zealand Institute’s findings or with the finding
For example, broadband internet connections bring that every dollar invested in broadband infrastructure
many new ways of entertainment: downloading generates approximately $3 of output.
motion pictures or other video materials, interactive
television, interactive games, home editing of digitised
entertainment material, and all of the other possibilities
offered by web 2.0 such as social-networking sites, 4.4.1 Gross regional product
video-sharing sites, wikis, web-blog, etc. Crandall and
Jackson (2001) compare all these new technologies Under the Digital Auckland scenario, investment
to the multi-video channel revolution of the 1980s and in ultra-fast broadband infrastructure, coupled with
1990s. This last one ‘created between US$77 billion investment in associated hardware and software
and US$142 billion in annual value beyond the costs of

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

applications, drives productivity gains and industry 4.4.2 Exports


competitiveness. The resulting regional economic
benefits are in the range of $2 billion by 2031. This Under the Digital Auckland scenario, export values
is equivalent to a two per cent increase over the are about $2 billion higher each year than under the
GRP under the Horizon 2031 scenario (i.e. the base Horizon 2031 scenario. Over the 2006–2031 period,
scenario). The economic impacts of broadband it is forecast that the region will export an additional
deployment are substantial. As a point of comparison, $49.1 billion. This is nearly five times what the region
the construction sector generated $2.2 billion of GRP exported in 2006. Specifically, export growth will
in 2006. occur in the following sectors: printing, publishing and
recorded media; business services; education; health
Table 15: GRP results compared with the Horizon and community services; and cultural and recreational
2031 results services. For example, exports in business services,
cultural and recreation services, and health and
2011 2016 2021 2031 community services are projected to be around 12
per cent higher in 2031 than under the Horizon 2031
GRP (billion) $62.0 $70.3 $79.3 $100.3
scenario.
Additional (million) $215 $430 $877 $2,389
Increase 0.3% 0.6% 1.1% 2.4% Table 16: Export results compared with the Horizon
2031 results
Source: Auckland Digital scenario, ARC 2008
Note: GRP is expressed in 2004$ constant prices 2011 2016 2021 2031
Export (billion) $12.6 $14.8 $17.1 $23.5
The cumulative economic benefits over the 2006–2031
Represents:
period are considerable. They amount to over 22 billion 20.4% 21.0% 21.5% 23.5%
of total GRP
in additional GRP as shown in the following diagram.
Source: Auckland Digital scenario, ARC 2008
Note: In 2004$ constant prices

Investment in ultra-fast broadband and


in associated applications

Change in business operations and


models, leading to productivity growth

Total increase in GRP between 2006


and 2031 of $22 billion

Higher Higher export in Higher import


household goods and due to
demand for services in which outsourcing
communication Auckland has a some services
enabled goods comparative
and services advantage

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

4.4.3 Fastest growing sectors of industry


The industry sectors that will benefit the most from
the deployment of ultra-fast broadband in Auckland in
terms of absolute GRP growth are: business services,
health and community services, communication
services, education, and cultural and recreational
services. This growth is driven by growing demand
here and overseas, as well as by productivity gains
derived from the adoption of different business
models.

Table 17: Top industry growth

GRP in 2031 (million) Horizon 2031 Digital Difference


scenario Auckland (% increase)
scenario
Business services $13,672 $14,383 5.2%
Health and community services $4,141 $4,545 9.8%
Communication services $4,688 $4,989 6.4%
Education $2,768 $3,017 9.0%
Cultural and recreational services $2,917 $3,158 8.3%

Source: Auckland Digital scenario, ARC 2008


Note: In 2004$ constant prices

4.5 Conclusion
Research into the impacts of deploying ultra-fast This scenario explored the effects in the Auckland
broadband infrastructure is still in its infancy as the economy of widespread use of ultra-fast broadband
technology is relatively recent. However, there seems technology. No supply-side constraints were factored
to be a consensus in the literature that substantial in. For the region to realise the benefits modelled under
economic and social benefits can be derived. The this scenario, the adequate supply of management
Digital Auckland scenario shows that, under relatively and technical skills across all industry sectors is
conservative assumptions, the Auckland region could prerequisite.
increase its GRP by over 2 per cent by 2031 as a direct
consequence of investment in ultra-fast broadband, and
that cumulative effects could reach $22 billion over the
2006-2031 period.

Fibre networks are recognised as instrumental


in fostering productivity and competitiveness.
Governments around the developed world are in a race
to support the deployment of faster telecommunication
networks. There is a sense of urgency around the
subject. The Broadband Investment Initiative and the
One Plan Digital Auckland programme are therefore of
real relevance to the region’s future outlook.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

5 Scenario 3: Energy Efficiency

5.1 Background Defining energy


Energy encapsulates primary energy sources, such
This scenario is formulated in recognition of the pivotal as coal, oil (petrol, diesel, fuel oil, aviation fuel),
role that energy plays in our lives and economy, our liquid petroleum gas, natural gas, renewable energy
(wind, solar, wave, biomass including wood), and
dependence on energy for physical and economic well-
geothermal. It also includes secondary energy sources
being, and in recognition of the challenges posed by such as electricity and heat.
our current level of energy use.
A distinction is made between the use of energy in
industry and commerce (for the production of goods
Auckland’s total energy demand (industry and and services) and its use in households (residential
households) in 2006 was estimated at 190,000 TJ energy use and private transport).
(terajoules, oil equivalent).24 Seventy per cent of this The energy described in this scenario relates to
was used by industry and 30 per cent by households. delivered energy to the region. This energy may be
generated in other regions of New Zealand. This point
Under the Horizon 2031 scenario, by 2031 the region’s
is particularly relevant to electricity, gas and transport
energy demand is projected to increase to 319,000 TJ.
fuel, given that Auckland places substantial demands
This is a 68 per cent increase in delivered energy to the on other regions for energy services.
region (see Table 20). The units of energy used within this scenario are
terajoules (TJ), on a gross calorific value as delivered
The problem associated with security of energy basis. (One TJ equals one trillion (1 x 1012) joules
supply is well documented in the literature (Foran and which approximates to 28,000 kilowatt-hours (kWh)).
Poldy, 2002; Leyland, 2008; McCormacRankinCagney,
2008), and has been experienced in the region.
Market volatility in energy pricing (particularly in oil),
interruptions in energy supply (electricity transmission The intensity of energy use varies by end-use sector,
and capacity of the Auckland grid), and the ability as does the form of that energy. Resilience supposes
to mitigate the environmental effects of carbon- an ability to survive through shocks, and planning for
based energy sources (air pollution from fuel burning energy demand changes is a mechanism to increase
and transport) have highlighted the shortcomings resilience in the system. This scenario is developed
of our method of energy use. Compounding the to explore the projected pressures associated with
region’s current energy requirements is the projected energy delivery and use in the region, while exploring
population growth over the next decades, which is possibilities to make the sector more resilient.
encapsulated in the Horizon 2031 energy projections.

The Auckland Sustainability Framework,25 which


has a 100-year vision, has a goal of ‘resilient
infrastructure’, which recognises energy provision 5.2 Scenario description
as a crucial component of the region’s infrastructure.
Energy comes in many forms. It is used by industry This scenario investigates and queries the effects on
in the production of goods and services, and also by the economy and energy demand if there is:
households as a component of the goods and services
they buy and use. • more efficient use of transportation fuels

24
This figure was generated by the energy accounts within the • an increase in public transport investment and use
Economic Futures Model, which is based on updated Energy
Efficiency Conservation Authority accounts for the region.
25
Auckland Regional Growth Forum (2007) Auckland Sustainability
• an increase in housing stock insulation
Framework – An agenda for the future.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Drivers of the Energy Efficiency scenario demand in 2006. In comparison, electricity makes up
1. Leadership in public policy: including the New only 25 per cent of household total energy demand.26
Zealand Energy Efficiency and Conservation Strategy;
commitments within the Intergovernmental Panel The road transport industry was second to basic metal
on Climate Change; standards such as those set in
manufacturing in terms of total energy (all forms) used
the NZ Building Code; regional initiatives such as the
Auckland Sustainability Framework. per industry.
2. Social norms: increased awareness of the
negative impact on environmental and ecosystems
change social values and subsequent behaviour.
Process of social conformity and/or collective learning
occurs. 5.3 Scenario assumptions
3. Market signals: Changes in the relative prices of
energy (particularly oil) induce change or a switch to
As with the Digital Auckland scenario, the Horizon
alternative energy sources. Businesses internalise
2031 scenario is the base for this scenario. Therefore
social values, in particular long term-investment into
sustainable activities within the private sector. assumptions under the Horizon 2031 scenario still
apply. Under this Energy Efficiency scenario the
industry structure is identical to that under Horizon
2031. However, assumptions are made as to how
goods and services are produced and consumed. This
• an increase in renewable energy investment and scenario explores the required energy demands to
micro-energy generation, and deliver this economic activity, including consumption.
Importantly, supply of energy is not constrained in the
• smarter use of energy, in particular electricity model. Specific assumptions of the model are detailed
across the economy and industrial sectors. below.

The environmental and energy component of the


Economic Futures Model was pivotal in this scenario, Developing the Energy Efficiency scenario
linking the projected industrial production and An energy model, describing energy use by
household consumption to resource use – particularly economic sector, fuel type and mode of transport
energy in its various forms. The Horizon 2031 scenario was constructed for both 2006 (base year) and 2031
(final year). The projections were developed using
projects energy use in the Auckland region assuming
information gathered from various sources including
unchanged energy efficiency ratios, given our current the Ministry of Economic Development (electricity
knowledge of how energy is used. This seems a very demand), Energy Efficiency Conservation Authority
unlikely future given uncertainty over how supply (Energy End-Use Database), the Auckland Regional
could be met. There is volatility in security of oil supply Transport Model (based on a ‘gold-plated’ public
and issues of fuel affordability, constraints on the transport scenario), Beacon Pathways Ltd and the
Economic Futures Model. Assumptions pertaining to
region’s electricity network, and regional, national and
changes in the rates of eco-efficiency, and substitution
international commitments to reduce air pollutants between particular fuel types, all by industry, were
which are associated with our energy use. based on a literature search. The energy model was
used to provide projections of the delivered energy
The Energy Efficiency scenario presumes less reliance types required to meet industry and household energy
demand over the next 20 years.
on fossil fuels, enabled through continued technological
substitution (innovation) and smarter design and use
of energy systems. However, a change in behaviour
towards energy use is also required, specifically with
regards to energy conservation. 5.3.1 Public transport and transportation
This scenario was formulated after consideration The scenario uses an Auckland Regional Transport
of energy use by different industrial sectors and Model scenario of maximised public transport use,
households, and after identifying areas of high potential which would coincide with the 2040 targets set by
for energy efficiency gains. the Ministry of Transport (2008). As such, it assumes
heavy investment in public transport infrastructure
Of particular importance to households in the Auckland and services in order to ‘pull’ people from cars and
region is the energy required for transportation. This
26
Households within the Auckland region spend more on petrol per
constituted 63 per cent of total household energy week than New Zealand as a whole, but spend less on average on
household energy. Statistics New Zealand (2008).

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

into public transport. However, it does not exclude Notable was the substantial substitutions between
investment in roads, such as completing roading household car use and bus/commuter rail transport
networks and improving rural transport. Public transport modes. This assumes a behavioural change, invoked
network improvements would be in terms of services through changes in relative prices of public and private
(e.g. integrated ticketing and fares), and additional transport (incorporating opportunity and time costs of
infrastructure (e.g. considerable rail expansion), and travel by each mode). The rail transport network was
would be supported by travel demand management assumed to be electrified, leading to efficiencies in
measures (e.g. walking and cycling infrastructure energy use, given the losses through heat associated
improvements), road safety improvements, engine with fossil fuel.
technology improvements and high levels of town
centre amenity. A change in the demand for transportation fuels
and a switch between fuel types (given changes in
The ‘business as usual’ scenario incorporated planned technology) was assumed. An eco-efficiency gain to
transport expenditure, according to the Auckland buses of 0.5 per cent and to cars of 0.65 per cent per
Regional Transport Authority. However, in addition this annum was assumed. In addition, an annual growth
scenario assumes the construction of a CBD rail loop, a rate of one per cent in demand for diesel as a fuel for
second harbour crossing and the Waterview tunnel. It car transportation was assumed, partially offset by a
is assumed that bus vehicle kilometres (VKM) travelled 0.2 per cent decrease in demand for diesel buses and a
would increase by 85 per cent over 2006 levels by one per cent decrease in petrol cars.
2031, ferry VKM would increase by 216 per cent and
rail VKM would increase by 1157 per cent.

These transport assumptions were used to derive: 5.3.2 Housing energy


• health respiratory effects as a result of It is assumed that the residential construction
improvements to air quality (reduction of PM10)27 industry would modify its practices to reduce housing
energy consumption. Two types of household energy
• changes in transport mode energy-use by fuel efficiencies were assessed: the insulation of new and
type, and retrofitting of old housing, and the uptake of solar
water heating at the household level.
• substitution between transport inputs by economic
sectors. • It was assumed that the number of insulated
houses would increase from 55 per cent of the
After an analysis of hospital admissions relating to air housing stock in 2006 to 63 per cent of the future
quality, the public health savings (200 extra hospital stock in 2031. The potential number of insulated
admissions per year) were deemed negligible, as they homes in the next 20 years was calculated using
constituted 0.06 per cent of total hospital admissions a combination of current and estimated dwellings
in the region. The scenario assumed no overall change and the split between owner-occupied dwellings
in the government’s final demands for health services and rental properties in the region (it is assumed
as any reduction in government expenditure on hospital that owner-occupied dwellings will have a higher
admissions would be reinvested in the health sector. rate of insulation retrofitting). In spite of the
However, it can be assumed that the level of service large rise in retrofitting, it was not assumed that
provided to the public would be expected to improve as this would cause a substantial increase in the
a result of the reallocation of funds within the sector to the overall construction activity. Horizon 2031
alternative services. In the case of private expenditure has significant technical change built in, so the
on health care, it was assumed that any reduction in increases in retrofitting will have already been
expenditure resulting from air quality improvements captured within the model.
would be reallocated by consumers to the purchase
of other goods and services. This reallocation was • It has been estimated by the Energy Efficiency
assumed to be negligible in the overall model. Conservation Agency that approximately 55 per
cent of household water heating demands could
The increase in the public transport scenario assumes be met by solar water heating systems, assuming
significantly lower energy demands for fossil fuels. optimal use of the technology. The potential
for installation in new homes, as well as for
27
The notation PM10 is used to describe particles matter of 10
micrometers or less. It has health impacts, and is one of the targets
retrofitting, was estimated. Installation is projected
of air pollution reduction campaigns.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

to increase from three per cent of the current annum and likely eco-efficiency gains brought about by
housing (estimated 12,250 solar water heating technological change within the economy at a rate of
systems in the region in 2006) to 23 per cent of all 0.75 per cent per annum.
dwellings by 2031 (i.e. 132,725 dwellings to have
solar heating systems). These projections imply The growth in electricity demand in the Auckland
an average annual growth rate of 10 per cent for region between 2006 and 2031, as projected by the
installed solar heating systems in the region. EFM, was in line with national-level findings. However,
the EFM-based Energy Efficiency scenario goes further
As with insulation, the economic impact of solar water than the Ministry’s projections, by assuming that the
heating (output, value-added and jobs) was assumed to region has an additional eco-efficiency gain in electricity
be small, and within the margin of error of the model. of 0.5 per cent for the residential sector and 0.25 per
No change was made to gross fixed capital formation cent for the industrial and commercial sectors. This
(investment) of the construction sector. The main assumption is based on increased awareness of energy
changes to the model are assumed to be a decrease in bottlenecks, and a conscientious effort (behavioural
domestic demand for energy. change) to reduce energy demand.

The improvements to health as a result of improved Horizon 2031, based on historical trends, had overall
insulation were also investigated in this scenario as growth rates in electricity sector investment of around
there is a well established link between inadequately 2.15 per cent per annum. It was assumed that an
insulated, cold and mouldy houses and poor health additional two per cent per annum growth rate above
outcomes. The New Zealand study on the effect the average growth rate in gross fixed capital formation
of insulating existing houses on health inequality (i.e. infrastructure investment) within the model was
provides data on the differences in visits to the general required to ensure effective supply of electricity to the
practitioners (GP) for two trial groups, with one group region.
consisting of persons residing in newly insulated
homes and the other group residing in poorly insulated The energy efficiency scenario assumes that basic
homes (Howden-Chapman et al, 2007). steel manufacturing remains in the Auckland region,
despite its consumption of 13 per cent of total energy
The calculations described above, of the number of demand and nine per cent of the region’s electricity
insulated houses under the Horizon scenario versus the demand.
number of insulated homes under the Energy Efficiency
scenario, were used to estimate the difference in visits
to the GP between the two scenarios. A change in
public and private health expenditure was estimated 5.3.4 Consumption of energy commodities
as a result of the assumed changes to GP visits.
As with the beneficial health effects attributed to a Following the results of the Energy Efficiency scenario
reduction in PM10 from the transport sector, reductions and the analysis of future electricity demands,
in expenditure were assumed to be redistributed to adjustments were needed to the output trends of
other consumer items. The change did not produce industries producing energy commodities. It should
significant impacts on the model. A limitation of the be noted that while the Energy Efficiency scenario still
model is acknowledged in that it cannot capture well- projects growth in energy commodities over time, it is
being effects, such as those associated with improved at a smaller growth rate than that projected under the
health and increasing longevity of residents. Horizon 2031 scenario.

Any savings in expenditure on energy commodities


were assumed to provide additional disposable
5.3.3 Electricity demand income for expenditure on other goods and services.
Therefore, when compared with the Horizon scenario,
Electricity demand projections were provided by the Energy Efficiency scenario projects an increase
the Ministry of Economic Development.28 These in final demands for non-energy commodities with
projections provided the basis for a national energy- resulting value-added and employment impacts.
based Business-as-Usual Scenario29, accounting for
natural economic growth at a rate of 2.5 per cent per In the case of the industries producing energy
commodities, there is some reduction in output,
28
See www.med.govt.nz
29
It is important to note that this is not the same as the EFM Horizon
value-added and other employment as a result of the
2031 scenario.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

reduction in consumption compared with the Horizon This scenario is also dependent upon a number of
Scenario. However, because many of the energy major transport network projects being undertaken
commodities used in the Auckland region are produced within the scenario’s time frame. These projects
outside of the region (e.g. coal and petroleum), include the CBD rail loop (approximately $1 billion),
changes in consumption of these energy commodities Waterview tunnel (approximately $2.7 billion), and a
produced relatively little economic impact for the second harbour crossing (approximately $3.7 billion).
region. For the purpose of the study each of these projects
were assumed to take five years to complete from final
design to completion.

5.3.5 Construction impacts Furthermore, as these projects are tiered to start


throughout the projection period, several of the project
The impacts of construction can be significant on any years exhibit large one-off construction impacts, but no
economy, particularly in the short term. Nevertheless, two in any one reporting projection year.
construction impacts typically represent spikes
in economic activity lasting only as long as the
construction activity is in progress. This assumption
was used in the Energy Efficiency scenario when trying
to determine how the proposed energy and transport 5.4 Scenario results
investment would affect the construction industry.

A number of (planned) energy projects had been


previously identified for inclusion in the Horizon 2031 5.4.1 Gross regional product and employment
scenario. As stated above, to ensure security of
electricity supply an adjustment of two per cent per As the scenario is modelled with a focus on the use of
annum increase in capital investment was modelled, energy, substantial effects on gross regional product
assuming the movement toward more centralised (GRP) were not envisaged, and nor did they emerge –
sources of energy, namely electricity for transport, rail there were only marginal changes to GRP (under one
in particular and some electrification of buses. per cent for all reporting periods – Table 18). Similarly,
there was very little change to employment after
modelling the assumptions of the scenario (Table 19).

Table 18: Energy Efficiency scenario compared with the Horizon 2031 results

2011 2016 2021 2031


GRP (billion) $61.76 $ 70.3 $ 78.6 $98.8
Less ( ) or additional ( ) million $30 $92 $168 $88
GRP per capita $41,651 $44,028 $45,961 $51,275
Decrease ( ) or increase ( ) 0.04% 0.61% 0.19% 0.97%

Source: Energy efficiency scenario, ARC 2008


Note: In 2004$ constant prices

Table 19: Employment in the Energy Efficient scenario

2011 2016 2021 2031


Total FTEs 642,566 699,498 745,662 860,782
Changes between Horizon 2031 and Energy Efficiency scenario -0.06% 0.7% 0.1% 0.8%

Source: Energy Efficiency scenario, ARC 2008

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

scenario decoupled household energy use, and


5.4.2 Energy demand resulted in a reduction (nine per cent) in per capita
energy demand from the base year.
This scenario is revealing in terms of the difference
between energy demand in the Horizon 2031 scenario, There is little change in the total energy demanded by
and elaborating on where these demands are lowered industry between the Horizon 2031 scenario (56 per
in this scenario As the model is demand driven, there cent increase) and Energy Efficiency scenario (55 per
are no constraints on energy required and no changes cent increase), relative to the base year – but a 10 per
have been made to the model to constrain energy cent decrease brought about by the energy efficiency
supply into the region. Taking the assumptions of scenario. These industry changes relate mainly to
the Energy Efficiency scenario into account, there is efficiencies in transportation.
still an increase in total energy demand in the region
(up 46 per cent from 2006 levels). However, this The reduction in household energy demand is much
compares favourably to an increase of 68 per cent in more pronounced, with the growth from base year
Horizon 2031. Taking into account expected population curbed to 27 per cent in this scenario, down from a
increases, this is an increase of 20 per cent per growth of 57 per cent in Horizon 2031. This represents
capita of total delivered energy. The energy efficiency a difference of 19 per cent for household demand
changes reduced this increase to only four per cent per between the two scenarios, and represents the most
capita from 2006 levels (Table 20). significant changes in energy use modelled.

Economic growth and energy demand are linked


(Energy Information Administration, 2008), for it
is assumed in developed economies that energy 5.4.3 Changes in types of energy
demands increase despite increasing energy efficiency
(eco-innovations) in technology and appliances. This is Despite the improvements brought about by the
because as standards of living improve, then demand Energy Efficiency assumptions, there are still positive
for energy-intensive goods and services, including annual average growth rates in energy demand of one
purchases of new equipment to replace old stock, per cent per annum over the scenario period.
increases. This is the reason the percentage change
from the base year is given in Table 20 below. There
was a projected increase in household energy demand
per capita of 12 per cent in the Horizon 2031 scenario,
which puts it in line with OECD trends on energy
intensity over time. However, the energy efficiency

Table 20: Changes in energy demand

Base year 2031


(% changes from base in brackets) % change brought
Horizon 2031 Energy Efficiency about by Energy
2006 scenario scenario Efficiency scenario
Total energy demand (TJ) 189,702 319,183 (68%) 277,604 (46%) -13%

Total energy demand per capita 0.138 0.165 (20%) 0.143 (4%) -13%

Industry energy demand (TJ) 129,264 224,088 (56%) 200,588 (55%) -10%

Household energy demand (TJ) 60,438 95,095 (57%) 77,016 (27%) -19%

Household energy demand per capita 0.044 0.049 (12%) 0.039 (-9%) -20%

Source: Energy Efficiency scenario, ARC 2008

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Table 21: Comparison of energy use projections under Horizon 2031 and Energy Efficiency scenarios

Type of energy Energy projections to 2031 (TJ) Differences Average


Energy between annual
2006 Horizon Efficiency scenarios in growth rate
Base year 2031 scenario 2031
Diesel Industry 22,987 41,380 30,077 -27% 1%
Household 4,576 7,200 10,185 41% 1%
Total 27,563 48,580 40,262 -17% 1%
Petrol Industry 6,340 11,037 7,602 -31% 1%
Household 33,280 52,363 35,347 -32% 1%
Total 39,620 63,400 42,949 -32% 1%
Electricity Industry 21,225 36,959 31,730 -14% 1%
Household 15,287 24,052 20,570 -14% 1%
Total 36,512 61,011 52,300 -14% 1%
Natural gas Industry 24,441 43,980 41,692 -5% 1%
Household 3,839 6,041 5,755 -5% 1%
Total 28,280 50,021 47,447 -5% 1%
Coal Industry 24,120 37,251 35,357 -5% 1%
Household 182 286 273 -5% 1%
Total 24,302 37,537 35,630 -5% 1%
Aviation fuel Industry 9346 18,744 21,324 14% 1%
Household 0 0 0 0%
Total 9346 18,744 21,324 14% 1%
Wood Industry 10,036 14,962 14,306 -4% 1%
Household 2621 3724 3551 -5% 1%
Total 12,657 18,686 17,857 -4% 1%
LPG Industry 1,446 2,581 2,271 -12% 1%
Household 736 1,429 1,335 -7% 1%
Total 2,362 4,010 3,606 -10% 1%
Fuel oil Industry 2,588 4,267 5,744 35% 1%
Household 0 0 0
Total 2,588 4,267 5,744 35% 1%
Black liquor Industry 6735 11,431 10,436 -9% 1%
Household 0 0 0 0%
Total 6,735 11,431 10,436 -9% 1%
Total Industry 129,264 224,088 200,588 -10% 1%
Household 60,438 95,095 77,016 -19% 1%
Total 189,702 319,183 277,604 -13% 1%

Source: Energy Efficiency scenario, ARC 2008

5.4.4 Household energy demand In terms of fuel types, the main reductions between
Horizon 2031 and this scenario were in the use of
The drop in household energy demand is significant as petrol (-32 per cent) and electricity (-14 per cent),
it lowers the household demand per capita from the with reductions of between five and seven per cent
base year. This would imply a decoupling of energy use in natural gas, coal, wood and LPG. There was an
at household level, or significant energy efficiencies increase or a switch in fuel use to more diesel (41 per
permeating in household demand. cent increase). This result was a consequence of an
assumed move toward engines that would burn diesel
more efficiently and effectively.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

The increase of solar heating was not captured in Table 22: Top 5 energy intensive industries
the model as a separate energy/fuel category, but
was modelled in the reduction in electricity demand.
Energy
The other changes in fuel types are attributed to a
2006 Horizon Efficiency
reduction in household fires, replaced with electric
(Base year) 2031 2031
heating systems, and a switch away from private
vehicle transport to public transport. Table 21 compares Basic metal 24,761 36,540 34,026
manufacturing (19%) (16%) (17%)
the changes in energy demand for industry and
households, according to type of energy. 14,511 24,678 16,686
Road transport
(11%) (11%) (8%)
Air transport, services
11,310 23,051 24,878
to transport and
5.4.5 Energy use by industry storage
(9%) (10%) (12%)

Printing, publishing and 11,800 20,923 18,310


The energy demanded by industry varies considerably recorded media (9%) (9%) (9%)
across the 48 sectors of the EFM. In 2006, 57 per cent
Paper and paper 11,013 19,065 17,228
of total industry demand was accounted for by just five
product manufacturing (9%) (9%) (9%)
sectors. In order of total energy use, these were:

• basic metal manufacturing (19 per cent) Source: Energy Efficiency scenario, ARC 2008
Note: Units are TJ (oil equivalents) and proportion of
• road transport (11 per cent) 30 total industry energy use in brackets

• printing, publishing and recorded media (nine per There are significant changes to each industry’s energy
cent) use, as a result of the energy efficiency assumptions
in this scenario. The road transport industry has the
• air transport, services to air transport and storage largest reduction in energy use, with a drop of total
(nine per cent), and energy demand by 32 per cent. Communication
services decreases energy use by 23 per cent. Similarly
• paper and paper product manufacturing (nine per wholesale trade, personal and other community
cent). services, and business services all decrease their
energy use by approximately 20 per cent.
The other industries largely used less than one per cent
of industry total each, with the exception of retail trade, This scenario projects increased energy demand in the
business services, and wholesale trade, which used water and rail transport industry (75 per cent increase
five, four and three per cent respectively. including 181 TJ of electricity) and the air transport,
services to transport and storage industry (eight per
Under the Horizon 2031 scenario, the concentration of cent increases).31 These increases are not surprising,
energy use within these five dominant sectors declines given the focus on increased public transport in the
slightly to 55 per cent of the total. By modelling the scenario, and alternatives to road freighting which
Energy Efficiency scenario assumptions above, the would be substituted with water and rail transport.
concentration of energy use within these five industries These industries would increase their use of fuel oil
changes little. However, there is a projected 10 per and electricity.
cent reduction in total energy used by all industry
and the relative proportions of total energy use are
forecast to change slightly with the energy efficiency
assumptions. 5.4.6 Energy use per dollar of output.
While the projections are for a relative decrease in the In 2006 it was calculated that it took 1.3 TJ to produce
proportion of total energy used by the road transport $1m of output in the Auckland region. By modelling
industry, indicating a switch to rail, the proportion of the energy efficient assumptions, this figure was
energy used by the air transport industry will increase. reduced to 1.1 TJ by 2031, indicating energy efficiency
Overall, these five industries will remain the most gains in industry per unit of gross output.32 The
energy intensive. intensity of energy use per unit of output varies widely
31
30
Note: The road transport industry does not include private vehicles, For further detail about the changes in energy demand by industry
which are captured in the model under household consumption. This brought about by the Energy Efficiency scenario, see Appendix 6.
32
industry sector includes road freight, buses, taxies and services to Gross output roughly equates to the total sales value.
road transport, such as parking.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

across industries from 23.9 TJ/$m for basic metal


manufacturing, 12.3 TJ/$m for paper and paper product
manufacturing and 10.9 TJ/$m for road transport,
down to less than 0.1 TJ/$m for services provided
by the finance, insurance investment and real estate
industries. The fishing industry was in the top five
industries for highest energy use per unit of output,
which was surprising given that primary manufacturing
processes are considered the most energy intensive.

In the Energy Efficiency scenario, the intensity of


energy use per unit of output decreased for most
industries, with the exception of the water and rail
transport, air transport and services to transport, and
storage industries.

5.5 Conclusion
Both the Horizon 2001 and Energy Efficiency scenarios
project an increase in energy use in the region from
the base year. However, the assumptions in the
Energy Efficiency scenario decrease overall energy
demand per capita in the region by 13 per cent in 2031.
Household energy demand drops by 19 per cent, while
industry by 10 per cent.

The Energy Efficiency scenario projects a region that


is less reliant on fossil fuels, a result brought about by
improvements in technology, smarter design, energy
conservation and behaviour changes, most noticeablely
in transport. The scenario projects increases in the
use of public transport and corresponding declines in
private transport, supported by significant increases in
investment in more sustainable modes of transport.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

6 Implications for the region’s future


economic performance

Chapters 3, 4 and 5 in this report outlined possible the OECD ranking. Increasing our GRP per capita can
economic growth paths for the Auckland region under be achieved through two channels: increasing our
a number of economic scenarios. They are predicated output – and given the limits of our domestic market,
on generic growth paradigms within neo-classical this means exporting more – and/or increasing how
economic theory. These are supported by evidence much wealth each of us produce, which requires
from the last 100 years in developed countries, where productivity gains.
economic growth has led to massive improvements
in standards of living. However, it is recognised that The region’s population will continue to grow fast,
alternative growth paradigms are possible, such as but at a lesser rate than that previously experienced.
steady-state growth theories and constrained resource Indeed, while the region’s population is predicted
limits to sustained growth. Indeed, due to the current to grow by more than 1.3 per cent per annum to
global economic crisis, these sentiments are currently reach 1.97 million by 2031, this rate is not as rapid as
being given a predominant place in the media. The previously experienced growth rates. A decelerating
effects of emerging developing economies may also be population growth rate limits the extent by which
a further constraint to current growth theories. domestic demand drives the region’s economic
growth. The region’s economic growth will be further
This section provides a high level assessment of the limited by its aging population.
implications of the scenario findings in the light of our
current vision for the region’s economy, as articulated The number of people aged 65 and older is projected
in the Auckland Regional Economic Development to account for 17 per cent of the region’s population
Strategy (AREDS) and the Metro Project Action by 2031, up from 10 per cent in 2006. This trend
Plan. This vision is for the Auckland region to be an puts further fiscal pressure on the employed. It also
internationally competitive, inclusive and dynamic increases demand on health and community services
economy. The following sections examine the changes and facilities, implying a change in government’s
expected in a number of drivers of the regional spending plans and programmes. As reflected in the
economy. Horizon 2031 scenario, further investment will be
needed in the health, community and social sectors,
but this investment will have to be funded from a
proportionally smaller tax base.

6.1 Demographic changes The 40 to 50-years-old age group, the highest earning
age group, is falling as a proportion of the region’s
Changes in Auckland’s demographic profile and total population. This will lead to lower consumption
labour force will significantly impact the region’s levels. Furthermore, it is possible that given changing
ability to improve its economic performance. Based consumption and personal debt and fiscal patterns,
on the Horizon 2031 scenario, the region’s annual this group will have lower levels of disposal income in
GRP growth rate will average 2.4 per cent over the 2031 than they did in 2006. This may further reduce
2006–2031 period. This equates to an average annual domestic demand, limiting the region’s economic
GRP per capita growth rate of one per cent over the growth.
period, a lower growth rate than that projected by the
International Monetary Fund for New Zealand and Auckland is already host to a very diverse population.
other competitor countries. In other words, a 2.4 per By 2031, Auckland’s ethnic structure will be
cent average annual GRP growth rate over the next 25 characterised by larger proportions of Maori, Pacific
years is insufficient to ensure that our GRP per capita, Islanders and Asians. These ethnic groups will have
a proxy for living standards, does not slip further down stronger degrees of influence on Auckland’s domestic

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

demand and consumption patterns. Businesses may occupations. A failure to increase both educational
choose to tailor their goods and services to service achievements and participation in higher-skilled
these markets. In addition, this cultural diversity that occupations poses two challenges for the future.
already characterises Auckland’s population offers Firstly, businesses face a potential shortage of skilled
intangible linkages to overseas markets. This social labour within the domestic market, a real constraint
capital offers growth opportunities not captured in on growth. Auckland could consequently appear to
the scenarios. A challenge for businesses is to make be a less desirable place for businesses to locate
use of the connections new migrants have with their to. Secondly, individuals in those communities will
countries of origin to grasp opportunities in overseas have less work opportunities as the nature of work
markets. is changing and increasingly requires higher levels of
skills. This may lead to a number of negative economic
Given the constraints on domestic demand, it is and social effects, both for those individuals as well
essential that Auckland businesses expand existing as for the entire community. Social cohesion has been
export markets, and/or develop new ones. Increased positively linked to economic growth and prosperity.
exports are essential to lessen the effects of lower
domestic demand and hence increasingly drive Historically, the region’s economy has been fuelled
Auckland’s economic growth. by high level of labour utilisation rather than by
productivity gains. Given the constraints noted above,
the region’s economic production can no longer be
primarily driven by increased labour utilisation. The
challenge for the region’s economy is to become more
6.2 Labour force productive. There already exists considerable academic
literature and many policy documents focusing on ways
of improving multi-factor or labour productivity. Yet this
is a difficult challenge and it requires a multi-facetted
6.2.1 Labour force supply strategy to be implemented at every level, from central
government right down to individual businesses. The
The labour force is expected to grow at a fast rate over prosperity of the Auckland region and its community
the next 25 years. However, its profile is changing: depends primarily on our ability to lift productivity levels
the labour force is becoming older and its ethnic across all industry sectors.
composition is changing. Another uncertainty is our
ability to retain skilled labour in the region, and to
attract overseas talent in a context of heightened
international competition for skilled and experienced 6.2.2 Labour force demand
workers and entrepreneurs.
To sustain production levels, it is estimated that the
The proportion of the working-age population will region’s businesses will require over one-quarter
increase from 64 per cent of the total population in of a million additional full-time equivalents by 2031.
2006 to 68 per cent in 2016, and the labour force is This represents a 40 per cent increase from 601,612
forecast to increase from 732,000 in 2006 to over FTEs in 2006. The industry sectors with the fastest
one million by 2031. It is assumed that labour force employment growth rates are the machinery and
participation will remain high. However, following equipment manufacturing, business services,
demographic trends, the rate of increase in the labour accommodation, restaurants and bars, and other food
force is projected to slow down post 2016. The labour manufacturing sectors. The business services sector
force will be ageing as fewer younger people enter the is projected to remain the largest regional employment
workforce and the number of new entrants is largely sector.
offset by those retiring. Given this trend, retaining and
attracting talents in the region becomes increasingly A strong trend across all industry sectors is an increase
important. in demand for skilled and semi-skilled occupations. A
big unknown for the future is whether Aucklanders will
Another characteristic of Auckland’s labour force is have the skills required to respond to opportunities in
its changing ethnic composition. Significantly larger these high-skilled occupations. These will be limited to
proportions of Maori, Pacific Islanders and Asians those with the right education credentials, effectively
will populate the region. Currently both Maori and foreclosing an attractive and growing segment of the
Pacific Islanders tend to have low levels of formal job market to those with low educational attainment.
qualifications and are over-represented in low-skilled Those entering the labour market with no or low levels

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

of educational achievement, as well as those employed In order to reach this increase – and rise above it –
in low-skilled occupations in declining employment Auckland faces many challenges. One challenge is to
sectors, are particularly vulnerable in this changing provide adequate support for those industry sectors
labour market. The need for more highly qualified with export potential. The question arises whether
secondary and tertiary education graduates, as well Auckland firms receive adequate assistance to export,
as for ongoing educational training and upskilling of and what kind of assistance is most beneficial.
the work force, is becoming increasingly important.
This is a major challenge for education and training An additional challenge is to minimise the costs
organisations, as well as for businesses. associated with our geographical remoteness for
both investors into the region and for exporters. This
In addition, workers in skilled and semi-skilled can be achieved through the deployment of fast and
occupations tend to be mobile, operating in an efficient transport and communication networks,
international labour market. Given trends amongst associated with a reduction of transportation costs.
OECD countries for an ageing labour force, we can Given the recent important fluctuations in transport
expect increased international competition for talents. costs, telecommunication networks offer an attractive
A failure to attract and retain talents will impact on alternative.
our ability to attract businesses and investment into
our shores. A challenge for the region is to develop, There is a large consensus about the positive impacts
retain and attract skilled and innovative workers and of broadband on economic activity. Under the Digital
entrepreneurs to support projected economic growth. Auckland scenario, which investigates the impact of
investment in ultra-fast broadband telecommunications
on regional economic growth, export values are
about $2 billion higher each year than under the
Horizon 2031 scenario. Over the 2006–2031 period,
6.3 Internationalisation the region is projected to export an additional $49.1
billion, nearly five times the 2006 exports level. This
Increasing exports is a major focus of both AREDS and increase is driven by an explosion in service exports,
the Metro Project Action Plan. Internationalisation has supporting the rise of the weightless economy. Given
been positively linked with productivity and business the significant potential of ultra-fast broadband and
competitiveness. Servicing overseas markets is associated applications, a role for government is to
an important driver of economic growth. However, encourage the development and best usage of these
Auckland has not yet fully seized the opportunities of technologies.
globalisation. Contrary to popular belief, the Auckland
economy is not very open but remains mainly focused
on servicing the New Zealand market. New Zealand’s
remoteness from overseas markets acts as a real trade
barrier and is estimated to penalise its GDP per capita 6.4 Business growth and innovation
by around 10 per cent (OECD, 2008). In addition, the
small size of many Auckland firms makes it difficult for For Auckland businesses to successfully compete
the region to compete in the global economy. internationally, a strong culture of innovation,
continuous improvement and connection to
As discussed previously, for Auckland to increase its global thinking is required. This means enabling
output and ultimately its GRP per capita, it needs to and encouraging the development of new – and
become a more active participant in the international improvement of existing – products, services and
economy. Under the Horizon 2031 scenario, exports processes now and in the future.
are a major contribution of economic growth. They
are projected to reach $21,164 million in 2031, a 138 Auckland’s businesses cannot solely compete on price.
per cent increase from its 2006 level. This equates to Product or brand differentiation, driven by innovation,
exports as a percentage of total GRP increasing from is the key to drive competitiveness. Innovation
16.2 percent in 2006 to 21.6 per cent in 2031. Business occurs in all industry sectors. However, Auckland has
services and tourism will be an increasingly important potential in niche, high-value-added activities such as
part of our export basket. Exports will also increase in the creative industries, digital content, marine and
in commodities where the region has a competitive biotechnology sectors. The food and beverage industry
advantage, such as boats and other marine equipment, is also expected to be characterised by the absorption
processed food and beverage, advanced materials, and of new technologies in software, machinery, and
electronic medical equipment.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

biochemical businesses, and to increasingly produce There is a growing trend in consumers’ preferences
high-value products. towards environmentally sound products and services
and for businesses with a green image or a social
The 2007 OECD Review of Innovation Policy examines conscience. While price remains a prime determinant
the strengths and weaknesses of New Zealand’s of consumer choice, consumers of the future will also
innovation system and recommends steps that central be able to base their purchase decision on carbon
and local government could take to increase the impact footprints. Auckland and New Zealand firms have the
of innovation on the country’s future prosperity. In the opportunity to build on our clean, green image as part
Auckland region, work is underway to create the best of their marketing tactics. This trend is expected to
possible conditions in a number of industry sectors of drive businesses to adapt their production processes to
particular significance for the region’s future economic remain competitive and to focus on the development
performance. or adoption of sustainable technologies and practices.
Tourism is an industry sector particularly impacted by
The challenge for Auckland is how to develop and this trend, and has already shown signs of adaptation.
maintain a well-functioning innovation system that
supports private sector’s research and development The development of ‘green technologies’ is already
and better usage of public sector institutions’ a major industry; it attracted half of all venture capital
knowledge. This includes how to deploy the funds in the USA in 2008 and is still growing. A
infrastructure essential for an innovative and dynamic challenge for Auckland is to capture a part of this
knowledge economy, develop high educational emerging industry. Sectors in advanced materials and
standards, equip the labour force with a strong science, biotechnology are especially well placed to realise
engineering and technology base, and support efficient these opportunities.
knowledge-transfer mechanisms between research
institutes and firms to facilitate commercialisation of
ideas

The challenge for Auckland is how to develop and 6.6 Industry structure
maintain a well-functioning innovation system
that supports the private sector’s research and Auckland is expected to remain the main commercial
development and better use of its public sector and financial centre of New Zealand. The business
institutions’ knowledge. This includes: to deploy the services sector will remain the main wealth creator and
infrastructure essential for an innovative and dynamic the main employer in the region. By 2031 wholesale,
knowledge economy, to develop high educational trade and distribution will contribute 22 per cent of the
standards, to equip the labour force with a strong region’s GRP, and business and community services
science, engineering and technology base, and to over half of the region’s GRP. Nearly eight in ten
support efficient knowledge transfer mechanisms workers (FTEs) will work in either of those two sectors.
between research institutes and firms to facilitate
commercialisation of ideas. Auckland is also expected to remain a major
manufacturing centre, and the sector will contribute
almost one-quarter of the region’s GRP by 2031.
However, the face of manufacturing is changing,
and this is reflected by the change in occupations
6.5 Environmental sustainability servicing this sector. Low-value manufacturing, with
the exception of those reliant on natural resources,
Sustainability means different things to different is expected to continue to move overseas to take
people, and is often used as a substitute for advantage of lower production costs and/or to be closer
environmental sustainability. Here it is defined as a to markets. As discussed under the Digital Auckland
way of using our natural resources more efficiently, scenario, this division of labour will be supported by
a process that can be driven by regulation, consumer major improvements in our communications services.
preference or philosophical belief. Sustainability is
an increasingly strong force from which the region’s Inadequate infrastructure is potentially a major
economy cannot escape. The region needs to adapt constraint to the development of those industry
to this challenge as it presents both economic sectors. There are significant implications arising from
opportunities and costs. changes in the region’s industrial structure:

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

• The need to better understand the face of the and transport and logistic services. Investment in
‘new’ manufacturers, as well as their infrastructure transport infrastructure leads to reduced effective
and land-use requirements. distances between partners, helping to overcome
geographical disadvantages and improve the
• The increasing importance of fast, reliable and efficiency of transport services. Thus, it enables a
cost-effective transport and communication decrease in delivery time and, therefore, a decrease
networks to move goods and services within a in transportation costs. This is very pertinent for New
global supply chain or to markets. Zealand and Auckland, given the country’s relatively
isolated geographical position. The OECD points out
• The recognition of the need for public intervention that transportation costs constitute a barrier to trade at
to provide industry-specific infrastructure where least as large as, or even larger than, tariff barriers. A
there is a market failure (e.g. large haulage good quality transport network enhances opportunities
equipment serving the region’s marine industry). to both export and import. Hence the Auckland
International Airport, the Auckland and Tauranga
As highlighted in section 6.2, a skilled labour force seaports, and the region’s transport network are all
is also essential to the region’s economic growth. important for our future economic performance.
In addition, the changing industrial structure of the
region points to the need to retrain those traditionally Ultra-fast telecommunications have similar effects
employed in low-value manufacturing. This challenge is on our ability to trade and do business in a cost-
not unique to Auckland, and lessons can be learnt from efficient way. Investment in ultra-fast broadband
programmes in other OECD countries. networks, associated with the adoption of new
applications and business models, has the potential
The Horizon 2031 scenario identifies ICT, creative to drive our economic performance. As described in
industries, digital content, biotechnology, tourism, the Digital Auckland scenario, investment in ultra-fast
marine, advanced materials, and food and beverage as broadband infrastructure, associated with investment
sectors of interest for the Auckland region. Businesses in associated hardware and software applications,
in these sectors will require larger numbers of highly provides regional economic benefits in the range of
skilled and innovative workers in both development and $2 billion by 2031. The cumulative economic benefits
production, along with significant levels of investment over the 2006–2031 period are considerable: more than
in new technology and distribution channels. Access to $22 billion in additional GRP. Exports are also boosted
a skilled labour force is essential for the region if it is to by a significant improvement in telecommunications
succeed in having a competitive economic advantage services. The government has recently announced
in sectors such as specialised manufacturing (advanced details around its Broadband Investment Initiative. A
materials and marine), ICT and related sub-sectors challenge for the region’s businesses is to maximise
(creative industries and digital content), biotechnology, the opportunities associated with better broadband
and the food and beverage sector. A skilled labour force connection, and adapt new business models capable
is essential if the region is to utilise economic drivers of of significantly increasing productivity levels. Some
growth, such as labour productivity. industry sectors are deemed to benefit more than
others from this improvement in communications, i.e.
those sectors operating as part of a global supply chain,
and those operating in the business services industry.

6.7 Infrastructure
6.7.2 Energy
6.7.1 Transport and telecommunication The supply of energy is a basic premise to doing
business. However, internationally and regionally,
With the phenomenon of global fragmentation of energy supply is at risk because there might be
production processes, time has become a major problems regarding fuel affordability and security
factor of business success.33 Delivery time depends of supply, and there are also concerns over New
on different factors such as distance between trading Zealand’s generation capacity as well as the capacity of
partners, geographical and institutional characteristics, Auckland’s electricity network. If no energy efficiency

33
Nordas, H. K., (2008).Transport Time as a Trade Barrier, in 17th ITF/
OECD Symposium on Transport Economics and Policy: Benefiting
from Globalisation, OECD.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

gains are made, the energy demand in the region is


expected to increase by 68.3 per cent between 2006
and 2031, to reach 319,183 TJ (oil equivalent) by
2031.34 There are questions as to our ability to secure
such a high level of energy in the future. The Energy
Efficiency scenario models potentials for energy
savings through efficiency gains, behaviour changes
and investment in the public sector. This would
reduce our energy demand by 13 per cent over that
period. Like all the governments in today’s world, New
Zealand’s government faces the complex challenge
of finding the right balance of meeting increasing
global pressures for better environmental performance
without sacrificing economic growth. The challenge for
Auckland is to figure how the region’s economy will
operate given future energy constraints.

34
This includes aviation fuel, black liquor (a derivative of the paper
production), coal, diesel, electricity, fuel oil, geothermal energy,
liquefied petroleum gas, natural gas, petrol, and wood.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendices

Appendix 1: Economic Futures Model

The Economic Futures Model (EFM) was developed All scenarios are established by generating projections
by Market Economics Limited and is widely used of final consumption (i.e. household consumption,
throughout the region and elsewhere in New Zealand export consumption and gross fixed capital formation
for forecasting. This section provides a general (GFKF)) over a 25-year period. Scenarios are further
introduction to the Economic Futures Model, followed refined through supplementing the quantitative data
by a description of the basic causal structure of the used in establishing the scenario with qualitative
EFM and the data set and assumptions behind the analysis (for example, from interviews and leading
model. literature sources).

It is important to note that the EFM is not a crystal


ball – no model can predict the future. Rather, the EFM
Introduction to the EFM model simply evaluates economic and environmental impacts
under a restricted set of consumption assumptions
The Economic Futures Model is based on a multi- formulated as a scenario. Nevertheless, evaluation
regional economic input-output table.35 The model is of each scenario provides critical insights into the
multi-regional in the sense that it captures economic potential economic and environmental trade offs which
and environmental implications of growth feedbacks may exist.
between the Auckland region and the rest of the
country. A notable feature of the model is that it can
be used to evaluate not only the direct economic and
environmental effects of growth in final consumption, Model structure
but also the associated indirect (i.e. through supply
chain) and induced (i.e. through consumer spending) Figure A.1 sets out the basic causal structure of the
economic and environmental effects. EFM model. It depicts the way in which outputs for a
given year are derived from the model, based on data
The model is run using scenarios. The model maps and assumptions for that same year.
the growth path of each scenario for 48 sectors and
for households over 25 years. For each sector and As shown in the left side of the figure, the primary
for households it identifies major economic indicators drivers of the model are future estimates of final
(i.e. GRP, employment and occupations), indicators of demand for goods and services. These estimates are,
environmental resource requirements,36 and indicators in turn, made up of three principal categories of final
of environmental residuals.37 Depending on the nature demand:
of the investigation, other indicators can also be
included in the analysis. These might be floor space • consumption of goods and services by households
requirements, social infrastructure requirements, • consumption of goods and services for the
and various financial measures such as development purposes of capital formation, and
contributions. • exports of goods and services to other nations.

With estimates of total final demand for a given year,


the input-output structure of the model is then able
35
For more information on input-output modelling refer to texts such to generate estimates of total output for each of the
as Richardson (1972) “Input-output and regional economics”or 48 industry groups described by the model. Finally,
O’Connor, R & Henry, E.W (1975) “Input-Output Analysis and it’s
applications.”
industry output is translated to three major economic
36
For example, delivered energy use by type (e.g. petrol, diesel and indicators: value-added by industry, employment by
electricity).
37
industry, and employment by occupation by industry.
For example, energy-related air emissions by delivered energy type
(eg CO2, CH4) and solid waste, by type.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Base year
Consumption Base year ratios of occupation
Population effect Age structure
FTEs to output by structure by
industry
industry
Consumption Labour productivity
profile base
year Household final Employment by Employment
demand industry by occupation
Exports base by industry
year
Export final Total final Input-Output Total output by
demand demand Framework
Export industry
growth rates

GFKF final Value added by


GFKF base
demand industry
year

Base year ratios of


GFKF growth
value added to
rates
output by industry

Figure A.1: Causal structure of the Auckland region Economic Futures Model

Assumptions and data • Instantaneous Adjustment: The estimates of


industry output generated by the EFM model are
based on static snapshots of future final demand.
Input-output framework The model is not able to represent delays or
bottlenecks in the availability of inputs or in the
Assumptions production of outputs. Thus, in effect, the model
The input-output framework utilised in the EFM model assumes instantaneous adjustment.
is derived from a multi-regional input- output table
generated for a single base year (2003/04). In the EFM
model, the derivation of the base input-output table and Data
the coefficients relies on three important assumptions: The base input-output tables utilised in the EFM model
are for the year 2003/04. These tables are derived from
• Homogeneity: This states that each industry in the latest New Zealand input-output table found in
an input-output table produces only one output. the 1995–96 Inter-Industry Study of the New Zealand
Implicit in this assumption is the notion that all Economy published by Statistics New Zealand (SNZ).
businesses that constitute an industry use the The process in generating these input-output tables
same product mix in the production of this one involves updating the data in the 1995–96 input-output
output. table to the 2003/04 year, and then regionalising the
national table, using the Generating Regional Input-
• Linearity: This presumes that the ratio of inputs Output Tables (GRIT) procedure.
to outputs decreases and increases in a linear
structure. Inherently, this assumes that there are
constant returns to scale in production and that the Output indicators
elasticity of substitution between inputs is zero.
This linear assumption is necessary in order to Assumptions
derive the direct and indirect coefficients. In addition to the assumptions described above, there
are assumptions incorporated in the model that allow
• Constant coefficients: The direct and indirect for the industry output estimates generated by the
requirements coefficients are assumed to stay model to be transferred to the following economic
constant over time. This assumption ignores the indicators: value-added by industry, employment by
effects of technological change and price occurring industry, and employment by industry by occupation.
over time. The relevant assumptions are as follows:

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

• Value-added by industry: It is assumed that for any New Zealand.38 Except as qualified below by the
given industry and year, the ratio of value-added consumption effect and the population-ageing effect,
contributed by that industry ($) to total output by it is assumed that each person within the Auckland
that industry ($) remains the same as the base-year region consumes a constant mix of goods and services.
data (2003/04). The base-year data pertaining to Thus any population growth for the region will result
value-added by industry is derived from the base in a proportional increase in the amount of goods and
input-output table. services consumed. As the EFM model is based on
a multi-regional framework, population growth within
• Employment by industry: Initial estimates of other New Zealand regions or territorial authorities also
employment are derived for each industry by constitutes part of the household final demand driver.
multiplying the estimated output for each industry
by the respective industry’s base-year ratio of full- The household consumption effect has been
time equivalent employees (FTEs) to total output. incorporated within the model to account for the
These estimates are then adjusted according to an fact that over recent years households have been
assumed labour productivity rate for each sector. consuming more per year.39 This trend is thought to be
a result of several factors including increases in income
• Employment by industry by occupation: The through salary increases, leveraging off house price
derived estimates of employment by industry are gains (i.e. debt-based borrowing), redirection of income
transformed to estimates of employment (FTEs) from savings to disposable income, and increases in
by occupation by industry by assuming a constant government transfers.
structure of occupations within each industry.
Population age structure also has important
implications for consumption levels and economic
Data growth. This is because each age group in a population
• Value-added: The base-year data pertaining to tends to behave differently, with distinct economic
value-added by industry is derived from the base consequences: the young require intensive investment
input-output table. in education and health, ‘prime age’ adults supply
labour and savings, and the aged require health care
• Employment: Base-year data pertaining to and retirement income. Therefore when the relative
employment by industry is derived from Statistics size of any of these groups in a population changes,
New Zealand’s Business Frame, Full-time so too does the relative intensity of these economic
Equivalent Employees time-series. behaviours. In order to account for the implications of
changing demographics, the model assigns differing
• Occupations: The structure of occupations consumption scalars to each population cohort.40
within each industry is derived from occupation-
by-industry data extracted from the Statistics
New Zealand’s 2006 Census of Population and Gross fixed capital formation
Dwellings. Future Gross Fixed Capital Formation (GFKF) estimates
were generated by applying long-run average growth
rates to the Auckland region’s 2006 GFKF estimates
Final demand by sector, as obtained from the multi-regional input-
output table. The growth rates are determined from
Final demand is made up of final demand by statistical time-series (econometric) analysis. Selection
households, not-for-profit private organisations, of the time-series technique applied depends on the
government consumption and export. Final demand underlying dynamic behaviour of the sector output
is directly impacted by demographic changes in the
38
Auckland region, as well as in the rest of New Zealand. The estimates of population growth for the Auckland Region by age
sex cohort are derived from ARC’s 2006 age-sex medium population
projections. Population projections by age sex cohort for the
remaining regions of New Zealand are derived from Statistics New
Zealand’s 2006–31 Sub-national Population Projections by Age and
Households Sex.
In order to derive estimates of future change in 39
The baseline setting for the household consumption effect is 1.4
per cent per year. In other words, it is assumed that each person, on
household demand for goods and services, the model
average, will consume 1.4 percent more goods and services each
relies primarily on projections of future population year.
40
growth within the Auckland region and the rest of The value of total consumption for each person in the 5–9 year age
group is, for example, assumed to be approximately 81.5 percent of
that of persons in the 40–44 year age group. The scalars are derived
from the NZ Treasury’s study on the implications of population
ageing (Guest, Bryant and Scobie, 2003).

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

being analysed. Where historical observations fluctuate


around a long-run mean, stationary time-series
methods are applied (for example, the AMRA process).
However, where historical observations indicate a
consistent upwards or downwards movement, non-
stationary time-series methods are used (for example,
Holt’s method). The data utilised in the time-series
analysis for GFKF is derived from Statistics New
Zealand’s National Accounts Gross Fixed Capital
Formation by Industry.41

Exports
Like GFKF, future export projections are generated by
applying the national long-run average growth rates for
export commodities by sector to the 2004 international
export estimates obtained from the multi-regional
input-output table. Again, as with GFKF, the long-run
growth rates by export commodity are determined
according to econometric analysis. The data utilised in
this time-series analysis is derived from Statistics New
Zealand’s Overseas Trade Exports.42

41
Spreadsheet nayrendmar07capitalstock.xls
42
Trade, Merchandise: Monthly Estimates of all Harmonised System
Items 1989–07 (reference no. KAS20503).

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendix 2: Medium population projections


for the Auckland region

Period Usually Population change Natural increase Net


to March resident migration
population
Absolute Rate of Average Births Deaths Absolute Rate of
increase growth annual increase growth
growth

2006 1,371,000

2011 1,482,950 111,950 8.2% 1.6% 110,964 37,594 73,370 5.1% 38,580

2016 1,596,817 113,867 7.7% 1.5% 112,352 40,065 72,287 4.7% 41,580

2021 1,709,679 112,862 7.1% 1.4% 114,671 43,389 71,282 4.3% 41,580

2026 1,820,565 110,885 6.5% 1.3% 117,184 47,879 69,305 3.9% 41,580

2031 1,928,117 107,553 5.9% 1.2% 120,205 54,232 65,973 3.5% 41,580

Source: Auckland Regional Council, 2007


Notes: Change compared to the previous period.
Population growth = natural increase + net migration

The Auckland Regional Council population projections are based on the Statistics
New Zealand population projections, under the following assumptions:

Assumptions used in projections:

Medium age specific fertility rates

Medium survival rates per males

Medium survival rates per females

Medium migration male

Medium migration female

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 3: Assumptions under Horizon 2031

In developing the Horizon 2031, the main assumptions Gross Fixed Capital Formation: Some of the major
taken into account were perceived external factors infrastructural developments proposed for the region
influencing Auckland’s economy, central government’s were included. In addition, the effects of the current
policy changes, planned infrastructural developments, economic slow-down were considered with the
confirmed large (tourism) events occurring in Auckland, infrastructure investment growth rate for (private)
and perceived changes identified by industry and construction adjusted downwards for the 2006–11
stakeholders. These are described in the body of the period. Gross fixed capital formation was also changed
report. on an industry-sector basis based on the information
gathered in the Part 1 report.

Productivity: Under the Horizon 2031 scenario,


General assumptions productivity growth rates were developed for the
industries specific to the Auckland region. For this
The Horizon 2031 scenario is constrained by the model, purpose we relied on national-level information on
as are all the scenarios in this report. The ‘assumptions growth in capital productivity, and on data on changes
and data’ section in Appendix 1 provides an overview in income for people employed in each industry as a
of the general assumptions driving the model. In proxy for estimating changes in labour productivity.
addition, the ARC medium population projections to Although growth in income is a relatively well
2031 were inputted into the model; they are provided recognised proxy for estimating the growth in labour
in Appendix 2. productivity, the quality of the results varied somewhat
between industries. Therefore, the estimated
A number of general assumptions were made: productivity changes were examined in detail and
it was decided, in particular, that the productivities
Consumption: Household consumption ratios estimated for central government, local government
were decreased over time to reflect the changing and education were probably too high (i.e. growth in
demographics, and their impact on household income did not appear to provide a good estimate
consumption. Government spending was increased to of productivity change). Therefore the results were
reflect the increasing demand for health and related substituted with an estimated average for these
services driven by an ageing population. The effects industries of 1.1 per cent. Adjustments were also made
of the current economic slow-down were considered to a few other industries (particularly agriculture) where
with the consumption-effect variable adjusted the results did not appear reasonable.
downwards for the 2006–11 period.

Export: Export was assumed to be growing in


those sectors in which Auckland has a comparative
advantage, as a result of the competitiveness of firms
in those sectors as well as opportunities offered
through Trade Agreements.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Projected annual average labour productivity

Industry sector Labour Industry sector Labour


productivity productivity
Horticulture and fruit growing 0.4% Furniture and other manufacturing 1.1%
Livestock and cropping farming 0.4% Electricity generation and supply 0.0%
Dairy cattle farming 0.4% Gas supply 0.1%
Other farming 0.4% Water supply 1.9%
Services to agriculture, hunting and trapping 0.4% Construction 1.9%
Forestry and logging 4.0% Wholesale trade 0.9%
Fishing 0.4% Retail trade 0.2%
Mining and quarrying 0.6% Accommodation, restaurants and bars 0.2%
Oil and gas exploration and extraction 0.0% Road transport 1.1%
Meat and meat product manufacturing 0.4% Water and rail transport 0.4%
Dairy product manufacturing 4.5% Air transport, services to transport and storage 0.7%
Other food manufacturing 0.6% Communication services 1.7%
Beverage, malt and tobacco manufacturing 1.0% Finance 2.1%
Textile and apparel manufacturing 1.6% Insurance 2.0%
Wood product manufacturing 1.2% Services to finance and investment 1.1%
Paper and paper product manufacturing 2.2% Real estate 2.7%
Printing, publishing and recorded media 2.5% Owner-occupied dwellings 1.0%
Petroleum and industrial chemical manufacturing 1.9% Business services 0.5%
Rubber, plastic and other chemical manufacturing 1.2% Central government 1.1%
Non-metallic mineral product manufacturing 1.8% Local government 1.1%
Basic metal manufacturing 2.8% Education 1.1%
Sheet and fabricated metal product manufacturing 1.2% Health and community services 2.0%
Trans equipment manufacturing 2.4% Cultural and recreational serivces 0.3%
Machinery and equipment manufacturing 1.7% Personal and other community serivces 1.1%

Effects of the economic recession: Growth rates line with (export) market opportunity. The growth rates
were decreased for the 2006–2011 period to reflect of the baseline setting were considered sustainable.
the current economic slow-down. More details on the The national figures for dairy cattle farming were
assumptions for this period are provided in Chapter 3. adjusted to reflect the industry’s projections for
growth. With regards to dairy product manufacturing,
projected export figures were explored from the MAF
forecast, and the model figures reduced to reflect
Industry-specific assumptions the projected trend for the period up to 2011. For the
following periods, an export growth rate between
In addition, the following assumptions were made with MAF’s forecasts and the long-run projections under the
regards to the industry sectors within the model: EFM was assigned. These growth rates were applied
to the country as a whole, not just the Auckland region.
Agriculture: The growth rates in value-added of
livestock and cropping were reduced to take into Transport and equipment manufacturing: The
account that these sectors are not major land users in growth rates within this sector were adjusted upwards
the region. Given the competition between land uses to reflect the marine subsector within the Auckland
in the region, household consumption was adjusted region – it has 60 per cent of national production and,
to reflect this change. No adjustment was made to therefore, a higher representation in the region than
horticulture and fruit growing in the region. However, nationally. A mini-model of the sector was developed,
recent gains in commodity exports (capsicums and incorporating data from marine sector forecasts, and
onions in particular at present) offset losses in other export values were adjusted upwards until the output
areas. It was considered that horticulture is a dynamic for the sector matched that projected under the
sector, with growers able to switch crop production in sector’s mini-model.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Transport: The road transport sector was verified Construction: Detailed accounts of past public and
using data from the ARC’s transport model. The results private expenditure on construction were developed.
were in line with those projected under the EFM and These showed that construction expenditure was
so no adjustment was needed. However, water and highly volatile and cyclical. No adjustments were made
rail transport was explored using a mini-model and to the baseline projections in the EFM except in regards
populated with data on projections of growth in rail to the GFKF for the first period. This was to reflect
passenger numbers from the ARC’s regional transport the current economic situation – the global financial
model, and an analysis of past and projected growth crisis and limitations in access to credit which directly
in containers at the Ports of Auckland. Household dampen investment in the construction sector. In order
consumption for this sector was adjusted upward for to determine an appropriate adjustment to be made
each year, so that the overall growth rates derived to the GFKF for construction (at the time of modelling
were in line with those derived under the mini-model. in October 2008), a mini-model was constructed that
The final growth rate was estimated to be 11 per cent examined GFKF during the last recession of 1998. This
total growth between each period, which is in line resulted in an overall growth rate of GFKF for the period
with growth rates for other sectors in the Auckland 2006–2011 of 1.2 per cent.
economy.
Education: A separate education module was
Tourism: A small model for tourism was developed developed to deal with household consumption of
to include the two major events that will take place education. The module replaced the ageing-effect
in Auckland: the 2011 Rugby World Cup (with an assumptions applied to the other commodities because
estimated direct tourism spend of $262 million) and access and use of education facilities is particular
the 2015 Cricket World Cup (with an estimated direct to enrolment patterns by age. This adjustment was
tourism spend of $75 million). As tourism does not considered necessary given the ageing process of
exist as an independent sector within the model, it was the population. A small increase was made to the
integrated into the EF model through injections into consumption of education services (but only education
retail trade, accommodation, restaurants and bars, air services excluding early childhood care, primary and
transport and services to transport, and cultural and secondary schooling), based on the assumption that
recreational services sectors. the relative consumption of these education services
would increase in the future. Exports of education were
Communications: The Broadband Investment Fund deemed too high under the model because a recent
was factored into the EFM. It was assumed that report showed that the number of foreign students
half of the investment would be GFKF within the studying in New Zealand has been declining over recent
communications sector in the period between 2006 years. No data or commentary on future foreign student
and 2011. The remainder was assumed to be picked numbers could be found. Overall it was decided to
up under the construction sector, and therefore already make export growth zero per cent for the first period
incorporated into the model. Quantifying the growth (because numbers declined) and low growth afterwards
in the communications sector output was difficult (0.5 per cent per annum).
because there was little on which to base projections.
The household consumption growth rates were Health: As with education, a detailed module was
adjusted until the annual average output growth for developed to deal with the influence of ageing on
the sector equated to 3.3 per cent per annum. This household consumption of health. This was attached
adjustment was made prior to adjusting the GFKF. to the EFM baseline model. The model used data
on hospital bed days by age-sex cohort as a proxy to
Advanced materials: The building of the Tamaki estimate the changing consumption of health care
Innovation Centre was incorporated into the model. services by cohort, and effectively increased the
It was assumed that this would lead to growth in consumption of healthcare, given the ageing population
two major industries: business services, and rubber, structure of Auckland.
plastics and other chemical product manufacturing. The
business services sector was not assumed to require
adjustment as it already had high growth rates in the
model. For the plastics sector, it was assumed that
the growth projected would occur in the period 2011
to 2016. Both exports and household demand were
adjusted so that the final growth rate for the industry
was 4.4 per cent for this period.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendix 4: Results under Horizon 2031 scenario

GRP contribution
GRP (2004$ million) GRP (2004$ million)
Sectors 2006 2011 2016 2031 Sectors 2006 2011 2016 2031
Horticulture and fruit Other food manufacturing 684 805 932 1,427
164 169 181 221
growing Beverage, malt and
629 731 835 1,125
Dairy cattle farming 117 130 144 191 tobacco manufacturing
Meat and meat product Trans equipment
94 106 118 159 442 538 651 1,127
manufacturing manufacturing
Dairy product Furniture and other
94 119 144 235 399 452 498 640
manufacturing manufacturing
Forestry and logging 85 99 105 132 Basic metal manufacturing 357 413 436 526
Svcs to agriculture, hunting Business services 6,670 7,683 8,905 13,672
67 74 82 108
and trapping Wholesale 5,144 5,750 6,428 8,607
Livestock and cropping
64 67 69 75 Retail 3,180 3,548 3,973 5,287
farming
Finance 3,048 3,385 3,770 4,986
Mining and quarrying 48 53 59 80
Real estate 2,958 3,316 3,714 4,942
Other farming 24 24 24 26
Health and community
Fishing 23 26 28 32 2,202 2,470 2,818 4,141
services
Oil and gas exploration and
8 8 8 10 Communication services 2,087 2,490 2,908 4,688
extraction
Air transport, services to
Construction 2,259 2,412 2,774 3,869 1,719 1,972 2,327 3,503
transport and storage
Gas supply 31 34 38 49 Cultural and recreational
1,652 1,855 2,126 2,917
Petroleum and industrial services
120 130 139 179
chemical manufacturing Accommodation,
807 916 1,060 1,521
Non-metallic mineral restaurants and bars
348 374 423 583
product manufacturing Personal and other
803 906 1,029 1,466
Textile and apparel community services
345 370 389 444
manufacturing Insurance 751 830 920 1,193
Paper and paper product Services to finance and
328 368 406 538 615 689 770 1,040
manufacturing investment
Wood product
198 213 234 305 Road transport 499 559 624 849
manufacturing
Water and rail transport
Water supply 170 189 210 275 351 388 430 574
services
Electricity generation and
967 1,077 1,194 1,568 Education 1,880 2,037 2,228 2,768
supply
Central government 1,140 1,255 1,382 1,747
Machinery and equipment
931 1,150 1,447 2,928 Local government 504 555 612 772
manufacturing
Rubber, plastic and other Industry Total 51,604 58,131 65,803 92,525
899 1,101 1,230 1,915
chemical manufacturing Total
54,885 61,790 69,882 97,920
Sheet and fabricated metal (including Final Demands)
819 907 1,027 1,467
product manufacturing
Printing, publishing and
771 869 981 1,367 Source: Horizon 2031 scenario, ARC 2008
recorded media

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Employment contribution
Employment (FTEs) Contribution to total employment
Sectors 2006 2011 2016 2031 2006 2011 2016 2031
Horticulture and fruit growing 3,783 3,822 4,014 4,577 0.6% 0.6% 0.6% 0.5%
Livestock and cropping farming 1,218 1,241 1,254 1,288 0.2% 0.2% 0.2% 0.2%
Dairy cattle farming 1,733 1,891 2,050 2,544 0.3% 0.3% 0.3% 0.3%
Other farming 975 942 928 948 0.2% 0.1% 0.1% 0.1%
Services to agriculture, hunting and trapping 1,475 1,601 1,736 2,140 0.2% 0.2% 0.2% 0.3%
Forestry and logging 514 488 426 289 0.1% 0.1% 0.1% 0.0%
Fishing 388 441 452 498 0.1% 0.1% 0.1% 0.1%
Mining and quarrying 347 371 400 487 0.1% 0.1% 0.1% 0.1%
Oil and gas exploration and extraction 18 17 18 22 0.0% 0.0% 0.0% 0.0%
Meat and meat product manufacturing 1,830 2,013 2,196 2,759 0.3% 0.3% 0.3% 0.3%
Dairy product manufacturing 932 931 893 728 0.2% 0.1% 0.1% 0.1%
Other food manufacturing 8,809 10,058 11,306 15,847 1.5% 1.6% 1.6% 1.9%
Beverage, malt and tobacco manufacturing 2,962 3,266 3,539 4,071 0.5% 0.5% 0.5% 0.5%
Textile and apparel manufacturing 7,353 7,269 7,027 6,273 1.2% 1.1% 1.0% 0.7%
Wood prod manufacturing 3,417 3,462 3,582 3,903 0.6% 0.5% 0.5% 0.5%
Paper and paper product manufacturing 2,103 2,110 2,082 1,970 0.3% 0.3% 0.3% 0.2%
Printing, publishing and recorded media 10,390 10,330 10,276 9,818 1.7% 1.6% 1.5% 1.1%
Petroleum and industrial chemical manufacturing 1,571 1,544 1,512 1,461 0.3% 0.2% 0.2% 0.2%
Rubber, plastic and other chemcal manufacturing 7,778 8,962 9,425 12,228 1.3% 1.4% 1.4% 1.4%
Non-metallic mineral product manufacturing 3,005 2,948 3,047 3,192 0.5% 0.5% 0.4% 0.4%
Basic metal manuf 3,065 3,077 2,813 2,202 0.5% 0.5% 0.4% 0.3%
Sheet and fabricated metal product manufacturing 10,769 11,239 12,014 14,396 1.8% 1.7% 1.7% 1.7%
Trans equipment manufacturing 6,539 7,059 7,585 9,171 1.1% 1.1% 1.1% 1.1%
Machinery and equipment manufacturing 12,643 14,323 16,547 25,881 2.1% 2.2% 2.4% 3.0%
Furniture and other manufacturing 7,617 8,151 8,508 9,245 1.3% 1.3% 1.2% 1.1%
Electricity generation and supply 1,569 1,749 1,938 2,544 0.3% 0.3% 0.3% 0.3%
Gas supply 23 25 27 35 0.0% 0.0% 0.0% 0.0%
Water supply 421 426 430 420 0.1% 0.1% 0.1% 0.0%
Construction 40,845 39,516 41,195 42,791 6.8% 6.1% 5.9% 5.0%
Wholesale 59,719 63,817 68,214 79,804 9.9% 9.9% 9.8% 9.3%
Retail 71,226 78,866 87,667 114,058 11.8% 12.2% 12.6% 13.3%
Accommodation, restaurants and bars 25,127 28,308 32,529 45,614 4.2% 4.4% 4.7% 5.3%
Road transport 10,744 11,409 12,093 14,027 1.8% 1.8% 1.7% 1.6%
Water and rail transport 2,361 2,550 2,763 3,455 0.4% 0.4% 0.4% 0.4%
Air transport, services to transport and storage 16,938 18,758 21,369 28,938 2.8% 2.9% 3.1% 3.4%
Communication services 13,372 14,607 15,619 19,323 2.2% 2.3% 2.2% 2.3%
Finance 12,703 12,666 12,661 12,113 2.1% 2.0% 1.8% 1.4%
Insurance 3,856 3,853 3,860 3,695 0.6% 0.6% 0.6% 0.4%
Services to finance and investment 6,642 7,028 7,417 8,415 1.1% 1.1% 1.1% 1.0%
Real estate 10,771 10,506 10,240 8,981 1.8% 1.6% 1.5% 1.0%
Business services 96,816 108,965 123,396 176,728 16.0% 16.9% 17.7% 20.7%
Health and community services 38,568 39,074 40,255 43,578 6.4% 6.1% 5.8% 5.1%
Cultural and recreational services 16,678 18,416 20,762 27,092 2.8% 2.9% 3.0% 3.2%
Personal and other community services 15,496 16,554 17,774 21,455 2.6% 2.6% 2.6% 2.5%
Central government 16,295 16,993 17,733 19,037 2.7% 2.6% 2.5% 2.2%
Local government 3,874 4,042 4,218 4,522 0.6% 0.6% 0.6% 0.5%
Education 36,334 37,286 38,616 40,770 6.0% 5.8% 5.5% 4.8%
Total 603,618 644,981 696,422 855,364 100% 100% 100% 100%

Source: Horizon 2031 scenario, ARC 2008

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Industries with projected decline in employment


Annual average Absolute change
growth rate (FTEs)
2006–2011
Construction -0.66% -1329
Real estate -0.50% -265
Textile and apparel manufacturing -0.23% -84
Printing, publishing and recorded media -0.12% -60
Non-metallic mineral product manufacturing -0.38% -57
Finance -0.06% -37
Other farming -0.69% -33
Petroleum and industrial, chemical manufacturing -0.35% -27
Forestry and logging -1.03% -26
Insurance -0.02% -3
Oil and gas exploration and extraction -1.14% -1
Dairy product manufacturing -0.02% -1
2006–2016
Real estate -0.50% -531
Textile and apparel manufacturing -0.45% -326
Basic metal manufacturing -0.85% -252
Printing, publishing and recorded media -0.11% -114
Forestry and logging -1.86% -88
Petroleum and industrial, chemical manufacturing -0.38% -59
Other farming -0.49% -47
Finance -0.03% -42
Dairy product manufacturing -0.43% -39
Paper product manufacturing -0.10% -21
2006–2031
Forestry and logging -2.28% -225
Basic metal manufacturing -1.31% -863
Dairy product manufacturing -0.98% -204
Real estate -0.72% -1790
Textile and apparel manufacturing -0.63% -1080
Petroleum and industrial, chemical manufacturing -0.29% -110
Paper product manufacturing -0.26% -133
Printing, publishing and recorded media -0.23% -572
Finance -0.19% -590
Insurance -0.17% -161
Other farming -0.11% -27
Water supply -0.01% -1

Source: Horizon 2031 scenario, ARC 2008

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Employment and GRP for the sectors of interest to Auckland


GRP (2004$ million) Annual average growth
from base year
2006 2011 2026 2031 2006–11 2006–16 2006–31
Business and finance services $11,904 $13,565 $20,012 $22,732 2.65% 2.68% 2.62%
Retail $3,752 $4,187 $5,699 $6,239 2.22% 2.25% 2.05%
Transport and logistics $3,490 $4,033 $6,155 $7,066 2.93% 2.97% 2.86%
ICT $2,579 $2,991 $4,605 $5,328 3.01% 2.98% 2.94%
Digital content $2,335 $2,693 $4,070 $4,670 2.89% 2.89% 2.81%
Tourism $2,096 $2,362 $3,387 $3,787 2.42% 2.58% 2.39%
Biotechnology $1,895 $2,156 $3,096 $3,462 2.61% 2.56% 2.44%
Creative $1,732 $1,963 $2,856 $3,215 2.54% 2.64% 2.51%
Marine $1,713 $1,955 $2,950 $3,386 2.68% 2.75% 2.76%
Food and beverage $1,501 $1,761 $2,617 $2,946 3.25% 3.06% 2.73%
Advanced materials $1,001 $1,177 $1,678 $1,904 3.29% 2.68% 2.61%

Employment (FTEs) % Change from base year


2006 2011 2016 2031 2006–11 2006–16 2006–31
Business and finance services 125,268 138,248 153,468 208,539 10.36% 22.51% 66.47%
Retail 84,047 93,062 103,447 134,588 10.73% 23.08% 60.13%
Tourism 45,111 50,048 56,398 75,550 10.94% 25.02% 67.48%
Transport and logistics 34,746 37,803 41,398 52,315 8.80% 19.14% 50.56%
ICT 28,227 31,067 34,230 45,367 10.06% 21.27% 60.72%
Digital content 26,872 29,426 32,378 42,297 9.50% 20.49% 57.40%
Biotechnology 26,599 27,701 28,979 32,724 4.14% 8.95% 23.03%
Marine 23,294 25,114 27,281 34,685 7.81% 17.12% 48.90%
Creative 21,880 23,676 25,918 33,002 8.21% 18.46% 50.83%
Food and beverage 14,533 16,268 17,934 23,405 11.94% 23.40% 61.05%
Advanced materials 9,167 9,924 10,172 11,874 8.26% 10.96% 29.53%

Source: Horizon 2031 scenario, ARC 2008

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Energy use projections


Type of Energy Terajoules Relative
(Oil equivalents) increase
2006 2031 2006–2031

Diesel Industry 22,987 41,380 80%


Household 4,576 7,200 57%
Total 27,563 48,580 76%
Petrol Industry 6,340 11,037 74%
Household 33,280 52,363 57%
Total 39,620 63,400 60%
Electricity Industry 21,225 36,959 74%
Household 15,287 24,052 57%
Total 36,512 61,011 67%
Natural gas Industry 24,441 43,980 80%
Household 3,839 6,041 57%
Total 28,280 50,021 77%
Coal Industry 24,120 37,251 54%
Household 182 286 57%
Total 24,302 37,537 54%
Aviation Fuel Industry 9,346 18,744 101%
Household 0 0
Total 9,346 18,744 101%
Wood Industry 10,036 14,962 49%
Household 2,621 3,724 42%
Total 12,657 18,686 48%
LPG Industry 1,626 2,581 59%
Household 736 1,429 94%
Total 2,362 4,010 70%
Fuel Oil Industry 2,588 4,267 65%
Household 0 0
Total 2,588 4,267 65%
Geothermal Industry 953 1,501 58%
Household 0 0
Total 953 1,501 58%
Black Liquor Industry 7,815 11,431 46%
Household 0 0
Total 7,815 11,431 46%
Total Industry 129,264 244,088 89%
Household 60,438 75,095 57%
Total 189,702 319,183 68%

Source: Horizon 2031 scenario, ARC 2008

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 5: Assumptions for the


Digital Auckland scenario

Horizon 2031 provides the base scenario for the Digital Investment in software and other IT
Auckland scenario, with the following changes as applications
described below. Effects will be mostly felt between
2011 and 2021. Assume growth in business services’ Gross Fixed
Capital Formation of an additional one per cent per
annum for 2011–2016, then at 0.5 per cent for 2016–
2031.
Investment in infrastructure
Assume nation-wide investment of $4.5 billion made Investment in hardware and other IT
up of: applications

• $1.5 billion from Government, based on the Assume growth in machinery and equipment
Broadband Investment Initiative. manufacturing’s Gross Fixed Capital Formation of an
additional 0.5 per cent per annum for 2011–2016, then
• $2.5 billion private investment in infrastructure, at 0.25 per cent for 2016–2031.
based on known commitments from the major
telecommunication companies (for example,
Telecom cabinetisation programme is expected to Productivity changes
cost $1.2 billion)43 as well as future private funding
matching the government’s investment as part of Assume an average annual increase in productivity of
the Broadband Investment Initiative. 0.20 per cent between 2011 and 2021 and 0.10 per
cent between 2021 and 2031 in the following sectors:
• $500 million investment on associated applications meat and meat product manufacturing, dairy product
from the major telecommunication companies and manufacturing, other food manufacturing, beverage,
Internet Service Providers. malt and tobacco manufacturing, printing, publishing
and recorded media, rubber, plastic and other chemical
Assume Auckland gets 40 per cent of total investment manufacturing, wholesale trade, road, water and rail
package, as a reflection of its population base as well transport, communication services, finance, insurance,
as the potential benefits (or externalities) that can services to finance and investment, business services,
be derived from an ultra-fast broadband network in education, and health and community services:
Auckland.
Assume an average annual increase in productivity of
Assume that this investment will mainly take place 0.10 per cent between 2011 and 2021 and 0.05 per
over a five-year period, 2008–2014, when the cent between 2021 and 2031 in the following sectors:
cabinetisation programme started and networks horticulture and fruit growing, livestock and cropping
became unbundled. Auckland is assumed to be farming, dairy cattle farming, other farming, fishing, air
amongst the first cities where deployment under the transport, services to transport and storage, retail, and
Broadband Investment Initiative takes pace. cultural and recreational services.

Assume an average annual increase in productivity of


0.05 per cent between 2011 and 2021 and 0.025 per
cent between 2021 and 2031 in all other sectors.

43
Deployment of telecommunication cabinets to deliver ADSL2.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Outsourcing of finance, insurance and


business services – imports

Assume average annual growth of one per cent in the


import of finance, insurance and associated services,
business services, and printing, publishing and
recorded materials.

Household consumption

Assume an average annual increase of 0.4 per


cent between 2011 and 2021 and 0.5 per cent
between 2021 and 2031in household consumption
of communication services, cultural and recreational
services, health and community services and
education.

Export growth

Assume an average annual increase of 0.002 per cent


in export in the following sectors: printing, publishing
and recorded media, business services, education,
health and community services, and cultural and
recreational services.

Assume an average annual increase of 0.002 per cent


in export in all other sectors from 2011.

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 6: Results from the Energy


Efficiency scenario

Proportional changes in energy use by industry in


the Energy Efficiency scenario, in 2031

Changes in energy demand brought about by Energy Efficiency scenario, in 2031


Road transport -32% Accommodation, restaurants and bars -10%
Communication services -23% Central government -10%
Wholesale -21% Paper and paper product manufacturing -10%
Personal and other community services -20% Meat and meat product manufacturing -9%
Business services -18% Finance -9%
Trans equipment manufacturing -17% Textile and apparel manufacturing -9%
Machinery and equipment manufacturing -17% Insurance -9%
Local government -17% Services to finance and investment -9%
Dairy cattle farming -16% Beverage, malt and tobacco manufacturing -9%
Horticulture and fruit growing -16% Education -8%
Retail -16% Dairy product manufacturing -8%
Forestry and logging -16% Health and community services -8%
Services to agriculture, hunting and trapping -16% Other food manufacturing -8%
Livestock and cropping farming -16% Real estate -8%
Sheet and fabricated metal product manufacturing -15% Basic metal manufacturing -7%
Other farming -15% Furniture and other manufacturing -6%
Water supply -15% Non-metallic mineral product manufacturing -4%
Fishing -14% Wood product manufacturing -3%
Construction -14% Oil and gas exploration and extraction 0%
Cultural and recreational services -13% Electricity generation and supply 0%
Mining and quarrying -13% Gas supply 0%
Printing, publishing and recorded media -12% Owner-occupied dwellings 0%
Petroleum and industrial chemical manufacturing -12% Air transport, services to transport and storage 8%
Rubber, plastic and other chemical manufacturing -12% Water and rail transport 75%

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Energy intensity in industry: Energy per unit of gross output (TJ/$m)

Horizon Energy Change from


2031 Efficiency Horizon 2031 to
scenario Energy Efficiency
2006 2031 2031 Intensity %
Basic metal manufacturing 23.90 23.90 22.14 -1.76 -7%
Paper and paper product manufacturing 12.33 13.00 11.64 -1.36 -10%
Road transport 10.92 10.91 9.20 -1.71 -16%
Printing, publishing and recorded media 6.86 6.86 5.95 -0.91 -13%
Fishing 6.75 6.76 5.82 -0.94 -14%
Non-metallic mineral product manufacturing 6.10 6.10 5.60 -0.51 -8%
Mining and quarrying 5.35 5.34 4.50 -0.84 -16%
Furniture and other manufacturing 4.53 4.53 4.20 -0.33 -7%
Wood product manufacturing 3.39 3.39 3.14 -0.25 -8%
Water and rail transport 2.57 2.57 2.97 0.40 16%
Air transport, services to transport and storage 2.50 2.50 2.69 0.19 7%
Rubber, plastic and other chemical manufacturing 1.98 1.98 1.73 -0.25 -13%
Accommodation, restaurants and bars 1.84 1.84 1.64 -0.20 -11%
Retail 1.31 1.31 1.09 -0.22 -17%
Services to agriculture, hunting, trapping 1.30 1.29 1.08 -0.21 -17%
Textile and apparel manufacturing 1.29 1.29 1.16 -0.13 -10%
Dairy product manufacturing 1.28 1.28 1.17 -0.11 -9%
Petroleum and industrial chemical manufacturing 1.19 1.19 1.04 -0.15 -13%
Central government 1.19 1.19 1.07 -0.12 -10%
Dairy cattle farming 1.00 0.99 0.83 -0.17 -17%
Horticulture and fruit growing 0.96 0.96 0.80 -0.16 -17%
Other farming 0.96 0.96 0.80 -0.16 -16%
Other food manufacturing 0.86 0.86 0.79 -0.07 -8%
Local government 0.76 0.76 0.63 -0.13 -17%
Livestock and cropping farming 0.73 0.73 0.61 -0.12 -17%
Machinery and equipment manufacturing 0.57 0.57 0.47 -0.10 -17%
Health and community services 0.55 0.55 0.51 -0.05 -8%
Personal and other community services 0.51 0.51 0.41 -0.10 -20%
Forestry and logging 0.48 0.48 0.40 -0.08 -17%
Meat and meat product manufacturing 0.48 0.48 0.43 -0.05 -10%
Education 0.48 0.48 0.44 -0.04 -9%
Sheet and fabricated metal product manufacturing 0.47 0.47 0.40 -0.08 -17%
Water supply 0.45 0.45 0.38 -0.07 -16%
Transport equipment manufacturing 0.45 0.45 0.37 -0.08 -17%
Business services 0.43 0.43 0.35 -0.08 -19%
Construction 0.41 0.41 0.32 -0.08 -20%
Beverage, malt and tobacco manufacturing 0.38 0.38 0.35 -0.04 -9%
Wholesale 0.28 0.28 0.22 -0.06 -22%
Communication services 0.22 0.22 0.17 -0.05 -23%
Oil and gas exploration and extraction 0.19 0.15 0.15 0.00 0%
Cultural and recreational services 0.12 0.12 0.10 -0.02 -13%
Services to finance and investment 0.09 0.09 0.08 -0.01 -10%
Real estate 0.07 0.07 0.07 -0.01 -8%
Finance 0.07 0.07 0.06 -0.01 -10%
Insurance 0.07 0.07 0.06 -0.01 -10%
Electricity generation and supply 0.00 0.00 0.00 0.00 0%
Gas supply 0.00 0.00 0.00 0.00 0%
Industry total 1.31 1.26 1.12 -0.14 -11%

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Economic Futures for the Auckland Region: Part 2 Scenarios for economic development – April 09

Appendix 7: Glossary of terms

Full-Time Equivalent Employment (FTE) is the Labour Force Participation Rate is the ratio
number of full-time equivalent jobs, defined as between the labour force and the overall size
total hours worked divided by average annual of their cohort (i.e. the national population
hours worked in full-time jobs. of the same age range). It explains how an
increase in the unemployment rate can occur
Gross Regional Product (GRP) is the total market simultaneously with an increase in employment.
value of all final goods and services produced If a large number of new workers enter the
within the region in a given period of time labour force but only a small fraction become
(usually a calendar year). It is also considered employed, then the increase in the number of
as the sum of value-added at every stage of unemployed workers can outpace the growth in
production (i.e. the intermediate stages) of all employment.
final goods and services produced within the
region in a given period of time, and it is given a Labour Utilisation is a measure of the total amount
money value. of paid work done in the economy, and as such
is a component of material living standards
Gross Regional Product per capita (GRP per capita) and has a direct influence on growth. It is
is an approximation of the value of goods usually measured in hours worked per head
produced per person in the region, equal to the of population per year. Components of labour
GRP divided by the total number of people in utilisation include the participation rate, the
the region. GRP per capita provides a pointer as proportion of the population of working age, the
to whether investment is sufficient to sustain unemployment rate and the average number of
economic growth into the future, and it is hours worked per year per person employed.
commonly used as a measure of prosperity.
Growth of GRP per capita is the sum of growth Simple Location Quotient (SLQ) is a statistical
in labour utilisation and growth in labour measurement of the relative concentration of a
productivity. Hence, a long-term trend rate of given industry in a given place. It is calculated by
economic growth can be achieved through dividing the proportion of the area’s economic
population increase, growth in labour utilisation, activity in an industry by the proportion of the
and/or increased labour productivity. nation’s economic activity in that same industry.

Labour Force comprises people aged 15 years and


over who regularly work for one or more hours
per week for financial gain, or work without
pay in a family business, or are unemployed
and actively seeking part-time or full-time work.
People not in the labour force include people
under 15 years of age, students who do not
work for pay, people who are unemployed
and not actively seeking work, people with
child-rearing responsibilities, people who work
without pay (but not in a family business), and
people who have retired.

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Economic Futures for the Auckland Region: Scenarios for economic development – April 09

Appendix 8: References

References for the Digital Auckland scenario

Abramovitsky, L. and Griffith, R. (2005). Outsourcing Forman, C., Goldfarb, A., and Greenstein, S. (2005).
and offshoring of business services: How important Geographic Location and the Diffusion of Internet
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ISBN: 978-1-877483-93-6