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New Zealand’s spending on information technology is set to drop by 7.3 percent when compared with 2019. Gartner, a research firm, forecasts IT spending will be less than NZ$12.6 billion. This is a billion dollars less than last year.

While the drop is significant, New Zealand will fare slightly better than most of the world. Gartner forecasts the worldwide spend will drop eight percent. Australia faces a six percent fall.

The drop is a direct result of the Covid–19 pandemic and the expected international recession that will follow.

Critical IT a priority

Gartner says companies around the world are prioritising spending on mission critical technologies and services. For now they are shelving their growth or digital transformation projects.

       
New Zealand IT Spending Forecast (Millions of New Zealand Dollars)
New Zealand2019Growth2020Growth
Data Centre4051.0%347-14.3%
Enterprise Software2,19612.1%2,113-3.8%
Devices1,950-0.3%1,646-15.6%
IT Services3,9894.9%3,799-4.8%
Communications Services5,0250.1%4,665-7.2%
Overall IT13,5653.3%12,570-7.3%
 

Analyst John-David Lovelock says the bright spot in the international forecast is spending on public cloud services. This includes messaging, telephony and conferencing. This is not forecast to do as well in New Zealand.

The sharpest drop in New Zealand is expected in purchases of digital devices. Gartner forecasts a massive 15.6 percent fall in spending down to $1.6 billion. Last year it was the only sector to show negative growth. The fall is in line with the worldwide trend.

Gartner forecasts an equally steep 14.3 percent drop in spending on data centres, although the absolute value of the segment is far lower. This year it will fall from $405 million to $347 million.

Communications

Communications services will fall 7.2 percent according to Gartner. This is well ahead of the 4.5 percent worldwide figure.

Lovelock says he doesn’t see a recovery until the third quarter of 2021. Moreover he says it will take until 2024 for the economy to get back on its long term track.

He says: “Recovery will not follow previous patterns as the forces behind this recession will create both supply side and demand side shocks as the public health, social and commercial restrictions begin to lessen.”

Lovelock also warns not to expect a V shaped recover. Which also means it isn’t going to be quick. IT may be in better shape than many other sectors but we’re in for a bumpy ride.

New Zealand’s Productivity Commission plays down the threat to jobs from technology.

Instead, it says we need more technology to power higher productivity growth. It says this, in turn, will lead to higher income growth and the money need to pay for the things we value.

The Productivity Commission’s draft report New Zealand, technology and productivity says the available data indicates widespread jobs market disruption won’t happen any time soon.

Productivity outlook uncertain

The commission points out the future of work is not certain. It says: “There will undoubtedly be change over the next 10 to 15 years, but not at unprecedented levels”.

In other words, that’s the foreseeable future.

The Productivity Commission’s press release hints at one of the great mysteries of modern times: We’ve been using computers in business for more than 50 years. Yet the dial doesn’t seem to move much on productivity. It certainly hasn’t moved as much as the marketing and hype from technology companies suggests.

In the inquiry director Judy Kavanagh’s words: “If the rate of technological change was accelerating, you’d expect to see evidence in the official statistics, such as faster productivity growth, more business start-ups and more jobs being created and destroyed.

“But what we see in New Zealand and across the developed world is the opposite.”

Positive effects

The commission is right when it says technology mainly has a positive effect on jobs and work.

Think of, say, dishwashers. These machines let people spend less time with their hands in a sink full of plates and greasy water.

Someone has to make, distribute and sell then install dishwashers. They generally require regular servicing. These jobs are all better quality, better-paid jobs than minimum wage dishwashing.

And, let’s face it, a lot of that dishwashing was unpaid domestic work.

There’s also an industry supplying dishwasher detergent and rinsing agents.

Instead of spending time dishwashing, people can cook more elaborate meals. They can spend their time on other more productive tasks. Instead of domestic drudgery, people could get jobs.

If you look only at dishwashing, the sum of created jobs might be negative. Yet by displacing a menial task, other more productive opportunities open up.

This, in a nutshell, is why technology can displace jobs, but it can also often create as many or even more than it destroys.

We do a poor job

Back at the Productivity Commission Kavanagh says: “Technological change may pick up in the future but even so, it will take time to diffuse and affect work in New Zealand. We do a poor job of picking up technology quickly.”

You don’t need to look far to understand the truth of this statement.

Anyone who has been following the fuss about people adapting to watching the 2019 Rugby World Cup on streaming digital services instead of satellite TV can see this is on the money.

About half the population is ready to stream, close to half the population is pulling their hair out in frustration coming to terms with what is, in reality, a very simple switch from one medium to another.

Education is critical here. So is experience.

Rugby World Cup, productivity

Anyone who has spent the last decade or two using questionable services to download music and videos and then moved on to Netflix would find streaming Rugby World Cup games to be trivial.

Yet for people who have never seen BitTorrent, Chromecast or Apple TV, it can be a challenge.

There’s a clear link between the challenges Spark faces with domestic entertainment technology adoption and people at the sharp end of our economic extracting value from business technology.

Watching how this plays out with the Rugby World Cup could give us some clues about how to better leverage computers, broadband and other tools that can improve productivity.

Frances Coppola writes about financial bubbles. She says the market for crypto-currencies shares characteristics with earlier bubbles like Dutch tulips and dotcom stocks. Which means a crash is underway. That’s not just Bitcoin, but all of the crypto-currencies.

The remarkable aspect of this is that everyone couldn’t see it coming. As Coppola points out some investors still don’t accept the likelihood of a crash.

It will be interesting to see what remains after things settle down. The idea of a blockchain isn’t going away, but the, at times irrational, enthusiasm  for crypto-currency could be coming to an end.

Xero Ipad

Xero has moved one step closer to becoming New Zealand’s first global technology giant.

Last week TCV, a Silicon Valley investment firm, bought 1.4 million Xero shares from Matrix Capital Management. The deal was worth NZ$28.5 million. That’s a little over one percent of the company.

Few people in New Zealand will have heard of TCV. Most New Zealanders will have heard of the company’s other investments. TCV owns equity in, among others, Airbnb, Facebook and Netflix.

Xero a name in Silicon Valley

Technology Crossover Ventures is based in Palo Alto, California, the epicentre of Silicon Valley.

Matrix reduced its holding in Xero from almost 10 percent of the company to around 8.5 percent.

The share transfer may not be a big deal in Silicon Vally terms or even in TCV terms. The business has close to US$10 billion invested in technology companies. The investment is from a TCV fund that focuses on mature firms that already have an impressive track record.

Yet it is significant for Xero, although not in financial terms. It’s an important vote of confidence marking Xero’s arrival in the technology premier league. That’s something no New Zealand company has managed before now.

Disruptor

The cloud accounting software company has disrupted global markets. Xero made the world sit up and look at New Zealand technology.

While Xero’s share price has fallen back from the mid-2014 high point, it has performed well so far in 2017. The price is up almost 15 percent since Christmas. In mid-December it traded at NZ$17.50, today, at the time of writing, it is NZ20.50. That’s the highest point for the company’s shares since November 2015.

Like many fast growing technology companies the business has yet to turn a profit. Although that day is now getting closer. At a recent company update founder Rod Drury said the business will soon be cashflow positive.

It continues to show strong growth in revenue. What’s more subscriber numbers continue to climb. This is a vital metric for a software-as-a-service business. At the end of March it hit the milestone of one million subscribers.

Don Christie - Brandon Keepers

Don Christie writes in the New Zealand Herald Global IT companies are taking profit here and putting nothing back:

An organisation I co-chair, NZRise, has been looking at the problem. We represent New Zealand owned digital companies who generate jobs and good incomes for tens of thousands of Kiwis. Our research shows Facebook, Google, Amazon and many other global digital companies are engaged in similar tax avoidance schemes to Apple.

Most revenues that accrue to those companies from New Zealand simply don’t get reported. They are the result of an online transaction and the money flies out of the country in the blink of an eye. No tax. No multiplier effect. No 41 per cent investment into our society.

From a business owner’s perspective it also represents a huge disincentive to invest in R&D, which is already at shockingly low levels by international standards. We find ourselves at a disadvantage to our multinational competitors.

Why create software and technical services in New Zealand when we will always be facing uneven tax playing field?

New Zealand has had a problem with multinational companies and transfer pricing for decades.

Yet the problem Christie writes about is on a different scale.

While the old multinational would shuffle money to minimise liabilities in New Zealand, they still paid some tax. They employed people, trained people and contributed to the economy in other ways. They funded university chairs, sports clubs and other worthy causes. If the new breed does any of that, it’s invisible.

Little contribution

The new multinationals pay next to no tax. They employ next to no New Zealanders. They contribute little to the economy.

Sure, you can argue that Apple products make New Zealanders more productive and that’s a positive economic contribution. The net positive economic contribution may even be greater than Apple fails to contribute in more direct ways.

That is an argument against banning or boycotting Apple products. No-one is suggesting that.

It is not an argument against taxing Apple.

After all, our roads carry Apple products to market. Our schools give people the skills people need to use Apple products. Our health system keeps Apple’s customers alive and healthy. In some cases our tax dollars buy Apple products.

Google this!

You could argue something similar about Google. Some believe Google software makes workers more productive than they would be with other software. Maybe.

Some think that Google’s activities in the advertising sector has an economic benefit. Try saying that to a New Zealand journalist or someone who works in the media.

Again, these are not arguments against taxing Google.

Google is quite happy to sell its products and services to New Zealand government departments that it doesn’t help fund.

It’s harder to argue Facebook offers any economic benefits to New Zealand. If anything it undermines productivity. It is the digital equivalent of an all-sugar diet.

Christie has a good point

There’s little change Apple, Facebook and Google will stop selling in New Zealand if we force them to pull their economic weight.

Until recently the problem was limited. Most of the non-contributors were technology companies. That’s changing with services like Uber muscling in on our markets. If things continue our economy will be hollowed out. Let’s not allow that to happen.

It’s been said that what the companies do is legal. That’s true. It doesn’t make it right. We have the power to change that. We have left this problem in the too hard basket for too long.