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Gartner says New Zealand technology spending will be $11.8 billion in 2017. That’s up 2.7 percent from 2016. It’s also a lot higher than last year’s forward looking forecast from Gartner. The total spend is forecast to pass $12 billion in 2018.

Communications services is the top technology category in New Zealand. Customers will spend a total of NZ$4.4 billion this year.The category includes consumer fixed and mobile voice and data services, enterprise fixed and mobile voice and data services. It may be the biggest sector, but shows next to no growth.

Gartner expects software to be the star performer over the next year, with IT services also showing respectable growth. Sales of devices and data centre systems will be flat.

Australians spend more however you cut it

New Zealand’s numbers compare with a total IT spend of A$83 billion in Australia, almost eight times the amount spent here. Australia’s communications services sector is around six times the size of New Zealand’s at A$26.8 billion.

Gartner expects both New Zealand and Australia to increase spending in the next year by more than the worldwide 2.4 percent forecast.

IT Spending Forecast Q2 2017

In part the difference between Australia and New Zealand can be put down to population size. Yet there’s more to the numbers than how many people live in each country. New Zealand’s spend amounts to around NZ$2,500 per person, while Australia’s is almost A$3,500.

One possible explaination for some of the difference is that some Australian IT companies wrap New Zealand revenue into local income. And there’s a tendency on the other side of the Tasman to gold-plate projects. Yet you can’t escape from thinking Australians appear more willing to invest in technology.

New Zealand: IT Spending Forecast (Millions of NZ$)

Segment201620172018
Devices    1,659    1,734    1,724
Data Centre Systems        344        342        347
Software    1,363    1,499    1,647
IT Services    3,764    3,840    3,920
Communications Services    4,355    4,383    4,437
 
Grand Total  11,484  11,798  12,074

 

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.

New Zealand moved three places up the International Telecommunications Union global ICT developement index. Today it is 13. In the 2015 index New Zealand was 16.

The ITU index compares the information economy in different countries compare. It lets countries benchmark themselves against others and highlights areas that need improvement. It also stimulates policy debate within countries.

By all three counts New Zealand and its government can take a pat on the back. The improvement is impressive. Almost every country improved its score in the last year. Yet New Zealand is the only Asia-Pacific country to improve its index score by more than the global average.

ITU global ICT development index

Perhaps the most impressive thing is who we moved past.

New Zealand overtook Australia which dropped from 12 to 14. We have also passed the USA which remains steady at 15 and Finland which was at 14 but is now at 17.

The ITU uses 11 variables to ranks countries’ ICT development. These include looking at the number of fixed telephone and broadband subscribers, mobile and mobile broadband subscriptions, the state of international bandwidth, along with the number of household PC and internet penetration. It also looks at internet users, education (secondary and tertiary) enrolment and adult literacy.

Top spot goes to The Republic of Korea for the second year running. It is a neck in front of Iceland with Denmark in third place. The UK ranks at number 5.

New Zealand performs well when it comes to skills. We rank number 8 in the world. The United States is top and Australia is second. It was among the biggest improvers when it comes to mobile broadband penetration during the last year and that performance contributed significantly to the rise in the overall index. Falling mobile broadband costs were also important.

Bowen_House_Beehive_ParliamentWhy don’t New Zealand companies win government tenders?” asks Ian Apperley at the IITP Techblog.

He writes about the institutional bias government departments and agencies have when it comes to buying technology.

More often than not they’ll choose an overseas supplier when there are perfectly good and better value alternatives available here in New Zealand.

Apperley writes this tale of woe:

Several years ago I was doing some work for a large government agency. Part of that work included setting up a tender for a major services contract, managing it through, then choosing and recommending a vendor to the CIO. What we didn’t know was that the CIO had already chosen the vendor.

The process to complete that RFP took nearly a year. We made a number of mistakes along the way. That included having only two IT people on the panel, the rest were accountants, contract managers and the CIO’s patsies. We were watched by an auditor from New Zealand Audit, a man of much credibility and experience.

As it transpired we chose two vendors to take through to the next level. The NZ Audit man signed off on the process. Then the CIO threw our findings out and went with the vendor they had already chosen. The final result was three years of pain for that agency because they chose the wrong organisation to support them.

The following story is based on a late night bar conversation years ago with the former managing director of a local software company. The events described here took place in the late 1980s. They echo Apperley’s story. Some of the precise details are hazy, it wouldn’t stand up in a court room, but the essence of this story is true.

World class software

The managing director’s company sold a clever and advanced specialist application. It wasn’t unique, but it was world-class. Parts of the technology are still in use today.

This company had been successful selling the application to business customers in New Zealand and elsewhere. By the standards of the time it was an export success. The software company clocked up a number of impressive overseas sales, including a few to government agencies in Australia and elsewhere.

Yet, it could not get through the door of Wellington government departments. Not even when its software closely matched the documented requirements.

Enter the multinational

The company had a reseller agreement with what was in those days still a large and well-known multinational computer vendor. That vendor sold the New Zealand-developed software under its own brand, with a different product name.

The local company pitched for a significant government contract. It’s bid fell at the first round.

Meanwhile the multinational, offering the same mix of hardware and software progressed to the next round and eventually won the government contract. The company’s pitch involved a trip to a customer site in the USA to see the system in action.

It was a win, of sorts, for the local software business. It managed to sell a decent licence, albeit with its prestigious big partner taking a hefty slice of the cake.

A bigger cake

The slice was big, but so was the cake. It turned out the multinational sold the same software package for a higher licence fee than the local company.

In the wash up it turns out the local software company did OK. But the New Zealand taxpayer did not. The US-based giant pocketed a hefty premium.

Perhaps the most disturbing aspect of the managing director’s story was that the government deal involved a lucrative support contract. The multinational vendor didn’t have anyone in New Zealand with the necessary skills, so it farmed the support out to the software company.