Griffin on Tech: Is Wellington’s tech sector in trouble?
With Datacom, Xero, Trade Me and Weta Digital employing thousands of tech workers between them, the tech sector is an integral part of the Wellington’s economic makeup and creative personality.
But the Ministry of Business, Innovation and Employment’s Wellington Wellington Regional Skills Leadership Group (WRSLG) has raised concerns about the sector’s future in an update released last month.
“Wellington’s digital technologies sector is starting to soften,” the group warned.
“Remote working has enabled people and businesses to extend offshore more easily. Capital investment in start-ups is beginning to dry up as rising interest rates increase risk and make other investment options more attractive,” it added.
“This softening could threaten future growth and innovation in this important sector of our region’s economy, with implications for local employment."
(By the way, I found out about this not via MBIE's obscure monthly regional skills updates, but from CapitalNZ, a great new media start-up with a free newsletter rounding up news in the capital.)
MBIE's analysis sounds grim. In a city of bureaucrats, the digital sector adds vibrancy and innovative thinking that has been successful in rubbing off on the government to some extent. Some of my favourite tech-related events in the city are those held by Creative HQ’s GovTech Accelerator, which pairs start-ups and NGOs with government departments to tackle big issues facing society.
Wellington always used to be a tech talent magnet, seen as a great place to live and work. Frankly, it still is, but the pandemic normalized remote working and our complex and often frustrating immigration settings have put off skilled workers wary of a long-distance relocation and with attractive options in other countries seeking to harness their skills. The high cost of living in New Zealand and relatively low salaries are regularly cited as issues putting off people from joining the tech workforce in the capital.
Our tech sector is in fierce competition with other countries for talent and our attractiveness is slipping. But I’m not sure that local or central government leaders realise this.
That was clearly obvious this week when I attended the launch of the New Zealand Game Developers Association’s industry snapshot at the offices of game developer PikPok in Wellington.
The headline figures suggest an industry that is thriving. It generated $407 million in revenue in the last financial year, up 47% on the previous year and added 101 jobs to create a national workforce of 1070 spread across 71 development studios, 13 of which are in the capital.
But the industry is also losing developers and studios to Australia which is offer lucrative federal and state tax rebates for spending on video game development that can see video games companies claim back up to 40% of their development spending.
We have nothing to match that, which is why around 60 developers have jumped the Tasman in the last year and studios are opening offices in Melbourne and Sydney. Australian game shops, aimed by state economic development agencies are actively recruiting New Zealanders to work across the Tasman or stay here but work for them.
Many countries offer incentives to video games developers, but the launch of the Australian scheme is a serious threat to a fast-growing industry that generates $380,000 per employee, making it a particularly strong export earner.
“They've never been in our backyard and now that they are, we have to address it, because if we don't, we're going to see this incredibly vibrant industry die very quickly,” Chelsea Rapp, the chair of the NZGDA said in Wellington on Monday.
An economic powerhouse
It’s not all doom and gloom. The TIN200 report released last month indicated that revenue from Wellington’s tech sector grew 12% to $3.7 billion last year, representing nearly a quarter of the total generated by the country’s top 200 tech firms. The sector employed 17,915, up 2,091 from the previous year.
That’s impressive momentum, but now MBIE is worried that Welly’s tech engine is running out of steam. The answer is better planning around developing the tech skills pipeline, tax and regulatory settings that make us competitive internationally. We need to better tell our story internationally, which the NZ Story initiative is trying to address.
We have a young and dynamic new mayor in Tory Whanau, though her current priorities are fixing the pipes, increasing the housing supply and taming the mean streets of the inner city. All of those are important issues to tackle.
But the future of the city’s tech sector needs to be on her agenda too. We can't afford to see its decline.
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