An IMF review of New Zealand's lagging productivity finds sharp weaknesses in public investment, private innovation, and the options for funding innovation in sectors that could drive improvements

The IMF has been looking at New Zealand's productivity record and how it might be improved.

They say our weak productivity growth poses a significant challenge for the country’s long-term economic prospects.

Low productivity growth partly reflects structural factors, including our remote geography and small markets, as well as the relatively large role of the tourism and agriculture sectors.

However, it also reflects costs and incentives for investment and innovation, which in turn are shaped by features of the business environment and limited financing options.

They suggest the current situation, with price pressures supposedly normalising and a hoped-for economic recovery underway, presents an opportunity for a multi-pronged reform agenda to address this productivity challenge.

Their review explores our productivity growth in a cross-country perspective, reflects on business dynamism in New Zealand and its implications for productivity, and considers some of the factors shaping the costs and incentives for investment and innovation towards a more productive economy.

With slow labour productivity growth, our economic expansion has been supported by rapid growth in labour inputs. But the sectors where this happened are not highly productive.

They also find our business dynamism (relative to peers) especially for young, high-growth firms with the potential to make meaningful contributions to productivity growth is nowhere near good enough to move the needle.

These essential drivers of productivity face constraints in accessing adequate financing, especially beyond the first years after establishment. Strong reliance on bank credit and limited availability of a broader range of financing options is likely playing a role in restricting private sector development and ultimately slowing productivity growth, they say.

Worse, they conclude that innovation in our startup and business sector is weak, compared to our peers. Weak innovation brings weak research and development (R&D) spending. And part of that is because competition is weak, largely because it is tough for locally operating companies to compete with international competitors. They also say complex planning and lengthy consent processes make access to land a larger challenge than it should be.

They are calling for more work to deepen our capital markets, more focus on public research, R&D tax incentives, and research grants, because they are consistently found to be the most cost-effective options, and public investment in education and physical and digital infrastructure.

They also want to see the Commerce Commission more active in enhancing competition in key sectors, and "policies to reduce barriers to land use and FDI [foreign direct investment], and improve infrastructure.".