New Zealand likes to tell itself an innovation story.
High impact science, clever agri-tech, rockets from Mahia, a booming games sector.

Some of that story is true.
The problem is the strategy sitting underneath it.

On paper, New Zealand is now refocusing its science, innovation and technology system, building new funding pillars, and publishing fresh strategies for digital technologies and artificial intelligence. The Beehive+3MBIE+3MBIE+3

In practice, the country is still working from a mental model that belongs in about 2010, not 2025.

The result is an innovation strategy that is roughly 15 years behind the reality of how modern innovation actually happens.

1. What Wellington currently calls an “innovation strategy”

Over the last few years several big pieces have been put on the table:

• A new funding strategy for the science system, built around four pillars: economy, advanced technology, environment, and health and society, administered through a new entity called Research Funding New Zealand. MBIE+1
• A refocus of the wider science, innovation and technology system to give “clear direction” and lift productivity and growth. MBIE
• A Research, Science and Innovation Strategy (RSI) that positions New Zealand as a “global innovation hub” in a productive, sustainable and inclusive future. MBIE
• Industry Transformation Plans, including a Digital Technologies ITP intended to grow the digital sector and lift economy-wide productivity. MBIE+1
• A 2025 Artificial Intelligence Strategy focused on “accelerating private sector AI adoption” and creating an environment where businesses can invest with confidence. The Beehive

The language in these documents is familiar: pillars, hubs, long term direction, strategic investment, productivity, inclusive growth.

None of that is wrong. The issue is what is missing.

Almost all of it still treats innovation as:

• Something that starts in formal science
• Flows through funding programs and institutions
• Eventually emerges as commercialised products at the other end

That linear “science to market” pipeline was already under pressure 15 years ago. In a world of cloud platforms, open source software, AI models and global digital markets, it is nowhere near enough.

2. The reality check: indicators that do not match the rhetoric

If New Zealand’s innovation strategy was working, you would expect to see it in a few obvious places: research intensity, productivity, digital scale and talent dynamics.

2.1 R&D investment is still well below leading economies

Stats NZ reports that total R&D spending reached 3.7 billion dollars in 2023, up 17 percent from 2022. Stats NZ

That sounds positive until you look at R&D intensity:

• R&D is around 1.5 percent of GDP
• The OECD average is roughly 2.7 percent
• Leading small advanced economies sit significantly higher again

RNZ summarised it bluntly in 2023: New Zealand’s R&D investment is about half of other leading economies. RNZ+1

Despite tax incentives and new funding structures, the gap is still there.

2.2 Productivity remains stuck near the bottom of the OECD

The OECD and New Zealand Treasury have been saying the same thing for years:

• New Zealand ranks highly on wellbeing measures
• Incomes sit below the OECD average because of persistently low labour productivity
• Output per hour worked is in the bottom quarter of the OECD. OECD+2The Treasury New Zealand+2

Innovation strategy that does not move productivity is performance, not progress.

2.3 The digital and AI sectors are still small relative to the opportunity

The Digital Technologies ITP notes that the sector contributed about 7.4 billion dollars to GDP in 2020 and has strong growth potential. MBIE+1

That is significant, but for a country that wants to be an “innovation hub”, it is modest. The AI Strategy, released in 2025, is mainly framed around private sector adoption and confidence, not around building frontier capabilities in areas like foundation models, compute infrastructure or deep tech. The Beehive

In other words, policy is still talking about “using AI tools” rather than “building the platforms and companies that others depend on”.

2.4 Talent and capital keep leaking

On top of this, New Zealand continues to battle:

• Brain drain to larger markets, particularly Australia
• Domestic capital markets that are small and risk averse
• A business sector dominated by SMEs with limited internal innovation capacity

Recent coverage notes high net migration to Australia, including tens of thousands of skilled workers, at the same time as domestic productivity declines. The Australian+1

An innovation strategy that does not address where talent chooses to live and work is playing a different game than the one the economy is actually in.

3. Why this looks like a 2010 strategy in a 2025 world

So where exactly is the 15 year lag? It shows up in the assumptions under the policies.

3.1 Innovation is still treated as “science plus commercialisation”

Most official documents still frame innovation as:

• Publicly funded research
• Handed off to commercialisation offices
• Supported by grants and tax incentives
• Eventually turned into products and services

That model made sense when physical science and lab-based R&D dominated.

In software and AI, the loop runs the other way:

• Product teams or founders ship something useful on top of global platforms
• They iterate based on usage data
• Deep technical work happens inside the product flow, not in a separate pipeline

New Zealand’s strategies mention digital and advanced technologies, but the machinery is still tuned for multi-year research programs and “projects” rather than continuous, product-led innovation.

3.2 Policy still optimises for inputs, not outcomes

The system puts great energy into:

• The number and type of funding pillars
• Governance structures and advisory groups
• R&D tax settings and contracting mechanisms MBIE+2MBIE+2

These are inputs. Outcomes would look more like:

• Higher productivity in specific sectors
• Export revenue from IP-rich products and services
• A visible pipeline of mid-stage and later-stage tech companies
• Adoption of AI and automation in everyday business processes

New Zealand publishes good narrative reports about research and innovation investment, but there is much less transparent, strategy-level focus on whether that spend is shifting the real economy. Research Science Innovation+1

3.3 Risk is framed in yesterday’s terms

Debates around gene technology illustrate this. For years, policy was dominated by a binary GM yes or no framing, with the Sustainability Council, among others, arguing that innovation strategy should emphasise national brand and sustainability. Sustainability NZ+1

In 2025, the government is finally standing up a new gene technology regulator and enabling more modern use of these tools. The Beehive

The pattern is familiar:

• Long period of precaution and delay
• Then a compressed rush to “catch up” as global science moves on

AI risk is at risk of following the same path if regulators focus only on controls after the fact, rather than experimentation frameworks, sandboxes and proactive capability building in the public sector.

3.4 The strategy is institution centric, not platform centric

The current reforms create:

• New funding entities and investment plans
• New research organisations
• New strategies and coordination structures. The Beehive+3MBIE+3MBIE+3

Those matter, but they are still institution centric. A 2025-ready innovation strategy would think more like a platform:

• Shared national data assets and synthetic data environments
• Shared AI and compute infrastructure accessible to startups and SMEs
• Procurement pathways that let government be an early customer for local innovation
• Open standards and APIs that make it easy for others to build on top

Without that, each initiative becomes another silo that has to integrate back into a fragmented system.

4. What a 2025 ready innovation strategy would do differently

If you were designing from scratch today, trying to serve a small, open economy at the edge of the world, the priorities would look different.

4.1 Start from productivity and export outcomes

Instead of starting from funding instruments, start from a small number of measurable outcomes:

• Lift labour productivity closer to the OECD median within a clear time frame
• Double or triple the number of firms earning significant export revenue from IP-rich products and services
• Increase business R&D intensity toward the OECD average over a decade RNZ+2Figure.NZ+2

Then build innovation policy around those targets, not the other way around.

4.2 Treat software and AI as horizontal infrastructure, not niche sectors

Modern innovation, in almost any industry, rides on:

• Cloud infrastructure and APIs
• AI models and tooling
• Data pipelines and analytics

New Zealand’s AI Strategy starts to address adoption, but a frontier-aligned approach would:

• Co invest in shared compute and model access for researchers and SMEs
• Support open source and local model development where it makes sense
• Embed AI capability into every Industry Transformation Plan, not just digital technologies The Beehive+2MBIE+2

The question should not be “Do we have an AI sector”, but “Is every productive sector using AI and software to close the productivity gap”.

4.3 Move from “project funding” to “platform building”

Rather than distributing money across many projects, a 2025 strategy would concentrate effort on a small number of shared platforms, for example:

• National data spaces for agriculture, health, climate, and logistics with clear governance
• Testbeds for autonomous systems, climate tech and biotech
• Interoperable digital identity and consent frameworks that reduce friction for new services

These platforms de risk innovation for hundreds of firms at once and make it easier for global partners to plug in.

4.4 Use government as a deliberate early customer

One of the strongest levers a small state has is its own procurement.

A modern innovation strategy would:

• Set explicit targets for procuring from New Zealand based innovative firms in key areas
• Use outcome based tenders that let companies propose novel solutions
• Build multi year adoption programs around validated tools, not one off pilots

This is starting to show up in areas like defence and digital infrastructure, but it is not yet baked into the core innovation story. Reuters+1

4.5 Build a talent and capital pipeline that matches ambition

That means:

• Stronger pathways for deep tech founders and technical talent to spin out of universities and Crown Research Institutes into startups
• Co investment funds that specialise in capital intensive, long horizon innovation
• Active attraction and diaspora strategies for New Zealanders in global tech hubs

The UK already describes New Zealand as having a “high impact science ecosystem and innovation culture”. GOV.UK+1

The missing piece is converting that into a repeatable pipeline of globally competitive firms that choose to base themselves here.

5. So is New Zealand doomed to be behind?

No. The underlying strengths are real:

• High quality basic science
• Trusted institutions and brand
• A digital tech sector with global niches
• Growing recognition in government that the current system needs refocusing MBIE+2MBIE+2

The problem is not intent, it is tempo and framing.

If New Zealand keeps treating innovation as “science funding plus tax credits” it will keep getting what it has now:

• Strong stories
• Good pilots
• Chronic productivity underperformance

If it is willing to adopt a 2025 frame that is honest about AI, software, data and talent, then the country can move from being 15 years behind reality to quietly building the next 15 years on purpose.

That requires an innovation strategy that is less about pillars on a diagram and more about outcomes in the real economy: working smarter, exporting more valuable things, and giving the next generation a reason to build here rather than somewhere else.