Provincial Growth Fund | Conclusions and Recommendations
Perhaps we cannot raise the winds. But each of us can put up the sail, so that when the wind comes we can catch it.
Having outlined best practice for regional development investment strategy and held the PGF up to this standard, we conclude that the PGF is a good place to start but requires adjustment to be fully fit for purpose.
There are many reasons for hope within the current model. From the analysis above, the PGF does align with best practice because it:
- is spatial in nature without dismissing a good horizontal policy base;
- has high-level objectives it is trying to achieve, like increasing the productivity potential of the regions;
- seeks to base a good proportion of its funding decisions on real input from regions and local knowledge;
- sets out ex-ante goals of individual initiatives and appears to be using conditionalities as part of its funding; and
- is in the process of developing an overall PGF evaluation plan.
The PGF, however, needs refinement if it is to bring about long-lasting positive change in the regions. Our research suggests that if it does not focus on innovation, synchronisation, and further evaluation, the real risk is that any long-term benefits to the regions will be lost. We acknowledge that this exercise is a point-in-time stocktake of publicly-available information following the first year’s operation only. Luckily, this means there are potentially still years of delivery to go and as such, there is still time for change. Now is the time to make significant changes to the overall PGF strategy, giving it the best chance to make a positive difference in the regions while minimising the inherent risks associated with PGF-type funding.
To begin this process, we outline 5 overall conclusions and make 5 recommendations:
Conclusion 1: The current PGF strategy does not focus enough on capturing knowledge spillovers
While the PGF has done well to set some overall explicit goals, they do not include fostering and capturing knowledge spillovers across the regions as a way to improve regional productivity. Given the best practice smart specialisation theory outlined above and the acknowledged difficulties in actually fostering spillovers in the real world, we think this is a serious omission. While it is encouraging that the funding application process prioritises applications that are multi-region in scope, which could encourage regional collaboration, fostering and capturing knowledge spillovers is sufficiently important to warrant adding an explicit reference to this in the PGF’s objectives.
Recommendation 1: Add an explicit objective to the PGF that aims to foster knowledge chains and spillovers across the regions
Conclusion 2: There is a concerning lack of collaboration and co- ordination across the current regional development strategy
There is a concerning lack of collaboration and co- ordination across the current RAPs, exemplified by the fact that the RAPs and funding decisions appear to be largely regionally-siloed and increasingly out of date. We note that updating the RAPs is a key priority for the PGF, one which we think should take higher priority. There is little point, for example, in five regions all separately developing mānuka honey intellectual property, or developing separate skills and training strategies. While a collaborative approach will require an ongoing effort, significant gains can be made from a more collaborative approach. As such the RAPs need to be updated and synchronised to avoid duplication and to maximise each region’s strengths.
Similarly, the omission of New Zealand’s major cities (or growth nodes) from within the wider PGF and RAP strategy (aside from where they are required to maximise a particular regional investment) compounds this lack of overall co-ordination and the ability to foster knowledge chains across the economy. We argue, therefore, that the proposed RAP refresh must include information about the whole country, not just those areas included in scope for funding as part of the PGF. The knowledge spillovers and regional innovation systems theory suggests a key role here for central government to encourage these key regional collaboration linkages. The PDU alongside the SROs would be best placed to take a lead in encouraging these linkages either through the planning process or the PGF application process.
As such, we recommend that all regions, including those areas excluded from the geographic scope of the PGF, create or refresh their RAPs including a focus on seeking collaboration and co-ordination with reference to other regions. Where obvious synergies exist, regions should be required to show how they intend to work together. This will involve assisting some regions to upskill economic development planning. We acknowledge that this will be a costly and time-consuming exercise but one that we feel will reap long-term benefits.
Recommendation 2: Support all regions (including the major cities) to refresh or create RAPs, including opportunities to collaborate and co- ordinate with other regions.
Conclusion 3: A sector-based investment strategy that already picks certain sectors over others introduces undue risk
The current sector-based investment strategy in the PGF prioritises particular sectors like tourism, food and beverage, and forestry. This introduces inordinate risk to the success of the investment fund. Best practice highlights that using a sector-based strategy is too blunt a policy tool to overcome the inherent risks of spatial investment policy. Rather, a sector approach is most likely to default toward simply “picking winners” and thus choosing the most expedient over what is best. Already it would appear that some of the sector based initiatives appear to be at very high risk of failure due to a lack of due diligence. Similarly, encouraging broad sector investment also fails to meet the need to link investments to a discovery process of something new or hitherto unknown.
We thus recommend removing sectors as a basis for funding priority. Instead all investment activity should prioritise solutions aimed at the discovery of something new, no matter the sector or industry. Part of this is to acknowledge that all initiatives need to be ranked and prioritised according to the goals of the regions and their potential to link the region to knowledge that exists elsewhere rather than being based on political urgency for action. The best process for this ranking and prioritising to occur is as part of the wider RAP development process.
Recommendation 3: Remove the priority given to sector tier funding
Conclusion 4: The “growth everywhere” focus limits the transitional opportunities associated with using both growth and decline initiatives to enhance overall wellbeing in the regions
Because growth everywhere is not a realistic or achievable goal, the PGF’s focus on fostering economic growth in the regions is a missed opportunity to enable some communities facing decline to consider how they might become smaller and better. Good spatial development policy focuses on both growth and decline policy options as a way to maximise wellbeing and transition toward a new future. Just as our growing centres need transitional funding to overcome congestion, density, and pollution issues, places in decline need transitional funding to enable them to become smaller, better, healthier, and more sustainable. This may require putting out-of-scope areas like schooling, housing, and health on the PGF funding table in response to local needs.
Recommendation 4: Refocus the PGF on regions’ potential, rather than their growth prospects, thus enabling transitional funding options for communities facing transition and/or decline
Conclusion 5: Evaluation and ongoing monitoring of significant funding initiatives are crucial to success but critically lacking
Good spatial regional development investment relies heavily on an effective, independent monitoring and evaluation regime to minimise the many risks associated with spatial policy tools. While there is a plan to evaluate the overall PGF strategy, ex-ante goals associated with many initiatives, and conditionalities applied to funding decisions, the public need to know that significant funding decisions will be monitored and evaluated so that poor performing initiatives can be improved or if need be dropped and the money used more effectively elsewhere. It is concerning that there was no evidence of an evaluation budget associated with any significant funding decision and that there was no pro-active public release of monitoring or evaluation information aside from that obtained via the Official Information Act.
We therefore recommend that any initiative with a budget of $10 million or more in total require an evaluation strategy to be developed and appropriately funded from within the PGF before approval can be given. This evaluation strategy and monitoring information would need to be pro-actively released to enable transparency.
Recommendation 5: Require any PGF initiative over $10 million to have an evaluation and monitoring strategy developed and funded before approval can be given.
Over the last year, the PGF has moved from a coalition agreement announcement to a significant source of spatial investment in the regions. This level of investment is set to steadily increase over time as current proposals and initiatives in the approval pipeline meet approval criteria. As outlined above this is both an opportunity for change in our regions and a significant risk for New Zealand, the balance of which depends on how the PGF is implemented. A good investment strategy depends on us learning the lessons from our own history as well as current international best practice.
While the current strategy of the PGF shows promise, it needs to: focus on fostering and capturing knowledge spillovers; effectively synchronise regional development investments across the regions and with national development policy; and most significantly, avoid underestimating the well-known risks associated with spatial policy tools. The real world implications of this mean that the PGF needs to change its geographic scope to include our largest cities, refocus on knowledge spillovers, better collaboration, and policy synchronisation, and make use of a significantly strengthened evaluation regime. Without making these changes it is likely that many of the costs and downside risks associated with spatial planning tools will be realised and the potential benefits elusive.
Making the changes required will require the PGF to slow down from its current implementation trajectory and will mean pushing back against political urgencies. Ultimately, however, making these changes and ensuring that the PGF is a risk worth taking—rather than just a risk we are taking—might well unlock the potential of the regions, improve their resilience, and help people to overcome place-based constraints. It would be a shame if the significant opportunity cost of the PGF was compounded by the PGF being an opportunity lost for our regions.
This is an extract from Julian’s research paper “A Risk Worth Taking | Ensuring the Provincial Growth Fund is Fit For Purpose” Policy Paper. (Released 2019)
 Ernst Friedrich Schumacher and Bill McKibben, Small Is Beautiful: Economics as If People Mattered, First Harper Perennial edition (New York London Toronto Sydney New Delhi Auckland: Harper Perennial, 2010).
 This is especially so if there are multi-year conditionalities in funding and some investments bring a return on investment that can be funnelled back into further regional investments.