It says that as a small nation, we can’t expect to compete on everything, so we should be focusing our efforts on app development in our hero sectors, such as healthcare, tourism and agriculture, and fast-tracking more data centres.

It sees data centres – which power AI – generating $1b as we export their computing power to our Pacific neighbours.

Most of the balance – an estimated $2.1b – would come from AI-powered apps boosting local productivity and increasing our export receipts from software.

“Tooling, chips and data” account for the other $300m.

“To establish world-leading data centres, New Zealand needs to support the scale-up of firm renewables and fast-track approval processes for new facilities,” the report says.

Here, there has been action. Meetings with then Prime Minister Dame Jacinda Ardern saw Microsoft and Amazon Overseas Investment Office applications for “hyperscale” data centres in northwest Auckland fast-tracked.

Microsoft’s $1b giant facility was recently completed at Westgate while Amazon’s is still under construction after finally overcoming drainage consent delays with Auckland Council.

They join hyperscale data centres already built by Microsoft partners CDC (half-owned by Infratil) and DCI.

Fast-track needed

But there’s more to building a data centre than an accelerated land purchase.

“New fast-track rules do not specifically recognise data centres as critical infrastructure. Their inclusion would consolidate New Zealand’s advantage, removing costly barriers that drive construction and land use costs,” the Mandala report says.

More support for renewable power

Microsoft’s Sorenson says New Zealand has natural advantages, with plentiful hydro and geothermal options allowing the country to draw around 88% of its power from renewable sources, compared to 34% in Australia and 22% in the US.

Foes, including NZRise co-founder Don Christie, have accused the Big Tech players of “exporting” New Zealand’s clean energy.

Others – like Orion founder Ian McCrae – have seen data centres and electric vehicles (EVs) maxing out our clean energy capacity, forcing the importation of coal to fire the Huntly power station.

Sorenson counters that, arguing – as in the US and other countries – capital from data centre operators is driving the growth of new renewable power options.

She points out that Microsoft signed a deal with Genesis-owned Ecotricity to supply 100% renewable power to its hyperscale data centre in Auckland. Microsoft also signed a 10-year deal for power from Contact Energy’s 51.4-megawatt (MW) Te Huka Unit 3 geothermal power station, which went live in October last year.

And Amazon signed a deal to buy 50% of Mercury Energy’s new 103MW Turitea South wind farm, helping to secure its construction.

Data centres can also be water-hogs, but with this new hyperscale data centre in Auckland, Microsoft used cutting-edge natural air cooling instead.

The report recommends New Zealand does more to “support the scale-up of renewable energy”.

Mandala partner Tom McMahon says our Government has been good at cutting red tape.

But he says the Crown also needs to lead by articulating the role of AI in New Zealand’s future, and by leading by example.

Low Govt AI readiness ranking

“New Zealand’s delayed development of a national AI strategy has resulted in a low Government AI readiness ranking of 49th,” the report says, citing research by Oxford Insights.

The report adds: “Accelerated public sector adoption and AI research will build public confidence, develop reference cases.”

Sorenson said the Government’s defunding of Callaghan Innovation was “a really sad day”. The agency had been “driving the art of the possible”.

“We launched, with Callahan, an amazing government AI portal to help small businesses,” the Microsoft New Zealand managing director said. The Ministry of Business, Innovation and Employment (MBIE) has taken over various Callaghan administrative roles.

The report notes that the planned Public Research Organisation (PRO) for Advanced Technologies “should improve AI research output from its relatively low base”.

The new PRO will take over Callaghan’s research role, with AI and quantum computing set to be two areas of focus. The Government says enabling legislation will be introduced in the final quarter of this year, with the PRO established next year.

The report also sees a role for the Government in creating a “social licence” for AI and overcoming fears that can lead to what Sorenson calls a “slow follower” mentality. She wants to see more focus on AI’s potential to create more high-value jobs and lift New Zealand’s long-stalled productivity.

She points to a 2024 report by Accenture that found AI could double New Zealand’s productivity.

AI adoption in New Zealand can help to attract foreign investment and industry know-how, supporting economic growth, the report says.

“New Zealand already has a healthy ecosystem of AI firms that are contributing to the new AI economy’s revenue today. These include large homegrown businesses like Xero and multinational firms like IBM that are developing products and services in New Zealand,” the report says.

“[But] New Zealand currently lags peers, especially in digital skills, AI start-ups, and venture capital investment,” it adds.

“This is driven in part by limited training and upskilling in AI. Training new workers and upskilling the existing workforce will help to address this.

“Further regulatory certainty and support for start-ups will also help to attract investment for AI.”

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.