Digitalisation could boost NZ SME GDP by NZD $8.6 billion in 2025

A report produced by Xero and the New Zealand Institute of Economic Research (NZIER) has identified significant economic benefits for New Zealand's small and medium-sized enterprises (SMEs) through increased digitalisation.

According to the report, New Zealand's productivity levels have historically lagged behind those of other advanced economies, as referenced by the OECD in 2022, with digitalisation highlighted as a strategic opportunity to address this challenge for SMEs.

The analysis estimates that if more New Zealand SMEs were to invest in digital tools, it could contribute to a potential GDP increase of NZD $8.6 billion in 2025, based on inflation-adjusted modelling.

The report further notes that for every dollar an SME spends on digital tools, the observed productivity returns range from NZD $2.40 to NZD $3.10. These figures indicate that even small-scale digital investments can result in notable economic gains for businesses.

Digital adoption within the New Zealand SME sector is described as uneven and fragmented.

While many businesses use basic digital solutions such as websites and email, fewer have implemented more advanced tools like cloud enterprise systems, e-commerce platforms, or artificial intelligence analytics, referencing the Ministry of Business, Innovation and Employment's 2024 Business Digital Capability Monitor.

Xero's Country Manager for Aotearoa New Zealand, Bridget Snelling, commented on the findings, stating, "Digitalisation is not just a competitive advantage for small businesses - it's a necessity. Embracing digital tools like AI, cloud computing, and data analytics enhances innovation, can expand market reach and strengthens resilience in times of uncertainty."

Snelling added, "Small business digitalisation helps break down barriers of distance and market size, unlocking local and global opportunities and enhancing efficiency in an increasingly competitive world."

The report also provides a summary of approaches adopted by leading digitalised countries to support SME digital upgrades and improve economic performance. In Finland, national strategies have focused on infrastructure, skills development, and targeted support, including programmes such as Business Finland's Innovation Vouchers and Tempo Funding, which offer grants of up to EUR €50,000 for digital projects related to cloud computing, cybersecurity, and AI.

The Netherlands has introduced financial incentives and sector-specific programmes such as Mijn Digitale Zaak (My Digital Business), while Denmark combines digitalisation with industrial strategies and offers financial and advisory support. Canada's Canada Digital Adoption Program (CDAP) provides grants and loans for e-commerce and digital support, and Singapore's SMEs Go Digital programme offers structured guidance and financial incentives. South Korea's Digital New Deal strategy invests in infrastructure, smart factories, and AI.

"Looking at our international counterparts, we see how they've encouraged and supported their small businesses to innovate and digitalise. The challenge we face here must be overcome through collaboration between industry and government to deliver for Kiwi small businesses," Snelling said.

NZIER Principal Economist Michael Bealing contributed, "Digitalisation is not just about awareness - it requires sustained, practical support. For New Zealand, accelerating digital ambition will ensure small businesses lead, not follow, in the digital economy - unlocking productivity, innovation, and long-term prosperity."

Based on the findings of the report, Xero has called on the New Zealand Government to consider reforming and formalising the Small Business Advisory Group (SBAG), recommending an expansion of the group's membership to include representatives from both industry and academia to explore digitalisation strategies for local SMEs.

Snelling stated, "A useful precedent is the UK's SME Digital Adoption Taskforce, a government–industry partnership that aims to identify barriers and co-design effective strategies to accelerate SME digitalisation and, in turn, boost national productivity."