From spending to capability : can New Zealand's defence industry strategy capture economic value while building sovereign capability? : 294.820 Applied Security research report, Massey University

Abstract

This report examines how New Zealand can convert rising defence expenditure into sovereign industrial capability and measurable economic value. It is prompted by the Defence Capability Plan's commitment to lift spending towards 2% of GDP at a time when almost all major procurement flows offshore, returning no direct GDP benefit. When this study was conceived, the funding of defence start-ups and small and medium enterprises was largely absent from New Zealand's policy conversation. Its original intent was therefore to establish the economic case for such funding and to propose mechanisms for getting it started. During the writing of this report, however, that position shifted. The Government released its Defence Industry Strategy and has begun trialling several of the early-stage funding mechanisms examined here. This movement is welcome and marks genuine progress against a long-standing deficit. It does not, however, complete the task. The analysis that follows identifies structural gaps, particularly in follow-on capital, procurement, and durable institutional design, that remain unaddressed and must be resolved if a nascent domestic defence industry is to be crystallised rather than merely seeded. Drawing on the defence economics literature, comparative analysis of international funding models, case studies and interviews with industry, investment and policy participants, the report diagnoses why the current approach fails to capture full economic value and recommends a three-stage response: an accelerator for early-stage innovation, a follow-on capital fund to close the Series A–C gap, and structural reforms to procurement and long-term planning. Section 1 sets out the strategic context and the core problem; Section 2 the methodology; Sections 3–5 the economic framework, New Zealand's current state, and the capital and structural gaps; Section 6 the international funding models; and Section 7 the recommendations.--From Introduction