In our recent article, “Aotearoa’s Magnetic Moment: $71M Investment Powers Advanced Technology”, we explored the government’s $71 million commitment to accelerate New Zealand’s advanced manufacturing sector.

This was a strong signal of intent, but it’s arriving at a time of economic headwinds. New Zealand’s GDP contracted by 1.1% across 2024, which was the worst non-pandemic downturn since 1991. (Reuters, 2025) Despite a modest rebound in late 2024, the message is clear: our economic model needs a reset.

Behind this investment momentum lies a bigger shift, a transformation and rebuilding of NZ’s entire science, research and innovation ecosystem, which will impact our economy for decades to come.

The Investment Is Welcome But NZ Still Lags Behind

Despite this latest investment, New Zealand continues to underinvest in research and development relative to our OECD peers.

• NZ invests just 1.47% of GDP in R&D, compared to the OECD average of 2.7%. (Source: OECD Data)

• Countries like Germany, Sweden, and South Korea consistently invest more than 3% of GDP into R&D, recognising it as a key driver of productivity, resilience, and future economic growth.

This gap is especially stark in a year where GDP shrank, highlighting that productivity and innovation are no longer optional, but essential for our economic stability. While we are moving in the right direction, we are not yet investing at the scale required to be globally competitive.

The Callaghan Transition: A System Rebuilt for Purpose

In 2025, the government announced the disestablishment of Callaghan Innovation, in an attempt to make research, development and commercialisation more mission-led and better aligned with the industries that drive our economy, designed to better connect research, industry, and national priorities.

What’s Changing?

Callaghan Innovation’s closure is part of a wider reform of New Zealand’s science and innovation system that will see the formation of new Public Research Organisations (PROs) focused on key national missions:

• Bioeconomy PRO – supporting agriculture, food, forestry, biomanufacturing, and circular economy sectors.

• Earth & Environmental Science PRO – focused on climate, decarbonisation, geoscience, and natural hazard resilience.

• Advanced Technology PRO (proposed) – designed to support advanced manufacturing, engineering, digital transformation, and automation.

Key technical services like the Measurement Standards Laboratory (MSL), and programmes such as the Bioresource Processing Alliance and Product Accelerator, will continue under new governance.

(Sources: Callaghan Innovation, Science Media Centre NZ)

Funding Still Available But the Focus is Shifting

The end of Callaghan doesn’t mean the end of support. Instead, funding is being redirected through MBIE and the new system in a more collaborative capability-building approach exampled through the likes of:

• Endeavour Fund: Supports research with high impact for New Zealand’s economy and environment.

• Catalyst Fund: Facilitates international research collaboration.

• R&D Tax Incentive: 15% tax credit on eligible R&D costs remains in place.

And the newly launched “Invest New Zealand” will play a bigger role in attracting foreign investment, and scaling domestic innovative industries. It does seem clear however that government support can only go so far. The economic challenges exposed by New Zealand’s recent GDP contraction reinforce that industry must step up as the primary engine of innovation.

(Source: Beehive NZ)

What This Means for NZ Businesses

We see the change borne as much from cost-cutting and consolidation pressures as it is from a bold vision for the future, though however you look at it, this structural change signals where the government sees the future of the Aotearoa economy.

It is indicated that the previous system, while very valuable to so many great NZ startups and innovators, had become fragmented and often difficult for businesses to navigate. The transition toward mission-led Public Research Organisations promises clearer pathways, more focused collaboration, and a stronger link between R&D and commercial outcomes. However a better structure wont lift GDP, productivity, or exports unless the total investment in innovation continues to increase.

New Zealand’s investment in R&D remains well below the OECD average. Without lifting the overall commitment to funding (both public and private) this reset risks being a well-intentioned reshuffle rather than the step-change we truly need to continue to compete as an independent and leading innovator on the world stage.

Businesses should see this for what it is: an opportunity to engage earlier with research, to embed innovation into the core of their strategy, and to invest in the capability – people, processes, and partnerships – that will determine whether they lead or lag.

The new innovation system focuses on:

• Tighter alignment with national priorities: decarbonisation, productivity, the bioeconomy, and advanced manufacturing.

• More collaborative research models: industry working hand-in-hand with science, rather than in silos.

• Commercial outcomes over grants alone: backing companies that can scale solutions with real-world impact.

A Magnetic Perspective: The Human Element of Innovation

At Magnetic, we see firsthand how innovation is more than tech, machinery, or labs… it’s about people. There’s a lot of noise around funding structures, government investment, and system design. But when you step back from the headlines, no amount of reform drives change without the right people in the right roles.

Sitting at the intersection of business, transformation, and capability, everyday we see that the success of advanced manufacturing, climate transition, digital transformation, or the circular economy is a talent challenge as much as it is a technical one.

• The engineers will drive electrification and decarbonisation in infrastructure.

• The scientists will push the boundaries of materials, climate soluitions or bioeconomy technologies.

• The operations leaders will implement automation in manufacturing.

• The commercial leaders will turn sustainability into competitive advantage.

From our vantage point, this structural reset is a clear signal to ensure that Aoteoroa New Zealand’s innovation ecosystem continues to mature. The new system should reward businesses that build internal capability, and it’s people who make transformation and innovation happen.

For Businesses: What to Do Next

• Engage Early: Start building relationships with the new PROs aligned to your industry.

• Build Internal Capability: Don’t rely solely on external research; invest in the right talent, leadership, and innovation systems.

• Think Global: Leverage international collaboration as part of your R&D strategy.

• Focus on Talent: The shift to advanced manufacturing, digital transformation, and sustainability is talent-driven. Are your people ready?

The Future Is Collaborative, and It’s Here Now

New Zealand’s innovation ecosystem is entering a new era. The system is more targeted. The mission is clearer. The stakes are higher. And on a backdrop of 1.1% GDP contraction, our economic foundations need reinforcement.

For businesses who are ready to engage, not just with funding, but with capability, talent, and transformation, the opportunity is enormous. The future of Aotearoa won’t be delivered to us, we will build it.