New Zealand's business sector has marked a modest yet significant milestone in innovation investment, with internal research and development (R&D) expenditure reaching $4.1 billion in 2025. This figure represents a slight increase of 0.4 percent, or $15 million, from the previous year, according to the latest data from Statistics New Zealand (Stats NZ). While the rise signals continued commitment to innovation amid economic pressures, it comes alongside challenges such as fewer businesses engaging in R&D and a dip in employment dedicated to these activities.
The growth underscores the resilience of Kiwi enterprises in prioritizing R&D—defined by the OECD's Frascati Manual as creative and systematic work aimed at increasing knowledge stocks, including new knowledge or creative application for new or improved products, processes, or services. Despite global headwinds like supply chain disruptions and inflation, New Zealand firms are channeling funds into areas that promise long-term competitiveness.
Historical Context and Steady Climb
Over the past decade, business R&D spending has shown robust growth. From $2.1 billion in 2018, it climbed to $2.7 billion in 2020, $2.9 billion in 2021, $3.2 billion in 2022, $3.7 billion in 2023, $4.1 billion (rounded) in 2024, and now $4.1 billion in 2025. This trajectory reflects policy support and a maturing innovation ecosystem.
- Annual average growth: Approximately 8-10% pre-2024, slowing recently.
- Total R&D across all sectors hit $6.4 billion in 2024, up 21% from 2022.
However, as a proportion of GDP, business R&D edged down to 0.95% in 2025 from 0.98% in 2024, highlighting the need for accelerated investment to match OECD peers.
Sector Breakdown: Services Lead the Charge
The services industry group dominated, accounting for 67% of total business R&D at $2.7 billion. Key sub-sectors include:
- Computer services: $1.126 billion (28% of total).
- Other services (financial, insurance, telecom, utilities): $980 million (24%, up 15% or $129 million YoY).
- Scientific research and technical services: $420 million (10%).
- Wholesale trade: $206 million (5%).
Manufacturing followed with 28% ($1.159 billion), while primary industries contributed 5% ($197 million). This services-heavy tilt aligns with New Zealand's knowledge economy shift, where ICT and professional services fuel digital transformation.
Firm Size Dynamics: Power of the Large Players
Large businesses (100+ employees) performed 56% of total R&D expenditure despite comprising only 14% of R&D-active firms. Average spend per large firm soared, while smaller entities struggled amid economic uncertainty. Total R&D-active businesses fell to 2,265 (-0.8%), with full-time equivalent (FTE) staff dropping 5.1% to 19,000.
Average expenditure per business rose 1.2% to $1.8 million, indicating consolidation of efforts in high-impact areas.
Key Purposes Driving Investment
R&D aims remained stable: 31% to maintain market position, 31% for new market entry. Top intended beneficiaries:
| Purpose | 2025 Spend ($m) | Change from 2018 |
|---|---|---|
| ICT | 858 | Doubled |
| Manufacturing | 582 | Up |
| Health | 570 | Up |
| Commercial services/tourism | 364 | Up |
| Animal production | 328 | Up |
Expenditure composition: Wages 58%, other current 34%, capital 8%.
Policy Boost: R&D Tax Incentive's Role
The Research and Development Tax Incentive (RDTI), offering a 15% credit on eligible spend (up to $120m cap), has been pivotal. Over 1,752 firms claimed $1 billion in credits (2020-2024), stimulating extra R&D worth billions and adding $6.77 billion to GDP. Firms cite it for retaining/attracting R&D locally. Learn more on MBIE RDTI.
Despite govt recently scrapping the 2% GDP target, RDTI endures, supporting sustained growth.
Spotlight on Leaders: Xero, Fisher & Paykel, Rocket Lab
Standouts include Xero (software/cloud accounting, global R&D ~$350m), Fisher & Paykel Healthcare (respiratory tech leader), and Rocket Lab (space launch innovator). These firms exemplify high R&D intensity, driving exports and jobs. Services like Xero's AI features and FPH's medical devices highlight NZ's tech-health nexus.
Global Benchmark: Room to Grow vs OECD
NZ's total R&D ~1.5% GDP trails OECD 2.7% average; business share low. Yet growth outpaces many peers, positioning NZ as agile innovator. Targets like 2% by 2028 (pre-scrapped) underscore ambition. OECD R&D data.
Challenges Amid Growth
Declines in firms/FTE signal barriers for SMEs: costs, skills shortages. R&D volume flat post-inflation adjustment. Economic slowdown may pressure 2026 spends.
Future Outlook: Innovation for Productivity
With 41% firms expecting stable/increased R&D, focus on AI, biotech, green tech promises productivity lift. Policymakers urge RDTI tweaks, skills training for SMEs to broaden participation.
Economic Ripple Effects
$4.1b R&D fuels GDP via spillovers, jobs (19k direct), exports. Services surge aids digital economy; manufacturing bolsters agritech. Long-term: higher productivity, global competitiveness.


