The defence industry plays a major role in the Manawatū region economy.

SECTOR PROFILE Defence Industry FOR MANAWATŪ REGION 2016 The defence industry plays a major role in the Manawatū region economy. Providing you with a better understanding of the different components of the Manawatū region economy and the contribution each sector makes to the demographic and economic growth of the region.

Defence Industry in the Manawatū The defence industry plays a major role in the Manawatū region economy. There are a significant number of people employed at the three defence bases in the region (Linton Military Camp, Hokowhitu Base and RNZAF Base Ohakea). The Council s economic model suggests the overall economic benefit to the region from having the three defence bases is an estimated gain of more than 6,900 jobs, an increase in household incomes of $264 million and a $540 million increase in regional GDP. The importance of the defence industry to the Manawatū can be easily overlooked. The three defence bases are not generally open to the public and as a result it can be difficult to get a sense of the significant number of people employed at each base. The Linton Military Camp is now the largest in the country but the size of the base is not obvious when travelling along State Highway 57. Recognising the contribution of the Defence Force Recognition of the special contribution made by the Defence Force to the region culminated in the signing of a Statement of Intent on 6 May 2016 by Palmerston North City Mayor Grant Smith, Chief of Defence Force Lieutenant General Tim Keating, and Manawatū District Mayor Margaret Kouvelis. The document recognises the common interests that exist between the three parties and records the intention to work together to create mutual benefits. The Statement of Intent provides a framework for the next 10 years, to ensure that this relationship is actively managed and that where possible, collaborative outcomes are identified and implemented. The Statement of Intent was the outcome of strategy discussions between the Mayors and Chief of Defence Force that sought to integrate the Defence Force into long term planning and to align the focus of the three groups beyond the military posting cycle and the effects of elections. Manawatū District Mayor Margaret Kouvelis believes these relationships will encourage and enable growth. We see the Manawatū as a hub of capability for Defence and related activities. We want to enable closer working relationships between our joint Councils and the Defence Force so that we can encourage shared strategies for growth and jobs.

Measuring economic benefits The economic benefits to the Manawatū region from having New Zealand Defence Force (NZDF) establishments at Linton Army Camp, Hokowhitu Base and Ohakea Airbase are much broader than the salaries and wages paid to employees. Economic activity also includes the payments to contractors at the three bases, and purchases of goods and services from local businesses. This makes Linton the largest defence base in New Zealand, with more personnel than the Devonport Naval Base. There are around 2,670 people employed at Linton and the Hokowhitu Base in military and civilian roles, accounting for around six percent of the total work force in Palmerston North. The Camp was significantly expanded in size in the early 1990s, providing a significant boost to economic and population growth in the City during that time. Further growth has occurred in more recent years, with transfers of personnel from Waiouru and Burnham. In 2016, Linton was home to half of the Defence Force s Army personnel. Defence Force elements based at Linton: 1st Battalion Royal New Zealand Infantry Regiment - provides a light infantry capability; Queen Alexandra s Mounted Rifles - provides the Army s light armoured capability; 16th Field Regiment - provides an offensive support (artillery and mortar) capability; 2nd Engineer Regiment bridge and building construction capability, and selected specialist military engineering services; 1st New Zealand Signals Regiment located in Linton and 3rd Signals Squadron in Burnham - provides the communications capabilities for national and internationally deployed Task Groups; 2nd Combat Service Support Battalion located in Linton, and 3rd Combat Service Support Battalion located in Burnham - provides logistic support for deployed personnel both nationally and internationally; and 2nd Health Support Battalion - provides operationally focused medical support including field hospitals and dental services; School of Military Engineering. Lockheed Martin Global Incorporated (NZ) provides depot level warehousing and equipment maintenance support to the Army units in Linton Camp. The Land Operations Training Centre based in Palmerston North at the Hokowhitu Campus has schools located in Waiouru, Linton, Trentham, and Burnham, and is responsible for teaching and certifying New Zealand Army combat and logistics doctrine and principles. Personnel based at the Hokowhitu Campus are counted in the 2,670 personnel at Linton.

Defence Force elements based at Hokowhitu Campus: Training and Education Directorate. Tactical School. School of Military Intelligence and Security. Logistics Operations School. When the Army and Hokowhitu Campus jobs are added to the 830 people employed at Ohakea (which accounts for 10 percent of the total work force in Manawatū District), the total direct impact on employment in the Manawatū region of the NZDF is around 3,500 jobs, over six percent of the total work force in the region. Defence Force elements based at Ohakea: No. 3 Squadron - comprising Rotary Wing Transport Forces including eight NH90 Medium Utility Helicopters and five A109 Training/Light Utility Helicopters. Also responsible for helicopter conversion training for graduated pilots and helicopter crewmen, Search and Rescue activities, medical evacuation, NZ police support and assistance to other government agencies. No. 14 Squadron comprising 11 Beechcraft T-6C Texan II pilot training aircraft in its Pilot Training Squadron. Graduated pilots then go on to further training either with No 3 Squadron or No 42 Squadron. No. 42 Squadron conducts multi-engine conversion training of pilots using four Beech King Air B200. Jobs, wages and spending The economic impact of the Linton, Hokowhitu and Ohakea bases, however, is greater than their six percent share of total jobs in the region would suggest because a high percentage of the NZDF jobs are full-time (97 percent) compared with the average of 77 percent for jobs in the Manawatū region. As a result the NZDF share of salaries and wages paid in the region is around seven percent of total salaries and wages paid in the region. The combined NZDF total annual Manawatū region personnel (salary and wage costs) expenditure is approximately $182 million. Additional to this is domestic operating expenditure of $16 million, which includes items like laundry services, vehicle and building repairs, food, fuel and vehicle hire, and is predominantly spent in the local economy. The economic impacts from that $182 million wage bill and defence spending in the local economy for the city economy are significant but are even greater when the additional flow on impacts of that increased spending in the local economy is taken into account.

Estimating economic impact Estimating economic impacts is done using multipliers, which are used by economists to measure the downstream, or flow-on effects of an initial change to a particular industry. Multipliers generally estimate the direct, indirect, and induced effects of one additional unit of final demand for a particular industry s output on the entire economy. The direct effect is the expenditure in the region generated through the purchase of goods and services from local businesses and the payment of salaries and wages to employees. The indirect effect occurs as domestic economic activity is increased, for example, through increased enrolments in schools and early childhood education, and increased spending at retail businesses in the region due to the families of defence personnel living in the region. This results in the suppliers of those services increasing their salaries and wages and purchases from domestic businesses. The induced effect occurs as a result of the increased incomes for households, both defence employees and from suppliers to the defence bases, which flows through into increased spending in the local economy. This requires more people to be employed and increases business profits, so produces a second round of increased economic activity as a result of the original growth in activity. Multipliers for economic impacts at a regional level are lower than national multipliers because of leakage of expenditure from the region. At a national level the primary form of leakage is for imports, which make up a proportion of the goods sold as a result of the increase in economic activity, either through the direct sale of imported goods or their incorporation into locally manufactured products. At a regional level imports from other regions are also factored into the calculations. Impact on the Manawatū region economy The New Zealand Institute of Economic Research (NZIER) economic model for Palmerston North suggests that a $1 million increase in economic activity by the defence sector contributes to a $1.85 million increase in economic activity (GDP) in the local economy. While this recognises that only a proportion of the financial gains from this economic activity remain in the city, the model estimates that each $1 million increase in annual defence activity would further increase city incomes by $410,000 annually and contribute to the creation of 20 additional jobs in the city. Economic models are limited in their full assessment of the economic change that would occur if the defence forces were not based in the region. However, the model suggests that in addition to the 3,500 jobs at Linton, Hokowhitu and Ohakea and the $198 million in annual personnel and operating expenses, there has been a further increase in: economic activity in the local economy by $350 million, household incomes by $75 million, and 3,700 more jobs in the Manawatū region.

The economic gain for the Manawatū region would be even greater than this since the model is only based on economic activity in the Palmerston North economy. Manawatū District supplies some of the inputs to the Palmerston North economy such as agricultural products, so Manawatū region multipliers are higher than the Palmerston North multipliers. The NZIER model takes account of the economic contribution of the partners of defence force staff who have also moved into the region when soldiers or air force personnel are transferred here. While there is regular movement of NZDF staff between bases in different regions, the recruitment of young people, particularly at Linton, also brings spouses and partners into the region and assists other employers in the region through increasing the supply of labour for other sectors. In summary, the overall gain to the region from having the three defence bases is an estimated gain of more than 6,900 jobs, an increase in household incomes of $264 million and a $540 million increase in regional GDP. Broader effects of defence forces in the region An economic impact which is more difficult to measure is the income flow into the region when Defence Force personnel are deployed overseas on peace keeping operations and UN missions. The spouses and families of the personnel who have been deployed overseas usually stay in the region and continue to be financially supported by them, so the income still benefits the region, even though the Defence Force personnel may be working far from home in postings in Afghanistan, Timor-Leste, the Solomon Islands, Iraq, Sinai, Antarctica, South Korea, South Sudan and UAE. The central location of Palmerston North between Waiouru and Trentham/Wellington, availability of affordable housing, and access to educational opportunities for their families have contributed to some Defence Force personnel choosing the region as the ideal place to settle and commute to the other bases or Defence Headquarters in Wellington. This also increases the overall economic gains for the region since the salaries for these personnel are not included in the Linton or Ohakea data. In recent years a number of former NZDF have started new careers working for private security companies working in a number of international conflict zones. The high wages offered for contracts in high risk zones like Iraq have proven attractive to many NZDF staff, but the incomes generated from this work often remain in the local economy. Many of these security contractors leave their family in New Zealand and remit their wages home while they are away on contract. Official employment data shows a loss in jobs to the local economy but the wages still continue to flow back into the city. Currently very little data is available nationally on remittances into New Zealand so it is not possible to measure the inflow into the regional economy.

Recruitment and training Linton and Ohakea play important roles in bringing young people into the region for training. Trade training offered for soldiers at Linton includes plumbing, carpentry and electrician apprenticeships, while training is also offered for other service personnel through a military studies institute. A university officer training programme contributes to leadership skills development and supports the defence studies programme based at Massey University s Palmerston North Campus. The two bases are therefore an important component in the development of skills for the wider regional economy, especially once Defence Force personnel end their period of service and move across to jobs outside the defence sector. Businesses, local government and other central government employers all benefit from the training provided. Capital expenditure Plans were announced in 2006 for Ohakea to become the largest Air Force base in the country, and initial work was prepared for significant expansion at Ohakea as the RNZAF Base Whenuapai in Auckland was progressively closed down and aircraft and staff transferred to Ohakea. The completion of the new state-of-the-art military air base was originally scheduled to be fully operational at Ohakea by 2015. While the government decided to retain the Whenuapai Airbase, it had already committed to major spending at Ohakea. Funding of $129 million for the Essential Infrastructure Project was approved by the government in late 2007, providing timely support for economic activity and jobs in the region during and after the 2009 global financial crisis. The latest Defence Force Regeneration Plan released in August 2016 identifies $397 million of capital investment in the Manawatū region between 2016 and 2030. The plan provides more details on investments over the next five years, which total $176 million for the region. Major projects during this five year period are: Linton Camp Centre Multi-purpose Building Camp Workshop Logistics Warehouse Multi-purpose Unit Facilities Ohakea Base Multi-purpose Administration Building Taxiway Replacement Physiotherapy and Medical Facilities Warehouse up to $25 million up to $20 million up to $15 million up to $10 million up to $20 million up to $20 million up to $15 million up to $10 million The economic impact that these projects bring to the region is additional to the economic impact noted earlier but these projects are one-off in nature.

Increasing population growth A further positive economic impact comes from the demographic change which is occurring in the Manawatū, especially in Palmerston North. The City has a young population due to the age of the people who come into the city as tertiary students and new enlistments to the Defence Force who are posted to Linton after their initial training. As a result the City is not expected to experience the same aging in its population compared with the overall trend. Long-term population projections prepared by Statistics New Zealand suggest the median age in the City is expected to rise by 3.6 years to 37.0 by 2043, while the national median age is expected to rise by 5.2 years to 42.7 by 2043. The projected 2043 median age for Palmerston North of 37.0 years will be the lowest of any local authority in New Zealand. The City has also gained an increased population share for ethnic groups which are experiencing higher growth rates than the predominant European population. These ethnic groups have very young and rapidly growing populations. In 2013 the median age for Māori living in Palmerston North was 22.0 years and 20.5 years for the Pacific population, much lower than the median age of 35.4 years for the European population in the city. The young age of these two populations and higher fertility rates (the number of births per female) explain much of the higher growth rates for the Māori and Pacific ethnic groups in the region. Both the Māori and Pacific ethnic groups are more prevalent among the Linton Military Camp personnel and also for the families living at the Camp. In 2013, 47 percent of the population living at the Military Camp identified as Māori compared with 16.5 percent for the City population. The Pacific share of the Linton population was 11 percent in 2013 compared with an overall share of 4.5 percent for Palmerston North. The Linton data includes the service personnel living on the base and their families. Statistics New Zealand ethnic population projections for the period from 2013 to 2038 suggest the Māori population in Palmerston North will increase by 2.2 percent per annum, while the Pacific Island population will increase by 3.2 percent per annum, well ahead of the projected overall annual average population growth of just 0.6 percent per annum over this period. The Palmerston North population is projected to grow by 13,400 people between 2013 and 2038, with the Māori population contributing 78 percent of the total population growth in the City, and the Pacific population contributing 34 percent. 1 1 These percentages add to more than 100 percent because of the increase in the proportion of the population who identify with more than one ethnicity, particularly in younger age groups in the City.

Workplace ethnicity and median age by location Workplace European Māori Pacific Peoples Asian Middle Eastern Latin American/ African New Zealander Median Age (years) Percentage share where ethnicity stated New Zealand 77 11 5 11 1 2 37.5 Manawatū Region 84 12 2 6 1 3 Manawatū District 88 11 1 3 0 3 40.6 Ohakea 89 9 2 2 0 7 24.8 Palmerston North City Linton Military Camp 83 12 3 7 1 2 33.4 77 30 6 3 0 4 23.8 Note: Percentages add to more than 100 percent as more than one ethnic group can be identified. Source: Statistics New Zealand

Reserve Forces Reserve Forces or Territorial Force personnel are additional to the permanent staff employed at Linton but their economic impact in the region is small compared with the size of the permanent defence workforce based in the region. The Reserves generally conduct their training in their home locations of Auckland, Bay of Plenty, Whanganui or Wellington, while the bulk of their field training activity occurs in Waiouru. As a consequence, the contribution from the Reserves to the economic activity of Manawatū is not significant from a financial perspective, and was not included in the economic impact estimates discussed earlier. Attracting visitors to the region Defence Forces participation in events is commonly seen in pre-match entertainment at major sporting events in the Manawatū. The arrival of one or two helicopters at the irregular Hurricanes games held in Palmerston North or the first Turbos game of the season have been a feature for a city with two defence bases so close at hand. The Black Falcons aerobatics team are another common sight at major events and add to the attractions that the tourism promotion organisation Central Economic Development Agency (CEDA) can boast of in the region. A major visitor attraction for the Manawatū is the air show at Ohakea, while the Fathers Day Kite Day at Ohakea is popular among local families. The availability of the long runway is especially of interest for events like Blokart racing. Manawatū Defence Hub Since 1997 the Manawatū Defence Hub has acted as a one-stop centre for expertise in supply and procurement for Defence Services in New Zealand. The Manawatū Defence Hub is a collective of like-minded businesses experienced in the supply of products and services to Defence and other security, public service and civilian agencies, including NZ Police, NZ Fire Service, Department of Corrections and Civil Defence. The Defence Hub is an association for local businesses capable of professional, proactive supply to the defence force and for the wider procurement community seeking innovative and reliable sources for goods and services. Affiliation with the Hub provides a focus for action, advice and information, and identifies supply and business development opportunities for Defence Hub Members. Conclusions The location of two defence bases in the Manawatū brings significant economic benefits to the region through the growth of the work force at the bases, the growth in the region s population through the families associated with the Defence Force personnel, and purchases from local suppliers. While most of the Defence Force s major purchases come from overseas suppliers, there have been opportunities for local companies to develop new business opportunities through the supply of products and services to the local bases. The $198 million personnel and operating expenses contribution from the Linton and Ohakea is only part of their economic contribution to the region. Both bring young people into the region that would not have necessarily chosen to move here and many stay, choosing to bring up their families in the region. Many bring spouses with them with skills needed in the local work force, so assist local employers which have in the past experienced difficulty attracting staff to the region.

ACKNOWLEDGEMENTS The sector profiles for the Manawatū region have been developed by the Palmerston North City Council to provide a better understanding of the different components of the Manawatū region economy and the contribution each sector makes to the demographic and economic growth of the region. Even within the broad industrial sectors of the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 there can be a diverse range of activities undertaken. It is useful to understand which sectors are growing, and are likely to grow in the future, as well as their overall contribution to jobs and incomes in the region. The statistics in the profile are drawn primarily from Statistics New Zealand data. Valuable support and advice was provided by the Defence Force. PUBLISHED BY: City Future Unit Palmerston North City Council Private Bag 11034 Palmerston North FOR FURTHER INFORMATION PLEASE CONTACT: Peter Crawford Economic Policy Advisor Palmerston North City Council Private Bag 11034 Palmerston North peter.crawford@pncc.govt.nz Palmerston North City Council W pncc.govt.nz E info@pncc.govt.nz P 356 8199 Private Bag 11034, The Square, Palmerston North, 4442