The global trends shaping our future
Chapter three
The challenges that lie ahead for Aotearoa generate a level of complexity, uncertainty and disruption that are significant in our lifetimes.
The global trends shaping our future
The challenges that lie ahead for Aotearoa – climate change and sustainability, chronic inequities, global economic and geopolitical change – and the confluence of social, technological, political, and economic megatrends generate a level of complexity, uncertainty and disruption that are significant in our lifetimes. In the face of these conditions, we cannot chart a linear course up front and then act on it – our choices are subject to uncertainty, and our actions will be subject to shocks. Yet the consequences of action, or inaction, are greater than ever before.
We find there is a high degree of consistency in what we are seeking in Aotearoa: future states that are more positive and more aligned with what we value – although the details of those future states do vary by community. Our history of colonisation, and significant events of war and disaster, have far-reaching consequences for our ability to navigate to a better future. Equally, our natural assets of environmental and human capability, as well as our strong institutions, give us the foundations that could be used to propel us into these better states.
Many of the trends that shape our possible futures are global in nature, and we can and should look at how others are positioning themselves. But they will create tensions and trade-offs that are particular to Aotearoa. Within and between the megatrends lie many big decisions and challenges that we will need to confront as we look to the future. Many of our big decisions are growing increasingly urgent, and in the process of navigating the future, we will have to make difficult trade-offs.
In this chapter, we analyse six megatrends shaping our future and lay out the challenge for our strategic capabilities to navigate through their consequences.
Geopolitical tensions
This megatrend highlights the reality of geopolitical tension and conflict and the role this plays in the security and stability of Aotearoa as a small trading nation. The megatrend amplifies uncertainty and has significant potential for disruption.
Geopolitical tensions and conflicts continue to have far-reaching impacts on international relations, economies, markets, and our daily lives. Russia's invasion of Ukraine has been a vivid reminder of how interconnected our economies and supply chains are. Supply chain shocks in commodities from flour to fuel, the resulting inflationary pressures and its impact on global economic growth are among the persistent trends resulting from these conflicts.7 At the same time, cyber risks have increased, and further escalation, though unlikely, cannot be ruled out.
Increasing tensions between the United States and China also present risks and opportunities for trade – our imports, exports, and supply chains. Tariffs imposed by both countries have reshaped trade dynamics, creating some short-term niche opportunities for countries like Aotearoa to replace some of the previously imported American products in China.8 Deloitte’s global insights feature on ‘Supply chain resilience in the face of geopolitical risks’ suggests the evolving US-China relationship could lead to two scenarios: strategic competition and decoupling. Each scenario carries complex and evolving implications for supply chains and trade relations, necessitating adaptability and strategic planning.9
Moreover, both the US and China are vying for influence in the Asia Pacific region, forging alliances and investing in various economies. China's pursuit of security agreements with Pacific Island countries has raised concerns about shifting geopolitical and security dynamics in our near region. Aotearoa faces the challenge of determining an appropriate diplomatic response and balancing the sovereignty of fellow Pacific nations as these dynamics evolve.
Climate change and nature
This megatrend highlights the impacts of climate change, nature and biodiversity loss on the stability of our economies, our critical infrastructure and supply chains, and indeed a threat to our existence. The megatrend amplifies complexity, uncertainty and disruption as we grapple with complex and cascading consequences, and mitigation or adaptation actions that must be sustained over a long time.
Aotearoa is no stranger to existential risks from our environment. Our Alpine and Hikurangi fault lines pose a significant threat to people, infrastructure, and our economy. The probability of a magnitude eight or greater earthquake occurring before 2068 is about 75% (due to the Alpine fault rupturing),10 and 26% (as a result of a Hikurangi Subduction Zone earthquake).11
Regions of Aotearoa are experiencing higher temperatures in the summer months, rising sea levels, and retreating glaciers. The resulting retreat of our ecosystems isn’t the sort of climate event we notice every day – it’s a silent and potentially deadly threat to our environment, global food security, agricultural sectors and economies that is unfolding right under our noses. The direct impacts of climate change and human activity on nature and biodiversity bring a new set of threats to our way of life and even our survival.
Rising temperatures are causing a decline in the health and numbers of insects that pollinate an estimated 90% of the Earth’s flora and an estimated 35% of global crop volume.12 Three-quarters of all crops around the world depend on pollinators. It is estimated the annual contribution of these insects to the world economy could be as great as US$577 billion.13 Our survival requires a coordinated, long-term response. If climate inaction persists, it is projected that, by 2050, the cost to the Aotearoa economy could reach a staggering NZ$4.4 billion. On the other hand, the Deloitte New Zealand Turning Point report finds that decisive climate action could deliver NZ$64 billion to Aotearoa’s economy by 2050.14
The frequency and severity of severe weather events globally and locally are on the rise. The number of events increased by a factor of five over the past 50 years (more than 11,000 reported disasters attributed to these hazards globally, with just over 2 million deaths and US$3.64 trillion in losses).15 While there are dissenting views on whether the severe weather events experienced in Gisborne, Hawke's Bay, Auckland, and Northland are linked to climate change, our first-hand experience of how devastating weather events are is a wake-up call. Critical infrastructure has suffered unprecedented damage, particularly in the East Coast, Northland, and the Coromandel. The impact of the recent weather events is still being calculated (with estimates upward of $8 billion), and it is acknowledged by all that supporting affected communities and rebuilding for resilience is critical.
Recovery and preparing for future shocks will take significant investment. In the 2023 Budget, the Government announced $6 billion to fund a National Resilience Plan in response to Cyclone Gabrielle and other extreme weather events. The initial focus of the fund will likely be on road, rail, local resilience, and telecommunications and electricity transmission investment.16 The increasing frequency of extreme weather events and rising temperatures will further undermine our infrastructure, with asset maintenance becoming increasingly unaffordable for local councils.
Around the world, governments are being challenged on how they adapt, mitigate, and build preparedness and resilience. As we grapple with these challenges, decision-makers in centrally and locally led agencies must find ways to balance the diverse needs of communities and cities while assessing options for infrastructure protection and absorbing the escalating costs of infrastructure maintenance.
Deloitte Partner, Adithi Pandit on the global trends shaping our future
Persistent inequity
This megatrend highlights the persistent inequity in the distribution of wellbeing – across financial, educational, health and social domains. The megatrend amplifies complexity as we must redress persistent inequity while achieving outcomes across environmental and economic domains.
Equity is the fairness in the distribution of wellbeing – whether everyone is able to share in advances in wellbeing and have access to the building blocks of a good life. The topic of equity was canvassed extensively in our Deloitte State of the State 2019 from a variety of perspectives, including democratic voice, intergenerational equity, digital equity and equitable growth. Reflecting on this from our current perspective, it is clear that inequity remains persistent in New Zealand.
Despite the median net worth of Aotearoa households increasing between 2015 and 2021, there has been no significant change in the distribution of wealth over the same period. The top 10% of Aotearoa households continue to hold approximately 50% of the nation’s total household net worth.17 Net worth varies significantly between different demographic groups. In 2021, the median individual net worth of Pākehā was $151,000. Māori had a median individual net worth of $42,000, even after adjusting for their younger age profile.18 The Pacific Pay Inquiry by the Human Rights Commission revealed that in 2021 for every dollar earned by a Pākehā man, Pacific men were paid just 81 cents and Pacific women only 75 cents. Over the course of a lifetime, this accumulates to a $488,310 difference in lifetime earnings for Pacific women.19
These disparities in financial wellbeing translate into systemic inequities in the social, educational and health domains. Overall, indigenous populations are experiencing lower income and life expectancy, poorer education and health outcomes, and stigmatisation within health care, among other consequences.20 The cost of living in Aotearoa has risen 7.7% in the past year21 and has widened the gap between richer and poorer households.22
The same groups most impacted by the cost of living are also more at risk of climate change impacts, so the actions we take to mitigate or adapt to climate change must take an equity lens. The impacts of supply chain shocks and scarcity of resources will be felt most harshly by those communities who have historically been marginalised or are vulnerable due to lower economic and social capital.
In te ao Māori, the wellbeing of Papatūānuku, of te taiao, and the wellbeing of whānau are connected. Western thinking – from doughnut economics to ESG – is catching up. But not all our choices can be win-win.23 Families in poverty do not have the luxury of choosing free range or ethical produce, of investing in insulation, or of taking public transport to a shift-work job. At a household level, meeting their needs will mean choices that are not good for the environment.
We see these tensions writ large in our cities. The public housing system – focused on safe, warm, and affordable homes for citizens and families – is incentivised to build where land is cheaper. Today, that usually means further away – from work, from leisure, from services. This places greater pressure on the transport system, which is already struggling to meet the emissions reduction and sustainability targets it is charged with. The concept of liveable or 15-minute cities seeks to address both objectives but is a paradigm shift for residents, businesses, and policy-makers. So, in the meantime, we are choosing: affordable housing or emissions reduction, or finding innovative solutions to achieve both?
Polarised perspectives
This megatrend highlights the impacts of misinformation and disinformation on social cohesion and the balancing act to be struck in engaging diverse voices and building trust and engagement. The megatrend amplifies the complexity of the information landscape and disruption when events reach flashpoints.
Persistent inequity is one factor that fuels growing social division. Inequities globally have come to flashpoints – a breakdown of social cohesion as the social contract between marginalised communities and the state is no longer trusted.
Studies in Europe show significantly increased disagreement on economic and social issues in the last 20 years24; global surveys have shown we are feeling more polarised.25 In Aotearoa, we are also experiencing the highest levels of disinformation and conspiratorialism seen yet.26 The 2022 occupation of Parliament grounds and the growing political divide ahead of the 2023 election are visible indicators of diverging perspectives in Aotearoa. Our country, like others, is increasingly concerned about extremism on the internet – with concerns peaking in the wake of the Christchurch terror attacks.27 The subsequent Royal Commission of Inquiry and body of research has shown that extremists are noisier, more visible and angrier online than the average Aotearoa user, and our profile of extremist users fits with an international pattern in terms of extremism per capita.28
The media has a role to play, too. Engagement motivates the media, and controversy drives engagement. Stuff’s 2020 investigation into the portrayal and representation of Māori in its own reporting and its subsequent Te Tiriti o Waitangi charter is an example of the sort of media self-regulation necessary to ensure the nature of reporting doesn’t fuel polarisation.29
The Government is already facing the challenge of navigating complex, conflicting and sometimes dangerous perspectives and expectations. There is tension for the government on whether to engage with polarised groups. There are risks either way. It’s difficult to know how to achieve resolution and how to best enable the success of a decision when the audience is polarised. When a minority set of loud voices are thwarting the conversation, should we listen and engage or push forward? If we don’t listen, we risk major derailments and we potentially fuel greater polarisation. If we do listen, we risk over-privileging minority voices and getting lost in an endless debate.
When this tension plays out, we land in the unhappy middle ground of policy gridlock. Decisions are stalled or totally ignored because we are too afraid to make choices that might upset people, or we don’t have the relationships or richness of information necessary to find new pathways. Should we listen to polarising perspectives, even when it potentially amplifies harmful narratives and risks a shrinking window of opportunity? What can we do to enable meaningful engagement, consensus, and resolution? And how do we prevent disagreements in one area from spilling over into others and eroding trust in governments and institutions more broadly?
An ageing and changing population
This megatrend highlights the shifting demographics of our population, painting a picture of a different Aotearoa in the future and an increased need for engaging and embracing diversity. The megatrend amplifies complexity as we seek to integrate and build on diversity.
By 2030, approximately one in six people worldwide will be over 60. In Aotearoa, the 65+ population is expected to reach one million by 202830, potentially comprising a quarter of our population by 2050.31 Ageing well – and equitably – will be a significant challenge; New Zealand enjoys an average life expectancy of 82 (one year above the Organisation for Economic Co-operation and Development (OECD) average)32 but that masks notable disparities in life expectancy and health outcomes, particularly for Māori and Pacific communities. Governments are also grappling with broader economic implications, including the rising costs of retirement while an extended ‘middle age’ potentially stimulates economic growth and has a greater capacity to lean into public life.33
Our ethnic makeup is also shifting. In Aotearoa, the Māori population is projected to grow, comprising nearly 20% of the total population by 2038 (up from 15% today) – and will be younger than the non-Māori population.34 The Pacific population is also expected to increase, making up 11% of our population by 2043 (up from 8% in 2018).35
As our society diversifies, so will the worldviews and ideologies that sit within it, challenging us to create inclusive and equitable results from our schools, universities, workplaces, and institutions. Aotearoa is grappling with both bi-cultural and multi-cultural paradigms, which means embracing the opportunities that diversity brings and acknowledging and addressing where we are today and how we got here. The ongoing impacts of colonisation and the inequities and harms it has created need to be recognised and addressed, with our Tiriti foundation adding a cultural primacy lens to diversity discourse.
Accelerating technology landscape
This megatrend highlights the rapidly changing technology and information landscape we are operating within, which creates opportunity and challenges our assumptions of how we live, work and play. The megatrend amplifies uncertainty as we struggle to predict the pathways of future technology.
Rapid technological advancement continues to sculpt our lives; changing how we live, work and play. The ways we connect to and use the internet are becoming increasingly diverse and immersive. Whether through gaming or other means, 25% of consumers could be spending at least one hour in the metaverse (which uses augmented reality to place users in a digital world) each day by 2026, while 30% of businesses are estimated to have products and services ready for the metaverse in the same timeframe.36
The ways in which we can use technology to modernise infrastructure will continue to change how we get around and how we interact with the physical world. The Internet of Things (IoT) automation presents opportunities to improve our cities and experiences. Think adaptive traffic lights, smart parking, optimised maintenance of our public assets and seamless experiences across different public services.
2023 is the year the world first began to really understand how increasingly capable, applicable, and disruptive artificial intelligence (AI) can be. Its real limitations will be human: our risk appetite, our trust as users, our algorithms, and our ethical judgements on its application – all of which will inform the governance and controls we put around the use of AI. The opportunity is undeniable, and we face fundamental questions: how will we allow it to advance? How will we choose to use it? Will we simply wait for other nations to regulate AI, or will we take matters into our own hands?
We have more data than ever before and the ability to draw on more information more rapidly. At the same time, our ability to know what the future holds and make assumptions about the future that stick is degrading. There are more unknowns, so our assumptions are less valid. We can identify predictable and unpredictable high-impact risks and events, but knowing how to respond, and quickly, is not something we can get technology to do for us (yet).
Our human capacity to synthesise information and make decisions lags behind the rate of data collection and technology-aided analysis. This makes it hard to get the best value out of data and risks us ending up in an endless cycle of synthesis and decision paralysis. What happens when a new set of data points is ready to be tipped into our thinking by the time we feel we have enough information to act? When knowing all the facts is impossible because of uncertainty, how to build the confidence to make decisions and keep moving forward? Are we willing to let AI participate in wayfinding given its capacity to synthesise information is much faster than ours? These are the tensions we will have to navigate as we learn to make tough decisions in an ever-changing technology and data landscape.
