Stop Navel Gazing: New Zealand Must Become Part of Asia

Saturday 10th Mar 2001

Speech -- Other

Click here to download Gavin Faull's presentation

International Speaker Gavin M. Faull's Address to the ACT Annual Conference, Hotel Grand Chancellor, Christchurch, 8.50am, Saturday, 10 March 2001

Sir Roger Douglas, Members of Parliament, Members of ACT: I feel very humble and honoured to be invited as an international guest speaker, especially as I am a New Zealander, being a descendent of the Te Atiawa tribe from Taranaki. I began my working life as a freezing worker in Waitara, earning money to pay for my university studies. I live in Auckland but 95 per cent of my time is spent operating my hotel management business in Asia based out of Hong Kong. So I suppose that I am an international businessman and therefore qualify to present an international perspective on how I see New Zealand reaching the 10th by 2010 goal.

Each month I travel to China, Vietnam, Philippines, Indonesia and Hong Kong, reviewing and managing hotels. Each month I travel to Taranaki where I manage my dairy farm, business and international hotel management school

I see dramatic differences between New Zealand and Asia.

I live in Auckland because I want to be a New Zealander, I want my family to be New Zealanders, I want to contribute to New Zealand’s future. I love this great country

But a solid economy with sustainable growth is the only way that we can move forward. It’s the only way we can improve our standard of living, the only way we can achieve 10th by 2010

But this government makes it so hard to stay here. It makes is so hard to be positive.

I was at a meeting last week with international bankers. And they were telling me that the Australian bankers are all centralising their banking operations in Sydney away from New Zealand:

HSBC has moved its treasury department from Auckland to Sydney. Merrill Lynch has moved to Sydney. ABM Ambro has reduced its office in Auckland to a rep office.

Telephone call centres are also moving off shore. India is developing worldwide call centre operations and are training staff to have American and English accents so that their services are “really global” to ensure that the customer feels comfortable talking to one of their own.

Where is New Zealand?

Why can’t we develop such opportunities?

Top business people and companies are leaving New Zealand

And I get the feeling that the government and many of our people do not feel unhappy to lose these capitalistic profiteers.

But, who is going to generate our jobs, grow our businesses, grow our economy, attract international capital flows, grow our gst tax base, grow our profits and salaries tax base…

The economic growth generating list goes on and on.

My international banking friends see the break up of Fletchers as a total indictment on the state of the New Zealand economy and management.

Regarding capital flows and international investment, I would issue a note of warning over the Treaty of Waitangi claims.

I appreciate very well that this is a very complicated, emotional, historical and political issue. However the treaty claims are not understood by the international investor and the uncertainty and confusion is scaring off international land-based investment.

Refer to a recent article in the Dominion where it was reported that the economist intelligence unit had identified the Treaty of Waitangi as a definite discouragement to foreign investment.

The claims are seen as reinforcing cultural focus on redistribution rather than wealth creation. Asia is full of history involving invasions, looting and exploitation.

But Asia tries to look forward and challenge the issues of the future rather than “correct” historical events.

I identify this point, however it is too complicated to discuss any further in such a presentation.

The New Zealand dollar is another issue. The international bankers see it as a drifting currency. Influenced solely by trade and capital flows

However we have seen massive outflow of capital in the last two years, which has pressurised the dollar. The New Zealand dollar will only strengthen on exports and our trade and our terms of trade.

The government is very lucky at the moment with the strong agricultural sector and tourism but these are only reflecting the usual five to seven year cycles and the low dollar

However I do not want to focus on economics but rather, opportunities

ACT has a major responsibility as the only party in New Zealand that sees a strong, competitive and productive economy as the basis for a better New Zealand and a progressive New Zealand

We cannot solve any of the social, racial, educational or healthcare challenges without a growing economy.

Without profits and jobs the government cannot count on tax income to fund its programmes. Raising tax rates and tightening the tax net destroys the economy and actually reduces the amount of tax collected. This is an undisputed fact. After 25 years operating in Hong Kong I know this is true.

Why can’t we learn from other economies? Low flat tax rates creates the incentive for growth, resulting in profits, jobs and tax flow.

This morning I want to give just a few simple observations on New Zealand.

Mr Shirtcliffe gave a great challenge to us all last night, by proposing that New Zealanders adopt a national goal. As he pointed out, the country lacks goals and therefore lacks challenges.

Why has it happened? Why is it getting worse? Where have the ideas and leadership of Sir Roger and his colleagues of fifteen years ago gone?

I used to be so proud to be a New Zealander in Asia as everyone talked of our economy, of our environment and our progressive approach to global economics.

We are now seen as a broken economy with no direction. The outflow of Asian capital in the last two years as well as Immigrants (not just New Zealanders) confirm this.

Mr Shirtcliffe’s address last night identified many of the key issues. Richard Prebble’s chapter in the new ACT book clearly sets out the issues.

But are things going to change? Can we focus as a country?

I preach to my management teams in Asia that to succeed we must focus, set goals and work as a team…

We may have the best talent in the world, but like the All Blacks, if we do not work as one people; if we do not share common goals; and if we do not believe in each other, we will fail

I want to focus on the Asian opportunity.

I believe Asia is the key to New Zealand being globalised and being part of the world economy. Asia is the New World and has to a certain extent “open” borders and opportunities.

Unlike the mature economies of USA and Europe. Mike Moore is doing a great job, but the removal of trade barriers in North America and Europe will be slow. Asia is our closest land mass representing 60% of the worlds population.

And will be the fastest economic growth area in the next decade. Why go past it? Why turn our back on this great opportunity?

Mr Prebble if there is going to be any chance of the “10th by 2010” goal being achieved we must look no further than Asia.

Does ACT have a comprehensive policy platform on Asia? If it has I have not heard about it.

Asia must be part of all political platforms, must be part of foreign policy, must be part of international trade policy, must be part of tourism development, must be part of agricultural policy, must be part of education policy

ACT may have addressed these Asian issues. But the electorate has not heard about them.

What is the government policy in these areas in relation to Asia?

I have heard nothing. I have seen nothing.

Asia appears to only be seen as part of immigration issues. This is where I see our political leaders as inward looking, rather than global thinkers.

This what I classify as “navel gazing”. When I challenge these issues with my friends in New Zealand they often say “but it is a great place to live and bring up children”

This is like farmers saying that “farming is a way of life” which is the answer when they get to the end of the year and there is no profit!

For how long can we go on like this?

Our OECD ranking is a clear signal: Asia is in a major growth phase and is “looking” for help and assistance. Asia wants to be partners with neutral countries like New Zealand

Lets not miss this great opportunity

I first went to Hong Kong in 1973 and I have spent the major portion of my working life in Asia or with Asians.

When I had eight years working for a public company in New Zealand and Australia I was working with Asian investors. I appreciate the potential at our doorstep however I would never say that I fully understand the Asian mind or their business procedures. But for goodness sake do not let such issues hinder the opportunity.

I often get the feeling that New Zealand business is scared of Asia. Don’t be. But be cautious.

Asia is moving so fast it is unbelievable

I will present some figures and data to show “the pace”.

But my key message is “we must get into Asia”, otherwise we will miss out.

I commissioned a company called Asian Demographics Ltd to put together some information on “what is Asia?” Asian Demographics Ltd is a New Zealand based demographics information company focusing solely on Asia and distributing.

It’s information electronically to the business communities of Europe and North America. The company is lead by Dr Clint Laurent, a New Zealander who is very well respected and well known internationally in Asian demographics.

The objective of this presentation is to show the pace of growth and change in Asia. To show the potential. Remember 90% of the New Zealand economy is tourism; food/agriculture and education. These are the areas where Asia has perhaps the greatest demands and where New Zealand has world class skills.

New Zealand has some of the lowest production costs in Asia in respect of agriculture, food production, tourism and education

Therefore there is a great opportunity to capitalise on the cost and expertise elements of New Zealand in the Asian environment.

Asia stretches from Japan to Indonesia (including India although I will not refer to india in my data)

Note Australia and New Zealand are not seen as part of Asia.

There is significant change taking place in the demographic and socio-economic environment of Asia. Such changes creates opportunities for products and services ranging from manufactured goods to tourism.

Key opportunities are:

New-age aged Urbanisation The skilled office The affluent empty nesters Less affluent new households The rich New games – old markets

The new-age aged

In the affluent countries of Asia, forget all preconceptions about old people.

The aged of the next two decades are:

Well educated – 40% have secondary or better education In good health Have good savings

Average household earnings (of HK, Singapore, Japan, South Korea, Taiwan ) while working was US$30,000 in the last decade. Japan alone was us$60,000

By 2020 in Singapore, Hong Kong, Taiwan and South Korea there will be:

10 million more persons over the age of 60 years Representing an annual growth rate of 3.8% Which increases the total 60+ age group from 9.3 million in 2000 to 19.6 million in 2020

By 2020 in Japan there will be :

11 million more persons over the age of 60 years Representing an annual growth rate of 1.6% Which increases the total 60+ age group from 30 million in 2000 to 41 million in 2020

They represent a total of 60 million people in 2020 that are:

Able to consume (educated) Willing to consume (carefully) Looking to be entertained (they have leisure time available)

In growth terms the market expands by 50% in 10 years, that is 4.45% per annum.

Urbanisation

The urban population is growing in excess of 2% per annum in all the less affluent countries except Thailand (1.7%)

As a result total urban population in these countries increases by 496 million. This is a 58% increase in total urban population

In the affluent countries this phenomena is largely over. Urban population will only grow by 6% (9.6 million) in 20 years. However, the urban population now accounts for 78% of total population and increases to 82% by 2020

In the next 10 years there will be 16 million additional skilled white collar workers. In total the skilled labour force grows from 79.2 million in 2000 to a projected 95 million in 2010

The female worker

Improved education and changing social norms mean young females are as likely to enter the workforce as their male peers

As a result the disparity between males and females in the workforce is declining and a fast growing segment is the number of female workers (typically in white collar occupations).

Of all new workers in 2000 there is a 41% probability they are female. Excluding china, there is around 4 million additional female workers per annum.

The empty nest

A phenomenon of the older affluent societies. It is older adults whose children have or are leaving home.

This is an attractive market segment because:

Typically at the peak of their earnings Also at the low point in terms of financial commitments Going through a change of life style

Various measures indicate that this sector is growing in absolute size at 2.6% per annum for the next decade from 17 million to 23 million households.

In addition their absolute income is projected to grow at 3.6% per annum from its present average of US$42,000

The combined effect of these trends is:

Phenomenal growth in Taiwan, South Korea and Singapore Very strong growth in Hong Kong and to a lesser extent Japan.

Less affluent new householder

The total value of this segment is projected to grow in excess of 4.7% per annum in all these markets.

The rich

There is ample evidence that major levels of discretionary expenditure do not occur until household income is in excess of US$30,000. There are a lot of households in this segment and it is fast growing.

Annual growth rates are from 2.3% in Japan to 10.7% in South Korea: from 21.6 million to 33.5 million households.

How should we view Asia? It is diverse. It is most unlikely that one strategy will work for all countries. But countries can be grouped by broad characteristics

Japan: Old affluent middle income US$44,000 to US$68,000, Concerned about retirement Well equipped Needs: Finance, Health care, Entertainment, Retirement services

South Korea; Taiwan; Hong Kong; Singapore Middle income US$20,000 to US$40,000 Key opportunity area with significant discretionary income; New life styles and good market access.

Urban china; Philippines; Thailand; Malaysia: Middle income from us$1,500 to us$3,000 with Malaysia up to US$8,000. Young educated adults with increasing affluence High propensity to spend

New Zealand with an average of US$20,000 is exactly between the Asian groups. If we do not set our goals and commit to them we will see the lower group passing us in the next decade.

The Asian opportunity is there waiting for us.

I found it most intriguing that Richard Prebble keeps referring to ireland in his latest publication. I consider that New Zealand must become the Ireland of Asia.

You all know the success rate of Ireland over the past decade. Its economic growth is exceeding UK.

Richard has set out the comparison with Ireland very well in the latest ACT publication..

But Government and politicians must set the goals and give leadership to achieve these goals.

One of the biggest problems in New Zealand is leadership both in politics and in the business sector. The “tall poppy” syndrome I consider is responsible for this. Mr Shirtcliffe mentioned this indirectly last night through his comments on “goals” and the “barefoot economy”

Leadership, innovation, goals and a clear direction is the challenge.

Here is the challenge to ACT:

Get policies that can be understood and achieved; Set your economic goals on the Asian opportunity; and integrate Asia into all policies.

New Zealand’s Asian foreign policy must be reflected in its trade policy and its immigration policy.

I read in the party publications that “ACT is the party of ideas,” that ACT is “ bubbling with energy” ‘Looking in’ from overseas the electorate does not see ACT in this light

The opinion polls confirm this. This is something that the party must address urgently. The election is next year

Having said this, I am convinced that ACT has the policy and the vision to lead New Zealand to its next economic miracle, which must be largely driven by a successful Asian policy.

But this must be done by convincing and communicating with the electorate and potential partners in the next government. This is not being achieved at the moment

Your leader’s vision is “10th by 2010” requiring an annual compounded growth rate of 7%. Mr Shirtcliffe advocates “10th by 2020” stating that 2010 is unrealistic. Based on the last 10 years almost any goal seems unrealistic.

Such goals are critical but they must be part of our thinking, our belief and our political system.

I would venture to state that until we see ourselves as part of Asia and become part of the Asian economies and Asian growth, New Zealand will not be able to structure its economy at a level where an acceptable and sustainable growth rate will be able to be projected and achieved and as a result we will continue to slide down the OECD rating ladder.

There are three key areas of the economy of New Zealand which are critical in achieving sustainable growth and which must be Asian-orientated to achieve anywhere near growth rates of 5-7% per annum

These are: Tourism, Education and Food/agriculture

I know these are “old” economy areas, but I still feel that an economy must be driven by fundamental production elements (and Wall Street and the Nasdaq have also been suggesting this over the last six months).

So what is the Asian opportunity in these areas? I must confess at this stage that I have vested interests in all three areas both in New Zealand and Asia

Tourism New Zealand tourism is going through a strong growth phase. But we have not even scratched the surface of Asian potential.

The world tourism organisation estimates that the Japanese will make 141.5 million international trips by 2020. That is 20,000 travelling per day: Improved economic conditions; more holidays; 5 day working weeks; earlier retirements; all contribute to massive growth in tourism.

China will be a key country in tourism growth in Asia and will exceed Japan within 10 years. The Asian crisis is over (although this could be debatable) and I am seeing phenomenal growth in tourists and business people travelling in China and developing areas such as Vietnam.

New Zealand must ensure that it gets part of this growth. Trade and immigration are also components of tourism and must be recognised as such. New Zealand lacks coordinated government policies in this area.

Although there have been substantial development in these areas by respective government departments I still have concerns over the attitudes we have to linking and developing these businesses together.

ACT should take some initiative in this regard and prepare position papers and ideas and present them to the electorate. Why are our tourism board offices overseas often in different locations to our trade offices? Why don’t we have our trade promotions linked with our travel promotions?

Tourism is fast becoming our number one export earner. However this is a concern as where tourism is number one earner for a country that country is usually classified as “third world” such as Mexico and Thailand.

This situation could be an indication of the relative “contraction” of other areas of a country’s economy. Education

One of the big debate areas in New Zealand. I think that our education system and standards are “going soft” but I do not want to address this complicated issue today.

Education is an international product and an export product. Again we are very inward looking in this regard. The export potential in education is unlimited. Asians have been coming here for years and exploiting our “cheap” and available education. International students are now the only way schools and Universities can “balance their budgets” so this export market has been developed as a budget defence rather than a diversification.

Asia and especially China is screaming out for education as there is no way their resources can even meet a fraction of their education needs and they have no problems paying.

Many schools and universities in New Zealand are exploiting this opportunity very well.

Eight years ago I developed an international residential hotel Management School in New Plymouth with local investors, Australian investors who had a hotel school in Sydney and linked with a Swiss international hotel school.

Many people were sceptical as to whether it would work. It has been successful beyond my wildest dreams. It has turned a liability, being a hotel in a economically contracting area, into an asset. We were able to set up at a lot cheaper capital cost than if we were in a large city. Location does not affect student recruitment as it is residential even though a central government politician tried to talk me into doing it in Auckland.

The fees are not cheap but are value for money in that the course is internationally recognised and 98% of the students have jobs on graduation. Half of the students are New Zealanders. It contributes revenue to the Taranaki region that would equal in excess of 25 dairy farms at today’s dairy payout levels.

Then I hear rumours that the present government is considering ways to attack the private education providers and bring education totally into the public domain.

This would be disaterous and would kill a great “export” earner for New Zealand.

If education had a stronger economic base then it would be easier to provide improved better resourced education to New Zealanders

International exported education is tipped to become one of the top overseas fund earners in the Astralian economy in the next ten years.

New Zealand can do it just as well if not better. Lets encourage private education.

My hotel schools in New Plymouth and Sydney are now developing “feeder” schools in India and China.

It is amazing what can be achieved. But it requires a dream; a goal; a vision; a commitment; but most of all lot and lots of hard work

Education is a great Asian opportunity.

I would hasten to add that this development need not be at the expense of our domestic educational responsibilities. In fact it can help to develop and of course fund the New Zealand education requirements financially but even more importantly the motivation and “international” exposure that our students can get by studying alongside overseas students.

Food/agriculture

What a great opportunity in Asia! The dairy mega merger must open up exciting opportunities. As an aside I find it quite interesting at the lack of knowledge of the average New Zealander on the dairy mega merger and also the Government’s apparent disinterest compared with, say, the Fletchers breakup.

Yet the dairy industry represents almost 30% of New Zealand’s export value and is growing. The economic health of our agricultural industries has a major impact on the economic health of NZ. I would suspect that the improve rating New Zealand has just received is due to a large extent to the growth in agriculture

Receipts resulting in improved balance of payments. But agricultural development must be global. We have to go to china and sell our expertise; invest in agricultural development in Asia.

If we don’t someone else will

This is also part of foreign policy in helping to develop and stabilise these Asian economies.

Indonesia does not need a peace keeping force; they need help with agricultural development; education and tourism management.

New Zealand has the skills.

We must learn how to package, present and promote.

In conclusion

My challenge to ACT is –

Recognise our position in Asia Recognise the “10th by 2010” can only be achieved through development with Asia and becoming part of Asia Develop party policies that recognise and include Asia Take Mr Shirtcliffe’s comments seriously and set national goals Communicate with the electorate to show that you have the maturity and depth to be creditable partners in the next Government.

Act now if we are going to stop the OECD slide.

Thank you for you attention, and have a positive and successful conference.

Click here to download Gavin Faull's presentation

For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at act@parliament.govt.nz.

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