Speech To Export Institute - Michael Cullen
Speech To Export Institute
Hon Dr Michael Cullen, Minister of Finance
7.30 am, 7 June 2001
Logan Park Quality Hotel, Auckland
The title I have been given for this address is “when will exporting be recognised”?
The government is well aware of the pivotal role of exporting: on many
occasions various Ministers have stressed the importance of exporting to the health of the economy and to general social wellbeing. I have recognised that exporting is different and difficult.
The point I want to stress, though, is recognition needs to be tangible. When I was thinking about what I might say to this breakfast, I thought I would start by listing the sorts of things that exporters might need in order to succeed.
I end up with ten key factors that contributed to an environment that was exporter friendly. I will list them.
(i) A competitive exchange rate: probably the one factor above all that can make or break an exporter.
(ii) Access to foreign markets on reasonable terms.
(iii) A stable interest rate environment, in which interest rates are not too far out of line with those that competitors face.
(iv) The ability to recruit labour of sufficient skill to meet the product standards of the international marketplace.
(v) Opportunities to convert good ideas into profitable ventures.
(vi) Access to capital to grow those ventures.
(vii) An efficient and low cost transport infrastructure that can get goods to markets in a predictable and reliable way.
(viii) A capacity to manage the special risks of exporting that arise from exchange rate volatility and unpredictable creditworthiness.
(ix) The backup of a product standards regime that allows individual exporters to take advantage of a generic country reputation and not have to meet product certification standards individually.
(x) A sound domestic market as a testing ground for new ideas and a launchpad for the export effort.
If we look at these desirable features of the export environment, we can put them, or parts of them, into five main categories.
Some features are natural. They arise out of our particular and unique resource endowment. There is not a lot a government can do to create natural competitive advantages, but it can of course try its best to ensure that the natural endowment is not diminished or compromised.
Some features have been created by policies or reform programmes of the past. There is no point in the government trying to reinvent the wheel or in trying to fix it if it is not broken.
Some features are created by private enterprise responding to market opportunities associated with the export sector. The role of the government here is limited to covering instances of market failure, either alone or in conjunction with private interests.
Some features are shaped by external forces, or by agencies that are only indirectly under the influence of the government.
Some features are largely a product of government action or inaction, but with many of them, remedies take time to take effect.
The government can do its bit, and it can make a difference. But it cannot do everything and it should not try to do things that can only be done, or can better be done, by others.
I will now compare the list of things that are good for exporters with initiatives that the government has taken.
We have a competitive exchange rate and, by recent standards, somewhat lower interest rates. In fairness, a lot of that is driven by external factors. I do think, however, that government policy has made a difference in two respects. Firstly, when the government took office we renegotiated the Policy Targets Agreement with the Reserve Bank. I think the Bank would say that its practice had evolved to the point where the new agreement reflected what it was doing anyway.
The fact is, though, that there is now a formal requirement on the Bank to be aware of the effects of its operations on the real economy, and I am more confident now that we will not have a repeat of the circumstances of the late 1980s and 1990s when every so often the dollar surged and exporters were slaughtered.
I have been accused of being too tight with my fiscal stance, but a tighter fiscal stance allows the Reserve Bank to be more relaxed about monetary conditions, and this has, in no small measure, contributed to the maintenance of an interest and exchange rate structure that is kind to exporters.
The government can take credit for moving strongly to open up access to foreign markets. We have formed a Closer Economic Partnership with Singapore, and exports to Singapore are growing strongly. The government is also seeking a closer economic partnership with the Hong Kong Special Administrative Region. This vital economic entity provides a high level of complementarity with New Zealand.
We will continue to seek and support wider trading relationships, whether that be a broad-based World Trade Organisation round or suggestions such as a P5 agreement between New Zealand, Australia, the USA, Chile and Singapore.
Point four on my list of ten things exporters need is access to skills. The government has put a lot of effort into getting more focus into our tertiary education sector. The modern apprenticeship programme was a major advance. The Budget allocates an extra $56 million over the next four years to create more than 17,000 additional industry training places.
The government has also announced its tertiary education strategy. The new system will lead to significantly enhanced coordination and clarity of purpose in the sector. It will point the way towards producing the skills we need, at the level of quality we must have, and in an efficient and cost-effective manner.
In the meantime, our new immigration targets will allow short-term skills shortages to be covered by immigration.
Points five and six involve creating opportunities to convert good ideas into profitable ventures, especially via access to adequate capital.
Capital markets are relatively thin. There is not much the government can do about this directly, although the new superannuation fund and the diversification of existing funds are likely to inject some liquidity into them. If there is market failure, it is the failure of the market to provide venture capital at the seed and start-up end of the venture capital spectrum.
The government is establishing a venture capital fund targeted at these gaps, but does not see itself as being a long-term player in the venture capital market. Our plan is to forge a partnership with the private sector to deepen seed and start-up venture capital funding. Once it is standing on its own feet we will be happy to withdraw.
Innovation gets assistance in a number of ways: from more research funding, to the establishment of centres of research excellence, to the funding of business incubators and through the economic and industry development programme that operates a number of programmes to develop and commercialise good ideas and boost high growth initiatives.
Our transport infrastructure has been overhauled by previous governments, and I am not aware that there is much clamour for the government to do more in this regard. Similarly, finance markets have developed a range of products that allow exporters to hedge foreign exchange risks. There is no need for the government to get into this aspect of exporter support except perhaps in a limited way to provide export credit insurance in a narrow range of circumstances where the private sector does not offer cover. An export credit insurance programme should be up and running in the near future.
Trade New Zealand has, according to its clients, facilitated $1.3 billion additional foreign exchange earnings over the past year. The organisation is building a strong working relationship with Industry New Zealand to promote new overseas business investment.
The government is also funding a major e-commerce initiative to help small and medium sized exporters gain access to the global economy using the Internet to develop new opportunities. And the promotion of New Zealand education in the international market place has been boosted though a new nationally coordinated export strategy.
We are giving practical and technical assistance to ASEAN countries in areas like customs, food safety, standards, competition and regulatory policy, trade policy and animal and plant heath procedures to benefit both our exporters and importers.
Events in Europe with foot and mouth have made us acutely aware of the interests of exporters in maintaining the highest biosecurity standards. The government has done all it can to maintain and reinforce one of the most rigorous standards regimes in the world, but in this area we need the whole country to pull together to maintain our deserved reputation.
Finally, I would like to comment on maintaining a sound domestic economy as a launchpad for exporters. The economic outlook is as favourable, and as balanced, as it has been for a very long time. Growth is reasonable and steady, unemployment is low, inflation is projected to remain well within the target range, the government is running operating surpluses, and the current account deficit is falling rapidly. All, may I stress, at the same time.
Of course we need to do better, and exporting has a key role to play in doing it better. The best way to recognise exporting is for each of us to do what each of us does best. I have outlined what I see as the governments contribution to the export effort, and when it is added up the contribution is comprehensive and coordinated.
The recognition the government gives exporting is material. For us, export year is every year.