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Mallard: Transforming the New Zealand economy

25 November 2005 Speech Notes

Hon Trevor Mallard

Transforming the New Zealand economy

Address to Wainuiomata Business Breakfast, RSA, Wainuiomata

Good morning everyone. It’s great to be here with you today.

I'm very pleased to be giving one of my first key speeches as new Minister for Economic Development and Minister for Industry and Regional Development in my home electorate.

We have some excellent examples here in Hutt South of up and coming and potentially leading edge economic development - examples that reflect where our government wants to go in terms of lifting our game internationally and lifting people's standard of living at home.

I actively sought these portfolios because I know that growing our economy will make everything else our government wants to do for New Zealanders and our country possible.

Economic development is not just an issue for business and finance markets and commentators to dwell on, as our success as an economy affects everything - from jobs to education and health provision, to how we protect the environment, to our standing internationally.

Economic development is about making New Zealand a better place to live for everyone, as you cannot achieve in key areas like education and health without having a strong economic base.

People and communities cannot and will not get ahead, without the opportunities that economic development can deliver.

My new portfolios connect well with my work to date - as Associate Finance Minister, and previously Education Minister. I'm already very familiar with industry skills training and the importance of tertiary level education and training that is relevant to and underpins regional economic development and jobs growth.

I am still in the learning phase as new Minister and my initial focus is to ask some key questions about how we further transform New Zealand into a dynamic, export-based economy.

In these initial months I want to know from my agencies - the Ministry for Economic Development and New Zealand Trade and Enterprise - what government can do better to get to our goal of more sustainable, high quality growth.

What are the drivers for growth and how can we better support business to achieve a significant transformation of the economy?

These are questions I will also be asking of business in the coming months.

This is not a job for the government alone.

It is also the responsibility of business to think about what they can do better, and how they also can help New Zealand to get ahead in the global economy, so people at home can get ahead.

I am about to launch into a series of regional visits - following the work of my predecessor - and starting with Auckland - so I can get a first hand feel for what is going on, and for what business is thinking.

After many years in politics, I know there are no silver bullets or quick fix solutions because we are dealing with a complex set of issues and possibilities.

I am keen to explore the new areas where we can build competitive advantage, and to look at better ways of kick-starting the sort of growth in high-end exports that we need.

In my view we need more ‘at the edge’ thinking to explore the potential for the economic shifts we are seeking.

As a keenly competitive sports fan, I know that the best teams don't just focus on defence and maintaining a position. They aim to always improve, and always to win and that means developing a pro-active plan of strategic attack, finding new ways to succeed, an element of risk-taking, and it also involves strong teamwork and support.

I believe this approach is also the key to unlocking the economic development we are seeking.

To succeed at the edge, you need to look for the opportunity and be prepared to take calculated risks, and maybe wear some losses as a result - and learn from those lessons.

This is the approach our Labour-led government has taken over the past six years in setting a course for economic development.

It is based on New Zealanders’ creativity and innovation, on valuing both inspiration and aspiration, and on seeing our size and place in the world not as a limitation, but as offering opportunities to harness our strengths, and succeed.

New Zealand winning the rights to host the Rugby World Cup in 2011 encapsulates this approach perfectly.

This successful bid - a joint partnership between government and the New Zealand Rugby Union - showed that the New Zealand way is much more than the clichéd 'number eight wire'.

Friday's success in Dublin showed that New Zealand can punch above its weight, and that size doesn't necessarily matter.

As a confident, diverse, inclusive Pacific nation, we can work together to find new opportunities and market our best ideas profitably to the world.

At present New Zealand is in a comparatively strong position. New Zealand has enjoyed six years of very strong economic performance.

Our growth has outstripped the average of developed countries and is well above the rate of our major trading partners.

Our unemployment levels have dropped to the lowest in the developed world and the lowest since we started compiling the Household Labour Force Survey two decades ago.

People having jobs has made a great difference to our community and overall well-being.

Incomes are up, profits are up and our business environment is as competitive as anywhere in the world.

And of course there are no shortage of ideas and new products.

But our economic performance is only at the minimum threshold of the level we need to achieve.

Our overall incomes are way behind those of most other advanced countries.

Our current account deficit is among the largest in the OECD, which is largely due to New Zealand’s growing trade deficit and a very substantial investment income deficit.
We face some serious challenges in developing the economy.

Largely our financial markets work well but we have pinpointed some gaps, particularly in relation to the sort of high-tech high-potential firms where investment is needed, and which don't fit standard financing criteria.

That's why government has set up the New Zealand Venture Investment Fund, and also why we set up the new Seed Capital Investment Fund.

An independent assessment of the VIF fund that I recently released shows it is on the right track.

Another problem is that our businesses have relatively low levels of senior management capability.

In the private sector, firms needs to lift the quality of their leadership in New Zealand and not be afraid of investing in strengthening their management expertise, and getting outside help if necessary to grow their business.

We have some brilliant entrepreneurs and leaders in business but we need more.

Strong economic growth has seen the emergence of significant skill shortages in key sectors of the economy.

In more recent years, growth has been led by domestic demand. That has been further fuelled by bank lending based on offshore borrowing. This in turn has helped to keep the New Zealand dollar at high levels. That has further increased consumption and inflationary pressures, translating into the need for tighter monetary policy.

Breaking this cycle is not going to be easy, and it will require the best teamwork we can muster.

The speech from the throne made it clear that economic development and focussing on these complex issues is a top priority of our government for this term.

There are five priorities that the Labour-led government will be working on to develop our economy.

We must grow our exports.

That means we need to lift our productivity - by this I do not mean we have to adopt a sixty-hour working week to churn out more of the same products.

To date we have managed to maintain our level of income compared to other OECD countries only by working longer hours, and this is what must change.

Higher productivity is not achieved through working harder or working longer days.

Our goal should be to actually increase the value of the work we do.

It means we have to work smarter, and we have to focus on products and services that are a cut above what we are producing now, and that grab the attention of consumers in world markets.

If we get it right, then one long-term goal I have is to see New Zealanders work fewer hours.

We also need to lift our game when it comes to business investment.

We need to focus more on science and innovation in New Zealand.

We also need to improve our international linkages.

New Zealand should not aim to compete with the low-cost manufacturing giants of China and India.

The security and transformation of the New Zealand economy will come from the ability of our firms to be part of a high skill, high productivity, innovative and high wage economy.

The better our ideas for working with our existing resources, the better our standard of living.

During this term of government, particular attention will be paid to the commercialisation of innovation and the capturing of knowledge so our companies can actually use it on the ground, and to their advantage.

That will involve a lot of players, including business people such as you.

But I also see a clear role for the universities and the Crown Research Institutes - as institutions that can potentially transfer a region’s knowledge out into communities and regions. They are the “bees that pollinate the firm”.

New Zealand will never sell enough commodities to lift our standard of living to catch up to other developed countries.

Our primary sector is incredibly productive and important, but we also need to sell higher value products that rely on the creativity and talent of New Zealanders, and that demand a premium in world markets.

Of course innovation can be introduced in a variety of ways.

It can be the science that underpins new technology – which is particularly important to the Wellington region as it holds significant tertiary capability, and many public research institutes.

Take for example, the high temperature super conductor technology that IRL has developed right here in the Hutt.

It is world class and world beating. However, the challenge is to retain and embed this technology into New Zealand industry so we can build new capability, new investment and new industries.

New Zealand Trade and Enterprise has been working with IRL and a number of Economic Development Agencies to form a consortium to develop projects aimed at new products and markets for the technology.

If taken to the next stage it will constitute significant investment that could create significant opportunity for our manufacturers to get into a new high value industry that is globally focused.

Our creative talent can also be harnessed to generate innovation.

An obvious example is of course the film industry and Wellywood.

Our success here is largely due to Peter Jackson and the region working in partnership with government to develop and fund world-class infrastructure that gives us real competitive advantage.

By upgrading screen production capability at Miramar, the Wellington region has been able to develop infrastructure that acts as a magnet to assist in attracting new skills, new firms and new investment.

Vision, passion, skill and innovation are certainly the key ingredients for the success of New Zealand’s top exporter for 2005 - ICT technology innovator Rakon Ltd.

This is an Auckland-based family business earning in excess of $60 million in exports annually, through its high performance crystals and oscillators that are found in the world’s leading mobile phones and global positioning systems.

Rakon achieved a staggering 762 per cent increase in sales between January 2002 and December 2004 with volumes up over 1000 per cent. Almost all Rakon’s sales are export.

Back here in Hutt South, I recently visited Eyede in Lower Hutt, which produced secure online databases, mainly focused around administering identity data for ID cards. Eyede has gained national and international recognition through their technical capabilities and an ability for rapid development of applications. Many education, government and corporate customers throughout Australasia are using its products, and the company is exploring entering the European market.

Last week the New Zealand Institute released the first of its series of reports on “Creating a global NZ economy”. It identified the importance of an outward orientation.

Our government agrees. We can only lift our game by increasing the number of New Zealand firms that are successfully exporting or investing abroad.

We have a higher dependence on commodities than almost any other developed country, we are relying too heavily on ‘trading’, when we should also be putting a lot of effort into ‘marketing’ and figuring out what consumers might want.

That is why New Zealand’s transformation requires the move to new business models or higher value and more sophisticated products.

This transformation can happen across all our sectors - from the primary production sector to the information technology sector.

Stansborough Fibres in Lower Hutt is a great example of how to add value to a commodity - wool - and get a premium in world markets by combining it with some creative ideas, marketing and vision. Owners Barry and Cheryl Eldridge
produce a diverse range of top quality textiles and accessories that are woven and exported all over the world.

A key to the Stansborough Fibres success is its distinct vision from farm to fabric and the company's involvement in the entire process, from producing the unique grey sheep on its farm in the Wairarapa, through to the designing and weaving of fabric in its Wellington Weaving Mill and worldwide marketing.

Our future will be about making better use of our resources – our people, land, capital equipment, and technology. It is also going to be about creating new knowledge and commercialising it.

Fostering innovation means working together for a brighter future.

Innovation doesn't often arise in isolation.

It develops out of collaboration between firms, universities, government research institutes, and other players. It also involves a coordinated whole-of-government approach.

I also believe that there is an undue emphasis by business on taxation and compliance costs as the only lever to increase productivity.

Government will play its part in getting these sorts of policy settings right, but I want to encourage firms to focus on their own vision for our economy, and to tell me their ideas for how they can play their part in helping move New Zealand up the international food chain.

Government can't transform the economy by itself, as there are a lot of things that are not in our control.

That’s when you come in. The government can provide the leadership and inspiration and the right supportive environment, but at the end of the day it is working people such as you who will drive New Zealand businesses to success.

I’ve said that we want increased exports, greater productivity, more innovation and increased skills to lift our standard of living.

Now I am throwing the ball over to you to give me your thoughts on how to make those things happen.

As a new Minister I am keen to learn and I am looking forward to a constructive and positive relationship as your feedback and input is very important to our government's work.

How do we give New Zealand a competitive edge in the global economy?

I know where I want to get to, and I'm looking forward to hearing from you about how to get there.

Thank you.

ENDS

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