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Peters: New Zealand Pacific Business Council

Rt Hon Winston Peters
Minister of Foreign Affairs

18 August 2006
Speech Notes

New Horizons: The Pacific's Economic Challenge
Delivered to the New Zealand Pacific Business Council,
Ellerslie Novotel Hotel,

Chairman of the New Zealand Pacific Business Council, Gilbert Ullrich; officials, ladies and gentlemen. Thank you for the invitation to be here today.

Maori have an old saying: He rangi tä matawhaiti, he rangi ta matawhanui – The person with a narrow vision sees a narrow horizon. The person with a wide vision sees a wide horizon.

There is no question that the Pacific occupies a wide horizon. Indeed it matters so much strategically to the rest of the world because it accounts for around one quarter of the globe. Yet for a region of such daunting size, the countries of the Pacific often have limited and narrow horizons.

Rather than the grand aspirational vision that such a vast and commanding geographical presence should afford, the vision much of the Pacific embraces is often restricted to survival and trying to keep up.

The rest of the world is not standing still waiting for the Pacific; it is growing faster and more dynamic by the day.

This audience, above most others, knows and understands the great challenges confronting the Pacific.

We could list the challenges of poverty and hardship, isolation and distance, small populations and limited employment prospects, natural disasters and disease – and we could go on.

They are real, they are substantial, and they will not be solved with idealistic rhetoric. But most importantly they are not insurmountable.

For today, rather than focus on the negatives, let us consider in real and practical terms what can be done to turn this situation around.

There is an old saying that if you give a man a fish you can feed him for a day, but if you give him the means to fish he'll feed himself forever.

One might argue that the Pacific has been given too many fish and not enough effort has gone into providing the means to fish.

This analogy is particularly apt for this audience because you are part of a wider group who can actually play a part in assisting this region to maximise its potential to fish for itself – both literally and figuratively.

Business, like government, in New Zealand has a vested interest in the Pacific succeeding.

One might ask 'why does New Zealand care what happens in the Pacific?' The answer is straightforward – we have a symbiotic relationship. The successes and challenges of the Pacific impact on New Zealand and likewise our successes and challenges impact on the wider Pacific.

The Pacific is our neighbourhood and its imprint on New Zealand society is unmistakable. It has increasingly become a part of our identity as a country and as New Zealanders. So too is the impact of New Zealand in the Pacific evident to those who live there.

With so much of the world's competing political and economic interests located on the periphery of the Pacific, it makes strategic sense for New Zealand to remain strongly engaged in the region.

Strong historical and political links to the region by several European powers simply add to the value of our role in the Pacific. We matter more on the international stage because of what we do in the Pacific.

When we deal with countries such as the US, Japan, China and France, and regional bodies such as the EU and ASEAN, our work in the Pacific allows us to make inroads and gives us standing that we might not otherwise enjoy.

The Pacific has become a cornerstone of our foreign policy focus, with one fifth of our offshore diplomatic posts in the region and with around half of our aid budget focused on the region.

Put simply, the Pacific matters and our work in the Pacific means we matter.

From a business perspective the Pacific should matter and needs to matter a whole lot more. As a region the Pacific takes over $1 billion of New Zealand exports. To put that into context, as a region that is almost on par with the Middle East and two and half times larger than the whole of Latin America. Last year Fiji was a bigger export market than India – a country of over one billion people.

In return New Zealand only imported $160 million worth of goods from the Pacific.

We should be confident that there is scope to grow these already important trade statistics. The economies of the Pacific grew by 2.7 per cent last year and forecasts are that this will pick up to around three per cent this year and next. These are reasonable growth figures, but not spectacular.

What they do show, though, is the region's potential. But it risks becoming untapped potential if certain fundamentals are not in place.

To successfully generate growth countries need to have effective economic management and sound policies, especially when they face the natural disadvantages of location and distance.

Regional cooperation and integration into global markets stands out as a key theme when considering the economic potential of the Pacific.

The Pacific's export performance has generally been limited to a narrow range of commodities subject to external price shocks and natural disasters.

Greater economic integration can give producers access to bigger markets offshore, and make a wider range of goods and services available domestically. It can foster the adoption of new technologies and help transfer skills and knowledge.

There is a great deal of evidence that the opening up of trade contributes to higher economic growth. For example, while average income per person fell by one per cent a year in the 1990s in developing countries with high trade barriers, it rose by five per cent a year in those with fewer barriers to trade.

If trade is to truly make a contribution to the Pacific’s economic development, it is important that we look for ways both to increase trade within the region, and also ways to maximise the ability of Pacific Island countries to take advantage of trade opportunities.

New Zealand and Australia have both contributed to frameworks that have been established to help strengthen economic integration in the Pacific. PICTA (the Pacific Island Countries’ Trade Agreement) will facilitate free trade between the islands of the Pacific. PACER (Pacific Agreement for Closer Economic Relations) between the Pacific Island countries, Australia and New Zealand, can provide for a broader economic partnership in our region and it is not just limited to trade.

These frameworks can provide better market access, but also help facilitate trade through better-integrated processes and standards.

But such agreements in and of themselves will not necessarily result in extra trade. So we must ask ourselves the very real question: how can Pacific Island countries take advantage of trading opportunities?

Often Pacific Island countries are limited in their ability or willingness to engage in international trade. This may be because they don’t produce large enough quantities to give importers the consistency of supply they seek; perhaps because they struggle to physically get their products to the market if the infrastructure is weak.

Their internal communications could be so inefficient that outer island producers cannot access the market in the capital, let alone export. It could be because the workforce lacks education or suffers poor health.

Additionally businesses may not be able to access finance to expand, or they may simply lack information on market opportunities, prices, or potential partners.

It may simply be that other domestic uncertainties make them reluctant to invest or expand, such as a poor macroeconomic environment, political instability or security concerns.

This is not an exhaustive list – but you get the point.

It’s important that countries do not see this as a list of things that they can’t do anything about or shouldn’t take responsibility for.

It's up to Pacific countries to consider their own governance arrangements so that they facilitate economic growth. They can work to reduce the costs of doing business; promote telecoms penetration; promote competition in the transport sector and look at their own tax and excise mechanisms. These are all tangible and reasonable steps that can be taken in the short term by Pacific countries themselves.

However, it must be noted that Pacific countries are not on their own when confronting these challenges. New Zealand, and we are not alone in this regard, has trade and development policies aimed at supporting developing countries maximise their ability to engage in international trade and therefore to access the potential benefits from trade.

Let us consider some of the specifics of NZAID's endeavours on this front, including providing funding to various regional organisations for economic advice, capacity building, or supporting the development of trade:

the Private Enterprise Partnership helps design and deliver business support to and promote a business-enabling environment for SMEs;
the Foreign Investment Advisory Service provides policy advice to governments on creating an environment friendly to foreign and domestic direct investment and the private sector;
the Pacific Financial Technical Assistance Centre assist countries to have the skills and institutional capacity to effectively manage their economies (eg helping the Solomon Islands to modernise their tax and customs divisions), and;
the Pacific Islands Trade and Investment Commission office in Auckland aims to enhance trade, investment and tourism opportunities for Pacific Island businesses.
In particular countries, such as Samoa, the Cook Islands and the Solomon Islands, NZAID works to support the development of small business enterprises, to support the development of particular sectors like the commercial fruit and vegetable industry in PNG or even on infrastructure issues such as roads in Solomon Islands.

These projects make a real and tangible difference.

NZAID is also funding a Regional Trade Facilitation Project to assist Forum Island Countries in the areas of sanitary and phytosanitary measures, customs procedures, and standards and conformance, and has also worked in Fiji on biosecurity and quarantine issues.

And MAF has a dedicated position to provide technical biosecurity advice to Pacific Island countries to help exporters meet New Zealand requirements.
Where countries need to implement reforms, such as trade liberalisation, local political will is crucial.

New Zealand supports this in part by assisting countries, where appropriate, to make the adjustments required. Learning lessons across the region about what works and what doesn’t, can also be valuable.

I would make the crucial point here that New Zealand, and other countries working in the Pacific, must always treat our Pacific neighbours as sovereign equals.

But equally, there is great value in taking on a coordinated regional approach. The lack of capacity and small size of most Pacific countries can lean towards taking regional approaches on some issues.

The Pacific Plan covers both cooperation and economic integration. It aims to establish priorities to ensure that the regional agenda moves ahead in those areas that are potentially of most significance to Forum Island Countries.

Thinking regionally could also be extended to thinking about the labour market from a regional dimension. Migration can make a contribution to development through remittance flows, and potential upskilling and knowledge sharing that could come from temporary labour movements within the Pacific and with New Zealand. But it can also sap skills from small Pacific Islands.

This is an area that we need to think carefully about, but something that a number of horticultural businesses in particular are already raising as they face labour shortages.

Let us consider briefly the question of labour mobility in the Pacific, particularly in light of the World Bank's recent report on the issue. Let's be clear about three issues in this regard. First, Labour mobility is a huge issue for the Pacific, with significant implications. Second, it is also a complex issue and the flow on effects and consequences of any future decisions on this matter will have substantial and long lasting consequences, and thirdly the New Zealand government is actively considering this matter with some urgency. We know we have to play a part in resolving it, and we will not shirk that role.

While much of this discussion has occurred at the macro level, it is equally pertinent to ask what is in this for individual businesses?

Many of you also want to look for opportunities where New Zealand’s aid-related activities may coincide with your individual interests. While we do not dictate where recipients of New Zealand’s aid must spend the funds – they should find the most competitive supplier of the goods or services they may be using – New Zealand companies obviously may have some competitive advantage through their proximity to the region, and tend to have a good grasp of the realities of working in the Pacific.

But simply knowing what activities New Zealand is supporting in a country may also suggest synergies that you can build on. For example, NZAID is supporting the Fresh Produce Development Company in PNG to provide market information, technical and extension services to suppliers. This might be something that could, as an unintended spin-off, provide opportunities for New Zealand business.

What's important here is keeping open the lines of communication, and keeping your ear to the ground regarding new developments and business opportunities. A large number of New Zealand firms are actively engaged in development work in the Pacific through NZAID contracts, although some firms have found it difficult to break into aid work, and some find it difficult to keep track of new contracts becoming available.

You are encouraged to continue talking with NZAID about these opportunities and become familiar with their processes and mechanisms. It will take effort on your part, but it should be worth it in the long run. And it's also worth pointing out that it is not just NZAID that funds work in the Pacific region. AusAID, ADB, World Bank, and other development agencies, provide opportunities for New Zealand business if you know where to look and are prepared to do a bit of homework to meet their different requirements.

The New Zealand Pacific Business Council obviously works very hard to promote and facilitate trade between New Zealand and the Pacific Islands and there are a number of ways in which New Zealand businesses and business associations can work with the region to contribute to their and our economic interests.

Making links with local business enterprises and associations – simply networking, assisting with training, sharing experiences or skills – can support business development in the region, which will ultimately be good for New Zealand companies.

Trading and investment relationships with businesses can also obviously provide you with profitable opportunities as well as opportunities for the Pacific to trade and adopt new skills or technologies.

There may even be opportunities for attachments or apprenticeships for Pacific people in your companies.

A prosperous Pacific will require more than a focus on trade, although trade is a critical element of growth prospects.

The macroeconomic environment needs to be sound. Stable policy settings mean businesses can get on with business, rather than have to deal with added uncertainty around inflation or fiscal policy. Businesses have enough uncertainty to deal with as it is.

It’s also important to have an environment that will be conducive to investment. Ultimately private sector investment will drive economic growth, be it domestic or foreign investment. Issues of stability, the rule of law, regulatory systems, corruption, infrastructure (eg reliable power supplies) and labour legislation can all be critical to ensure an environment where businesses are willing and able to grow.

Stronger institutions are vital, be they political institutions or those that deliver law and order, macroeconomic stability, regulation or education. In some instances regional institutions may be a viable option.

As businesspeople with links to the Pacific, you can play a critical role in promoting good governance in the Pacific. Through your relationships you can encourage sound management and accountability in Pacific Island businesses.

The reciprocal side of this is that you conduct your business in a manner that does not condone or succumb to corruption. You can also encourage local businesses to be a voice that demands an environment conducive to broad development, rather than one captured by vested interests.

In terms of the cost of doing business though, the region performs quite well with Pacific countries ranking in the top half of a World Bank survey. However, for small countries far from major markets it is not good enough to be above average. This was recognised last year by Forum Economic Ministers who committed to halving the time taken to register a business and improving the Pacific as a place to do business.

New Zealand is supporting the efforts of the World Bank in following up the Forum Ministers’ commitments. We are pleased to see some progress is being made and joint private sector-government mechanisms created, for example in Tonga and Fiji, can help identify priorities for improving business laws and regulations.

Infrastructure has also emerged repeatedly as a key constraint to growth in the region. For example, the region appears to be missing out on the mobile telecommunications revolution. Mobile coverage is limited and rising slowly compared with other small island states. Transport infrastructure is particularly important for the geographically dispersed countries of the Pacific.

But weak infrastructure cannot be blamed solely on geography or a lack of resources. Effective management is critical. We can encourage Pacific governments to operate policies that will foster infrastructure development. For example, when Tonga introduced even limited competition for mobile telephone services, tariffs fell by more than 20 per cent and the number of subscribers doubled.

And NZAID is also doing its bit to support infrastructure development. Whether it's roads in Solomon Islands or wharves in the Cook Islands, investment in infrastructure goes hand in hand with economic development. We cannot ignore that link, but these investments do need to be appropriate for the scale of the economic activities and the constraints they are designed to address.

In conclusion it is worth noting that Pacific leaders have articulated a vision for the region as one “of peace, harmony, security, and economic prosperity, so that all its people can lead free and worthwhile lives”.

This is a laudable vision but one that is not without its obvious challenges, particularly in achieving economic prosperity.

In many ways the Pacific is at something of a crossroads. The region could just continue to muddle along in terms of economic growth. But that is not what we want.

It won’t help address the challenges of the youth bulge in Melanesia; it won’t contribute to economic development and security in the region. And it won't help your business interests much either.

Alternatively, we could all play an active role in promoting sustainable and robust economic growth in the region. Our challenge is take advantage of the synergies that exist so that we can maximise our contribution to the region’s economic development.

They say businesspeople like nothing more than a win-win situation. Well we have one sitting on our doorstep. Are we prepared to broaden our horizons and focus our vision? That challenge is ahead of all of us.


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