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Hodgson: Exporting gets that little bit easier

Hon Pete Hodgson
Minister for Economic Development

10 April 2008 Embargoed until 1.00pm Speech

Exporting gets that little bit easier –
Address to Export New Zealand Grand Hall, Parliament Buildings

Thank you for the opportunity to speak to you. We’re here today to talk about how the Labour-led government’s Economic Transformation agenda is working to create one of the best environments in the world for business innovation.

For New Zealand to be competitive in the global economy, we need more of our small and medium sized exporters to grow into large-scale, truly global companies. The numbers tell the story: over 76% of this country’s export earnings are generated by 176 firms.

The government is committed to partnering businesses to help them grow and become globally competitive. And we listen to exporters’ priorities and concerns.

There are four programmes or changes that can help exporters become more internationally competitive. I’ll refer to these during my talk today and provide you with some detail on them.

But before that I’d like to acknowledge Export New Zealand’s contribution to Export Year 2007. Your partnership with New Zealand Trade and Enterprise in the New Zealand New Thinking Export Breakfast series that was a key to its success.

In particular, I would like to recognise Bob Walters’ contribution through his participation in the Export Year Private Sector Reference Group.

Bob has committed to an ongoing role on the Reference Group‘s successor, the Global Business Focus Group, which has had its mandate extended so that a private sector perspective on exporting issues can persist.

Thanks everyone for your efforts so far. I look forward to your ongoing contribution.

Now to these 4 areas where exporting just got that little bit easier.

First the R& D tax credits.

There is plenty of great R&D-driven exporting going on in this country, for example, the success of companies like Icebreaker, Glidepath, Fisher and Paykel Healthcare, and Tait Electronics. These are firms which are at the forefront of technological innovation in their sectors, and are competing globally.

But it’s clear that we need to do more to encourage innovation at the firm level. By international standards, our level of business investment in R&D is low. It is about a third of the OECD average.

This tax credit will encourage businesses that are not investing in R&D to do so, and those that are, to do more.

What the R&D tax credit means for business owners is that from the start of the 2008-2009 income year, which for many is April 1, businesses can apply for 15 cents back on every dollar spent on eligible R&D activity.

The system is simple. It applies to all qualifying R&D and not just new and additional expenditure. Some expenditure doesn’t qualify, for example where the R&D is already co-funded by the government, typically at 50% of total expenditure.

Because it is a tax credit it also applies to those who don’t pay tax, typically because they are loss making start-ups. Such companies will in effect receive a cheque from Inland Revenue.

The R&D tax credit also complements other government support available to firms to enhance their R&D activity. The Foundation for Research, Science and Technology offers a range of Technology New Zealand grants that help a range of businesses, from start-ups to mature companies.

And for firms who have a product ready for market, New Zealand Trade and Enterprise may be able to offer assistance with marketing and branding, for example, to help get your product or service offshore. This audience will be well familiar with that.

Items two and three in my list of four are the short term Working Capital Guarantee and a Contract Bond guarantee. Both were announced in December. Both are being rolled out this month.

The Working Capital Guarantee is a guarantee from the government to the bank. It will enable eligible exporters to secure up to 20% extra working capital facilities and will free up working capital to meet large or unexpected orders.

A firm may have a profitable but unexpected export order but lack the tangible collateral for the bank to extend credit. The working capital guarantee from the government provides the firm access to the capital for up to 12 months. Minimal additional documentation is required and the product will be offered in partnership with banks.

The new Contract Bonding product works in a similar way to the US Surety Bonding that was rolled-out last year. It extends similar benefits for firms seeking bond security for contracts in countries outside the US. This facility is available when New Zealand banks or bond providers can’t provide a bond. This can occur when the exporter lacks sufficient collateral and the working capital required to supply the order, or when there are jurisdiction issues such as when a bond guarantee from a New Zealand bank or bond provider is not eligible.

This new bonding product enables the Export Credit Office to offer a 100% indemnity to banks or bond providers to issue bonds on the exporter’s behalf. This frees up working capital for the exporter.

My fourth topic is of course China.

The China Free Trade Agreement has the potential to reap economic and trade benefits for this country on a scale not seen since the signing of the Closer Economic Relations agreement with Australia over 25 years ago.

It has been estimated that our export trade could grow by an extra US$180 to $280 million a year, each year, for 20 years as a result of this agreement.

The challenge is how, as the first developed nation to sign a free trade agreement with China, can we – business and government together – make the most of this opportunity.

I believe, and I think most of the exporting community would also agree, that this should be a business led, private/public partnership. Government can help business seize trade opportunities by opening doors into China. New Zealand Trade and Enterprise’s offshore office network and specialist in-market knowledge will have a key role to play in this area.

Government is committed to playing its part. As part of last year’s Budget, we announced a $23.8m increase in funding to develop New Zealand’s presence in the Asia region. On the ground, the government is opening a further five potential New Zealand Trade and Enterprise offices in China. Last month, you may recall, I announced that the Beachheads programme is being extended into China as well. Next week I shall have the pleasure of meeting the new Chair of the China Beachheads Advisory Board in Beijing, David Mahon.

The Ministry of Foreign Affairs and Trade and New Zealand Trade and Enterprise have been working together with the private sector to provide a series of China road shows in the main centres. These presentations will provide businesses a way to build their capability.

These then are the four recent developments that have been designed to help our exporters and to help our exports.

Foreshadowing announcements later in the year, we are undertaking a major review of government assistance for globally competitive New Zealand firms. This includes ways government can intensify its efforts to help New Zealand firms become successful internationally, whatever their size.

This refocused strategy will include enhancing New Zealand Trade and Enterprise’s in-market assistance in partnership with the private sector and other government agencies represented offshore. Current initiatives such as Better By Design and Beachheads are good examples of this approach. We will be looking to expand these types of programmes in the near future.

There are also plans to provide more tailored onshore support for New Zealand firms to enter offshore markets, as well as a focus on building international management skills and capability domestically.

Business is having direct input into the discussion around this re-focussing of New Zealand Trade and Enterprise’s activities. The Global Business Focus Group is providing a valuable business perspective in development of these initiatives.

As a member of the Focus Group, Export New Zealand will no doubt provide valuable input into this dialogue.

So far this year there have been some exciting changes made, and there are others that I have foreshadowed. As a job lot they set us firmly on the path towards achieving the goal set out in the Export Year Platform for the Future document, which is, “ that New Zealand must be firmly connected to the global economy in ways that are in the best long-term interests of all New Zealanders.”

My thanks again to Export New Zealand for its role in Export Year 2007. But it’s 2008 already and neither Export New Zealand, nor the government intend to slacken the pace.


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