Taking The New Zealand Economy Global
Taking The New Zealand Economy Global
The New Zealand Institute has today released the third report in its series on ‘Creating a global New Zealand economy’. This report, ‘The flight of the Kiwi: Going global from the end of the world’, identifies a series of actions that business and government can take to generate a substantial and sustained improvement in the level of New Zealand’s international economic engagement.
This report follows the two reports that the New Zealand Institute released late last year that outlined the importance of international engagement for increasing New Zealand’s productivity performance and that described New Zealand’s relatively low levels of exporting and outward foreign direct investment. The focus of this report is on the actions that can be taken that will lead to substantially improved exporting and outward direct investment outcomes.
Going global from the end of the world is a challenging process, and New Zealand’s size and remoteness play a major role in deterring New Zealand firms from going global. The report describes the ways in which these factors impact negatively on New Zealand’s international economic engagement, by making international expansion less attractive to New Zealand firms and by making it difficult for New Zealand firms to move into some high growth areas of the global economy.
However, New Zealand Institute chief executive Dr David Skilling notes that “simply being able to explain why New Zealand’s outcomes do not compare well with other countries does not diminish the importance of substantially improving New Zealand’s international economic engagement”.
Being remote from major markets is not fatal to New Zealand’s active participation in the global economy. But these challenges do mean that New Zealand will need to act with real determination and clear objectives. It is New Zealand’s failure to act with sufficient seriousness of purpose that is at the root of New Zealand’s poor outcomes, not just New Zealand’s geographic isolation.
The first step in moving forward is to determine what success looks like in terms of increased international engagement. The report proposes targets for exports and outward FDI: exports should be consistently above 35% of GDP by 2020 and outward FDI should be consistently above 15% of GDP by 2020.
Achieving these targets will require meaningful action from both business and government. The government can and should be doing much more to support firms that want to go global from a New Zealand base. But success also requires a pipeline of New Zealand firms with the capacity and the aspiration to go global.
The report identifies four types of solutions, which respond to the specific challenges that New Zealand faces in strengthening its participation in the global economy. These are:
1. Creating Kiwi global champions, by changing the tax system to make it more encouraging of international expansion, implementing a bold savings policy, encouraging SOEs to expand internationally, and improving corporate strategy around international expansion.
2. Achieving enhanced market access for New Zealand firms by focusing to a greater extent on providing in-market services to New Zealand firms in offshore markets, rather than placing the primary focus on trade liberalisation agreements.
3. Connecting New Zealand to the world through strengthening international transport and communications links, as well as through strengthening people-to-people links e.g. through the Kiwi diaspora and the migrant community in New Zealand.
4. Developing new strengths in the New Zealand economy, because the existing major strengths in the economy do not have sufficient growth potential to generate a transformational improvement in New Zealand’s international engagement. This will involve attracting world-class companies and talent to New Zealand, investing in research and education, and developing new business models.
This is not a new conversation, and many of the issues discussed in the report have been raised before. However, the ongoing poor nature of New Zealand’s international engagement indicates that sufficiently meaningful action has not been taken. The priority must be to act now so that we are not still having a conversation about New Zealand’s disappointing level of international economic activity in another decade’s time.
This report should provide confidence that there are meaningful things that can be done to improve New Zealand’s level of exporting and outward FDI. Over the next several months, the Institute will release a series of four reports that will provide more detailed analysis and specific recommendations on the four solution areas identified in this report.