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Foreign Minister McCully Speech To Lowy Institute

Hon Murray McCully Minister of Foreign Affairs Speech


9am, Monday 5 September 2011 Pullman Hotel

Dr Michael Wesley,

Distinguished guests,

This important conference takes place against the backdrop of the 40th anniversary Pacific Islands Forum Leaders' meeting.

Your gathering brings together some of the best economic, business, academic and civil society brains in the region.

The New Zealand Government very much appreciates the energy and commitment of the Lowy Institute in bringing it together.

Our belief that building the Pacific must be an inclusive process has shaped our whole approach to this Forum week.

So we look forward to the results of your deliberations.

I take this opportunity to especially welcome our visitors from overseas.

And I express the hope that visitors and New Zealand attendees alike will spend some time at the new facility we have just opened on Auckland's waterfront, the Cloud, this week home to the Pacific Showcase.

We created this new venue to provide a place in which we could, during the six weeks of the Rugby World Cup, showcase some of the sectors of our economy that will be the key to our future as a small trading nation.

And for the week of the Forum, we decided that we would attempt to do the same for our Pacific neighbours, focusing especially on the natural assets and opportunities of the region.

Each of the Forum Island countries has a stand at which it can promote its visitor experience to potential tourists.

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And you can sample a range of products from around the region - quality Pacific tuna, a range of coffees from the Pacific, organic food, natural beauty products and a range of beverages.

We have brought out a pan pipe group from Solomon Islands and performers from the Cook Islands to demonstrate something of the region's cultures.

The Showcase is a worth a visit and I commend it to you.

Another event we are hosting in the margins of the Forum is tomorrow's Investment Summit.

We have invited some two hundred business leaders and experts from around the region to meet for a day.

We want the Summit to be a practical event with concrete, deal-producing outcomes.

This will be an unprecedented opportunity for investors to sit down and talk business with Pacific entrepreneurs.

And a day later we will host the Private Sector Dialogue - an event that will see a group of private sector leaders meet to formulate key messages to Leaders about the steps that are required for the Pacific to offer a more enabling environment in which the private sector can flourish.

It is my hope that each of these meetings will generate discussion that is hard-headed and realistic.

I say that because it is my view that the time has come for all of us, as a region, to get serious about both the challenges and the opportunities confronting the Pacific.

We need to get out of "business as usual" mode and get serious about tackling the issues that have attracted a good deal of talk at regional meetings in the past but too little action and follow-through afterwards.

And since your meeting is the first in the series that will occur in Forum week may I urge you to set that tone for the meetings that will follow.

Your agenda today covers natural resources, tourism, regional connectivity and leadership.

These are all themes that are critical to the development of the Pacific.

They align closely with several of the New Zealand Government's key areas of focus that drive an increasing amount of our development work.

I'd like to talk a little about these and why we consider them important.

In our own thinking we have divided them into drivers and enablers.

Drivers are areas where we see the greatest economic potential for the region.

Enablers are the preconditions for economic activity. They are the areas where we believe there must be progress if there is to be sustainable growth.

We need to pursue both categories together. One cannot be separated from the other.

We have identified three main drivers of economies within the Pacific region.

The first is tourism, a sector where the Pacific has a competitive advantage over much of the rest of the world.

You will not need me to tell you of its natural beauty, its cultural and natural diversity, and its relatively unspoiled qualities.

If you are in any doubt at all, just go down to the tourism displays at our Pacific Showcase on the waterfront.

Tourism in the region is developing steadily.

The travel and tourism industry now contributes two thirds of the Cook Islands' GDP, half of Vanuatu's, a third of Samoa's and a fifth of Tonga's.

The global cruise industry is expanding fast into the Pacific.

We're talking some big numbers - in 2013 alone around 120 cruises are expected to come into the South Pacific, carrying 375,000 passengers.

These people won't just be floating around on the ocean. They will be coming into ports, going on tours and spending money right around the region.

But growth in the tourism sector is constrained by major obstacles.

Air services into the region have actually declined, and within the region they have been characterized by inconsistency, unreliability and regular failures.

Lack of investment in airports, runways, wharves and cruise facilities constrain the transport services that are the arteries for tourism and trade, and act as a major deterrent to private sector investment in tourism assets.

Multilateral funders continue to operate on a basis that is too slow, too bureaucratic and too cumbersome to play a meaningful role in developing the potential of the sector.

Access to affordable finance is a major challenge throughout the region.

Industry organizational and marketing strategies need considerable work.

And poor regulatory and governance arrangements in some Pacific nations diminish the confidence of investors to commit the resources that are needed.

All of these challenges need to be confronted together, and all donors, including the multilateral players, need to act together if we are to see the region make the most of its undoubted potential in the tourism sector.

Our second key regional economic driver is fisheries.

Fish is one of the world's most highly traded commodities.

Around 40 percent of the global value of fish is traded internationally, and the sellers are mainly developing countries.

Many of those countries are in the Pacific.

Fish - and we're talking here about tuna - represents the Pacific region's greatest shared resource.

Carefully and sustainably managed, it can continue to maintain that role.

The tuna catch in the area covered by the Forum Fisheries Agency, the FFA, is currently worth about 2 billion US dollars per year.

That's substantial.

The problem is that less than 250 million US dollars of that total actually comes back to contribute to the GDP of FFA member countries.

Part of the problem is unreported and illegal catch.

It's estimated that 400 million US dollars is being lost to illegal fishing activities in the Pacific every year.

That's five times the GDP of a small country like Kiribati.

It is not rocket science to see the steps required for the Pacific nations to earn a significantly greater return from the resource they own.

We need improved surveillance to stop illegal fishing.

We need better monitoring on vessels to stop under-reporting of catch.

And we need better management of the resource within the region.

A World Bank study shows that the Pacific region could make another 60 million US dollars a year by further strengthening fisheries management.

Initiatives such as the Parties to the Nauru Agreement process and now the Te Vaka Moana Arrangement are improving coordination and regional control over the tuna fishery.

We need to see initiatives that will shift Pacific nations up the fisheries value chain.

Greater participation in the industry through joint ventures, ownership and manning of vessels should be an immediate objective.

Greater processing of the tuna catch within the region is important.

Fish processing plants in places such as PNG and Solomon Islands have generated substantial revenue, brought employment to remote areas and encouraged infrastructure development.

And we need to see more of the product go to the higher end of the market.

Yellowfin tuna sold from the Pacific into Thailand for canning sells for about $1500 US dollars a tonne off the boat.

Turn that tuna into sashimi and sell it to Japan and the value climbs to around $7500 dollars a tonne.

This, of course, brings us back to our discussion about infrastructure and transport services, but in a region that now produces over half - yes, over half - of the world's tuna, and owns the only remaining healthy tuna fishery on the planet, surely these are challenges worth confronting.

The third major economic driver that New Zealand is focusing on is agriculture.

Two-thirds of Pacific people - more than six million people - depend on agriculture for their food and their income.

Melanesia, particularly, has some remarkably fertile land. Consider the highlands of Papua New Guinea or the Guadalcanal Plains in Solomon Islands.

In these places it's been said that you can plant a broomstick and watch it grow.

And yet agriculture throughout the region is actually declining as a contributor to export earnings and employment.

This is a sad state of affairs, and we believe it can and should be turned around, a view shared by a number of Pacific leaders.

I am not proposing that the Pacific become a centre of large-scale, commodity-based farming. That is only realistic in a few places.

But there is good potential for niche agricultural development.

Small-scale agriculture can work well if the products made are top-quality and positioned well up the value chain.

If they can gain organic or Fairtrade certification, so much the better.

We are starting to see this sort of niche agricultural development taking place in the Pacific.

Examples are the top-quality vanilla that comes out of Tonga, and the noni juice grown and produced in Niue.

So far, though, we are just scratching at the surface of the potential that exists around the region.

Growers and entrepreneurs will be quick enough to invest if they sense an opportunity.

But they will hang back unless they can be sure they have the supply chains to get their products to the market on time, cost-effectively and in good condition.

And they need to be sure that they can meet the biosecurity requirements of the countries they export to.

There is plenty for the region's governments and donors to do in these areas.

I am in the process of establishing an inter-agency task force to identify biosecurity blockages in our region, and propose an orderly process by which we can best overcome them.

Some real movement here will do much to unlock the export potential of Pacific agriculture.

Tourism, fisheries and agriculture.

New Zealand sees these as key drivers of sustainable economic development in the Pacific.

They are areas in which investment combined with good planning can produce good returns in the reasonably short term.

But as I mentioned earlier they cannot be separated out from the enablers, the sectors that provide the preconditions for all economic growth.

The New Zealand Government has identified three enablers that it considers critical to the future of this region: energy, infrastructure and education.

In energy, many Pacific Island Countries are still close to 100 percent dependent on fossil fuels for power generation.

Supply chains are lengthy and markets are small. Inevitably that means energy costs are high.

Diesel and petrol in many Pacific countries costs businesses and households two to three times what it does here in New Zealand.

Imported fuel accounts for nearly 30 percent of the GDP of the Cook Islands.

That is an extraordinary figure.

Typically imported fuel takes around 15 percent of the GDP of Pacific countries and even that is extremely high.

Much of the imported fuel of course is used to generate even more expensive electricity.

Retail electricity in some remote islands is more than seven times more expensive than it is here.

Reducing reliance on imported fuels, particularly for electricity generation, has the potential to significantly reduce the cost of doing business, and significantly reduce pressure on the balance of payments of most Pacific nations.

In a region blessed with an abundance of sun, clearly solar technology holds significant promise, especially servicing smaller populations.

Yet progress towards greater use of solar power has been slow.

Hydro-electricity is already a significant feature of the landscape in countries such as PNG and Samoa, and there is scope for further expansion.

Given the obvious climate change and economic advantages of greater conversion to renewable energy in the Pacific it is difficult to understand, in a world awash with climate change funding, why so little actual progress is being made.

Our own programmes across the region are now giving the highest priority to renewable energy initiatives, and I am pleased that the largest of our current projects, the 1 megawatt solar plant in Tonga, will be the subject of a formal agreement to proceed during this Forum week.

Energy of course is a subset of a bigger enabler of growth: infrastructure.

I have already made the point that each of the three major sectors offering significant economic opportunity - tourism, fisheries and agriculture - depends upon decent, reliable transport.

Currently both sea and air modes of transport are seriously constrained by the adequacy of airports, wharves, harbours and other key items of infrastructure.

Again, we have made these big game-changing investments a priority in our programmes and, given the scale and expense involved, stepped up our attempts to build partnerships with other donors.

I am pleased that one of your sessions today focuses on information technology.

I'm sure the internet will be central in that discussion.

Over the great distances of our ocean, the internet is a vital tool for business, for education and increasingly for social interaction.

Digital development is important. We cannot risk the Pacific falling on the wrong side of the digital divide.

I look forward to seeing your recommendations in this important area.

The third enabler that New Zealand has identified for future growth in the Pacific is education.

Education underpins all economic and social development.

Increasingly, it is education that separates the relatively rich from the relatively poor.

Education is the key to participation in the knowledge economy.

And in the Pacific it is a sector where, collectively, we are just not doing well enough.

And I'm not talking about just high-end education, either.

Let me run a few figures past you.

A million school age children around the Pacific do not go to school at all.

Around 40 percent of children in Pacific Island countries do not complete a basic primary education.

Only 20 percent graduate from secondary school.

Particularly throughout Melanesia, school rolls are expanding fast, putting heavy pressure on already stretched school systems.

Girls, particularly, have real issues with access to the formal education system in several countries.

Recruiting and retaining an adequate number of trained teachers is a problem right throughout the region.

These are facts that the Pacific cannot afford.

Sustainable economic development cannot happen in an environment where basic education is weak.

While governments and donors are making real efforts to improve education in the Pacific, particularly at the basic level, we need to do a lot more.

Increased funding is not the only solution.

Work that I commissioned from Allan Peachey, formerly head of New Zealand's largest secondary school, and now chair of the Education committee in our Parliament, asserts that we should be looking to achieve a significant lift in results from existing funding.

This is a matter not just for governments but also for donors.

Closer cooperation between donors, and between donors and governments, can - and must - make a real difference to the results we are seeing in education.

The Prime Ministers of Australia and New Zealand will later this week announce a greater commitment to meeting the education challenge within the region.

The final enabler I would like to discuss with you today is the broad policy framework in which sustainable economic development takes place.

Perhaps in the Pacific, over the years, there has been too much faith put in what the public sector can achieve.

The New Zealand experience is that the public sector is not good at creating wealth.

But what governments can do well is support the private sector to create wealth.

That does not mean stepping back and leaving the private sector to it.

What it means is providing a fair, transparent and open environment in which entrepreneurship and investment can flourish.

Governments can do this in all sorts of ways:

By providing robust public financial management.

By running taxation systems that encourage productive investment.

By putting in clear, effective banking and investment regulations.

By supporting business mentoring.

And not least by removing the red tape that too often strangles business activity.

We have been heartened to hear an increasing number of Pacific governments speaking of restraining public sector spending in order to leave space for the growth of the private sector.

We have been trying to meet them half way through increasing use of our state sector partnership programme under which we fund New Zealand Government agencies to help build capacity in the region in areas like Customs, Finance, Revenue, the Ombudsman's office and Police.

We also support good regional initiatives.

Today I am pleased to announce that we will be contributing $8.9 million New Zealand dollars over the next five years to strengthen public financial management in the Pacific through the Pacific Financial Technical Assistance Centre, or PFTAC.

PFTAC provides high-quality, tailored advice to Pacific Island Countries on public sector financial management, revenue policy and economic statistics.

While on the topic of regional initiatives I should refer in passing to the fact that Pacific regional organisations have an important role to play if we are to see the sort of gains I have referred to in these remarks.

But it is my view that we are going to need to work harder to ensure they become more focused, more efficient and more coordinated.

I hope that New Zealand will be able to contribute to that process during our year in the Forum chair.

Ladies and gentlemen:

I've talked today about what New Zealand sees as the key drivers and enablers of sustainable economic development in the Pacific.

Underlying this address is a confidence that the Pacific has the resources, that with good policies and the right sort of support from partners, can materially improve results in the years immediately ahead.

We have the data and the information we need.

We have any number of consultants' reports about the challenges that confront the Pacific.

We have plenty of regional bodies and meetings for discussing and debating what we might do.

We have the Cairns Compact, which gives us the direction we need to better coordinate aid delivery.

What will be required is strong leadership from donors and from Pacific nations alike.

And we need a stronger sense of focus. While it is easy for render a shopping list of problems that need to be fixed, and achieve little, we need to focus on some big game-changing targets that together can deliver a step-change in economic performance for the region.

I have given you, as clearly as I can, my own view about those priorities.

And I look forward to hearing yours.

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