UPFRONT : Black-lining – does New Zealand’s economy need resuscitation?

We might like to think we punch above our weight on the international scene – but when New Zealand’s economic performance is compared to those of other OECD players, we’re “the black line at the bottom of the chart”.
That’s according to David Skilling, CEO of The New Zealand Institute, whose recent address at the University of Auckland’s Business School (Dean’s Distinguished Speaker Series) was backed with bunch of charts that highlighted our ‘black-line’ status.
As Skilling points out, we work long hours individually but despite all this hard work are becoming less productive as nation. And it’s not just matter of size – even Iceland with smaller population than ours rates higher. They can also boast more companies in the top global 2000 than us.
And more uncomfortable statistics… our exports lag most developed countries as percentage of GDP – 28 percent compared to small OECD country average of 54 percent. Then there’s the awkward outward FDI (foreign direct investment) chart which shows us slipping steadily backwards through the 1990s to reach ratio of FDI that is just 10 percent of our GDP compared to developed country average of 27 percent.
Put the rather sorry story of exports and FDI together and it’s not exactly positive picture, says Skilling.
“We are actually becoming less engaged with the global economy than we have been,” and that, he says, is reality we have to wake up to, face and address. As he notes, there’s no shortage of people pointing out the problems – we’re less good as nation at pinpointing solutions.
Both growth constraints and potential solutions are highlighted in two recent Institute publications: The Flight of the Kiwi and Developing Kiwi Global Champions.
A new communications era may be shrinking the globe but in reality New Zealand is still helluva long way from most major markets compared to other OECD exporters. As lot of local companies have discovered to their cost, international expansion is no cake walk.
One of the easiest ways to knock 10 percent off your market capitalisation, says Skilling wryly, is to mutter the words “I’m going global”. So it has to be done with aggression, creativity and determination.
As nation of small business owners, we also need to raise our aspirations above the three ‘Bs’ – the Beamer, boat and beach house. Skilling believes New Zealanders will always clear the bar as long as they know where the bar is set. So we have to define what success looks like.
That includes setting realistic targets for export growth – particularly given the barriers of distance and lack of large locally owned investment vehicles (apart from Kiwibank most of our banks are owned offshore) – and outward FDI.
These targets are detailed in The Flight of the Kiwi – an added $35 billion of exports by 2020 (which represents about 500 extra Rakons or 150 Pumpkin Patches) plus an extra $18 billion of FDI (that’s about seven transactions year that are the size of Fonterra’s recent $153 million purchase of Chinese company San Lu).
The four high potential areas for business and government action to develop more Kiwi global champion companies are: reform the tax regime (to incentivise international expansion); implement bold savings strategy (to grow and enhance the local supply of capital); encourage international expansion by SOEs (where the business case stacks up); and improve corporate strategy around international expansion (success features include long-term commitment, world-class competitive advantage, step-by-step approach and experienced people in offshore markets).
Although some of the Institute’s solutions have been criticised as re-hash of old ideas, Skilling’s presentation prompted plenty of debate. And there’s more to come. Developing Kiwi Global Champions (published last month) is the first of four reports that contain detailed analysis and recommendations designed to haul New Zealand’s economy above its black-line status.