By Andrew Gawith
Governments and their advisers have touted exports as an important route to faster and sustainable economic growth for decades.
Much analysis and money has been applied to lifting our export growth but, alas, little has changed over the past 20 to 30 years.
Treasury's latest forecasts point to yet more anaemic export growth and an external deficit deteriorating to around 7 per cent of GDP by 2015. A current account surplus is clearly a long way off.
Indeed it is so long (1973) since New Zealand earned more foreign exchange than it spent (that is, a current account surplus), that one would be barely recognisable.
There's a mountain of analysis highlighting the challenges New Zealand faces in expanding its exports: distance from markets, scale, dependence on commodities, lack of investment in research and development (R&D), shallow pool of talented managers, shortage of venture capital, etc.
The list seems endless and ever-changing. But are these problems or excuses?
Governments have funded a range of services to help companies get established in export markets and to expand their export sales.
The Trade Development Board was set up in 1988 and has had a number of makeovers since then with New Zealand Trade and Enterprise being the latest version of an export assistance agency.
It has just received a scathing review from the State Services Commission, which rated the agency poorly on things such as strategy, culture, leadership and workforce development.
It also highlighted shortcomings in governance, structure, external relationships, IT and international business services.
The new management team has already set about addressing these problems, but a crucial question remains: is the model this agency is required to pursue really working?
The evidence is underwhelming. Over the past two decades exports of goods and services (in nominal terms, so taking into account both volumes and prices) have remained static as a share of GDP.
In other words, we have failed to lift the contribution exports make to GDP growth despite considerable effort and expenditure to do so.
That should have spurred the Government, MED, Treasury et al to conclude that the existing approach to assisting exporters needs more than just a makeover. One of the consistent criticisms of publicly funded business assistance initiatives is the fragmented and confusing array of programmes that are pushed by multiple agencies.
Each agency and programme has its own application process, scoring system and funding formula.
The core issue for businesses, especially those looking to grow and export, is their access to capital to finance R&D, new product development and testing, opening up new markets, setting up distribution channels, etc.
There's been a long debate about whether or not the lack of access to capital reflects a market failure and therefore justifies government intervention.
Generally the conclusion has been that there is not a market failure - angel investors, venture capitalists and banks do fund some small, promising businesses with clear plans and realistic ownership expectations.
But private investors and banks certainly don't fund all budding exporters and will often expect those businesses they do fund to secure public money for R&D, market and product development, to share the risks involved in funding them.
Rather than maintaining a host of programmes to help firms bridge the funding gap, perhaps we should dust off the concept of an export development bank.
Yes, we've been down this road before and it ended in ... well, collapse (the Development Finance Corp was put into statutory management in October 1989).
But with strong and disciplined governance, experienced management and a tight focus an export development bank could be a more logical, efficient and commercial way of delivering business development assistance than the bunch of government agencies racing around trying to fulfil their statements of intent.
Another key change to the model could be to focus on earlier stage exporters rather than the more established ones.
While the latter will generally produce higher short-term returns for the public funds invested there may be a large element of coat-tailing; that is, in many cases these established exporters would have pushed ahead even without funding from NZTE or other agencies.
Helping to 'plant' more seedling exporters may take longer to show a return, and the failure rate might be difficult to justify politically, but the returns could turn out to be significant in the long run.
The rationale for targeting assistance at this earlier stage is to help firms get across the no-man's land of needing to grow, or get into exporting, but not being big or sophisticated enough to attract private sector funding.
A fundamental goal for NZTE should be to turn itself into a fee for service organisation.
It seems daft and wasteful for companies to pay tax in order to fund the likes of NZTE which then provides them with free or subsidised services.
While government agencies have a role in providing public goods such as market intelligence and trade negotiations and assisting where market failure occurs, it's all too easy for them to expand their activities and crowd out private sector services.
The Government should focus on improving the conditions within which businesses operate (regulations, taxes, etc) and the economic environment (interest rates, exchange rate, education, etc) - funding the large fiscal deficit is clearly contributing to the damaging rise in the currency.
Historically high commodity prices (nothing to do with us) are currently disguising a worrying lack of progress in building a broader and more substantial export base.
We definitely need faster export growth to reduce our dangerously high national debt otherwise the adjustment will be via lower spending.
But given that the recipe for promoting export growth over the past 30 years has not lifted our export performance, it's time for a step-change in the way we encourage firms to export and to become genuinely global businesses.
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Andrew Gawith is a director of Gareth Morgan Investments. This article was first published in the NZ Herald.
12 Comments
The worldwide environment doesn’t allow expectation in increase exports in any sectors long term. Full employment with decent jobs is the key for our economy and social freedom.
To achieve that:
Reduction of imports in the billions is wiser long term – then concentrating on more exports only.
No – no guys – stop the “bricolage” - but develop a comprehensive economic strategy !
As I many times described New Zealand can only improve working on real, sustainable production, taken into consideration limitation of resources, climate change and the current stage of world economies/ politics.
This means strong incentives from the government to support reduction of imports in the billions and building new segments of industries in order to create full employment, skill,. entrepreneurialism and higher wages.
Governmant fails again - no long term plan.
Listening to Minister Joyce in yesterday’s oral Q&A in parliament – he’s underperforming again and should be sacked.
NZGoverments in the last 10 years are to blame for the mess we are increasingly experiencing on the NZemployment front. The current government obviously isn’t aware of the severity of the worldwide crises and it’s consequences.
How much longer, until unemployment rises to 10% + and the wider NZpopulation cannot afford daily necessities ?
“NZ- Key Culture” - NZconsumerism before NZproduction ?
It seems for PM Key and his ministers every other business (Auckland Casino/ NZ$/ Re- election/ etc.) is much more important then full employment in decent jobs of the wider NZpopulation.
Considering his priorities does the PM really recognise the severity of the problems in our economy/ society ?
PM - what are the social consequences and the indirect costs for taxpayers of the Auckland Casino ?
PM - how many more broken families – how many more prisons – how much more burden for the taxpayer ?
Governments and their advisers have touted exports as an important route to faster and sustainable economic growth for decades.
Much analysis and money has been applied to lifting our export growth but, alas, little has changed over the past 20 to 30 years.
He answered the question in his first two sentences. Keep government and their advisers out of business (and hence our lives). After all the evidence of unintended consequences of planned economies yet this writer, despite seeing the problem, then reverts directly back to thinking government can be the solution.
I'll never understand it. Brainwashing in the state education system or some damned thing.
After all the evidence of unintended consequences of planned economies yet this writer, despite seeing the problem, then reverts directly back to thinking government can be the solution.
I'll never understand it. Brainwashing in the state education system or some damned thing.
Clearly you do understand it. Government is the primary problem. Until we recognise that and reduce our dependence on government to fix things our economy will continue its decline.
That state controlled education system has a key role in maintaining our our dependence on government.
There are a lot of villages missing idiots, government needs to let the villages have their idots back. i.e. smaller government and funnier villages.
Why would I try and set up an export business, when my profits can be wiped out and my business decimated by something beyond my control. Its not the exchange rate but the stability of it.
In reality the current situation is a reflection of the actions of the collective masses who look or have looked at export opportunities and come to the same conclusion, why put my Beamer, Boat and Bach at risk, a risk that I have no control over, a risk for which I am not rewarded.
Yes the country needs exporters, the country also needs better government, needs don't equate to actual outcomes.
The environment needs to be conducive to more rather than less individuals taking a particular path.
With zero knowledge in such industries I have often wondered why NZ with its local forestry industry has not developed a flatpack furniture industry as typified by the world famous Ikea brand. There must be other areas where we can value add to our timber.
Can Ikea be encouraged to set up production here?
Where to start.
The list of what is wrong is almost endless the list of solutions seems to be stunted and full of pet ideas- 'Government is to blame for evertything'- sort of comment.
Two things seem to stand out for me.
1. Miss allocation of our most scarce resources- our effort
2. Distance to market
On misallocation of our most scarce resources you have to get your head around the idea that people in NZ are as good as anyone, and better than many at thinking up good ideas and making them happen. However the way we have structured our society is happering our ability to pay our way in the world.
1. We tax 'doing stuff' rather than tax 'not doing' (rent seeking, toll booth operations). Clever Kiwis end up heavy into 'not doing' activies rather than doing.
2. A classic example of resource misallocation are fake power companies working in fake markets- non of this activity makes us richer or helps us pay our way in the world they just make a few people rich working at working the system. Instead of having a simaple affordable electricity sector we have a cool power industry where people who should be doing real jobs are instead paid a whole lot of money to play at being in business while stuffing things up for the rest of us. I hate to break it to the executives at Genisis, Meridian et al, but you didn't invent electricity. You didn't even build the power stations, you have a simple management function that has been faked up into a financialised cool market- what a joke. And on March 26th 2011 the joke was on us.
On distance to market. If we were in the same place as Finland or Denmark - about the same populations but right next to massive markets we would not have any of the sorts of problems we have, we would have other ones.
So if NZTE/Government could do anything it would be reduce the distance to market. How? In the food industry- what is left of it. We couls assist people to export by creating vertual ports- NZ Inc collectively handles the tricky bit- the bit in the middle- the exporter just has to get it to the port and make sure he has a customer at the other end. Non tarrif barriers make it very hard for smaller players to get started in exporting to most markets. We as a countruy need to recognise that collectively we stand a beter chance than we do individually. Also the cost can be spread. This is not a hand out rather it is a cost sharing collective approach. The Swiis Danes etc all do this sort of thing. That is how they get ahead-
The DFC was actually very successful UNTIL ...
they got indirectly into property speculation which brought about their downfall.
We already have the Science and Technology investments option but given their track record and totally loopy investment choices in non commercial initiatives - you see how teams of civil servants are not the right people to make these sorts of calls.
I'm referring to funding nanotechnology to increase the production of hydrogen in electrolysis.
Martin Jet Pack which is a fun idea going nowhere - just google small one man helicopters and you will see this was solved years ago - but very dangerous and no market exists.
The problem is that without the science and technology background we don't have the people to make these choices.
Look at the graduation lists - Hundreds of Bcom Llb's and other similar soft degrees which have no part in a science / engineering driven export sector vs a handful of Physics / Bio / Eng / Chem / Geo / Maths / Econ / etc etc ie the hard sciences ..
Singapore got the new RR Trent line with 200 engineering Honors & Phd's per annum.
We could start by making the University science fees zero and doubling the rest to fund it !
Not going to happen - but these are the sorts of initiatives we have to make as a precursor to an export renaissance. focused on value driven technologies.
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