John Key may be more visible than his predecessors but the jury is still out on whether he cuts the mustard as a Prime Minister who will lift NZ into the first world.
Prime Minister John Key has fast-tracked the signing of bi-lateral trade agreements with New Zealand’s trade partners and promises capital market reforms for New Zealand. The jury, however, is still out on whether he excels, barely meets the mark or underperforms on his promise to lift the economy out of the doldrums.
In his statement to Parliament on February 9, Key said the government’s economic policies were aimed at shifting the economy more towards exports and productive investment, and away from consumption and borrowing.
He promised to open up exporters’ access to world markets. Last year, New Zealand signed free trade agreements with Malaysia and with the 10 countries of the ASEAN block. This year it will sign agreements with Hong Kong and with the economies of the Gulf Co-operation Council and will work towards a free trade agreement with the United States through the Trans-Pacific Partnership. Trade negotiations with India and Korea are on the agenda, too.
Efforts will continue to conclude the Doha round of World Trade Organisation negotiations and the government aims to press for progress with Australia on the Single Economic Market.
HIGH MARKS FOR CONNECTION
In terms of connection with other countries, says Export New Zealand chairman Ken Stevens, the governments is doing “exceedingly well” and Trade Minister Tim Groser is doing “an excellent job”.
While nothing fundamentally has changed from the previous government’s approach, “they are connecting more effectively, they are breaking through the paranoia in the American market, and they are getting good audiences there. They are looking at it more proactively than maybe the Labour guys did.”
He sees Mike Moore’s appointment as Ambassador to the US as a good move. The perception is that ambassadors were being appointed to take a hard look at trade.
APATHY ON EXCHANGE RATE
But many exporters have been left out in the open, with the phase-out of New Zealand Trade & Enterprise’s Market Development grant.
Stevens says the exchange rate is a concern, but “there’s nothing much we can do about that”.
John Walley, CEO of the New Zealand Manufacturers and Exporters Association, hears mixed stories: “I don’t hear a lot of highly negative or highly positive comments, except around the nonsense of exchange rates.”
Increasingly, a sensible longterm exchange rate related to trade is needed so both importers and exporters could win. “We are still with TINA [there is no alternative monetary policy], so nothing is going to change … but without fundamental change, the investment profile won’t change. That’s bad for growth and jobs,” Walley says.
LOW MARKS FOR ADDING VALUE
More generally, Key is not cutting the mustard in terms of red-carpeting added-value exports (but no government had done well in that area for two decades). The focus has been on commodities, not on added value, Walley says. The loss of the research and development (R&D) tax credits is also unhelpful. Businesses invest in R&D only if they are going to export, and implicitly the credits are an export policy.
Ron Dards, a management consultant who advises exporters, says there has been “not much difference, really”, since the change of government. “They are more commercially orientated, but they are not doing anything to make commerce happen.” The exchange rate is a classic example. “They would like you to believe they have no control over it, but they do. The exchange rate is one of the places where it really hurts,” Dards adds.
A big effort is being made to secure access to traditional markets, but that does little for Dards, who helps companies to sell to places like Russia, sub-Saharan Africa, the Baltic states, the Balkans and South America.
Russia has 150 million people with money and is a cash economy, but the nearest New Zealand trade office is in Hamburg, Dards says.
NO MARKS FOR GOOD POLICIES
Simon Dyer, managing director of 2C Light Company, gives no marks for good new policies (“not yet”).
He considers the shutting down of NZTE’s Enterprise Market Development grant as “deplorable” and “ridiculous”, saying “it’s the best thing that they were offering”.
New Zealand must export its brainpower and technology, but winding down the development grants is “completely counter-intuitive”, Dyer says. “I don’t expect the government to give us handouts in all cases, but we are an island state in the middle of the Pacific, so we really need help to grow our exports so we can improve our total net value as a country.”
Bob Fenwick, chief executive of Planhorse Systems, thinks the jury is out on the new government. “We are still waiting to see.”
He credits the government with doing an excellent job with free trade agreements, but says the phase-out of the export market development grant scheme is a black mark.
The export credit guarantee scheme is starting to make inroads into support of exporters. It is into its fourth year but the banks are getting to grips with what the scheme is all about and exporters are getting the benefit.
On the exchange rate, Fenwick has mellowed over the years. “I don’t think there is anything they can do about it.” John Blackham, chief executive of XSOL, is disappointed there has been “a total lack of any policy or initiative”.
The government’s focus on commodities, “digging exports out of the ground or growing more sheep”, will not make us a wealthy nation, he adds.
MORE VISIBLE, MORE ACCESSIBLE
His particular beef is that New Zealand is one of the poorest performing countries with weightless exports. Besides film-making, much more could be done to stimulate these exports.
He hopes something will come of Key’s proposal to transform the country into an international financial hub focused on the administration of overseas pension funds. Infrastructure will be created to facilitate and encourage the registration and administration of international pension funds under a proposal from the Capital Markets Taskforce.
Paul O’Brien, chief executive of Easiyo, praises Key for turning up at factory openings and publicly supporting exporters. He is more visible and accessible than his predecessor, according to O’Brien. He could not identify new initiatives from the Key government, “but I can say the Trade & Enterprise people are more energetic and more helpful under this government”.
Example: when he complained to NZTE recently, his wish list for help was promptly fulfilled. “A few years ago, it would have taken six months to crank them up.” Exchange rate volatility, on the down side, makes it “bloody hard” to export, he says.
