Lifting export performance NBR

by | Oct 3, 2014 | Trade Working Blog

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New Zealand’s export effort needs to reflect the growing importance of global value chains, writes Stephen Jacobi.

This week’s drop in the exchange rate will bring some welcome relief for exporters who, for some time now, have had to deal with a situation not of our making.  New Zealand is largely a taker when it comes to exchange rates.  Notwithstanding tough talk from the Governor of the Reserve Bank, and even occasional dollar sales, the value of our currency is set more by actions in Washington than Wellington.  This is particularly galling for exporters who, day by day, have to make decisions which affect not only their business but also collectively the whole country.

New Zealand lives by trade.  The returns from exporting and New Zealand’s offshore investments pulse back into the economy and provide the funding for a world class health, education and social welfare system.  Money for kohanga reo, hip replacements and training initiatives does in fact grow on trees ? and on the land, in the sea, in the factory and the lab.

Yet for all the daily successes of New Zealand exporters – and there are many – collectively our performance is not what it could be.  Not only do we have a low rate of trade as a share of GDP compared to countries of similar size, our exports are not growing as fast as others’ and our export strengths are focused in a few areas.  None of this is new and the causes have been analysed in multiple reports – size, scale, distance from markets are all factors.

What is new is that the way business is being done today. Recent years have seen the growth of highly complex global value chains which link supply to demand the world over.  Goods often are no longer sold just to one end-customer.  They pass through multiple stages of processing across different geographies before they reach the final consumer.  Around a third of international trade is taken up by these “intermediate goods”.  Embedded services -such as after sales care – form part of the supply of goods.  Data accompanies goods as they move through the supply chain providing information for suppliers, customers and regulators alike.  Services are also increasingly exported – whether through education, consultancy or other professional services.

New Zealand exporters are already adapting to this new business model, forging more sophisticated relationships and supply arrangements.  Government policies also need to adapt.  That’s because increasingly our national economic performance will depend on our ability to link to these global value chains.  The Government needs to pay no less attention to the business environment – fiscal discipline, innovation, investment –  but more research is required about how we are doing in relation to these global value chains and what sort of support policies are required to anchor ourselves in this new business reality.  The panoply of government agencies involved in the export sector – NZTE, MFAT, MBIE, MPI ? and the nation’s universities and research bodies need to align in this effort.  A deeper understanding of these matters the part of the country’s political leaders would also help.

Above all we must continue to ensure New Zealand can link effectively with the rest of the world through a series of trade and economic agreements that will enable enterprises to operate more effectively across multiple jurisdictions.  The Trans Pacific Partnership (TPP) is an example of one such agreement.  Progress in TPP is frustratingly slow and depressingly controversial.  It is worth persevering with because it seeks to respond to the new business models now being developed and because it is designed as a pathway to wider economic integration in the Asia Pacific region.  When the negotiation is finished, and the results are made available for all to see, a strong effort will be required to convince the public that the final agreement is in the nation’s interest.  Business will need to play its part in this effort.

Competition today is less between countries than between competing value chains.  New Zealand’s ability to participate depends on the extent to which we can develop greater flexibility in becoming part of these value chains and integrating more deeply into global markets.  Beyond managing the exchange rate, we need inspirational business leadership, the commitment of our workforce, encouraging government policies and bipartisan support from across the political spectrum.

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