The real problem with the New Zealand economy

 The New Zealand economy is in damage control mode at the
moment. Let me give you some stats to paint the picture.

New Zealand is a trading nation – we earn US$37.9bn a year
from our exporters.

Dairy exports have risen from 5.9% of all exports to 13%
between 1995 and 2010. In that same period, the number of dairy cows in New
Zealand doubled
.

We export most of our goods to Australia (21%) followed by
China (15%) then the US (9%) and Japan (7%).

One company, a collective although really a multination
corporation, accounts for most of that export revenue. Fonterra, which grew out
of a merger of the New Zealand Dairy Group and Kiwi Cooperative Dairies in
2001, has lead that charge and now controls one third of the world’s dairy
trade, exporting 95% of its output.

We are, as an economy, totally reliant on one company for
wellbeing.

This, then, is the heart of the matter. Forget the grubby
pipe and the botulism. Put aside the PR debacle of sitting on the
news for months and then holding a press conference with no information.

That we are utterly reliant on one source for our income is
the real catastrophe here.

In the same time period – 1995-2010 – the internet
revolution came and swept all before it, yet ICT related exports are worth a
fraction
of dairying. How did we miss this opportunity?

Diversification is the name of the game and we as a nation,
as an economy have, to mix my farming metaphors, put all our eggs in one basket.

This is the real issue revealed by the dirty pipe. Not that
there’s an issue with process in one factory in the Waikato, but that we are utterly
exposed to an issue with process in one factory in the Waikato. That we are
utterly exposed to one industry for our place in the world.

We need to diversify. We need a concerted government-level
drive to build up our other export earners.

Traditionally, New Zealand has made its money off the land
and the sea. We’ve harvested trees, whales, gold, coal and seals. With the
advent of freezer ships we moved into sheep and beef and yes, dairy goods.

We cannot simply remain reliant on the good weather and
remoteness of our islands in order to survive. We have to do more and we have
to do it now. Arguably we’ve missed the internet revolution and all that could
have come from that, but I’m convinced it’s not too late, but we have to act
and we have to act now.

Forget low-value manufacturing – we simply can’t compete
with China or India. Forget mining – we love our clean, green (well, green at
any rate) environment too much to dig up the national parks looking for oil and
uranium. If there’s any one answer to this issue, it’s ICT.

(EDIT: Hattip to David Farrar at Kiwiblog for the above link to The Economist’s piece on Estonia. We should be doing this) 

We need to encourage our students to go into ICT fields of
study instead of accounting and management.

We need to build an export market that grows much faster
than the 11% year on year we see today.

We need to encourage more investment and more
entrepreneurship in ICT areas and not be too afraid of spending money on
businesses that ultimately don’t succeed.

We need to change the tax laws to encourage ICT developers
to do more.

We need to spend more on R&D (currently we are spending
less than the OECD average. That’s no way to get ahead).

We need to invest more in our ICT infrastructure – from our
national deployments of fibre infrastructure to our international needs with
submarine cables, but also our electricity sector to power all these devices.

We need to do these things because the alternative is that
our global economic output is entirely in the hands of a pipe cleaner in the
Waikato earning, I’m going to say, minimum wage. I’d like it to be a touch more
secure than that.

3 replies
  1. Jason Kemp
    Jason Kemp says:

    Great post – the best risk management strategy is diversification.

    On the ITC sector I have some numbers to show that it is worth around 7.28b p.a and I’m not sure how much of that is export but it is a fair percentage and that part is growing.

    One of the issues with the "weightless economy" is tracking and measuring it. Besides what is seen as the ITC sector there is a wider set ecosystem of digitally enabled companies and businesses.

    Just a few weeks ago in the UK I saw this post http://www.theguardian.com/business/2013/jul/22/digital-economy-neglected-by-official-statistics?

    In that story the UK digital economy was described as being double the size of what the government numbers showed. I suspect it is the same here.

    Reply
    • Paul Brislen
      Paul Brislen says:

      Thanks for that, Jason. I’m sure there is a lot of work going on that isn’t being recorded properly (the R&D spend can’t be that low, surely?) and measuring this stuff has got to be the first step we should take.

      It’s important we do more than just watch the world change around us – New Zealand stands to gain more from the weightless economy than just about any other country in the world, yet we’re barely scratching the surface.

      Reply
      • Jason Kemp
        Jason Kemp says:

        cheers my NZ numbers came from Greg Shanahan over at http://www.tinetwork.co.nz/ but his site is down today so can’t get a better link

        I think R&D spend is buried in other categories for tax reasons. Those R&D policies keep flicking around and I can’t remember what the limits and rule are now

        Reply

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