Gaynor: Blushing Auckland bludging off rest

The recently released interim report by Competitive Auckland is a major embarrassment to the City of Sails. It shows that we are bludging off the rest of New Zealand and the country would be better off without us.

Auckland has also dropped well behind Sydney and other big international cities.

The report, which was commissioned by a group of business leaders who are developing a growth strategy for the region, concluded that on a per capita basis the Auckland economy is growing more slowly than the rest of New Zealand.

It also found that the region is totally responsible for the country's trade deficit. In the June 1999 year, Auckland had a trade deficit of $2.2 billion while the rest of the country had a surplus of $1.8 billion.

Our export performance is abysmal - but we still drive around in late model European cars that the rest of the country pays for.

Competitive Auckland argues that the region has failed to take advantage of globalisation. The city is inward looking; most of its economic growth has come from population increases and domestically oriented industries. The biggest contributors to economic activity are retailing, property and business and financial services.

Large companies and skilled workers are going overseas and the area has no coordinated development strategy. Auckland has dropped so far behind Sydney (on a GDP per capita basis) that we need the equivalent of 35 America's Cup campaigns, 26 million extra international visitors or an 80-fold increase in our marine industry to catch up with our Transtasman neighbour.

The rest of the country now has the data to ridicule Auckland's economic achievements, but the same problems afflict the national economy; namely the failure to take advantage of globalisation and a very poor export performance.

Although New Zealand's export growth has improved in recent years, it still lags well behind the OECD average and other similar-sized countries.

In the year ended March, New Zealand's total exports were $30.4 billion compared with $181 billion for Ireland and $312 billion for Singapore (all foreign currency figures have been translated to New Zealand dollars). Both countries have a similar population to New Zealand.

Ireland now has more overseas earnings than Australia and New Zealand combined. The Celtic Tiger has exports of $47,700 on a per capita basis compared with just $7900 for New Zealand and $7400 for Australia.

Our nearest neighbour is also lagging well behind the rest of the world, which accounts for its large current account deficit and weak currency.

The Irish Government has had few privatisations - the national airlines, railway and electricity companies are still publicly owned - but it has aggressively promoted direct foreign investment.

The country offers a 10 per cent corporate tax rate on manufacturing activities and the state also gives generous location allowances.

Unlike New Zealand, the Irish see tax breaks and incentives as an investment rather than a cost.

This approach has worked - there are now 1300 overseas companies based in Ireland employing 125,000 highly paid workers and generating exports of $68 billion. In 1999, these companies received Government grants of $340 million but paid corporate tax of $2650 million at the 10 per cent tax rate.

The Irish countryside is dotted with large-scale manufacturing plants operated by Intel, Dell Computer, Microsoft, Oracle, 3Com, Apple Computer, Gateway2000, Motorola and others.

Limerick, with a population of 79,000, once had major employment and social problems but it now hosts Dell Computer, Analog Devices and Stryker Howmedica Osteonics. These three manufacturing facilities employ 6075 workers and have export sales in excess of $12.5 billion. By contrast Auckland, with a population of 1,193,000, has exports of only $7.7 billion.

Has anyone ever asked Michael Dell to set up a manufacturing operation in the Auckland region?

In the mid-1960s Singapore was a Third World country with a population of 1.9 million that mainly depended on British military bases.

When the British left the Government adopted an aggressive strategy towards attracting foreign investors and developing export-oriented industries.

It also set out to establish Singapore as a major finance centre by abolishing withholding tax on interest income earned by non-resident depositors.

In the 1990s it took the lead in encouraging the technology sector by investing $2.6 billion under the 1991 to 1995 National Technology Plan and a further $5.3 billion under the latest National Science and Technology Plan.

Singapore now has a huge current account surplus and substantial foreign reserves.

We take a much more laissez-faire attitude towards economic development.

Motorola was interested in establishing an operation in New Zealand but decided on Perth because the West Australian Government offered a $6.7 million incentive package and the University of Western Australia will build Motorola's production facility at a cost of $18.6 million.

Why does our Government want to invest $80 million in the People's Bank when it could attract Motorola and a number of other export-oriented operations for the same amount of money? The export emphasis of the Irish and Singapore Governments has translated into very impressive economic growth. Since the advent of New Zealand's economic reforms in the mid-1980s Singapore has grown by 215 per cent, Ireland 140 per cent, Australia 70 per cent and New Zealand by just 32 per cent.

Average GDP growth of the 30 OECD countries over the same 15 years was 55 per cent.

The successful globalisation of the Irish and Singapore economies has had huge spinoffs. The Irish sharemarket, which was worth only $5 billion in December 1985, had a total value of $182 billion on April 30.

By comparison, the NZ Stock Exchange had a market capitalisation of only $44 billion and the Singapore Stock Exchange $464 billion on the same day.

The average size of a listed Irish company is $2310 million, compared with just $330 million for NZSE companies. This is consistent with Competitive Auckland's findings that the average size of companies in the Auckland region is shrinking.

David Irving and his team at Competitive Auckland have a difficult task ahead because most people do not realise that there has been a serious deterioration in our relative economic performance.

Government sources in Wellington, particularly the Treasury, are also unwilling to adopt a more flexible approach towards economic policy.

Over the next few months, Mr Irving will host a number of public meetings as his project team tries to develop a meaningful development strategy for the Auckland region. He is attempting to make this an Auckland-driven project to avoid having to deal with potentially negative influences from Wellington.

The experience of Ireland, New Zealand and Singapore has shown that local businesses on their own will not create a strong export-oriented economy. Small countries need to attract direct foreign investment that has a strong export bias.

Mr Irving and his team will have to persuade Mrs Fletcher and the other regional mayors to place far more emphasis on attracting export-oriented industries and less importance on transport and property projects.

* bgaynor@xtra.co.nz