Export goal to break tyranny of distance

With a good proportion of the world's population on its doorstep, Hong Kong is well-placed for trade. Picture / Reuters

New Zealand should set itself the goal of lifting exports by at least another $35 billion in today's dollars by 2020 - equal to three more Fonterras, 150 Pumpkin Patches or 500 Rakons, an Auckland-based think tank says.

The New Zealand Institute says this is what it will take to increase exports from 28 per cent of gross domestic product now to 35 per cent by 2020. The average among small developed countries is 54 per cent of GDP.

In a report "The flight of the kiwi: Going global from the end of the world", the institute says the country will struggle to raise productivity and living standards unless it lifts its level of engagement with the rest of the world through trade and investment.

But it acknowledges the difficulties New Zealand faces in this regard, which other small OECD countries do not have, such as its location.

Within a 3 1/2 hour flight from Hong Kong are 42 per cent of the world's people and 32 per cent of its GDP. Within the same distance from Paris, it is 15 per cent of the global population and 28 per cent of its GDP.

The same flying time from Auckland will take you to four-tenths of 1 per cent of the world's population and about 1 per cent of its GDP.

Institute chief executive David Skilling says talk of the "death of distance" is premature. "And it's not going to commit suicide. You have to kill it."

But New Zealand's spending on information and communications technology is below the OECD average and broadband penetration is in the bottom quartile.

Companies that take the plunge into international markets tend to be small by world standards, reflecting the small home market. Skilling says they will have had less opportunity to develop a productivity advantage because of the absence of scale and other factors such as less intense competition and specialisation.

Many firms do not see a compelling commercial imperative to expand internationally, when they are able to earn higher returns here, where they may enjoy some market power.

"One chief executive told me, 'I hear what you are saying, David, but I don't turn up at work to salute the flag. I'm here to make money for my shareholders'," said Skilling.

"We were consistently told New Zealand capital markets are characterised by a preference for rapid payback and an intolerance for initial losses, a low level of understanding of the international market potential of New Zealand companies and a preference for stable dividends over risky growth."

But Skilling says none of this justifies a fatalistic acceptance of insularity and stagnation.

The country has advantages as well as handicaps: being English-speaking, having good institutions, a large immigrant community and a network of Kiwi expatriates.

He says policy changes are needed but so is an attitudinal shift to something more aspirational among those running the companies that can reali-stically think of expanding overseas.

The policy measures include overhauling the tax rules governing overseas subsidiaries and perhaps allowing a tax rebate for the costs of developing international markets.

Moves to boost domestic savings would help, not only by providing a source of capital for companies looking to expand but potentially by moderating the swings in New Zealand's economic and exchange rate cycles if people were encouraged to spend less and save more during the boom times.

State-owned enterprises should be encouraged to expand internationally and something had to be done about the resources of NZ Trade and Enterprise being spread too thinly.

Half its budget is aimed at assisting companies to become "export ready". Its focus instead should be on making itself useful to the much smaller number of firms who are likely to generate a substantial rise in exporting and outward foreign direct investment.

"The most important service is providing firms with access to people who have deep market understanding and who know how business is done locally, who understand the channels to market, who can identify market opportunities and who can open doors," said Skilling.