PM: getting ahead of the curve

John Key believes NZ must make the most of its competitive advantages. Photo / Mark Mitchell

The Budget is done and dusted. The ratings agencies gods have been appeased and now John Key can get down to what he's been itching to do for weeks: Concentrate on ways to re-engineer New Zealand so it becomes a bustling, vibrant economy.

It should not surprise that Key is a fan of creating a "New Zealand story" based on the innovative skills and the "can do" attitude of a "nation of generalists".

"This gives us a huge strategic advantage," Key said during an interview at his Beehive office. "In my experience working in Britain and particularly the US, they're very well trained specialists, but by definition they don't cross-pollinate and fertilise ideas very well."

Key contends New Zealand is already in the "sweet spot" of what is the fastest growing region - Asia. In the past, NZ has lauded its network of Kiwi ex-pats as pathfinders to help its companies establish exporting beachheads offshore. But he favours reverse logic: Asians living in New Zealand are also a valuable network and should be leveraged to NZ's advantage to create a more attractive environment for direct investment to either help with the de-leveraging process of some of our more vulnerable companies or to expand operations.

Key gave his blessing to the new strategic alliance between struggling Fisher and Paykel Appliances and China's Haier whiteware company.

He also made clear during his first official visit to China, that the New Zealand would welcome further Chinese investment here.

The former head of global foreign exchange at investment bankers Merrill Lynch has no sentiment as far as capital is concerned. "It will go where the deal is best." But Key is also clear that New Zealand has missed out on significant investments - particularly in greenfields industrial ventures - due to its poor infrastructure decisions.

He cites a recent visit by Australia's Origin Energy that told him it was now prepared to look at investing an extra $2 billion in new capacity in New Zealand over the next 12 months because (among other policies) the Government had repealed the thermal generation ban and created a more balanced investment platform.

And Contact Energy's controlling shareholder is not the only foreign company to have beat a path to Key's door. A US private equity firm that was part of the unsuccessful consortium bidding for Australia's Qantas Airways also rolled up expressing an interest in Fisher and Paykel.

Key sent the PE firm down the road to talk to F&P's John Bongard.

The point he is making is that fundamentals do count. The Government's agenda to reform the Resource Management Act, review regulations, reform the Overseas Investment rules and review the electricity market might seem boringly bureaucratic - but unless New Zealand creates a more secure investment environment companies will go elsewhere.

Key points to other competitive advantages New Zealand could secure if it invested hard in infrastructure like broadband.

"I have always thought the internet was the game-changing dimension," he said. "If we could make sure we had world class connectivity, add that to well-trained people then you've got a good model. Our labour markets are flexible, we're still a lot less expensive than Australia."

He makes the point that though Australia hasn't yet gone into technical recession, its unemployement level is higher than New Zealand, which he contends is the upshot of a more flexible labour market on this side of the Tasman.

The Key of old - who used to get enthused over programmes to leverage New Zealand's position in the Asian timezone to create a new financial services industry here - has not disappeared. He believes there are aspects that could work in New Zealand.

"At the moment it's probably not exactly flavour of the month given what happened to Ireland and the international investment markets. If you are talking about running trust businesses, or insurance based products or certain services they (investors) will go where the deal is best."

Key maintains New Zealand has some strong strategic advantages. He reveals there is "quite a debate raging" between the commercial banks as to whether they should outsource to India or actually insource to New Zealand. "The argument that has been put to me - and I think it is absolutely right - is would you outsource your service industries to India at a time when there is greater uncertainty with Pakistan? I think New Zealand has a real strategic advantage - now you might have to use tax to do a bit of that."

From the Government's perspective its focus on economy recovery is in three areas. First, it has to make sure the capital markets can operate effectively. "So while one of the drivers of the Budget goals was about jobs a lot of was about getting the public balance sheet in order so we didn't get down-graded. "

The second aspect was to focus on ensuring both the physical and soft infrastructure is in place to provide a platform for economic growth. Key also puts getting a balanced emissions trading legislation in this category "It's all about sending a message that you want to be part of the growth cycle.

"I have a sense of where we think the economy can compete - I've spelt that out clearly - food producing industries, export education, tourism services and niche manufacturing and service-based industries."

The last - but in Key's view probably the most important factor - is the attitude of the Government and its willingness to support business. "Not necessarily with financial support but just a sense of we're on the same page as them."

But the inveterate "money man" has not broken the habits of a lifetime simply because he is now Prime Minister. Key still looks at the stock market every morning: "It's one of the first things I do ... have a quick look and see whether the economy is recovering."

The only real question is just when the world starts growing again and how rapidly it grows.

Possibly Key's greatest gift is the fact that he retains an outsider perspective that has been informed by spending much of his career in the world's financial capitals.

"As world becomes more heavily populated, more polluted and arguably less safe, New Zealand represents a very attractive local for people to want to live," Key said. "We've got such a small population it doesn't take a lot to change the rules of the game."

Wearing his old money markets hat he believes that eventually human nature will be the dominant force in the international recovery.

"The concept that capitalism is dead is nonsense. It's as fundamental to people as breathing.

"You will see reduced appetite for the large bonus, and the large compensation, and hence the large risk appetite that drove the asset bubble in the last three or four years.

"Having said that, if history is any indicator sooner or later Gordon Gecko will be back."