NZ's growth relies on wider outlook

By Richard Braddel

Capacity building - or the development of efficient markets and infrastructure and governance - is a concept to which Apec region chief executives have been inclined to pay homage in theory, but ignore in practice.

Well, that was the case until 1997 when the Asian financial crisis delivered the rude shock that exposed shortcomings in even well-regarded financial markets such as Hong Kong.

According to speakers at an Apec chief executives' forum, capacity building is going to feature strongly on the agenda in future.

In essence, the phrase covers the development of the human and physical infrastructure, the hard and the soft necessary to run a modern economy. New Zealand is one of those economies that is admired for having done a fantastic job in getting its capacity into shape with efficient financial markets, telecommunications, etc.

But for much of Asia, it is not so straightforward. The region's difficulties can be explained in two ways: as a reflection of the world economy's volatility, or more likely as a consequence of inadequate regulatory structures and governance, the deputy chairman of Brunei's National Insurance Co, Timothy Ong, suggested. With sound and efficient financial structures, Asia would have weathered the storm much better.

At the same forum, the chairman of Morgan Stanley Dean Witter Asia, John Wadsworth, said it would not be long before China would have to get into some serious capacity building in terms of making its currency convertible and promoting stable regulatory and legal structures to attract foreign investment.

To date, China has piggybacked Hong Kong as the conduit for foreign investment and, probably much more so, on the wealthy overseas Chinese for its capital requirements.

But that won't last forever and within the next decade it will have to move to make its currency internationally exchangeable and to introduce the legal, tax, regulatory and market mechanisms that will give comfort to professional foreign investors.

Meanwhile, Hong Kong's inefficiency was exposed during the Asian crisis, and is reflected in a cost of trading shares that is more than 10 times that of New York.

If the market were truly competitive, 300 of 500 share traders would be likely to lose their jobs. Ironically, the Shanghai bourse, with a $US300 million capitalisation, was one of the world's most efficient markets, but its mostly retail base knows little about the companies they invest in.

Meanwhile, what of New Zealand? Of the four speakers at Saturday's capacity building seminar, Mr Wadsworth was the only one brave enough to respond.

"New Zealand has done one of the most extraordinary jobs in the world in opening up and introducing competition, whether in power or telecommunications, and it has made very courageous moves across the financial markets," he said.

The problem is its lack of a large domestic market, the factor topping the list for new companies developing technology and ideas.

"You've got everything that's conducive to entrepreneurial behaviour. But in order to take the leap to the next level of size you need a bigger market, so you have to go to Australia, you have to go to Asia. For products that need to be exported, that's hard work."

Perhaps the internet offers electronic commerce potential, he suggested.