New Zealand must export more to improve its economic performance, according to a report released last month.
New Zealand Institute of Economic Research has prepared the Report titled, ‘Lifting Export Performance’ for the Wellington based ExportNZ.
It said that export growth has been below par in recent decades.
“The economy has underperformed in general and there are reasons to believe this is because of geography, including the country’s small size and isolation. Exporting is a means by which distances can be reduced and scale can be achieved,” it said.
Vicious cycle
According to the Institute, success in exports creates a vicious cycle but export performance can improve the overall economic performance.
“Determining precisely what should be done is another question altogether. It is also confused by the existence of a range of government initiatives, which have been put in place over the years, while ignoring the fact that we are starting from square two.
“It seems like policies and programmes have been heaped upon one another without regard for whether the last set of policies has done the job. The same intervention logic is used and reused as if it were new,” the Report said.
Strategic alliances
While acknowledging that there was no way to assess the effectiveness of initiatives, the Report said that serious efforts were needed to evaluate and rationalise them to boost economic capability.
“Questions also need to be raised whether it makes sense to promote exports on one side of the ledger when foundational regulatory and fiscal policies run counter to economic and export success on the other side of the ledger.
“It is tempting to focus on finding the next big idea when many of the old ones will work fine,” the Report said.
According to the Institute, businesses should form strategic alliances and pool resources, expertise, experience and contacts to not only achieve cost-effectiveness but also acquire market knowledge and business practices in other countries.
The government has been supportive of such alliances but successful collaboration requires careful identification of mutually advantageous relationships, it said.
Tax & Investment policies
The Report underscored the importance of polices, programmes and incentives that are comparable to the best in the world to achieve better export performance, offsetting the country’s small size and remote location.
The Institute warned that while a welfare state provides services that are enjoyed by many people, such services would come at a cost, which may be disproportionately met by the export sector.
“We need to treasure areas where we have scale but firms need to protect against reactionary regulatory change. We should not forget the natural advantages that New Zealand has in sectors such as agriculture,” the Report said.
Stating that the existing regulatory risks would not vanish, the Institute advised businesses, especially in the primary sector, to manage the inherent risks well.
Other natural advantages that could be leveraged, though success is not guaranteed, are in the minerals sector and in Maori-owned businesses, which offer opportunities to create new sources of scale in the New Zealand economy.
Migrants needed
“The best way to overcome problems associated with smallness and isolation is to do away with smallness. This means boosting population through immigration. We are on record starting the bidding at 15 million people in the next 50 years. This is a more economically meaningful target for helping boost exports than a target focussed on exports as a share of GDP,” the Report said.
The Institute cautioned against excessive emphasis on increasing export capability of firms through grants and government assistance programmes.
Achieving balance
The logic behind these kinds of interventions is that entrepreneurs, investors and exporters do not have sufficient incentive or opportunity to build and maintain capability to export.
“Policy needs to strike a balance between incentives for building export and business capability in New Zealand and retaining that capability. Our policy settings do not extend to retaining or rewarding proven performers. One option for providing incentives for building capability and then retaining capability, though by no means perfect, would be a system of rewards for high performers, accessible after a period of, say, 10 years.”
This warrants serious investigation to see whether it would be more effective and efficient in lifting export performance and productivity growth than existing capability-oriented schemes.
Source: New Zealand Institute of Economic Research and BusinessNZ
