Gareth Morgan, Director of Gareth Morgan Investments
NZ requires an investment resurgence over the next year if it is to achieve significant economic growth. The chances of the household sector leading the recovery via a consumption splurge are not high, and the ability of exporting alone to generate GDP growth in excess of 2% is limited. But to attempt to attract that investment from foreign sources simply by publicising our new- found price stability credo, or our labour market deregulation, is trite in comparison to what could be achieved by specific government/private sector proposals to potential foreign investors. Some hard facts need to be recognised about the likelihood of foreign capital rescuing economic growth.
First, despite its improvement in competitiveness oyer rçcent years, NZ is not regarded as a prime site for manufacturing processes. It does not boast a significant domestic market, although we are dispelling this impression somewhat by promoting our special access to the Australian market. In comparison to the low labour cost countries NZ labour rates are still extremely high, meaning general manufacturing processes would not be attracted here as a result of low labour or rent costs.
For our manufacturing sector then, the avenues for growth to pursue are those suited to specialised manufacturing processes not dependant on having the lowest cost structure but securing their competitive advantage via production of outputs with specific qualities of importance to customers. These qualities may be embodied in the good – like a New Zealand wine – or not be part of the good itself – for example the service/support element of the product provided. Such product niching is critical to the success of a manufacturing sector such as our own.
For the primary sectors of agriculture, fishing, tourism and forestry, product niching is vital, especially in a world where the supply of basic commodities is bound to rise rapidly as third world markets liberalise. Integration of the primary, manufacturing and service components of products derived from these sectors is an important element of their ability to move up the value chain.
Against these realities it is questionable what sense there is in politicians with merchant bankers in tow, attempting to attract overseas capital into NZ without specific proposals. We are short of integrated capital projects where foreign partners are able to bring to our businesses not just money but complementary skills and/or products. In many instances the most critical factor impeding a NZ producer is access to a foreign market.
New Zealand doesn’t need an indiscriminate influx of foreign capital. Neither is at all likely that it’s going to get such a flow anyway, so there’s little point in trying to court one. By concentrating on those factors critical to the success of potential profit makers in NZ, the government can play an important facilitating role. Ensuring our own policy environment doesn’t deter internationalisation of our businesses is an example.