By Charles Finny*
New Zealand’s response to Covid-19 has come at an enormous economic cost. If we don’t move very fast that cost will increase greatly, and if we are not careful we will be left with a really perverse result. We will be even more dependent on one market, China, and on one sector, agriculture, than we were before going into this crisis.
Of course, China will continue to be an important market for New Zealand for many years to come and agriculture is critical to our future – but we don’t want all our eggs in a couple of baskets, particularly as China has in recent years shown a propensity to use trade dependency as a political lever.
In 2019 China took:
• 33% of our dairy exports
• 41.9% of our meat
• 58.3% of our logs and timber
• 37.5% of our seafood
• 46.5% of our wool
• 28.5% of international education and 13.5% of our tourism earnings also came from China.
According to Statistics NZ data, the goods trade with China has either held up well, or recovered fast, following the level four and three lockdowns, especially on essential goods such as food and beverage.
In contrast, New Zealand’s trade with the rest of the world is now in serious trouble. This will impact our exports greatly, particularly those to the UK, EU and the US – all important markets.
Services exports make up 30% of our total exports and these are being decimated. Our $11.6bn international tourism income has flat lined, and our $4.6bn international education value might halve. All sectors except information technology are likely to be impacted negatively.
Why is this important? We depend on international trade for our prosperity. Unfortunately, short term, because of the global recession, we can’t count on an export-led recovery to completely save us post-Covid-19. But if we get things right, international trade can help reduce the economic damage.
What would getting things right look like? I suggest a 10 point plan.
1. We need to restart export manufacturing immediately. New Zealand’s processed wood, mechanical machinery, electrical machinery, optical measuring devices, wood pulp and paper, iron and steel, wool, plastics, textiles, paper and vehicle parts exports are worth close to $9bn. These are an important part of our export story and if we keep this sector closed they will lose contracts and be severely harmed. Without this flow of exports we will start to see international shipping lines start reducing the frequency of their services. This will start impacting agriculture exports also. If we move back to level four in the future – this winter or next – we should not stop this sector.
Tasman paper and pulp mill, Kawerau. Photo: tera.govt.nz.
2. We need to re-start the $4bn log trade and drop suggestions that we ban or impose a tax or levy on this trade. Can we really afford – in current economic circumstances – to cut so many exports? I am all for more domestic processing, but a ban on log sales is not the best way to boost this sector at this point in time. I also think we should be getting our $350m coal export business up as quickly and our $800m gold mining business also.
3. We need a very active market diversification policy led by NZTE and MFAT. We need to export more to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) economies and we need strategies to help us do better in less traditional markets – the emerging economies in Africa and the Turkey market stand out as new opportunities. Success in these markets will require a mixture of trade policy and trade promotion.
4. We need to expand the CPTPP as a priority. Thailand seems to be being lined up, but we need a bigger expansion. Taiwan, Republic of Korea, Indonesia and Hong Kong SAR are good candidates within APEC and we should reach out to the UK and Colombia as well. We should also add a new chapter to CPTPP on trade in medical goods, devices and pharmaceutical ingredients.
5. We need to get the NZ-UK free trade agreement (FTA) finished this year.
6. We also need to get momentum re-established in the EU-NZ FTA and look again at FTA opportunities with Turkey and Russia.
7. We need to be working now on rules and protocols with those jurisdictions with whom we can have confidence to re-open quarantine free travel. It will be a few months before we can have the confidence to begin a re-opening of the border beyond the trans-Tasman bubble, but I can see travel with Taiwan, Singapore and the Pacific nations being possible before a wider opening. Representing a potential tourist market of 65 million people, these would help provide the crucial reboot to our international tourist businesses.
8. We need to develop a world-best distance learning system for our universities, our institutes of technology and polytechnics (ITP), our private training establishments, and our schools. International education and traveling offshore for education is going to be hugely disrupted for some time. We need new ways of operating if we are to keep this important industry going.
9. This recession is going to hit our Māori population hard. I would like to see a supercharging of government efforts to boost exports from the Māori economy. We have plenty of resource devoted to this area in Te Puni Kokiri, the Ministry of Business Innovation Employment, New Zealand Trade and Enterprise, the Ministry of Foreign Affairs and Trade and the Ministry for Primary Industry, but we can coordinate better. One entity should be held accountable for delivering a step change in performance.
10. Lastly, we should have a new look at the New Zealand brand story. From our own management of Covid-19 to the dedication and expertise of Nurse Jenny from Invercargill in helping save the life of Boris Johnson, New Zealand’s leadership in this field means we will emerge from this crisis with our reputation enhanced. We need a new national strategy to leverage this. If we get it right, New Zealand will be seen as an even more desirable country to visit, to invest in, and to buy goods and services from.
Many of these ideas are already on the way to being implemented. The manufacturing and forestry sectors are operational again, increased collaboration between education providers in offshore markets is being talked about, progress is being made towards the first step of opening our border with Australia, and I understand there is high level political support for an international expansion along the lines I suggest above. Meanwhile, the minister for Māori development is reaching out to the business community to help develop a well-coordinated all-of-government strategy in an attempt to minimise the inevitable negative impact the recession is going to have on Māori.
New Zealand’s success in addressing the Covid-19 challenge and the speed with which our society is returning to something close to “normalcy” is attracting even more international attention, and New Zealand is emerging with a greatly enhanced reputation. This offers an enormous opportunity. A new brand story is part of this opportunity, but there is also an opportunity for New Zealand to play more of a leadership role with other medium-sized jurisdictions. After all, countries like ours jointly face increasing challenges in a global order where respect for an international rules-based system is diminishing, and where the operation of many international organisations is being challenged by larger players.
This story first ran on The Spinoff here and is used with permission.
*Charles Finny is a partner at Saunders Unsworth government relations consultants. He is a former CEO of the Wellington Regional Chamber of Commerce and was First Secretary at the NZ High Commission in Singapore, Deputy Head of Mission in Beijing and Head of Mission in Taipei. He was responsible for launching the China-New Zealand FTA as New Zealand’s lead negotiator on this project, prior to moving to the Chamber of Commerce.
The SSANSE (Small States and the New Security Environment) Project at the University of Canterbury is launching a Commission for a Post-Covid Future to provide contestable policy advice to the New Zealand government on options for foreign, trade and economic policy for New Zealand’s post-Covid recovery.