Hon Murray McCully
Minister of Foreign Affairs
1 March 2012

Speech to the Middle East Business Council: Maximising Economic Opportunities in the Middle East

I welcome this opportunity to speak to you about New Zealand’s trade and economic relationship with the Middle East and in particular the Gulf States, and to briefly look at the way in which we might move forward.

There are, of course, a range of other very significant trade and economic relationships in the Middle East, but I have decided to focus my remarks today on the Gulf States, which come together under the Gulf Cooperation Council umbrella, and which are connected to New Zealand by extraordinarily good air services.

The backdrop for this conversation is, of course, the Government’s stated ambition to lift the foreign exchange earning component of our economy from the 30% level where it has been flatlined for decades – to around 40% of GDP.

It would be fair to say that there are some signs of good progress in New Zealand’s relationship with GCC countries.

Last year New Zealand exports to the Gulf Cooperation Council nations exceeded $1.5 billion, making the GCC our 7th largest export market.

We have around 8,000 students from the Gulf studying in New Zealand – the great bulk of them from Saudi Arabia.

As a consequence the largest diplomatic mission today is not any of the embassies in Wellington, but the Saudi Arabian consulate in Auckland.

And the only new embassy we have opened anywhere in the world in my three years as Foreign Minister has been in Abu Dhabi.

These are all signs that we are making progress.

Not so welcome was the wake up call in my briefing notes in a recent visit to the Gulf.

My notes for Qatar informed me that the most recent visit from a New Zealand Foreign Minister was by Warren Cooper in 1984.

And my notes for Kuwait told me that the most recent Foreign Minister to call from New Zealand was Don McKinnon in 1994.

These are both clear signs that there is scope for us to lift our game.

There is a huge opportunity to significantly grow our trade and economic relationships with the GCC – provided we think more innovatively about how we intend to create trading relationships.

Before I go further I should comment briefly on the heavily publicised Ministry of Foreign Affairs and Trade change programme and what it means for relationships in the Gulf.

It is true that the current configuration of our diplomatic representation still largely reflects our trade and diplomatic interests several decades ago.

In addition to achieving greater efficiency in back office functions, a key objective of the change programme is to equip New Zealand to pursue its diplomatic, security, trade and economic interests today, and in ten years’ time.

Having opened a new sole-secondee embassy in Abu Dhabi, we most certainly will not be reducing diplomatic capacity in the region under the change programme.

And if we are even modestly successful in pursuing some of the opportunities I will refer to today, we will be very quickly under pressure to increase our capacity in the GCC.

Apart from Saudi Arabia with a population of 28 million, the GCC members are small in population terms – but that should not disguise their economic significance.

Collectively the GCC accounts for nearly 25% of global crude oil exports, and have a combined GDP of around US$1 trillion today, predicted to rise to US$1.8 trillion by 2015.

In 2011 Qatar, with a population of only 1.7 million, had the world’s highest GDP growth rate of 18.7% and the world’s highest GDP per capita at US$102,700.

Gulf countries are seeking to invest their oil wealth widely to diversify their economic base.

Kuwait for example has one of the world’s largest sovereign wealth funds worth around US$300 billion in assets globally.

Qatar will host the 2022 FIFA World Cup and is planning to spend a cool US$60 billion on transport infrastructure, stadia, hotels and cultural centres.

While these are countries with very substantial resources, they all share one very significant challenge – the challenge of future food security.

In 2010 GCC countries imported nearly 90% of their food requirements at a cost of more than US$25 billion.

Food security for their people is the number one preoccupation of each of the GCC states – which is hardly surprising.

And a quick scan of the percentage of arable land tells its own story: Saudi Arabia 1.7%, the UAE 0.8%, Kuwait 0.8%, Qatar 1.6%, Bahrain 2.9%.

New Zealand, as one of the world’s most advanced agricultural nations, is a logical food security partner for the Gulf states.

That is the nature of the conversation that both Tim Groser and I have been having, both with the GCC and with its individual members

It is a conversation they want to have.

Many of you will be aware that we have a Free Trade Agreement negotiated but not ratified with the GCC.

This remains held up over difficulties associated with the live sheep export trade.

I do not want to dwell on that today – simply to reassure you that I am doing everything that I can to find a way forward.

We cannot let a disagreement over one component of the relationship stand in the way of a food security partnership with the Gulf States.

The larger point that I want to make is that we need to be conscious of the change that is taking place to our role as an agricultural producer.

Because it is in the Gulf in particular that we will see this play out in the years ahead.

While we have become accustomed to a traditional view of New Zealand as a nation of farmers who process product to be shipped to distant markets, that is increasingly no longer the reality.

The clearest example of this is Fonterra, which produces around 2.5% of the world’s dairy product in New Zealand but markets around one third of the world’s globally traded dairy product.

Let me just run some numbers past you to illustrate my point: it is projected that to feed the world’s population in future, we will need a 70% increase in the production of food by 2050.

Yet 43% of New Zealand’s land mass is already used for agriculture.

There is not a great deal of arable land not in production

And the experts tell us that even if we continue to improve our science and technology, the best we could achieve would be to double current production.

Increasingly we are going to need to look for opportunities abroad.

The bottom line is that in future New Zealand will be a nation that holds the world’s leading farmer methodologies and practices, most advanced food technologies, and strongest food brands – but increasingly we will find ourselves actually producing food in other countries.

All of which makes IP-rich New Zealand a logical partner for resource-rich Gulf states as a producer of food in places like Africa, where experts tell us half of the potential agricultural land is under-utilised.

Yes, of course we want to maximise production and exports from New Zealand.

But that will only be part of the opportunity, and partnerships between New Zealand and GCC interests to undertake projects in other countries will, in my view, be an increasingly significant way of generating income for New Zealand in the years ahead.

The food security partnership conversation is one Tim Groser and I have been having with the GCC and with its members.

Their interest is very strong, and, as I have described, their financial capacity is very large.

I have also been having discussions with some African nations, most recently Ethiopia, already the world’s tenth largest livestock producer, but in real need of shifting their agriculture to a more commercial scale.

Again, the level of interest in hosting partnerships that bring together New Zealand’s expertise and capital from the Gulf, or elsewhere for that matter, is very high.

The other special feature of the GCC relationship that I want to refer to today is the appetite for purchasing our public service intellectual property.

Surrounded by the Arab Spring, Gulf countries have been intent on constructing long term improvements to health, education, environmental and other services that shape the lifestyles of their people.

They have rapidly identified a need to acquire institutional structures based on the world’s best practice across these sectors

And New Zealand has been very much on their list of prospects.

But we have been very slow to realise that public sector systems and knowledge are internationally tradeable commodities.

In that respect we have some catching up to do.

There are now well established private sector consulting operations from New Zealand demanding a greater degree of interest from public sector entities in partnerships to meet a clear and significant demand in the Gulf.

And because the response has been slow, we have seen temptations for some to take leave of absence from public sector roles to undertake consulting roles in the region – a huge waste of opportunity to bring benefit to the New Zealand taxpayer.

As the lead agency in driving New Zealand’s interests abroad I have asked the Ministry to put in place arrangements that will provide other governments with a place to engage with, private sector players with a potential partner, and New Zealanders with another source of income from the investment they have already made in our public sector.

And I will soon be announcing some concrete steps to operationalise this process.

I make the somewhat wider, but nevertheless very relevant, point that as a small trading nation we need to have a much more creative and dynamic attitude to how we make an income in the world.

A current, and for me somewhat frustrating example is the current debate over the mixed ownership model of our power companies.

The first company to embark on this journey will be Mighty River Power, a world class exponent of geothermal electricity.

As someone who is privileged on your behalf to visit countries like Japan, where there is a huge push to move from nuclear to geothermal electricity; Indonesia, where they have plans to grow from 272 megawatts to 1300 megawatts by 2015, and PNG, where geothermal expansion will be a huge opportunity for our business sector, I find it a little frustrating that we just don’t understand the value of our intellectual property.

Mighty River Power is capable of becoming a significant global player in geothermal energy, riding a huge wave of interest in renewable energy, provided they have a balance sheet of sufficient size and owners with a basic understanding of the opportunity.

My point here is simple: we are a small trading nation.

We cannot afford to be complacent about our future. We cannot seek refuge in the past.

We live in a dynamic world, where opportunities will take us out of our comfort zones.

And we, in the public sector, cannot rule ourselves out of the sort of New Zealand Inc partnerships that are the obvious response to market demands in regions like the Gulf States.

ENDS

© Scoop Media