17 November 2006

Developing an External Strategy for New Zealand

The New Zealand Institute has today released the fifth report in its series on ‘Creating a global New Zealand economy’. This report, ‘Competing to win: An external strategy for a changed world’, proposes an external strategy for New Zealand that is aimed at strengthening the ability of New Zealand firms to access foreign markets.

This report follows four reports that the New Zealand Institute has released over the past year, which have outlined the importance of international economic engagement and identified four solution areas to increase New Zealand’s international economic activity. This report provides more detailed analysis and specific recommendations on the second of these four solution areas.

New Zealand’s current approach to securing market access relies heavily on multilateral trade liberalisation through what is now the World Trade Organisation (WTO), supplemented by a secondary focus on bilateral and regional free trade agreements (FTAs) and export promotion activities. This approach reflects New Zealand’s historical priorities. Given the significant changes in the global economy and New Zealand’s relatively low levels of international economic activity, serious questions need to be asked in terms of whether this approach remains fully appropriate.

For one thing, the multilateral approach is at risk with the suspension of the current Doha Round and regional economic activity and regional trade agreements are becoming significantly more prominent. Second, the nature of market access has changed. For an increasing number of New Zealand firms, the constraints are less about getting their products across the wharf without a tariff than about getting in front of the consumer.

Although these changes have made the world more challenging for many New Zealand firms, the appropriate response is not fatalism but a decision to compete more aggressively. Changes need to be made to New Zealand’s approach to securing market access. New Zealand is unlikely to generate much improved levels of international economic activity unless it begins to do things differently.

The report proposes three elements of an external strategy for New Zealand that will help New Zealand firms to access international markets in this changed global business environment. These are:

1. Incorporating an explicit outcomes focus into New Zealand’s external strategy. We propose that targets be specified for New Zealand’s key economic relationships and that there be regular reporting on progress to give a clear sense of direction. This will allow for a constructive conversation between business, government, and others, as to what needs to be done to achieve the objectives.

2. Including a more deliberate regional focus in New Zealand’s external strategy. We recommend that New Zealand focus its attention and investments on the Asia Pacific region, with substantial investments in Australia, the US, and China. Strategic focus is important for a small country like New Zealand in order to achieve real impact.

3. Making substantial in-market investments to assist New Zealand firms to enter and expand into international markets, by providing access to shared infrastructure, to world-class market research, and to local networks. We also recommend more aggressive efforts to showcase New Zealand, through national branding and cultural diplomacy, as well as a more pragmatic, ambitious FTA strategy.

Overall, New Zealand needs to become much more serious about competing to win in international markets, to set ambitious targets in terms of improved outcomes, and to act and invest so as to make good on these aspirations.

Over the next several months, the Institute will release two further reports that provide more detailed analysis and specific recommendations on the remaining two solution areas: better connecting New Zealand to the world; and developing new areas of international strength in the New Zealand economy.

ENDS

Copies of the New Zealand Institute’s previous reports are available on our web site at www.nzinstitute.org.

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