Address To The Singapore/NZ Business Council

Dr Michael Cullen, Minister of Finance

Address To The Singapore/NZ Business Council

Pacific Ballroom 3, Pan Pacific Hotel, 7 Raffles Boulevard, Singapore

Good morning. It is a pleasure to be here with you today at the Singapore/New Zealand Business Council.

Singapore is a great place to start the first leg of my journey to co-chair the APEC Finance Minister's meeting in Brunei. I know Singapore, as an important APEC member, welcomes, as do we in New Zealand, the significant progress that has been made in building stronger economic institutions and financial systems throughout Asia and the Pacific. Together we are pursuing the goal of robust, open economies on which our future as trading nations depend.

Singapore is a valued trading partner with New Zealand and we have recently concluded a Closer Economic Partnership Agreement after six rounds of negotiations which started back in September last year.

The draft agreement still needs ratification and New Zealand is now commencing its domestic approval processes. The Agreement will be submitted to our Parliament making this process one of the most open and public of any trade treaty in our history. Once domestic approval processes have been completed on both sides we hope it will be able to enter into force on 1 January 2001.

New Zealand has been very active in helping to open doors to improve world trade. We have taken a leading role in seeking to develop enhanced trade, economic and investment linkages with key trading partners through the WTO, APEC and regional trade initiatives. We want to reduce and where possible, eliminate barriers to New Zealand exports.

The CEP puts our bilateral trade and economic relationship with Singapore on a new and firmer footing. It will stimulate and encourage trade and investment and significantly enhance our economic partnership with this key Asian economy. As well, both parties see that the CEP could be a catalyst for similar agreements with other ASEAN economies and eventually with other key APEC economies including the United States.

We are extremely pleased with the outcome of the negotiations and we look forward to deepening our relationship with Singapore in the coming years.

The Labour-Alliance Government is now a quarter of the way through our first term. The Government is committed to long term sustainable growth leading to high skill jobs and high living standards for all our people.

We recognise that as a small island trading nation, it is through global trade that we will take our place in the 21st century.

Successful economies transform themselves by building on past strengths and new ideas.

While New Zealand's fiscal position is still strong by international standards, our balance of payment accounts are weak. The current account deficit is currently around 8 percent of GDP. This government is uncomfortable with the size of the deficit we inherited and the structural problems left unattended by past governments.

I know there is no quick fix to the current account deficit but the Government is confident we can make significant progress over time through dovetailing strategic policies.

We are actively supporting the move to what we call the 'knowledge economy' or 'info-tech' as it is known in the U.S. We have made the health of the export sector a top priority and we recognise that we need to put in place policies to help lift our national savings rate. In this environment the current account deficit is forecast to fall to below 5 percent of GDP by 2004.

Our vision seeks to improve the wellbeing of all New Zealanders while recognising the realities of the new-world economic order. That is an order built around highly mobile capital, rapidly changing technology and accelerating global economic integration.

Under these conditions, a rising tide no longer lifts all boats. Active steps have to be taken to ensure there is broadly based participation in any new prosperity.

Improving the wellbeing of New Zealanders means playing to our strengths. Our strengths are in our natural resources and the resourcefulness of our people. I will talk more about these resources a little later.

The new Government has kept up a steady pace since taking office last December. One of our primary goals was to restore New Zealanders' faith in government and government processes. Over the past fifteen years people had lost faith with successive governments coming into power and doing things they were not elected to do.

We made some basic commitments to New Zealanders and I am proud to be able to say we have either fulfilled or made considerable progress on our pre-election promises.

The changes we have implemented have been about re-aligning social and economic policy direction.

We are not going back to the policies of the past – either distant or recent. We are not returning to an overly regulated market nor do we accept that a completely free market will deliver the living standards we demand for our citizens. The Government is determined to help our exporters and producers but we are not prepared to sell ourselves short by giving away more than we gain.

Late last month we passed industrial legislation to replace the nine-year old Employment Contracts Act. The new law promotes collective bargaining and good faith relationships rather than the take it or leave it contracting arising from the Employment Contracts Act.

The introduction of the new legislation heralded a vociferous campaign quite out of proportion to the changes being proposed. The new law provides a more balanced industrial regime in New Zealand but our labour market is still lightly regulated by world standards; less regulated than Australia and in many ways comparable with industrial legislation in parts of the United States.

It is important to be clear about what is not changing in New Zealand. We have retained the major legislative and philosophical framework for macro-economic management;

 The Reserve Bank Act has not changed.

 The Fiscal Responsibility Act has not changed.

 The State Sector Act has not changed.

 The State Owned Enterprises Act has not changed.

 The government is running a tight fiscal policy and budgeting for good surpluses over the forecast period.

 Government spending is actually decreasing as a proportion of GDP.

 The government welcomes foreign investment to grow the economy, and

 The government is committed to promoting open world trade. Last month, the Prime Minister launched our Latin American strategy, which includes opening a new embassy in Brasilia.

This government is taking a more hands-on approach to business development than did the previous administration. We can play an active role in the economy by supporting good ideas and good people. The central plank of our economic growth strategy is to expand our export base. The core features of this strategy are skills enhancement, promotion of research and development, and strategic partnerships between the government and the private sector.

We have made tertiary education more affordable and introduced a Modern Apprenticeship Programme to equip our young people with skills relevant to the new economy.

We are implementing a suite of measures to assist business and regional development and to unlock the potential of e-commerce. The government is hosting a two-day summit later this year to help New Zealand businesses keep up with and get the most out of the e-commerce revolution.

Over the past decade or so, a great deal of foreign investment centred upon buying up existing assets. We want to go further than that. We want to encourage foreign investment that helps create high skill and high wage employment in New Zealand through either greenfields investment or expanding existing enterprises.

Let me take a moment to spell out the Government's approach to foreign investment.

We welcome foreign direct investment and we are encouraging companies to locate their businesses in New Zealand. There has been no policy or attitude shift in regard to foreign investments since the change of government except, perhaps, that we are now going out and actively seeking high quality investment.

As a general rule, foreign investment needs no authorisation. Where the amount involved is over $50 million, and the overseas person is going to control 25 percent or more of the asset, it does. However, there is only an “investor” test applied: does the applicant have business experience and acumen, demonstrate financial commitment and is of good character.

The exception is where land and the offshore fishery are involved. These are seen to be sensitive and strategic resources. In these land and fishery areas, a national interest test is applied in addition to the investor test. There is nothing new in this. It has applied, largely unchanged, since the mid 1970s.

There was one application which the government refused that has been cited as an example of anti-investment policy. This decision, the Sealord case, was about the ownership of a particularly large amount of fish quota in a particularly valuable species. It was also for a 50 percent shareholding in the company owning the quota. Any government would have applied a robust, national interest test to that sort of proposal.

I have often said that on that particular application the decision would have been the same regardless of who was in government. The opposition has not challenged this view.

The door is still open for a foreign investor to take a cornerstone shareholding or forge a strategic alliance with a local owner on processing and marketing the fish. If necessary, the national interest test will have to be applied to the specifics of any proposal.

The only thing that happened in the Sealord decision is that the law and due process were properly followed.

There has been no anti-investment policy switch, indeed, the new government is spending more, not less, to attract high quality foreign investment. Since taking office the Overseas Investment Commission has approved over 140 applications with a net investment value of $1.136 billion. I personally have given the green light to 62 applications and of the 8 applications I have considered and refused 6 bids, all but 2 were related to the Sealord matter.

The Government is moving to level the playing field for investors. For instance, we are reviewing the regulatory regime governing the telecommunications and electricity industries.

There are a number of other regulatory reviews under way. I think it is clear that there has been some concern about our laws on takeovers, the protection of minority shareholders during takeovers, and laws and practices governing insider trading. We are moving to address these concerns.

The Government is spending $330 million to boost industry and regional development over the next four years. A new agency called Industry New Zealand will be coordinating and delivering services and programmes. The heart of these programmes is our aim to boost our export earnings. We have set out quite deliberately to shift the emphasis of growth from the consumption of wealth to the production of wealth.

We have implemented a number of different programmes: to support regional development, to help get good business ideas up and running and to help entrepreneurs raise finance early on in the life of a new venture.

We are also looking at ways of improving access to expertise and capital for small to medium sized players. We want to help firms with high growth possibilities achieve their potential.

Critical local knowledge is the missing factor for many overseas investors. Industry New Zealand will help bridge that gap by matching small to medium sized business with investors seeking to make an investment of $50,000 to $500,000, in what we are calling the "angel network".

We have launched a new proactive strategy to attract overseas investors to New Zealand. This includes:

 A visiting investor programme

 Support for high value-added investment

 A one-stop-government-shop

A complementary programme on the drawing board is the Strategic Investment Support Services. What we are trying to do here is to identify major New Zealand investment opportunities.

It is the domestic partner to our efforts to attract overseas investment. We will be asking "how can we help?" to New Zealand businesses which are looking to expand or to relocate.

New Zealand offers promising investment opportunities for international companies in the advanced technology fields such as electronics, software and biotechnology. Food and wood fibre industries offer enormous growth potential because of New Zealand's comparative natural advantage.

New Zealand excels at innovative manufacturing. We have developed a specialised cluster of skills and competencies in advanced manufacturing. With most manufacturing shops employing under 10 staff, they have the flexibility to re-tool quickly and handle small, specialist production runs.

New Zealand is renowned for being a niche specialist in imaginative "can-do" manufacturing and design. Our ability to solve difficult problems in a cost-effective way offers significant competitive advantages for international manufacturers or investors.

New Zealand’s traditional agricultural base and the scientific developments that have supported its related industries create a comparative advantage for investors in biotechnology.

Being an island nation, our pastoral resource has developed in an isolated and protected environment, not as vulnerable to the disease threats which have entered other countries. The country has high quality and cost competitive Government and university research facilities, excellent animal health status and a science community with strong international linkages.

Research focuses on both agricultural bio-science and human health. High quality biotechnology products are increasingly available to an international clientele for use in pharmaceuticals, nutriceuticals, diagnostics, cosmetics and agriculture.

A groundbreaking example of success in the burgeoning biotechnology field is Auckland-based company Genesis, recognised internationally for its efficiency in gene and DNA sequencing.

Genesis exports its technologies to countries throughout the world and is an example of the type of biotechnology venture attractive to international investors.

New Zealand is increasingly aware of the possible benefits and costs associated with biotechnology. As a strong producer of primary products we are excited about the possible benefits that could be achieved through technology. Equally, the New Zealand government and public are very aware of the widespread concerns about genetic modification. To this end a Royal Commission on genetic modification has been established to work through the issues and concerns and look at the strategic options available to New Zealand.

A drive to be globally competitive coupled with our natural curiosity and love of technology has sped New Zealand down the information technology highway. One in four New Zealanders use the internet at work and eighty percent of our younger people are regular users of the net.

New Zealand's widespread and enthusiastic adoption of IT has put us way ahead of many other more tentative countries. It has generated a thriving software industry. We spend 7 percent of GDP on IT – among the highest in the world.

But we are not just passive users of information technology. We create it. Now positioned as a global supplier of niche solutions, New Zealand software is in demand internationally.

A growing number of multinationals have already invested in New Zealand, and companies like IBM, Unisys, Digital and Fujitsu have strategic alliances with New Zealand software developers.

The electronic transportability of software makes New Zealand’s location irrelevant in the international marketplace, as modern communications and local distribution arrangements enable easy after-sales support to customers anywhere in the world.

Our location on the other side of the world is a positive selling point when it comes to attracting companies looking to set up service and information call centres. Companies have the opportunity to do the “night shift” for a number of markets including the UK and North America.

An example of the type of innovative technology coming out of New Zealand is Virtual Spectator – a product that delivers real time virtual reality graphics so that people can watch live sport on the Internet. This exciting technology was launched as part of the Louis Vuitton Cup Challenger series in the America’s Cup held in Auckland this year.

Apart from the obvious gains to our economy before and during the Cup, our successful America's Cup defence put New Zealand and New Zealand's boat building skills on the international map.

We are reaping the benefits. For example, last month, a new $80 million superyacht venture was launched in New Zealand creating 120 new jobs with the potential for hundreds more.

The Investment team at Trade NZ helped fast track the venture – taking it from the initial applications to sign off in just ten days. Incidentally, it was the speedy access to the various agencies involved with setting up a venture of this size that helped win the decision for the company to locate in New Zealand.

New Zealand continues to welcome overseas investment. The new Closer Economic Partnership agreement with Singapore reinforces the fact that we see this nation as a particularly welcome source of investment. In this case the lion of Singapore may sit down with the lamb of New Zealand!

Thank you.