Hon Jim Sutton speech to Russia business forum

Hon Jim Sutton 18 August 2004

Russia-NZ Business Council function, Auckland

Ladies and Gentlemen, thank you for the opportunity to speak today. It's a pleasure to be here.

This well-timed event takes place on the coattails of a very active and exciting period in New Zealand/Russia relations. In the past few months, I have led a trade mission to Russia and the Russian Minister of Agriculture has visited New Zealand. In April the Speaker of the House, Jonathan Hunt, visited Russia and at the same time we celebrated the 60th anniversary of diplomatic relations.

I hope that, as a result of this evening, your awareness and appreciation of the opportunities that exist in Russia spur you to action. The foundations are there; New Zealand needs people like you - innovators, exporters, and business people- to take the initiative.

New Zealand and Russia are a long way from each other. There are differences in historical background, geographic size, our societies and our international affiliations. The Russian Far East is New Zealand's Near North. Russia has a big industrial base while New Zealand is predominantly agricultural, although rapidly diversifying.

Despite these differences, or perhaps because of them, we have a lot to learn from each other and a lot to offer each other.

New Zealand and Russia have an important trading relationship, but in recent years it has not been as dynamic as we would like. One thing that struck me during my trade mission to Russia was the general feeling that economic links between us are capable of significant expansion and that the current bilateral trade turnover does not indicate the real potential of the relationship.

There is commitment on both sides to build the relationship and plenty of opportunities to do so. Some of the most interesting opportunities are the ones that offer us a chance to learn from each other and work together.

The potential in the relationship goes beyond simply buying and selling goods to each other. If we're smart, we'll work together to grow markets, increase quality and add value. New Zealand has a lot of the experience and expertise that Russia appears to need right now.

Russia is an immense market with a population of 195 million and a land mass many times bigger than New Zealand. Levels of wealth are increasing. People are getting richer and Russians have an increasing appreciation for high quality products, the type of products that New Zealand specialises in.

Alongside the large and growing market, Russia has huge potential as a producer of foodstuffs and beverages. It was made clear to me through meetings with key people in government that there is interest from the Russian side in working with New Zealand to develop the dairy and foodstuffs market in Russia. These sectors are developing very quickly.

The Russian government is well disposed towards foreign firms willing to invest in production in Russia and sees New Zealand as a good partner. There is potential to enter into business cooperation, as Fonterra has done. New Zealand is recognised as a producer of high quality goods and there are plenty of Russian firms that would jump at the chance to collaborate with a New Zealand company. There's no doubt that it does take time, commitment and perseverance to succeed, but I'm told that the rewards are there for those in the market for the long haul.

The rapid pace of change in Russia means there are some great opportunities to invest there, but limited time to grasp them.

In Moscow we saw a large and modern meat processing plant the equal of any in the world. On the other side of the equation we also saw other food processing and agricultural facilities that would benefit from the injection of New Zealand technology and expertise.

Of course, there is always a greater business risk in following this course of action. These risks can be managed through careful selection of partners and sorting out sensible commercial arrangements and creating long-term relationships.

Russia's agricultural potential is massive and yet to be fully unlocked. There is, obviously, a lot of land and a number of climates from Siberia down to the more temperate southern regions. Russian agriculture is very fragmented, but there are real signs in some areas that this potential will be developed. It struck me that New Zealand agri-tech firms should be there doing some of the unlocking.

This point was driven home during the visit to New Zealand of the Russian Minister of Agriculture, Aleksey Gordeyev. He was particularly interested in New Zealand's agriculture research and the new technologies we've become so good at developing here.

There is definitely potential to apply these technologies in Russia. There is also demand for them. I encourage you to get out there and look for the opportunities.

Some of the business people who accompanied me on the mission looking for opportunities came from the education sector. As you all know, export education has been a growth industry in New Zealand lately, with plenty of bumps along the way. One way to mitigate those ups and downs is to diversify into new markets. Russia is a market with plenty of potential. Russians place a lot of emphasis on quality education.

Quality, and the Russian love of it, is obvious to any outsider who visits. Russians are prepared to pay a premium for a quality product and the availability and sales of luxury goods in centres like Moscow and St Petersburg are ever increasing. I was surprised to learn that Russia is reported to be Gucci's best performing market.

We're fortunate that New Zealand already has a good name. The challenge now is to diversify the range of products we send to the Russian market. I could see, from my short time there, possibilities for exports of high quality foods, beverages, including wine, high-end clothing and services such as tourism, education, and agritech products and services.

I would sound a note of caution: Russia with its complexities is probably not the obvious market for new exporters. But those who already have had success in a range of markets should definitely take a look.

There may also be opportunities for some of our less traditional exports ? including high-technology and niche manufacturers. Fisher and Paykel healthcare are already active players on the Russian market selling significant numbers of respiratory humidifiers and infant incubators to Russia. Gallagher Security is another example of a company that has concluded distribution arrangements ? for security electronics - into Russia recently. Other companies that have made a mark in the market are Rocklabs ? with sample preparation equipment for the mining industry - and Hayes Ltd ? with rollforming machinery.

One company is already active in the thriving luxury goods retail market that I mentioned before: Kerikeri-based Living Nature cosmetics company. In fact in the hotel store where we stayed in Moscow, their products were for sale. While I was there, I opened a second store selling Living Nature products. This is another good example of the niche opportunities that exist in Russia. In cosmetics for example, Russia ranks only slightly behind France in value of cosmetic sales.

The secret to success in Russia, in exports of both goods and services, is to increase awareness, maintain high standards and work with reputable partners. New Zealand has a good name. But we need to take a New Zealand Inc. approach to the way we approach the Russian market. We need to show the market that New Zealand means more than high quality butter, as important as this has been and will continue to be in our trading relationship. We need to show Russia, as we're showing the world, that New Zealand made means top of the range, whether it's butter, possum fur clothing, sauvignon blanc, or a ten day trip around the South Island.

Before I move on, I would like to take this chance to remind you that Russia is more than Moscow. Moscow is a large, vibrant and wealthy city. But it is important to look outside of Moscow too. As I saw, many opportunities exist in the two cities Saint Petersburg and Vladivostok that I visited. It really is a big country.

Russia is currently undergoing accession negotiations to join the WTO. As many of you know, last November New Zealand became the first Western country to sign a bilateral goods deal, as a step towards acession. This holds a lot of weight with the Russians. It gave them impetus in their bid to join up and they have told me many times how much they appreciated the way we worked together.

This is an enormously positive step forward for the future of the relationship, not just in political terms, but in trade terms as well. And once Russia's accession to the WTO is complete, there will be the added security of dealing with a country that has signed up to play by the rules. WTO membership will guarantee us access to Russia's valuable market under predictable, transparent and enforceable rules.

New Zealand believes strongly in bedding down a firm and fair multilateral trading system. We devote a lot of resources to the WTO, whether it be working on a successful outcome to the Doha round or negotiating accessions such as that of Russia. I believe we all lose if the world fails to establish universal rules for trade. And I think the accession negotiations with Russia, and the outcome so far, show us the possibilities if we do it right.

The deal we signed with Russia will be good for exporters of traditional products such as butter and sheepmeat. The deal also covers a wide range of other goods from apples and kiwifruit to fish and fridges. This deal, and the future Russian accession to the WTO, provides you, exporters and business people, with real long term security of access to the market. It means New Zealand can play a part in the growth of the Russian economy in the coming years.

The government has done its job in this respect, now it's time for you to do yours.

If you are interested in exploring the Russian market the government will endeavour to help you as much as we can through New Zealand Trade and Enterprise and through our Embassy in Moscow. MFAT can also help if there are regulatory issues involved. We can point you in the right direction, give you the names and numbers, provide advice and share our experiences.

In addition, private sector organisations such as the Export Institute and the Business Council have an important and active role to play in promoting trade, business contacts and greater understanding of business practices and markets.

We want to see you active in the market.

I'm looking forward to hearing of your success stories, and I wish you the best of luck.

ENDS

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