Between the lines: Trade NZ's Global-e backing a blunder

By ROD ORAM

Trade New Zealand has two roles: to help Kiwis to export and foreigners to invest here.

But by promoting Global-e Investments' prize bonds, Trade NZ has flipped its mandate: it is helping to export capital and to promote imports.

As a result, the Global-e scheme will make worse two nasty New Zealand deficits - on trade and on the capital account of the balance of payments.

How could Trade NZ make such a serious mistake? Two factors were at work, judging by answers from Trade NZ, to Business Herald questions.

First, Trade NZ failed to see the big picture. It liked the plan of Damian Archbold, Global-e's architect, for an international call centre. But it failed to analyse the financial impact of the centre selling prize bonds to Kiwis.

For every dollar a New Zealander spends on a Global-e bond, 32.5c will be earmarked for repaying the bonds in 20 years' time and 40c will be earmarked for paying prizes. The 72.5c will flow out of New Zealand and into United States securities on Wall St. Moreover, of the 27.5c balance, Global-e will invest only a sliver in its business here and the rest will go abroad.

The bond capital will come back in 2020, having appreciated by only 1 per cent a year; bond holders will get prize money equal to a return of 3.86 per cent a year; and they have options on a small stake in Global-e which may pay dividends.

New Zealand is seriously short of capital for productive purposes. The public is entitled to do what it wants with its money. But it was wrong for Trade NZ to help capital flow out into a low-yield overseas investment. Simon Fawkes, the Trade NZ case manager for Global-e, is now a senior executive with the company and a large shareholder in its parent.

The second factor was Mr Archbold's change of plan. His original idea was for a simple prize draw. The e-commerce aspect only started to take shape last year.

Bond proceeds will build a shopping website which inevitably will stimulate imports to the detriment of New Zealand producers and retailers. Consumers are entitled to the best deal to help make this an efficient economy. However, New Zealanders are very good importers. They don't need Trade NZ's help.

Those are the negative economic impacts of Mr Archbold's project. What are the positives? He says he plans to invest $4 million to build a call centre employing 40 people and consultants.

Clearly, Trade NZ failed to think this through. The fault lies in its lack of people and its uncritical mindset. The Government plans to remedy the first deficiency by giving it more money.

As for the second, we can only hope that as Trade NZ gets bigger, it gets smarter.