Knowledge economy: today's freezer ship

By Yoke Har Lee

New Zealand's export growth is underperforming the OECD's average and trailing Ireland's and Australia's.

To move the economy up a gear or two we need another blockbuster technology. A century ago, freezer ships overcame the tyranny of distance to market, making us a wealthy nation. Perhaps the internet is today's equivalent.

But how New Zealand sharpens its export act, particularly in harnessing the internet to do so, largely eludes policy strategists.

Professor Howard Frederick of Victoria University, who contributed an information technology study this year to the Government's work on the knowledge economy, said neither National's nor Labour's policies had captured the mechanism to champion export-orientated knowledge-based industries.

National's approach to developing the knowledge economy is through its Bright Futures programme. It has two main targets: increasing research and development and filling market gaps in corporate finance and the process by which ideas are developed into marketable products and services.

It is averse to directly giving incentives for specific industries.

Labour's export focus is to increase funding for the New Zealand Trade Development Board (Trade NZ). It also wants Trade NZ to develop appropriate export guarantee and export credit financing schemes, working in partnership with insurance and banking industries to fund these initiatives. Labour's knowledge-based economy push is to be found in its research, science and technology policy.

John Blackham, software entrepreneur and a founder of New Zealand Intellectual Capital Foundation (NZInc), a trust aimed at helping to bring about change, said New Zealand should be focused on how to capitalise on e-commerce to boost exports. But "we are still worried about how to put different cuts of lamb on the German diner's table.

"We need to identify new sources of wealth creation. Our exports can't come from the existing base. Take the wool industry. Over the last 50 years, all we could do was to slow down the trend of price decline. Any niche that is commodity-driven is going to face the same problem," Mr Blackham said.

Between 1984-1997, our exports grew 78 per cent, Australia's 160 per cent, Ireland's 260 per cent while the OECD average was 137 per cent, according to Bob Fenwick, president of the Export Institute of Auckland. Wellington's policy of non-intervention in the economy has clearly not worked. He favours bringing back development finance.

Far more worrying is this trend: imports are growing faster than exports. According to figures compiled by the New Zealand Manufacturers Federation, manufactured exports grew 51 per cent from 1989-99 while manufactured imports grew 65 per cent.

Latest figures are more alarming. September imports grew 12 per cent year on year while exports grew 2 per cent.

The value of manufactured exports was $8.4 billion last year against $3.5 billion in 1985, arising mostly from further processing of more commodities. Exports of elaborately transformed manufacturers have been growing nicely but their total value was still small due to its small base, said Peter Crawford, ManFed's trade and economic analyst.

High-tech exports are a sector growing in importance (but without much profile) to an estimated $9 billion a year (including telecommunications exports), according to the New Zealand High Tech Council, formed as the sector's lobby group.

Statistics do not provide many clues as to how well our knowledge industries are doing.

According to Professor Frederick, the OECD ranked New Zealand poorly in terms of having high and medium-technology in our manufacturing exports. Our share of high-tech manufactured exports was 16.2 per cent against the OECD's 63.2 per cent average.

This is in spite of New Zealand having a high rating for holding patents in information and communication technologies, he said.

In terms of having knowledge-based industries and services as a percentage of the overall business sector, New Zealand sits with the other primary producers such as Spain, Norway, Portugal and Iceland.

Here's the conundrum for policy makers: people involved in high-tech exports say they don't need direct government intervention except in areas of education and in removing tax policies inhibiting investments.

But the more traditional manufacturing industries say direct help such as export credit finance and development finance are needed.

John Ball, convening chairman of the NZ High Tech Council, said the high-tech sector was one of the best survivors without Government help.

"I don't think the lack of direct intervention is holding the sector back. Financing is an issue, but if the sector can't get it here, they tend to look around the globe, so that will soon sort itself out."

Richard Leary, managing director of New Zealand Housing Exporters, a company set up to market homes, said: "Labour's policy [on export credit and export guarantee schemes], that's the way to go."

He said although there was private export credit insurance, the charges were prohibitive, rendering New Zealand exporters uncompetitive abroad.

Greg Charteris, managing director of Tristyle Industries, a company exporting timber homes, said the building industry had the potential to double its exports annually but just had no financial backing.

"Something like the export credit or some form of development finance will be immensely helpful."

He added that the Canadians competing against New Zealand in Japan and Korea had full government backing in terms of export finance.

But Bill Cunningham, managing director of Autex Industries, which makes insulation and carpet products, said the private sector was best left to handle something like export credit financing. The only reason for government to be involved would be when the private sector was unwilling to assume the risks.

Labour's promise to increase funding for Trade NZ also went down well with businesspeople who said the board had been unable to do its job due to poor funding levels.

Maurice Lovegrove, managing director of Brightway Products, a Pukekohe-based manufacturer of educational toys and games, felt that Trade NZ's move towards the user-pays system deterred small companies from using it for market intelligence work, reducing their export opportunity.

Mr Charteris of Tristyle Industries said Trade NZ's charges "were horrendous" and the quality "questionable."

He said: "I am not knocking Trade NZ, but this simply confirms my views that, generally, consultancies are overpriced and under deliver in the market."

Christchurch-based Tait Electronics' founder Sir Angus Tait said the Government really had to "bite the bullet".

"It has to be money put on the table, doing the hard things like tax breaks for research and development and tax holidays. So long as companies which might want to set up exports here get a better deal elsewhere, they won't come," he said.

Neutral policies, Sir Angus said, had not worked. "It is no use just fiddling with the economy. We need to encourage inward investments in technology."

Graham Boult, the National President for the Export Institute of New Zealand, said that with only 120 or so companies exporting more than $25 million, it was crucial to raise everyone "up a notch". A minister dedicated to exports would help, Mr Boult said.

Mr Blackham of NZInc said that Trade NZ, for instance, whose future as an organisation was being changed dramatically, was not making the internal changes needed to meet its future role.

With e-commerce revolutionising business, the traditional model of trade offices would be outmoded.

Exports would be global, done through the internet so Trade NZ would have to be the leader in providing e-commerce education, Mr Blackham said.

Professor Frederick said: "We need to raise our knowledge industries' share of the GDP, but no one has got a strategy, neither Labour nor National."