New Zealand Budget

Analysis

Trade: Digital a great opportunity for exporters

2017 New Zealand Budget

By Grant Frear and Jenny Liu

Budget 2017 includes $134 million over four years to support the Government’s Trade Agenda 2030 (including the World Expo funding). This updated trade strategy has a stated goal to have free trade agreements (FTAs) cover 90 percent of New Zealand’s goods exports by 2030, up from 53 percent today.

The Government can pave the way for New Zealand’s exporters through better market access. However, there are a number of challenges that businesses need to overcome to grab this opportunity with both hands and run with it.  We have identified two key challenges that businesses need to tackle to make good on government investment in trade.

  • Export mindset – as the Government reduces the hurdles to trade, do our businesses have the export mindset to make good on the opportunity?
  • Digital savvy – do our businesses have the digital savvy to participate in emerging digital trading platforms, particularly those in Asia?

Increased government support for trade interestingly comes at a time when there has been growing economic nationalism and protectionist rhetoric from some of our important trading partners – most notably the United Kingdom with Brexit and the “America first” agenda articulated by President Donald Trump.

The scepticism around the benefits of free trade also exists here in Aotearoa.  A recent survey conducted by Chartered Accountants Australia New Zealand (CAANZ) found that 72 percent of New Zealand business respondents thought FTAs had little impact on their business (rated in the survey as having no impact, neutral impact or were not sure of the impact).  This result begs the question whether we have the wrong agreements in place, the wrong mindset or a lack of capability to take advantage of these agreements. The establishment of a Ministerial Advisory Group to “ensure the public is better informed on trade issues” is a good step forward to shift the mindset with respect to the opportunities for trade based growth.   

In addition to a shift in mindset, what are some of the new capabilities we will need to take advantage of the government initiatives? Emerging technologies and online platforms for trade can even the playing field for Kiwi companies. The growth of ecommerce platforms, like Alibaba and WeChat in China, means there is ample opportunity for New Zealand exporters who are digitally savvy.

In Deloitte’s first Voice of Asia report published earlier in the year we predicted that global growth would in part be underpinned by the consumer booms taking place in China and India. This is where technology could be a game changer. We know that Asian countries are more digitally engaged relative to global peers, and Singapore and Hong Kong are clear world leaders. In countries with large unbanked populations, individuals have turned to digital solutions to allow them to participate more in the economy.  Digital means a bank account or cash is no longer a pre-requisite, enabling individuals to participate in an otherwise inaccessible financial system. In China online payments through the likes of Alipay and WeChat Pay, with hundreds of millions of users each, are fuelling digital ecommerce.

On one hand, the use of online marketplaces fuelled by digital payments is a great opportunity for us. But the potential rewards also carry risk and a successful Kiwi company could become a victim of its own success. In a market the size of China, for example, one order could clean an aspiring exporter out of product in one go.

While online platforms and digital offer a brave new world, exporters still need to have a firm grasp of business basics like supply chain, forecasting and cash flow. Budget 2017’s boost for Ministry of Foreign Affairs and Trade (MFAT) resources, which includes money to help more New Zealand businesses succeed internationally, is there to help our exporters negotiate these potential pitfalls. However, the challenge sits with our business leaders and their desire to make good on this investment.

 

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