• New Zealand’s exports rank near the bottom of OECD nations and is dropping further.

• Our mainly agricultural exports face strong headwinds like climate change.

• We need to be working now to create industries that will drive wealth for the next fifty years. Our Politicians must act with urgency.

While we pride ourselves an exporting nation, exports as a percentage of GDP rank near the bottom of OECD nations. Our exports in 2023 (goods and services) were 25% of GDP compared to Finland’s 45%, Sweden’s 53% and Switzerland’s 75%. As a small country, we rely heavily on exports for our prosperity (countries like the USA and China, with large domestic economies, are less export-dependent).

And worse, our exports have steadily declined over the past decade. Reserve Bank (RBNZ) warned in May that our goods exports dropped from 22% to 18% of GDP. Lower exports will widen the current account deficit and could lower productivity, exacerbating two critical economic problems in the country.The Reserve Bank said this trend is unlikely to reverse in the medium term for several reasons. The economic growth forecast of our largest trading partners, especially China, is slowing. Agricultural exports face strong headwinds due to climate change and environmental regulations. Growth through free trade agreements is less likely due to a global trend toward protectionism, as more countries seek to protect their domestic economies.

We have a slow-burning crisis; however, complacency and leaving it to the private sector alone could be disastrous. As Liam Dann points out in his book BBQ Economics, most of our exports are commodities with little processing or branding. Commodities are highly dependent on global markets, where we have little influence. Our exports are highly concentrated and unchanged since the early 1990s– 62% is dairy, beef, lamb, and forestry. We missed out on the industrialisation of the developed world from the 1950s, as our agricultural exports were doing so well.

Industrial Policy, a key plank in the astronomical growth of China and the Asian Tigers over the past forty years, has spurred a rethink among the leaders of the developed world, who are embracing industrial policy and investing heavily to support supply-chain resilience, green technologies, and good jobs.

Globally, there is a recognition that the ‘leave it to the markets’ economics of the past forty years has failed the developed world and its people. Governments must lead the way – using tools like targeted subsidies, tax incentives, and regulations to “foster dynamism in strategically important sectors”. 

While critics of industrial policies cite a few failures to deride government investments, Nobel Laureate economist Michael Spence points out these are risky investments.“No one expects every investment made by a venture capital fund to be a home run, and governments should be afforded the same leeway. A decent track record is good enough to make industrial policy pay off for taxpayers.”

The USA changed course dramatically with the Inflation Reduction Act (IRA), which committed NZ$600 billion for Climate Spending and $450 billion for the Chips and Science Act, focusing on research and manufacturing of semiconductors. The EU committed NZ$675 Bn towards Climate Change and Digital Transition. Government support for rapid vaccine development in record time was a success story that helped counter a severe global crisis and save millions of lives.

The Labour government recognised the need for an active Industrial Policy. In 2019, David Parker initiated Industry Transformation Plans with a budget of $ 400 million, saying, “Governments need to make strategic choices to support their broader economic, social and environmental objectives”. The Ministry of Business, Innovation and Employment (MBIE) coordinated the process, working closely with industry, academics, investors, and other stakeholders. Some areas identified were – Advanced Manufacturing, Agritech, Digital Technologies, Fisheries, Food and Beverage, Forestry and Wood Processing.

However, the coalition government has closed all industry transformation plans as part of its 100-day plan and clawed back the balance of $127 million in the fund to bridge the budget deficit.

The Coalition Agreements between the National Party, ACT, and NZ First aim to “make New Zealand an export powerhouse again” and set a goal to double the value of our exports within ten years. However, there is no funding and only a standard prescription: “Opening new markets and removing trade barriers, and promoting exports and supporting New Zealand exporters”. The previous National government also set a target to increase exports from 30% to 40% of GDP; however, without a robust program, the exports decreased to 25% of GDP.

While there is much noise about mining, the total mining sector is less than 1% of our GDP, and there have been no new finds for a decade. Pinning our hopes on mining is clutching at straws.We faced significant economic crises in the 1970s. Wool exports fell off a cliff, and exports to the UK plunged when they entered the European Common Market and the oil price shock. The delayed and ineffective responses led to the traumatic changes of the mid-1980s.

The outlook for our exports is challenging, and we are going backwards. We need to boost exports to lift our longstanding low productivity growth. Liam was blunt in his assessment, “We need to be working now to create industries that will drive wealth for the next fifty years…If we sit back and wait, then we will find ourselves back at the dangerous crossroads we reached in the early 1980s”.

Will our politicians heed the warnings and act before it’s too late?