2.2  New Zealand’s recent exporting situation

New Zealand nominal value exports of goods and services were 36.7% of nominal GDP in the year ended March 2001. This compares with about 26% of GDP in 1988, and reflects a steady growth in the proportion of exports to GDP since the late 1980’s, as illustrated by Figure 2 below. TradeNz and Statistics NZ data indicates that this increase in exporting has come primarily from the very large exporters, rather than small-scale exporters. Much of the increase in exporting since 2000 seems to be due to price effects[4] (favourable commodity prices and the recent currency depreciation), which is reflected in the difference between nominal and constant price exporting levels.

Figure 2: New Zealand exports as a percentage of GDP

Source: Statistics New Zealand GDP data

Despite these increases, New Zealand’s export growth has not matched that of Australia or the rest of the OECD in recent times. Figure 3 below sets out the divergence in performance from 1960 through to the 1990’s. Ballingall and Briggs (2001) show that this relatively poor performance may be due to demand being lower in the industries that New Zealand exports traditionally service.

Figure 3: Real export volumes

1990 prices and exchange rates, Index, base 1960 = 100

Source: OECD/ Briggs and Ballingall (2001)

How large is New Zealand’s share of exports to GDP relative to other countries? There appears to be a relationship between the size of a country and the proportion of GDP that is engaged in international trade. This makes intuitive sense, countries with bigger domestic markets are less likely to need to trade externally.

Figure 4 shows the relationship between the size of a country’s economy and the amount of trade (imports and exports) it undertakes. The values have been logged to show a linear relationship and plotted against Gross National Income[5] (GNI) on a purchasing power parity (PPP) basis. It shows that smaller economies tend to trade more. Given this apparent relationship, New Zealand’s trade share is close to the average. Nevertheless, the better performing small countries tend to have higher trade shares, including Singapore, Hong Kong, Belgium, Ireland and Netherlands.

Figure 4: Relationship between domestic market size and exporting

Source: Walsh (2001)

Despite the rapid increase in the number of New Zealand firms (especially small firms) in the 1990’s there is little evidence of increased number of firms participating in exporting. This trend is shown in Table 1, which indicates that the number of exporting businesses as a proportion of total firms and also as a proportion of total manufacturing firms has fallen over the past few years.

Table 1: Proportion of New Zealand firms exporting: 1995-2001

	1995	1996	1997	1998	1999	2000	2001
Total exporting firms	10,207	9,696	9,555	11,094	8,953	8,980	9,306
Total number of firms[6]	192871	199757	210220	223535	222062	242845	234232
Number of manufacturing firms	19470	19637	19753	20407	19893	21076	20565
Percentage of total firms exporting	5.29%	4.85%	4.55%	4.96%	4.03%	3.70%	3.97%
Percentage of manufacturing firms exporting	52.42%	49.38%	48.37%	54.36%	45.01%	42.61%	45.25%
Firms exporting over $25m	103	102	109	120	120	136	151
Percentage of firms exporting over $25m	0.05%	0.05%	0.05%	0.05%	0.05%	0.06%	0.06%
Percentage of manufacturing firms exporting over $25m[7]	0.53%	0.52%	0.55%	0.59%	0.60%	0.65%	0.73%
Firms exporting over $75m	40	36	32	33	35	47	51
Percentage of firms exporting over $75m	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%	0.02%
Percentage of manufacturing firms exporting over $75m	0.21%	0.18%	0.16%	0.16%	0.18%	0.22%	0.25%

Source: TradeNz and Statistics New Zealand

This lack of increase in the number of firms that export is an interesting contrast to the results from surveys indicating an increase in emphasis on exporting by businesses during the 1990’s (Campbell-Hunt and Corbett (1996)).

The implication of these statistics is that there has been a growing focus on a small proportion of firms to generate export revenue. This is illustrated in Table 1 which shows the high degree of dependence on a few firms to generate the vast majority of New Zealand exports. In 2001 only 151 firms (0.064% of all firms and less than 1% of manufacturers) exported more than $25 million of exports, amounting to 78% of exports. At the other end of the scale on average 59% of exporters between 1995-2001 had exports of less than $50,000. This group is also characterised by high turnover, some 49% of firms in each year were exporting for the first year, and 57% of these did not export in the following year. Larger exporters exhibit a much greater degree of export persistance[8] and seem to be the source of most of New Zealand’s export growth.

Contrast this experience with Australia[9]. Australia has a similar number of exporting firms (4%), however the exporting burden is more evenly spread. Some 3.9% of exporting firms export 76% of Australia’s exports, while as we have seen 1.6% of New Zealand exporters export a similar proportion of our exports. Interestingly the growth in Australian exports seems to be coming from firms with less than 20 employees, while exports for the very large companies have fallen.

New Zealand’s decreasing proportion of exporters could be a sign of small firms struggling to enter the export arena, which would not be surprising. Internationally and in New Zealand small firms have a far lower propensity to export, as shown by Table 2. This is generally recognised to be because of the fixed costs faced by firms of moving into export markets. The make-up of these fixed costs are discussed later, the important point to note for now is that fixed costs have a disproportionate impact on small firms.

Table 2: New Zealand average export sales percentages and firm size

Firm Size (employees)	Average export sales as a percentage of total sales
6-10	6%
11-20	7%
21-50	14%
51+	23%

Source: survey of National Bank business clients (they received 409 responses out of 1,500 firms) by Grimes, Holmes and Bowden (2000) page 102.