Speech to New Zealand India Trade Alliance
19 March 2019, Auckland
Before anything else, I want to take a moment to acknowledge the fifty people who were brutally murdered and the many others who were wounded while at prayer in Christchurch on Friday. I understand that several of the victims of this barbaric act came to New Zealand from India to make a new life for themselves, no doubt like some of you here. I also want to acknowledge the families, friends and communities affected by this terrible event. All of New Zealand shares in your sorrow. We mourn with you. We stand with you. We embrace you with aroha.
Indian Prime Minister Narendra Modi has written to our Prime Minister Jacinda Ardern and expressed his deep shock and sadness over this tragedy. He stressed India’s strong condemnation of terrorism in all its forms and manifestations, and of all those who support such acts of violence. Prime Minister Modi shared the message that India stands in solidarity with the people of New Zealand at this difficult time.
It is significant that he also emphasised that hatred and violence have no place in diverse and democratic societies. Diversity and inclusion are true assets for New Zealand. They enrich our culture, broaden our knowledge, challenge our preconceptions and strengthen our international connections.
In that spirit, I welcome the opportunity to speak to the New Zealand India Trade Alliance. Thank you for the invitation to join you this evening.
Even though one of us is a relatively small nation and the other is so big there’s an ocean named after it, New Zealand and India share a long and strong connection. And it’s the work and commitment of people like the NZITA’s members that help give the relationship its strength. I’d like to talk about the economic aspects of the New Zealand India relationship and where the Treasury sees the opportunities and obstacles between the two countries. In particular, I want to explore how our relationship (and the shared interests and occasional issues that come with it) plays out on a number of levels: international, national, operational and personal.
Let’s start with the international picture. New Zealand and India are working within a global economy where the balance of risks remains tilted to the downside. In the last few months, both the IMF and the OECD have lowered their growth forecasts for the global economy. So what’s contributing to the slowdown? The most obvious culprit is the trade dispute between the world’s two largest economies, the United States and China. While the US has postponed a hike in tariffs, we await to see if any trade deal emerges from the negotiations. China itself experienced its lowest growth in nearly three decades in 2018. Another factor causing uncertainty right now is the UK’s management of its exit from the European Union.
A US-China trade war may be top of mind right now but the reality is that we have been living in an age of increasing volatility and uncertainty for 10 years or so. It is in everyone’s interest for nations to pursue strategies and policies that uphold stability, not undermine it.
Stability, certainty, the rule of law, well-functioning markets and peaceful political processes help to create supportive conditions for investment and employment and ultimately an improvement in wellbeing. And strong institutions are also critically important.
Alongside openness and connectedness, strong institutions play a big role in the management of the global economy and a particularly important one for small states such as New Zealand. They also align with India’s interests. Indian Prime Minister Narendra Modi is on the record as saying India is a strong supporter of the multilateral trading system.
Global institutions, whether they are international organisations such as the WTO or the IMF or whether they are formal treaties or agreements or frameworks, help to set rules – the 'architecture' – for international connectedness. This architecture 'levels the playing field' for all countries and helps to create a stable and safe environment for business to be conducted or for disputes to be resolved. In fact earlier this month New Zealand’s Ambassador to the WTO was appointed to chair its Dispute Settlement Body. Global institutions also provide a forum for the harmonisation of regulations which make it easier for businesses – including New Zealand and Indian businesses – to access foreign markets.
The path of trade runs smoother when rules are consistent and nations agree to follow them. For that reason, New Zealand's foreign and trade policy supports the components of the international system, such as the WTO, United Nations and international financial institutions. We want to not only see them reinvigorated, but also improved and strengthened to better manage today's global challenges.
I believe that free trade and globalisation have undoubtedly been good overall – for New Zealand, India, and the world. Yet it is also true that in some countries around the world, the rapid growth in global trade, the creation of new value chains and the emergence of new markets and huge pools of relatively inexpensive labour have undoubtedly led to large-scale and relatively rapid economic dislocation. While the benefits from free trade tend to be diffuse and long-term in nature, losses are often sharp and very concentrated on particular individuals, firms and regions. Moreover, the people most affected are sometimes those with the least capacity to adjust on their own.
We’re not just dealing with the consequences of free trade and greater international connectedness but with the challenge of adapting to change. Unfortunately, some countries seek to avoid or delay making the necessary adaptations by pulling up the drawbridges and pursuing protectionism.
New Zealand is taking a more productive and effective path. We recognise the importance of continuing to focus on building a resilient workforce with flexible skills, and that we should expect and enable the economy to adapt to change as it happens.
One of the most positive changes for New Zealand has been digitalisation. It has thrown open opportunities to sell services and deliver them to other countries in a fraction of a second, in addition to selling goods delivered in days or weeks.
This shift in trade from physical goods to services is very evident in the trade between New Zealand and India.
Two-way trade was close to $3 billion in 2018. That’s almost double what it was 5 years earlier, which should put a smile on the face of NZITA members. The value of goods and services we import from India are both around three-quarters higher than they were in 2013, now sitting at $709 million and $248 million respectively.
Over that same 5-year period the combined value of New Zealand’s goods and services exports to India doubled from $1 billion to $2 billion. Back in 2013, the majority of those exports were goods worth $669 million compared with $408 million worth of services.
But as of 2018 services have bolted well ahead. The value of goods has only risen slightly to $712 million while the value of services has more than tripled to $1.3 billion. Services account for almost the entire growth in the value of our exports to India in the last 5 years. The lion’s share of this has come from education and tourism. For many other areas such as ICT, logistics and financial services, there remains huge scope to raise the value of our services exports.
We are both countries that are ambitious to grow our economy and enjoy the benefits that can come from that. India’s economic growth has been booming. It’s currently the world’s sixth largest economy and Prime Minister Modi has expressed a hope that it will be within the top three in the next 15 years. Spectator Index projects that by 2050, India’s economy will be the second biggest in the world behind China and ahead of the United States. To help make this possible, India has been making reforms that have seen it rise to seventy-seventh in the World Bank’ Ease of Doing Business rankings, with ambitions to be in the top fifty in 2020. And perhaps the most powerful motivating factor behind India’s economic performance is the desire to transform the lives of its people.
New Zealand is also committed to lifting wellbeing. For instance, the vision of my department is to be a world-leading Treasury working towards higher living standards for New Zealanders. To achieve the economic growth that helps underpin higher living standards, New Zealand has to grasp the opportunities in front of it, and the potential opportunities in India are huge.
It’s a growing market of 1.3 billion people, and has an expanding middle class with a rising demand for quality goods and services that New Zealand can offer. And of course New Zealand is an appealing market for India too. In a recent interview with India Inc., our High Commissioner in India, Joanna Kempkers, set out New Zealand’s benefits as a safe, trustworthy and easy place to invest and do business, with stable political and regulatory systems and an innovative and well-educated population.
Trade liberalisation between India and New Zealand would be in the interests of both countries. One way to try to make that happen is through a free trade agreement, and we have been working towards concluding an FTA since negotiations started almost 9 years ago. Progress has been slow. The fact that the value of New Zealand’s goods exports to India are little higher than they were in 2013 while services exports have soared, shows the biggest obstacle to an FTA is access for our goods into the Indian market. We are certainly a long way off the goal set in the NZ Inc India Strategy of at least $2 billion of goods exports per year.
Prospects for progress look better in the multilateral negotiations on the Regional Comprehensive Economic Partnership, or RCEP. This 16-nation agreement would establish consistent rules and boost market access in southern and eastern Asia, a region containing 45 percent of the world’s population and covering 40 percent of world trade. Earlier this month all 16 countries, including India and New Zealand, agreed to intensify negotiations, resolve remaining issues and conclude talks by the end of this year.
The potential benefits for New Zealand-India trade through liberalisation are massive. But here and now, there are a lot of barriers that New Zealand companies must find a way over, around or through to do business with India.
Tariffs are especially an issue. Indian tariffs on agricultural goods average 34.4 percent, hampering the competiveness of a major export sector for New Zealand. On top of that, our exporters may face surcharges and duties at the border, come up against restrictive regulations and licensing requirements, or may be prohibited from supplying services from New Zealand. Investors too can find that they are required to operate in joint ventures with Indian partners or cannot invest in new ventures.
Of course, we recognise that governments want to ensure that foreign investment in their country is consistent with their own national interest. The same holds true for New Zealand, which is why there is a reform process underway for our Overseas Investment Act. New Zealand welcomes beneficial foreign direct investment and remains a great place to invest. We know we need to streamline processes for inward investment where we can and the review will explore ways of doing that.
At an operational level there are many New Zealand and Indian companies making the trade relationship work. A lot of them will be represented here at the NZITA, or would have participated in your series of events last year on “Reimagining the India New Zealand Relationship”.
You will have heard from industry leaders and Government ministers about pursuing opportunities in both countries, and of course you will know a lot from your own experiences. I don’t want to repeat what’s been said already, but there are some themes that come through.
Several different industries are singled out as having great potential for growth. These include New Zealand’s expertise in agricultural productivity, tourism, education, high-quality foods, software, engineering, and consultancy and professional services. Some of the opportunities highlighted for Indian investment in New Zealand are in the wider aviation industry, information technology, property, biotechnology, infrastructure, and health and wellness products. But these are by no means exclusive lists. Entrepreneurial New Zealanders and Indians will keep creating their own opportunities.
Another theme is the need to do thorough market research. What do people in your market buy, where do they buy it from, when do they buy it? What are the local rules, regulations and restrictions you must abide by, in addition to national requirements? Do you have the right local partners you need in the market? And how do you build the good relationships on which the success of business so often depends?
That probably explains a third theme that often gets raised: tenacity.
In thinking about the opportunities for the New Zealand India economic relationship to grow stronger, one of the factors that gives me great cause for optimism is the personal ties that connect our countries.
Indians have been coming to New Zealand since the late 1700s. And speaking of economic opportunities, an Indian man by the name of Edward Peter is responsible for the Otago gold rush of the 1860s. Credit for the discovery may have gone to a Tasmanian called Gabriel Read, but it was Edward Peter who let him know where to find the gold.
Indians are part of New Zealand’s past, an important part of New Zealand’s present and will be an even bigger part of New Zealand’s future. According to the 2013 census, 4 percent of the people in New Zealand are of Indian descent, and Stats NZ projects that figure to reach 7 percent by 2038. About a quarter were born here, another quarter came to New Zealand from Fiji, and a little less than half were born in India. And here in Auckland, Indian-born New Zealanders represented the biggest group of people gaining citizenship in 2018.
I spoke earlier of New Zealand’s service exports to India, and two of our biggest service industries, education and tourism, have attracted thousands of Indians to our shores to study or visit.
Last year there were 68,000 Indian visitors to New Zealand, predominantly tourists or people seeing family and friends, but also 2,800 here on business. Since 2013, the numbers of business visitors have risen by a third, while overall visitor numbers have more than doubled. As the Indian middle class keeps growing, I would expect visitor numbers to keep growing too.
Thousands more young people from India come to New Zealand for their tertiary education. Tighter scrutiny of documentation by Immigration New Zealand officials saw the number of student visa applications in India fall from nearly 26,000 in 2015 to around 9,500 in 2017. Nevertheless, India remains our second largest market for international students. Over 17,000 Indian students were in New Zealand in 2017 receiving an education.
When you consider the hundreds of thousands of people from India or of Indian descent who have visited here, studied here or are living here, that’s a great number of personal and professional connections between New Zealand and India. We really need to be taking as much advantage of this as we can. How many firms could benefit from having the insights into the culture and thinking of their overseas markets customers? Indeed, how many companies are thinking of the opportunities within New Zealand of targeting these potential customers and employees?
I suspect that we don’t capitalise on this nearly enough. We are barely tapping into the people-to-people connections right in front of us. If we did, I believe we would see a boost of two-way investment between India and New Zealand.
My visit to India last year left me with some personal impressions of opportunities to deepen our ties there.
I knew India had a federal system of government, but it was not until I went there that I fully appreciated the nature of that system and its practical impacts. It’s a nation of 29 states and 7 union territories. Each of those states and union territories have their own interests and issues; their own economic profiles; their own social and cultural mix; their own rules and regulations. Arguably, India is best understood not as a single economy but as a collection of different state economies, each with different strengths, different rules and growing at different rates.
New Zealand businesses have to navigate those differences. Having a single whole-of-India business strategy might not be the best path for some companies to pursue when the states of Maharashtra and Manipur could have about as much in common as Fiji and Finland. It may be better for businesses to be concentrating on markets in certain states. And the states being targeted might be different for the dairy sector and the IT sector and other industries. Ultimately of course it depends on where a business’ customers are. I understand the NZITA is helping companies to connect with important entities at local and state level.
Another reflection is that it’s not just businesses that need strong connections between India and New Zealand. As New Zealand's lead advisor to the Government on economic and financial policy, the Treasury wants to grow its own understanding of this large and fast-growing economy. We are looking to deepen our own engagement with India, and it’s progressing well.
And finally, I’m struck by how many shared interests our nations have. New Zealand and India have stood side-by-side firing in pitched battle, and head-to-head firing in short-pitched deliveries. What we need to see is more face-to-face business and investment pitches too. Strengthening our business ties and economic relationship through trade liberalisation is good for India and it is good for New Zealand. Yes, there are challenges we need to work through, but the possible mutual benefits are huge.
We need to grasp the opportunities in front of us. With the good work and goodwill I see happening at the international, national, operational and personal levels, I am optimistic that the New Zealand India relationship can fulfil its true potential.