Overseas Investment and Briefing Tour

I have just returned from a very successful two week investment tour of Tokyo, London, Dublin, Edinburgh and Singapore.

The purpose of the trip was to encourage interest and investment in the New Zealand economy; to enhance existing contacts and develop new contacts of potential economic significance to New Zealand.

I was also keen to gather information relevant to world economic developments and our own superannuation, taxation and economic transformation policies.

I am pleased to report this was a most successful trip. I have renewed and strengthened overseas contacts. We are putting special effort into potential investor relationships that may be important as we advance our agenda of transforming the New Zealand economy.

Nothing I saw or heard suggested to me that we are on the wrong track in this. Indeed, the importance of engaging business and other interests in a positive partnership in forging an improved economic and social performance was reinforced.

It is important that we continue to engage the wider international support base on which New Zealand can draw, as we continue to move forward.

London
The big standout feature in London was a marked change in the atmosphere compared to my last visit in September.

Last year, the City's financial community was decidedly cool toward the new government. Given the depreciation of the NZ dollar, policy changes such as the increase in the top personal tax rate, and the general attitude of the NZ business community, the atmosphere was sceptical if not negative about our approach and economic prospects.

This year, there was a widespread acceptance of the economic picture I painted and a willingness to engage in informed and intelligent discussion of the policy direction, including the superannuation fund, takeovers legislation, education, taxation and investment in the knowledge economy.

This engagement was evident in a willingness to debate New Zealand's long-term economic future, and how we might best position ourselves to maximise our opportunities.

While it was generally accepted that New Zealand's location and size - our twin tyrannies - were disadvantages in an economic sense, people were by no means despondent about our prospects.

Dublin
Last year Ireland went through an economic boom with growth, exports, and consumption all reaching record highs.

So during my brief visit I was looking for further information on the transformation of the Irish economy and its possible lessons for New Zealand.

A number of commentators have claimed that the low corporate tax rate on the manufacturing and (offshore) financial centre sectors lies at the core of Irish success, and this has certainly played a part in attracting substantial investment from the United States.

However, my discussions confirmed for me that the real explanation lies in a number of factors coming together and that tax policy, while helpful, is only a small part of a much bigger story.

Three core factors emerged as being crucial to Irish success:

1. a very focused strategic approach to skills development.
2. an equally focused approach to investment attraction which has involved activities and companies with potential being targeted, rather than relying on an across the board or scattergun approach.
3. building of strong partnership agreements between the government, the business (and farming) sectors, the trade unions and (more latterly) the voluntary sector.

These factors are further enhanced by Ireland's ability to draw on a vast, talented, loyal and often wealthy expatriate community.

Edinburgh
In Scotland, my key focus was on potential investors and the financial community, and on establishing contacts with the new Scottish government.

The Scottish economy has struggled to maintain growth in excess of 2%, and like New Zealand has been looking to Ireland for possible lessons in improving performance.

Scotland shares some features with New Zealand -we both compete with a larger neighbour and we both have significant areas of economic and social disadvantage.

At the same time it has built on a long-standing strength in the financial sector to the point that Edinburgh successfully holds its own against the might of London, and is the second largest financial market in the UK and fifth largest in Europe.

In essence, Edinburgh has been able to feed off London's success, by providing a further pool of human capital available at less astronomical rates, and offering an attractive lifestyle simply not available in London.

I am convinced that we should work to build up stronger connections with the Scottish government and private sector. We have longstanding links and relationships that can be developed further to our mutual advantage. As a small country with a heavyweight financial sector, Scotland may well prove a more fruitful source of the investment cooperation New Zealand will need for its economic transformation than some of its bigger competitors.

What I saw also suggested to me that like Scotland there may be scope in exploiting a potential advantage for New Zealand in providing back office facilities in the financial sector.

Singapore
My last stop was Singapore. Predictably, my visit to the 'Asian Tiger' was dominated by interest in the Singapore International Airline's (SIA) bid for Air New Zealand. There was a risk, heightened by the newness of the New Zealand/Singapore Closer Economic Partnership, that our response to the SIA bid could be seen as rather unwelcoming.

To try and draw a parallel with New Zealand's position, I referred to the very cautious approach Singapore is taking to the opening up of its banking sector where it is emphasising the need for significant ongoing Singaporean ownership.

I stressed that New Zealand has three main concerns:

1. international landing rights,
2. the tourism value of the Air New Zealand brand
3. competition issues.

As well as speaking to government officials and Ministers, I was able to visit Singapore's IT Capital and I was briefed on and shown some Kiwi innovation in the field of deep video imaging. Initial capital for this had come from New Zealand - Deep Video Imaging started out in Hamilton, and it struck home for me the critical need to look to the effective application and commercialisation of Kiwi ideas. We are not always successful at turning our good ideas into good businesses. However, the Government is putting in place a raft of policies to make sure we have the right infrastructure that allows a back shed idea, a scientific discovery or a technological breakthrough to be developed into a successful business, right here in New Zealand.

Kiwis away from home There is a changing pattern happening with Kiwis abroad. New Zealanders used to leave the country for a relatively short period and do a stint working and backpacking. Now young people tend to stay oversees for longer periods but come home when they are planning children and want a better quality of life. While I was in London I met with several hundred expatriate New Zealanders. Even among those who have made a more permanent home in the UK, there is obviously an ongoing commitment to New Zealand. A substantial number of others remain committed to returning to New Zealand for lifestyle or family reasons, despite the opportunity to earn more overseas. In Ireland, too, I was able to talk to some expatriates. While most people considered themselves better off financially in Ireland than New Zealand and most had stayed longer than initially intended, factors such as lifestyle, career and friends and family were much more likely to induce them to return than were financial incentives, tax rates or other general economic conditions. We need to find ways to tap into the hearts and minds of some of out best and most successful expatriate New Zealanders. We need to allow them to continue to contribute to New Zealand's prosperity whereever they are in the world.

NZ's AA+ credit rating secure While in Singapore I also met with Standard and Poors. The credit agency was generally supportive of the Government's economic performance and directions and while it is much too soon to expect an upgrade to our AA+ rating - which we only secured in March - there is no likelihood at this stage of a move in the other direction either.