New Zealand, Ireland, Portugal and Greece are the most indebted of developed nations.
However, we have one thing going for us that the rest don’t: Our government debt is low. But that means our private sector owes international creditors proportionately more than theirs do.
Consequently our creditors have more faith in us than them. They believe we can keep exporting so we can earn enough to service our debt.
Treasury forecasts show though, our creditors’ confidence is misplaced. Our current account deficit continues to deepen. We finance it by borrowing more and selling off assets.
Thus, Treasury’s forecasts in the recent budget show our net international liabilities will rise from 67.5% of GDP in 2011 to 80.8%% in 2016. One of the main reasons for this is the low-growth rut in which exports are stuck.
Turning that around will take decades of higher earnings from exports and overseas investments, coupled in the domestic economy with more saving and investment and less overseas borrowing.
Foreign investment in New Zealand is crucial to that equation. Good investment will help us do more than we could on our own, such as accelerating the growth of high value, technology-driven exports here and co-investments overseas.
Ireland is the best country at that strategy. For decades, it has attracted foreign investors with technology and capital that enabled Ireland to create abundant exports, high-paying jobs and research capability.
That export-focused sector still thrives. It was Ireland’s banking system and housing market that collapsed under the burden of reckless borrowing. In fact, lower house prices and wages caused by the crash are making the tech sector more competitive.
But we attract mainly bad foreign investment to New Zealand. Of the money invested 2003-09 (a pattern very typical of long term trends) 55% sought domestic market share (largely Australian investors); 40% sought cheap labour or other efficiencies (ditto); 4% sought to capitalise on knowledge here and 2% sought resources here.
These domestically focused investments worsen the current account deficit when their profits flow overseas yet we gain no exports.
Yet, we continue to encourage such destructive behaviour. For example, the Overseas Investment Office has conceded that Shanghai Pengxin’s investment in the Crafar Farms will not increase exports or jobs here or NZ in-market skills overseas. Yet, the government approved the deal.
To correct this dire performance we need as a country to understand exactly what financial messages the global economy is sending us … and work out what messages we will send back about our economic development and the crucial role right foreign investment can play.
I will be exploring these issues and more at the Voyage of a Lifetime event held at the Q Theatre in Auckland on the 10th of June. The passage is already fully booked, but those keen can go onto the waiting list by registering at www.thevoyage.co.nz and watch it live streamed on http://www.ustream.tv/channel/voyage-of-a-lifetime. Follow @voyagenz on Twitter to keep updated.
Rod Oram is an international business journalist