Presentation to a TPK seminar. June 1998.

Keywords: Business & Finance; Globalisation & Trade; Growth & Innovation; Maori;

The Maori economy has made exceptional progress in recent years. Preliminary figures from the 1996 Population Census show that the numbers of Maori employed have grown considerably faster than the Maori adult population, and that additional employment has tended to be in the better quality jobs: more at the managerial level, more involving greater skills. Job growth has also been strong in those industries to which the Maori has given priority: agriculture, forestry, fishing, and tourism. (See the attached table.) In summary the Maori Development Strategy of upgrading Maori skills, increasing Maori work experience, and emphasising Maori business in key growth industries has been extremely successful.

Nevertheless there is some apprehension about economic prospects in the immediate future. This is not peculiar to Maori businesses and workers, for the entire New Zealand economy faces difficulties in its Asian export markets, while growth is slowing in the domestic economy. We are not even sure whether the difficulties are temporary, to be overcome within the year, or they reflect long term changes. It is in the context of this uncertainty that I want to address my remarks to those in the Maori economy, in Maori businesses, and especially Maori exporters.

These current difficulties do not challenge the key elements of the strategy for Maori development. Maori workers must continue to accumulate work skills; they – especially the young – need to accumulate work experiences; the Maori needs to continue to seize business opportunities in key growth sectors, especially where the resource basis owned by the Maori or where the Maori has some special skills or other advantage.

But the Maori economy needs to diversify, although not necessarily into more industrial sectors. It is better to use the existing achievements as a base for expansion than to leap out into entirely new areas. There are two components to the required diversification. First there is a need to find new markets, to become less dependent upon the Asian ones. This applies even if there is an unexpectedly early recovery of the East Asian economies, because it is always unwise to have too many eggs in the one kete. The alternate markets will depend upon on the product the business is providing. Some will be appropriate for a developing market such as Latin America, others for sophisticated markets such as North American and Europe, noting that in particular the further European integration offers opportunities for specialist products. As exotic and promising as these markets are, the traditional ones should not be forgotten. That is not only Australia, but the New Zealand domestic market itself. Selling to a New Zealander – displacing a foreign supplier – saves foreign exchange which is just as valuable to the economy as earning it. In all then, it is a good time for a business to review its marketing strategy, identifying potential markets and steadily developing them.

Second, it is also a good time to review product strategy. There has been a tendency in New Zealand exporting to focus on commodities, with low processing. That is what the East Asians demanded. However as many commodity exporters are finding, during an economic downturn there is much more downward pressure on commodity prices than there is on the prices of sophisticated processed products. Further processing commodities – value adding – reduces those price pressures, and also generates more jobs in New Zealand. Moreover the more sophisticated economies which firms are looking at diversifying to, require more sophisticated products. When a firm is thinking about value adding, do not just look at the processed but also at the process itself. Wool scours and dairy equipment are New Zealand exports. Especially in forestry and fishing where New Zealand is a major world producer, we need to be looking for selling processing equipment or the licence to produce innovative ideas. A patent on a business’s successful industrial process can be a tidy earner.

The good news as business look for market and product diversification opportunities, is that the market signals are increasingly favourable, for the New Zealand exchange rate continues to fall relative to other currencies (with the exception of some East Asian ones). That makes it more profitable to export to those other countries, more profitable to compete against the imports from those other countries, and more profitable to value add to commodities in New Zealand than overseas. Diversification becomes profitable.

As well as the falling exchange rate, there is another change which offers opportunity. From July 1 many people will receive substantial reductions in the income taxes they pay. What should be done with this additional disposable income?

In current circumstances it is better not be spent, although one understands how many Maori households are so under severe financial pressures the additional income will be used for consumption purposes. Households under a little less pressure would be wise to reduce their consumer debt or house mortgages, partly because interest rates are so high, but also to reduce their vulnerability to future economic shocks, such as the Asian economies may yet produce. Others may use the extra cash to acquire new qualifications to improve their job prospects. And those in the business sector may well use the extra income to invest in their businesses, as a part of the upgrading of their production, distribution, and marketing processes, as a part of the diversification strategy, and also insulating their businesses from the high interest rates which borrowing generates. Paying off debt, obtaining skills, and investing in the business are priorities for using the income tax reductions, converting the short term benefit from the tax cuts to long term benefits for the individual, for the Maori economy, and for New Zealand.

In encouraging Maori businesses to save and invest, I am aware that a major source of capital in recent years has been from Treaty settlements. In effect compensation for the wrongs of the past are the capital for the new Maori economy. I am sure out tipuna are pleased that their pain is leading to prosperity for their mokopuna. But the settlements will not be an eternal supply of new capital. The next stage is for the successful business to generate their own savings for reinvestment.

In summary, despite the anxieties about the state of the Asian and New Zealand economies, and the high interest rates there are some positives for further development of the Maori economy. The exchange rate is more favourable than at any time in the last five years, the additional income from the July tax cuts can be used for strategic development and there are is the steady – if inevitably too slow – Treaty settlements, which are providing a capital and resource platform for Maori economic development.

I remain confident of the rightness of the basic Maori strategy of
– acquiring work skills;
– obtaining work experience;
– investing in Maori businesses, especially where there is specialist resources and expertise.

There is much to be done in developing the policies at iwi and government level to underpin this strategy. Today I have focused on a key one, the need for diversification: into new markets, including looking again at local opportunities; and new products, especially those which add value to existing products and processes.

If we can continue the momentum of the strategy, despite the difficulties in East Asia economies and a temporary weakening of the New Zealand one, the 2001 Population Census will report there has been as much progress in the second half of the 1990s as the there was in the first.

Maori Ethnic Group (Over 15)

Source: Population Censuses