2016/17 Annual review of New Zealand Trade and Enterprise

Transcription

1 2016/17 Annual review of New Zealand Trade and Enterprise Report of the Economic Development, Science and Innovation Committee March 2018 Contents Recommendation... 2 Introduction... 2 Financial and service performance... 2 Working with the New Zealand Tourism Board... 2 Focus 700 customers... 3 The international trading environment... 4 Base erosion and profit shifting... 4 NZTE s views on the housing market... 5 Changes in technology... 5 Appendix... 6

2 New Zealand Trade and Enterprise Recommendation The Economic Development, Science and Innovation Committee has conducted the annual review of New Zealand Trade and Enterprise for 2016/17, and recommends that the House take note of its report. Introduction New Zealand Trade and Enterprise (NZTE) is a Crown agent established under the New Zealand Trade and Enterprise Act NZTE is the Government s business development agency. It focuses on growing New Zealand businesses in international markets and works in partnership with other NZ Inc agencies across the public and private sectors to foster economic development. The chief executive is Peter Chrisp, and the chairperson is Andrew Ferrier. Financial and service performance In 2016/17, NZTE generated revenue of $ million. Its total expenses were $ million including $ million in grants that it paid out. Its surplus after tax was $5.999 million. The Auditor-General assessed NZTE s financial information systems and controls as good, down from very good in 2015/16. The main recommendation for improvement is that NZTE should consistently operate effective internal controls in its offshore offices. Its performance information systems and associated controls were assessed as good, with no change from last year. As in 2015/16, the management control environment was assessed as good. This rating had been expected to improve in 2016/17 as a result of a procurement action plan developed by NZTE. We understand that the action plan is helping, but improvements are still needed so that procurement policies and procedures are applied consistently. We hope to see progress in acting on the auditor s recommendations by the time of our next annual review. Working with the New Zealand Tourism Board NZTE works with other government departments to promote New Zealand to its trading partners. As New Zealand is a small country, government entities have to pool their resources. We heard that NZTE works closely with the New Zealand Tourism Board on the New Zealand Story, an initiative that tells the story of New Zealand internationally. During the last financial year, the New Zealand Tourism Board approached NZTE for assistance in getting accommodation built for the increasing number of tourists visiting New Zealand. NZTE ran a detailed process to create an investment prospectus and marketed it around the world. Potential investors were invited to consider 31 locations. Four deals have 2

3 been completed and another eight are in the pipeline. In total, around $1 billion worth of investment has been achieved. Project Palace Project Palace aims to speed up private investment in 4-star plus hotels in regions where there may be a future shortfall of hotel rooms. NZTE partnered with the New Zealand Tourism Board, the Ministry of Business, Innovation and Employment (MBIE), and Tourism Industry Aotearoa in 2016 when this project began. We heard that gaining investment for this type of project continues to be a challenge for NZTE. We encourage it to persevere, given the importance of supplying adequate accommodation to support future growth in tourism. NZTE said that any work it does in seeking potential investment takes, as its starting point, the tourism strategy the New Zealand Tourism Board presents to it. For its next project, the board has asked NZTE for its assistance in dispersing tourists around New Zealand by seeking investment for tourism infrastructure and experiences. Focus 700 customers As part of its Focus 700 (F700) project, NZTE engages intensively with 660 small companies to accelerate their international growth. At our last annual review, we heard that 44 of the 700 companies (6.2 percent) were Māori. NZTE expected this number to increase to in 2016/17. However, we were told that Māori companies now make up only 42 of the 660 companies. NZTE has been providing investment and export-essentials workshops to help Māori companies attract investment externally. It said that, if a Māori company emerged and was able to compete internationally, then it would accept them into the F700 scheme. We heard that companies in the digital sector made up about 5 per cent of the 700 portfolio seven years ago, and now represent about a quarter to a third of the portfolio. NZTE said that the average growth rate of smaller digital companies is very high, and higher than most other industries. We heard that focusing on areas of higher value-add, such as digital companies, is valuable to New Zealand, and can help the broader ICT sector succeed internationally. NZTE previously had an F500 initiative, but following the emergence of promising companies including those in the digital sector, the Government granted it extra funding to increase the number of companies it works with. However, the growth of the F700 scheme slowed in 2017 compared with previous years. NZTE said it is short of good quality companies that have the ability to compete in the international market. The success of Māori companies overseas NZTE says it enjoys working with Māori companies because of the concepts they apply to business, such as manaakitanga and kaitiakitanga. Māori companies use these concepts as a way of making their business practices environmentally sustainable. We heard that Māori companies excel in China because of the way they operate. NZTE said that it encourages and helps Māori companies to use these natural attributes to target the premium end of the market, which will pay for putting sustainability concepts into practice. Māori companies are also passing on their business concepts to other New Zealand companies. 3

4 The international trading environment NZTE said that it operates in a positive global environment at present, after many regions have recovered from the Global Financial Crisis. We heard that strong, underlying economic fundamentals are supporting growth. NZTE said that it has been facing some interesting trade-related challenges arising from the UK EU situation and the Trump administration s handling of the North American Free Trade Agreement (NAFTA). However, it expects that the UK EU trade relationship will remain similar to the way it was before the UK voted to leave the EU. It also expects the trade environment in North America to remain sensible. In general, now that the emotional factors influencing political decisions have passed, a constructive trading environment will prevail. NZTE said it expects more trade to occur through bilateral relationships than multilateral agreements, and also more partial multilateral agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). We heard that NZTE is very excited about Japan as a growing market for New Zealand under the CPTPP because New Zealand earns a premium for quality and value when trading with Japan that is not available with some other countries. New Zealand is well regarded in Japan, and, as that country will host the Rugby World Cup in 2019, NZTE sees Japan as an exciting opportunity. NZTE said that the USA is the strongest growing market for New Zealand at present. The African market NZTE is not putting many resources into Africa and South America at present because it has few customers in the region. It applies a 70:20:10 rule when considering new markets. That is, 70 percent of its decision is influenced by the customer, 20 percent is guidance from the other NZ Inc agencies, and the remaining 10 percent is what NZTE called a crystal ball, or educated guess. If many New Zealand companies are interested in a new market, then NZTE will seriously consider helping them into that market. This approach has seen NZTE withdraw from Argentina and enter the Colombian market in the last couple of years. Korean Free Trade Agreement NZTE said that the Korean market has always been a strong one for New Zealand. The addition of an investment specialist to its team will help New Zealand s investment relationship with South Korea. Base erosion and profit shifting We are aware that New Zealand has signed an international treaty that aims to close gaps in existing international tax rules to counter the problem referred to as base erosion and profit 4

5 shifting (BEPS). 1 It would amend double tax agreements around the world to take into account new standards relating to treaty abuse and dispute resolution. We asked NZTE if it knew of concerns raised by New Zealand exporters to Australia about variations in the way the treaty is implemented. We heard that the Ministry of Foreign Affairs and Trade (MFAT) deals with any trade-related issues concerning BEPS. Once these issues have been resolved, NZTE works with the companies in the trade environment MFAT has created. NZTE said that it will keep pushing for a level playing field when it comes to trade, and is aware of issues about the double taxation of imputation credits. NZTE s views on the housing market We asked what NZTE does to link New Zealand companies with the world in addressing domestic issues, such as housing. NZTE said it has no direct role, but can sometimes lend a helpful hand. For example, we heard that Housing New Zealand has contacted NZTE about overseas manufacturing plants for pre-constructed modular housing. In NZTE s view, there is scope in the New Zealand market for a manufacturing plant to build modular houses. However, it would also need to export, as New Zealand could not sustain a plant on its own. Projects to find investment in the housing sector are ongoing. The regulatory framework in New Zealand New Zealand s regulatory framework has sometimes prevented highly desirable products from entering New Zealand because they do not meet local government rules. NZTE believes New Zealand s regulatory framework needs to improve to attract more investment, particularly in the housing sector. It said that, particularly for modular housing, the regulatory framework needs to be efficient to ensure investment occurs. Changes in technology With the emergence of environmentally friendly food products such as plant-based protein, we asked NZTE how it views this technology in comparison with more traditional methods of food and beverage production. We heard that making protein directly out of a plant is a lot more efficient and environmentally friendly than using livestock. NZTE believes there is a convergence between environmental interests, commercial interests, and Māori interests when it comes to changes in technology and environmentally friendly initiatives. 1 The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. 5

6 Appendix Committee procedure We met on 1 February and 22 March 2018 to consider the annual review of New Zealand Trade and Enterprise. We heard evidence from New Zealand Trade and Enterprise and received advice from the Office of the Auditor-General. Committee members Jonathan Young (Chairperson) Tamati Coffey Hon Jacqui Dean (until 21 March 2018) Paul Eagle Andrew Falloon (from 21 March 2018) Hon Christopher Finlayson (until 21 March 2018) Hon Paul Goldsmith (from 21 March 2018) Gareth Hughes Melissa Lee Clayton Mitchell Dr Parmjeet Parmar Hon Aupito William Sio Advice and evidence received We received the following documents as advice and evidence for this annual review. They are available on the Parliament website, Office of the Auditor-General, Briefing on New Zealand Trade and Enterprise, 1 February Office of the Clerk, Committee staff briefing paper on New Zealand Trade and Enterprise, 1 February New Zealand Trade and Enterprise, Response to committee questions 1-106, 29 January New Zealand Trade and Enterprise, Response to committee questions , 23 February