NZ faces fight to diversify exports
New Zealand faces an uphill battle if it wants to diversify exports away from primary industries, says research from the Ministry for Business, Innovation, and Employment (MBIE).
The report, “NZ’S Export Advantage” said the number of product categories in which the economy was competitive had narrowed from a peak of 809 in 2006 to 531 in 2018, with the primary sector dominating.
It said the economy had gone down a path of developing strong capabilities in primary exports, firstly to Britain and then to China, and it would take a deliberate and concerted effort to shift into different kinds of goods production.
On climate pressures, the report suggested policymaking should focus on how goods are made rather than which goods are made.
Comparative advantage
The research identified product categories that had a “comparative advantage”, meaning their share of NZ export value exceeded that of the same product’s share of world trade.
For example, global exports of apples make up 0.04 per cent of world trade, but they account for 1.4 per cent of the value of NZ exports of goods, showing our industry is 34.7 times more productive than the average country in exporting apples.
MBIE found NZ had a competitive advantage in 214 categories (5.4 per cent of the total), from 1995-2018, mostly linked to farming, forestry and food production. The 214 categories accounted for 74 per cent of the value of merchandise exports in 2018, up from 70 per cent in 1995, suggesting most growth came from adding scale or variety to existing products.
Emerging advantages
A further 4.6 per cent of the value of merchandise exports came from fastgrowing categories that had developed a comparative advantage over the previous decade.
These categories were also mainly linked to the primary sector, which suggested the evolution of comparative advantage was first concentrated in the primary sector and continued to follow “path-dependent” rather than “path-defying” trajectories.
For example, within the machinery and electrical categories, emerging advantages included industrial machinery for food and drink preparation, harvesting machinery, straw balers, manure spreaders, wood and paper dryers, and machines for manufacturing cocoa or chocolate.
Outside merchandise trade, only tourism appears to show a comparative advantage, but some services had sustained high rates of annual export growth.
These growth rates greatly outpaced growth in the world markets for these services and, if this continued, these services could emerge as future comparative advantages.