So much attention has been focussed
on both Australia and New Zealand’s economic engagement with Asia that it
is easy to ignore the fact that the two countries engagement with each
other is as close as it has ever been, and becoming even closer.
Australian businesses, of all sizes, continue to not only trade across the
Tasman but increasingly invest there as well. A recent report from KPMG on
overseas investment into NZ expressed some surprise that 46 percent of the
FDI into NZ in the two years from July 2012 originated from Australia.
The report lists the top 11 transactions over that two year period, worth
around NZ$7.6 billion. Australian investors were involved in four of the
11 deals, investing NZ$2.3 billion.
East’s research over 2013 informs the findings of the KPMG report further.
In May, as part of the quarterly Citi Trade Finance Markets Index, East interviewed 866 exporters as part of a regular quarterly
review of those markets – from all segment sizes – who continue to rank
NZ/Oceania at number one when asked to nominate their top three growth
In May 2013, 66.9 percent of exporters nominated NZ/Oceania as number
one, ahead of China (62.2 percent) and the Rest of Asia (43.1 percent).
These results have been consistent, and increasingly favouring NZ, since
East began the research program in October 2012.
Another focus of the Citi research is to ask both Australian exporters and
importers on their engagement with currencies.
The fastest growth is in use of the Chinese CNY in settling trade
transactions, with businesses forecasting a 16.0 percent increase in the
next three months, followed by the USD (8.8 percent) and then the NZD (7.3
percent), a figure which also been on the increase.
Given that the CNY engagement is from
a very low base, and the USD is the world’s trading currency, the demand
for the NZD continues to be robust, and eclipses demand for the Euro and
the British pound.
More telling, perhaps, is the number of businesses engaging with each of
the currencies. While the growth rate for the CNY is high, the Citi index
shows that only 9.6
percent of Australian trading business is currently engaging with the
currency, compared to 91.6 percent using the NZD, a figure almost as high
as USD usage in import/export trade settlements.
Little variance by industry sector, or by industry segment, is apparent in
these outcomes, suggesting that businesses of all kinds and sizes are
looking to NZ as a trading and investment destination.
Much of the NZ investment is focussed on ‘offshoring’: setting up business
processing and support facilities which can take advantage of NZ’s
proximity, its legal system, the English-language and IT skills of the
population, and the lower cost base.
India and the Philippines may, in popular perception, be the big
destinations for offshore investment but NZ has many distinct advantages,
as anecdotal evidence from East’s research continues to show.
Similarly with exports it is clear that NZ figures prominently in the
thinking of Australian businesses exporting not only goods, but an
increasing volume of professional services.
The Australia-NZ Closer Economic Relations (CER) Trade Agreement was
signed in 1983. It may have been followed by the much hyped NAFTA
agreement with the US, Canada and Mexico and negotiations on a free trade
deal with China, but more than two decades on the CER continues to deliver
real benefits and opportunities to both countries.