Building growth & jobs through stronger capital markets

The sixth Business Growth Agenda progress report, Building Capital Markets, which is being released today, outlines 50 initiatives to strengthen New Zealand’s capital markets, so they can support businesses to grow and create jobs, Finance Minister Bill English and Economic Development Minister Steven Joyce say.

The report also sets a goal of reducing the real interest rate premium on New Zealand debt, compared with the United States and Australia.

“Well-functioning capital markets are essential for our businesses to grow and create jobs,” Mr English says.

“For that to happen, all parts of the financial system need to work well. We are working to build investor confidence and reduce the cost of capital to business. We are also working to provide the right incentives to save and invest.

“New Zealanders are saving more than they have in the past and we must ensure that these savings build lasting wealth and a productive and competitive economy.”

Reinvigorating our capital markets is very important in the aftermath of the Global Financial Crisis, Mr Joyce says.

“A big part of the Capital Markets programme is to attract more investment into the New Zealand economy, both from domestic and international investors. As a country, we need to be more welcoming of international investment as an enabler of jobs and growth. We don’t have to accept every investment, but we need to be aware of the signals we send to investors overall if we are not positive about the benefits they can bring in to the New Zealand economy.”

The Ministers say achieving the goal of reducing the interest rate premium paid on New Zealand debt will support our businesses by levelling the playing-field with offshore competitors.

Building Capital Markets is the sixth and final Business Growth Agenda progress report. It follows reports on Export Markets, Innovation, Skilled and Safe Workplaces, Infrastructure and Resources. There are more than 300 initiatives detailed across the six reports.

The report canvasses topical issues like the New Zealand exchange rate, our level of overseas debt, and levels of international investment.

Key initiatives included in the report are the Government Share Offer programme and the update of securities law, which are two major initiatives that the Government is already progressing. Other important initiatives include redesigning Government research and development funding and incubator programmes and investigating differences in tax treatment on different forms of saving.

“The reports provide a clear and comprehensive description of the Government’s Business Growth Agenda,” Mr Joyce says. “We are seeking feedback from businesses across the programme in terms of the importance of different initiatives, our timetable for implementation, and whether there are new projects we should be factoring in.

Feedback to date has been excellent and we are keen for it to continue as we implement this agenda for a stronger and more competitive New Zealand economy.”

The report is available at: www.mbie.govt.nz/bga

Questions & Answers

What is the Business Growth Agenda?

The Business Growth Agenda is a detailed programme of initiatives and reforms the Government is taking to build a more productive and competitive economy. It complements the Government’s other commitments to responsibly manage the Government’s finances, rebuild Canterbury and deliver better public services.

The agenda has six inter-connected work-streams, Export Markets, Innovation, Safe and Skilled Workplaces, Infrastructure, Natural Resources and Capital Markets.

Progress reports have been released on all six work-streams. Together they contain more than 300 separate initiatives.

Why is Investment and capital important to the Business Growth Agenda?

To achieve our BGA target of building New Zealanders’ incomes by increasing our exports to 40% of GDP by 2025, it is estimated we will need to increase our collective investment in export industries by 70-90% on current levels.

That will require a very substantial capital commitment by investors into businesses based in this country. New Zealand needs more investment by individuals and small businesses as well as big businesses; and by people from overseas as well as New Zealand. The more investment we get, the more jobs will be created.

Why is there such a strong focus on attracting foreign investment?

Foreign investment is a very important component in the overall investment story in New Zealand. There are many overseas-owned companies that make a very significant economic contribution to this country, providing jobs and incomes for thousands of New Zealanders. Foreign investment is often also a conduit for the transfer of new technology and skills, and facilitates entry by New Zealand firms into global supply chains and international markets.

To achieve our overall investment and export goals for the Business Growth Agenda and grow the wealth of this country, we will need significant foreign as well as domestic investment in New Zealand export businesses.

Why is there a premium on our interest rates and what is the Government doing to fix that?

Several aspects of the New Zealand economy may contribute to our interest rate premium, such as our small capital markets, high indebtedness, exchange rate volatility and low saving relative to investment. The actions in this report will improve the functioning of New Zealand’s financial system and provide more stable macroeconomic conditions. This will help New Zealand businesses by reducing their cost of capital compared to offshore competitors.

What is the Government doing about the exchange rate?

The high exchange rate between the NZD and some of our trading partners is mostly due to factors in those countries – and we cannot influence that.

In the longer term, what we can do is increase our own domestic savings and investments in order to reduce our reliance on foreign capital inflows. This includes direct actions the Government is taking to return the Crown’s finances into surplus by controlling spending, to reduce net Crown debt levels, and to remove disincentives on individual private savings.