Italy & New Zealand: Fostering Investment Links

Business Cooperation Seminar
Milan
Italy

Ladies and Gentlemen.

This is my first visit to Milan and I'm enjoying my time here very much. It's good to see New Zealand businesses doing well here in Italy and I am looking forward to visiting your America's Cup syndicate, Prada, tomorrow. We look forward to seeing the team in Auckland in 1999/2000. All New Zealanders would be quite happy for you to beat the Americans and Australians, among others, and go on to challenge us for the cup. After that, of course, we would hope the competition between Italy and New Zealand more closely resembled a rugby match between our two countries, rather than a soccer match.

It is a great compliment to me and to New Zealand that you have shown your interest in our country by attending today's seminar. I'm confident that your interest is well placed, because I believe we have a great deal to offer you. We're the most open and competitive economy in the Asia Pacific region.

The business relationship between Italy and New Zealand is already strong. Italy has consistently been amongst our top export destinations. You ?re currently 12th, and our third largest market in the EU. You are also our eighth largest source of imports. Two way trade amounts to some NZ$800 million, or around 800 billion lire.

But while Italy is an important market for New Zealand, it is unlikely to ever be amongst our top half dozen. And, from your perspective, New Zealand is too small to be of major importance in terms of your exports. We both need bigger markets than we can offer each other.

It's investment where I see greater potential. I believe we can both gain from working together in key export markets, through joint ventures, establishing subsidiaries and sharing information and expertise to mutual benefit. Both Italian and New Zealand firms know that such links are essential to being internationally orientated, flexible and dynamic.

Geographically, New Zealand and Italian firms complement one another. Italy is a founder member of the EU, and one of the first 11 entrants to the EMU, for which I offer my congratulations. You offer us access and proximity to that market. And you offer us the benefit of your knowledge and expertise in Europe.

In the same way, New Zealand offers Italian business proximity to the Asia Pacific region, and the benefits of our knowledge and experience in the fastest growing market in the world.

The extent of New Zealand's links with Asia mean we cannot avoid feeling the impacts of the difficulties in the region's financial markets. Growth in New Zealand will be down a little as a result. But our markets are spread around the globe. While 37% of our exports went to North and South East Asia in 1997, 20% went to Australia, 18% to Europe and 16% to the Americas. We have the diversity to ensure we are not unduly affected.

What's more, if one looks beyond the short-term, opportunities in Asia have increased as a result of the crisis. Weaknesses in financial sectors are now being addressed. Most governments have accepted that liberalisation is essential to recovery. With those reforms, Asia will bounce back stronger than before.

It is essential for Italian and New Zealand business to remain fully engaged with the region despite the current difficulties. New Zealand - with our strong, open economy - offers Italian business the best base in the Asia Pacific from which to take advantage of the opportunities the region has to offer. It is not something I would have been able to say 15 years ago.

Back in 1984 - not even 15 years ago - New Zealand was the sick man of the Asia Pacific. We were a country of:

extraordinarily high levels of direct taxation, with a top rate of 66%
Big Government: inefficient, consumer-unfriendly, and interfering in areas far beyond the expertise of the state
costly and ultimately counterproductive subsidisation and protectionism
crippling Government deficits and debt
high inflation
aggressive and inflexible unions
high unemployment, and
falling living standards.
Such problems have not been entirely unknown here in Italy either. But New Zealand - like Italy - made the decision to turn all that around. In 1984, we began a reform process which has been described as the most comprehensive in the world. We're now a country of:

controlled Government spending, funded by a low-rate, broad-base tax system
smaller, more efficient Government
open markets and zero subsidisation
Government surpluses and zero net foreign debt
low inflation
a flexible labour market where strikes - except by teachers - are practically a thing of the past
relatively low unemployment, and
economic growth and rising living standards.
The programme has contributed to us being one of the most competitive and open economies in the world.

And the reform process will continue. The Government aims to ensure that the New Zealand economy continues to become more efficient; continues to be the preferred destination for investment in the Asia Pacific region. We plan to:

implement further tax cuts this year
continue to privatise those state assets where the Government is not the best owner
pursue further efficiencies in the central bureaucracy
abolish our last remaining tariffs well ahead of APEC's 2010 goal for free trade by developed economies
further reform our electricity system, to promote greater competition in the generation, distribution and retail markets
promote more efficient pricing and investment in our roads, to reduce costs
plan for the removal of the special statutory powers of our last state trading enterprises, in our dairy, apple & pear, kiwifruit, hops and raspberry industries
reform our state run workplace insurance scheme to reduce costs
make changes to the implementation of our key piece of environmental legislation to ensure it does not impose unacceptable costs on business, and
review rules and regulations across the spectrum.
Essentially, our goal is to ensure the Government is in no way an impediment to further, sustainable economic growth. We aim to be the preferred destination for investment in the Asia Pacific, leading the reform race.

New Zealand offers no short-term incentives to business. They can give you a short-term boost but they can just as easily be taken away. What we offer is much, much better: sound long-term fundamentals and a commitment to ensure our economy remains on track.

You'll find New Zealand business and society to be open and straightforward. International reports suggest we have the least corruption in the world. You'll find our business regulations simple, fair and easy to comply with. Our work force is high quality and flexible, with very few non-wage costs imposed by the Government. English is the local language, creating no difficulties for most Italian business people. New Zealand business has a positive perception of Italian quality goods and technology. Our transport and communication systems are leading edge. Costs for telecommunications, electricity, postage, shipping and freight are substantially lower than in alternative destinations for investment in the region.

In summary, doing business in New Zealand is very much like doing business in Europe - but with more flexibility and lower costs. With modern communications and transport, distance is almost irrelevant.

But it is very important that you don?t see New Zealand as just a small market of fewer than 4 million people. Our free trade agreement with Australia means that, for most intents and purposes, New Zealand and Australia are one market. Closer economic integration continues, particularly in areas such as mutual recognition of standards, including those for food, and aviation. It is a combined market of 22 million people with per capita GNP of around US$14,500 a year. The value of the market is similar to those of the Netherlands, Texas or Russia. You invest in New Zealand - with all the advantages we offer over Australia - and you get free and open access to Australia as well.

What's more, both New Zealand and Australia are leading members of the Asia Pacific Economic Cooperation process, or APEC. It has been described as the biggest trade policy initiative in history. It's a process that includes great powers such as the United States, Japan and China, with Russia joining near the end of this year. All the key economies of the region are involved. APEC has set the strategic goal of free trade by developed economies by 2010, and 2020 for developing economies. Investment in New Zealand gives you all the benefits APEC will offer

Don't take it all from me however. One major investor in New Zealand is Irish entrepreneur Tony O'Reilly. He's invested around US$1 billion in New Zealand in food processing and media. To quote him:

"(New Zealand offers) a safe home for capital that seeks a return and a natural base to address all of the markets of South East Asia, which will be renascent in the next five years. These markets require all of the goods and services that a television dominated world will generate, and because of the events of the last nine months they will prize the transparency of New Zealand's business systems and taxation structure."

New Zealand firms, like many Italian firms, tend to be small or medium sized. They?ve been toughened by open competition with their Australian counterparts and by the removal of all forms of Government support. Many are already operating internationally, particularly in Asia. Others are looking for partners with which to expand further. They are looking for partners who can provide knowledge, capital and networks; partners who are also looking to benefit from involvement in strongly established industries. For many New Zealand companies, Italian companies - with your reputation for quality, design and competitiveness - are just what they are looking for.

I see scope for partnerships between the two, particular in marrying New Zealand's high quality, often agriculturally-based raw materials with Italian manufacturing excellence. There's potential in the leather, fine wools, textiles and marine industries. In the services sectors, we have much to gain from closer connections between our two tourism industries in particular. I know of ongoing work between New Zealand and Italian firms in the furniture and woollen textile sectors - stepping stones to further direct investment. Our manufacturing sector also offers strong potential. Areas of interest for Italian firms include food and beverages, home appliances, industrial freezing and heating equipment, professional electronics and communications equipment, specialist computer software, environmental technology, and outdoor apparel and equipment. In forestry, for which I am also responsible as minister, a 70% increase in our exotic harvest means we need massive new investment in processing. It's an area where Italy needs competitively priced and quality imports for manufacturing.

Across the spectrum of business activity, New Zealand firms need European partners and Italian firms need Asia Pacific partners. I believe we offer you great potential - particularly in the high quality end of the market - as a sound, open and corruption-free destination for investment. Our business people and I look forward to welcoming many of you to New Zealand. Ladies and Gentlemen, let's do business.