New Zealand faces an uphill battle if it wants to diversify exports away from primary industries, says research published by the Ministry for Business, Innovation, and Employment (MBIE).
The report, “NZ’s Export Advantage”, says the number of product categories in which the economy is competitive narrowed from a peak of 809 in 2006 to 531 in 2018, with the primary sector dominating those that remained.
It said the economy had gone down a path of developing strong capabilities in primary exports, firstly to the UK 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 suggests policymaking should focus on how goods are made rather than which goods are made.
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% of world trade, but they account for 1.4% of the value of NZ exports of goods, showing that 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% of the total), from 1995-2018, and those products are mostly linked to farming, forestry and food production.
The 214 categories accounted for 74% of the value of merchandise exports in 2018, up from 70% in 1995, suggesting most growth came from adding scale or variety to existing products.
A further 4.6% of the value of merchandise exports came from fast-growing 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, including insurance and pension services (16.4%), financial services (8.7%), and use of intellectual property (14.1%).
These growth rates greatly outpaced growth in the world markets for these services and, if this continues, these services could emerge as future comparative advantages.
