July 2013

NZ and Australia, closer than you might think
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 export markets.

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.

Access to Credit Experiences
  % of Total
  Oct 2012 Jan 2013 Apr 2013
  (N: 516) (N: 509) (N: 511)


58.9 60.7 62.2

Oceania / New Zealand

63.2 65.2 66.9

Rest of Asia

39.1 41.1 43.1

Citi Trade Finance Markets Index – April 2013

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