Trade with India Continues to Grow Despite Slow FTA Progress

Treasury Secretary and Chief Executive Gabriel Makhlouf addressed a full house at a New Zealand India Trade Alliance event at PwC this week.

Mr Makhlouf took time to acknowledge the people who were brutally murdered or wounded in the Christchurch terrorist attack, particularly victims who came to New Zealand from India to make a new life for themselves. He advised that Indian Prime Minister Narendra Modi has written to our Prime Minister Jacinda Ardern and expressed his deep shock and sadness over the tragedy.

Mr Makhlouf talked about the broader international trading climate, where both the IMF and the OECD have lowered their growth forecasts for the global economy, after a decade of increasing volatility and uncertainty. Recent events have served to focus that trend - the trade dispute between the world’s two largest economies, the United States and China, potential tariff hikes in the US, China experiencing its lowest growth in nearly three decades in 2018 and Brexit uncertainty.

Mr Makalouf said It is in everyone’s interest for nations to pursue strategies and policies that uphold stability, not undermine it. “Stability, certainty, the rule of law, well-functioning markets and peaceful political processes help to create supportive conditions for investment and employment and ultimately an improvement in wellbeing.

“Strong institutions also play a big role in the management of the global economy and a particularly important one for small states such as New Zealand. They also align with India’s interests. Indian Prime Minister Narendra Modi is on the record as saying India is a strong supporter of the multilateral trading system. I believe that free trade and globalisation have undoubtedly been good overall – for New Zealand, India, and the world.”

He said that New Zealand is taking a more productive and effective path, recognising the importance of building a resilient workforce with flexible skills, and that we should expect and enable the economy to adapt to change as it happens.

One area of the most positive changes for New Zealand, according to Mr Makhlouf, has been digitalisation, with opportunities to sell services and deliver them to other countries in a fraction of a second, in addition to selling goods delivered in days or weeks.

This shift in trade from physical goods to services is very evident in the trade between New Zealand and India. “Two-way trade was close to $3 billion in 2018, almost double what it was 5 years earlier. The value of goods and services we import from India are both around three-quarters higher than they were in 2013, now sitting at $709 million and $248 million respectively.

“Over that same 5-year period the combined value of New Zealand’s goods and services exports to India doubled from $1 billion to $2 billion. Back in 2013, the majority of those exports were goods worth $669 million compared with $408 million worth of services.
But as of 2018 services have bolted well ahead. The value of goods has only risen slightly to $712 million while the value of services has more than tripled to $1.3 billion. Services account for almost the entire growth in the value of our exports to India in the last 5 years. The lion’s share of this has come from education and tourism. For many other areas such as ICT, logistics and financial services, there remains huge scope to raise the value of our services exports.

Mr Makhlouf said the potential opportunities in India are huge; “We are both countries that are ambitious to grow our economy and enjoy the benefits that can come from that. India’s economic growth has been booming. It’s currently the world’s sixth largest economy and Prime Minister Modi has expressed a hope that it will be within the top three in the next 15 years.

“It’s a growing market of 1.3 billion people, and has an expanding middle class with a rising demand for quality goods and services that New Zealand can offer. Trade liberalisation between India and New Zealand would be in the interests of both countries.”

Mr Makhlouf said one way to try to make that happen is through a free trade agreement although progress in this area has been slow.

He was more optimistic about the chances for progress in the multilateral negotiations on the Regional Comprehensive Economic Partnership, or RCEP. The 16-nation agreement will establish consistent rules and boost market access in southern and eastern Asia, a region containing 45 percent of the world’s population and covering 40 percent of world trade. Earlier this month all 16 countries, including India and New Zealand, agreed to intensify negotiations, resolve remaining issues and conclude talks by the end of this year.

He identified Several different industries are singled out as having great potential for growth. Agriculture, tourism, education, high-quality foods, software, engineering, and consultancy and professional services. Opportunities highlighted for Indian investment in New Zealand are in the wider aviation industry, information technology, property, biotechnology, infrastructure, and health and wellness products.

In closing Mr Makhlouf highlighted the great number of personal and professional connections between New Zealand and India.

“In thinking about the opportunities for the New Zealand India economic relationship to grow stronger, one of the factors that gives me great cause for optimism is the personal ties that connect our countries.

“Indians have been coming to New Zealand since the late 1700s. Indians are part of New Zealand’s past, an important part of New Zealand’s present and will be an even bigger part of New Zealand’s future.

“We need to grasp the opportunities in front of us. With the good work and goodwill, I see happening at the international, national, operational and personal levels, I am optimistic that the New Zealand India relationship can fulfil its true potential.”

The event was hosted by PwC and supported by NZ Treasury, NZTE, NZ Sri Lanka Business Council, Africa NZ Business Council and British New Zealand Business Association.

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