I started by looking at China with the key finding being growth of two-way trade between NZ and China is a consequence of natural alignment for each other’s products, also facilitated by the 2008 free-trade agreement between the countries.
Next, I focused on other northeast Asian markets and specifically on Japan, South Korea and Taiwan. The challenges with them are their populations are either declining or about to decline and their economic growth has either stalled or nearly stalled, even before covid-19 came along.
That means new trade requires elbowing out existing products rather than meeting new economic demand from consumers.
I then turned to the ASEAN countries of southeast Asia, which are geographically our nearest Asian neighbours. Many of them continue to show strong economic growth, at least until covid-19 arrived, but they have per-capita incomes much lower than China.
There are opportunities in ASEAN nations but there are also lots of constraints. I see Vietnam as a particular opportunity with an emerging middle class but, alas, its per-capita GDP of US$2700 is still only 27% that of China’s US$10,100 and only 7% that of NZ at US$40,600.
It is important to remember countries importing goods from NZ have to buy them at market exchange rates. Buying power comparisons for developing countries are very different using these market exchange rates compared to internal buying power parity calculations used to assess living standards. NZ goods are very expensive for anyone living on a Third World salary.
In this article, I look further to the west to what is sometimes referred to as the Asian sub-continent comprising India, Bangladesh and Pakistan and also further west again to the great enigma of Iran.
The reason I include Iran is that it has great natural resources of oil and gas with a considerable and well-educated middle class. And there is considerable alignment with what NZ produces and what Iran wants.
However, with President Donald Trump at the helm and the unilateral sanction policy conducted by the US the risks are great for any NZ company going there. The bottom line is that the US controls the international finance system and it uses that system to blacklist those who trade with Iran. More of that later.
Whenever I get into discussions with people about the need to diversify away from China then India is typically seen as the new promised land. If only it were that easy.
In the next 10 years India will become the world’s most populous country. Its population is approaching 1.4 billion with 35% urban and a median age of 28. Its population is expected to increase to about 1.6b by 2050 with the population bulge by then being in the 35-50 age group.
Until covid-19 came along India was experiencing high economic growth but is now in a covid meltdown with industrial production less than half pre-covid and with covid infection levels exponentiating.
For many years NZ has sought a free-trade agreement with India but the negotiations have never got far. Even when Indian politicians offer encouraging perspectives the reality of the Indian bureaucracy and political system means things never advance beyond there.
One of NZ’s problems is that India is the largest global producer of milk, probably more than seven times larger than NZ though no-one knows for sure just how much milk India produces. Regardless of the precise number, the politics of India are such there is no way it will open up to dairy competition from NZ.
India, being a Hindu country, is also not interested in our beef. As for lamb, India has always found a range of non-tariff barriers to prevent that trade from flourishing. Some horticultural products like kiwifruit face lower barriers but the cool-store facilities and logistics for perishable products are rudimentary.
Exports to India have typically been about NZ$1.7b a year in recent years. That is about 2% of NZ’s exports. However, most of this is in so-called travel services, with much of it education-related. There is a smallish trade in wood and an even smaller trade in nuts and fruit. Overall exports of goods are less than 1% of NZ’s physical exports.
As for NZ’s exports to Bangladesh there are dairy exports, typically of several hundred million dollars a year, but little else.
In the case of Pakistan dairy is once again the dominant item but total exports of all products have never exceeded NZ$100 million in any recent year.
A key issue for south Asia is that per-capita incomes in India, Bangladesh and Pakistan are very low when expressed at market exchange rates. Accordingly, a middle-class lifestyle based on locally produced goods is much easier than a middle-class lifestyle that depends on imported goods.
Given these harsh realities there are very limited opportunities in the three countries of south Asia for expanding trade in either the short or medium term. The short term is going to be dominated by covid-19 issues and the medium term will be dominated by low spending power.
The one country that needs separate consideration is Iran.
Iran is not usually considered as part of south Asia but it also doesn’t fit neatly into the Middle East. Iran has been particularly hard hit by covid-19 but it also has better epidemic control systems than in south Asia and is further through its epidemic. However, economic sanctions have greatly impacted all aspects of Iranian society.
If Iran had free access to world markets for its oil and gas it would experience rapid economic growth. It already has a significant well-educated middle class, proportionately much bigger than in its south Asian neighbours.
There was a time in the 1980s when NZ exported 25% of its lamb to Iran.
There is also natural alignment for dairy products.
However, nothing can change in relation to trade with Iran unless there is a change of government in the US and with the US then signing-up again to the 2015 multilateral accord in relation to Iran.
Ironically, it was the US that played the lead role in the agreement under the Obama administration, which Trump then abrogated unilaterally.
In the meantime, the combination of sanctions combined with American superpower status together with control of the international finance world makes trade with Iran too difficult. Our banks are now too scared to transfer funds to and from Iran because of US blacklisting.
Putting all of the above into perspective there are no easy markets for NZ either in south Asia or to the immediate west in Iran. The search for diversity needs to continue elsewhere.
