Case to bring capital markets know-how to the people

Thursday, 8^th May, 2014

Grassroots education on why capital markets matter is an initiative the industry needs to consider, says Michael Barnett.

Everyone reading this Capital Markets 2014 report probably appreciates that building capital markets is vital for ensuring that New Zealand businesses can respond to opportunities and grow the economy.

But when I ask around in the wider community what capital markets do it is clear that most people have little idea, or know how it complements other sectors of our financial system such as the banks.

In the aftermath of the Global Financial Crisis (GFC) and the collapse of a number of finance companies, there continues to be a level of skepticism towards our capital markets.

For many, foreign investment into our capital markets is perceived as a threat to New Zealand. And although New Zealanders are saving more than they have in the past, there continues to be a reluctance to look beyond property and/or the banks to the opportunities of investing in the New Zealand or international capital markets.

Even within the business community, the role and potential of the capital markets sector to mobilise local and international savings and channel capital to its most productive uses is little understood.
Within the OECD group of countries, New Zealanders are regarded as among the most innovative, creative people, but show a poor conversion rate of Kiwi ideas (unlike similar small nations such as Sweden or Denmark) into a successful commercial venture.

The best idea in the world for a new product or service is useless without the support of a business model and plan to attract investors.

On the other hand, the world is currently awash with capital looking for an attractive commercial relationship and return. We hear a lot about rich foreign investors wanting to settle in New Zealand, and in my view we need to be smarter and cleaner in the processes we apply to attracting this group of immigrant.
It is no different for the large amounts of international capital that we could be attracting to help our businesses, especially exporters, to grow.

Of course we don’t want suspect migrants or laundered capital to seek a home in New Zealand. But it is plain to me that substantially increased foreign investment via our capital markets is essential if we are to convert the potential of more Kiwi businesses to be global players, let alone achieve the Government’s target of lifting exports to 40% of GDP by 2025.

The New Zealand capital market is too small to do the job on its own. But if we are serious about increasing our capital markets to the scale required to help build a more productive and internationally competitive economy, we need to find ways to overcome the suspicions many raise when proposals to bring in more offshore capital are raised.

The 2009 Capital Market Development Taskforce made numerous recommendations for building New Zealand’s capital markets and addressing issues facing the sector directly, and which the Government is continuing to implement.

I suggest the capital markets industry itself now needs to step up and look beyond its own improvement, to what it could do to lift its profile and branding with the rest of New Zealand. It needs to take an initiative to better explain to ordinary New Zealanders what it’s about – the role and contribution it makes to lifting living standards, creating jobs and offering opportunities for people with capital to invest. And it needs to do so with a long game in mind.

For example, a school-based grassroots education course that explains what capital markets do, why they matter for New Zealand and the opportunity they provide would give young Kiwis an insight that they would carry for the rest of their lives.

Another initiative that the industry needs to take responsibility for is to explain the benefits of foreign investment to New Zealanders, and do so in a way that shows the connections between international investment and increased employment and export returns that otherwise wouldn’t exist, and wages and returns that are higher than they would otherwise be.

In my view, the fear and suspicion of foreign investment and the lack of understanding about the role of our capital markets are invariably misguided, but need to be addressed head-on. There is a job the industry could also do better; to connect innovative New Zealand businesses with prospective foreign investors.

For a small, relatively isolated but innovative and adaptive nation, the fact that international investors continue to show interest is a vote of confidence in the quality of our businesses, and our entrepreneurs and workforce.

A school level education programme that reinforces the opportunity that our capital markets provide for Kiwi entrepreneurs to build successful global businesses cannot be anything but positive – an investment in the future through the next generation of New Zealanders.

For more information contact Michael Barnett, mobile: 0275 631 150.
Michael Barnett, Chief Executive, Auckland Chamber of Commerce.