Young Maori Leaders Conference

Economic Resources

Temuera Hall17 June 2003

Why Economic Growth?

Growth increases choice – health – education – welfare– cultural security

What Generates Economic Growth?

The Human Element• People

– how many? – how smart? – how motivated?

• Resources - land and capital• Decreasing returns to scale

What creates economic growth?• More inputs (labour and capital)• Same things better - productivity• Better things - innovation

Entrepreneur + Innovator = Growth

Inputs

Ou

tpu

t

Growth with more inputs

Growth with knowledge

Growth: Innovation

0

500

1000

1500

2000

2500

3000

3500

4000

Mar-60 Mar-65 Mar-70 Mar-75 Mar-80 Mar-85 Mar-90 Mar-95 Mar-00

Commodity Price IndexNew Zealand GDPUS GDP

Evolution

Revolution?

Same things better and better things

Generating Economic Growth

Economic growth

Productivity

Macroeconomic stability

Individual incentives

Labour quality

Capital quality

Property rights & Governance

Labour Capital

Natural resources/geography

Take-offGDP per person in Western Europe, $’000, 1990 prices

Mechanisation in farming; steam engines; Arkwright’s spinning machine (1769);

Crompton’s mule (1779); bridge at Coalbrookdale, England, first structural use of

cast iron (1779)

Padded horse collar (around 1100); first recorded windmall

with vertical sails rotating about horizontal axis (1185)

Domesday Book shows 5,624 watermills in

England south of the Severn

Invention and development of compass; year-round

navigation in Mediterranean after 1250

Gutenberg’s printingpress

Blast furnace

First telescopes; Huygens invents

pendulum clock (1658)

Advances in large-scale hydraulic

engineering; Languedoc Canal joins Atlantic and

Mediterranean (1681)

Volta’s electric battery (1800); electromagnetic telegraph (1833); first

transatlantic telegraph cable (1858); Bell’s telephone (1876);

Edison’s carbon-filament lamp (1878); Marconi’s wireless patent (1896)

Bessemer and Siemens-Martin (open-hearth) processes for making steel

Car powered by internal-combustion engine (1885); Henry Ford’s Model T (1908)

Powered flight (1903)

1 1000 1050 1100 1150 1200 1250 1300 1350 1400 1450 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000

22

6

4

2

0

Source: Angus Maddison

Bold leaps forward

The growth process

KnowledgeExperience

GROW

PROCESS

SERVICE

DIG

It’s a small world

• Globalisation: capital and labour free to move

• Decisions made and judged on a global basis

• Access to all investors and investments• Diversify or die!!

CURRENT MAORI ECONOMY

Agriculture 60%Forestry 10%Fishing 12%Other 18%Total 100%

82%

Typical Risks• Exchange rate• Commodity prices (price taker)• Nature (primary based)• Governance (property rights)• Skills (education)• Market and products (Doha round)• Regulatory changes (Kyoto, GE, RMA..)

Barriers to Maori economic growth?

• Education attainment - skills• Location• Assets• Property rights• Governance• Aggregation• The will…?

• Natural Resources - rain, grass, ocean• Geography - isolated, small• Capital, Labour - average

Maori Business Issues

•Common Issues:– Governance– Management– Accountability– Transparency– Communications

In Short:

Generic business issue

Systems & Processes

commercial knowledge and experience

Role of educationEducation

–makes individual workers more productive -

direct;

– leads to the creation of knowledge - indirect.

Role of education

• “…the improvement in human capital seems to be a common

factor behind the growth in recent decades in all OECD

countries…. the increase in human capital accounted for more

than half an extra percentage point of growth in the 1990s

compared with the previous decade” OECD, 2001

Maori Economic Vulnerability• Narrow asset base - farm, forestry• Commodity price-takers• All assets in New Zealand• Capital constraints

Generating Economic Growth

• Property rights - Collective Ownership• Agreement on asset use• Governance : creation or distribution?• Individual incentives and accountability • Fixed assets • Access to credit

Generating Economic Growth

Individual Incentives

• Education - relative wages, opportunities• Work effort - tax, welfare• Openness - trade, ideas, people• Regulatory environment - investment• Saving and investment

Basic Investment Concepts

Risk vs Return

Growth / Income

Capital Protection

Liquidity

Asset Allocation

Time Horizon

Managing Risk

Risk Level (%)

0

25

50

75

100

0 1 2 3 4single security locally diversified portfolio

internationally diversifiedportfolio

internationally diversified

portfolio with currency hedging

Economic Resources

Active - Passive

Structure Outputs

Goals

Values

Do we need a Maori Bank?

Business Basics

• Business must make a profit

• Profit to exceed lending rates

• Cashflow priority

• Comply with regulations

• Know & manage risk

• Global Marae

Business Basics

• Every industry sector has a benchmark

• Doing things right (governance & mgmt)

• Making a difference – People / ideas / experience

• System and process

• Supply & Demand

Business Reality

• A good profitable Business:

– Exclusive industry niche

– Technology break through

– Exceptional efficiency

– Market dominance /scale

– Sustainable

Top 10%

Maori Business Reality

• Value base– Cultural values (kauwae runga)– Uniqueness / character (kauwae raro)

Te Ihi me te Wana

Te werome te hua

• Key drivers– Commercial– Social / environmental– Cultural

• Achievable outcomes– Realistic expectations– Know your cashflow– Identify & manage risk

Te TahuhuTe Mauri

LTF - Investment Planning

Goals & Objectives

Analyse Investment Needs

Risk Profile

Investment Parameters

Performance Monitoring

Investment Planning Process

Process:

Understand current asset portfolio

Determine current & potential income streams

Identify core business

Identify current risks

Determine income requirements

Determine investment objectives

Develop risk profile