Transcript What`s going on? Where, why, and to whom? March 2003 Adrian Orr

Young Maori Leaders
Conference
Economic Resources
Temuera Hall
17 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
Growth: Innovation
Growth with more inputs
Output
Growth with knowledge
Inputs
Same things better and better
things
4000
3500
3000
Commodity Price Index
New Zealand GDP
US GDP
Revolution?
2500
2000
1500
Evolution
1000
500
0
Mar-60 Mar-65 Mar-70 Mar-75 Mar-80 Mar-85 Mar-90 Mar-95 Mar-00
Generating
Economic
Growth
Economic
growth
Productivity
Labour
quality
Capital
quality
Individual incentives
Macroeconomic stability
Property rights & Governance
Labour
Capital
Natural
resources/
geography
22
Bold leaps forward
Take-off
6
GDP 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
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)
4
First telescopes;
Huygens invents
pendulum
clock (1658)
Gutenberg’s printing
press
Invention and development of
compass; year-round
navigation in Mediterranean
after 1250
Advances in
large-scale hydraulic
engineering;
Languedoc Canal
joins Atlantic and
Mediterranean (1681)
Blast furnace
Bessemer and
Siemens-Martin 2
(open-hearth)
processes for
making steel
Car powered by internalcombustion engine (1885);
Henry Ford’s Model T
0
(1908)
Powered flight (1903)
1
1000
1050 1100 1150 1200 1250 1300 1350
Source: Angus Maddison
1400 1450 1500 1550 1600
1650 1700 1750 1800 1850 1900
1950 2000
The growth process
Knowledge
Experience
SERVICE
PROCESS
GROW
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
• Natural Resources - rain, grass, ocean
The will…?
• 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 education
Education
– 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
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•
•
•
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 (%)
100
75
50
25
0
0
single 1
security
2
locally
diversified
portfolio
internationally
3
diversified
portfolio
internationally
4
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 Tahuhu
Te Mauri
• Key drivers
– Commercial
– Social / environmental
– Cultural
Te Ihi
me te
Wana
• Achievable outcomes
– Realistic expectations
– Know your cashflow
– Identify & manage risk
Te wero
me te hua
LTF - Investment Planning
Goals & Objectives
Analyse Investment Needs
Risk Profile
Investment Parameters
Performance Monitoring
Investment Planning Process
Process:
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Understand current asset portfolio

Determine current & potential income streams

Identify core business

Identify current risks

Determine income requirements
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Determine investment objectives

Develop risk profile