NATIONAL DEVELOPMENT Target Of Double Exports In 10 Years; More Savings

Press, Volume CVIII, Issue 31768, 27 August 1968, Page 11

NATIONAL DEVELOPMENT Target Of Double Exports In 10 Years; More Savings

(From Our Own Reporter)

WELLINGTON, August 26.

An average annual rate of economic growth of 41 per cent was both practicable and desirable for New Zealand, and to achieve this the present exports of goods and services must be nearly doubled in value by 1978-79, the targets committee says in its report to be given to the National Development Conference tomorrow. *

Unless significant changes are made in existing attitudes and policies, the rate of economic growth over the next decade will be undesirably low, resulting in substantial under-employ-ment of resources, and a slower rise in living standards, the committee says.

While pastoral products must still form some 70 per cent of exports in 10 years time, the committee says the greatest growth must come from “non-traditional” exports.

Among the "highlights” of Its report, the committee says: To achieve the increased production required for local and export needs the rate of investment in new buildings. plant, equipment and stocks must be nearly doubled by 1978-79, when annual investment will have to be 5935 m. higher than in 1967-68. High levels of new investment must be accompanied by more efficient use of existing resources. The replacement of imports by locally-produced goods must be continued wherever it can be done efficiently.

If overseas borrowing is to be kept within manageable limits, increased levels of private and public savings must be made to provide finance for capital expansion. An annual growth of 4} per cent will allow a rise in the real standard of living,. as measured by the volume of goods and services produced a head of population, of approximately 21 per cent a year up to 1978-79, compared with an average annual increase’ for the past decade of 2 per cent. Low Or High

The committee made two sets of projections, the first assuming that the present attitudes and policies would continue and in which the growth rate was low: and the second assuming that attitudes and policies could be changed to achieve a higher rate.

The low projections indicated growth rates which the committee says would be unacceptable, as they would be below average rates in the last 10 years and tend towards substantial unemployment.

The high projections indicated growth rates which would present a considerable challenge, especially in the export effort needed and in the levels of Investment and savings required; but they would result in much more satisfying improvements in living standards and in full utilisation of manpower. They will be recommended for adoption by the conference as tentative targets for the economy.

The report lists the working assumptions adopted, but says that in some aspects, for example, movements in world prices, the future is never certain.

Among the assumptions are that the net average immigration of 5000 a year will be only half the rate of the previous decade.

The population will increase annually by 1.8 per cent to 1972-73, rising to 2 per cent for the final six years up to 1978-79 because of the changing age structure of the female population. Some price effects of devaluation will have been reflected in the base year (196768). Subsequent effects of devaluation, coupled with other market conditions such as the tendency for declining prices overseas for some exports, were assumed to cause a 10 per cent rise in import prices, but only a 5 per cent rise in export prices by 197273 and thereafter no further change. UNFAVOURABLE The net effect on the terms of trade would be unfavourable. There would be a reduction In the size of the deficit in the balance of payments on current account to S6om in 1972-73 and 880 m in 1978-79. compared with an average of SI 10m in the last five years. This level would be sustainable in the light of prospective private capital inflows. “Compared with the highest growth rates achieved during the previous decade, the projected high target of 4.5 per cent may not look particularly high,” the committee says. “The reasons are to be found partly in the an-i nounced intention of the Government that the economy should not return to the 'overheated' conditions of the boom years, but just as much in the consequence of assumptions made by the committee about terms of trade and overseas borrowing.” Discussing overseas ex-| change, the committee says i devaluation had a beneficial effect on the balance of payments by stimulating exports of non-traditional items. Though starting from a low level when compared with pastoral and forestry exports,

they had shown large proportionate increases. At the same time, reactions to devaluation by investors overseas and in New Zealand had led to a more favourable net capital inflow. > However, it would be unwise to read too much into the improvement of the deficit, particularly because of the abnormally low level of imports in 1967-68. There was still a great deal of external debt maturing in the next few years, and price expectations for some traditional exports were poor. SAVE OR BORROW

After saying there must be a substantial increase in the rate of domestic savings, the 'committee comments that the only alternative would be 1 heavier overseas borrowing, which the targets aimed to avoid, or slower growth rates, which had been postulated as unacceptable. To test the consistency of

its projections, the committee took advantage of an interindustry model of the economy prepared by Lincoln College. This analysis established, on the basis of trends from 1959-60 to 1964-65, a series of relationships between 15 sectors of the economy. Its aim is to show what happens to demands of the sectors for purchases from each other, for imports, investments and labour if components in the model are changed. Structural changes implicit in projections by the New Zealand Institute of Economic Research were tested on the model and the results satisfy the committee that its projected targets are feasible and internally consistent. In its conclusions, the targets committee invites sector committees to be guided, but not bound, by (the following targets for export earnings. Increase (or Full Target Period 1972-73 1978-79 Increase 3 (tn) S <m) 9 (tn) Percent

1967-68 $ <m) Agriculture— Pastoral 638 Horticultural 16 Forestry 35 Fisheries 9 Other manufacturing 22 Travel (tourism) 18 Transportation 35 Other 53 Total 825

910 1110 472 74 25 30 14 88 60 85 50 143 15 25 16 178 50 120 98 445 30 50 32 178 55 80 45 129 70 85 32 60 1.215 1.585 760 92