Indian students tilt New Zealand’s trade balance

Nevil Gibson –WTO lacks free trade- Nevil Gibson

The rising number of young Indians coming here to study has dramatically changed the balance of trade between the two countries.

This also reflect the export economy’s shift from commodities to services.

Rising numbers

Figures just released show New Zealand recorded a positive trade balance with India for the year ended September 2015 – a surplus of $564 million. This follows a surplus of $405 million for the September 2014 year and is a difference of nearly 40%.

Latest international travel and migration figures also reported a 41.8% increase in the number of students arriving from India in the September 2015 year, compared with the previous corresponding year.

In the latest year, total exports to India were $1.3 billion while imports were $755 million. More than half of these earnings were from education travel services, which covers foreign students studying here.

This category measures all expenditure by international students, regardless of their length of stay. It includes tuition fees and living expenses,

Since 2011, the amount earned from education and travel services from India has risen 67% to just under $500 million, and is eight times more than was earned back in 2007.

Smaller exports

India is a difficult country for tradeable exports from nearly everywhere and for a country of its size does little exporting.

India doesn’t show up in the list of 30 major import items and the countries that supply them, such as oil products, manufactured goods and tourism.

In fact, India’s exports to New Zealand are worth just $755 million of which services are a quarter. That’s 13th among all countries supplying imports.

But India is sixth highest for New Zealand services exports behind Australia, China, US, European Union and Japan. India is 17th for goods exports and 10th in overall trade (including the European Union as a single entity).

Australia versus China

These are often drawn as competing for the top slot as a trading partner with New Zealand. But it is not a close contest in the bigger picture.

In fact, two-way total trade from Australia is now $24.2 billion compared with China’s $20.8 billion. The contest is with the EU, which is just behind at $20.2 billion.

The trade balance – that is the gap between exports and imports – heavily favours New Zealand against Australia with a surplus of $1.6 billion. For China, the surplus is $633 million.

Interesting trends

The makeup of this trade shows some interesting trends. Total exports to Australia have dropped by $2 billion since 2011 to $8.4 billion, while the services component has risen slightly to around $4.5 billion. That makes $2 billion in fewer goods sold.

During the same period, total imports from Australia have dropped by about $900 million, also mainly goods.

By comparison, exports to China are up nearly $4 billion on where they were five years ago. But the milk powder bubble burst cost $2.3 billion in lost sales in the 2015 September year compared with 2014, when they topped $5.7 billion in the September year.

Services make up a much small proportion of exports China but have more than doubled since 2011 from $1 billion to $2.4 billion, which is about half of that with Australia.

The $493 million earned from Chinese students is about the same as India.

Meanwhile, imports from China have risen spectacularly from $7.3 billion to $10.1 billion, the overwhelming amount being in goods, being mainly machinery and equipment ($3.5 billion) as well as clothing (about $1.5 billion).

Deficit with Europe

The glaring anomaly in New Zealand’s trade profile is the EU, the third largest trading partner and source of the highest deficit by far.

Imports exceed exports by $3.4 billion, which reflects the huge barriers for New Zealand exports compared with Australia and China.

Europe is a large supplier of machinery and equipment, vehicles, aircraft and pharmaceuticals. These totaled some $8.8 billion plus $3 billion in services, mainly transportation such as shipping and aviation.

In return, New Zealand supplied goods worth $5 billion, with services worth another $3.3 million, almost all of that made up with earnings from tourism.

This underlines the urgency for a free trade agreement, pushed again by Prime Minister John Key and Trade Minister Tim Groser in Europe last fortnight.

Mr Key came away from a meeting with German Chancellor Angela Merkel in Berlin, saying, “Germany is the world’s fourth biggest economy so today’s meeting was a good opportunity to discuss further trade and economic opportunities.

“We talked about New Zealand and the European Union’s recent commitment to move towards negotiating a comprehensive Free Trade Agreement.” I welcomed Chancellor Merkel’s renewed support for this important undertaking.”

In perspective

Overall, the total trade balance for the year to September was a healthy surplus of $2.8 billion.  Total exports of goods and services were $69 billion, while total imports were $66.3 billion.

The US is the fourth largest two-way trade partner at $16.3 billion and a small surplus of $352 million in New Zealand’s favour. The goods component is now over $5.7 billion with $2 billion of that in meat.

Again, the US is a big supplier of machinery and equipment, vehicles and aircraft and medical-related goods. Dairy remains the main export commodity, earning $11.8 billion and $3 billion down from the previous 12 months.

That gap was made up by a $2.5 billion jump in tourism, now the second biggest export earner and meat, up nearly $1 billion. Another to show a big increase was fruit (up $500 million).

Nevil Gibson is Editor-at-Large at National Business Review based in Auckland. The above article, which appeared under his regular weekly column ‘Insight,’ has been reproduced here with his permission.

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