‘New Zealand international Review’, July/August 2024, Vol 49. No 4, pp.19-20.
I recall thinking when the ‘Agreement between New Zealand and Singapore on a Closer Economic Partnership’ (ANZSEP) was signed in 2001 that an agreement between the two tiny economies was a bit of a squib. In fact The deal has proved a cracker, providing the foundation of a partnership which has enabled the two economies to work together effectively in international economic fora.
This is all the more surprising given how different the two economies are even though they have much the same population – a bit over five million people – and are both affluent. They have rather different economic structures because of different resource bases and location.
First, New Zealand’s land area is 368 times that of Singapore (268,000 kms2 vs 729 kms2), so there is a lower population density. The ratio between their EEZs is roughly 4000 times greater (4 million km2 vs 1067 km2). (For comparison, Lake Taupo is 616 kms2.)
This results in quite different economic structures. Compared to the typical affluent economy, New Zealand has a large natural resource sector; Singapore’s sector is negligible. If Singapore was located as far away as, say, the Falkland Islands, it would be as underpopulated and as poor as they are.
But it is not. Singapore is near the centre of the world economy. Almost half (about 46 percent) of the world’s population lives in countries within 4000 kms producing over a third (36 percent) of the world’s production (GDP measured at purchasing power parity). Both proportions are increasing. Australia is the only country of any significant size within the New Zealand 4000 km circle. Australasia has 0.4 percent of the world’s population and 1.1 percent of its GDP.
Moreover, Singapore sits on the Straits of Malacca, a critical link in the international transport network, which has been very important to its development. It has enhanced the locational advantage by good governance which is a foundation of economic growth; it is the international hub for the countries which encircle it.
The structural consequence for the manufacturing and tradeable services sectors is that Singapore is involved in the web of Asian supply chains, whereas New Zealand manufacturing mainly consists of primary product processing or small localised market supply where importing would be too complicated or costly; its businesses are rarely in the middle of supply chains which have been one of the most dynamic developments of international manufacturing in recent times. (A nice illustration of the difference is that New Zealand is a supplier of milk powder to Singapore, which converts it into infant formula which it distributes throughout its region.)
Both economies have the large service sector characteristic of a modern affluent economy. But Singapore’s financial and business sector is a major Asian and world centre; New Zealand’s financial and business sector mainly services its domestic market. Singapore’s dominance arises from its location and a sound and robust domestic rule of law; it has been strengthened recently by Beijing’s increasing involvement in Hong Kong’s affairs.
A substantial difference is that Singapore exports of goods and services (including re-exports) amount to around 176 percent of its GDP, while its imports are 148 percent (in 2019); New Zealand’s comparable figures are both 27 percent. The ginormous Singapore figure reflects its involvement in supply chains because of its near neighbours and location on the Malacca Straits. Its involvement is intra-industry trade is illustrated by Singapore’s principal exports being electronic components, refined petroleum, gold, computers, and packaged medications, while its principal imports are electronic components, refined petroleum, crude petroleum, gold, and computers. Re-exports accounted for 43 percent of Singapore’s total sales to other countries in 2000. New Zealand’s re-export proportion was nearer 4 percent, although this does not include imports of inputs such as oil and fertiliser, which are vital in the production of exports. It has little intra-industry trade.
Despite their rather different external structures, the two economies have similar external trade strategies. Indeed, Singapore’s first international trade agreement still in force is the Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSEP) signed in 2001 and upgraded in 2020. It is New Zealand’s second; the first is the 1983 ‘Closer Economic Relations’ with Australia, which replaced the 1966 ‘New Zealand Australia Free Trade Agreement’.
Of course, the agreement did not pop out of nowhere. Important has been the long-held warm and friendly relations between the two countries perhaps derives from their heritage as a part of the British Empire but consolidated by the New Zealand army base in Singapore from 1961 to 1989.
The 2001 agreement triggered the two countries working together in other international economic issues. Specific deals have included:
2005 Trans-Pacific Strategic Economic Partnership P4 – with Brunei and Chile;
2009 ASEAN Australia NZ FTA – 12 countries;
2018 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP) – currently 12 countries;
2022 Regional Comprehensive Economic Partnership (RCEP) – 15 countries.
The sequence represents an evolution which began with ANZSEP. (CPTPP and RCEP might be thought of as a branching.) Australia is also involved with most of them.
Additionally, the two countries are involved in the following sectoral initiatives:
Digital Economy Partnership Agreement (DEPA);
WTO Joint Statement Initiative (JSI) on e-commerce;
Small Advanced Economies Initiative;
Singapore-New Zealand Declaration on Trade in Essential Goods
The Declaration on Trade in Essential Goods for Combating the Covid-19 Pandemic. (The agreement was signed in April 2020, just after the beginning of the Covid pandemic, indicative of the warm and ongoing relationship between the two countries. Five other countries have since made non-binding ministerial declarations.)
Some of these agreements are ‘open plurilateral’ – that is, they are designed to allow countries not involved in the original agreement to join (as happened with the United Kingdom joining the CPTTP in 2023).
Key to the commonality of the two countries’ approach is that each is a small specialised producer in the world economy, depending on a rules-based international trading order which favours unrestricted (or very limited restricted) trade. In a free-for-all world it is too easy for small nations to be bullied. Lee Kuan Yew’s comment that whether elephants make love or war, the grass gets trampled, is apposite for New Zealand too. Working together reduces the impact of the bullying.
Based on a chapter in “Perspectives of Two Island Nations: Singapore and New Zealand” edited by Dr Anne-Marie Schleich.