Post-Election Brief - November 2008

B. Step Change

2008 Budget Package

The Ministry received a significant increase to its baseline funding over the five years – 2008/09 to 2012/13 – to enable it to maintain current capacity and capability against rising costs, and to respond to challenges in key areas by lifting the tempo of New Zealand’s diplomatic engagement at home and abroad. The budget increase was underpinned by a Business Case prepared in August 2007 that identified seven key areas of challenge for New Zealand:

• increasing stresses and instabilities in the Pacific
• the dangers of exclusionary regionalism
• the urgency of building new markets and economic networks
• a more intense bilateral and plurilateral trade agenda
• insufficient engagement on counter-terrorism and international security
• pressures and enforceability of rules around resource diplomacy
• public expectations of rapid responses to crises.

Looking Ahead

The Ministry has recently consulted Ministers in the light of the changed fiscal and economic environment facing New Zealand.  With Ministerial agreement, the Ministry has decided on an interim slow-down in its implementation of the growth strategy in areas where expenditure has not already been incurred or committed. 

Funding

The approved “Step-Change” package provided additional operating funding of $523m and capital funding of $98m over five years.  Around $30m of the package was ring-fenced for the Crown Entities funded through Vote:  Foreign Affairs and Trade.

Of the whole five-year package: $368m (70 percent) was baselined, and $155m (30 percent) “pre‑committed”, the pre-commitment element being capable of roll-over each year subject to Cabinet approval.top of page

The baselined and pre-committed funding for the Vote is summarised below:

The following graph compares the amount of annual step-change funding with the Ministry’s previous baseline and shows the split between appropriated and pre‑committed funding.

Figure 2: Figure 2: MFAT Baseline showing appropriated pre-commitment step change elements.

Make up of the Step Change Package

The funding package is broadly split between:

• “Maintaining Existing Capability” – cost increases ($195m: 40 percent);   and
• “Growth” – staff, new posts, infrastructure and systems ($298m: 60 percent).

The “Maintaining Existing Capability” component of the package encompasses business-as-usual and is largely non-discretionary.

The Ministry’s Business Case separated the “Growth” aspect into three phases:

• Phase One (years one and two) covered essential requirements
• Phase Two (years three and four) covered very important requirements
• Phase Three (year five) covered important requirements.

The following graph shows the five-year cost of each phase.top of page

Figure 3: Five year cost by phase.

Resources Provided by Step Change

The primary focus is on deepening capability.  The package also enables the Ministry to continue to upgrade ICT and capital assets that have fallen behind.  It allows for some restructuring and enhancement of public diplomacy offshore.

Over the next five years the funding is intended to add approximately 300 positions (including Locally-Engaged Staff offshore) split between Wellington and posts. New Zealand staff offshore are set to rise from 212 to about 320 over five years, a 40 percent increase.

Progress To Date

Progress is on track in implementing Phase One of Step Change.  A significant proportion of the “must do” positions identified for Phase One (114 FTE out of 147) have been established and are being filled.  Early weighting has been given to strengthening the Ministry’s corporate services backbone so that it is well-positioned to carry forward the growth package and continue the upgrade of its IT systems and capital assets.

Phase One (FYs 2008 and 2009) of the Business Case will enable better outcomes in the following areas:

• Asia Division and Asian posts better able to exploit bilateral opportunities for growing the New Zealand economy and to engage more deeply with emerging regional architecture.
• Pacific Division and Pacific posts able to deepen engagement and influence to respond to regional instability, state fragility and negative outside influence.
• Trade, Economic and Legal Divisions and relevant posts able to progress trade negotiations, exploit emerging opportunities (eg with the US, Korea, India, Japan, the Gulf countries), ramp up responses to trade access issues, and better coordinate NZ Inc offshore (see Part F of this brief) – in part adding support to NZTE where it has no presence and strengthening it where it has.
• Multilateral units and posts able to deepen New Zealand’s engagement and enhance influence within the international environment and security agendas with direct bearings on New Zealand’s interests.
• Corporate services units able to ensure enhanced HR management, property management and asset management, a modernised and fit-for-purpose secure IT system and better organised public diplomacy and outreach and information management.  The purpose is to reinforce the Ministry’s corporate ‘backbone’ and avoid unacceptable risk to its support systems.

As directed by Ministers, two new posts, an Embassy in Stockholm and a Consulate-General in Brisbane, were opened in July 2008.  In October the Ministry took over from NZTE the Consul-General position in Melbourne and is on track to do similarly in Sao Paulo. These moves are designed to free up NZTE resource and add an MFAT policy and NZ Inc leadership element in key emerging economies in support of the Government’s economic transformation and business internationalisation agendas and safeguarding New Zealanders.

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