It is a pleasure for me to be in Malaysia again, and to reciprocate the visit to New Zealand by Prime Minister Abdullah Badawi in 2005.
This is Malaysia's 50th anniversary year. New Zealand takes pride in having supported Malaysia's nation-building and economic and social development from the outset, and we note Malaysia's great progress since independence with pleasure.
My visit here marks half a century of friendship and diplomatic ties between New Zealand and Malaysia.
This is an opportunity both to look back at our shared history, and look forward. The future of our economic relationship - the theme of my address today -- is one with considerable potential.
Malaysia is our ninth largest trading partner and a significant market for both our goods and services.
Close to two-thirds of our exports to Malaysia are dairy and other food products.
As well, we are seeing the potential for new partnerships between us in sectors like education, tourism, ICT, health science, biotechnology, air services, and agricultural research and technology.
These interests are reflected in the composition of the business delegation which has come from New Zealand with me for this visit.
It includes senior executives from the New Zealand ICT and biotechnology sectors, experts in new thinking in education, and aviation training services.
They are already active in partnerships with Malaysian counterparts or are keen to promote new connections. Also accompanying me is the Chief Executive of our Ministry for Research, Science and Technology, and a senior executive from one of our entrepreneurial government research institutes.
The New Zealand Government and business alike believe there is good potential to strengthen co-operation with Malaysia in the knowledge based sectors.
My government's priority is to transform New Zealand's economy into one of higher value which can sustain a high quality of life for all New Zealanders.
That means moving away from New Zealand's historic over-reliance on commodity exports -- although these still have their place -- to developing a more innovative, creative, knowledge-based economy. This is what New Zealand New Thinking, promoted by our trade and enterprise agency, is all about.
From New Zealand's geographical isolation has come an ability to think laterally and to innovate. New Zealanders are known for being able to make things happen and daring to do things differently. Now in the age of instant communication via information and communications technology and fast air travel, these skills are even more valuable.
Many of you may have seen the three Lord of the Rings films which featured state of the art technical effects.
The director, Peter Jackson, insisted that the films be made in New Zealand -- not only because he is a Kiwi, but also because he believed that New Zealand had the necessary creativity, adaptability, and skills to undertake such an ambitious project.
Talent and innovation are also featuring prominently in Malaysia's economic growth plans as your government seeks to move the local economy up the value chain.
You may be interested to know that the 2006 winner of the New Zealand Exporter of the Year Award was Opus International Consultants, the local subsidiary of the Malaysian company Opus International Group. I am sure that the kind of thinking and enterprise which has already made Opus a success story is spread around this room today.
In the 21st century our two economies have much in common in terms of goals. Therefore we have much to gain in learning from one another and, in learning more about each other.
Our biggest exporter into Malaysia is Fonterra, our mega dairy co-operative. Dairy exports make up 45 per cent of our exports here. They, like our food and beverage products overall are very much part of the new, smart, Kiwi economy.
Our primary sectors continue to make a huge contribution to our economy precisely because they are underpinned by major investments in science, R&D, and technology. That has enabled them to lift their productivity and move up the value chain.
A knowledge based economy needs world class research to raise its productivity and to create the kinds of products which command a premium in overseas markets.
Our government's funding of research, science, and technology has increased 65 per cent since 1999. Private sector research is also being encouraged, especially with a 15 per cent tax credit for research and development which has been introduced in this year's Budget.
New Zealand's long history of innovation in the agricultural sector means we have expertise to share with countries like Malaysia which want to scale up their agricultural production. Your Minister of Agriculture and key business people were able to meet with leaders in our dairy and agritech sectors during a recent visit.
In the past, New Zealanders have won three Nobel Science Prizes, and New Zealand scientists continue to produce ground-breaking research.
There are now around 20,000 people in research and development in New Zealand, and we rank second among developed countries for the number of published science papers relative to total R&D spend.
Biotechnology research makes up around 25 per cent of total government R&D spend in New Zealand -- the highest proportion among developed countries. It has a central role to play in driving long-term economic growth and prosperity for New Zealand, including by fuelling growth in areas like biomedical research and drug development, and by transforming and sustaining the biologically-based primary industries which are so important to us.
New Zealand leadership across animal reproduction, forestry, dairying, environmental management, and many other areas have positioned our biotechnology companies as new thinkers.
The New Zealand biotech sector is represented on my visit by NZ Bio Auckland. A dialogue is underway with Perak state in its preparation of a Biotechnology Master Plan and in exploring potential areas for further collaboration.
A mutually beneficial relationship has developed between Environmental Science and Research, a New Zealand government research institute, and the Malaysian government-owned DNA laboratory complex. Together with Auckland biotech company ZYGEM, ESR and Kimia are business partners. ESR is also helping the Malaysian Police set up a DNA reference system.
Biotech research will also provide knowledge and tools to assist in protecting our natural environment and developing cleaner, more sustainable industrial processes. It will help New Zealand develop ways of mitigating greenhouse gases by reducing animal methane emissions.
International education now forms a significant part of our export economy. Our education relationship with Malaysia however, goes back to the earlier age of the Colombo Plan. Many Malaysians who came under its auspices went on to take prominent roles in this country.
Malaysia continues to be a valued source of our overseas students to the present day, with over two thousand in New Zealand this year. They include ninety PhD students, many attracted by New Zealand's policy which enables them to pay domestic fees, and their children domestic school fees, if they are accepted into New Zealand universities' research programmes. Nine of these PhD students are also on New Zealand government scholarships. These research links are of mutual benefit to New Zealand and Malaysia.
While there is obviously export revenue to be earned from hosting international students, the greater long term benefit comes from the friendships and connections which develop from these partnerships. New Zealand alumni here in Malaysia retain their interest in our country for the long term -- and we have learnt a lot from hosting them.
These days students don't necessarily need to leave home to gain a New Zealand qualification. Polytechnic International New Zealand, for example, has been providing international education consulting services for many years, and has successfully delivered education projects in over thirty countries, including in Malaysia.
New Zealand education institutions are also involved in building capability offshore. In Oman, in the Gulf, the New Zealand Tertiary Education Consortium is involved in creating a university of applied science, which will develop and deliver four bachelor degrees and 187 courses over five years.
Our companies are developing successful solutions in information and communications technology for education, and offering innovative programmes to address the specific needs of foreign education systems.
A group of education providers, Innovation New Zealand Education Malaysia (iNZed), has secured a pilot project in Perak state to provide professional development in ICT to a cluster of schools. It will deliver New Zealand expertise to the Malaysian education sector and will form part of Perak's knowledge economy strategy.
Like Malaysia, New Zealand's economy is dominated by small to medium sized companies, with relatively few large-scale corporates. So the iNZed model shows the value of small but capable providers joining forces on a scale which can gain the attention of important institutions, like the Malaysian Ministry of Education.
This project also has the potential to be rolled-out elsewhere in Malaysia and other international markets.
Information and communications technology has been earmarked as a priority sector by our government because of its high growth potential and positive effects for the economy and society overall.
New Zealand's early adoption of IT and the internet has generated a thriving software sector. Our companies produce software for many kinds of industries, with particular strengths in niche business applications, healthcare and utilities, security control, supply chain management, and point of sale systems.
Our competitive ICT strength lies in technical innovation and an ability to adapt rapidly within a low cost structure. We also have a business and product development environment conducive to start-ups. That is illustrated by the large number of ICT companies -- nearly 8,000 at present -- which is very high considering our total population of only four million people.
Our reputation in the wireless mobile sector has come about because of our ability to find creative solutions to problems -- a long recognised product of our distance from the world's population centres.
We've had to develop communications solutions which can perform in a rugged and diverse physical environment. Thus we have companies like 4RF Communications providing wireless communications solutions into parts of Southeast Asia.
New Zealand is also internationally prominent in payment solutions technology. A good example is New Zealand company, Provenco. You can see their innovative technology in the forecourts of a growing number of petrol stations in Malaysia.
Then there's the Kiwi company Cardlink, which has a regional office in Kuala Lumpur and specializes in loyalty and payment solutions. Cardlink has successfully implemented the Bonuslink loyalty programme here in Malaysia, with which many of you will be familiar.
Last year our government legislated for far reaching reform of telecommunications regulatory settings, ushering in a new era of competition in our domestic market. Broadband is already cheaper and faster, but further initiatives will be needed to get wider rollout and even faster speeds and more competitive prices.
Let me turn now to what I believe is the defining issue and challenge of the 21st century - sustainability. The New Zealand government is committed to developing long-term sustainable strategies for our economy, environment, culture and way of life. While global warming is a very pressing environmental challenge, developing a truly sustainable nation also requires a broader focus on our economy and society and in the way we think about ourselves as a nation.
Strong economies cannot be built in societies where too many are left to fail and where the natural environment is plundered for short term gain. Conversely strong societies can't be built on the base of economies which fail to generate the wealth required to fund opportunity and security for their peoples.
I understand that ASEAN is considering a greater focus on sustainability and the environment, and that the Malaysian government is giving much thought to this important challenge. I have set an aspirational challenge for New Zealand: to aim to be the world's first truly sustainable nation, and to be carbon neutral.
To move in that direction my government is undertaking major policy reviews across the energy, transport, and land management sectors.
Our draft energy strategy envisages moving to 100 per cent renewable electricity generation in our baseload, and we are rewriting our building codes to require much greater energy efficiency.
We are investing heavily in public transport, including in rail electrification; raising emissions standards for vehicles, and requiring biofuels in the fuel mix.
We have already introduced a permanent forest sinks initiative, and are considering other afforestation and reafforestation initiatives. We aim to have world leadership in research on mitigation of pastoral greenhouse gases which contribute around half of our greenhouse gas emissions. We are currently developing a cap and trade scheme for emissions.
Six of our government departments are required to be carbon neutral from 2012, and by then all core government departments must have a plan to achieve carbon neutrality. A single government procurement policy requiring sustainably produced goods and services to be used wherever possible will be introduced.
The sustainability challenge is huge, but it is also one which none of us can stand aside from.
My government takes a proactive approach to encouraging growth and innovation, backed by sound monetary and fiscal policies and reducing barriers to competition.
We recognise that business capabilities are not developed in a vacuum -- they require companies to develop knowledge and skills to enable them to succeed in their export markets.
2007 has been designated as New Zealand's Export Year, to focus both business and government on the need to boost our export performance.
A major business conference was held last week in Auckland to focus the business sector on opportunities in Asia.
Called 'Action Asia', the conference aimed to give practical guidance on how to succeed in Asia. Dr Michael Yeoh of the Asian Strategy and Leadership Institute based here in Kuala Lumpur gave a very useful presentation on the economies of South East Asia.
To improve trading relationships, New Zealand has been proactive in seeking free trade agreements, including with Malaysia and with ASEAN.
The successful conclusion of such FTAs would send a positive signal to business people in both our countries that they should make even greater efforts to explore commercial relationships.
Malaysia's economic growth to date has been very impressive, and this has benefited the region as a whole, including New Zealand.
We look forward to continuing to be a part of Malaysia's growth. As well, New Zealand and Malaysian companies should also be alert to the potential for partnering to target third country markets, such as in China India, and the Middle East.
There is a growing number of New Zealand companies which are designing products at home, manufacturing part of them in China, and finishing them in ASEAN for export to the US.
This afternoon I will be visiting companies where some of those partnerships in biotechnology, research, and education are already flourishing. Tomorrow I will have the opportunity to visit Perak where New Zealand's relationship with independent Malaysia began.
My visit to Malaysia this week is a valuable chance to look back on where our relationship has come from over the past half century, and to forecast what could lie ahead in the next fifty years. I envisage that the future will involve Malaysia and New Zealand as globally competitive economies working together for even more mutual benefit, and will see us more closely linked in the Asia-Pacific family of nations.