O’Sullivan: Bungled Saudi sheep deal a carcass that can be laid at Cabinet’s door

Murray McCully’s controversial $10 million deal to buy off an aggrieved Saudi Arabian investor and his Government and remove a block to a free-trade deal bypassed the normal Government control channels.

It’s arguable that the Ministry of Foreign Affairs and Trade (Mfat) has simply been used as a slush fund.

But it’s more complex than that. A close look at the restricted paper the Minister of Foreign Affairs presented to the Cabinet on February 13, 2013, reveals it was not referred to either the Treasury or to the Department of Prime Minister and Cabinet before being washed through a subsequent Cabinet meeting.

In the restricted paper, McCully said his $10 million deal – labelled euphemistically the “Saudi Arabia Food Security Partnership” – was backed by Trade Minister Tim Groser. The Ministry for Primary Industries and NZ Trade and Enterprise (NZTE) had also been consulted in the formation of the deal to placate an investor who argued he had continued to lose business after the National Government left in place a ban (or moratorium) on live sheep exports put in place by its Labour predecessors.

McCully has never been the ultimate “process queen” when it comes to navigating the complex shoals of Cabinet deal-making. The optics around how this initial compensation arrangement morphed into a “Saudi Arabia Food Security Partnership” is a case in point. But it is clear he was in the thick of it, which is not surprising given how the Foreign Affairs Minister has been relatively hands on, particularly when Mfat was under its previous chief executive, John Allen.

McCully’s paper does in fact say “exchanges with ministers in the Key Government underlined the potential for major damage to our trade and economic interests and it was agreed that the Minister of Foreign Affairs would lead efforts to resolve what had become a major relationship issue”.

Keen observers of the game would read this as implying if the minister is to be hung out to dry, so should the Cabinet which asked him to lead resolution efforts and approved a solution which appears not to have gone through the usual formal channels.

The deal is now being challenged as an outright bribe by Opposition politicians. The Auditor-General has been asked to investigate. The $10 million figure is not huge. But it is the principle behind the deal which is at stake.

The restricted paper disclosed that Mfat officials worked with consultants Deloitte and others to come up with a solution to remove a major source of aggravation in the relationship and at the same time create a farm hub for NZ businesses to launch into the Middle East and Africa.

“The potential is there to do much more than this. There is an opportunity to unlock a huge source of badly needed capital. And there is a serious prospect of getting the Gulf Co-operation Council [GCC] FTA across the line with billions of dollars of advantage for New Zealand,” wrote McCully as he spelled out why he strongly supported the project.

The problem remains that the so-called Cabinet paper is completely silent on any questions and risk factors that in the normal course of events would have at least been raised to the proposal to solve the “relationship issue” via a payment.

For instance it does not canvass the propriety of what might be seen as a facilitation deal which is still legal under New Zealand law, but is a crime in many of our trading nations.

It is a pity the balancing exercise did not take place. That would have at least given McCully and the Key Government some comfort as they face more questions in Parliament on the deal.

NZTE and Ministry of Primary Industries officials were consulted as the face-saver was evolved.

Sources say the politically charged deal – which required NZTE to also manage a $6 million bunch of initiatives to placate the aggrieved Saudis on top of an initial $4 million commitment – did not come up to the board in the usual way.

NZTE did later send an official to Saudi Arabia to kick-start the $6 million NZTE-led pilot programme to form a farm hub.  Former Fonterra chief executive Andrew Ferrier had been chairman of NZTE for just three months when McCully shepherded the deal through the Cabinet. The NZTE board is stacked with heavyweights, including former Mfat trade diplomat Charles Finny. They are all sophisticated enough to know there are many “smoke and mirror” arrangements in international trade.

For instance, Fonterra itself has invested in education programmes in China which have effectively greased the wheels in that country.

NZTE did not initially have to stump up budget. The deal was portrayed as budget neutral. Officials simply transferred budget from Mfat into NZTE’s coffers with McCully making the argument it was funding this through baseline saving at the Foreign Affairs Ministry.

The deal breaks many of the established rules. But with the Saudi Government saying unequivocally that the concerns of their investor – who lost business after successive Governments refused to restart live sheep shipments – had to be addressed before the GCC free-trade agreement was finally ratified, it’s not a surprise the Key Government jumped.

The problem is the FTA has still not been signed. Maybe McCully and Co did not jump high enough.

 

Check Also

China Business Summit: Strong New Zealand-China relationship provides new trade opportunities

The China-New Zealand relationship, both trade and cultural, is in good shape irrespective of different …