The term carries unpleasant Nazi-era connotations, of course, and we should remember that Hitler's Festung Europa was a total failure. Fortresses have been out of martial fashion for well over a century now, viz the thinking behind the internet, for instance. We do distributed, mobile stuff these days, not big, static things that can be used for target practice for weapons of mass destruction.
Let's say I'm a CIO/CTO of a large corporation in the US or Europe. I'm thinking of outsourcing the corporate data centre, and I'm looking at it from these angles: security, accessibility, affordability. Then let us look at how New Zealand stacks up.
Security: New Zealand is prone to earthquakes, cyclones and much of the land is volcanically active. New Zealand doesn't have an armed force that could protect the data centre(s), nor any civil infrastructure such as the power generation plants, roads, airports, water, anything, in the event of an attack. The New Zealand Police force is woefully underfunded, undermanned and not up on technology -- it can't protect my data either. Then there are little things like the Auckland power crisis, which prompted the Americans to bring their own power generators during the APEC meeting, and the fact that the country only has two motorways. Who saw the 100km jam on SH1 during Easter? Was your important gear stuck in it?
Political concerns that I would have include the current legislation initiatives, which are primarily focused on giving politicians access to data, not protecting it. You won't get New Zealand pollies to push through laws that mean they can't touch data, a la Swiss banking laws.
Imagine my corporation is into GM technology, and the Greens or some other group hear that our research is stored in New Zealand. Or, we're a nuclear power plant manufacturer. I don't think my data would be secure. Police still haven't arrested the righteous anti-GM guerillas who trashed that lab in Christchurch.
New Zealand isn't an ally of the US, only a close friend. That means I'd have to make sure that the State Department wouldn't object to my sending sensitive data to a vacillating friend in the South Pacific. If I represent a European corporation, wary of US industrial espionage, I would note that New Zealand is a very small place without any real political clout. If the US wants something from New Zealand, it gets it.
Furthermore, New Zealand is part of [intelligence network] Project Echelon, so there's no chance in hell that European corporations would want to come here and have their business secrets shipped to US competitors.
Accessibility: My data is in New Zealand, but my users are in the US and elsewhere. New Zealand is very remote and even with the Southern Cross Cable hardly serviced by redundant, high-speed internet connections. I'd feel nervous about not having access to the data in the event of a cable failure. Furthermore, round-trip times for data packets are around 170ms; 250ms to the US west coast; to Europe, 300ms-plus. My users, accustomed to delays less than a tenth of this, wouldn't be happy, so I'd have to duplicate services to bring response times up to speed. That costs money.
If I need an engineer on site, in case something goes wrong or some work needs to be done, New Zealand is a hell of a flight away. I'd have to trust the locals to do the job right, and on time.
Affordability: I shift shit-loads of data every day. It's much more expensive for me to send stuff to and from New Zealand, as well as within the country, than to do the same in the US, thanks to a certain incumbent telco being able to charge whatever it feels like. Why would I want to do that?
There are many more factors which makes this particular baby stillborn. The latest technology (and the people working with it) aren't in New Zealand, but in the US/Europe. The geographical isolation means it takes a long time to ship crucial parts to here, and the small market means we don't get everything that the bigger markets do.
I just hope that no taxpayer money is wasted on this.