The Economy of New Zealand : A Rich but Expensive Country with too Many Poor

The combined area of the main islands of New Zealand is about 256,000 km². That puts it between Japan and Great Britain. New Zealand is a small, remote country sitting at the bottom of the earth, with a population of about 4.7 million people. With a small, but definitely very powerful military. Size doesn't really come into it; a country can have a high GDP through being large and not be regarded as economically prosperous. GDP per capita is a better measure with New Zealand ranking 31st (and well after neighboring Australia at 16th and many developed European countries, etc.). So well off in global standards but not too prosperous relative to its peers. It could do a lot better. New Zealand is far smaller than Australia, has a higher cost of living, and much lower wages. Regularly it gets rated as the best place in the world to do business, usually because of its relatively small size and so lack of multi-billion dollar monopolies and lack of competition in certain industries. New Zealand has an overabundance of natural resources, which is why it is considered one of the wealthiest nations per capita in the world. This is not to be confused with human income, wealth holding, because many of these natural resources are not being consumed currently. Such as all the clean water, along with Norway, the only two countries with more freshwater than their populations need. All the rest of the world does not have access to enough clean water. So measuring on GDP (although New Zealand still ranks among the top 20, hence why it is part of the G20) does not account for even a fraction of the total wealth of the nation. New Zealand also ranks as one of the freest nations, least corruption, and the most peaceful country in the world. New Zealand is in the happy position of having a large amount of fertile land and not many people. It wasn't that many years ago that they had 20 times more sheep than people. When the wool market went, soft farmers looked for other options. Now there are dairy cows as far as the eye can see! One thing that the world will always need is food, so there will always be a demand for dairy. However, should the popularity of dairy decline, then it is not hard for landowners to switch to whatever the demand is there for. There are countries relatively nearby (such as China) that can't possibly hope to produce enough food for their population. So agriculture, in one form or another, will continue to be the backbone of the New Zealand economy. Fonterra is New Zealand’s largest multinational cooperative company, which is owned by about 10500 farmers in New Zealand. It is responsible for 30% of the world’s dairy trade, so certainly very important for the New Zealand economy. New Zealand is very expensive though, more expensive than Australia . for example, Gas is over $2 New Zealand Dollar at 3.8 liters per gallon, that's $5.26 US Dollar a gallon. A safe haven from world disasters, not quite. There are areas where you can have an earthquake in a week's time or landslides. Its a wreak needing constant rebuilding, and even Christchurch has not been rebuilt from the Big-one nine years ago and making the insurance companies pay up. Welcome to The Atlantis Report. Paul Bloxham, the HSBC chief economist, calls New Zealand a 'rock star economy.' Some other positive factors, however, are occurring that I believe throw light on the situation. A number of East Asian Banks opening in New Zealand. New Dairy Factories being constructed by international interests. Large scale New Zealand currency investment occurring at inopportune times. These positive factors outweigh the negative factors and thus maintain the 'rockstar' economy. They also point to a strategic economic play being performed by the world's second-largest economy on a small Pacific nation. The relevance of which has serious political considerations to the people of New Zealand. However, the benefit of this has been that New Zealand prospered during the Global Financial Crisis whilst it could have crashed and burned like Greece or Portugal. One of the results however, of the currency investment is that the New Zealand dollar remains high in comparison to its economic ability. And this severely hinders New Zealand exporters. So next, we can expect the investment to begin assisting the New Zealand export scene via both purchasing and financing 'key' New Zealand assets. When this phase is complete, it is quite likely that the New Zealand economy will crash for a period whilst the International interests purchase the remaining assets that they require for their portfolio. This would be a long term plan, so specific dates are impossible to predict. As a long term plan or strategic plan, this is more to do with positioning than with profit. New Zealand has free sexual, medical, and dental healthcare. It also has one of the lowest crime rates in the world. New Zealand is one of the most culturally diverse places in the world. There is a club for any culture, religion, group, etc. You name it, and you'll most likely find it. New Zealand has free university tuition for first years, and a range of scholarships available for refugees, underprivileged persons, poor, and Maori or Pacific islanders. But there is also a current housing crisis and an obesity epidemic. New Zealand is one of the wealthiest countries in the world, but it is not as rich as Australia, the US, Canada, the United Kingdom, France, or Germany. There are a number of possible reasons for this. 1). New Zealand is remote and has a small domestic population, which makes a lot of local manufacturing less competitive. A country like Denmark can export to every country in Europe more cheaply than New Zealand can export to its closest export market. One example - the Cadbury chocolate factory in New Zealand is shutting down because more of the chocolate it produces is sold in Australia than in New Zealand, and the majority of other export markets for its products are closer to Australia than to New Zealand. This means it is more profitable to shift manufacturing to Australia even though manufacturing costs are higher there. 2). New Zealand has high domestic transport costs because it is long and thin and mountainous. For example, the mountains you have to cross to get from one side of the South Island to the other are higher and steeper than the mountains that separate Europe from Asia. 3). New Zealand has historically had a lack of checks and balances on government power, with the result that government policies don’t get moderated by the need to negotiate and compromise . For example, they don’t have an upper house of parliament. They don’t have a full separation of legislature and executive. They don’t have local or regional tiers of government with real power. New Zealand’s GDP per capita slipped behind that of Australia in the 1970s, 80s, and 90s. At the start of that period, they had a government which was highly protectionist. It subsidized farming even though it was their largest export industry. Subsidized the establishment of heavy industries that didn’t make a profit because they believed they were the future. And even tried to get rid of inflation by making it illegal. They were followed by a government that deregulated almost everything and were such believers in free trade that they cut tariffs unilaterally, rather than using cutting the tariffs as a bargaining chip to get other countries to cut their tariffs too. The next government was keen on cost-cutting, and they cut government spending so much that they caused a recession, which made the tax take go down by more than they had reduced spending by. People will probably never stop arguing which of those three governments was responsible for making the country poorer, but in most larger countries, none of those governments would have been able to do everything they wanted without having to compromise with powerbrokers who had different opinions. The growth in the gap between rich and poor is believed by many economists to have reduced economic growth in New Zealand. Years of over taxation and socialist belief that you can borrow and tax your way to success because governments, unlike households, can never go bankrupt. This debt will be paid for generations to come since it builds up no capital from taxation and the public purse. A belief that government and council role is to provide everything for everyone, and cost is least important - AND that things with “negative” Return on Investment are a great idea, result in constant White Elephants that require interest and upkeep that will never be worthwhile, but hey, at least the solo mums are happy. Finally, that public services should never invest prudently - all capital works are to be done by borrowing the whole amount from the bank, then paying it off with interest, plus operating costs, from the forced collection (taxes, levies, rates, more rates). In recent years, the New Zealand economy has performed OK. It lacks a large domestic market but has significant exports in the form of dairy products, meat, wool and wood products, fish, and machinery, particularly with Australia, China, the US, and Japan. The close economic relationship with Australia certainly benefits the country with its long mining boom (unemployment is lower given significant cross-Tasman migration, plus remittances, etc.) as does the growth of China, but very sensitive to access and pricing in agricultural commodity markets. Like Australia, they are highly exposed to slower growth in China and the global trade slowdown. In terms of other pluses, tourism is a major industry. The population is well educated with a good university system. Many kiwis would also point to aspects of their society beyond aspects as part of their prosperity, including a fairly relaxed lifestyle, the quality, and diversity of the environment, etc. Up until the late 70s, they were a relatively affluent country with good wealth distribution. Things started going south in the late 70s with runaway inflation thanks to some odd monetary policy. In the 1980s, the wealth gap between rich and poor got dramatically wider thanks to “Rogernomics,” which laid bare the economy to the vagaries of the open market, causing factories to close, destroying the apprenticeship system, and increasing the cost of training and education. During the 90s, an attack on the growing number of poor really began in earnest while the rich continued to get richer. That trend continues today, factories continue to close, companies keep getting bought up by larger ones, the attitude toward the poor and beneficiaries (“lazy/it's their fault/fraudsters") continues, albeit not as bad as it was. In the last decade or so, housing pressure, amongst other things, is driving up the cost of living, and still, the rich get richer. It's all pretty standard stuff many countries are experiencing thanks to “free market capitalism” (which is in many ways in name only). The remoteness and the small population doesn't help, nor does a lack of movement by successive governments on the things that really count and could really make a difference. New Zealand changed its currency from the pound to the dollar in 1967. Also dropped the archaic measures for length, volume, etc. and moved everything to metric. The only archaic measure still in use is the angle. The military uses the metric 6400 mills in a circle, but everyone else still uses 360 degrees in a circle. There are two areas that are developing particularly well - Christchurch and Auckland. First, the effect that is primarily helping Christchurch but also the rest of the country. New Zealand has borrowed a very large amount of money in order to deal with issues related to the Christchurch Earthquake. John Key (the prime minister) estimated the cost of rebuilding to be 40 billion dollars. For a country with a GDP of only 180 billion dollars, that amounts to a very large stimulus package (and add to that all the private rebuilding), which inflates the GDP as new jobs are made to rebuild the 'broken windows.' This will continue until the state reduces its activity and thus starts to recoup the debt back to the levels that it was at before (which will take a lot of extra taxation and which will inevitably slow GDP growth). Now the aspect that helps Auckland. Auckland has a massive property boom. There is considerable inward immigration and migrants tend to like to live in the biggest and most northerly and most diverse of the large cities. However, Auckland has various regulations, as well as a geographic position, that restricts the ability to build new houses to cope with this inflow of people. This results in more people buying fewer houses, and therefore house prices go up at a fast rate. House price has gone up so fast that a large proportion of property owners make more money from house price inflation than they do from working. The positive for the GDP is that as people's house prices go up, they feel richer - therefore they can borrow and spend more, and as a result, GDP numbers increase. A lot of this can be seen in how the New Zealand government and private debt has gone up rapidly. It can be sold to the public and foreigners as austerity because the debt from the earthquake and the private debt are not accounted for as an operating deficit in the budget. All in all, The New Zealand economy is doing relatively well at the moment because it is small and flexible. It has made a number of changes that have had an immediate impact only on those changes sour. New Zealand did well to change from sheep to milk production only to see a milk monopoly cripple the initial boost. One thing New Zealand continues to do well in is selling New Zealand in the tourism industry. The Tourism Industry for New Zealand is very vital. New Zealand pretty much relies on Tourism and the Primary Industries ( dairy, fisheries, farming, food-producing). Total tourism expenditure was $34.7 billion, contributing about 5.6% of GDP to the New Zealand economy, and that’s straight from the tourism industry itself, that doesn't include the good and service industries that supply the tourism sector of the economy. Tourism employs 7.5 of the New Zealand Workforce. Tourism is very important for two reasons. First reason. The latest set of statistics revealed that tourism had overtaken dairy to become the country’s largest ‘export’. Note that dairy prices were depressed, so this may be a short term win. But that leads to the second reason. Second reason. New Zealand’s other major exports are bulk commodity products. New Zealand has very little control of the markets or the pricing, and very little competitive advantage and no real ability to charge a premium or take control of the market and pricing. It is at the mercy of uncontrolled/uncontrollable external forces. But tourism is a high quality added value item that New Zealand can control, brand, create competitive advantages for, and so on. Third reason. OK, so I said two reasons. Here’s your bonus. Tourism has the potential to keep growing and growing and growing. It could double several more times and still not be maxing out. Sure, they’d need a lot more hotel rooms, but that’s not all that difficult to arrange. Dairy and the other products have much less upward growth. So, looking to the future and what can be grown larger, tourism is definitely the star product. Fourth reason. Tourism is employment-rich. It creates lots of jobs, at all levels of society, including less highly educated people - hey, they need jobs just as much as Post-doc graduates. It can also ‘push out’ into New Zealand’s less well-developed regions, bringing development and wealth to underdeveloped parts of the country. There are other lesser reasons too, but hopefully, this is enough to score an upvote. It is MORE ACCURATE to say that the economy of New Zealand is probably better managed than Australia's due to the fact that New Zealand has about 1/5 the population size, plus only ONE of every government department as opposed to Australia's states and territories, each having their own individual departments, at great cost to the taxpayers. Much smaller defense budget per capita in New Zealand also. Another sector is mining, which could inject somewhere around 30 Billion dollars extracting various deposits that are already known. There may be much more in the way of transition metals and hydrocarbons. The only stumbling block is finding ways of getting the materials out without damaging the environment, and kiwis are not happy that some of this land allocated for testing is actually reserved for wildlife, etc. It will happen one day. It has to. There is still a lot of unexplored areas that could be very lucrative, including benthic regions containing so-called manganese nodules, etc.. These are composed of various attractive metals. Certain areas of lucrative high technology such as petroleum cracking and reforming or new research into Thorium nuclear power, for example. It could be a real boon for a small country like New Zealand, but unfortunately, educating the public of the rewards versus the minimal risks is another matter altogether. Given the large land availability, I think to convert some of it into food crops instead of sheep and cows, etc. would be far better economically and environmentally. The dairy industry is an area ripe for change, either conversion of part of it. And research into biological remediation to repair the damage that dairying has done to rivers and land in general. Government grants to attract more research opportunities. Setting up as many research avenues as possible is essential, the need to diversify is urgent, to be ready to counter upcoming issues with economy and population and demands in various critical sectors, like energy, medicine, sustainability, etc. So How well is New Zealand's economy currently doing? At the moment, I see the following challenges. High inflation in house prices and rents. Stagnating or shrinking disposable income. Softening of demand from China for Dairy, agriculture, and forestry products. And I see the following opportunities. Increasing tourism numbers. Low inflation overall. Increase in the number of migrants. GDP growing at about 2.5 to 3%. Strong growth in public and private construction and infrastructure. Stable government and political environment. In conclusion: A better place to be than most other OECD countries. This Was The Atlantis Report. Please Like. Share. And Subscribe. Thank You.











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