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| Milford Sound, one of New Zealand's most famous tourist destinations |
Historically, extractive industries have contributed strongly to New Zealand's economy, focussing at different times on sealing, whaling, flax, gold, kauri gum, and native timber.With the development of refrigerated shipping in the 1880s meat and dairy products were exported to Britain, a trade which provided the basis for strong economic growth in New Zealand. High demand for agricultural products from the United Kingdom and the United States helped New Zealanders achieve higher living standards than both Australia and Western Europe in the 1950s and 1960s. In 1973 New Zealand's export market was reduced when the United Kingdom joined the European Community and other compounding factors, such as the 1973 oil and 1979 energy crisis, led to a severe economic depression. Living standards in New Zealand fell behind those of Australia and Western Europe, and by 1982 New Zealand had the lowest per-capita income of all the developed nations surveyed by the World Bank. Since 1984, successive governments engaged in major macroeconomic restructuring (known first as Rogernomics and then Ruthanasia), rapidly transforming New Zealand from a highly protectionist economy to a liberalised free-trade economy.
Unemployment peaked above 10 percent in 1991 and 1992, following the 1987 share market crash, but eventually fell a record low of 3.4 percent in 2007 (ranking fifth from twenty-seven comparable OECD nations). The global financial crisis that followed however had a major impact on New Zealand with the GDP shrinking for five consecutive quarters, the longest recession in over thirty years, and unemployment rising back to 7 percent in late 2009. The unemployment rate for youth was 17.4 percent in the June 2011 quarter. New Zealand has experienced a series of "brain drains" since the 1970s that still continue today. Nearly one quarter of highly-skilled workers live overseas, most in Australia and Britain, the most from any developed nation. In recent years, however, a "brain gain" has brought in educated professionals from Europe and lesser developed countries.
Trade
New Zealand is heavily dependent on international trade, particularly in agricultural products. Exports account for a high 24 percent of its output, making New Zealand vulnerable to international commodity prices and global economic slowdowns. Its principal export industries are agriculture, horticulture, fishing, forestry and mining, which make up about half of the country's exports. Its major export partners are Australia, United States, Japan, China, and the United Kingdom.On 7 April 2008, New Zealand and China signed the New Zealand China Free Trade Agreement, the first such agreement China has signed with a developed country. The service sector is the largest sector in the economy, followed by manufacturing and construction and then farming and raw material extraction. Tourism plays a significant role in New Zealand's economy, contributing $15.0 billion to New Zealand’s total GDP and supporting 9.6 percent of the total workforce in 2010. International visitors to New Zealand increased by 3.1 percent in the year to October 2010 and are expected to increase at a rate of 2.5 percent annually up to 2015.
Wool was New Zealand’s major agricultural export during the late 19th century. Even as late as the 1960s it made up over a third of all export revenues, but since then its price has steadily dropped relative to other commodities and wool is no longer profitable for many farmers.In contrast dairy farming increased, with the number of dairy cows doubling between 1990 and 2007, to become New Zealand's largest export earner.In the year to June 2009, dairy products accounted for 21 percent ($9.1 billion) of total merchandise exports, and the country's largest company, Fonterra, controls almost one-third of the international dairy trade. Other agricultural exports in 2009 were meat 13.2 percent, wool 6.3 percent, fruit 3.5 percent and fishing 3.3 percent. New Zealand's wine industry has followed a similar trend to dairy, the number of vineyards doubling over the same period, overtaking wool exports for the first time in 2007.
Infrastructure
In 2008, oil, gas and coal generated approximately 69 percent of New Zealand's gross energy supply and 31 percent was generated from renewable energy, primarily hydroelectric power and geothermal power. New Zealand's transport network includes 93,805 kilometres (58,288 mi) of roads, worth 23 billion dollars, and 4,128 kilometres (2,565 mi) of railway lines. Most major cities and towns are linked by bus services, although the private car is the predominant mode of transport. The railways were privatised in 1993, then re-purchased by the government in 2004 and vested into a state owned enterprise. Railways run the length of the country, although most lines now carry freight rather than passengers. Most international visitors arrive via air and New Zealand has seven international airports, although currently only the Auckland and Christchurch airports connect directly with countries other than Australia or Fiji. The New Zealand Post Office had a monopoly over telecommunications until 1989 when Telecom New Zealand was formed, initially as a state-owned enterprise and then privatised in 1990. Telecom still owns the majority of the telecommunications infrastructure, but competition from other providers has increased.
Since 1984, government subsidies including those for agriculture have been eliminated; import regulations have been liberalised; exchange rates have been freely floated; controls on interest rates, wages, and prices have been removed; and marginal rates of taxation reduced. Tight monetary policy and major efforts to reduce the government budget deficit brought the inflation rate down from an annual rate of more than 18% in 1987. The deregulation of government-owned enterprises in the 1980s and 1990s reduced government's role in the economy and permitted the retirement of some public debt, but simultaneously massively increased the necessity for greater welfare spending and has led to considerably higher rates of unemployment than were standard in New Zealand in earlier decades.
Deregulation created a very business-friendly regulatory framework. A 2008 study and survey ranked it 99.9% in "Business freedom", and 80% overall in "Economic freedom", noting amongst other things that it only takes 12 days to establish a business in New Zealand on average, compared with a worldwide average of 43 days. Other indicators measured were property rights, labour market conditions, government controls and corruption, the last being considered "next to non-existent" in the Heritage Foundation and Wall Street Journal study.
In its 'Doing Business 2008' survey, the World Bank (which in that year rated New Zealand as the second-most business-friendly country worldwide), ranked New Zealand 13th out of 178 in the business-friendliness of its hiring laws.
The 1990s liberalisations also had a number of significant negative effects for New Zealand. One of them was the leaky homes crisis, where the liberalisation of building standards (in the expectation that market forces would assure quality) led to many thousands of severely deficient buildings (mostly residential homes and apartments) being constructed over a period of a decade. The costs of fixing the damage has been estimated at over NZ$11 billion.
Economy of New Zealand Recent trends
Economic growth, which had slowed in 1997 and 1998 due to the negative effects of the Asian financial crisis and two successive years of drought, rebounded in 1999. A low New Zealand dollar, favourable weather, and high commodity prices boosted exports, and the economy is estimated to have grown by 2.5% in 2000. Growth resumed at a higher level from 2001 onwards due primarily to the lower value of the New Zealand dollar which made exports more competitive. The return of substantial economic growth led the unemployment rate to drop from 7.8% in 1999 to 3.4% in late 2005, the lowest rate in nearly 20 years.
Although New Zealand enjoyed low unemployment rates in the years immediately prior to the financial crisis beginning in 2007, subsequent unemployment rose and according to Statistics New Zealand "In seasonally adjusted terms", New Zealand’s unemployment rate stood at 6.8% percent during the December 2010 quarter".
New Zealand's large current account deficit, which stood at more than 6.5% of GDP in 2000, has been a constant source of concern for New Zealand policymakers and hit 9% as of March 2006. The rebound in the export sector is expected to help narrow the deficit to lower levels, especially due to decreases in the exchange rate of the New Zealand dollar during 2008.
Foreign business relations of New Zealand
New Zealand's economy has been helped by strong economic relations with Australia. Australia and New Zealand are partners in "Closer Economic Relations" (CER), which allows for free trade in goods and most services. Since 1990, CER has created a single market of more than 25 million people, and this has provided new opportunities for New Zealand exporters. Australia is now the destination of 19% of New Zealand's exports, compared to 14% in 1983. Both sides also have agreed to consider extending CER to product standardisation and taxation policy. New Zealand initiated a free trade agreement with Singapore in September 2000 which was extended in 2005 to include Chile and Brunei and is now known as the P4 agreement. New Zealand is seeking other bilateral/regional trade agreements in the Pacific area.
U.S. goods and services have been competitive in New Zealand, though the then-strong U.S. dollar created challenges for U.S. exporters in 2001. The market-led economy offers many opportunities for U.S. exporters and investors. Investment opportunities exist in chemicals, food preparation, finance, tourism, and forest products, as well as in franchising. The best sales prospects are for medical equipment, information technology, and consumer goods. On the agricultural side, the best prospects are for fresh fruit, snack foods, specialised grocery items (e.g. organic foods), and soybean meal. A number of U.S. companies have subsidiary branches in New Zealand. Many operate through local agents, with some joint venture associations. The American Chamber of Commerce is active in New Zealand, with its main office in Auckland and a branch committee in Wellington.
However, as of the 2010s, China is now New Zealand's second-largest trading partner, behind Australia. On 17 June 2010, Xi Jinping, China's vice-president, travelled to Auckland, New Zealand for a three-day visit, along with more than 100 senior business leaders.
New Zealand welcomes and encourages foreign investment without discrimination. The Overseas Investment Commission (OIC) must however give consent to foreign investments that would control 25% or more of businesses or property worth more than NZ$50 million. Restrictions and approval requirements also apply to certain investments in land and in the commercial fishing industry. In practice, OIC approval requirements have not hindered investment. OIC consent is based on a national interest determination, but no performance requirements are attached to foreign direct investment after consent is given. Full remittance of profits and capital is permitted through normal banking channels.
This free investment by foreign capital has also been criticised. Groups like Campaign Against Foreign Control of Aotearoa (CAFCA) consider that New Zealand's economy is substantially overseas-owned, noting that direct ownership of New Zealand companies by foreign parties increased from $9.7 billion in 1989 to $83 billion in 2007 (an over 700% increase), while 41% of the New Zealand sharemarket valuation is now overseas-owned, compared to 19% in 1989. Around 7% of all New Zealand agriculturally productive land is also foreign-owned. CAFCA considers that the effect of such takeovers has generally been negative in terms of jobs and wages.
Unemployment in New Zealand
Prior to the economic shocks which occurred upon Britain's joining the EEC in the 1970s and closing as a primary New Zealand export market, measured unemployment in New Zealand was very low. In 1959 and 1960, for example, the country was officially at full employment. One Labour party representative recently joked in a speech that the Prime Minister of the day knew the name of every unemployed person
In the middle 2000s, the national unemployment rate stood at 3.4% (December 2007), its historically lowest level since the current method of surveying began in 1986. This gave the country the 5th-best ranking in the OECD (with an OECD average at the time of 5.5%). The low numbers correlated with a robust economy and a large backlog of job positions at all levels.. Its worth noting, however, that unemployment numbers are not always directly comparable between OECD nations, as they do not all measure voluntary and involuntary separation from the labour market in the same way.
The percentage of the population employed also increased in recent years, to 68.8% of all inhabitants, with full-time jobs increasing slightly, and part-time occupations decreasing in turn. The increase in the working population percentage is attributed to increasing wages and higher costs of living moving more people into employment. The low unemployment also had some disadvantages, with many companies unable to fill jobs.
In the late 2000s, mainly as a result of the global financial crisis, unemployment numbers rose to a 10-year high of 6% in mid-2009, with the job losses being especially hard amongst women. Seasonally adjusted employment levels fell 0.4 per cent to 2.17 million people, while the number of unemployed rose to 138,000 people.
Taxation in New Zealand
As of 2010, New Zealand had the second-lowest personal tax burden in the OECD, once all compulsory effects (such as superannuation and other mandatory deductions) were included in the tax-take. Only Mexico's citizens had a higher percentage-wise "take home" proportion of their salaries.
There is an ongoing political debate between left-leaning and right-leaning political parties as to whether further lowering taxes is appropriate. One of the most contentious questions is whether to adjust the relative tax burden of the highest-income earners.
Corruption Perceptions Index
New Zealand is the lowest ranked (i.e. least corrupt) country on the Transparency International Corruption Perceptions Index (CPI) of 2009.
Other indicators of economy of New Zealand
The Tiwai Point Aluminium Smelter has been noted as providing a significant boost for the country's overall trade balance, and is one of the country's largest industrial sites.
Tourism, like here on the Milford Sound (special bus with viewing gallery), is New Zealand's largest 'export' earner.
Agriculture (especially dairy farming—such as for the Fonterra plant shown) is another major export earner.
Industrial Production Growth Rate: 5.9% (2004) / 1.5% (2007)
Household income or consumption by percentage share:
Lowest 10%: 0.3% (1991)
Highest 10%: 29.8% (1991)
Agriculture – Products: wheat, barley, potatoes, pulses, fruits, vegetables; wool, beef, dairy products; fish
Exports – commodities: dairy products, meat, wood and wood products, fish, machinery
Imports – commodities: machinery and equipment, vehicles and aircraft, petroleum, electronics, textiles, plastics
Electricity:
Electricity – consumption: 34.88 TWh (2001) / 37.39 TWh (2006)
Electricity – production: 38.39 TWh (2004) / 42.06 TWh (2006)
Electricity – exports: 0 kWh (2006)
Electricity – imports: 0 kWh (2006)
Electricity – Production by source:
Hydro: 55.6% (2010)
Geothermal: 9,9% (2010)
Wind: 2,9% (2010)
Fossil Fuel: 28.2% (2010)
Nuclear: 0% (2010)
Other: 3.4% (2010)
Oil:
Oil – production: 42,160-barrel (6,703 m3) 2001 / 25,880-barrel (4,115 m3) 2006
Oil – consumption: 132,700-barrel (21,100 m3) 2001 / 156,000-barrel (24,800 m3) 2006
Oil – exports: 30,220-barrel (4,805 m3) 2001 / 15,720-barrel (2,499 m3) 2004
Oil – imports: 119,700-barrel (19,030 m3) 2001 / 140,900-barrel (22,400 m3) 2004
Oil – proven reserves: 89.62-million-barrel (14,248,000 m3) January 2002
Exchange rates:
New Zealand Dollars (NZ$) per US$1 – 1.3869 (2005), 1.5248 (2004), 1.9071 (2003), 2.1622 (2002), 2.3788 (2001), 2.2012 (2000), 1.8886 (1999), 1.8632 (1998), 1.5083 (1997), 1.4543 (1996), 1.5235 (1995)
All about New Zealand:
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