New Zealand: Seizing its potential, slowly but surely

An Expert's View about Business Environment in New Zealand

Posted on: 14 Dec 2011

Located in the southwest Pacific Ocean with Australia as its most prominent neighbour, New Zealand draws from its rich landscape when it comes to its economic foundation. With agricultural and food products as its main trade, and industries such as tourism on the rise, the small country of nearly 4.5 million is starting to experience slight economic growth following a wobbly past few years.

Economic pillars
International trade plays a vital role for New Zealand, accounting for more than 50% of its GDP. The country’s main partners for both imports and exports are the US, China, Japan, and Australia, with the latter acting as its primary customer and supplier. It depends on imported commodities such as machinery, plastics, petroleum oil, and electronic equipment.

Agricultural products and processed foods make up the bulk of exports, with a heavy emphasis placed on dairy, meat, and fruit. Besides also being an important exporter of wood and wool, New Zealand has made enormous strides in both wine production and exportation. As one of the ‘New World’ wine producers, which also include South Africa and Australia, New Zealand has seen its wine trade boom to reach an annual export value of more than one billion New Zealand dollars. While 70% of its wine exports currently end up in English-speaking markets, the country is eying the potential offered by its Asian neighbours, with Japan as a primary point for expansion. Furthermore, industry leaders hope to double the current export value of New Zealand wines by 2020.

Besides its strong agricultural base and focus on food products, New Zealand counts tourism, textiles, and transportation equipment production as its other economic pillars. The island country’s tourism sector has grown rapidly, with direct and indirect earnings totalling 9% of GDP in 2010.

The New Zealand economy has been repeatedly rattled over the past few years, first by the global financial crisis and then by a series of earthquakes that hit its southern island. Between 2008 and 2010, New Zealand saw its GDP contract for 18 months, marking its first recession since 1998 and the longest in the nation’s history. Already one of the smallest economies in the OECD, its problems were further aggravated by soaring levels of government and household debt, rocketing inflation rates, and a strong appreciation of its currency.

The earthquakes that shook the country’s second-largest city Christchurch in 2010 and 2011 caused an estimated 15 billion New Zealand dollars in damages, or US$11bn. Following the natural disaster, finance minister Bill English predicted that the repercussions would erase 1.5% off of the country’s GDP over the next five years.

New Zealand also suffers from a substantial ‘brain drain’, with thousands of highly-skilled workers moving to make their living in other countries such as Australia and the UK. With unemployment hovering at 6.4% in 2011 and GDP per capita lying lower than that of its peer nations, many young New Zealanders contemplate life abroad. A national poll conducted earlier this year showed that one fifth of 18-30-year-olds consider leaving New Zealand for long-term, better-paying jobs elsewhere.

On the way up
Despite being shaken by a variety of factors, New Zealand’s economy is returning to growth. In the wake of the crisis, the official cash rate was slashed from 8.25% to 2.5% and a stimulus plan targeting unemployment, education, tourism, and infrastructure development was instituted.

The country also recorded its largest trade surplus ever in April this year, coming in at 1.1 billion New Zealand dollars, or US$890m. One of the top dairy producers in the world, New Zealand has seen its milk powder exports boom as Chinese demand increased following a national food-safety scandal.

The World Bank has consistently ranked New Zealand as one of the most business-friendly nations in its annual index. Currently third on the list, New Zealand trails only Singapore and Hong Kong when it comes to having the infrastructure and regulations necessary for facilitating efficient and easy business operations.

Despite a tough past few years, New Zealand’s economy is slowly leaving its fragile days behind. As the country continues to register a trade surplus, New Zealand is seizing the promise offered by its natural resources by translating it into both exports and the basis of its tourism industry.
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This article by was originally published in the December 2011 issue of GBM, the Global Business Magazine.

Posted: 14 December 2011

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