More on Economy of New Zealand

More on Economy of New Zealand

New Zealand’s economy is developed, but it is comparatively small in the global marketplace. In the late 19th and early 20th centuries, New Zealand’s standard of living, based on the export of agricultural products, was one of the highest in the world, but after the mid-20th century the rate of growth tended to be one of the slowest among the developed countries. Impediments to economic expansion have been the slow growth of the economy of the United Kingdom (which formerly was the main destination of New Zealand’s exports) and its eventual membership in the European Community (later the European Union) and the high tariffs imposed by the major industrial nations against the country’s agricultural products (e.g., butter and meat). New Zealand’s economic history since the mid-20th century has consisted largely of attempts to grow and diversify its economy by finding new markets and new products (such as wine and paper products), expanding its manufacturing base, and entering into or supporting free-trade agreements.

New Zealand has had a long history of government intervention in the economy, ranging from state institutions’ competing in banking and insurance to an extensive social security system. Until the early 1980s most administrations strengthened and supported such policies, but since then government policy has generally shifted away from intervention, although retaining the basic elements of social security. Most of the subsidies and tax incentives to agricultural and manufacturing exporters have been abolished, and such government enterprises as the Post Office have become more commercially oriented and less dependent on government subsidies. In addition, administrations have attempted to increase the flexibility of the labour market by amending labour laws and encouraging immigration.

• Agriculture, forestry, and fishing

New Zealand’s farming base required a relatively complex economy. Highly productive pastoral farming, embracing extensive sheep grazing and large-scale milk production, was made possible by a temperate climate, heavy investment in land improvement (including the introduction of European grasses and regular application of imported fertilizers), and highly skilled farm management by owner-occupiers, who used one of the highest ratios of capital to labour in farming anywhere in the world. The farms supported and required many specialized services: finance, trade, transport, building and construction, and especially the processing of butter, cheese, and frozen lamb carcasses and their by-products. That economy could be described as an offshore European farm, which exported wool and processed dairy products and imported a variety of finished manufactured consumer and capital goods, raw materials, and petroleum. Pastoral farming, especially dairying, has remained significant, but other sectors such as forestry (and the production of paper and other wood products), horticulture, fishing, deer farming, and manufacturing have produced a more-balanced economy. Viticulture has also flourished, and many New Zealand wines have come to rank among the world’s best.

Apart from gold mining’s brief heyday in the mid- to late 19th century, biological resources have always been more significant than minerals. Domesticated animals introduced from Europe thrived in New Zealand. Forestry has always been important, but the emphasis has swung from felling the original forest for timber to afforestation with pine and fir trees for both timber and pulp. Although New Zealand’s forestry industry is small on the world scale, it is a significant supplier of wood products to the Asia-Pacific region.

• Resources and power

Most minerals, metallic and nonmetallic, occur in New Zealand, but few are found in sufficient quantities for commercial exploitation. The exceptions are gold, which in the early years of organized settlement was a major export; coal, which is still mined to a considerable extent; iron sands, which are exploited both for export and for domestic use; and, more recently, natural gas. In addition, construction materials, with which the country is well endowed, are quarried.

New Zealand’s energy comes from both fossil fuels and renewable resources such as hydroelectric, wind, and geothermal power. The country has exploited much of its great hydroelectric potential, and hydroelectricity long has supplied the bulk of the country’s power. However, as demand has increased, that proportion has dropped somewhat. Thermal plants fired with coal and natural gas constitute much of the remaining generating capacity, although a small but growing amount comes from geothermal sources. The New Zealand electricity grid has a notable feature in the form of direct-current submarine cables across the Cook Strait. Those link the two main islands, enabling surplus hydroelectric power in the South to be used by the North’s concentration of industry and people. In addition, partnerships between government and private interests developed natural gas reserves and constructed the world’s first plant producing gasoline from natural gas (since closed). There has been some successful offshore drilling for oil reserves.

• Manufacturing

Even in the 19th century New Zealand’s relative geographic isolation made necessary a proportionately large industrial labour force engaged in the manufacture and repair of agricultural machinery and in shipbuilding, brewing, and timber processing. After the 1880s the factory processing of farm products swelled those numbers, while the country’s temporary isolation during World Wars I and II stimulated the production of a wide range of manufactured goods that previously had been imported. Protectionist policies first espoused, although weakly, by governments in the late 19th century were strengthened after World War I. From the end of World War II until the early 1970s, manufacturing industries were protected by import-licensing fees in order to maintain full employment. Some labour-intensive, heavily protected, and uneconomic activities—such as automobile and consumer-electronics assembly (with the manufacture of some parts and components)—were developed but were not able to remain competitive. Some industries have taken their manufacturing activities offshore, although the sector has remained significant as an employer and as a contributor to gross domestic product.

• Finance

Banking was established early in New Zealand, and over the years several large state- and foreign-owned commercial (trading) banks emerged. In the first decades of organized settlement, those operated independently and issued their own currency. Today all banks must be registered with the Reserve Bank of New Zealand, which is the central bank and issues the country’s national currency, the New Zealand dollar. They are supplemented by nonbank financial institutions. From the early 1980s the financial industry was transformed by deregulation. The government loosened restrictions on the types of financial services the various institutions could perform, and the commercial banks lost their privileged position. The capital market became highly competitive with the establishment of new, often foreign-owned specialty institutions and a currency that floated against several other currencies. Many of the unregulated financial institutions have been vulnerable to national and global economic recessions, and there has been renewed pressure for greater regulation of financial markets. In the early 21st century most major banks were foreign-owned.

• Trade

Agricultural products—principally meat, dairy products, and fruits and vegetables—are New Zealand’s major exports; crude oil and wood and paper products are also significant. The major imports are crude and refined oil, machinery, and vehicles. New Zealand’s chief trading partners are Australia, China, the United States, and Japan. A succession of trade agreements provided the basis of the Australia and New Zealand Closer Economic Relations Trade Agreement (known as CER), signed in 1983. That agreement eventually eliminated duties and commodity quotas between the two countries and was seen by some as the first step toward integrating their economies. New Zealand also has a free-trade agreement with China, and Australia and New Zealand together are associated in a free-trade arrangement with the Association of Southeast Asian Nations (ASEAN).

• Services

The public-service sector is a large employer, especially in Wellington, where the head offices of government departments are located. Tourism is an important part of New Zealand’s economy. Most of the country’s visitors originate from Australia, the United Kingdom, the United States, and China. Since the late 1990s there has been a significant increase in the number of international students—notably from China, South Korea, Japan, India, and Saudi Arabia—studying in language schools, universities, and polytechnics, and education has thus become an important source of foreign exchange.

• Labour and taxation

The labour force was organized into strong trade unions from the late 19th century. Like Australia, New Zealand evolved a system of compulsory arbitration in which the government played a major role. From the late 1960s, however, government policy generally alternated between periods of government-imposed freezes on wages and prices and periods of officially tolerated bargaining between unions and employers, although the strong link between the labour markets of New Zealand and Australia—especially in the skilled trades and professional vocations—constrained policy. However, after the passage of the Employment Contracts Act (1991), which ended compulsory union membership, the number of union members fell dramatically.

Although taxation in New Zealand in relation to national income is not particularly high in comparison with other developed countries, direct taxation (taxation of personal income) has traditionally been relied upon to an unusual extent. The introduction in 1986 of a value-added tax on goods and services thus represented a fiscal revolution, because it was linked to a reduction in income tax rates and to an increase in government transfer payments to low-income families. Since 1986, governments have progressively reduced direct, and increased indirect, taxation.

• Transportation and telecommunications

In spite of the rugged nature of the country, most of the inhabited areas of New Zealand are readily accessible. The road system is good even in rural districts, and the main cities have express highway systems. Though the difficult terrain of the country often can make for slow journeys, the distances involved are seldom great.

In the 19th and much of the 20th century, New Zealand depended on shipping for trade and the movement of people. The main towns were located on or near good natural harbours. The major ports are now Auckland, Wellington, and Lyttelton (serving Christchurch). Other ports of note are at Marsden Point, Tauranga, and Napier on the North Island and Nelson, Westport, and Dunedin on the South Island. The import and export of goods via ship has declined from a boom period following World War II, and, consequently, so has maritime employment. Interisland ferries ply the route across Cook Strait.

The railway network was owned and operated by the government until the 1990s, and since then it has been in and out of private ownership. From 2008 the country’s freight and passenger railways were owned and operated by a state-owned enterprise known as KiwiRail (New Zealand Railways Corporation). The railway network comprises a main trunk line spanning both islands via roll-on, roll-off ferries and branch lines linking most towns. Rail travel is notoriously slow, which discourages passenger travel, but service is efficient for large-scale movement of goods over considerable distances. Long-standing regulations protecting the railways against competition from road carriers were abolished in the early 1980s, and, as a consequence, long-distance road haulage has increased.

The difficulty of the terrain has greatly encouraged air travel in New Zealand. Most provincial towns have airports, and all major urban centres are linked by air service. The national airline, Air New Zealand, has majority government ownership, although, like the railways, it was for a time privately owned. Air New Zealand, along with several foreign airlines, handles the country’s international service, with international air terminals at Auckland, Christchurch, and Wellington. Hamilton, Palmerston North, Queenstown, and Dunedin also offer limited international service.

New Zealand’s telecommunications industry has undergone numerous reforms to transform the country into one of the leaders in the field. The country’s Post Office originally had a monopoly on telecommunications services, but it was plagued by economic difficulties and poor service. The state-run Telecom Corporation of New Zealand—renamed Spark New Zealand in 2014—was formed in 1987 (privatized in 1990), and industry deregulation began in 1989. Undersea fibre-optic cables, like the direct-current cables, cross the Cook Strait to serve as a main telecommunications link between the two main islands. New Zealanders have adopted changes in information and communications technology rapidly. Cellular phone usage far exceeds the use of landlines. Internet usage is common among the vast majority of the population.

• GDP (purchasing power parity):

$136 billion (2013 est.)

country comparison to the world: 64

$132.7 billion (2012 est.)

$129.2 billion (2011 est.)

note: data are in 2013 US dollars

• GDP (official exchange rate):

$181.1 billion (2013 est.)

• GDP - real growth rate:

2.5% (2013 est.)

country comparison to the world: 130

2.7% (2012 est.)

1.4% (2011 est.)

• GDP - per capita (PPP):

$30,400 (2013 est.)

country comparison to the world: 46

$29,900 (2012 est.)

$29,300 (2011 est.)

note: data are in 2013 US dollars

• Gross national saving:

15.9% of GDP (2013 est.)

country comparison to the world: 104

14.5% of GDP (2012 est.)

14.5% of GDP (2011 est.)

• GDP - composition, by end use:

household consumption: 58.1%

government consumption: 19.9%

investment in fixed capital: 20.2%

investment in inventories: 0.5%

exports of goods and services: 30%

imports of goods and services: -28.7%

(2013 est.)

• GDP - composition, by sector of origin:

agriculture: 5%

industry: 25.5%

services: 69.5% (2013 est.)

• Agriculture - products:

dairy products, lamb and mutton; wheat, barley, potatoes, pulses, fruits, vegetables; wool, beef; fish

• Industries:

food processing, wood and paper products, textiles, machinery, transportation equipment, banking, insurance, tourism, mining

• Industrial production growth rate:

1.9% (2013 est.)

country comparison to the world: 128

• Labor force:

2.413 million (2013 est.)

country comparison to the world: 113

• Labor force - by occupation:

agriculture: 7%

industry: 19%

services: 74% (2006 est.)

• Unemployment rate:

6.4% (2013 est.)

country comparison to the world: 66

6.9% (2012 est.)

Population below poverty line: NA%

• Household income or consumption by percentage share:

lowest 10%: NA%

highest 10%: NA%

• Distribution of family income - Gini index: 36.2 (1997)

country comparison to the world: 86

• Budget:

revenues: $69.17 billion

expenditures: $72.65 billion (2013 est.)

• Taxes and other revenues:

38.2% of GDP (2013 est.)

country comparison to the world: 51

Budget surplus (+) or deficit (-):

-1.9% of GDP (2013 est.)

country comparison to the world: 86

• Public debt:

38.4% of GDP (2013 est.)

country comparison to the world: 98

38.1% of GDP (2012 est.)

• Fiscal year:

1 April - 31 March

note: this is the fiscal year for tax purposes

• Inflation rate (consumer prices):

1.3% (2013 est.)

country comparison to the world: 37

1.1% (2012 est.)

• Central bank discount rate:

2.5% (31 December 2009)

country comparison to the world: 70

5% (31 December 2008)

• Commercial bank prime lending rate:

5.7% (31 December 2013 est.)

country comparison to the world: 135

5.82% (31 December 2012 est.)

• Stock of narrow money:

$30.03 billion (31 December 2013 est.)

country comparison to the world: 60

$29.87 billion (31 December 2012 est.)

• Stock of broad money:

$91.28 billion (31 December 2013 est.)

country comparison to the world: 56

$84.55 billion (31 December 2012 est.)

• Stock of domestic credit:

$256.3 billion (31 December 2013 est.)

country comparison to the world: 37

$265.6 billion (31 December 2012 est.)

• Market value of publicly traded shares:

$NA (31 December 2012 est.)

country comparison to the world: 41

$71.66 billion (31 December 2011)

$71.83 billion (31 December 2010 est.)

• Current account balance:

-$8.358 billion (2013 est.)

country comparison to the world: 173

-$8.508 billion (2012 est.)

• Exports:

$37.84 billion (2013 est.)

country comparison to the world: 62

$37.87 billion (2012 est.)

• Exports - commodities: dairy products, meat, wood and wood products, fish, machinery
• Exports - partners: Australia 21.1%, China 15%, US 9.2%, Japan 7% (2012)
• Imports: $37.35 billion (2013 est.)

country comparison to the world: 63

$37.04 billion (2012 est.)

• Imports - commodities: machinery and equipment, vehicles, aircraft, petroleum, electronics, textiles, plastics
• Imports - partners: China 16.4%, Australia 15.2%, US 9.3%, Japan 6.5%, Singapore 4.8%, Germany 4.4% (2012)

• Reserves of foreign exchange and gold:

$20.01 billion (31 December 2013 est.)

country comparison to the world: 60

$17.58 billion (31 December 2012 est.)

• Debt - external:

$81.36 billion (31 December 2013 est.)

country comparison to the world: 52

$85.18 billion (31 December 2012 est.)

• Stock of direct foreign investment - at home:

$84.2 billion (31 December 2013 est.)

country comparison to the world: 46

$81.36 billion (31 December 2012 est.)

• Stock of direct foreign investment - abroad:

$59.08 billion (31 December 2009)

country comparison to the world: 37

• Exchange rates:

New Zealand dollars (NZD) per US dollar -

1.247 (2013 est.)

1.2334 (2012 est.)

1.3874 (2010 est.)

1.6002 (2009)

1.4151 (2008)