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time in NZ: 09 Sep, 2008 : 5:20 AM |
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home > New Zealand Economy |
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New Zealand Economy Part 2
Subsidies
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 restructuring and sale 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 lead to considerably higher rates of unemployment that were standard in New Zealand in earlier decades. However, unemployment in New Zealand is again low, hovering around 3.5% to 4%. Economic growth
The 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. The 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 has now hit 9% to date as of March 2006. The rebound in the export sector is expected to help narrow the deficit to lower levels, but the budget deficit continues to increase as of 2005, especially due to increases in the value of the New Zealand dollar.
Economic PartnershipNew 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 22 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 standardization 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 strong U.S. dollar has 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, specialized grocery items (eg. 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.
Foreign InvestmentNew Zealand welcomes and encourages foreign investment without discrimination. The Overseas Investment Commission (OIC) must give consent to foreign investments that would control 25% of 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 U.S. 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.
Links:
Organisation for Economic Co-operation and Development
Ministry of Economic Development
Statistics New Zealand
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