Seated at the International Monetary Fund’s headquarters in Washington, DC, Bill English, the deputy prime minister and finance minister of New Zealand, exudes a quiet confidence that befits his role in helping to run a country that maintained an upward trajectory in a region that was one of worst affected by the global financial crisis. While Australia’s mining-fuelled growth abruptly stalled in 2009, following a sharp contraction in demand for its resources from China that led its GDP growth to fall to 1.5% in 2009, and Tonga’s heavy reliance on European tourists as well as its diaspora’s remittances led its GDP growth to slow to 0.9% in 2009 according to Global Finance, New Zealand fared relatively well.
Although the country's economy initially contracted to -1.2% in the immediate aftermath of the crisis, its rebound has been significant, and data analyst Trading Economics predicts that by the end of this year its economy could grow by 2.5%. Given its fall into recession, coupled with the 2011 earthquake that severely damaged New Zealand's second largest city, Christchurch, the country’s challenges were formidable, but Mr English says that that the government’s extensive efforts in rebuilding its damaged infrastructure as well as diversifying its trading partners meant that New Zealand has regained its position as one of the world’s foremost business hubs.
“New Zealand’s economy is in pretty good shape,” Mr English told fDi in an interview at the IMF summit. “One of the reasons that we have been able to come through the recession reasonably well is because of the Chinese free-trade agreement which has been in place for three years. We have also concluded agreements with Hong Kong and Taiwan, so we are now on the way to achieving a tariff-free access to these fast growing and – in China’s case – very large markets. We are also rebuilding Christchurch after the earthquake, which cost us about NZ$40bn [$32.6bn].”
New Zealand’s economic performance has historically been tied to that of Australia, which remains New Zealand’s largest customer, supplier and investor. Indeed, Statistics New Zealand, the government’s statistical agency, estimates that Australia’s share of New Zealand’s total exports increased from 16% in 2005 to 24% in 2010. While Mr English makes clear that Australia will remain a significant trade partner, he maintains that New Zealand has worked to increase the appeal of its exports further afield in Europe and North America, through investing in its hydrocarbons sector. Although New Zealand’s growth has largely been built on its dairy and meat sectors, which account for 33% of its exports, the government has been keen to reduce this reliance through investing in oil exploration projects in its offshore territories.
“We have got quite a significant programme of oil and gas exploration going on,” says Mr English. “New Zealand has a very large offshore zone, and there are about NZ$2bn-worth of exploration commitments which have been made over the next five years. We have also made some large infrastructure commitments. In Auckland we have seen a strong population growth, so we have [started] large projects there for the five- to seven-year horizon.”
New Zealand’s investment case is compelling: for the past three years it has consistently ranked third in the World Bank’s Ease of Doing Business rankings, and the government has been lauded by international institutions such as the IMF for its technocratic approach to macroeconomic reforms. Yet while its GDP growth of 2.5% attests to its resilience, compared with the wider Asia-Pacific region’s average of 6%, this performance is far from outstanding. Moreover its growing current account deficit, which rose from $9.9bn in mid-2012 to $10.5bn at the end of last year according to Statistics New Zealand, has raised questions about whether the government will be able fund its ambitious infrastructure plans and oil exploration projects in a sustainable manner.
Yet Mr English remains sanguine, maintaining that the government’s expenditure plans will be comfortably offset by New Zealand’s strong performance in attracting foreign capital into its competitive industries, including manufacturing, IT and financial services. Indeed, data from greenfield investment monitor fDi Markets shows that FDI is becoming a significant source of income for the government. The number of greenfield projects into the country rose from a low of 31 in 2009, worth $568m, to a high of 45 projects, worth $1.3bn, in 2012. This, coupled with strong performance in its primary sector, means New Zealand seems set to maintain its growth momentum.
“We did not have a banking crisis on the government’s books, so we expect to have a surplus next year [with regards to] government debt,” says Mr English. “New Zealand has quite a diversified range of businesses in the specialised manufacturing and IT sectors, so we have the capacity to grow quite rapidly. We have worked on becoming a more resilient economy, so whatever waves are generated [externally], we are now more able to handle them.”