Thursday, 21 January 2016

A Peek at New Zealand's Economy

When I'm abroad and not too busy studying or working, I can't help wonder about the economics around me; what drives this economy, what do people here produce, what do they specialise in? How free is it? How large part of the fruits of productive labour is claimed in taxation?

In the eyes of a backpacker, a lot of what I see around me is agriculture such as New Zealand's countless wineyards (or the saltworks I passed by today!), or sheep-derived products such as dairy or wool - or, naturally, tourism-related.

Indeed, places such as Queenstown, 'The Adventure Capital of the World', with its numerous tourists, hostels/hotels, nightlife and adventure activities, seem to revolve entirely around tourism. The problem with economic statistics in regards to tourism is however that it's not a product, and so physically does not pass a border, which makes it harder to count - meaning that most databases or Wikipedia ranks other sectors such as dairy, food processing or machinery more important.

Moreover, New Zealand is the third-most free economy in the world, according to Heritage, behind Hong Kong & Singapore and slightly ahead of its major trading partner Australia. It's the second easiest country in the world in terms of doing business. It's public debt-to-GDP is a low 40%, and relative to other OECD countries, it taxes its citizens' income very light. 

Let's run some more numbers: 

Nominal GDP (however flawed a metric) is around NZ$ 230 billion. Exports amount to around NZ$61 of those billions, where the top of New Zealand Trade & Enterprise's list looks like this:
The direct economic impact of tourism, according to government statistics, amounts to about NZ$11 billion, which had it been counted properly as exports, would have been New Zealand's second largest export. It would boil down to about NZ$3500 for each of its roughly 3 million visitors, which I think is understating it, considering the amount of backpackers and how long they're staying.

Government expenditure is around NZ$ 75 billion, which translates into 32.6% of GDP - in the lower spectrum of wealthy, industrialised countries. Ranked by purchasing-power adjusted per capita income, New Zealand ranks only 31 in the world, 24% behind neighbouring Australia and 36% behind the US. This falling-behind is accounted for by the New Zealand central bank governor Graeme Wheeler as relatively low labour productivity; this, in turn, he argues, is due to a) size and distance to world market, which they can't do much about, b) regulatory framework and low savings rates, c) investment and indebtedness in high-price property markets, especially in major cities, tying up capital in non-producing assets. 

Overall, low unemployment, a rising Asian middle class and massive amounts of visitors coming to the country every year should allow New Zealand to improve gradually. Unless pursued policies mess things up. 

What's visible from a backpacker's perspective, however, is a thriving tourist sector and shitloads of sheep.

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