New Zealand operates its country by using a market economy. International trade is a huge factor in a market economy. New Zealand trades heavily with Australia, China, Japan, and the United States of America. “The New Zealand economy depends largely on its modernized agricultural sector. Although it contributes less than 10 percent of the gross domestic product (GDP), it occupies roughly 1 percent of the labor force, making it a highly efficient industry” (Stetter). “Leading agricultural exports include meat, dairy products, forest products, fruit and vegetables, fish, and wool.
The country has substantial hydroelectric power and sizable reserves of natural gas. Some of their leading manufacturing sectors are food processing, metal fabrication, and wood and paper products (Economy of New Zealand). ” New Zealand has an interesting economic history; it has been full of ups and downs since the 1980’s. Beginning as early 90s this country has experienced an increase in growth. This particular growth was sparked by private sector investment instead of increased fiscal spending (Conway 6).
There was a brief decline in the latter part of the 1990s due to the Asian financial crisis but New Zealand proved their resilience and bounced back as the economy picked back up (Conway 6). A couple factors that contribute to this consistent growth and resilience in the economy are capital investments and productivity, they go hand in hand and both play a key role in sustaining an economy. Capital investments are intended to improve the capability of the economy to expand productivity.
A risk to this is the more resources a country allocates to investment marks a decline in the output of consumer goods. However, if the investment is effective and prosperous it will lead to a rise in the output of goods. New Zealand’s economy contains strengths, weaknesses, threats as well as opportunities. Some strengths include trade deficits, their niche in agriculture, and a stable political system. “September 2012 there was a trade deficit equivalent to 791 Million NZD” (New Zealand Balance of Trade). Trade deficit sounds terrible but it can actually be a good thing for the country.
The current account deficit is offset by a capital account surplus. It is simply New Zealand borrowing from foreign countries so they can buy more from foreign countries than those countries buy from New Zealand. If the trade deficit promotes borrowing to finance long-term investment or increases income, and investment it is good. They are also a strong contender in agriculture. “The agricultural, horticultural, forestry, mining, energy and fishing industries account for more than half of New Zealand’s total export earnings” (Stetter).
New Zealand has a stable democratic political system which is excellent for trade. They are a liberal country and are an open economy with practical policies. On the other hand every country that has strengths also has weaknesses. Although they have major production in agriculture New Zealand lacks in manufacturing. This industry is evolving but the manufacturing sector could be better than what it currently is. Another major weakness for New Zealand is the foreign ownership of banks and most industries. Foreign ownership of New Zealand banks steadily increased from the 1980s because, with deregulation, many of the locally-owned institutions sought overseas owners to be more competitive” (Tripe 6). The negative to foreign owned banks is that they have the power to decrease domestic banks profitability; they are a cost-benefit trade-off. The country also has a relatively small open economy which makes it vulnerable to unexpected changes, and it does not have much effect on the world economy as a whole. With New Zealand having a small economy they face many potential threats to their economy.
Since they are so dependent on agriculture exports any change in climate could do serious damage. Such as droughts in the eastern portion or flooding in the west, both of these situations would pose a threat on food production which in turn would hurt the economy. The country also faces foreign investors withdrawing all their investments. It has happened before in 2009 “Nearly nine billion of net foreign investment was withdrawn from the country; this is the first time that there has been a net withdrawal of foreign investment out of New Zealand” (NZ Invests More Overseas, Foreigners Withdraw).
New Zealand depends on these investments if they withdrew the New Zealand Dollar would depreciate, imports would likely be more costly, and there would be ripple effects to the economy. When crisis strikes the country faces overregulation response from the government, in turn this will confine local resourcefulness to create solutions for given crisis creating a band-aid effect. Regulation is good to an extent but it can have unintended effects. It can hinder innovation and productivity of efficient markets.
Aside from potential threats to the country there are many opportunities to offset the shortcomings of New Zealand. Globalization is a key opportunity to transform economic links between countries. It allows business to compete by creating an aggressive environment. As more countries are active in the world economy, trade and ideas are going to continue to evolve and strengthen. In order for New Zealand to seize this opportunity they have to be an attractive environment for business and work otherwise the businesses will go elsewhere.
As economies of countries become interconnected problems will surface, this will call for coordinating efforts from all countries to create solutions that can benefit all. New Zealand being a small open economy can benefit from this with guaranteed certainty concerning the rules. With integrated economies there will be weaknesses in the international financial systems which will lead to imbalances. New Zealand can capitalize on this if they make certain that any response in this integrated economy targets the weaknesses without dropping the availability of capital.
All of these opportunities combined will create a very dynamic economic environment for New Zealand to grow and flourish. Investors are needed to help a country to grow; people who are willing to be innovative and contribute more business for the country’s economy. To be successful business associates, it is essential for outsiders of any nation to understand the culture and ethics of the country they are looking to possibly invest in. New Zealand has a relaxed culture but take new business ventures very seriously. The country consists of a young, growing population. The average age is thirty-seven years, and the population is growing at a rate of slightly under 1 percent” (Stetter). Growing populations have several advantages to them such as a greater domestic market, and it attracts investors and multinational companies. “New Zealand is home of many ethnicities including English, Irish, Scottish, German, Scandinavian, Croatian, Dutch, and Maoris.
They recognize English and Maori as the official language” (Stetter). Government is a parliamentary democracy and power is distributed across three branches of government, parliament, executive, and judiciary. The people of the country have a high standard of living, and their literacy rate is 100 percent. Adding to their quality of life is the nation’s geographic location and size. No one is greater than 75 miles from the ocean” (New Zealand Business Etiquette ; Culture). For business associates conducting business meetings in New Zealand there are few restrictions to be respectful of the country. “Schedule appointments in advance to give at least a week’s notice, and avoid planning meeting during the months of December and January as these tend to be prime vacation times” (New Zealand Country Profile – Business Etiquette).
Being punctual is exceptionally important to them and is a part of the culture (New Zealand Business Etiquette ; Culture). Be honest and direct while meeting state all facts, statistics, terms leave nothing unsaid. Following these guidelines will ensure a successful meeting for the new business venture in the country of New Zealand. Future growth for the country looks good. There are many prospects out there New Zealand just has to choose to take advantage of them such as globalization and linking economies together to create better trade and host an environment that businesses will love.
The country has been prosperous in broadening horizons in its agricultural base; for the future new niche markets could be identified that they could dominate. The manufacturing sector also has hope of expanding by finding a field that they can lead. All of these suggestions could boost the economy even further. With most countries in a slow recession they seem to faring well. New Zealand may have a small economy but they have proved that the kiwis are a force to be reckoned with.
