In the face of domestic and global challenges, the New Zealand economy remains robust with ample opportunity for future growth, writes Domini Stuart.

    In the September 2016 quarter, a higher-than-expected rise of 1.1 per cent in gross domestic product (GDP) put New Zealand ahead of Australia, the US, Canada and the Eurozone in terms of economic growth.

    “It’s hard to overstate the importance of key service sector exports in New Zealand’s economic success in recent years,” says Finance Minister Steven Joyce. “They have taken up a lot of the shortfall as the dairy sector went through its downturn. Other food sectors and hi-tech exports have also contributed significantly.”

    Most of the growth is centred on Auckland. “Here, the main drivers are the inherent dynamism of the country’s largest urban centre along with strong population growth and a very strong property market,” says economist, author, commentator and director Shamubeel Eaqub. “There is also strong growth in the building sector in Canterbury as the region continues to recover from the 2010 earthquake.”

    The country’s primary sector was also its poorest performer, with agricultural activity shrinking 1.6 per cent. However, Eaqub anticipates a rebound in the rural economy. “We’ve been through a couple of years of very, very low prices for key commodities like dairy but as they start to bounce back, we’re likely to see increasing investment and spending as well as higher revenue for farmers,” he says.

    The economic bonds between Australia and New Zealand have historically been very strong and the 1985 Australia-New Zealand Closer Economic Relations Trade Agreement (known as ANZCERTA or the CER Agreement) is one of the most comprehensive bilateral free trade agreements in existence.

    “Significant harmonisation of rules, regulations and standards is also making it very easy for the two countries to trade,” says Eaqub. “But at the moment, Auckland’s very overheated property market presents a real risk for the New Zealand economy. We also have very low interest rates, though this does help businesses outside the housing sector. And, following former Prime Minister John Key’s resignation in December last year, there is more political instability than we have experienced in the past eight years. Any company that is thinking about doing business with, or in, New Zealand should bear these things in mind.”

    Benefits of dual listing

    Regardless, the trend towards dual listing seems set to continue. “I think the main driver is still the prospect of having access to a larger pool of capital, a different risk appetite and potentially greater share liquidity in Australia,” says Silvana Schenone, a corporate and commercial partner at international corporate law firm, MinterEllisonRuddWatts.

    “Dual listing can also give New Zealand companies access to a more attractive share register with more institutional shareholders. Having that wider business presence makes sense for companies that remain domiciled in New Zealand as well as those that are expanding into Australia.”

    Last year the Australian Securities Exchange (ASX) created its Foreign Exempt Listing category. This significantly reduces the costs associated with dual listing for New Zealand companies that comply with the NZX Main Board Listing Rules.

    “The benefits of dual listing can flow both ways,” says Schenone. “It opens up the opportunity for Australian investors to diversify their risk exposure and to access premium, ASX listed businesses which are domiciled in New Zealand.”

    A different approach

    According to Karen Martyn, a governance advisor at Governance Training & Consulting, Australia is far more aggressive than New Zealand when it comes to setting and enforcing corporate governance standards.

    “New Zealand views itself as a village and hates to impose punishment on its high-profile members,” she says. “In financial terms, white collar crime costs the New Zealand community much more than burglaries and other non-violent offences but is viewed as ‘naughty’ rather than criminal.”

    She uses two court cases to illustrate her point. “The Feltex Carpets case in New Zealand and the Centro case in Australia were very similar in that they both hinged on whether directors can rely on experts in the execution of their duties,” she says. “The Feltex judgment found that they could rely on external financial advice that their financial statements met compliance minimums, even though both the advisors and the directors knew they were using old reporting standards with new standards coming into effect almost immediately after publication. Many shareholders, stakeholders and the Ministry of Economic Development viewed this as inadequate. The Centro judgment set a precedent that directors must be financially literate and can’t rely on others for ensuring the accuracy and compliance of the financial statements.”

    Pioneering innovation

    New Zealand is famous for its pioneer-driven ingenuity and, today, many of its start-up entrepreneurs are recently-arrived skilled migrants. “This provides a range of global perspectives and, in some cases, sources of capital – important resources for an island nation situated a long way from major global markets,” says Paul Spence, director of GeniusNet Limited, a niche technology business research and venture management consultancy.

    “Progress has largely been driven by communities at a grass roots level rather than government, with start-up activity supported mainly by seed-stage investors. But, as you can count the number of venture capital (VC) funds in New Zealand on one hand, ongoing funding of growth-stage businesses presents a further challenge. Australian, Chinese and US-based VC funds have started to make forays into the market and New Zealand companies are also looking further afield for capital.”

    He sees value in collaboration between Australia and New Zealand. “Neither country can single-handedly compete for capital and talent with technology behemoths across Asia-Pacific such as Seoul, Hong Kong and San Francisco,” he says. “Australian-based investors and corporate organisations should definitely look into the potential benefits of engaging with the New Zealand start-up scene.”

    An attractive destination

    New Zealand ticks all of the boxes for conference planners – world-class infrastructure, unique natural attractions, sophisticated leisure activities and easy access thanks to a growing number of direct international flights. There is also increasing interest in local expertise.

    “We have developed partnerships with universities working in areas where we excel such as the marine industry, agribusiness, health science and high-value foods and wines,” says Lisa Gardiner, manager, international business events and premium, at Tourism New Zealand (TNZ).

    Three years ago, an injection of government funding enabled TNZ to sharpen its focus on international business events. “In the last financial year we won business worth over NZ$96 million,” says Gardiner. “We also secured incentive business from China worth at least NZ$50 million by taking a different approach to hosting very large groups. In 2018, Amway China will send 10,000 of its elite sales people to Queenstown in waves of 500.”

    Gardiner’s team is currently building a pipeline of visitors for the New Zealand International Conference Centre, which is scheduled to open in 2019.

    “This will give us the capacity to cater for conferences of up to 3,150 delegates and one-off events for as many as 4,000 people,” she says.

    Drawing women into agriculture

    Agriculture is the backbone of New Zealand’s economy with more than 95 per cent of agricultural production being exported. China is the country’s largest market, followed by the US and the United Arab Emirates.

    The 12-nation Trans-Pacific Partnership (TPP) should have been New Zealand’s first-ever trade agreement with the US but its future is now in doubt. This uncertainty, coupled with Brexit, foreshadows more challenging times ahead.

    “These developments are likely to sharpen the focus on Asia, though we can’t afford to become too dependent on any particular market,” says Lindy Nelson, founder and executive director of Agri-Women’s Development Trust (AWDT). “The recent downturn in demand for milk from China showed how quickly things can change.”

    She sees sustainability at the top of the value chain. “A lot of our primary producers are still stuck in the commodity mindset, when New Zealand could be a luxury brand,” she says. “I believe we should concentrate on supplying high-end products to people who appreciate all that New Zealand has to offer and can afford to pay for it.”

    She also believes that women have a crucial role to play in changing the face of agriculture.

    “In my experience, women tend to be both consumer and people-orientated with an understanding of the whole dynamic of an agribusiness,” she says. “But, as a sheep and beef farmer as well as a director, it’s been obvious to me for some time that many highly-talented women aren’t engaging where the decisions are being made, whether that’s in a corporate boardroom or at their own kitchen table.”

    In 2010, after completing three years of research, Nelson founded AWDT with the aim of developing the capability and confidence of women in agriculture.

    “We currently have around 600 women a year going through our programs,” she says. “Our four-year goal is to provide that opportunity to 25 per cent of the women in our sector.”

    Graduates of the AWDT’s industry leadership and governance program are already sitting on the boards of the country’s biggest agribusinesses as well as district and regional councils. The organisation’s on-farm program is also helping to transform the way that farming businesses are governed and managed.

    “Many women who marry farmers have no independent farming experience,” says Nelson. “We not only provide them with the technical skills they need to instigate change but also the communication skills that will enable them to work in close partnership with their husbands as well as industry leaders.”

    Doing business in New Zealand: The key facts

    • New Zealand saw a higher than expected rise of 1.1 per cent in gross domestic product (GDP) in the September 2016 quarter.
    • In terms of economic growth, the rise in GDP put New Zealand ahead of Australia, the US, Canada and the Eurozone.
    • Auckland is a main economic power house of the country, with population growth and a buoyant property market fuelling growth.
    • The 1985 Australia-New Zealand Closer Economic Relations Trade Agreement is one of the most comprehensive bilateral free trade agreements in existence.
    • Dual listing on the ASX and NZX stock exchange continues to prove popular with New Zealand companies looking to access a more attractive share register with more institutional shareholders.
    • Collaboration is key and Australian-based investors and corporate organisations should look into the potential benefits of engaging with the New Zealand start-up scene.
    • Agriculture is the backbone of New Zealand’s economy with more than 95 per cent of agricultural production being exported.

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