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Country Profile Series

New Zealand In-depth PESTLE insights

PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied

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OHCP0163/Published 06/2014 Page 1

OVERVIEW Catalyst This profile analyzes the political, economic, social, technological, legal and environmental (PESTLE) structure in New Zealand. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.

Summary Key findings The country has a strong political system, but controversial reform policies of the opposition are a cause for concern New Zealand's governance indicators are good, with a 98.10 percentile on the voice and accountability parameter in 2012. This parameter measures the extent to which citizens of a particular country are able to participate in selecting their government, along with freedom of expression, freedom of association, and the availability of free media. The country ranks high due to its openness and liberal attitude toward the press. The country's percentile ranking was 97.16 for political stability and absence of violence. In April 2014, the opposition Labour Party presented a number of policy proposals to remove or at least narrow down the country's current-account deficit; these include increasing New Zealand's low savings rate; reducing high interest rates, correcting overvalued exchange rate and controlling rising real estate prices. Although the proposed policies have valid arguments for dampening real estate prices, it is a moot point whether the measures would reduce the current account deficit. The country has a resilient banking sector; however, containing the current account deficit will be a challenge for the authorities The country has a resilient banking sector that has weathered the global financial crisis well. The banking sector's capital adequacy has improved a lot since the financial crisis in 2007 and as of 2013, the core Tier 1 capital ratio was 11.4% of total risk weighted assets (RWA). Higher tier 1 capital ratio increases the banking system's ability to take a hit on their balance sheets if assets go bad; therefore, probability of insolvency decreases for the respective banks. The system's capital adequacy has remained well above Basel III standards. Profitability has increased for the banks, as evident from the improvement in the return on assets, which had returned to pre-global financial crisis levels by the end of 2013. Further, non-performing assets also witnessed a declining trend as economic conditions improved. However, the current account deficit has gradually been on the rise since 2009, which has been an area of concern. According to the OECD, the current account deficit stood at 3.3% of GDP in 2013, up from a deficit of 2.3% in 2009. The current account narrowed down in 2013 compared to 2012, on the back of strong terms of trade; however, it is expected to widen in 2014 as investment and domestic consumption remains strong. Rising current account deficit is expected to be a major challenge to the economy in the medium term. The country boasts of a strong education sector, but increasing disparity of income is an area of concern The country also boasts of a strong education sector, which reflects in high enrolment rates of 5-14 year-olds, which was at 100% in 2011, according to the OECD. In addition, the percentage of 25-64 year-olds that had attained tertiary PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


education stood at 39%, compared to the OECD average of 31% in 2011. Further, the entry rate into tertiary education (university programmes Tertiary-Type A or equivalent to Bachelor degree programmes in English speaking countries) was 76% in 2011 for New Zealand, compared to the OECD average of 60%. The above figures prove that the education sector in New Zealand is robust. New Zealand has witnessed an increase in disparity of income during the mid-1980s and late 2000s. The bottom decile's income grew at a lesser rate than Australia and the OECD average. However, it grew at a higher rate than in Canada during the period. As the government undertakes fiscal measures to strengthen public finances, the disparity in income may increase further. The country has significant capabilities for innovation, but government subsidies to foster research and development are low The country's accumulated scientific skills and the institutional capabilities of public research organizations in New Zealand are the strongest facets of the country's innovation system. The country is also working toward ramping up its innovation potential in the high-tech manufacturing and services sectors. As part of the effort, the government has announced that it will develop an advanced technology institute to boost science and innovation in the country. The country has already invested in reforming the Crown Research Institutes (CRIs) and has increased support for businesses, which has resulted in increased private investment. Under the newly created Ministry of Science and Innovation (MSI), the country has simplified funding processes, supported commercialization units, and invested in science infrastructure. However, the government's incentives to foster R&D are among the lowest in the OECD. This could be harmful in the long run and hinder the country's ambitions for technology leadership. Corruption is almost non-existent, but the tightening of foreign investment regulations is a concern The country is significantly free from corruption. According to Transparency International's 2013 Corruption Perceptions Index, New Zealand topped the list of 177 countries. According to Transparency international, the country's top ranking is due to strong law enforcement, public participation in fighting corruption and transparency mechanisms such as disclosure of information. The country's press also enjoys a high degree of freedom that allows it to expose corruption. However, the tightening of foreign investment regulations has come as a dampener to industry. The country's amendment to the Overseas Investment Act 2005 has allowed it to control its interests, instead of just protecting its assets. In January 2011, the government tightened its rules on foreign ownership of agricultural property, introducing two criteria to give ministers more flexibility when considering foreign investments in farmland. These measures will make it harder for foreign companies to acquire a large stake in New Zealand companies and deter foreign investment. It will also put pressure on the country's current account balance, which is already weak. The country follows strong environmental policies, but low taxes on fuel is a challenge New Zealand has a well-developed system of environmental policies encompassing various issues of environmental protection and the conservation of ecosystems. The country has policies monitoring air quality, biodiversity, climate change, energy, hazardous substances, resources and wastage. The government has also started a new carbon-trading scheme in 2007, forcing companies to pay for the quotas and thus control carbon emissions. The country is also a signatory to all the major international environmental pacts. The country's strong environmental stand bodes well for the ecological balance as well as the future of the country. However, New Zealand charges relatively low transport fuel taxes. The country has a comparatively low tax share from the sale of gasoline and diesel, which indirectly encourages fuel consumption and leads to more pollution. The price of PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


scarce energy resources should take into account the environmental and social costs, and introducing a tax is an effective way to curb the reckless use of non-renewable natural resources. Moreover, the distortive pricing mechanism is inhibiting the development of green technologies and entrepreneurship. PESTLE highlights Political landscape 

The National Party has been able to maintain a consistent lead over the opposition labor party despite suffering a setback in popularity in March 2014 after some of the ministers in the government made some embarrassing slip-ups. Popularity ratings for the National Party ranged between 43%-47%, while combined popularity ratings for Labour and its potential coalition partner, the Green Party, was between 42-45.5%.



The country aims to conclude FTA negotiations with South Korea and aims to strengthen relations with India through the signing of an FTA. FTA negotiations with Russia, Belarus, and Kazakhstan, are underway.

Economic landscape 

The country secured the third position in ease of starting a business, according to Doing Business 2014. It takes only one procedure to start a business compared to the OECD average of five procedures. Further, only half a day is required to start a business in New Zealand, well below the OECD average of 11.1 days.



Household debt was very high in New Zealand as of 2013. In the years prior to 2007, household debt increased sharply due to strong activity in the real estate market and rising property prices, fueled by a historically low interest rate.

Social landscape 

According to the UNDP Human Development Report 2013, the HDI for the country is 0.919 and it is ranked sixth among 187 countries, a credible achievement.



According to MarketLine, total healthcare expenditure in the country in 2012 was $18.14 billion, or 10.75% of GDP. Healthcare expenditure averaged 8.91% of GDP during 2000-12.

Technological landscape 

In the communications sector, the mobile subscribers grew at an average of around 9.90% during 2000-13, with total subscribers recorded at 5.01 million in 2013 and a penetration rate of 112.00 per 100 people in the same year.



New Zealand has received very few patents compared with other developed countries. Although the country is economically well developed, it has not been able to perform well in terms of innovation.

Legal landscape 

New Zealand's total tax rate is among the lowest in the in the Asia Pacific, according Paying Taxes 2014. New Zealand's total tax rate (aggregate of profit taxes, labor taxes and other taxes) was 34.6% compared to Australia (47%), Japan (49.7%) and Asia Pacific average (36.4%).



New Zealand has not performed well in product market regulation during 2008-13. Product market indicators are a set of metrics that measure the extent to which policies framed by the government



promote or inhibit competition in areas where competition is possible. Many of the sectors are more regulated when compared to other OECD countries. This is indicative of a less competition-friendly market and near monopolies in various sectors. Environmental landscape 

The country's CO2 emissions have decreased from 40.39 million metric tons in 2005 to around 37.17 million metric tons in 2011.



Greenhouse gas (GHG) emission intensities per capita remains one of the highest among the OECD nations. In addition, GHG emissions per unit of GDP was 0.6 tonnes CO2 eq. per 1000 USD in 2010, compared to the OECD average of 0.4, which suggests inefficiencies in the consumption of energy.

Key fundamentals

Table 1:

New Zealand - key fundamentals

GDP, constant 2005 prices ($ billion) GDP growth rate (%) Inflation (%)

2007

2008

2009

2010

2011

2012

2013

137.25

142.11

139.46

142.52

143.44

146.80

150.67

1.87

3.54

-1.87

2.19

0.65

2.34

2.64

2.38

3.97

2.13

2.30

4.43

1.33

1.04

Exports (total as a percentage of GDP)

27.32

30.00

27.71

28.52

29.57

27.96

28.09

Imports (total as a percentage of GDP)

30.10

33.22

28.10

28.18

29.73

29.18

29.27

Mid-year population, total (millions)

4.23

4.27

4.32

4.37

4.41

4.43

4.47

Unemployment rate (%)

3.66

4.18

6.13

6.53

6.52

6.90

6.16

100.33

107.64

108.63

107.68

109.14

110.28

112.00

Mobile penetration (per 100 people)

Source: Country Statistics, MarketLine and Statistics New Zealand


MARKETLINE


TABLE OF CONTENTS Overview

2

Catalyst

2

Summary

2

Key Facts and Geographic Location

12

Key facts

12

Geographical location

13

PESTLE Analysis

14

Summary

14

Political analysis

15

Economic analysis

18

Social analysis

28

Technological analysis

32

Legal analysis

35

Environmental analysis

39

Political Landscape

43

Summary

43

Evolution

43

Structure and policies

45

Performance

48

Outlook

48

Economic Landscape

50

Summary

50

Evolution

50


51

Performance

53



Outlook Social Landscape

60 61

Summary

61

Evolution

61


61

Performance

63

Outlook

65

Technological Landscape

66

Summary

66

Evolution

66


66

Performance

68

Outlook

69

Legal Landscape

70

Summary

70

Evolution

70


70

Performance

71

Outlook

72

Environmental Landscape

73

Summary

73

Evolution

73


73

Performance

74

Outlook

75

Appendix PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied

76 OHCP0163/Published 06/2014 Page 7

Ask the analyst

76

Disclaimer

76



TABLE OF FIGURES Figure 1:

Map of the New Zealand

13

Figure 2:

New Zealand banking sector Tier 1 ratio

19

Figure 3:

New Zealand banking sector profitability

19

Figure 4:

New Zealand banking sector non-performing assets

20

Figure 5:

New Zealand banking sector core funding ratio

20

Figure 6:

Current account balance

22

Figure 7:

External liability, New Zealand

22

Figure 8:

Total domestic value added share of gross exports, 2009

23

Figure 9:

GVC participation index in OECD countries, 2009

24

Figure 10:

New Zealand exports

24

Figure 11:

Household debt and real estate market

26

Figure 12:

Household debt and real estate market contd…

27

Figure 13:

Real household income by income group, mid-1980s to late 2000s

29

Figure 14:

Gini coefficient of household disposable income, 2010

30

Figure 15:

Dependency ratio

31

Figure 16:

Gross public spending by benefit of in-kind for the total population, 2009

31

Figure 17:

R&D spending, 2011

33

Figure 18:

Direct public funding of business R&D

34

Figure 19:

Tax subsidy rates on R&D expenditures, 2013

34

Figure 20:

FDI restrictions in selected countries

36

Figure 21:

FDI restrictions in New Zealand (by sector), 2013

37

Figure 22:

Product Market Regulations New Zealand, 2013

38

Figure 23:

Renewable energy supply in New Zealand

40

Figure 24:

Change in greenhouse gas (GHG) emissions, since 1990

41

Figure 25:

Greenhouse gas (GHG) emission intensities per capita, 2010

41

Figure 26:

CO2 prices implicit in diesel and petrol excise taxes after adjusting for externalities, 2013 1st quarter

42

Figure 27:

New Zealand - key political events

44

Figure 28:

New Zealand - Key political figures

45

Figure 29:

New Zealand - composition of parliament

46

Figure 30:

Evolution of GDP growth in New Zealand, 2003-2013

51

Figure 31:

GDP and GDP growth rate of New Zealand, 2003-13

53



Figure 32:

Sectoral composition of GDP in New Zealand, 2013

54

Figure 33:

Agricultural output in New Zealand, 2008-13

55

Figure 34:

Industrial output in New Zealand, 2008-13

56

Figure 35:

Services output in New Zealand, 2008-13

57

Figure 36:

New Zealand's external trade position, 2009-13

58

Figure 37:

Consumer price index and CPI-based inflation in New Zealand, 2007-17

59

Figure 38:

Unemployment in New Zealand, 2007-17

60

Figure 39:

Healthcare expenditure in New Zealand, 2006-12

64

Figure 40:

Education expenditure in New Zealand, 2006-12

65

Figure 41:

Internet subscribers in New Zealand, 2008-12

68

Figure 42:

Carbon dioxide emissions in New Zealand, 2004-11

75



TABLE OF TABLES Table 1:

New Zealand - key fundamentals

Table 2:

New Zealand - key facts

12

Table 3:

Analysis of New Zealand's political landscape

15

Table 4:

Analysis of New Zealand's economic landscape

18

Table 5:

Analysis of New Zealand's social landscape

28

Table 6:

Analysis of New Zealand's technology landscape

32

Table 7:

Analysis of New Zealand's legal landscape

35

Table 8:

Analysis of New Zealand's environmental landscape

39

Table 9:

Mid-year population by age (as % of Population), 2014

62

Table 10:

5

Patents received from the USPTO, 2010-13


67



KEY FACTS AND GEOGRAPHIC LOCATION Key facts Table 2:

New Zealand - key facts

Country and capital Full name

New Zealand

Capital city

Wellington

Government Government type

Parliamentary democracy and a Commonwealth realm

Head of state

Queen Elizabeth II represented by Governor General Lt. Gen Sir Jerry Mateparae

Head of government

Prime Minister John Key

Population (2014 est.)

4.51 million

Currency

New Zealand dollar

GDP, 2005 constant prices (2014)

$28,881.97

Internet domain

.nz

Demographic details Life expectancy (2014 est.)

80.90 years (total population) 78.90 years (men) 83.10 years (women)

Ethnic composition (2013 est.)

European (71.2%), Maori (14.1%), Asian (11.3%), Pacific peoples (7.6%), Middle Eastern, Latin American, African (1.1%), other( 1.6%), not stated or unidentified (5.4%).

Major religions (2013 est.)

Christian (44.3%), Hindu (2.1%), Buddhist (1.4%), Maori Christian (1.3%), Islam (1.1%), other religion (1.4%), no religion (38.5%), not stated or unidentified (8.2%), objected to answering (4.1%).

Country area

267,710 sq. km

Language (2013 est.)

English [de facto official] (89.8%), Maori [de jure official] (3.5%), Samoan 2%, Hindi (1.6%), French (1.2%), Northern Chinese (1.2%), Yue (1%), Other or not stated (20.5%), New Zealand Sign Language (de jure official) (shares sum to 120.8% due to multiple responses on census).

Exports

Dairy products, meat, wood and wood products, fish, machinery.

Imports

Machinery and equipment, vehicles, aircraft, petroleum, electronics, textiles, plastics.

Source: CIA - The World Factbook and Country Statistics, MarketLine


MARKETLINE



Geographical location New Zealand is located in the South Pacific Ocean, southeast of Australia.

Figure 1:

Map of the New Zealand

Source: CIA - The World Factbook


MARKETLINE


PESTLE Analysis

PESTLE ANALYSIS Summary New Zealand's political system is strong with a proportional representation system that gives equal opportunity to both males and females. The country has very high scores in the World Bank governance indicators for 2011. The National Party won the November 2011 elections, and formed a coalition government with the support of ACT New Zealand and the United Future Party. The government is also taking adequate measures to return to a budget surplus by 2015. However, the unwieldy coalition and the government's controversial policies could exert pressure on the nation's political stability. The country's economy is well supported by a resilient banking sector. Rising house prices in New Zealand remain a concern as this could lead households towards debt-financed consumption and could affect their balance sheets if prices corrected abruptly. Another cause for concern is New Zealand's low trade intensity (calculated as aggregate of nominal exports and imports of goods and services divided by GDP) compared to its OECD counterparts as of 2013.This has remained stagnant since the 1980s, in spite of increasing globalization during the past three decades, which is a cause for concern. However, low debt would help the country retain its good credit rating and will keep international borrowing costs low, which is a positive for the economy. The social landscape of the country is strong with a streamlined social welfare system, healthcare services, and education. According to the UNDP Human Development Report 2013, the HDI for the country is 0.919 and it is ranked sixth among 187 countries, a credible achievement. New Zealand is well equipped with institutional capabilities for innovation and R&D. The R&D expenditure in the country is also increasing. The country also boasts of a strong information and communications technology (ICT) sector that is expected to increase employment opportunities as well as enable the government to offer its services to the public. However, a low level of R&D spending is posing a significant challenge to its technological development. Added to this, regulatory risks in the telecom industry could impact the growing ICT sector. New Zealand has a strong competition policy and boasts of a favorable business environment. The country is significantly free from corruption. However, tightening of foreign investment regulations is a challenge. New Zealand's environmental affairs are well managed, with various policies being implemented for environmental conservation. The country has placed a lot of emphasis on renewable energy; renewables had a 37% share in the total primary energy supply in 2012, which is the third highest in the OECD. In the same year, renewable sources contributed 73% of New Zealand's electricity generation.



PESTLE Analysis Political analysis Overview New Zealand's political system has a proportional representation system that gives equal opportunity to both males and females. The country has very high scores in the World Bank governance indicators for 2011, which indicates a strong democratic set-up and political stability in the country. New Zealand's National Party won the November 2011 elections, and formed a coalition government with the support of ACT, Maori and the United Future Party (the party was dissolved in mid-2013 by the election commission as membership fell below a minimum threshold). The government is following a pragmatic foreign policy that bodes well for its economy. However, the unwieldy coalition and the opposition's proposed controversial policies could exert pressure on New Zealand's economic stability.

Table 3:

Analysis of New Zealand's political landscape

Current strengths

Current challenges

▪ Robust performer on governance indicators

▪ Unwieldy coalition

▪ Pragmatic foreign relations

Future prospects

Future risks

▪ Major party in the ruling coalition leads in the polls

▪ Controversial reform policies from the opposition

Source: MarketLine

MARKETLINE

Robust performer on governance indicators New Zealand's governance indicators are good, with a 98.10 percentile on the voice and accountability parameter in 2012. This parameter measures the extent to which citizens of a particular country are able to participate in selecting their government, along with freedom of expression, freedom of association, and the availability of free media. The country ranks high due to its openness and liberal attitude toward the press. The country's percentile ranking was 97.16 for political stability and absence of violence. Further, the country's percentile ranking has been above 95 for other governance parameters such as government effectiveness, regulatory quality, rule of law, and control of corruption as of 2012. The country's percentile rankings were higher than its neighbor Australia in all indicators. The country scored one of the highest percentiles of 99.52 on control of corruption in 2012. The high governance scores reflect well on the country's strong democratic set-up and regulatory landscape. Pragmatic foreign relations The country is also executing the New Zealand Inc. strategy, which aims to improve the country's external trade through strong foreign relations. The strategy is expected to cover India, China, ASEAN, Australia and the Gulf Cooperation Council (GCC). The country has already signed an FTA with China in 2008, and the New Zealand-Hong Kong China Closer Economic Partnership was signed in 2011. Furthermore, the country signed FTA with Taiwan in July 2013. The country has good relations with the US, Japan, and South Korea, and aims to strengthen its relationship with the Association of Southeast Asian Nations (ASEAN) and the Closer External Relations (CER) agreement with Australia. New Zealand has already signed the ASEAN-Australia-New Zealand Free Trade Agreement in 2010 and is pursuing the Trans-Pacific Partnership (TPP) for free trade agreements (FTAs) in Asia Pacific. The country aims to conclude FTA PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis negotiations with South Korea and aims to strengthen relations with India through the signing of an FTA. FTA negotiations with Russia, Belarus, and Kazakhstan, are underway. The country has also been able to successfully conclude negotiations on the FTA with the GCC, which can offer improved access to Saudi Arabia, the UAE, Qatar, Bahrain, Oman, and Kuwait if implemented; but as of June 2014, the FTA was not yet signed. It is also collaborating with the countries of the Pacific Islands. As part of its efforts to improve its relations with Africa, the country has appointed an ambassador to the African Union. In addition, New Zealand is contemplating starting negotiations with Japan on an FTA. The country's foreign policy is focused on signing FTAs with other countries, which is expected to help it economically as it is highly dependent on international trade. Current challenges Unwieldy coalition New Zealand's National Party formed a new coalition government in December 2011 after winning the elections for the second time in November 2011. The National Party, under John Key's leadership, struck a deal with ACT, Maori and the United Future Party (the party was dissolved by the election commission in mid-2013 as membership fell below a minimum threshold, however, the only MP of the party retained his place in the parliament as an independent candidate) to form the new coalition government. The minor coalition partners are expected to have an independent voice. In the new coalition government, the minor parties have been assigned junior ministerial portfolios. However, this arrangement is bound to raise its own challenges. With regard to issues beyond ministerial purview, coalition partners could decide to support the government on a case-by-case basis. The views of the minor parties may be incompatible with the National Party on some issues, which could create obstacles in policy implementation. Future prospects Major party in the ruling coalition leads in the polls The National Party has been able to maintain a consistent lead over the opposition labor party despite suffering a setback in popularity in March 2014 after some of the ministers in the government made some embarrassing slip-ups. Popularity ratings for the National Party ranged between 43%-47%, while combined popularity ratings for Labour and its potential coalition partner, the Green Party, was between 42-45.5%. Further, in March 2014, the opposition Labour Party leader David Cunliffe's apology to its party members over revelations of using a blind trust in accepting donations for his party-leadership campaign in 2013 dented the Labour Party's image, especially as the party has been critical of such trust. The National party is betting on its achievements in managing the economy: strong GDP growth in 2013, surging consumer confidence, falling unemployment, narrow budget deficits and rising trade balance in getting re-elected in the September 2014 elections. The Labour Party's campaigns concentrate on income inequality, child poverty and higher cost of living. Future risks Controversial reform policies from the opposition In April 2014, the opposition Labour Party presented a number of policy proposals to narrow down the country's currentaccount deficit, increase New Zealand's low savings rate, reduce high interest rates, correct overvalued exchange rate and dampen down rising real estate prices. Although, the proposed policies with regard to dampening real estate prices have valid arguments, but proposals with regard to eliminating current account deficit and others remain controversial. In one proposal, the Labour Party wanted to extend the Reserve Bank of New Zealand (RBNZ, the central bank) mandate from only maintaining price stability (like the European Central Bank) to "enhance New Zealand's economic PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis welfare through maintaining stability in the general level of prices in a manner which best assists in achieving a positive external balance." The US Federal Reserve also has multiple mandates of promoting maximum employment, price stability and moderate long-term interest rates; however, the Labour Party's explicit mandate for RBNZ of achieving positive current account balance is nearly unheard of in central banking history. Furthermore, it will be difficult for the RBNZ to achieve that mandate as savings rate in New Zealand is low, interest rates are higher than most of the developed countries and the currency remains overvalued. There is a mismatch in saving (New Zealand has lower saving rate than investment) and investment, which has resulted in persistent deficits over the years which has to be funded by overseas capital. It is a moot point whether the country would achieve current account surplus at the expense of restricting foreign investment. International investors' willingness to invest into New Zealand's economy despite persistent current account deficit, signals their confidence in the economy. Moreover, the proposed move to achieve positive current account balance also could depreciate the currency, which will increase the considerable external liabilities (close to 70% of GDP) of New Zealand in local currency. Hence, in an effort to achieve positive current account balance, the RBNZ may hamper investor's confidence in the economy. In another proposal, the Labour Party has suggested to make Kiwisaver (the government managed, defined-contribution pension plan) binding for all salaried employees, apart from raising the minimum contribution level for both employees and employers. The proposal could result in the reduction of liabilities for the government, besides increasing savings available for investments, which would improve productivity and economic growth. However, the downside risks from the planned move is likely to reduce disposable income and would hurt domestic demand, which may slow down economic growth, given the fact that private consumption accounted for close to 60% of GDP as of 2013. The more controversial part of the same proposal is that the RBNZ will be able to place a request with the government to alter the Kiwisaver contribution rates. The move is debatable, as this will bring irregularity in the take home pay for employees. Nevertheless, the proposal has been made with the intention of providing the RBNZ a supplementary policy tool to control consumption and borrowing in the economy without changing the OCR (Official Cash Rate, the official interest rate benchmark in New Zealand). Moreover, the new supplementary tool is vulnerable to politicization as the government may resist the rise in contribution rates suggested by the central bank as it would reduce household income and will be a politically unpopular move for the government in power. The effectiveness of the additional tool is dependent on the central bank's exclusive authority to alter the rates, which is not what the Labour Party has proposed. Further, the rise in rates may encourage households to cut saving elsewhere or increasing debt to compensate, which in turn would specifically hurt low-income earners with lower disposable income. In consideration of this fact, the Labour Party has proposed to exempt the low-income households for the raise in contribution rates but this exclusion would render the tool ineffective. If a Labour Party dominated government comes to power after the September 2014 elections, and goes ahead with implementing the above-discussed policies, it may have an adverse impact on the economy.



PESTLE Analysis

Economic analysis Overview The New Zealand economy is well supported by a strong banking sector and a favorable regulatory landscape. This has made the country an attractive destination for foreign investors. However, the country's current account deficit and elevated house prices are a cause for concern. Public finances are improving gradually.

Table 4:

Analysis of New Zealand's economic landscape

Current strengths

Current challenges

▪ Resilient banking sector

▪ Containing current account deficit

▪ Ease of starting a business

▪ Low trade intensity

Future prospects

Future risks

▪ Improving public finances

▪ High household debt and elevated house prices

Source: MarketLine

MARKETLINE

Current strengths Resilient banking sector The country has a resilient banking sector that weathered the global financial crisis well. As of May 2014, there were 22 registered banks in the country. Australia and New Zealand Banking Group, Auckland Savings Bank, Bank of New Zealand, Kiwibank, and Westpac are the five main trading banks. Australian banks have a major involvement in New Zealand, with close to one fifth of the banks being Australian, including the four largest by assets. The Australian banking system has been found to be relatively resilient in the latest stress test, which indicates that New Zealand's banking system is expected to remain stable. The banking sector's capital adequacy has improved a lot since the financial crisis in 2007 and as of 2013, the core Tier 1 capital ratio was 11.4% of total risk weighted assets (RWA). Higher tier 1 capital ratio increases the banking system's ability to take a hit on their balance sheets if more assets go bad; therefore, probability of insolvency decreases for the respective banks. Capital adequacy remains well above Basel III standards. Profitability has increased for the banks, as evident from the improvement in the return on assets, which had returned to pre-global financial crisis levels by the end of 2013. Further, non-performing assets also witnessed a declining trend as economic conditions improved. The rural and commercial property sectors have seen most declines in non-performing loans as a share of sectoral lending during the previous two years. Funding risks have reduced as a gradual shift towards core funding sources--customer deposits, longer term wholesale borrowing, and bank capital is being observed. The implications are that the banking sector has reduced its dependency on offshore wholesale funding, besides lengthening the maturity period of the funds; this has reduced risks from short-term fluctuations in the financial markets.



PESTLE Analysis

New Zealand banking sector Tier 1 ratio

12.0 10.0 8.0

6.0 4.0

2.0

Jan-14

Jun-13

Nov-12

Apr-12

Sep-11

Feb-11

Jul-10

Dec-09

May-09

Oct-08

Mar-08

Aug-07

Jan-07

Jun-06

Nov-05

Apr-05

Sep-04

Feb-04

Jul-03

Dec-02

May-02

Oct-01

Mar-01

Aug-00

0.0

Jan-00

Percentage of risk weighted assets

Figure 2:

Min. Tier 1 capital ratio (+ conservation buffer) Tier 1 capital ratio Common equity Tier 1 ratio Source: Reserve Bank of New Zealand (RBNZ)

Figure 3:

MARKETLINE

New Zealand banking sector profitability

4.0

Percentage of assets

3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Net interest income

Other operating income

Operating expense

Impaired asset expense

Non-operating income/expense

Tax

2012

2013

Return on assets Source: Reserve Bank of New Zealand (RBNZ)


MARKETLINE


PESTLE Analysis

Figure 4:

New Zealand banking sector non-performing assets

4.0

Percentage of sectoral lending

3.5 3.0 2.5 2.0

1.5 1.0 0.5 0.0 Housing

Rural Sep-11

Commercial property

Mar-12

Sep-12

Mar-13

SME and Corporate Sep-13

Total

Mar-14

Source: Reserve Bank of New Zealand (RBNZ)

Figure 5:

MARKETLINE

New Zealand banking sector core funding ratio

100.0

Percentage of loans and advances

90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0

Minimum CFR

Jan-14

Jun-13

Nov-12

Apr-12

Sep-11

Jul-10

Feb-11

Dec-09

May-09

Oct-08

Aug-07

Mar-08

Jan-07

Jun-06

Nov-05

Apr-05

Sep-04

Feb-04

Jul-03

Dec-02

May-02

Oct-01

Mar-01

Aug-00

Jan-00

0.0

Core Funding Ratio



MARKETLINE


PESTLE Analysis Ease of starting a business The country secured the third position in ease of starting a business, according to Doing Business 2014. It takes only one procedure to start a business compared to the OECD average of five procedures. Further, only half a day is required to start a business in New Zealand, well below the OECD average of 11.1 days. In New Zealand, only 0.3% cost (percentage of income per capita) is required to start a business, which has been outstanding even when compared to the OECD average of 3.6%. In addition, New Zealand has fared better than the OECD average in other indicators such as dealing with construction permits, getting electricity, registering property, paying taxes enforcing contracts and in resolving insolvency. These indicators speak favorably about the business friendly environment in New Zealand. Current challenges Containing current account deficit The current account deficit has gradually been on the rise since 2009, which has been an area of concern. According to the OECD, the current account deficit stood at 3.3% of GDP in 2013, up from a deficit of 2.3% in 2009. The current account narrowed down in 2013 from 2012, on the back of strong terms of trade; however, it is expected to widen in 2014 as investment and domestic consumption remains strong. In addition, investments related to the post-earthquake reconstruction will not help in containing the deficit. The persistent large current account deficits are a combination of structural and short-term factors. Structural factors are those such as savings-investment imbalances on account of low household savings. A low savings rate implies that the country's investment needs are met by massive capital inflows attracted by the higher domestic interest rate. These capital flows increased the external liabilities of New Zealand. The IMF's external stability approach suggests that New Zealand's current account deficit should be around 3.75% of GDP over the medium term for its external liabilities to stabilize. For this to happen, taking into account the estimated trade elasticities, the New Zealand dollar should depreciate by 11% from the current level, which will help in providing a boost to exports and containing the deficit within the required level of 3.75% of GDP. In addition, increasing appetite for the relatively safe asset status of New Zealand, a favorable growth outlook and excess global liquidity because of accommodative monetary policies by various central banks, have increased portfolio inflows into New Zealand. This has contributed to its increased external liability, besides keeping the New Zealand dollar overvalued. According to IMF estimates, as of mid-2014, the New Zealand dollar is overvalued between 5%-15% over its medium term fundamentals. This has hurt export competitiveness of non-agricultural tradable goods sector. Policymakers must strive to frame policies to increase the household saving rate of New Zealand, as only this can help in the reduction of the current account deficit in the longer term.



PESTLE Analysis

Figure 6:

Current account balance

4 3

Percentage of GDP

2 1 0 -1 -2 -3 -4 -5 2009 Australia

2010

Canada

Japan

2011

New Zealand

2012

United Kingdom

United States

2013 Euro area (18 countries)

Source: OECD

Figure 7:

MARKETLINE

External liability, New Zealand

100.0

90.0

Percentage of nominal GDP

80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0

Net external liabilities

Net debt - banks



Dec-13

Jun-13

Jun-12

Dec-12

Dec-11

Jun-11

Dec-10

Jun-10

Dec-09

Jun-09

Dec-08

Jun-08

Dec-07

Jun-07

Dec-06

Jun-06

Dec-05

Jun-05

Dec-04

Jun-04

Jun-03

Dec-03

Dec-02

Jun-02

Dec-01

0.0

Net debt - government MARKETLINE


PESTLE Analysis Low trade intensity New Zealand's trade intensity (calculated as aggregate of nominal exports and imports of goods and services divided by GDP) was low compared to many of its OECD counterparts as of 2013. This has remained mostly stagnant since the 1980s, in spite of increasing globalization during the past three decades. This may be attributed to its geographical remoteness. The latest DHL Global Connectedness Index 2012 ranks New Zealand in the 33rd position out of 140 countries, which is behind many of its Western peers. This does not look optimistic as a vibrant tradable sector is expected to boost productivity and help in the diffusion of foreign technologies and knowledge. Generally, very large economies (including geographically) or major producers of commodities (energy, mineral resource and agricultural goods), tend to have high total domestic value added share of gross exports. New Zealand is not an aberration since it is also a large exporter of commodities (dairy products), which does not require extensive participation in global value chains. New Zealand's share in global value chains (GVCs) was one of the lowest in the OECD, according to the OECD-WTO Trade in Value Added (TiVA) database. However, relying mainly on commodities, especially on dairy products, is a risk as fluctuations in demand and price affect the economy. To increase its trade intensity, the country must diversify its exports to other areas, which requires extensive participation in GVCs. Apart from increasing trade intensity, participation also helps in growth, employment generation, technology transfer and improved productivity. Lagging in this indicator may also indicate that New Zealand may have missed one of the major benefits of globalization; i.e., enhancing productivity and technology transfer. Given New Zealand's strong institutions and a skilled labor force, which gives the country a comparative advantage, it should try to increase its participation in the GVCs to explore its potential in other areas of exports.

Figure 8:

Total domestic value added share of gross exports, 2009

120

100

Peercentage

80

60

40

20

Saudi Arabia Russian Federation Brazil United States Brunei Darussalam Argentina Australia Rest of the World EU27 Indonesia Japan Norway South Africa United Kingdom New Zealand Chile Canada Italy Spain Turkey India Greece Romania France Latvia Germany Poland Switzerland Hong Kong, China Mexico Israel Austria Denmark Bulgaria Portugal China Estonia Sweden Finland Cambodia Slovenia Thailand Belgium Netherlands Lithuania Iceland Viet Nam Malta Malaysia Philippines Czech Republic Hungary Korea Chinese Taipei Ireland Slovak Republic Singapore Luxembourg

0

Source: OECD


MARKETLINE


Jun-94

Exports to China

Source: OECD



Dec-13

Mar-13

Source: OECD

Jun-12

Sep-11

Dec-10

Mar-10

Jun-09

Sep-08

Dec-07

Mar-07

Jun-06

Sep-05

Dec-04

Mar-04

Backward participation

Jun-03

Sep-02

Dec-01

Mar-01

Jun-00

Sep-99

Dec-98

Mar-98

Jun-97

Sep-96

Dec-95

Mar-95

Luxembourg Slovak Republic Czech Republic Korea Ireland Belgium Netherlands Hungary Austria Finland Sweden Iceland Estonia Norway Slovenia Switzerland Portugal Denmark Israel Germany Poland Chile France Japan Greece United Kingdom Mexico Spain Italy Australia United States Turkey Canada New Zealand

Percentage

Figure 9:

Sep-93

Dec-92

Percentage of exports

PESTLE Analysis

GVC participation index in OECD countries, 2009

80%

70%

60%

50%

40%

30%

20%

10%

0%

Forward participation MARKETLINE

Figure 10: New Zealand exports

30.0

25.0

20.0

15.0

10.0

5.0

0.0

Dairy exports

MARKETLINE

PESTLE Analysis Future prospects Improving public finances The primary deficit came down to 0.6% of GDP in 2013, from 1.4% of GDP in 2012, compared to the G7 average of 4.7% and the Euro area average of 1.0%. The government aims to balance the budget by 2015 mainly by restricting spending (figure 7). The general government gross debt was at a reasonable 35.9% of GDP as of 2013, up from 20.1% in 2008 due to the financial crisis and the two major earthquakes. It is still well below its counterparts in the Euro area where debt to GDP levels were 95.2% in the same year. Further, debt levels are expected to decline to 23.0% by 2019 according to the IMF, as the government has implemented prudent fiscal policies. New Zealand's European counterparts, on the other hand, expect to see their debts soar in the medium term. Low debt would help the country retain its good credit rating and will keep international borrowing costs low. Future risks High household debt and elevated house prices Household debt was very high in New Zealand as of 2013. In the years prior to 2007, household debt increased sharply due to strong activity in the real estate market and rising property prices, fueled by a historically low interest rate. Apart from low interest rates, a host of demand and supply factors such as population growth and household formation, low housing investment, migration, supply constraints, low interest rates and high building costs contributed to elevated house prices. Since peaking in 2009, household debt has corrected itself somewhat in the period after that; however, it started to rise again in 2012 (due to lowering of interest rate during 2012 and 2013) and has been progressing towards reaching its 2009 peak. The most pressing concern with the rising debt scenario is that most of the debt is in the form of housing loans with mostly high loan to value ratio lending during this 2012-13. Rising debt burden would not be financially distressful for Kiwi households as long as interest rate remains low (off late it is has started to rise) and house prices continue to soar. However, since a significant chunk of the household assets comprises real estate, any disruptive correction in the real estate market will bring substantial financial distress for them. Rising house prices induces households to take on more debt to invest more in second or third home, as payoff is not a problem in bullish real estate market, this further increases demand for houses, which is in short supply—leading to expectations of further appreciation of house prices and starts a self-reinforcing demand cycle, causing prices to skyrocket. Further, rising net worth of households due to rising house prices could lead households towards debt-financed consumption and could affect their consumption pattern as net worth reduces, if prices correct abruptly. Major household market indicators like household credit growth, housing market turnover and house price inflation have picked up in recent years. Appreciation pressures are notably stark in two cities—Auckland, where supply bottlenecks have pushed up prices, and earthquake-affected Christchurch, where construction cost inflation has shot up. More than 50% of the housing wealth in New Zealand is accounted for by these two cities. Data shows that New Zealand real estate is significantly overvalued over its longer term average and there is a possibility of a downward correction of prices. New Zealand's housing market is still overvalued as the price-to-rent ratio, a measure of the profitability of home ownership, and the price-to-income ratio, a measure of affordability, remain elevated when compared to their longer-term averages. A rise in interest rates or shocks to household incomes can cause a massive price correction and wipe out a large share of household wealth. Looking at such a precarious scenario of rising property prices, the RBNZ in October 2013, introduced limits on high-LVR residential mortgage, which has helped to some extent in reducing housing sales, credit growth and house price inflation. However, the authorities should continue to monitor the market, as the market is still PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis overvalued.

18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

Sep-13

Dec-12

Jun-11

Mar-12

Sep-10

Dec-09

Jun-08

Mar-09

Sep-07

Dec-06

Jun-05

Mar-06

Sep-04

Dec-03

Jun-02

Mar-03

Sep-01

Dec-00

Jun-99

Mar-00

Sep-98

Dec-97

Jun-96

Mar-97

Sep-95

Dec-94

Jun-93

Mar-94

Sep-92

Dec-91

Household debt and interest servicing costs, (a)

Percentage

180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0

Mar-91

Percentage

Figure 11: Household debt and real estate market

Household debt as a % of disposable income (LHS) Weighted average interest rate on housing and consumer loans (RHS) Interest costs as a % of disposable income (RHS)

Percdentage of new commitments

High-LVR mortgage lending, (b) 30.0

Speed limit on high LVR introduced

25.0 20.0 15.0 10.0 5.0 0.0 Aug-13

Sep-13

Oct-13

Nov-13

New mortgage commitments (LVR>80%) 500.0

Dec-13

Jan-14

LVR speed limit

Household assets, (c)

Feb-14

Mar-14

Cumulative average

Household liabilities & net wealth

450.0

Percentage of GDP

400.0 350.0 300.0 250.0

200.0 150.0 100.0 50.0 0.0 2003 Housing value

2013 Financial assets

Source: OECD and Bank of New Zealand


2003 Housing loans Student loans

2013 Consumer loans Net wealth MARKETLINE


PESTLE Analysis

Figure 12: Household debt and real estate market contd… 6.0

35.0

annual 3-month moving average, percentage

Housing credit and house sales, (a)

5.0

3.0

2.0

1.0

20.0 15.0 10.0 5.0 0.0 -5.0 -10.0

80.0

Auckland

Value of house sales, 1 month lag

House prices to income and rents, (c)

Canterbury

Sep-13

Dec-12

Jun-11

Mar-12

Sep-10

Dec-09

Jun-08

Mar-09

Sep-07

Dec-06

Jun-05

Mar-06

Sep-04

Dec-03

Jun-02

Mar-03

Sep-01

Mar-00

Sep-13

Dec-12

Jun-11

Mar-12

Sep-10

Dec-09

Jun-08

Mar-09

Sep-07

Dec-06

Jun-05

Mar-06

Sep-04

Dec-03

Jun-02

Mar-03

Sep-01

Dec-00

Mar-00

Quarterly change in housing credit

Dec-00

-15.0

0.0

Rest of New Zealand

House sales, (d) 8000

60.0

Speed limit on high LVR introduced

7500

40.0

7000

20.0

6500

Number

0.0 -20.0

6000 5500

-40.0

5000 -60.0

Source: OECD and Bank of New Zealand


Nov-13

Mar-14

Jul-13

Mar-13

Nov-12

Jul-12

Mar-12

Jul-11

Nov-11

Mar-11

Jul-10

Nov-10

Mar-10

Price-to-rent

4000

Nov-09

Price-to-income

4500

Jul-09

Norway Canada Belgium New Zealand Australia France Finland Sweden UK Netherlands Spain Denmark Korea Italy US Switzerland Portugal Ireland Greece Germany Japan

percentage deviation from long run average, 2012

25.0

Mar-09

NZ$ billion

4.0

House price growth by region, (b)

30.0

MARKETLINE


PESTLE Analysis

Social analysis Overview The social landscape of the country is strong with a streamlined social welfare system, healthcare services, and education. The country has scored very high on human development through good levels of healthcare, education, and income. The affordability of housing is a cause for concern. The sustainability of social expenditure is at risk as the dependency ratio is rising because of aging population.

Table 5:

Analysis of New Zealand's social landscape

Current strengths

Current challenges

▪ High human development

▪ House affordability

▪ Strong education sector

▪ Increasing disparity of income

Future prospects

Future risks

▪ Investment in health, education and affordable housing

▪ Aging population

Source: MarketLine

MARKETLINE

Current strengths High human development The country has scored very high on human development through good levels of healthcare, education, and income. This has led to strong demographic and social development indicators. Life expectancy at birth is 80.90 years for the total population as of 2014, according to MarketLine. The infant mortality rate stood at 4.59 per 1,000 live births in 2014, which has been an excellent achievement, according to CIA-The World Factbook. According to the UNDP Human Development Report 2013, the HDI for the country is 0.919 and it is ranked sixth among 187 countries, a credible achievement. Strong education sector The country also boasts of a strong education sector, which reflects in the high enrolment rates of 5-14 year-olds, which was at 100% in 2011, according to the OECD. In addition, the percentage of 25-64 year-olds that had attained tertiary education stood at 39%, compared to the OECD average of 31% in 2011. Further, the entry rate into tertiary education (university programmes Tertiary-Type A or equivalent to Bachelor degree programmes in English speaking countries) was 76% in 2011 for New Zealand, compared to the OECD average of 60%. The above figures prove that the country has high levels of education. Current challenges House affordability Lack of affordable housing has been a major issue. According to the Demographia International Housing Affordability Survey in 2013, housing has become unaffordable in the country. The survey says that the median cost of a house in New Zealand was 5.5 times more than the median annual income. Housing becomes unaffordable if the ratio goes past PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis five, although this remains a moot point. The city of Auckland, followed by Tauranga-Western Bay of Plenty has been the most unaffordable with a median multiple of 8.0 and 6.6. The situation has become acute due to lack of construction, a prolonged period of low interest rates and increasing population growth, which has taken the demand for housing to a new high. While the government has taken steps to counter the shortage of affordable housing, it says that the measures are only going to be effective in the longer term. In response to this, the government in the 2014 budget has temporarily removed tariffs and duties on building materials, thus reducing construction costs by NZ$3,500 ($3,027.29) for a standard home. It also gave a boost of NZ$30 million ($25.95 million) to the Social Housing Fund from 2015-16 onwards to help the community housing sector provide homes for families in need and free up housing supply. Increasing disparity of income New Zealand has witnessed an increasing disparity of income. During the mid-1980s and late 2000s, income disparities increased. The bottom decile's income grew at a lesser rate than in Australia and the OECD average, though at a higher rate than that in Canada during the period. Further, as the government is forced to undertake prudent fiscal measures to strengthen public finances, the disparity in income may increase in future. High inequality creates political, social and economic challenges and stifles upward social mobility. Taxes and benefits need to be reformed and redistributive policies need to be framed to challenge high inequality.

Figure 13: Real household income by income group, mid-1980s to late 2000s 5.0 4.5

Average annual change (%)

4.0 3.5

3.0 2.5

2.0 1.5

1.0 0.5

0.0

Bottom decile

Top decile

Source: OECD


MARKETLINE


PESTLE Analysis

Figure 14: Gini coefficient of household disposable income, 2010

0.500 0.400 0.300 0.200 0.100 0.000

Chile Mexico Turkey United States Israel Portugal United Kingdom Spain Greece Japan Australia Canada Estonia Italy New Zealand Korea Ireland Poland France Switzerland Netherlands Germany Hungary Luxembourg Sweden Austria Belgium Slovak Republic Finland Czech Republic Denmark Norway Slovenia Iceland

0 (low inequlaity) to 1 (high inequlaity)

0.600

OECD average Source: OECD

MARKETLINE

Future prospects Investment in health, education and affordable housing The government allocated NZ$1 billion ($864.94m) of new capital from the Future Investment Fund out of which NZ$200m ($172.99m) was for health sector projects, NZ$172m ($148.77m) for school property expansion and NZ$40m ($34.60m) for irrigation infrastructure. Further, to improve the competitiveness of the tertiary education sector, the 2014 budget has allocated an additional NZ$83m ($71.79m) towards science, agriculture and health science funding and NZ$53m ($45.84m) to start three additional Centres of Research Excellence from 2016. Future risks Aging population Aging population has become a major cause for concern. The dependency ratio (over-65 population as a share of the working-age (15 to 64) population) will rise sharply from 19.6% in 2010 to 45% by 2050, a rise of 25.4 percentage points, which is one of the sharpest increases among the OECD nations. The government's expenditure on social security is growing, with most of it going into pensions, medical care, nursing, and welfare. The problem of an aging population will continue to plague New Zealand in the coming years, as people continue to retire in increasing numbers. With the country's older population increasing every year, the cost of social welfare will only rise; this could have serious implications for the country's finances as well as its economic activity. With the government on a deficit reduction path, it cannot afford rising welfare costs. The burden caused by the aging population has increased due to factors such as decreasing fertility rates, increasing abortions, late marriages, the increasing participation of women in the workforce, and small living spaces. PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis

Figure 15: Dependency ratio 80 70

Percentage

60

50 40 30 20 10

0 JPN

KOR

ESP

ITA

DEU

FRA

2010

NZL

CAN

GBR

NOR

AUS

USA

2050

Source: OECD

MARKETLINE

Figure 16: Gross public spending by benefit of in-kind for the total population, 2009 25.00

Percentage of GDP

20.00 15.00 10.00

5.00

Denmark Sweden Iceland Norway Finland France United Kingdom New Zealand Belgium Netherlands Germany Ireland Austria United States OECD average EU-21 average Australia Spain Canada Portugal Japan Slovenia Italy Hungary Israel Luxembourg Greece Czech Republic Estonia Slovak Republic Mexico Poland Korea Chile Turkey

0.00

Services to the elderly

Health services

Services to families

Source: OECD


Education services

Other social services MARKETLINE


PESTLE Analysis

Technological analysis Overview New Zealand is well equipped with institutional capabilities for innovation and R&D. However, the low R&D expenditure is also reflected in the low number of patents awarded to the country. The government has responded to the sluggishness in innovation with measures in the 2014 budget. These are likely to be effective in the long run.

Table 6:

Analysis of New Zealand's technology landscape

Current strengths

Current challenges

▪ Institutional capabilities for innovation

▪ Low R&D spending

▪ Strong ICT sector

Future prospects

Future risks

▪ Budget initiatives towards boosting competitiveness

▪ Low subsidies from the government to foster research and development

Source: MarketLine

MARKETLINE

Current strengths Institutional capabilities for innovation The accumulated scientific skills and the capabilities of public research organizations are the strongest facets of New Zealand's innovation system. The country is also working towards ramping up its innovation potential in the high-tech manufacturing and services sectors. As part of the effort, the government has announced that it will develop an advanced technology institute to boost science and innovation in the country. New Zealand has already invested in reforming CRIs (Crown Research Institutes) and increased support for businesses, which has resulted in increased private investment. Under the newly created Ministry of Science and Innovation (MSI), the country has simplified funding processes, supported commercialization units, and invested in science infrastructure. Strong ICT sector The country boasts a strong ICT sector. According to "The Networked Readiness Index 2014", New Zealand has been ranked 20th out of 144 countries. The Index assesses the inclination of countries to exploit the opportunities offered by information and communications technology (ICT).The Global Competitiveness Index 2013-14 has ranked New Zealand 21th out of 148 countries in the availability of latest technologies. Further, the country secured the 18th place in mobile broadband subscriptions per 100 residents and the eighth place in individuals using the internet as a percentage of total population. The strong ICT sector should increase employment opportunities and enable the government to expand its online service offerings to the public. Current challenges Low R&D spending As a percentage of GDP, R&D expenditure in the country was 0.43% in 2011, when compared to the OECD average of 2.31% of GDP. Although there has been an increase in R&D expenditure, it continues to be low compared to other PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis advanced nations. Further, business expenditure on research and development as a percentage of GDP stood at 0.59% in 2011 compared to the OECD average of 1.59% in 2011. The low R&D spending provides little incentive for students to get into research and results in fewer patents being registered in the country. This will affect the country's development in science and technology.

Figure 17: R&D spending, 2011 5.00

4.50 4.00

Percentage of GDP

3.50 3.00 2.50 2.00 1.50 1.00 0.50

Business entreprises expenditures on R&D

Higher education expenditure on R&D

Government intramural expenditure on R&D

Private non-profit expenditure on R&D

Source: OECD

ISR

FIN

KOR

JPN

ISL

SWE

CHE

DNK

USA

DEU

AUT

EST

SVN

FRA

OECD

BEL

AUS

CZE

NLD

GBR

IRL

CAN

PRT

NOR

ESP

LUX

ITA

NZL

TUR

HUN

SVK

POL

GRC

CHL

MEX

0.00

MARKETLINE

Future prospects Budget initiatives towards boosting competitiveness The initiatives towards boosting competitiveness includes a NZ$375m ($324.35m) loan to the New Zealand Transport Agency to start Auckland Transport projects to reduce congestion in Auckland, an additional NZ$69m ($59.68m) to New Zealand Trade and Enterprise to be spent during 2014-18, and an extra NZ$57m ($49.30m) is to be spent during 201418 for contestable science funding, $58m ($50.16m) in increased tax deductions for R&D by start‑up firms, and an extra 6,000 places in the apprenticeship. Further, the government also plans to establish new research centers in the medium term. This will help to some extent the nation's ambitions of being on the cutting edge of technological innovation. Future risks Low subsidies from the government to foster research and development The country needs to innovate in export-oriented sectors given the geographical challenges it faces. Providing impetus to R&D is the key for New Zealand to raise its productivity and living standards. However, the government's incentives to foster R&D are poor compared to other OECD countries as shown in the figure below. The country has fared poorly in direct public funding of business R&D and in tax subsidies for R&D. Tax subsidy rate (calculated as 1-B index and defined as the present value of before tax income needed to cover the initial cost of R&D investment and to pay corporate income tax) also is in the negative territory, which may act as a deterrent for companies to invest in R&D in PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis New Zealand. This could be harmful in the long run as companies will find it less attractive to invest in R&D. This will hinder the nation's ambitions of being on the cutting edge of technological innovation.

Figure 18: Direct public funding of business R&D 0.30

Percentage of GDP

0.25

0.20 0.15 0.10 0.05

MEX CHL AUS POL CHE SVK TUR JPN PRT LUX ITA ZAF NLD CAN CHN DNK IRL NZL FIN NOR DEU GBR BEL EST BRA AUT HUN SWE ESP FRA CZE ISR KOR USA

0.00

Source: OECD

MARKETLINE

Figure 19: Tax subsidy rates on R&D expenditures, 2013 0.70

0.60

0.50

1-B index

0.40

0.30

0.20

0.10

0.00

-0.10 PRT FRA ESP CHL NLD CAN HUN IRL FIN GBR BRA KOR NOR ZAF CZE AUS SVN BEL JPN CHN AUT USA DNK LUX MEX SVK SWE CHE DEU NZL Large, profitable firm

SME, profitable firm

Large, loss-making firm

Source: OECD


SME, loss-making firm

MARKETLINE


PESTLE Analysis

Legal analysis Overview New Zealand has a strong competition policy and boasts of a strong business environment. The country has also undertaken tax reforms, which has resulted in a low tax wedge. However, this strong climate for business and investment has been hampered by the government's tightening of foreign investment regulations. This will make it harder for foreign firms to invest in New Zealand companies.

Table 7:

Analysis of New Zealand's legal landscape

Current strengths

Current challenges

▪ Strong competition policy

▪ Tightened foreign investment regulations

▪ Almost non-existent corruption

Future prospects

Future risks

▪ Low total tax rate and tax compliance cost

▪ Increasing regulations in the product market

▪ Low tax wedge

Source: MarketLine

MARKETLINE

Current strengths Strong competition policy Competition policy in New Zealand is very strong and is applicable to most sectors of the economy. The Commerce Act of 1986 fosters competition in the country. The Commerce Commission prevents restrictive trade practices, scrutinizes mergers and takeovers, and controls prices in markets that lack effective competition. The parliament last amended the Commerce Act in May 2001, introducing new definitions for thresholds relating to anti-competitive behavior and mergers, stronger penalties and new ways to implement price controls. The most recent amendment was passed in September 2008 and became effective from April 1, 2009, primarily to deal with price regulation. The legislation specifies five types of prohibited activities: price-fixing among competitors; use of a market position to block entry by new participants; special arrangements or contracts that reduce competition; resale-price maintenance; and market-sharing arrangements that restrict trade. The Commerce Commission has the authority to approve these prohibited trade practices on a caseby-case basis when it deems them beneficial to the public. Healthy competition bodes well for the industry, which in turn benefits the consumer. Almost non-existent corruption The country is significantly free from corruption. According to Transparency International's 2013 Corruption Perceptions Index, New Zealand topped the list of 177 countries. According to Transparency international, the country's top ranking is due to strong law enforcement, public participation in fighting corruption, and transparency mechanisms such as disclosure of information. The country's press also enjoys a high degree of freedom that allows it to expose corruption. PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis Disclosure of budget information also helps to control the misappropriation of public funds. The strict rules that govern judicial appointments help protect office holders and the judiciary's constitutional independence. This has helped to keep the judiciary free from political interference and corruption. The political leadership of the country has also shown a strong anti-corruption stance, which is expected to keep the country corruption-free despite the changes in government. Current challenges Tightened foreign investment regulations Foreign investment regulations were tightened in March 2008, after the cabinet introduced an amendment to the Overseas Investment Act 2005 to allow the country to retain control of "strategically important infrastructure on sensitive land." The measure was taken after the Canada Pension Fund Investment Board (CPPIB) attempted to acquire a 40% stake in Auckland International Airport, which is the country's aviation hub and accounts for 70% of international travelers in New Zealand. The amendment to the overseas investment rules shifts the emphasis from "protecting" New Zealand interests to "controlling" New Zealand assets. In January 2011, the government tightened foreign investment rules regarding farmland ownership. The government introduced two extra criteria to give ministers more flexibility when considering foreign investments in farmland. These measures will make it harder for foreign companies to acquire a large stake in New Zealand companies and are likely to deter foreign investment. This could also put pressure on the country's current account deficit in future. The OECD FDI Restrictiveness Index 2013 ranked New Zealand as one of the most restrictive nations.

Figure 20: FDI restrictions in selected countries

0 (least restrictive) to 1 (most resttictive)

0.450 0.400 0.350 0.300 0.250

0.200 0.150 0.100 0.050

China Myanmar Saudi Arabia Indonesia Jordan India New Zealand Malaysia Mexico Tunisia Russia Canada Iceland Kazakhstan Korea Australia Israel Ukraine Austria Brazil Mongolia Peru United States Norway Switzerland Kyrgyz Republic Poland Morocco Egypt United Kingdom Turkey Sweden Chile South Africa Japan Italy Costa Rica Slovak Republic Latvia France Ireland Lithuania Belgium Argentina Denmark Greece Hungary Colombia Germany Spain Finland Estonia Netherlands Czech Republic Romania Slovenia Portugal Luxembourg

0.000

OECD average

Source: OECD


MARKETLINE


PESTLE Analysis

Figure 21: FDI restrictions in New Zealand (by sector), 2013 0 (least restrictive) to 1 (most restrictive)

0.800 0.700 0.600

0.500 0.400 0.300

0.200 0.100

Source: OECD

Engineering

Real estate investment

Architectural

Legal

Accounting & audit

Business services

Other media

Other finance

Media

Radio & TV broadcasting

Hotels & restaurants

Retail

Surface

Wholesale

Distribution

Construction

Electricity distribution

Electricity

Electricity generation

Transport equipment

"Electric, Electronics and other instruments"

Oil ref. & Chemicals

"Metals, machinery and other minerals"

Manufacturing

Food and other

Forestry

Mining & Quarrying (incl. Oil extr.)

Agriculture

Financial services

Agriculture & Forestry

Banking

Insurance

Maritime

Transport

Fixed telecoms

Mobile telecoms

Air

Communications

Fisheries

0.000

MARKETLINE

Future prospects Low total tax rate and tax compliance cost New Zealand's total tax rate is among the lowest in the in the Asia Pacific, according Paying Taxes 2014. New Zealand's total tax rate (aggregate of profit taxes, labor taxes and other taxes) was 34.6% compared to Australia (47%), Japan (49.7%) and Asia Pacific average (36.4%). Further, time to comply with taxes is 152 hours; far lower than the Asia Pacific average (232 hours). In addition, the number of payments for taxes is eight for New Zealand, which is lower than the Asia Pacific average (25.4) and its peer countries such as Japan (14) and Australia (11). Low taxes and compliance costs make a country more investment friendly for businesses and startups. In addition, it reduces the cost of operating a business. Low tax wedge According to the OECD, New Zealand has one of the lowest burdens on labor income among the OECD economies in 2013. The tax burden was low for family types "Single no child" and "Married one-earner couple 2 children". Tax burden (Income tax, employer and employee social security contributions and pay roll tax as a percentage of labor costs) for single no child has fallen during 2000-13. As of 2013, for average one-earner couples with two children the OECD tax wedge was 26.4% when compared to New Zealand's 2.4%, while for single person it was 13.3% for New Zealand compared to the OECD average of 32.2%. A low tax burden would be beneficial to New Zealand in the future, as it would attract skilled foreign workers; this would go a long way in enhancing productivity and output. Future risks Increasing regulations in the product market New Zealand has not performed well in product market regulation during 2008-13. Product market indicators are a set of PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis metrics that measure the extent to which policies framed by the government promote or inhibit competition in areas where competition is possible. Many of the sectors are regulated more compared to its other OECD counterparts. This is indicative of a less competition-friendly market and near monopolies in various sectors. The government should take measures to ease product market regulation to strengthen competition. High regulation depresses the purchasing power of households and increases expenses for businesses through higher costs of production. Moreover, the easing of regulations will attract investment in various sectors, which will open up new avenues of employment.

Figure 22: Product Market Regulations New Zealand, 2013

0 (least regulated) to 6 (fuly regulated)

1.280 1.270

1.260 1.250 1.240 1.230

1.220 1.210 1.200 2008

Source: OECD


2013 MARKETLINE


PESTLE Analysis

Environmental analysis Overview New Zealand's environmental affairs are well managed, with various policies being implemented for environmental conservation. The country has policies monitoring air quality, biodiversity, climate change, energy, hazardous substances, and resource management and wastage control. The country has taken many initiatives to improve its air quality and has established new standards under the National Environmental Standard on Air Quality to enable the industry to achieve higher level of compliance.

Table 8:

Analysis of New Zealand's environmental landscape

Current strengths

Current challenges

▪ Strong environmental policies

▪ Containing in GHG emissions

▪ Focus on renewable energy ▪ Fall in CO2 emission levels

Future prospects

Future risks

▪ New air quality standards

▪ Distortionary policies

Source: MarketLine

MARKETLINE

Current strengths Strong environmental policies New Zealand has a well-developed system of environmental policies encompassing various issues of environmental protection and conservation of ecosystems. The country has policies monitoring air quality, biodiversity, climate change, energy, hazardous substances, and resource management and wastage control. The Ministry of Environment is the regulatory authority responsible for designing national policies and laws necessary for good environmental management. The Energy Efficiency and Conservation Act, the Ozone Layer Protection Act, the Resource Management Act 1991, and ambient air quality standards, developed in 1994, monitor the air quality. The policies implemented include statutory achievement of energy efficiency standards, the labeling of hazardous electrical goods, and mandatory removal of lead from vehicle fuel. The country is also a signatory to all the major international environmental pacts. The country's strong environmental stand bodes well for the ecological balance as well as the future of the country. Focus on renewable energy The country has placed a lot of emphasis on renewable energy. In 2012, New Zealand's renewable share of total primary energy supply was 37% in 2012, which is the third highest in the OECD. In the same year, renewable sources met 73% of New Zealand's electricity generation. The government wants to increase the share of renewable energy in total electricity generation to 90% by 2025.



PESTLE Analysis

Figure 23: Renewable energy supply in New Zealand 180.00

8.00

160.00

7.00

140.00 6.00

5.00 100.00 4.00 80.00 3.00

Gross petajoules (PJ)

Gross petajoules (PJ)

120.00

60.00 2.00 40.00

1.00

20.00

Hydro

Geothermal

Woody biomass

Solar(RHS)

Wind (RHS)

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

0.00 1991

0.00

Biogas(RHS)

Source: Ministry of Business, Innovation and Employment, New Zealand

MARKETLINE

Fall in CO2 emission levels The country has implemented several measures to improve its air quality, including a government leadership program in energy efficiency. Moreover, the government is also establishing efficiency standards incorporating climate change in transport, waste, and agricultural policy development. The country's CO2 emissions have decreased from 40.39 million metric tons in 2005 to around 37.17 million metric tons in 2011. Current challenges Containing in GHG emissions During 1990-2010, New Zealand experienced a rise in GHGs (Green House Gases) emissions, which is much higher compared to its peers such as Norway, Finland, Denmark and Sweden. Further, Greenhouse gas (GHG) emission intensities per capita remains one of the highest among the OECD nations. In addition, GHG emissions per unit of GDP was 0.6 tonnes CO2 eq. per 1000 USD in 2010, compared to OECD average of 0.4, which suggests there are inefficiencies in energy consumption. Policymakers must take into account to all these factors while framing policies to contain GHG emissions



PESTLE Analysis

Figure 24: Change in greenhouse gas (GHG) emissions, since 1990 140

Percentage change (1990-2010)

120 100 80 60

40 20 0 -20 -40

Estonia

Hungary

Slovak Republic

Germany

Source: Ministry of Business, Innovation and Employment, New Zealand

Czech Republic

Poland

United Kingdom

Sweden

Denmark

France

Belgium

Italy

Luxembourg

Japan

Netherlands

Switzerland

Finland

Slovenia

Austria

Norway

Ireland

United States

Greece

Canada

Portugal

Spain

New Zealand

Iceland

Australia

Chile

Mexico

Korea

Turkey

-60

MARKETLINE

Figure 25: Greenhouse gas (GHG) emission intensities per capita, 2010 30

tonnes CO2 eq. per capita

25

20 15 10 5

Australia

Luxembourg

United States

Canada

New Zealand

Iceland

Estonia

Ireland

Finland

Korea

Czech Republic

Netherlands

Belgium

Germany

Denmark

Poland

Norway

Israel

Greece

Japan

Austria

United Kingdom

Slovenia

Slovak Republic

Italy

France

Spain

Mexico

Sweden

Switzerland

Hungary

Portugal

Chile

Turkey

0

OECD (per cap) Source: Ministry of Business, Innovation and Employment, New Zealand

MARKETLINE

Future prospects New air quality standards As part of its efforts to improve the air quality in the country, the government has established new standards under the National Environmental Standard on Air Quality to enable industries to achieve a higher level of compliance. Under the PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


PESTLE Analysis new standards, moderately polluted areas are allowed on average less than 10 transgressions a year until 2016 to comply with the standard. Highly polluted areas are expected to have no more than three transgressions by 2016 and be fully compliant by 2020. The government is also toughening its vehicle emission standards and fuel standards to reduce vehicular air pollution. Future risks Distortionary policies New Zealand charges relatively low transport fuel taxes, which indirectly encourages consumers to expend more carbonrich fuels leading to more pollution. Further, the government gives various kinds of subsidies for oil exploration without taking into account the cost to the environment. The price of scarce energy resources should take into account the environmental and social costs, and introducing a tax is an effective way to curb reckless use of non-renewable natural resources. Moreover, the distortive pricing mechanism inhibits the development of green technology and related entrepreneurship.

Figure 26: CO2 prices implicit in diesel and petrol excise taxes after adjusting for externalities, 2013 1st quarter 400.00

300.00

€/tonne of CO2

200.00

100.00

0.00

-100.00

-200.00

-300.00 TUR ISR NOR NLD ITA SVK CZE GBR GRC DEU FIN SWE EST HUN BEL FRA POL CHE DNK IRL CHL PRT SVN KOR AUT ESP LUX JPN NZL AUS CAN MEX USA Diesel

Petrol

Source: OECD


MARKETLINE


Political Landscape

POLITICAL LANDSCAPE Summary New Zealand, being a fully independent member of the Commonwealth, has a parliamentary system of government similar to the one in the UK. It also has the distinction of being the first country to introduce female suffrage, in the late 19th century. In the 1990s, it moved to a proportional voting system, which has broken the stranglehold of the two major parties, the Labor Party and the National Party. John Key led the center-right National Party to victory in the November 2011 general elections, and formed a coalition government with ACT, Maori and the United Future Party (in mid-2013 the party was dissolved by the election commission as membership fell below a minimum threshold). A second term for the National Party-led coalition also means a continuation of policies. The country is targeting lower expenditure, debt reduction, and higher tax revenues to return to a balanced budget by 2015 as part of its efforts to build a stronger economy.

Evolution Pre 1980 New Zealand's political setup is largely similar to the Westminster system of governance. In 1840, the British and several Maori tribes pledged to protect Maori land and establish British law in New Zealand under the Treaty of Waitangi. British sovereignty was established under the treaty. However, the treaty did not deliver the expected peace between the tribes and the colonial power. The Maori tribesmen began resisting British colonial rule, which led to the New Zealand Wars during 1845-72. However, the government managed to bring the situation under control, establishing its supremacy over the rebel tribesmen. In 1907, New Zealand became a dominion within the British Empire. In the two World Wars fought between 1914 and 1945, New Zealand sent thousands of its troops to fight along with the British in Europe, North Africa, and the Pacific. In 1945, New Zealand joined the United Nations as "New Zealand," without the term "dominion". In 1947, the country gained full independence from Britain. Troops from New Zealand served with UN forces in the 1950-53 Korean War. In 1951, the country signed the ANZUS Pacific security treaty with Australia and the US. However, the country's plan to send a small combat force to support US troops in the Vietnam War sparked a public outcry. 1981-2000 The National Party and the Labour Party have dominated the politics of New Zealand. The National Party was in power until 1984, except for two brief periods during 1957-60 and 1972-75, when Labour was in power. The Labour Party formed the government during 1984-90 and 1999-2008. The Labour government was elected to power in 1984 and David Lange was appointed prime minister. He began radical economic reforms in the country. In 1985, the country refused to allow US nuclear-powered ships into its ports, which led to a diplomatic row between the countries. This eventually led to the US suspending its ANZUS obligations toward New Zealand in 1986. In 1989, Prime Minister Lange resigned and was replaced by Geoffrey Palmer. Palmer resigned just before the 1990 general elections that saw the National Party return to power with James Bolger as prime minister. The National Party won the 1993 general election by a narrow margin. The government undertook a referendum to introduce mixed member proportional representation (MMP) in the electoral system instead of the traditional first past the post (FPP) system. This eventually increased the number of Maori MPs from six to 15 in 1996. In 1997, Prime Minister Bolger resigned and Jenny Shipley was elected as the country's first woman prime minister. The National Party also formed a coalition with the centrist New Zealand First (NZF) party, the country's first coalition in more than 60 years. However, the coalition collapsed in 1998. In 1999, the Labour Party won the general election and appointed Helen Clark as prime minister. PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Political Landscape 2001-13 In June 2002, Prime Minister Clark apologized to Samoa for New Zealand's ill-treatment of Samoans during colonial times. In July 2002, Clark won a second term as prime minister after winning the general election, with the National Party recording its worst-ever election defeat. In May 2004, the government survived a no-confidence motion, which was brought in after intense debate over the government's proposed bill to nationalize the sea bed. The bill was opposed by Maori protesters, who claimed that the bill infringed on their ancestral rights. In September 2005, Clark managed a narrow victory over the resurgent National Party, winning a third term as prime minister. In the November 2008 general election, John Key led the center-right National Party to victory, ending the Labour Party's nine-year government. The National Party formed the government along with ACT New Zealand (which won five seats), the Maori Party (five seats), and the United Future Party (one seat). In mid-2013, the United Future Party was dissolved by the election commission as membership fell below the minimum threshold. The government came to power when the country was slipping into its longest recession on record, but adequate measures pulled the country out of contraction by 2010. The modest economic recovery ensured that the ruling National Party won another term in the November 2011 general election, winning 60 seats to form a coalition government with ACT, Maori and the United Future Party.

Figure 27: New Zealand - key political events

Pre 1945

• In 1840, the native Maori tribes made a treaty with the British to implement British law in New Zealand. • During 1845–72, the Maoris and the British fought the New Zealand Wars. • In 1907, New Zealand became a dominion of the British empire. • In 1914, troops from New Zealand fought in World War I as part of the British army. • In 1939–45, the country sent troops to British colonies to fight in World War II.

1946–84

• In 1947, New Zealand gained independence from Britain. • In 1950, the country took part in the Korean War. • In 1951, the Anzus Pacific security treaty was signed between New Zealand, Australia and the US. • In the 1960s, the country took part in the Vietnam War. • In 1984, the Labour government was elected, and Prime Minister David Lange began radical economic reforms.

1985–96

• In 1985, New Zealand refused entry to US nuclear-armed ships. In turn, the US suspended its Anzus obligations. • In 1989, Lange was replaced by Geoffrey Palmer as PM. • In 1990, Palmer resigned, the general election was won by the National Party (NP), and James Bolger was elected as prime minister. • In 1993, the NP won the elections, and a referendum introduced proportional representation in the electoral system.

Source: MarketLine


1997–2007

2008 onwards

• In 1997, Bolger resigned and Jenny Shipley became prime minister. The NP formed coalition with the New Zealand First (NZF) party. The alliance collapsed in 1998.

• In November 2008, the John Key led NP won the general ending the Inelection, June 2010, the Muslim Brotherhood failed to win nine-year LP any seat to the upper government.

• In 1999, the Labour Party (LP) won the election and Helen Clark was elected prime minister. • In 1999, New Zealand joined a UN peacekeeping force in East Timor. • In 2002 and 2005, the LP won the general election. • In 2006, New Zealand sent troops to East Timor to quell unrest.

house of parliament.

• In December 2008, InNew February 2011, Zealand and Fiji President expelledMubarak each other’s stepped down after top diplomats after intense street protests. Fiji's military leader He handed over power to Frank Bainimarama the army council led by delayed democratic Mohammed Hussein elections . Tantawi and Prime

•Minister In January 2010, New Essam Sharaf. and2011, Fiji reInZealand November appointed senior violence erupted in diplomats after Cairo between security months of diplomatic forces and protestors tussle. demanding generals way for civilian • give In November 2011, presidential council. the ruling NP won another term in the general election.

MARKETLINE


Political Landscape

Structure and policies Key political figures 

Head of state - Queen Elizabeth II.



Head of government - Prime Minister John Key.

Figure 28: New Zealand - Key political figures Queen Elizabeth II has been the United Kingdom's reigning monarch since 1952. She was wasproclaimed proclaimedqueen queeninin 1952 following the death of her father, George VI. She S heisis New New Zealand’s Zealands'sSovereign Sovereignand andisisofficially officiallycalled calledas the Queen of New Zealand. The Queen is the only member of the Royal Family Familywith withno noconstitutional constitutionalrole. role.The The monarch is represented at the federal level by the governor general gene ral,who whoisisappointed appointedbybythe themonarch monarchon onthe the advice of the prime minister. The vast powers that belong to the Crown Crownare arecollectively collectivelyknown knownas asthe theRoyal Royal Prerogative, which includes many powers such as the ability to make m aketreaties treatiesor orsend sendambassadors, ambassadors,as aswell wellas, as certain duties such as to defend the realm. Parliamentary approval approv alisisnot notrequired requiredto forexercise the exercise the Royal of thePrerogative. Royal Prerogative.

Prime Minister John Key was born in Auckland and was educated at Burnside High School. He gained a B.Com from the University of Canterbury. He started his on his investment investment banking banking career career in the in mid New80s. Zealand in the mid 80s. After 10 years in the New Zealand market, headed off shore, working in Singapore, London and After a two-decade banking career, he headed back he to New Zealand in 2011 to contest the parliamentary Sydney for US investment banking giant Lynch. In 1999, J ohn invited join the elections representing the National Party.Merrill He won the Helensville seatwas in 2002. Hetoserved asForeign deputy Exchange finance Committee of the Bank of NY. Inof 2001, he headed back New Zealand to fulfill in a long held spokesperson andFederal then asReserve finance spokesperson the party, rising to theto number seven position the party ambition to 2005 standelections. for Parliament representing National Pathe rty.Helensville He won the Helensville seat inas 2002 a prior to the In theby 2005 elections, the he again won seat, and continued the with party’s majority of 1589. John has risen through the ranks since then, b ecoming deputy finance spokesman and finance spokesperson until his election as party leader in 2006. He led the party to victory in the Novemberthen 2008 finance spokesman, rising to number seven prior to the 2005 elec tion. At the 2005 election he again won the elections, and was elected as prime minister. He won a second term as prime minister in November 2011. Helensville seat, this time with a majority of 12,778. He continued to be t he party’s finance spokesman and was ranked at number four before being elected leader on November 27 , 2006. He went on to become the country ’s Source: MarketLine

MARKETLINE

Structure of government New Zealand is a constitutional monarchy with a parliamentary system of government, known as the Westminster system. New Zealand's head of state is Queen Elizabeth II and the highest executive power of judiciary and legislation rests with her. Legislative branch of government The unicameral House of Representatives is the legislative body of the New Zealand government. It has 120 members, elected for three-year terms. Since 2011, it has had 121 members. Executive branch of government The monarch of New Zealand is the head of state, currently Queen Elizabeth II, and is represented by the governor general. The current governor general of New Zealand is Jerry Mateparae. Prime Minister John Key is the head of the government. Furthermore, the cabinet constituted as the Executive Council helps in the decision-making process of various government policies along with the prime minister. Key political parties New Zealand National Party The National Party was formed in 1936. It is a center-right party with a conservative liberal ideology. It came into being after a merger between the United Party and the Reform Party. It gained most of its support from the middle class and PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Political Landscape farmers of the country. It has been the other dominant political party in New Zealand since 1935, and is currently the ruling party of the country. It advocates a reduction in taxes, reducing social welfare payments, and the promotion of free trade. New Zealand Labour Party The Labour Party was established in 1916. It is a center-left party with a socially liberal ideology. The origins of the party lie in the British working class movement and the influence of Australian radicalism. It was formed through an amalgamation of several other political parties such as the Socialist Party, the Social Democratic Party, the United Labor Party, and the Independent Political Labor League. The party was instrumental in formulating the Constitutional Act 1986, and has been one of the dominant political parties since 1935. It was the ruling party from 1999 to 2008. Other parties The other political parties of New Zealand include: the nationalist New Zealand First, established in 1993; the Green Party, established in 1990 with the environment as its prime concern; and the Maori Party, founded in 2004, concentrated on Maori affairs. There are other minority groups such as United Future New Zealand, ACT New Zealand, and the New Zealand Progressive Party. Composition of government After the elections in November 2011, the National Party won 60 seats followed by the Labour Party at 34, the Green Party (13), New Zealand First (8), Maori (3), and Other (3).

Figure 29: New Zealand - composition of parliament Other, 3

Maori, 3

New Zealand First , 8

Green Party, 13 National Party , 60

Labour Party, 34

Source: CIA - The World Factbook

MARKETLINE

Key policies Economic and Social Budget 2014 has laid down four main priorities: responsibly manage the government's finances, building a more PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Political Landscape productive and competitive economy, delivering better public services and rebuilding Christchurch. The budget has allocated new spending of NZ$5.7 billion ($4.93 billion) during 2014-18, which is financed partly by raising revenues amounting to NZ$1.6 billion ($1.38 billion). Focusing on the required improvement in productivity to build a competitive economy, the government Business Growth Agenda lays out a range of micro-economic reforms to assist businesses to perform well, particularly in the export sectors. The initiatives towards boosting competitiveness includes a NZ$375m ($324.35m) loan to the New Zealand Transport Agency to start Auckland Transport project to reduce congestion in Auckland, and additional NZ$69m ($59.68m) for New Zealand Trade and Enterprise to be spent during 2014-18, an extra NZ$57m ($49.30m) to be spent during 2014-18 for contestable science funding, $58 million ($50.17m) in increased tax deductions for R&D by start‑up firms, and an extra 6,000 places in the apprenticeship. The government allocated NZ$1 billion ($864.94m) of new capital from the Future Investment Fund out of which NZ$200m ($172.99m) was set aside for health sector projects, NZ$198m ($171.26m) for KiwiRail, NZ$172m ($148.77m) for school property expansion and NZ$40m ($34.60m) to invest in irrigation infrastructure. Further, to improve the competitiveness of the tertiary education sector, the 2014 budget has allocated an additional NZ$83m ($71.79m) towards science, agriculture and health science funding and NZ$53m ($45.84m) to start three additional Centres of Research Excellence from 2016. On the social side, in order to make housing more affordable, the budget temporarily removed tariffs and duties on building materials, thus reducing construction costs by NZ$3,500 ($3,027.29) for a standard home. It also gave a boost of NZ$30m ($25.95m) to the Social Housing Fund from 2015-16 onwards to help the community housing sector provide homes for families in need and free up housing supply. Foreign New Zealand's foreign policy is focused primarily toward developed democratic nations and the emerging Asia Pacific economies. There appears to be a common stance among various political parties on the broad outlines of foreign policy. Regional tensions are expected to dominate the country's foreign policy agenda. After a military coup in December 2006, the government imposed sanctions on Fiji. Furthermore, the New Zealand government has discouraged New Zealanders from visiting the country. Relations between the two countries are yet to improve as the New Zealand government is opposed to the military rule in Fiji. New Zealand joined the US and Australia in forming the ANZUS Pacific military alliance in the Cold War era. In spite of problems within the ANZUS alliance in 1985, New Zealand still maintains good international relations with the US and Australia. New Zealand's relation with China is also deepening as China overtook Australia to be its largest trade partner in 2013. Defense The government's Defense Policy Framework, released in June 2000, is the overarching strategic guidance for New Zealand's defense policy. The main objectives of the country's defense policy are: to defend New Zealand and to protect its people, land, territorial waters, exclusive economic zone, natural resources and critical infrastructure; to support Australia in defense partnership for common security interests; and to play an appropriate role in maintenance of security in the Asia Pacific region. Finally, New Zealand plans to support the UN in its multilateral peace keeping objectives. New Zealand's defense forces will continue to participate in regional peacekeeping missions, such as the Regional Assistance Mission to Solomon Islands. In mid-2009, both the New Zealand and Australian governments announced that they are working on linking their defense forces to create a new ANZAC contingent. By 2015, the country wants to reorient its existing defense units and assets into a Joint Amphibious Task Force to respond to security challenges in New Zealand and its surroundings, the country's interests in the South Pacific, and challenges to New Zealand's and Australia's PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Political Landscape common security objectives.

Performance Governance indicators The World Bank report on levels of governance uses factors such as voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 215 countries and territories over 1996-2012. The study was conducted by Daniel Kaufmann of the Brookings Institution, Massimo Mastruzzi of the World Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile rank of zero corresponds to the lowest rank and 100 correspond to the highest. New Zealand ranked in the 98.10 percentile on voice and accountability in 2012. Voice and accountability measures the extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media. New Zealand ranks high due to its openness and liberal attitude toward the press. New Zealand is ahead of its neighbor Australia, which ranks at 96.21. New Zealand ranked in the 97.16 percentile on political stability and absence of violence in 2012. Political stability and absence of violence measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including domestic violence and terrorism. New Zealand is ahead of Australia, which was ranked in the 80.57 percentile. New Zealand has a high level of stability in its political set up due to its deep-rooted democracy and political consensus. New Zealand ranked in the 96.17 percentile on government effectiveness in 2012. Government effectiveness measures the quality of public services, the quality of the civil services and their degree of independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. New Zealand's rank on this indicator has been impressive, and was higher than Australia's 94.26 percentile rank. New Zealand ranked in the 98.56 percentile on regulatory quality in 2012. Regulatory quality measures the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. A high ranking indicates fair implementation of policies and regulations for the private sector. At the 97.13 percentile, Australia is behind New Zealand. New Zealand was ranked in the 98.58 percentile on rule of law in 2012. Rule of law measures the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the police, and the courts, as well as the likelihood of crime and violence. New Zealand is ahead of Australia, with the latter being given a percentile rank of 95 in this category. The country ranked in the 99.52 percentile on control of corruption in 2012. Control of corruption measures the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elite and private interests. New Zealand is ahead of Australia's 95.69 percentile rank.

Outlook The National Party came to power in 2008 when the country was slipping into its longest recession. However, the government took adequate measures to return the nation to growth by 2010. A modest economic recovery ensued and the ruling National Party won another term in the November 2011 general elections. The National Party is expected to win the elections in September 2014, given the consistent lead it has been maintaining in its popularity ratings. Nevertheless, Mr. Key is seeking alternate partners to improve his chances of winning again as the minor parties in his PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Political Landscape coalition face an unpredictable future. The opposition Labour Party is also expected to improve its poll standings in the run-up to the elections, but winning the election seems a distant prospect. Further, the controversial policies proposed by the Labor Party may become a cause for concern if it wins the 2014 elections.



Economic Landscape

ECONOMIC LANDSCAPE Summary New Zealand's economy performed well from the mid-1990s to 2007. Growth has been driven by extensive structural reforms undertaken in the 1980s and 1990s, coupled with the implementation of sound macroeconomic policies. However, the global financial crisis had its effect on the economy and the country went into recession. Although the economy contracted in 2008-09, the government's strong monetary and economic measures pulled the country out of recession in 2010, and the economy grew by 2.19%—followed by 0.65% in 2011 and 2.34% in 2012. In 2013, the economy grew by 2.64% mainly on the back of supportive financial conditions, strong construction activity in the earthquake affected areas and elevated commodity export prices. The country had a very high current account deficit in 2013, which needs to be tackled by the government. As part of its effort to build a stronger economy, the country has embarked on a program of reducing expenditure and debt, and increasing tax revenues to return to budget balance by 2015.

Evolution The New Zealand economy grew strongly post-World War II, assisted by rising agricultural prices and rapidly expanding global demand. However, the late 1960s and 1970s saw a sharp deterioration in terms of trade, as the price of key agricultural exports fell and import prices, most notably for oil, increased significantly. During the late 1970s, the economy suffered from poor productivity and badly targeted import-substitution and demand management policies. Economic growth has been driven by extensive structural reforms undertaken in the 1980s and 1990s coupled with the implementation of sound macroeconomic policies. The mid-1980s saw a radical change in the economic policy agenda. David Lange's center-left Labor administration introduced a series of liberal reforms from 1984 onwards in an attempt to reverse New Zealand's comparative decline. The policy reforms of the late 1980s included privatization, labor market liberalization, a shift to a floating currency regime, and the removal of government controls over prices and the external capital account. The reforms' initial impact was negative: growth slumped into negative territory, unemployment increased, and inequality rose sharply. Since the 1990s, New Zealand's economy has shown commendable growth in both production and output. Since the mid-1990s, the economic picture has improved somewhat from the impact of the 1997-98 Asian financial crises. Growth remained positive, assisted by the significant devaluation of the New Zealand dollar. Unemployment gradually declined and the fiscal situation improved significantly. Since 1999, the economy has performed relatively well. According to the IMF, the current account deficit was at almost 6.09% of GDP in 1999, making it a potential source of wider macroeconomic volatility. It gradually declined to around 3.61% of GDP in 2002, as a competitive exchange rate encouraged export growth to outstrip growth in imports. During 2003-04, the economy grew by an average growth rate of 4.55%. The economy witnessed a slowdown in 2005, with growth declining to 3.54%. The easing of domestic demand in the second half of 2005 resulted in the moderation of the output growth. The appreciation in the real effective exchange rate resulted in the decline of terms of trade, and exports growth slowed down drastically in 2005. Companies' margins came under increasing pressure during 2006, as they were unable to pass on to customers the rising cost pressures, especially of labor and fuel. The appreciation of the New Zealand dollar during 2007, along with strong business investment helped in maintaining an average growth rate of 2.88% during 2006-08 until the advent of the global credit crisis. In 2009, economic activity registered a decline and the country was in recession, with GDP contracting by 1.87%. The government's various stimulus packages—tax reforms, higher infrastructure spending and PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Economic Landscape employment generation schemes pulled the country out of recession to growth of 2.19% in 2010. The government undertook measures to improve the business environment troubled by the global financial crisis by reducing the impact of taxes on the cash flow of companies, improving access to credit and reducing compliance costs for businesses. However, growth again dipped to 0.65% in 2011, as the European debt crisis lingered. Growth recovered sharply to 2.34% in 2012 as risks to global growth subsided after another round of quantitative easing by the US Federal Reserve. In 2013, the economy posted a stronger growth rate of 2.64%, according to Statistics New Zealand.

Figure 30: Evolution of GDP growth in New Zealand, 2003-2013 6.00 5.00 4.00

Growth rate (%)

3.00 2.00 1.00 0.00 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-1.00 -2.00 -3.00

Year Source: Statistics New Zealand

MARKETLINE

Structure and policies Overview The financial system of New Zealand is monitored by the Ministry of Economic Development and the Reserve Bank of New Zealand. The ministry develops policies relating to the regulation of New Zealand's capital markets, the conduct of its participants, and the enforcement bodies that oversee the market. Financial authorities/regulators Reserve Bank of New Zealand The Reserve Bank of New Zealand is the country's central bank. The bank's main task is to maintain the stability and competence of the financial system through managing monetary policy efficiently to keep up price stability, meeting the PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Economic Landscape currency needs of the public, and overseeing and operating efficient payment systems. The bank's guidelines are outlined by the Reserve Bank of New Zealand Act 1989. The bank also administers the operation of the Bills of Exchange Act 1908 and Cheques Act 1960. The Reserve Bank's role in the country's financial system has developed over the years, and includes a requirement that banks must be registered with it. Registered banks must meet certain criteria with regard to their financial position, and only organizations formally registered with the Reserve Bank are entitled to use the word "bank" in their names. In late 2007, the decision was taken by the government to extend the bank's regulatory oversight to finance and insurance companies, building societies, and credit unions. Under the Insurance (Prudential Supervision) Act 2010, the bank has developed guidelines, issued the Fit and Proper Standard, and consulted on solvency standards for life, non-life, and captive insurance companies. New Zealand Exchange The New Zealand Exchange (NZX) is New Zealand's main stock exchange, operating in three different forms in the country. The three divisions are the New Zealand Stock Market (NZSX), the New Zealand Alternative Market (NZAX), and the New Zealand Debt Market (NZDM). Until 1978, there were regional stock exchanges operating in the country, which then merged to form the NZX. In 1991, the NZX implemented the computerized trading system, which was replaced, by the faster trading system in 1999. The NZX is also developing a trading facility for futures and options contracts based on New Zealand listed securities. As part of this effort, it launched the NZX Dairy Futures market in October 2010 with the whole milk powder futures contract. The NZX is a limited liability company according to statute and has three subsidiary companies under it. These are Smart Shares (which offers a range of exchange-traded funds), Link Market Services (offers share registry and related services), and Agri-Fax (offers commercial data services relating to New Zealand agricultural products). The total market capitalization of NZX stood at $74.39billion as of May 2014. Banking As of January 2013, there were 22 registered banks in the country. Australia and New Zealand Banking Group, Auckland Savings Bank, Bank of New Zealand, Kiwibank, and Westpac are the five main trading banks. A significant consequence of deregulation and the free entry of foreign banks into the New Zealand banking sector is that a very minor percentage of the total tangible assets of the banking sector are now held by New Zealand-owned registered banks. Australian banks have a major involvement in New Zealand, with six of the current 21 registered banks being Australian, including the four largest by assets. The sector employed 25,000 people as of 2013, according to New Zealand Bankers Association. The banking system had a total asset base of $403 billion as of 2013. Insurance According to MarketLine, the New Zealand insurance market had total gross written premiums (GWPs) of $10.5 billion in 2012, representing a compound annual growth rate (CAGR) of 5.6% in 2008-12. In comparison, the Australian market declined with a compound annual rate of change (CARC) of -0.5%, and the Chinese market increased with a CAGR of 12.2%, over the same period, to reach respective values of $86.2 billion and $245.4 billion in 2012. The non-life insurance segment was the most lucrative for the New Zealand insurance market in 2012, with total GWPs of $8.8 billion, equivalent to 83.9% of the market's overall value. In comparison, sales of life insurance generated GWPs of $1.7 billion in 2012, equating to 16.1% of the market's aggregate revenues.



Economic Landscape Performance GDP and growth rate Economic growth averaged 3.37% during 1999-2008, benefiting from a net gain in immigration, rising housing prices, strong consumer spending, and favorable international prices for the country's exported commodities. However, in 2009, economic activity registered a decline and the country was in recession, with GDP contracting by 1.87%. The government's various stimulus packages—tax reforms, higher infrastructure spending and employment generation schemes pulled the country out of recession to growth of 2.19% in 2010. The government undertook measures to improve the business environment troubled by the global financial crisis by reducing the impact of taxes on the cash flow of companies, improving access to credit and reducing compliance costs for businesses. However, growth slipped to 0.65% in 2011, as the European debt crisis lingered. Growth recovered sharply to 2.34% in 2012 as risks to global growth subsided after another round of quantitative easing by the US Federal Reserve. In 2013, the economy recorded growth rate of 2.64% mainly on the back of supportive financial conditions, strong construction activity in the earthquake affected areas and elevated commodity export prices.

Figure 31: GDP and GDP growth rate of New Zealand, 2003-13 160.00

6.00

140.00

5.00

4.00

120.00

$ billiion

2.00

80.00 1.00

Growth rate (%)

3.00

100.00

60.00 0.00

40.00

-1.00

20.00

-2.00

0.00

-3.00 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Year

GDP

Real GDP growth rate

Source: Statistics New Zealand


MARKETLINE


Economic Landscape GDP composition by sector In 2013, the services sector contributed nearly 73.61% to GDP in New Zealand. This was followed by the industrial sector, which contributed 21.17% to GDP, and the agricultural sector, which contributed 5.22%.

Figure 32: Sectoral composition of GDP in New Zealand, 2013 Agriculture, 5.22% Industry, 21.17%

Services, 73.61% Source: Country Statistics, MarketLine


MARKETLINE


Economic Landscape Agriculture New Zealand's most important agricultural products are wheat, barley, potatoes, pulses, fruits, vegetables, wool, beef, fish, and dairy goods. Agricultural output in New Zealand was at 1.71% in 2013, down from 1.93% in 2012.

Figure 33: Agricultural output in New Zealand, 2008-13 9.40

2.50

9.30

2.00

9.20 1.50

9.10

NZ$ billion

1.00

8.90 0.50 8.80 0.00

8.70 8.60

Growth rate (%)

9.00

-0.50

8.50 -1.00

8.40 8.30

-1.50 2008

2009

2010

2011

2012

2013

Year Agriculture output

Growth rate

Note: Sectoral breakdown given in local currency due to exchange rate fluctuations Source: MarketLine


MARKETLINE


Economic Landscape Industry New Zealand's key industries include food processing, wood and paper products, textiles, machinery, transportation equipment, and mining. The industrial output increased by 3.90% in 2013, up from 1.46% in 2012.

Figure 34: Industrial output in New Zealand, 2008-13 40.00

6.00

39.00

4.00

38.00

37.00 0.00 36.00 -2.00 35.00

Growth rate (%)

NZ$ billion

2.00

-4.00

34.00

33.00

-6.00 2008

2009

2010

2011

2012

2013

Year Industry output

Growth rate

Note: Sectoral breakdown given in local currency due to exchange rate fluctuations Source: Country Statistics, MarketLine


MARKETLINE


Economic Landscape Services The services sector contributes significantly to the country's total GDP. Some of the main contributors include banking, insurance and tourism sectors. Services output increased by 4.85% in 2013, up from 2.82% in 2012.

Figure 35: Services output in New Zealand, 2008-13 132.00

6.00

130.00 5.00

128.00

126.00

4.00

122.00

3.00

120.00 2.00

118.00

116.00

Growth rate (%)

NZ$ billion

124.00

1.00

114.00 112.00

0.00 2008

2009

2010

2011

2012

2013

Year Services output

Growth rate

Note: Sectoral breakdown given in local currency due to exchange rate fluctuations Source: Country Statistics, MarketLine

MARKETLINE

Fiscal situation Fiscal deficit/surplus situation The primary deficit came down to 0.6% of GDP in 2013, from 1.4% of GDP in 2012, compared to the G7 average of 4.7% and the Euro area average of 1.0%. The government aims to balance the budget by 2015 mainly by restricting spending. The general government gross debt was at a reasonable 35.9% of GDP as of 2013, up from 20.1% in 2008 due to the financial crisis and two major earthquakes. It is still well below the debt to GDP levels of its counterparts in the Euro area which were 95.2% in the same year. Current account The current account deficit has gradually been on the rise since 2009, which has been an area of concern. According to the OECD, the current account deficit stood at 3.3% of GDP in 2013, up from a deficit of 2.3% in 2009. The current account narrowed in 2013, on the back of strong terms of trade; however, it is expected to widen in 2014 as investment PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Economic Landscape and domestic consumption remain strong. In addition, investments related to the post-earthquake reconstruction will not help in containing the deficit. Foreign trade As of 2013, exports totaled $49.13 billion, up from $47.18 billion in 2012, while imports also went up from $49.25 billion in 2012 to $51.19 billion in 2013. New Zealand's main export partners are China, Australia, the US and Japan as of 2013. While main import partners are China Australia US Japan Singapore and Germany.

Figure 36: New Zealand's external trade position, 2009-13

120.00

100.00 80.12

80.00 66.37 60.00

$ billion

100.32

96.43

95.55

47.91

39.82

33.42

49.25

49.13

47.18

47.65

51.19

40.30 40.00

32.96

20.00

0.00 2009

2010

2011 Year Exports

Imports

2012

2013

Total trade

Source: Country Statistics, MarketLine

MARKETLINE

International investment position Foreign investments According to UNCTAD, World Investment Report 2013, FDI inflows in New Zealand saw a decline from $4.32 billion in 2011 to $2.91 billion in 2012. Total FDI stock stood at $81.42 billion in 2012, up from $24.95 billion in 2000. Monetary situation The Reserve Bank uses monetary policy to maintain price stability as defined in the Policy Targets Agreement (PTA). The bank implements monetary policy by setting the official cash rate (OCR). As of June 2014, the official cash rate (OCR) stood at 3.25%. During January-June 2014, the central bank hiked the benchmark interest rate three times to tame upward inflationary pressure arising from the considerable growth momentum of the economy. PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Economic Landscape CPI inflation According to MarketLine, inflation stood at 1.04% as of 2013; however, it is expected to increase to 1.99% in 2014, on the back of rising demand and increasing house price inflation. The rising inflation rate increases the possibility of interest rate hikes in the short term.

Figure 37: Consumer price index and CPI-based inflation in New Zealand, 2007-17 160.00

5.00 4.50

140.00

4.00 120.00 100.00

3.00

80.00

2.50 2.00

60.00

Percentage (%)

Consumer Price Index

3.50

1.50 40.00 1.00 20.00

0.50

0.00

0.00 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Title Consumer price index Source: Country Statistics, MarketLine

Inflation MARKETLINE

Employment High unemployment is the most important challenge New Zealand is facing in the aftermath of the global economic crisis. According to MarketLine, the unemployment rate declined to 6.16% in 2013 from 6.90% in 2012. MarketLine estimates suggest that unemployment in the country will fall marginally to 5.51% in 2014, as demand for labor grows in the construction sector and economic growth becomes stronger.



Economic Landscape

0.16

8.00

0.14

7.00

0.12

6.00

0.10

5.00

0.08

4.00

0.06

3.00

0.04

2.00

0.02

1.00

0.00

Percentage (%)

Unemployment in millions

Figure 38: Unemployment in New Zealand, 2007-17

0.00 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Year Total unemployment

Rate of unemployment (%)


MARKETLINE

Outlook The recession and the massive earthquake-related reconstruction costs have led to a ballooning fiscal deficit. However, the government is moving towards fiscal prudence, which could reduce the deficit in the medium term. The country has very high external liabilities, which may magnify shocks from the global macroeconomic environment. Another area of concern is that New Zealand's economy has been closely intertwined with Australia; consequently, if Australia takes a hit due to a hard landing in China or any of its other trade partners, New Zealand is likely to be affected through financial and trade channels. Employment prospects are expected to improve in the medium term due to construction-related spending in the earthquake-affected areas; however, policymakers need to address the structural issues affecting job growth. Overall, the outlook for the economy is brighter in 2014.



Social Landscape

SOCIAL LANDSCAPE Summary The country's social welfare system is well developed, with benefits from the government distributed among all sections of society. The government's nationwide initiatives have also established a well-developed social system in the country. The government is working on weaning people away from the benefits program to employment by providing assistance in childcare, training, workplace support, access to health and disability support services. This initiative is expected to provide substantial cost savings to the government.

Evolution Social welfare activities in New Zealand were prevalent from the very beginning of the 20th century. The first such activity began with the establishment of the old age pensions department in 1904. During 1909-12, pensions were administered as a division of the post and telegraph department. In 1939, through the Social Security Act 1938, the social security department was formed. This absorbed the pensions department and employment division of the Department of Labor. In 1972, the social security department and the child welfare division merged to form the Department of Social Welfare. In 1992, the social welfare department was also given control of the New Zealand Income Support Service, the New Zealand Children and Young Person Service, the New Zealand Community Funding Agency, the Social Policy Agency, and other corporate offices. In 1999, the Ministry of Social Policy was established, with the amalgamation of the Social Policy Agency and Corporate Office functions of the former Department of Social Welfare and the addition of the new Purchasing and Monitoring Group. Finally, in 2001, the Ministry of Social Development was established with the amalgamation of the Ministry of Social Policy and the Department of Work and Income.

Structure and policies The 2014 budget has focused mostly on improving the social aspects. The budget has allocated significant resources towards education, healthcare projects and affordable housing. Further, the government also plans to take measures to help the vulnerable and the needy. Demographic composition Age and gender-wise composition The percentage of population between 15-64 years old was 65.71% in 2014, while percentage of population above 65 was 14.30%. Around 20% of the population is below 14 years. The sex ratio is 1.05 males per female in 2014, according to CIA-The World Factbook.



Social Landscape

Table 9:

Mid-year population by age (as % of Population), 2014

Mid-year population by age

Female

Male

0-4

6.48

6.85

5-9

6.54

6.93

10-14

6.41

6.80

15-19

6.57

7.03

20-24

6.93

7.29

25-29

6.46

6.54

30-34

6.42

6.45

35-39

6.21

6.28

40-44

6.94

7.38

45-49

7.09

7.16

50-54

7.07

6.84

55-59

6.16

5.99

60-64

5.41

5.20

65-69

4.76

4.56

70-74

3.58

3.35

75-79

2.60

2.31

80+

4.38


3.03 MARKETLINE

Religious composition According to CIA - The World Factbook, New Zealand's religious landscape comprises Protestants 38.6%, Roman Catholics 12.6%, Maori Christians 1.6%, Hindus 1.6%, Buddhists 1.3%, none 32.2%, other religions 2.2%, and other or unidentified at 9.9%.

Education System of education In New Zealand, education is compulsory between the ages of six and 16 and is provided free of cost at the primary, intermediate and secondary levels. Tertiary education includes college and university level study. At the university level, a bachelor's degree is granted after a three-year course, and after an additional year of study, an honors degree is granted. A master's degree is granted after an additional two years of study. A person with either an honors or a master's degree can proceed to a doctoral program. The government also provides student funding for living and tuition fees, depending upon the income of the parents. Healthcare services Public The government's healthcare provisions are guided by the New Zealand Public Health and Disability Act 2000. Important components of the healthcare system include:



Social Landscape 

District health boards (DHBs) - These are responsible for providing or funding the health and disability services in the districts. The activities of DHBs are guided by two overarching strategies for the health and disability sector: the New Zealand Health Strategy and the New Zealand Disability Strategy. The DHBs are supported by the Ministry of Health, which provides national policy advice, regulation, and funding. Government hospitals are owned and funded by the DHBs, while the National Health Board funds, monitors and ensures the accountability of the DHBs.



Primary healthcare organizations - Primary healthcare organizations cover a broad range of out-ofhospital services, which include first-level services such as general practice services, mobile nursing services, and community health services targeted especially at certain conditions, such as maternity.

Private While the public healthcare system covers the entire country, there are numerous private hospitals, many of which offer specialized services. Their services include elective procedures and general surgery, specialist procedures such as cardiothoracic operations, radiology, and laboratory testing. A number of insurance companies offer private healthcare cover.

Performance Healthcare According to MarketLine, total healthcare expenditure in the country in 2012 was $18.14 billion, or 10.75% of GDP. Healthcare expenditure averaged 8.91% of GDP during 2000-12. According to OECD Health Data 2013, the number of physicians per 1,000 population in 2011 was 2.7, which was less than the OECD average of 3.2. However, there were 10.0 nurses per 1,000 population, higher than the OECD average of 8.7 in the same year.



Social Landscape

Figure 39: Healthcare expenditure in New Zealand, 2006-12 20.00

12.00

18.00 10.00

16.00 14.00

8.00

$ billion

10.00

6.00

8.00 4.00

6.00 4.00

Percentage (%)

12.00

2.00

2.00 0.00

0.00 2006

2007

2008

2009

2010

2011

2012

Year Total healthcare expenditure

Total healthcare expenditure as a % of GDP


MARKETLINE

Education Public education expenditure in the country in 2012 was $12.42 billion. Government expenditure on education as a percentage of GDP increased from 7.24% in 2011 to 7.36% in 2012.



Social Landscape

Figure 40: Education expenditure in New Zealand, 2006-12 14.00

8.00

12.00

7.00 6.00

10.00

5.00

$ billion

4.00

6.00 3.00 4.00

Percentage (%)

8.00

2.00

2.00

1.00

0.00

0.00 2006

2007

2008

2009

2010

2011

2012

Year Expenditure on education, public

Public education expenditure as % of GDP


MARKETLINE

Outlook The government has focused on housing affordability, which is a welcome move; however, the effects are not going to be realized in the short term. The government has taken measures in the 2014 budget to reduce welfare dependency and put more people to work. This is expected to result in considerable savings to the government over the medium term.




TECHNOLOGICAL LANDSCAPE Summary The main technological developments in New Zealand took place during 1988-2008. The Crown Research Institutes (CRIs) are the most important centers for R&D in the country. However, the country's achievements in terms of patents are low compared to the other developed countries of the world. The Ministry of Science and Innovation (MSI) maintains a number of bilateral and multilateral agreements with international partners including the US, Australia, the UK, Germany, France, Denmark, Sweden, China, Japan, Singapore, the Republic of Korea, Argentina, Brazil, Chile, and Mexico. However, the country's largest science and innovation partner is the US. The information and communications technology industry of the country is a growing sector. The e-commerce market is growing and many retail companies are working on establishing or strengthening their e-commerce websites.

Evolution New Zealand's science system has evolved considerably over the past 20 years and now operates in a markedly different operating environment, with greater expectations and opportunities. The technological landscape was marked by institutional change during 1985-95. During this period, the Department of Scientific and Industrial Research (DSIR) and the research and advisory divisions of the Ministry of Agriculture (MOA) were established; separate policy and investment agencies were set up; and the CRIs were established to align New Zealand's public science with its key sectors. A host of policy initiatives as well as strategies in areas such as bio-security, biodiversity, and climate change were also initiated during 1995-2005. During this time, great significance was attached to R&D and the environment, and to society as a whole. The Performance-Based Research Fund rewards research excellence within tertiary education institutes, while International Investment Opportunities Fund gives New Zealand access to overseas science funds and expertise. Another new fund, the Venture Investment Fund, provides seed venture capital for the commercialization of R&D. In February 2011, the Ministry for Research, Science, and Technology and the Foundation for Research, Science, and Technology merged into the new MSI, which drives the science and innovation sector in the country and is responsible for policy and investment decisions.

Structure and policies Intellectual property New Zealand has received very few patents compared with other developed countries. Although the country is economically well developed, it has not been able to perform well in terms of innovation. The country received only 247 patents in 2013 from the United States Patent and Trademark Office. Further, New Zealand has also lagged behind other advanced nations such as Finland, Sweden, France and Norway. The low patent count does not bode well for an advanced nation like New Zealand and the country risks losing out on innovation and competiveness in the international market if the situation persists.




Table 10:

Patents received from the USPTO, 2010-13

Year

Finland

Sweden

France

Norway

New Zealand

2009

1143

1434

4450

399

168

2010

951

1710

4532

366

180

2011

1064

2081

5386

444

223

2012

1221

2271

6083

475

247

Source: USPTO

MARKETLINE

Research and development Central to the R&D system are New Zealand's 15,000 research personnel working in CRIs, universities, polytechnics, museums, hospitals, territorial authorities, research associations, or private firms as of 2010. They supervise the functioning of the R&D systems and support innovation. Furthermore, connected into the R&D system are a wide range of "users" of science: for example, firms wanting to improve or develop new products or services, regional councils needing to understand and manage environmental resources or risks, or health agencies wanting to understand the determinants of disease in the New Zealand context. They will typically draw on both New Zealand and overseas science and research, carry out their own research, and often work with scientists in determining scientific needs and opportunities. The education system interlinks closely with the R&D system. Secondary schools and tertiary education institutions, as well as research institutes such as CRIs, provide training for scientists, as well as for people going into other professions that may require knowledge of science. The R&D system is also part of New Zealand's broader society and is linked to global networks of innovation and science. Technology agreements/pacts New Zealand maintains bilateral relationships with many countries for scientific development in both domestic and international regions. Some of the countries with which it has ties include Australia, France, Germany, Japan, China, South Korea, South America, the UK, and the US. New Zealand has close ties with the Organization of Petroleum Exporting Countries (OPEC) and the OECD. New Zealand hosted the fourth meeting of Asia-Pacific Economic Cooperation (APEC) science ministers in 2004, which led to increased policy focus in its work, under human capacity building, international science and technology networks, connecting research and innovation, and strengthening technological co-operation and encouraging best practices in strategic planning. The MSI maintains a number of bilateral and multilateral agreements with international partners. Key bilateral R&D partners include Australia, Europe, Denmark, Sweden, and Asian and American countries. Australia is the country's second largest science and technology partner. The country has strong links with Europe, especially the UK, Germany, and France. It also shares expertise in innovation systems with Denmark and Sweden. The country has also signed science and innovation agreements with China, Japan, Singapore, and the Republic of Korea. The country's largest science and innovation partner is the US. Additionally, the country has arrangements to deepen science and technology relations with Argentina, Brazil, Chile, and Mexico.



Technological Landscape Performance Mobile and Internet In the communications sector, the mobile subscribers grew at an average of around 9.90% during 2000-13, with total subscribers recorded at 5.01 million in 2013 and a penetration rate of 112.00 per 100 people in the same year. The number of people using the internet grew by an average of 7.37% during 2000-12; internet users stood at 4.02 million in 2012, which constitutes 90.73% of the total population.

Figure 41: Internet subscribers in New Zealand, 2008-12 4.50

100.00

4.00

90.00 80.00 70.00

3.00

60.00 2.50 50.00 2.00 40.00 1.50

Percentage (%)

Internet users in millions

3.50

30.00

1.00

20.00

0.50

10.00

0.00

0.00 2008

2009

2010

2011

2012

Year Number of users

Percentage of population


MARKETLINE

Research and development R&D expenditure As a percentage of GDP, R&D expenditure in the country was 0.43% in 2011, when compared to OECD average of 2.31% of GDP. Although there has been an increase in R&D expenditure, it continues to be low compared to other advanced nations. Further, business expenditure on research and development as a percentage of GDP stood at 0.59% in 2011 compared to the OECD average of 1.59% in 2011. The low R&D spending provides little incentive for students to get into research and results in fewer patents being registered in the country. This will affect the country's development in science and technology.



Technological Landscape Outlook New Zealand's ICT sector is growing and the country is taking various measures to boost the sector. The government will focus on R&D in science, technology, and related investments activities until 2020. The government is focused on increasing R&D activities in business (promoting public-private R&D activities), R&D in priority areas, and investment into research organizations (increased investment in the knowledge base of the country). The agenda is expected to bring international players into R&D and is set to enhance R&D productivity in the coming years.



Legal Landscape

LEGAL LANDSCAPE Summary The legal system of New Zealand is largely influenced by English law. Its basic principle is that of the separation of powers among the legislature, the executive, and the judiciary. The court system comprises the Supreme Court, the court of appeal, the high court, and many district courts. Disputes resolved by the courts encompass virtually all aspects of life in the country. Strict rules govern judicial appointments, which has kept the judiciary free from political interference and corruption.

Evolution Until 1840, New Zealand was described as "the lawless land." This could be partly true, as the native Maoris have th

governed themselves according to tikanga (custom). From the early part of the 19 century, officials in New South Wales in Australia attempted to bring some control to New Zealand. Justices of the peace were appointed to preserve order in the country's settlements and from time to time. Courts in New South Wales dealt with civil and criminal matters from New Zealand. However, New Zealand was too far away and colonial officials in New South Wales were not especially eager to enforce the law. By 1839, increasing European contact was having a serious impact on the stability of Maori society. The instability, the likelihood of large scale European immigration, and the potential for conflict between settlers and Maori all contributed to the British decision to proclaim sovereignty. Negotiations with the Maori people culminated in the Treaty of Waitangi in February 1840 and the proclamation of British sovereignty over the country. By November 1840, New Zealand had been declared a colony separate from New South Wales. A New Zealand governor had been given the authority to appoint officials responsible for administering justice. From then on, the establishment of different courts began, starting with the Supreme Court in 1841. Subsequently, there were many reforms, and many other lower level and issue-based courts sprang up by the end of 2000.

Structure and policies Judicial system The government structure in New Zealand is based on the Westminster model. Its basic principle is that of the separation of powers among the legislature, the executive, and the judiciary. The powers are kept separate from each other to provide checks and balances within the system and to ensure that accountability and impartiality are maintained. In New Zealand, the functions of courts are based on the constitutional principle that the judicial decision makers and the judiciary are independent of policy makers and parliament. Judges formulate decisions by interpreting laws passed by parliament, which are themselves designed to reflect the intention or interests of the citizens, collectively. Thus the laws, once passed, are to be enforced as the formal expression of the society's standards. Supreme Court The Supreme Court, established through the Supreme Court Act of 2003, is the final court of appeal in New Zealand. As the court of final appeal, the Supreme Court ensures consistency of the entire legal system. Appeals are heard with five judges on the bench-—these can also be judges of high courts with current duties or retired judges of the Supreme Court or court of appeal. The Supreme Court can hear any appeals passed on from the court of appeal and the high court. All civil and criminal cases come under the court's jurisdiction.



Legal Landscape Court of appeal The court of appeal is one of the oldest courts in the country, established in 1862. This court was founded to minimize the expenditure for citizens to carry their cases to the Privy Council of London between the 1860s and 1950s. The permanent court of appeal was established in 1957, with the chief justice being the highest authority of courts. The court of appeal deals with civil and criminal appeals from the high court and criminal charges from the district courts. Matters appealed to the high court from district courts and certain tribunals can be taken to the court of appeal with authorization, if a second appeal is warranted. The judges of the court of appeal have seniority over all the judges of the high court, except the chief justice and the other judges of the Supreme Court. High court Decisions of the high court are binding on all lower courts until overruled by the court of appeal or Supreme Court. Because of its position in the judicial structure, the high court is the court to which an application is made for authoritative declarations of law. The high court has particular responsibility of ensuring the legality of the conduct of all sections of the community, including inferior courts and tribunals and the protection of legal rights and immunities. The high court is a single national court that sits in a number of courthouses in different parts of the country. Judges are permanently located in Wellington, Auckland, and Christchurch. Other courts Apart from these three main courts in the country, there are many more issue-specific courts. The district courts address all civil and criminal issues at the district levels. The other courts include the employment court, environment court, family court, Maori land court, youth court, and tribunals. Corporate income tax The corporate tax rate is currently levied at 28%. Individual income tax New Zealand tax rates are progressive with a maximum tax rate of 33%. Withholding tax Non-resident withholding of tax is deducted from payments of dividends at 30% rate while withholding tax rate for interest, and royalties made to non-residents are charged at 15%. Labor law The Employment Relations Act 2000 regulates the labor environment in New Zealand. The act has successfully established an Employment Relations Authority to investigate and settle issues speedily and effectively between the management and the labor unions. The working hours in a week come to 40 hours, or eight hours over five days.

Performance Effectiveness of the legal system In New Zealand, the courts' function is based on the constitutional principle that the judicial decision makers, the judiciary, are independent of the policy makers, the executive and parliament. Judges make decisions by interpreting the laws that are passed by parliament. Parliament passes laws that represent policy decisions that reflect the intention or interests of the citizens collectively. Hence, the laws, once passed, are to be enforced as the formal expression of society's standards. The judges, who interpret the law, do not create or determine policies. Furthermore, judicial officers PESTLE Country Analysis Report: New Zealand © MarketLine. This report is a licensed product and is not to be photocopied


Legal Landscape by law do not publicly comment on whether a policy is "good" or "bad," and will not present a view on whether a policy should be amended or written into legislation. Just as the judiciary is independent from the other branches of government, so each judge is independent from all other judges. Judges are therefore free to make their decisions without direction from any other judge, in the same way that they cannot be influenced in their decisions by the other branches of government or any other kind of pressure. Disputes resolved by the courts encompass virtually all aspects of life in New Zealand. Strict rules govern judicial appointments that help protect the justice officers and the judiciary's constitutional independence. This has helped keep the judiciary free from political interference and corruption. Legal indicators New Zealand was ranked the fifth freest economy in the Wall Street Journal's 2014 Index of Economic Freedom. New Zealand is ranked fourth out of 42 countries in the Asia Pacific region, according to the Index of Economic Freedom. These scores indicate a highly conducive environment for business. New Zealand ranks highly in business freedom, trade freedom, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom, but scores less on government spending. The country is significantly free from corruption.

Outlook The country has a stable legal system, which is conducive to operating a business. Further, the country has one of the lowest tax wedges, which would help in attracting talent. The country secured the ninth place out of 180 countries in the Press Freedom Index 2014 reflecting the country's reputation as a deep-rooted democracy. Moreover, in the governance indicators, the country has received a very high percentile ranking in both regulatory quality and rule of law, which stands as a testimony to the good legal environment. However, recent allegations that the country has been used as a tax haven could tarnish its reputation. A recent law to counter tax evasion should be effective in curtailing such activity.




ENVIRONMENTAL LANDSCAPE Summary New Zealand has a well-developed system of environmental policies encompassing various issues of environmental protection and the conservation of ecosystems. The country has policies for monitoring air quality, biodiversity, climate change, energy, hazardous substances, and resource management and wastage control. The Ministry of Environment is the regulatory authority responsible for designing national policies and laws necessary for good environmental management. The country proposed to reduce emissions by 50% from 1990 levels by 2050. As part of its efforts to improve the air quality in the country, the government has established new standards under the National Environmental Standard on Air Quality to achieve a higher level of compliance.

Evolution New Zealand began focusing on environmental issues in the 1940s. The first environmental law was formulated in 1941 in the form of the Social Conservation and Rivers Control Act. This was very well implemented for many years, with the country successfully maintaining high environmental standards. Many environmental laws were formulated during 19802004; these included the Fisheries Act 1983, the Environment Act 1986, the Conservation Act 1987, the Resource Management Act 1991, the Crown Minerals Act 1991, the Bio-security Act 1993, the Ozone Layer Protection Act 1996, the Climate Change Response Act 2000, and the Aquaculture Reform Act 2004.

Structure and policies Environmental regulations Overview The Ministry of Environment is the main advisor and regulatory authority for environmental issues in New Zealand. The Ministry of Environment is responsible for designing national policies and laws necessary for good environmental management. Other authorities that have environmental duties at different levels include the Department of Conservation, the Parliamentary Commission for Environment, the Environmental Risk Management Authority, the Energy Efficiency and Conservation Authority, and other government departments. Policy New Zealand has a very well developed system of streamlined environmental policies addressing diverse ecosystem issues. The country has policies monitoring air quality, biodiversity, climate change, energy, hazardous substances, and resource management and wastage control. Duties related to environmental decision making are allocated to the regional level authorities who monitor resource allocations in respective jurisdictions. Regional councils, under the Resource Management Act 1991, are responsible for achieving the national goal of "integrated management of the natural and physical resources of the region." Regional councils are required to approve the discharge of contaminants to air, water, or land. The Ministry of Environment develops national policy statements and environmental standards to address environmental issues affecting the whole nation. These statements and standards set the policy boundaries from which local authorities develop their own policies and regulations.



Environmental Landscape Environmental actions Measures on air quality In New Zealand, the Energy Efficiency and Conservation Act, the Ozone Layer Protection Act, the Resource Management Act 1991, and ambient air quality standards, developed in 1994, monitor air quality. The policies implemented include statutory achievement of energy efficiency standards, labeling of hazardous electrical goods, and mandatory removal of lead from vehicle fuel. The government also started a new carbon-trading scheme in 2007, forcing companies to pay for the quotas and thus control carbon emissions. The other measures to improve air quality include a government leadership program in energy efficiency, establishing efficiency standards and labels incorporating climate change in transport, and waste and agricultural policy development. As part of its effort to improve the air quality in the country, the government has established new standards under the National Environmental Standard on Air Quality to achieve a higher level of compliance. The government is also toughening its vehicle emission standards and fuel standards to reduce vehicular air pollution. Biodiversity New Zealand has a unique native biodiversity, with many rare avian species. Increased industrial activity has led to loss of biodiversity—fire, land clearance, overexploitation of resources, and the introduction of non-endemic plants and animals have had a cumulative effect on native biodiversity. Dozens of species have become extinct and an increasing number are threatened with extinction. The Ministry of Agriculture and Forestry (MAF) is the regulatory authority for the conservation of biodiversity in New Zealand. The MAF has six policy directorates monitoring biodiversity in the country, which include a special innovation and research policy, an international policy, management services, a natural resources policy, a special sector performance policy monitoring the degradation of the environment, and a strategy development for bio-conservation.

Performance Environmental impact In the Environmental Performance index 2014, New Zealand ranked 16th of 178 countries; this highlights its good performance in environmental protection. The index, published by Yale University, uses nine indicators to measure a country's performance (Health Impacts, Air Quality, Water and Sanitation, Water Resources, Agriculture, Forests, Fisheries, Biodiversity and Habitat and Climate and Energy). In contrast, the Japan and South Korea were ranked 26th and 43rd. This highlights the above-average performance of New Zealand in environmental conservation. The country's CO2 emissions have decreased from 40.39 million metric tons in 2005 to around 37.17 million metric tons in 2011.




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Figure 42: Carbon dioxide emissions in New Zealand, 2004-11

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Outlook The New Zealand government has taken extensive measures in an effort to control the effects of pollution on the environment. The government is raising a new sustainable management fund to finance future environmental projects in the country. Through the fund, the government aims to make a positive difference to the environment by funding projects that support the country's environment and sustainability priorities, encourage pro-active partnerships and promote community action in environmental conservation. In June 2010, the government announced the establishment of a new standalone Environmental Protection Authority to perform environmental regulatory functions. This reform has brought a wide range of environmental regulatory functions under one roof and provided direction to regional and district councils. These changes provide a strengthened framework for the Ministry for the Environment, create an Environmental Protection Authority responsible for efficient regulation, and make the parliamentary commissioner for the environment an independent auditor. The government is taking various initiatives to tackle air pollution and reduce emissions. The government is also toughening vehicle emission standards and fuel standards to reduce vehicular air pollution. The country also aims to reduce its emissions by 50% by 2050.



Appendix

APPENDIX Ask the analyst MarketLine's Country Analysis Practice consists of a team of economists, analysts, and researchers, all with expertise in their given fields. For any questions or comments about this report you can contact the author directly at [email protected]

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