V.

Economy

The economy of New Zealand has relied on overseas trade and capital since the 19th century, when Europeans colonized the islands. Most of the country’s infrastructure was initially developed by the state using imported capital. Imported goods and capital were paid for with exports of frozen meat and butter, which from the 1880s were the mainstay of overseas earnings for nearly a century. Terms of trade (the relative prices of exports and imports) were strongly in New Zealand’s favor until the early 1970s. At that time, increases in world prices for oil (which New Zealand imports), reduced world demand for New Zealand’s traditional primary goods, and decreased access to the British market with the development of the European Community (now European Union) contributed to a balance-of-payments deficit. The deficit persisted, making it difficult for New Zealand to regain the prosperity of earlier years. The economic problems were largely attributed to the economy’s slow adjustment to external market changes. The economy’s dependence on the export of a limited range of goods meant that any fluctuation in world prices and demand for those goods had a considerable effect. In addition, the economy was strongly regulated by the government.

In the mid-1980s the government initiated a program of economic restructuring along free-market lines. The reforms were designed to promote economic flexibility and competitiveness while decreasing the government’s role in the economy. A program to deregulate the economy involved the removal of many legal and governmental restrictions that were regarded as hindrances to free competition, including agricultural subsidies, tariffs and import duties, and fiscal controls. The government withdrew from the manipulation of currency and financial markets and reduced its financial burden for social-welfare provisions. Privatization was vigorously pursued, and many state assets were transferred to the private sector. The economic restructuring ultimately transformed a highly regulated welfare state into a free-market economy.

The transition was not entirely successful in terms of economic performance, however, as New Zealand’s economy fell short of growth expectations. One reason for this was the increased export of profits, especially in growth sectors such as banking and telecommunications. In addition, some economic sectors could not compete with the lower wage levels and higher industry protections in some other countries. The automobile industry was completely eliminated, while many clothing and footwear manufacturers moved their operations to countries with cheaper labor. The reforms also exacted a social cost, leading to high rates of unemployment (virtually nonexistent from the 1940s until the mid-1970s) and increased income inequalities.

The country’s national income, or gross domestic product (GDP), was $109.3 billion in 2005 (in U.S. dollars). Some 65 percent of the GDP derives from services, 25 percent from industry, and 10 percent from agriculture, forestry, and fishing. However, the relatively small GDP figure for agriculture, forestry, and fishing underestimates its importance for New Zealand’s exports. Half of the country’s export earnings come from these products. In recent years New Zealand has developed its agriculture and manufacturing industries to suit the needs of niche markets. Dairy and meat exports continue to make a large contribution to New Zealand’s economy. However, industries such as forestry, horticulture, fishing, manufacturing, and tourism have become increasingly significant.

A.

Labor

New Zealand has a workforce of about 2.2 million people, 53 percent of whom are male. The proportions of the workforce in different sectors of the economy closely mirror each sector’s share of GDP. Wage rates are modest, and GDP per capita is $26,663.60 (in U.S. dollars). The unemployment rate was 3.9 percent of the workforce in 2004. The first labor unions were established in the mining industry more than a century ago. Union membership became compulsory, and trade unions negotiated wage increases for their members. In 1991 the Employment Contracts Act (ECA) reversed the country’s union traditions and promoted the rapid deregulation of the labor market. It made unionism voluntary and enhanced the employer’s bargaining power. Union membership decreased by about half, to about 300,000 workers. In 2000, however, the ECA was replaced by the Employment Relations Act (ERA), under which union membership remained voluntary but union powers were strengthened. Only unions are allowed to negotiate collective contracts, and union representatives once again have legal access to workplaces.

B.

Agriculture, Forestry, and Fishing

Agriculture has an importance for New Zealand’s exports that outweighs its share of the labor force and GDP. Most agricultural land is pastoral and well suited for the raising of livestock. The climate produces nearly continuous grass growth, and farm animals are generally kept outside all year. Sheep are raised for both meat and wool. Sheep numbers have declined from a peak of 70 million in 1982 to 40 million in 1999. The country also has about 10 million beef and dairy cattle, as well as deer, goats, and pigs.

New Zealand agriculture receives no direct subsidies from the state, as subsidies were discontinued in the mid-1980s as part of the government’s deregulation policies. Agricultural production therefore tends to follow world price trends. From the late 1970s to 2000, the relative output of mutton, lamb, and wool nearly halved (from 34 percent to 18 percent of agricultural output by value), while the relative output of dairy products—including butter, cheese, milk powders, and casein—nearly doubled (from 16 percent to 31 percent). Crops account for less than 5 percent of agricultural output. New Zealand now produces more than twice as much produce (fruits and vegetables) as it did in the 1970s. Principal crops are cereals (barley, wheat, maize, and oats), grapes, apples, pears, kiwi fruit, potatoes, and peas. The production of some specialized horticultural products such as wine, kiwi fruit, and squash has expanded considerably in recent years, and products like these are thought to represent an important future direction for New Zealand agriculture.

Timber production is almost exclusively from the 1.7 million hectares (4.2 million acres) of plantation forests. Radiata pine, a species originally imported from California, is the most widely planted tree because of its rapid and straight growth in New Zealand. Tree plantations are generally clear-cut and then replanted, with each growth cycle lasting from 25 to 30 years. Major plantings in the 1960s and 1970s are expected to provide ample supply through at least 2010, while the allocation of more land for tree plantations is likely to continue to boost supply. Timber is used to produce sawn logs, wood pulp, paper, and building materials such as fiberboard.

Fish and other seafood are caught primarily in the country’s exclusive economic zone. This zone extends 200 nautical miles (370 km/230 mi) seaward from the main and offshore islands and is one of the largest such zones in the world. It covers an area that is about 15 times the total land area of New Zealand. The total commercial fisheries catch in 2000 was about 650,000 metric tons, with just under half this being exported. Deep-sea fishing involves the use of large trawlers to catch commercially valuable species, the most important of these being hoki, orange roughy, ling, squid, and hake. Also important for export income are aquacultural (farmed) salmon and mussels as well as harvested rock lobster (crayfish) and paua (abalone).

C.

Mining and Manufacturing

New Zealand has a wide diversity of minerals, but few are mined on a significant basis. The most notable is gold, of which 7,300 kg (16,100 lb) was mined in 2004. Most gold comes from two mines, Macraes in the Otago region (southern South Island) and the Martha Mine in the Coromandel mountain range (northern North Island). Some alluvial mining takes place on the west coast of the South Island and in Otago. These regions are historic centers of the mining industry, which in the 1860s and 1870s furnished the bulk of New Zealand’s exports. Iron sand is mined south of Auckland and supplies the country’s one steel mill. Limestone is mined for the manufacture of cement. New Zealand has extensive coal resources, but much of it is low-grade lignite. Most mining operations now focus on the country’s deposits of higher quality subbituminous coal. In 2003 New Zealand produced 5.7 million short tons of coal. About one-third of the total coal production is exported, primarily to Japan and Chile.

The biggest manufacturing sector, accounting for 25 percent of industrial employment, is food, beverages, and tobacco. Most food-processing industries are located in urban centers. Meat-processing and dairy factories are located in the main agricultural regions. Winemaking is increasingly significant, with the main production centers in Marlborough on the northeastern coast of the South Island and Hawkes Bay and Gisborne in eastern North Island.

Also important to the economy are industries producing machinery and equipment, metal products, processed timber, pulp and paper, textiles, clothing, footwear, and leather. Most New Zealand wool is used for either carpet manufacture or clothing. Some of it is exported in bulk for external processing into finished goods. Although some industries have declined as a result of the tariff cuts of the 1980s and 1990s, some specialized industries have established international markets for themselves. The boatbuilding industry, for example, has expanded its market, especially for luxury yachts, since New Zealand won the America’s Cup, an international yachting-race trophy, in 1995.

D.

Services

The services sector is the most important to the economy in terms of contribution to GDP and employment. Services include tourism, transportation, retail sales, hospitality, education, health, business consultancy, and banking. These are mostly urban trades, although many serve agricultural production as well. Tourism is one of the most important components of this sector in New Zealand. Ten percent of New Zealand jobs are in the tourism industry. Tourism is also the country’s top earner of foreign exchange. In 2001 New Zealand hosted 1.9 million tourists from countries such as Australia, the United Kingdom, the United States, Japan, South Korea, China, and Germany.

E.

Energy

Electricity is generated in New Zealand by hydroelectric power stations and thermal power stations. Hydroelectricity accounts for 59 percent of the country’s total electricity generation. The remainder comes from thermal power plants, which rely on three fuel sources: geothermal steam, natural gas, and coal.

New Zealand has many hydroelectric facilities that convert the waterpower of rivers and lakes into electricity. In 1965 the power transmission systems of the two main islands were linked by submarine direct-current cables across Cook Strait. These cables send hydroelectric power from the South Island to the North Island. The main thermal power stations are located on the North Island, including a geothermal power plant in the central volcanic plateau, a gas-fueled plant in the western Taranaki region, and a coal- and gas-fueled plant south of Auckland. Electric heating in homes is supplemented in parts of the North Island by natural gas from fields in the Taranaki region.

New Zealand imports about half the petroleum it consumes. The balance comes from domestic oil fields in the Taranaki region, both onshore and offshore. Natural gas is also used to manufacture synthetic gasoline, and some motor vehicles run on forms of natural gas. Since 1973, when world oil prices rose sharply, New Zealand has made considerable efforts to reduce its dependence on imported petroleum and, more generally, its consumption of petroleum products. Measures included switching the fuel source of the thermal power stations from oil to coal and gas.

F.

Transportation and Communications

New Zealand has 93,000 km (58,000 mi) of road, 64 percent of which is paved. Most roads, even between big towns, are only two lanes. In rural areas one-lane bridges are common, and occasionally motor vehicles and trains must share them. The networks of urban motorways planned for Auckland and Wellington in the 1960s have yet to be completed. Ownership of motor vehicles is high by international standards, with approximately 1 vehicle for every two people.

The country has about 3,900 km (2,400 mi) of narrow-gauge rail track, forming a rail network that links most of the country’s urban and agricultural centers. Developed by the state, the rail network was sold to private enterprise in the early 1990s. The network includes ferries carrying freight and passenger rail cars from Wellington to the South Island. Substantial quantities of goods are transported by rail. Passenger travel is limited to some long-distance trains, used mainly by tourists, and commuter networks in Wellington and Auckland. The principal shipping ports are at Auckland, Wellington, Tauranga, and Lyttelton (near Christchurch).

Air travel is the preferred mode of travel between major cities. Air transport is widely used, with numerous airfields located throughout the country to serve private pilots. Air New Zealand, the national airline, and the Australian airline Qantas operate international as well as domestic flights. The primary international airports, serving many different airlines, are in Auckland, Wellington, and Christchurch.

The communications industry in New Zealand is competitive, with a number of companies offering Internet access, cellular-phone services, and basic local and long-distance telephone services. The government sold its national telecommunications company to the private sector in 1989. Nearly all homes have telephones, and New Zealanders are avid Internet users.

Two dozen daily newspapers are published in New Zealand, but none is distributed nationwide. The highest-circulation newspapers are the New Zealand Herald, published in Auckland; the Press, in Christchurch; and the Dominion and the Evening Post, both in Wellington. Freedom of the press is guaranteed in the New Zealand Bill of Rights, and government regulation of the media industry is minimal.

G.

Foreign Trade

New Zealand has always been a trading nation and is dependent on exports to buy imports of oil and a wide range of manufactured and consumer goods. The country typically spends more on imports than it earns from exports. In 2004 the value of exports totaled $20.3 billion, and the cost of imports totaled $21.3 billion. World prices for New Zealand’s primary products have not kept up with prices of goods that New Zealand imports. The country has sought to diversify its product offerings and trading partners since the early 1970s in response to changing world demand and prices. The United Kingdom was long the largest export market, but its demand for New Zealand’s primary products, especially lamb meat and butter, declined after it became a member of the European Community (now European Union) in 1973. Australia then became New Zealand’s chief trading partner, and in 1982 the two countries secured close trade and business ties in a bilateral trade agreement, the Closer Economic Relations (CER) agreement. Among other provisions, the agreement phased out tariffs for goods traded between the two countries.

The major export destinations are Australia, Japan, the United States, the United Kingdom, and South Korea. The key export groups by order of importance are dairy products, meat, timber, and fish. The main sources of imports are Australia, the United States, Japan, China, and Germany. The most important imports are mechanical machinery, vehicles, electrical machinery, and mineral fuels. Imports of unprocessed products, notably metals and unrefined petroleum, are also significant.

H.

Currency and Banking

The monetary unit is the New Zealand dollar, which is divided into 100 cents (NZ$1.40 equals U.S.$1; 2005 average). The Reserve Bank of New Zealand (founded in 1934) has the sole power of issue. The banking industry was deregulated in the 1980s. Legislation that took effect in 1987 allowed the incorporation of foreign banks into the domestic banking system, and this resulted in an expansion of the number of banks. The great majority of registered banks in New Zealand are now foreign-owned. In 2002 the government-owned Kiwibank opened with the purpose of serving small businesses and investors, as well as keeping all its profits in New Zealand. The New Zealand Stock Exchange (NZSE), created in 1981 as the successor to the Stock Exchange Association of New Zealand (founded in 1915), is the only stock exchange in the country.