The Kiwis Are Open For Business

Standing in the checkout line at a supermarket in Pakuranga, a middle-class suburb of Auckland, Kathy Parker says her life is much easier these days than when she graduated from college seven years ago. Back in 1988, Parker and her husband, Jim, had to hold down four part-time jobs between them to make ends meet. Now, Jim, an architect, is enjoying the fruits of booming demand for new housing, thanks to a surge of new immigrants.

The Parkers are not the only Kiwis to benefit from the revolutionary reforms carried out by David R. Lange's Labor government in 1984 and continued by the National government of James B. Bolger, who took office in 1990. The reforms have turned the nation into a sort of laboratory for free-market experimentation. New measures completely overhauled the economy, dismantling a complex set of subsidies, prohibitions, and tariffs--originally intended to protect domestic industry but in effect keeping New Zealand's economic growth and trade far below almost all other countries of the Organization for Economic Cooperation (OECD) during the 1970s and early 1980s. Now, New Zealand's economy is one of the world's least regulated and most competitive, with the growth rates to prove it (chart, page 118).

Fiscal and monetary discipline has held inflation to a legally prescribed range of 0% to 2% and helped keep the New Zealand dollar strong since 1993. The federal budget is running a surplus of $1.8 billion, or 2.8% of gross domestic product. That ratio is expected to rise to 7% by June, 1998. And private investment as a percentage of GDP doubled from 1987 to 1994, as the combination of fast growth and low inflation made New Zealand assets highly attractive.

JOBS RESURGENCE. There's certainly plenty to buy. As part of its economic program, the government has been selling state-owned assets to anyone with cash. It also relaxed restrictions on foreign ownership in New Zealand companies. Between 1988 and 1994, about 30 government-run companies and agencies were sold off. For example, Ameritech, a consortium of U.S. telecom companies that includes Bell Atlantic Corp., took over New Zealand Telecom Corp. And National Australia Bank Ltd. bought majority stakes in the formerly state-owned Bank of New Zealand.

Foreign investors are snapping up private companies, too. Food processor Watties Industries Ltd., a household name in New Zealand, was taken over by H.J. Heinz Co. of the U.S., which plans to make the Kiwi company the core of its Asia-Pacific operations. International Paper Co. bought 50.1% ownership in Carter Holt Harvey Ltd., New Zealand's largest plantation forest owner and one of the largest forest- and building-products makers in the southern hemisphere. And many motels and supermarkets are now operated by small Asian companies.

Still, New Zealand's turnaround was far from painless. Economic recovery in New Zealand's principal export markets from 1985 to 1987 offset the early effects of deregulation. But from 1988 to 1991, when nearly all farm subsidies were scrapped, unemployment reached a historic high of 11%, and many farmers were forced to foreclose.

Now, manufacturing is picking up the slack. In a country that for decades depended on exports of lamb, beef, and dairy products, the manufacturing sector accounted for only 2.7% of GDP in 1966. By 1994, its contribution had surged to 25%. Overall unemployment dropped to 6.5% last year and is expected to fall further. According to the Treasury Dept., jobs will rise faster than growth in the labor force in the next two years. Manufacturers are bullish on the future, as capital spending shows--up 40% in fiscal 1995 over the previous year.

LOOKING EAST. New Zealand also has broadened its export markets, becoming less dependent on Mother Europe. Total exports to the European Community fell from 62% in 1966 to 15% in 1994, while Asia has emerged as the largest market for Kiwi products. "We are no longer Britain's overseas farm," says Peter Lund, investment promotion officer at the Ministry of Foreign Affairs & Trade. That's in part because New Zealand's latest investors often are aiming at Asian customers. Japan's Shiseido Co. has built a plant in Auckland to manufacture cosmetics for the Asian market, and Japan's Itoham Foods Inc. set up a new company to produce the grain-fed beef that Japanese love.

Indeed, with Asia accounting for more than 50% of New Zealand's trade and a steady inflow of Asian immigrants, students, and tourists, the country's economy will largely be shaped by the economic environment in such countries as Japan, Korea, and Taiwan. For example, Korea has now overtaken Britain as New Zealand's No.4 export market. In August, according to Michael Stevens, vice-chairman of the New Zealand-Korea Business Council in Wellington, senior executives from Korea's Hyundai, Kumho, and Daewoo groups visited New Zealand to scope out new investments.

The trend has some Kiwis uneasy. Followers of Winston Peters, founder of the nationalistic New Zealand First party, believe the government should not let foreigners run away with so many assets. Others, such as Jim Anderton, head of the center-left Alliance party, want to increase welfare spending and roll back some market-oriented reforms. But the Kiwis have probably come too far from the days of high unemployment and corrosive inflation to turn back now.


-- Selling off state assets, including the telephone monopoly and forestry cutting rights

-- Abolishing subsidies and import controls

-- Restricting collective bargaining to allow more labor and wage negotiations on a company-by-company basis

-- Requiring the central bank to prevent annual inflation from rising above 2%

-- Turning a $1.6 billion federal deficit in 1991 into a surplus of $1.8 billion in 1995, through government spending cuts

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