FDI confidence index
Due to high investments in NZ, country has appeared in in the FDI
confidence index first time in 2017 and it is ranked 23,
Furthermore the MBIE1
aims to grow a double the amount of investments brought into the country by
investors and entrepreneurs from $2.4 billion to $4.9 billion over the next three
years. (mbie.govt.nz) According to World Bank (2017) “NZ seems well-positioned
to meet these targets as the country ranks second globally in ease of doing business
in and first for easiness of starting it.
According to Mill’s (1865) theory of political economy: political,
economic, and legal systems of a country are interdependent and they directly
affect the level of economic well-being of the nation. Likewise, The A.T. Kearney (2017) found that
main criteria that investors look at for FDI is political, legal and economic
stability of a country.
Political system: New Zealand is has a very stable democratic system
of country where all legal and political human rights are well protected. (elections.org.nz).
This system is one of the most efficient and respected in the world (world
Investing in NZ knowing that there is such a stable government
system is a positive factor for our company.
There were few changes since new government came to power, such as introduction
of “Flexible Tax for Business” rule, which allows businesses to pay taxes on
their own schedule. It is a positive factor, because if our company will have
financial difficulties paying taxes, we can be assured that there is no obligation
to pay those within a month.
Unfortunately, we have to consider the newly introduce “housing
ban” which restrain people with no NZ nationality from buying existing houses,
as there is not yet enough houses for new Zealanders. It might reduce the FDI
and immigration in the country. First it can be seen as negative for the
country, but for us it is as a very good opportunity to invest in construction
industry, which is not developed in nz. There are only few large construction companies
there, it means that there is not high volume of competitiveness.
It is well known that overall geopolitical tension in the world is
high however nz is stable and only improving its relationships with everyone.
Because of stability in the country it is profitable to make long term
Legal system: the judicial system based on UK Common law, it
is known as being strong and independent.
Contracts and intellectual property rights as well as private property rights
are strongly secured and protected. McDowell(2002)
As a company we will not have to worry about a trading partner who can break a contract or expropriate property
rights because of their contract protectionist policies.
Economic system of NZ: Market Economy.
When other countries only try to establish market economy, NZ have
reached very stable level of economic freedom. People (companies) decide what
is produced and in what quantity is determined by supply/demand and signalled
to producers through a price system. Government does not intervene with any
aspect of private business.
The economy is expected to reach $207 billion by 2018 and currently
their GDP per capita is $39.1K (OEC)
The fact that GDP is so high compared to other countries, allows us
to understand that people have enough money to afford our services, in whatever
area of business we will invest.
FDI (Foreign Direct Investment)
Dunning (2001) in his OLI paradigm suggest that in
order to invest in a country we have to consider three factors.
Ownership Specific Advantage: if our company
has a new technological advances that NZ does not have, it will be easy for us
to become monopolists in there. As mentioned before, we can invest in
construction industry and be successful in it.
Location Specific Advantage: as Dunning
mentioned in his work, location plays significant role for investment. For this
criteria NZ can be seen as disadvantage, because of how far they are from any
other countries (apart from Australia). However dunning suggest that
political/economic stability and generous tax system are far more important
than location itself.
Internalisation: which is known as “market imperfection
theory” which was further developed by Hymen( 1976), rightly suggest
that companies want control over their business, licencing or exporting to NZ
will not let us gaining enough control over the production, the best for us is
mentioned earlier, New Zealand’s government is keen to attract more foreign
investment to support its goal of increasing exports, economic growth, and
productivity (govt.nz) FDI
is crucial to New Zealand’s economy as inward FDI stocks represent around 40
percent of the country’s GD as a result, government gives a good guardians to new business.
Greenfield investment- new Zealand is good for greenfield
investment in any area as the corporate tax is just 28%, and as mentioned
above, companies are allowed to pay tax on their own timetable.
As can be seen from graph
below there is only 2% of FDI coming for construction section, which again
supports the theory of ownership and allows us to build a monopoly on NZ’s
However people are very skilled in other sectors such as agricultural,
fishing and forestry. This can benefit us as we can learn from them those
precious skills and transfer them back to UK. As well as shows in the graph
bellow, Availability of quality targets in the market is the prime reason why
we should invest exactly there.
Competition works alongside other factors to determine the
performance of economies. It stimulates managerial effort and company
performance (Vickers, 1995), and promotes innovation (Porter, 1990).
The Global Competitiveness Index, from the World Economic Forum
ranked New Zealand 13th out of 137 countries.
(The global competitive report 2017-18)
The rank speaks for itself, there is a low competition in the
country, nonetheless very competitive in international trade. This will only
benefit our business in there.
New Zealand has an open, transparent economy where businesses and
investors can usually make commercial transactions with ease. In Addition MBIE stated that setting up a business can be
completed online in a matter of hours. (mbie.govt.nz) However before investing in NZ, we will have to consider other
limitation (apart from “housing ban”) that exist in NZ for “Oversees
Investors”. These few restrictions for us which are set up in “Overseas Investment Act 2005” and the “Overseas Investment Regulations
2005.” Those prevent us from owning:
land” (including farm land and
business assets” above 25% which cost $100 million or more
(c) and, fishing quota
However, they can be (difficult but) obtained with consent from the
(after they analyse the benefits for NZ of this transaction). (legislation.gov.nz)
Apart from that, business
required to pay minimum wage $15.75 NZ Dollar, Minimum rights for employment,
Four weeks’ paid annual holiday per year, Payment of time and a half for
working on public holidays,
Local business Climate
NZ has one of the most efficient entrepreneurial environment, Start-up
can enjoy the flexibility under the regulatory framework as well as the lowest subsidies among OECD3
countries, If we consider investing in agriculture, it is good to mention that
NZ has removed all farm subsidies more than three decades ago and not planning to
introduce them in the future. (heritage.org)
The financial sector, dominated by banking, is
well developed, offering a full range of financing instruments for
entrepreneurial activity. However credits for business are on quite high
interest rate which starts from minimum of 4.13% a year. (anz.co.nz)
Openness to Regional and
Since modifications introduced in 1984 NZ’s economy changed from
highly regulated into one of the most market-oriented and open in the world (Hamilton
and Dana, 2003). This allows NZ having investment relationships with nearly 100
countries, this shows that despite their location they are still globally interconnected
important to New Zealand’s economy; the value of exports and imports taken
together equals 55 percent of GDP. For example NZ’s trade with China has nearly tripled over the past
decade rising to $23 billion in the June 2016 year. (Statistics Government New
Zealand) as a result of low tariffs wich in average
rate is 1.3 percent.
NZ’a border administration is very efficient and transparent, additionally
there are no restrictions on the inflow or outflow of capital. As government stated
they will lower tariff for imports and exports to increase trade. (customs.govt.nz)
1 Ministry of Business, Innovation and
Employment of New Zealand
Organisation for Economic Co-operation and Development