Don’t worry, an economic renaissance is likely just around the corner
OPINION: New Zealand has caught the Covid chill, making many of us despondent about the future.
But as a KiwiSaver investor in New Zealand, I think we are entering an economic renaissance. The next few decades may be one of the best times to have ever lived in New Zealand.
Why am I so bullish? For five reasons, all grounded in history and economics.
The first is the growth that typically follows a crisis. History provides plenty of examples. After the horrors of World War I and the Spanish flu, the world had a burst of economic and creative activity known as the roaring 20s.
It was the age of jazz, electricity, motor cars, moving pictures and radio. Women finally got the vote in many countries, and it felt like modernity had arrived.
Another was in the decades that followed World War II. Wool prices were so high that New Zealand was one of the richest countries in the world, and we entered the age of jet travel and television.
And post-Covid, we are likely to roar into the 2020s on a new wave of technology. Electric cars, battery technology, renewable energy, biotechnology, private space exploration and satellite-based internet hint at the transformational impact of technology for the next few decades.
And the development of Covid vaccines gives us an inkling of what we’re in for with medical technology. It took 100 years to develop the typhoid vaccine, 50 years for polio and 10 years for measles. The fastest vaccine developed before Covid (for mumps) took four years. But a Covid vaccine took only 11 months.
The second reason is that New Zealand often benefits more than other countries from new technology. An early example was refrigeration, starting in 1882. This allowed New Zealand to export its meat and butter to the lucrative UK market. It started a period of export-led prosperity, and by 1900 our per capita GDP was higher than the United States and Australia.
And today, technology companies can now do business from anywhere, and deliver products to anywhere, at literally the speed of light. The Southern Cross fibre-optic cable can now carry over 600 times more information than when launched in 2000, so we are very well plugged into the world.
And because technology companies typically need less capital, countries like New Zealand are less disadvantaged. Israel and Estonia are two examples of countries with smaller capital markets that have established strong niches in technology. And because capital is truly global, an idea hatched in New Zealand can be Nasdaq listed in a few years. Rocket Lab is perhaps the best example of this.
And building a global business from New Zealand is easier when the product can be exported electronically. It would have been inconceivable even 30 years ago that a New Zealand company could be a major global player in movies or accounting software, but look at Weta Workshop and Xero now.
The third reason is we are now focussed on the environment, as both investors and consumers. This will spurn a radical change in business thinking over time, as sustainability and environmental considerations become mandatory for business.
Many new environmental businesses will form that we haven’t even thought of yet, and they will provide a significant boost for the economy. Think of how Rocket Lab and Dawn Aerospace responded to the commercialisation of space.
IBM was the only big tech company 30 years ago. Now eight of the 10 biggest companies globally are technology led. It would not surprise me to see new environmentally focussed companies rise as fast.
The fourth reason is we are becoming a nation of savers. This is hugely important. There is a close correlation between high savings and long-term economic growth. And we need that growth to provide jobs for a new generation, and get the taxes we need to fund schools and hospitals.
Australia is a prime example of the impact of increasing domestic savings. In spite of iron ore prices swinging wildly over the decades, they have saved over $3 trillion in their pensions. Much of that money has been invested domestically, helping smooth out economic cycles. It worked. Until last year, Australia had 26 years of recession-free growth.
New Zealand is now on track to do the same. KiwiSaver is already $83 billion, and could be $200b by 2030, and $500b by 2050. Add in NZ Super and we are becoming a capital-rich country. Money isn’t a cure-all for social problems, but the problems of money are way better than those of poverty.
The fifth reason is that New Zealand will be an even more desirable place to live. Our robust democracy, ease of doing business, fairness and rule of law are huge competitive advantages. For the longest time New Zealand was unknown globally in the business world, and therefore not considered for anything other than a multinational branch office.
But the relative strength of our economy, and the rise of companies like Rocket Lab and Xero, is an inkling of how competitive we are becoming. Business wise, technology and access to capital has levelled the playing field. And business is no different to sport. When Kiwis get a level playing field, they excel.
And let’s not forget that our major cities now feature regularly in the world’s best places to live. That matters mightily when the secret sauce for future business success is nearly always people. We have problems finding high-skilled workers, as does the rest of the world. But regardless, New Zealand is more a globally attractive place than it has ever been.
As a long-term investor in New Zealand, it’s easy to see our many challenges for prosperity and its fair distribution. Coping with Covid is just one of them. We have mountains to climb in intergenerational equity, housing affordability, health, mental health and education.
I am not belittling the significance of any of them, or the collective challenge for all New Zealanders. But with our innovation, our ever-increasing savings, and all those things that make New Zealand a great place to live, we increasingly have the tools to do the job.
So, looking beyond our Covid conundrum, our future looks very bright indeed. We are on the way to a level 1 economy.
– Sam Stubbs is the chief executive of KiwiSaver fund Simplicity.
Source: STUFF,Sam Stubbs, Sep 23 2021
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