| New
Zealand is for Lovers (of opportunity that is) |
Dateline: 9/28/98
"New Zealand equities represent extraordinary value."
- Albert Friedberg, Friedberg Commodities Group, Aug. 4, 1998
A few years ago when he was Finance Minister of New Zealand, Sir Roger Douglas was in Canada speaking to a conference on streamlining government. Rankled by the thrust of his talk, a disgruntled leader of the Saskatchewan Government Employees Union confronted him and demanded to know how Douglas, a member of the Labour Government, could propose ideas that would reduce the number of government employees.
"The answer is simple," Douglas coolly replied. "The reason I promote competition in service delivery is because I am a socialist. I don't believe in protected or privileged classes." Touché! Now that's my kind of socialist!
In 1950 New Zealand had the second highest standard of living in the world. By the 1980s it had plunged to 32nd. It's economy was moribund, plagued by high taxes, restrictive trade practices, protectionism, heavy government subsidies to inefficient industry, a bloated civil service and most seriously, a staggering and growing national debt. The country was on the verge of financial collapse, or as it was commonly phrased, they hit a debt wall.
Then in 1984, an amazing thing happened. The newly elected Labour government introduced a program called "Restructuring" - vast sweeping changes to the way government was organized. Over a period of ten years New Zealand emerged from being the basket case of the Western world to being a world leader.
The government introduced:
The reforms introduced have been described by the OECD as the most comprehensive economic reform programmme undertaken by any OECD country in recent decades.
All the changes were significant, but the Public Sector Restructuring was perhaps the most sweeping and beneficial. Douglas, an accountant by trade, introduced accountability to the public service. No longer were bureaucrats rewarded for the size of their bureaucracies and budgets. They were paid for results. In areas where they competed with the private sector, the playing field was leveled so the SOEs did not have an unfair advantage. Bureaucratic red tape and its attendant delays, lineups and shoddy service were replaced by an emphasis on customer satisfaction.
The government began running a surplus instead of its perennial deficit. And this in spite of slashing taxes, including a reduction of the top marginal rate from 66% to 33%. The civil service was cut down to less than a quarter of its former size, though Sir Roger is quick to point out that many of those government workers ended up in the private sector with privatization. The job loss at the beginning, he says, was temporary. "After that you're going to create jobs, and they're going to be real jobs rather than phony jobs." And, in fact, unemployment in New Zealand has dropped from 10.5% in 1992 to 6.0% this year as the economy continues to reap the benefits of the reforms Douglas instituted.
What do these reforms mean for investors? The economy is growing 4% a year, inflation is under 2%. In 1991 Albert Friedberg described New Zealand as "a once-in-a-generation opportunity". In fact, Friedberg has been involved in New Zealand since 1986 with a securities program and a real estate trust. The record of the New Zealand Equity Trust, administered by Toronto Unit Trusts, a Friedberg subsidiary, has been checkered. From a value of $6.52 Cdn in July 1992, the trust units climbed to $11.63 by the end of February 1994. The fund stayed flat for the next year and a half before climbing to its high of $15.59 at the end of June 1997. Since then the unit values have declined to $10.12 by the end of August as the currency depreciated and the stock market crashed.
Said Friedberg in August, "Between the two, stock prices today are 40% cheaper in US dollar terms than one year ago. Dividend yields exceed 7% and reach in some instances as much as 12%. Corporate balance sheets are solid, bank balance sheets are impeccably clean, and the government is still running a budget surplus, even as it has cut taxes for the second time in two years." As he noted in the quote heading this article, "New Zealand equities represent extraordinary value."
Friedberg believes that the New Zealand economy is showing "the still early fruits resulting from the economic reforms that began in the 1980s". NZ equities are the only ones he considers worth buying in a world of overvalued stock markets. He may be right.
Besides Friedberg's funds and trusts (which are available only to Canadians), there are several New Zealand based securities firms offering investment opportunities to foreign investors. McKinlay Hendry Limited, an investment banking firm, offers the New Zealand Direct Investment Trust, available exclusively to foreign investors. And New Zealand Financial Planning Limited invites foreigners to invest in "the Switzerland of the South Pacific". The New Zealand Business Directory has a list of lawyers and accountants to advise you.
In today's turbulent bearish market, maybe investing in New Zealand offers a real opportunity for profits.
New Zealand High Commission to Canada
A Reformed Economy - from the High Commission
An Introduction to Investment in New Zealand - from Russell, McVeagh, Mckenzie, Bartleet & Company Law Practice
New Zealand News - from NZ Financial Planning
National Business Review - New Zealand's largest business Internet site
New Zealand Stock Exchange Sharemarket Prices - a complete listing of companies on the NZSE with recent trading activity and links to companies with Web Pages
Manitoba Taxpayers Association New Zealand Index - a collection of short articles on New Zealand, Roger Douglas and what Canadians can learn from the New Zealand experience
Voices from the Future - an Interview with Sir Roger Douglas from the Manitoba Taxpayers Association
ACT New Zealand - the Association of Consumers and Taxpayers, a new political party aiming to keep New Zealand "on track", it is the party with which Sir Roger Douglas is now affiliated. Douglas, however, is not one of the eight current ACT Members of Parliament
Most of the above links are now permanently placed in the Offshore Investing & Tax Havens category of Net Links.
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Disclaimer: As with all my columns here, I should re-iterate a precaution. I am not a professional financial advisor. I am a financial journalist and editorialist. The views in these columns are my personal opinions. The author may hold interests in investments mentioned in this article.