When incorporating a business internationally, it’s good to know that you’re entering into a strong and stable market, where the local government can support your international venture and not impose barriers to growth or investment. New Zealand is known to be not only one of the world’s freest economies but home to one of the world’s most stable democracies. Setting up shop in New Zealand gives investors a number of wide-ranging benefits.
As we have seen in nations like the United Kingdom and the United States, new governments or policies can have a significant impact on local and international business. Below, we take a closer look at politics and business opportunities in New Zealand as Labour enters its second year in government.
Strong appetite for foreign business
New Zealand follows a parliamentary democracy similar to that of the United Kingdom, with a House of Representatives who debate important issues and make laws. Queen Elizabeth II is the country’s head of state, although her day-to-day involvement in the country’s decisions is minimal. Unlike in some countries, New Zealand has a government based on proportional representation, and the majority of cabinets have been coalitions, with more than one party forming together to achieve a majority vote. Whilst this gives voters more power, it means that governments are generally center-right and opposing parties and ideas balance out.
The country has a healthy attitude towards foreign direct investment and values investors and entrepreneurs who want to expand into New Zealand. The New Zealand Government actively encourages businesses to invest, running marketing campaigns to increase FDI and generate jobs in the process. The country has a strong infrastructure, good transport links, and logistics services, and is self-sufficient in energy, great for manufacturing businesses.
The country is generally seen to be a low-risk business environment, empowering investors to spend money and achieve a return in record speed. The political and business landscape is pro-investment and pro-foreign ownership, and several policies and laws offer investors control, confidence, and reassurance when entering the market. Following the appointment of the 52nd New Zealand Parliament in 2017, the country enjoyed record-breaking foreign direct investment of more than $US3.5 billion (UNCTAD’s 2018 World Investment Report), which demonstrates the general attitude towards the country’s government and stability.
Foreign investment policy
Because of its size and location, New Zealand is heavily dependent on foreign investment to fuel growth and create jobs, so has an attractive foreign direct investment policy. The vast majority of foreign investment inflow comes from countries such as Canada, neighboring Australia, as well as Asian territories like Hong Kong and Japan, although there has been an increase in foreign direct investment from countries such as Latin America and the UK.
Because the country is open, has a range of free trade agreements, double taxation deals, high standards of living, low corruption levels and a strong tax policy, New Zealand was named first out of 190 countries in the World Bank’s 2018 Doing Business Report. With few regulations and easy distribution of assets, New Zealand is a sound business investment for most foreign entrepreneurs, although there are restrictions in sensitive industries and land (for example, purchasing more than five hectares of coastal or rural land requires approval).
Some foreign businesses may even be eligible for government support when expanding and incorporating in the market, particularly in the export sector or research and development. In addition, the country has a strong financial and banking sector, allowing for foreign nationals to apply for business loans and funding, whilst startup accelerators, venture capitalists, and local business investors are prevalent, useful if your expansion requires additional capital.
2019 local elections will set the path for 2020
Whilst New Zealand is not expected to call an election until 2020, the 2019 triennial elections will offer businesses insight into local attitudes towards the current government, and could have an impact on the cabinet.
The Electoral Commission enrolment campaign starts on 1 July, and by 23 October the official results for each local government will be declared. If there were to be a major shift in voting across the current seventy-eight local authorities, it may signal a change at the 2020 general election, so businesses should be vigilant and get to grips with the local political landscape in order to best prepare for future policy changes.
Challenges for businesses
Wrestling a three-party coalition government has created some challenges for Prime Minister Jacinda Ardern, the main one being finding a consensus on controversial issues.
Ardern has made several comments during her tenure that suggest she is against immigration and foreign investment, which has discouraged some foreign nationals from expanding into the country. These positions have been flanked by Deputy Prime Minister Winston Peters from NZ First, whose party displays somewhat inconsistent attitudes towards foreign investment and immigration.
New Zealand’s parliament passed a new law in 2018 to prevent non-resident foreigners from purchasing property in the country, a Labour election pledge that some considered controversial. This pledge also threatened some trade negotiations at the time, namely, New Zealand’s Closer Economic Partnership negotiations with Singapore. However, the primary purpose for this bill was to clamp down on house price growth and reduce high rates of homelessness in the country, rather than to dissuade foreign investors from doing business in New Zealand. To put the decision into context, the average house price in Auckland is now NZ$1 million plus.
Despite her expansionist attitude towards business, Ardern has since said that her country still welcomes overseas investment and that there was “much greater benefit from investing in our productive economy than just our housing market.” In an interview with Bloomberg, she said she welcomed foreign investment in infrastructure such as rail and that there was a “need to give commuters alternatives and hasten the transition from fossil-fueled cars.”
In short, whilst Ardern does favor New Zealand businesses and wants to see more inward investment in the country, she recognizes the importance of foreign investment and its ability to create jobs and growth, so firms should not be put off if looking to expand in New Zealand.
Reach out for assistance
Although New Zealand is one of the world’s freest economies, going it alone without prior market experience is tough. Whilst we can’t influence New Zealand’s political environment, we can help you navigate the country’s political landscape and expand your business into a new market.
With customized business solutions in recruitment, due diligence, and commercial representation, our New Zealand-based team is on hand to offer support and ensure a smooth transition into one of the world’s most stable political economies.
To find out more, get in touch with us today and we’ll get back to you with a personalized strategy designed to capitalize on New Zealand’s investor-friendly landscape.