Sid Schniad's and Doug Henwood's figures on speculation and foreign investment in the world economy, and Bill Burgess's on Canada were interesting. I'd always had the impression Canada was more neo-colonised than New Zealand. However you might like to consider these figures for New Zealand: A New Zealand Reserve Bank survey in 1996 [1] showed *daily* New Zealand foreign exchange market turnover in 1992 of US$4.2 billion, which had risen to US$7.2 billion by 1995. In 1995 only 56% involved the NZ$. By way of comparison, New Zealand's GDP in the March 1993 year was about US$41 billion and in the March 1996 year about US$59 billion. The *annual* New Zealand Stock Exchange turnover is about US$8.5 billion. Merchandise exports in the year to March 1993 were about US$10 billion, and to March 1996 about US$13 billion, so exports accounted for about 0.9% and 0.7% of currency turnover in the two years. The New Zealand dollar is said to be the 7th most traded currency in the world! To add to Doug's table, New Zealand exports have gone from 24.8% of GDP in 1980 to 23.8% in 1994. The ratio rose more or less steadily from 1961 to 1980 and 81, then began falling until 1990, when it began rising again, peaking in 1993. However, the picture is considerably different in foreign investment, to the extent it can be estimated. The last official figures for foreign ownership of assets (a la Bill Burgess) were in 1982-83, which indicated foreign companies had 25.6% of the paid-up capital of the companies in the survey (which was not complete). 36.8% of tax-assessable income and 32.4% of dividends paid went to these foreign companies. In a paper I completed recently [2], using data from the New Zealand Top 230 companies (including financial institutions) and elsewhere, I concluded that in 1995, over half of company operating surplus (earnings before interest and tax) went to foreign companies in New Zealand. There are no asset figures available for such a comparison. However it appears there has been a substantial increase in foreign control of the New Zealand economy in that period. Since 1989 there have been official statistics on New Zealand's International Investment Position, which shows assets held in New Zealand by foreigners and overseas assets held by New Zealand residents. Foreign investment in New Zealand (including portfolio) has risen from NZ$51 billion to NZ$97 billion from 1989 to 1995 and New Zealand investment abroad from NZ$7.2 billion to NZ$23.4 billion. The net position has gone from -NZ$44.1 billion to -NZ$73.3 billion. By this measure, the ratio of inward FDI to GDP was 14.4% in 1989 and 46.7% in 1995. Outward FDI to GDP was 1.3% in 1989 and 13.4% in 1995, though one wonders whether some of these increases are simply because Statistics New Zealand have got better at measuring. Almost the entire New Zealand financial sector is foreign owned. In 1996, 24 out of the "Management" magazine top 30 institutions, including almost all the biggest ones, were foreign, as were 122 out of the top 200 non- financial companies. Some of the effects: - when the economy "booms" to the extent that company profits increase, the current account goes worse into deficit because of the increasing dividend and interest payments abroad. - a dysfunctional exchange rate. It is set by interest rates attracting foreign investors and foreign investor "confidence" in the New Zealand government rather than "real" transactions. - hence New Zealand has a chronic, worsening, current account deficit (currently 4.2% of GDP) and steadily increasing foreign debt. Private foreign debt has risen from 9.8% to 54.6% of GDP between 1983 and 1996, though government foreign debt has fallen, offsetting the rise. Total foreign debt has risen from 46.7% to 79.1% of GDP in the same period. - funnily enough, it wrecks the monetarist Reserve Bank's attempts to control inflation using the exchange rate (encouraging it to rise to reduce internal prices) and interest rates. Higher interest rates increase the exchange rate because they attract foreign investors, threatening inflation targets and damaging exporters. Importers of course don't reduce their prices when the exchange rate rises. - craven foreign-investor-friendly policies by New Zealand governments, with which you'll be familiar. Why should we protect national capitalists via opposing the MAI, etc, asked Bill Burgess. In New Zealand's case, primarily to reduce dependence on foreign capital, which is demonstrably leading government policy. But a few other figures I calculated from the Top 200 are interesting: - after-tax profit per employee was $20,000 for New Zealand companies, and $29,800 for foreign companies - though they took half the operating surplus, they employed only 18% of the full-time workforce. - turnover per employee was lower for foreign than New Zealand companies in most industrial classifications. New Zealand's overall rate of growth in labour productivity has fallen since 1989. - foreign companies had higher returns on assets but paid lower rates of tax. That provides some evidence for the old arguments that less dependence on foreign capital could be used to improve employment, wages, and government services, and with less risk of a current-account blow-out. Regards Bill Rosenberg [1] "Reserve Bank Bulletin", Vol 59 No.1, 1996, quoted in Jim Delahunty, "Getting Fat on the Kiwi's Back", in "New Zealand Political Review", April/May 1997, p.12-15. [2] To be published in "Foreign Investment: The New Zealand Experience", Ed. P. Enderwick, 1997. "Chapter 6: Foreign Investment in New Zealand: The Current Position." I can send a MS-Word copy to anyone who can take a mail attachment.
