I was at the café the other day, when a friend popped in to order a flat white.
He had left years of working in paid employment to take up a business opportunity.
His new Mercedes was parked outside.
‘How’s business?’ I asked him.
‘It’s going very well. But the schedule is manic.’
Still, we reflected on how much we both preferred the freedom, dynamism, and purpose of being in business.
I’ve been in business for 33 years now, one way or another. And investing in listed businesses on stock exchanges for the same period of time.
But as my friend left the café, I reflected on storm clouds ahead. Not in our business directly, but moving over this country.
My own journey started at the age of 17 when I began selling computer peripherals via mail-order to put myself through university.
Source: Daily News, September 1992 / Author
The business was sold when I moved to Auckland to study finance. There, I started another business in the education field. Proceeds were invested initially in the NZX.
Fast-forward to 2015. I was living in Europe and working in the hedge-fund industry. When I returned to New Zealand and went through Covid, the country had changed. It became submerged in government expansion and economic demise.
Making a first-world living from the bottom of the globe
New Zealand is unusual for a developed country. Its primary source of export receipts comes from agricultural products. In this area, it is totally exposed to international markets. Since the 1980s, there have been no subsidies, price supports, or tax concessions.
Despite this, New Zealand outperforms due to very fertile and productive farms:
- It is the world’s top dairy exporter and accounts for approximately 30% of the world’s internationally traded dairy products.
- It is by far the largest exporter of deer meat and products in the world.
- It supplies over half of the world’s lamb exports.
Image by Martin Str from Pixabay
Make no mistake: the strict biosecurity rules when you arrive on a flight to New Zealand are there for good reason. These industries are vital to the economy we have.
Now, this also gives rise to a challenge we face.
If your business is not part of the ~$57 billion primary-products export trade, you face a very small market in New Zealand. It is hard to build a business of significant size.
Of course, the other source of wealth in this country is property. Tight supply, very high rates of well-heeled net migration, and the plentiful nature of Aussie bank finance has catapulted Kiwis to some of the highest rates of median wealth in the world.
Source: Visual Capitalist
A couple of things to note:
- Higher average-than-median wealth suggests wealth is more skewed and concentrated in New Zealand.
- Wealth and income are very different things. By measures of GDP per capita, New Zealanders only have 75% of the income of Australians, and only 59% of the income of Americans.
This would suggest an agricultural country. Where a large group has done particularly well from property wealth.
The problem with this? High home prices that young people cannot afford are not sustainable. They bring a dangerous mix of social issues to the fore:
- Tens of thousands of young Kiwis leave for Australia every year.
- To afford healthcare and social programmes, these leavers have to be replaced by migrants. This is likely only beneficial if their skill level is higher than those departing.
- About 1.3 million New Zealanders receive government income support, but the number of working age Kiwis is decreasing.
- There is a growing divide between those who own property and investment assets and those who do not.
- Growing numbers of voters support radical left-wing politics, including calls for wealth taxes, capital-gains taxes, and preference based on ancestry.
- The ruling National Party has been slow to enable meaningful economic reform and expansion.
What can you do to protect and grow your wealth in these strange days?
For property to work in New Zealand, the prices have to come down.
It is unsustainable to expect young Kiwis to pay 9 or 10 times their household income to afford a home. When I bought my first home in 2000 in Auckland, that was less than 4 times.
This will mean tough decisions on housing growth, land availability, household debt, and migration rates.
What investors can do is to diversify globally.
Over the past few years, we have been building up wholesale portfolios in value assets in more diverse economies. Particularly those where opportunity has been ripe — for example, Italy and the US.
Wealth Morning wholesale portfolios focus on financial freedom via global passive income.
Source: Image by valuavitaly on Freepik
A global portfolio can offer the investor dividend income in stronger currencies. It can enable them to take part in high-growth industries and sectors unavailable in New Zealand.
What can we do in New Zealand to grow our GDP per capita?
We need to offer much more economic upside to keep productive people in this remote country.
The economy has been lagging. It is clear that new industry opportunities need to be spearheaded. One that is available is New Zealand’s safe haven status as a potential finance centre.
This would likely need a much more aggressive restructure of the role of government.
The total tax burden in New Zealand is 33.8% of GDP. It is 12.6%, 28.0%, 21.1%, and 9.2% respectively in the higher-performing economies of Singapore, Switzerland, Ireland, and Taiwan.
Remember: it can take around 6 people working in private enterprise to pay for one bureaucrat.
The current strain means the private sector is straitjacketed and the development of new industries is hampered.
There needs to be a reconfiguration of the economy. This would mean the government exiting non-productive pursuits, from legacy-media outlets to overregulation. Streamlining the economy to generate national wealth and concentrating on core essential services.
Of course, this becomes a harder ask as a disgruntled electorate splits in half. Productive, ambitious people move overseas. Less productive fall for the false promises of the radical left.
As Margaret Thatcher once explained:
‘The problem with socialism is that eventually you run out of other people’s money.’
Investor visa changes?
Meanwhile, the National-led government is relaxing investor visa rules with two new categories and no English-language requirement:
Growth category
- Minimum investment of NZD $5 million over three years.
- Requires direct investment into New Zealand business and certain approved managed funds only. (Presumably, these managed funds will be focused on New Zealand growth businesses).
- Requires 21 days to be spent in New Zealand within the three years.
Balanced category
- Minimum investment of NZD $10 million over a period of five years.
- Includes a broader range of acceptable investments — including managed funds and direct investments (as per the Growth category); bonds and listed equities (presumably local ones only); investments in new property developments (residential, rental, social housing, commercial, or industrial); or existing commercial or industrial property developments, and philanthropy.
- Requires 105 days to be spent in New Zealand within the five years.
While direct investment in New Zealand business is attractive, it seems hard to fathom how that could be done in 21 days and with no English.
As for selling residency in return for investing in local bonds — there has been no problem selling NZ government bonds in the past. Why hand over residency for that?
Further, the overseas experience leaves lessons. Many of these passive-investment options tend to attract wealthy retirees over productive businesspeople. Older people tend to need more healthcare.
The direct investment route seems poorly thought out and is comparatively expensive.
In contrast, investors can invest from USD $800,000 in the US. Providing they create or preserve 10 jobs and spend 183 days a year in America, they can obtain a green card within two years.
Under the UK Innovator Founder programme, there is no minimum investment. Only a viable business plan, sufficient funds to scale that business, good spoken English, and a majority of each year spent in the UK paves the way for Indefinite Leave to Remain after three years.
Though the UK may not be attractive to investors, since it has high capital-gains taxes and death duties. Further, non-domiciled tax advantages are being rolled back. Investors are increasingly moving to more friendly jurisdictions such as Italy.
Building wealth doesn’t happen by accident. People come to a place because the incentives and opportunities are right. That happens by design.
Last year, we looked at how New Zealand can supercharge its economy.
We don’t need ‘golden visas’ where residency is given without discernment. We need competitive investor visas to inject funds into Kiwi innovation.
We also need an equal-opportunity playing field where the grass is truly greener.
Regards,
Simon Angelo
Editor, Wealth Morning
(This article is the author’s personal opinion and commentary only. It is general in nature and should not be construed as any financial or investment advice. Please contact a licensed Financial Advice Provider to discuss your personal situation. Wealth Morning offers Managed Account Services for Wholesale or Eligible investors as defined in the Financial Markets Conduct Act 2013.)