New Zealand is a lovely place for a holiday, a nice place to live and great for a round of golf but when it comes to investing, the country is a complete dog.
Tourists arriving with UK sterling or US dollars feel like dotcom billionaires thanks to the ridiculously low level of the Kiwi dollar. While this has meant a boom for the tourist industry, the rest of the economy has gone down the drain.
Few UK investors would be tempted to throw money at such a faraway and relatively insignificant market but the lessons that can be learnt from this Antipodean outpost show the dangers of small countries going it alone in the world economy.
One of the most obvious comparisons is with Scotland. Scots were prominent settlers in New Zealand and Dunedin on the South Island is named after Edinburgh.
If any Scottish National Party economists were to visit their southern hemisphere cousins, they would learn an important lesson – small economies lose out to bigger ones.
In New Zealand, two things can be blamed for the lack-lustre economy and stockmarket – the US dollar and the oil producers.
The Kiwi stockmarket is largely unchanged from this time last year. The NZSE 40 was at 1,982 last week although it has been as high as 2,200 in the previous 12 months.
The currency has slid against the US dollar to a string of record lows.
Oil prices have rocketed, food prices are up but wages are static. Ouch. No wonder people are bitching about the Labour-led government.
Investors have been hit by the slump. Axa's Australasia fund was down by 3 per cent in 2000 and Dresdner RCM's fund was down by 6 per cent, although this was due also to Australia's economy being in the doldrums.
Higher prices have stalled housebuying and retail sales, GDP is forecast to contract from 3.5 per cent last year to 2.7 per cent this year although exports are likely to bounce back due to the pitiful Kiwi dollar.
The low dollar has helped the tourism industry with monthly arrivals up about 10 per cent from last year, partly helped by publicity from filming the Lord of the Rings in New Zealand.
While the general public feels the pinch, so are the country's biggest companies. They are also complaining and many have followed the example of young New Zealanders heading to London on their big OE (overseas experience) – they have simply left.
Brewer Lion Nathan was the biggest defector last year, leaving for Australia, and the biggest company, Fletcher Energy, is about to be swallowed by Shell.
The disturbing truth for Treasurer Michael Cullen (a former Brit) is that while the US has been shoring up its economy, the knock-on effects have been crucifying the Kiwis.
One solution being mooted is a joint currency with Australia. But in the absence of short-term plans, the large corporates are bailing out. The NZSE 40 will soon look more like a game of park rugby than the super league.
As these companies clear out or get bought out by foreigners picking up cheap deals, the problems are exacerbated.
The balance of payments deficit nearly doubled last year, largely due to a big rise in profits taken out by overseas companies.
The Scots are beginning to worry about similar trends.
Economists believe this tendency to get squeezed by big economies means smaller countries have to be smarter about using the advantages they do have.
NZ Institute of Economic Research director Alex Sundakov says: “Size is an issue but physical distance is a major factor for New Zealand.
“If you compare our economy with Finland or Scotland, and then you draw a circle around Helsinki you cover 350 million people but that same circle around New Zealand picks up nobody. That has to be the strategic advantage these small economies have to exploit.
“We will keep our dependence on primary production agricultural goods for the foreseeable future but we can be more efficient in what we do.
“Compared with Australia, our public service expenditure on government is much less and this is the key for small economies being more efficient.”
New Zealand reflects a global problem for small countries. When times are good they can ride high, as the Asian tigers have done, and enjoy the growth but when the climate is against them the problems are dire.
Size is a moderating factor, whether you are an investment fund or a country. While the Bravehearts may like the emotional significance of a separate Scottish economy, the reality would not be as attractive unless workers and managers become more efficient.
Meanwhile, anyone looking to invest in New Zealand should steer clear of the stockmarket and buy a hotel.