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Low productivity and an aging population hold back New Zealand’s business growth

16 Sep 2013 6 min read

New Zealand has the fourth most dynamic economy in the world, but an aging population and poor labour productivity could hold us back from reaching our full potential for business growth, according to the latest Grant Thornton Global Dynamism Index (GDI) 2013.

The GDI, developed in conjunction with the Economist Intelligence Unit, ranks 60 of the world's largest economies on dynamism, which indicates changes in an economy that are likely to lead to a faster future rate of growth.

Grant Thornton New Zealand partner, Greg Thompson says while our high ranking shows New Zealand has a great platform from which businesses can grow, there is a lot of room for improvement.

“We are a country that continues to struggle with poor labour productivity, with a ranking of 27th equal in the Index. There is no one solution to improve our productivity but one area New Zealand businesses need to address is putting the necessary resources into improving the skills of their workforce. For many in the workforce, learning stops once they leave school or a tertiary institution. Education needs to be a life-long journey, not one that stops in a person’s teens or early 20s.

“We also have a low percentage of our population under 30 years, ranked 29th in the Index. This will become an increasing burden on our taxpayers as more people draw superannuation and come to rely more heavily on our health system,” he said.

The survey ranked countries on 22 indicators of dynamism across five categories including business operating environment, science and technology, labour and human capital, financing environment and economics and growth. Australia was ranked top on 66.5, Chile 64.5, China 62.7 and New Zealand 62.6.

“This really is good news for New Zealand. While the survey shows that we have excellent building blocks in place for future growth, there are also other factors, such as our high level of business confidence, that are in our favour.

“But that is only part of the story. The key is turning potential into reality and actually seeing businesses grow and prosper with resultant GDP growth,” he said.

New Zealand was ranked 8th in the financing environment category, 9th in labour and human capital and 11th in the business operating environment category. While we were ranked lower in the economics and growth and science and technology categories, 22nd and 23rd respectively, our dynamism index in both has improved since last year.

The areas noted in the index where New Zealand was strong included:

  • Foreign trade and exchange regimes and controls
  • Policy towards private enterprise and competition
  • Political stability
  • Legal and regulatory risk
  • Broadband subscriber lines per 100 inhabitants
  • Unemployment
  • School life expectancy
  • Quality of overall financial regulatory system
  • Access of firms to medium-term capital
  • Corporate tax burden         

China was the big mover in the index, up to No. 3 spot compared with 20th a year ago.

“Growth in China is slowing as the new leadership rebalances the economy away from exports and investment towards a more sustainable, consumption-driven model of growth,” said Thompson.

“However, the positive news is that this is not dampening business expansion prospects. The GDI shows increasing science and technology activity, which will help sustain economic growth potential by boosting the quality, productivity and efficiency of outputs.

“China is not only a massive market, but it is also developing fast. By contrast, the other BRIC economies are not looking as flash. Brazil slid 11 places to rank 42; Russia fell three places to rank 43; and India dropped six places to 48. Of those that topped the index last year, Singapore was the big loser dropping from 1st to 7th, Finland dropped from 2nd to 5th equal, Sweden 3rd to 9th and Israel 4th to 8th.”         

For  further information please contact:

Greg Thompson            
Partner, Tax and Privately Held Business
D +64 4 495 3775
T +64 4 474  8500
E greg.thompson@nz.gt.com

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