‘Perspectives of Two Island Nations’, Ann-Marie Schleich (ed), Ch 14, pp.185-194.
Singapore and New Zealand have much the same population – a bit over five million people. They are both affluent economies. Because of their resource base and location, they have rather different economic structures. Yet the two small economies work together in international fora.
New Zealand experiences most of the challenges which other affluent economies face, such as population aging, slowing productivity increases, structural change, especially from dealing with global warming and the information technology revolution. Like many of the others, it also suffers from political inertia when dealing with these changes and there are the usual short-term pressures requiring macroeconomic management. Among New Zealand’s economic particularities, which will not be further covered here, are a proneness to natural hazards and high infrastructural needs reflecting its topography and population density.
This essay focuses on a series of international issues which are particular to the New Zealand economy. It does so, in part, by contrasting it with the Singapore economy.
Comparing Singapore and New Zealand
While New Zealand and Singapore are economies with a similar population size (NZ = 5.2 m; Singapore = 5.9 m in 2023), there are two crucial economic differences.
First, New Zealand’s land area is 368 times that of Singapore (268,000 kms2 vs 729 kms2), so there is a lower population density. The United Nations World Population Prospects ranks Singapore’s density only behind Monaco, while ranking New Zealand at 170 out of 199 countries. (The ratio between their EEZs is roughly 4000 times greater: 4 million km2 vs 1067 km2.)
The difference results in quite different economic structures. Compared to the typical affluent economy, New Zealand has a large natural resource sector based on the land and sea; Singapore’s natural resource sector is negligible. As a consequence, if Singapore was located as far away as, say, the Falkland Islands, it would be as poor and as unpopulated as they are.
But it is not. Singapore is near the centre of the world economy. Almost half (about 46 percent) of the world’s population lives in countries within 4000 kms producing over a third (36 percent) of the world’s production (GDP measured at purchasing power parity). Both figures are increasing. Australia is the only country of any significant size within the New Zealand 4000 km circle. Australasia has 0.4 percent of the world’s population and 1.1 percent of its GDP. Additionally, Singapore sits on the Straits of Malacca, a critical link in the international transport network, which has been very important to its development. It is the international hub for the countries which encircle it.
Location is a source of the difference. An OECD report estimated that reduced access to markets relative to the OECD average could contribute negatively to GDP per capita by as much as 11% in Australia and New Zealand. Conversely, a favourable impact of around 6-7% of GDP is found in the case of two centrally located countries: Belgium and the Netherlands. Singapore was not included in the study, but applying the latter figure to it, New Zealand’s GDP would be depressed relative to Singapore by 16-17 percent. (Boulhol et al, 2008)
The structural consequence for the manufacturing and tradeable services sectors is that Singapore is involved with the web of Asian supply chains, whereas New Zealand manufacturing mainly consists of primary product processing or small localised market supply where importing would be too complicated or costly; its businesses are rarely in the middle of supply chains which have been one of the most dynamic developments of international manufacturing in recent times. (A nice illustration of the difference between the two countries is that New Zealand is a supplier of milk powder to Singapore, which converts it into infant formula which it distributes throughout its region.)
Historically, New Zealand’s main resource-based activity has been pastoral farming, with wool, meat and dairy products making up about 90 percent of total foreign exchange earnings. A shrewd summary was that New Zealand was an ‘exporter of processed grass’ – the processing through livestock and factory. Its comparative advantage was not so much its land – which is not particularly fertile – but a generous supply of sunlight and water. For a variety of reasons, there has been a substantial diversification of the farm sector since the 1960s into forestry, horticulture and wine.
Additionally, the fishing industry has boomed both offshore (New Zealand’s EEZ – the ninth largest in the world – also has a substantial continental shelf) and with fish farming. Its mineral resources are not comparable to Australia’s, but there are not unimportant hydrocarbon reserves (gas plus condensate) around Taranaki in the North Island.
Perhaps the tourist industry should be included among the ‘resource-based’ industries, given that scenery, as well as novelty, is a major appeal to one of New Zealand’s biggest foreign-exchange-earning industries. If the isolation adds to the attractions, it also puts New Zealand a long way from where the tourists live. In contrast, Singapore tourism arises from its location at the centre of a large population. Its tourist attractions are primarily urban.
The apparently low value-added of the primary sector as measured in New Zealand GDP is misleading. It purchases inputs from the rest of the economy and there is also substantial processing of pastoral products after the farm gate. So, the sector’s proportional contribution to earning foreign exchange far exceeds that of its apparent contribution to GDP. Without its primary sector, New Zealand would be a very different and poorer place. Tourism aside, the same cannot be said of Singapore.
Both economies have the large service sector characteristic of a modern affluent economy. But Singapore’s financial and business sector is a major Asian and world centre; New Zealand’s financial and business sector mainly services its domestic market. Singapore’s dominance arises from its location and a sound and robust domestic rule of law and has been strengthened recently by Beijing’s increasing involvement in Hong Kong’s affairs.
New Zealand and Singapore are both affluent, although on conventional measures Singapore is more so. For the latest available year (2022), Singapore output was $98,149 per capita measured in US purchasing power dollars; New Zealand’s $52,242 (or 53 percent of Singapore’s).
This measures production in each country. Singapore’s production is boosted by a higher share of foreign investment and daily workers from Malaysia, the remuneration of both needing to be deducted to calculate the effective income of residents. Adjusting for this will still not give parity.
An additional complication using Purchasing Power Parity comparisons is traded exports being measured at average international prices but domestically consumed local production at average domestic prices; in the case of agricultural produce there can be a substantial difference between the two because of domestic protection of the farm sector, which depresses New Zealand’s relative GDP.
(Auckland might be compared with Singapore because it is the New Zealand region with the densest population; it is also its main point of connection with the rest of the world. Auckland’s per capita GDP is 20 percent above the national average. However, Auckland does not have the highest per capita output, with both Taranaki with its hydrocarbon resources and capital city Wellington reporting higher levels. There is a concern that Auckland’s margin should be higher, but the relatively low margin may reflect New Zealand’s resource-based economy where most provinces are prosperous.)
It is even more complicated to compare income inequality between the two nations. Unofficial international comparisons are all over the place. One useful measure might be to compare average wages adjusted for living costs. Again, the comparisons are not very reliable, but I have never found one in which the Singapore rate exceeds the New Zealand one in a comparable proportion to the per capita GDP difference. Some, but not all, even have the real value of Singapore wages below the New Zealand one. Certainly, the bottom of Singapore’s labour market pays less than New Zealand. Altogether, that data suggest that market income inequality is lower in New Zealand than in Singapore. With its more substantial welfare state, New Zealand effective disposable income inequality is likely to be even lower.
A substantial difference is that Singapore exports of goods and services (including re-exports) amount to around 176 percent of its GDP, while its imports are 148 percent (in 2019); New Zealand’s comparable figures are both 27 percent. The ginormous Singapore figure reflects its involvement in supply chains because of its near neighbours and location on the Malacca Straits. This is evident in that Singapore’s principal exports are electronic components, refined petroleum, gold, computers, and packaged medications, while its principal imports are electronic components, refined petroleum, crude petroleum, gold, and computers. Re-exports accounted for 43 percent of Singapore’s total sales to other countries in 2000. New Zealand’s re-export proportion was nearer 4 percent, although this does not include imports of inputs such as oil and fertiliser, which are vital in the production of exports. It has little intra-industry trade.
International Trade Agreements
Despite their rather different external structures, the two economies have similar external trade strategies. Indeed, Singapore’s first international trade agreement still in force is the ‘Agreement between New Zealand and Singapore on a Closer Economic Partnership’ (ANZSEP) signed in 2001 and upgraded in 2020. It is New Zealand’s second; the first is the 1983 ‘Closer Economic Relations’ (ANZCERTA or CER for short) with Australia, which replaced the 1966 ‘New Zealand Australia Free Trade Agreement’ (NAFTA).
Since 2001, the two countries have worked together on a range of other deals including:
2005 Trans-Pacific Strategic Economic Partnership P4 – with Brunei and Chile;
2009 ASEAN Australia NZ FTA – 12 countries;
2018 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP) – currently 12 countries;
2022 Regional Comprehensive Economic Partnership (RCEP) – 15 countries.
The sequence represents an evolution which began with ANZSEP. (CPTPP and RCEP might be thought of as a branching.) Australia is also involved with most of them.
Additionally, the two countries are involved in the following sectoral initiatives:
Digital Economy Partnership Agreement (DEPA);
WTO Joint Statement Initiative (JSI) on e-commerce;
Small Advanced Economies Initiative;
Singapore-New Zealand Declaration on Trade in Essential Goods
(The last deserves special mention. The Declaration on Trade in Essential Goods for Combating the Covid-19 Pandemic was signed in April 2020, just after the beginning of the Covid pandemic, indicative of the warm and ongoing relationship between the two countries. Five other countries have since made non-binding ministerial declarations.)
Some of these agreements are ‘open plurilateral’ – that is, they are designed to allow countries not involved in the original agreement to join (as happened with the United Kingdom joining the CPTTP in 2023).
The commonality of the two countries arises from both being small and being specialised producers in the world economy. Each depends on a rules-based international trading order which favours unrestricted (or very limited restricted) trade. In a free-for-all world it is too easy for small nations to be bullied. Lee Kuan Yew’s comment that whether elephants make love or war, the grass gets trampled, is apposite for New Zealand too.
Perhaps more so for New Zealand, especially as it is a processed grass exporter which gives it a formidable comparative advantage enhanced to competitive advantage by dynamic innovation and effective social institutions. Unfortunately, meat and dairy produce continues to face some of the toughest restrictions on access to other markets. Singapore has not suffered similar restricted access; indeed, its local resource sector is so limited it has welcomed international supplies of foodstuffs.
Thus, the two countries have a common interest in promoting an open international order and working together to extend it. Because that order is constantly evolving, there is an ongoing need to develop the framework, as illustrated by the four sectoral agreements which do not cover commodities and so are not strictly Preferential Trade Agreements (PTAs or, sometimes, FTAs).
New Zealand’s Economic Relationship with China
Inevitably, both countries face challenges with the rising importance of China in the world economy. Here we focus only on New Zealand and only on the economic relationships – other chapters in the book look at other dimensions.
There are two major aspects to New Zealand’s relationship with China: economic over-dependence and the way in which security tensions in relations between China and the United States and its allies impact on the economic relationship.
New Zealand is haunted by the dangers of economic over-dependence on a single economy. As recently as 60 years ago, around two-thirds of (mainly pastoral product) exports went to Britain. A decade later Britain joined what became the European Community, which at the time was commonly seen by New Zealanders as Mummy running off with a continental gentleman – or rogue.
The official and informed view was that Britain should join the community providing New Zealand’s special interests were not compromised. New Zealand had been aware of the possibility of British accession since at least 1961, and had made (successful) efforts to diversify. Between 1965 and 1980, New Zealand exports had shifted from being one of the most concentrated in the OECD by both markets and products to being near the middle.
In 2008 New Zealand entered into a free trade agreement with China, in a world first for any developed country. Today China takes almost a third of New Zealand’s exports of goods and services but it is so deeply interconnected, especially by supply chains, with East and South-east Asia, that the wider group probably takes nearer two-thirds of New Zealand’s exports (depending on how the group is defined, but including Australia).
The dominance of China in New Zealand’s trade is extraordinary. It is its biggest market for milk products, sheep meats (for beef it is only second), fish, apples, wine and honey (for kiwifruit it is third). Thirty years earlier, China did not make New Zealand’s top ten export destinations in any of these products. These products make up a significant share of New Zealand’s exports. They can be particularly difficult to manage, as Australia’s recent tensions with China illustrate. (Significantly, these product groups also present political problems in the international economy; most notably, widespread barriers to entry for pastoral products.)
New Zealand has welcomed the opening up of China’s markets which have been important to its recent prosperity. However, the ghost of the British experience remains. New Zealand went through periods of stagnation – notably in the 1920s and 1950s – because the British economy, and hence its imports, stagnated. Chinese economic growth is slowing down; that could well have a similar impact on New Zealand.
Export Diversification
New Zealand has vigorously pursued improving access to markets elsewhere. Hence the recent trade deals with Britain and with the European Union. Others are on the table, especially with India. Negotiations are also continuing with the Pacific Alliance – the Latin American regional group made up of Chile, Colombia, Mexico and Peru – and with the Gulf states – Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Oman and Bahrain. Negotiations with the Russia-Belarus-Kazakhstan Customs Union are currently suspended. There has been a long-term ambition for a PTA with the US but that is hardly on the table given Congress’s attitudes; in any case, its political price may be unacceptable to the New Zealand public. Existing trade deals are being upgraded.
As when Britain joined the EC, a major stumbling block in the negotiations has often been dairy products – and, to a lesser extent, meat – access. Protecting its dairy farmers seems to be a sine qua non of a sovereign nation.
Extending market access for New Zealand’s primary products will continue to be pursued and may grudgingly happen, but the key to reducing over-dependence on particular markets may be new products sold elsewhere as well as finding non-traditional markets.
Some years ago, I observed that Australia had been losing market share in its export markets and New Zealand had been gaining market share. But Australia had the stronger total export growth because it was exporting to faster growing markets.
Guessing which will be the future faster growing markets is not easy. Who would have expected fifty years ago – as Britain was joining the European Community – the explosive economic growth of East and South-East Asia? Probably South Asia is a good bet in the near future; possibly Latin America. PTAs for both areas are high among New Zealand’s priorities.
Guessing new products can be equally challenging. Fifty years ago, New Zealand was (rightly) obsessed with butter and cheese exports. The dairy focus then moved onto milk powder; today infant formula looms large. In the future, dairy products for the growing numbers of affluent (and elderly) may become more important. It is not only New Zealand’s resource-based exports that will be challenged. There will be new sector exports – notably ‘weightless’ tradeable services.
Given New Zealand’s tradition of state-driven development stance – an integral feature of the nation for over 150 years – it is perhaps necessary to say that the government role is likely to be limited to extending and monitoring international trade deals and facilitating and supporting trade rather than the widespread interventions – especially protection and subsidisation – of the past.
De-risking
Security tensions between China and the United States and its allies also pose challenges, especially given the increasing international recourse to economic sanctions (typically led by the US). The horror scenarios for New Zealand would be a collapse of the Chinese economy or a conflict between China and the US which involved economic sanctions between them; gradations below either scenario would be difficult enough. (The implications of such scenarios for Singapore are probably even worse.)
Because of such security horror scenarios, New Zealand treads a very careful path in its relations both with China and the US – ‘tippy toe’, one might call it. It wants to condemn some of China’s actions, but not so forcefully that it will have trading repercussions, as has occurred to Australia. It wants a security relationship with the US which is not too close because of the China dimension – in any case its public would not support a formal alliance involving a nuclear umbrella – but close enough so that were tensions to rise, New Zealand would have its submissions respected, especially if there were trade sanctions on exports important to New Zealand. (The US unwillingness to offer adequate trade access to key New Zealand exports compounds the issue of loyalties.)
New Zealand will almost certainly pursue the widespread de-risking industrial strategies being practised elsewhere. Unfortunately, the terms ‘de-risking’ and ‘decoupling’ are used loosely in popular discourse. The Ministry of Foreign Affairs (2023) provides systematic definitions:
Decoupling is where a country disconnects, separates, terminates or severely restricts its economic ties with another. It is large scale economic and supply chain fragmentation along geopolitical lines.
De-risking relates to actions to reduce a country’s economic vulnerability within its domestic system to a defined external risk. It is aimed to protect sectors and technologies that are of national security interest.
Re-shoring, on-shoring, friend-shoring and near-shoring are all subsets of decoupling and de-risking.
So de-risking is a kind of decoupling but only for strategic industries. Currently much of the international focus on de-risking is on advanced technology industries with which New Zealand is not richly endowed. The de-risking focus in New Zealand is likely to be concerned with coping with a multi-year period of widespread economic sanctions which might be triggered by, say, increased China-US tensions. Dealing with disruptions of a shorter-term nature, as occurred from the Covid outbreak, might be categorised as increasing the economy’s ‘resilience’.
While some proponents of Import Substituting Industrialisation (ISI) would have justified their early post-war strategy in terms of ‘de-risking’, had the term existed then, it generally did not. New Zealand’s ‘manufacturing in depth’ production shifted back up supply chains rather than abandoned them. Car assembly did not de-risk the economy because it still depended on CKD packs from overseas for the assembly. ISI’s purpose was employment generation.
Significant de-risking is limited for small economies like New Zealand or Singapore. The earlier discussed export diversification is part of the strategy, as is import diversification so the countries are not dependent on a single, potentially vulnerable, supply chain. In New Zealand’s case the ongoing switching to energy renewables from oil (and coal) imports is for climate change reasons, but it will also reduce its external vulnerability.
While re-shoring and on-shoring may be limited, friend-shoring and near-shoring (notably with Australia) may be important and arise when PTAs are upgraded. More generally, as already mentioned in terms of security relations with the US and its allies, high quality, friendly diplomatic relations may add a further modicum of protection if trade wars break out.
A Food and Pharmaceutical Security Agreement
I have long wondered whether there was the possibility of an international Food and Medicines Security Agreement which would rule out the application of sanctions to basic foodstuffs and medicines, as well as simplifying support for economies and regions facing crises in their supply (e.g. from a famine or catastrophe). There have been attempts to introduce such measures going back to the League of Nations – the recently agreed Singapore-New Zealand Declaration on Trade in Essential Goods is step in this direction. It may well be that the world’s appetite for such a deal has increased since Russia weaponised food supply in its conflict with Ukraine. The US is unlikely to be a signatory to any such agreement for its Senate is likely to be opposed even if its President was not reluctant. But the US might well respect the spirit of a widely supported agreement when it came to applying economic sanctions.
New Zealand as a significant food producer would have a major interest in any such agreement. It would ease pressures on it during a trade war and it would also be valuable in peace time if it reduced access restrictions to others’ domestic food markets. One of the common justifications for those restrictions is domestic food security. An agreement would reduce those security concerns.
Conclusion
While the New Zealand economy internally faces much the same challenges as other affluent economies, its smallness, its physical isolation and its industrial specialisations have often meant it has had to approach its global connectedness in a quite distinctive way. It has not been able to participate in the middle of global supply chains; it is only at the beginning and end of them. It has not been able to participate in larger economic communities, instead relying on multilateral, plurilateral and bilateral trade and other economic agreements. Additionally, it has actively supported less official organisations such as APEC Aotearoa Plan of Action (2021). It has done so energetically and innovatively, on occasions taking on a leadership role far greater than New Zealand’s significance in the final deal.
It has been able to do this because of good relations with like-minded countries which are also committed to an open rules-based global economy. The most important ally in this has been Australia, its closest neighbour which is also closest culturally, although both sides of the Tasman Sea would draw attention to their differences. (In security terms Australia is New Zealand’s only ally.) Perhaps more surprising has been the way in which it has been able to work with Singapore, over 10 hours flying time away.
Nevertheless, the successes in the development of the global architecture to which New Zealand, with Australia and Singapore, has contributed have not diminished the disappointment that pastoral exports, central to the New Zealand economy’s prosperity, still face restriction on access to the markets of many economies which have otherwise embraced open trade.
I am grateful to Alan Bollard, Malcolm McKinnon and some New Zealand public servants for comments on early draft, and to Anne-Marie Schleich..
Bibliography
APEC (2021) Aotearoa Plan of Action. https://aotearoaplanofaction.apec.org/
Boulhol, H, de Serres A & Molnar M. (2008) ‘The Contribution of Economic Geography to GDP Per Capita’, OECD Journal: Economic Studies, 2008, vol. 2008, issue 1, 1-37.
Easton, B.H. (2022) Not in Narrow Seas; The Economic History of Aotearoa New Zealand, Victoria University Press, Wellington.
Ministry of Foreign Affairs (2023) Navigating a Shifting World, https://www.mfat.govt.nz/en/media-and-resources/release-of-mfats-2023-strategic-foreign-policy-assessment-navigating-a-shifting-world-te-whakatere-i-tetahi-ao-hurihuri/
New Zealand Productivity Commission (2023) Improving Economic Resilience, https://www.productivity.govt.nz/inquiries/resilience/
New Zealand Productivity Commission (2024) Improving Economic Resilience: Report on a Productivity Commission Inquiry, NZPC, Wellington
Notes
The data is from
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