When economists talk about investment, they only count capital investment in buildings, equipment or people which will produce new goods and services. Buying existing assets such as a factory or shares in a company do not count as investment in economic terms, just a change of ownership.
Types of investment
Investment is money spent on:
- new buildings
- new plant, machinery and equipment
- new transport equipment
- infrastructure like roads, dams, sewerage works, ports and airports
- land improvements like fencing, clearing bush and drainage (but not land itself)
- products like software, and development of intellectual property such as patents and plant variety rights.
Economists measure investment because it indicates the potential for a country’s economy to grow, and for people to earn more money.
The total amount of money invested in New Zealand is known as its capital stock. There have been times when this stock has shrunk because of an economic depression, a natural disaster like a fire, or a new technology or fad which makes old equipment obsolete.
Investment in the 19th century
Māori invested in garden plots and waka transport, so they could exchange food and goods like pounamu (greenstone) with other tribes. After Europeans arrived they extended gardens in order to sell food and flax to locals and overseas. They invested in sailing ships and flour mills.
Early European settlers were sealers and whalers who invested very little in the country – boats that carried exports like flax or timber were owned offshore.
Once settlements were established and towns began to grow, people began investing in buildings, roads and ports. From around 1870 public and private investment grew rapidly as railways were built and farmland was cleared and drained. But in the 1880s investment in houses stalled when there was an economic downturn.
Once meat could be refrigerated on ships, investment in farm stock and machinery rose and meat exports grew. People also invested in equipment for mining coal and gold.
Electricity and oil
In the early 20th century there was increased investment in roads, vehicles and petrol tanks. Investment in hydroelectric stations, power lines and electric-powered machinery increased. But in the 1930s an economic depression halted investment. A Labour government was elected in 1935 and they increased government investment.
Second World War
From 1939 investment shifted to New Zealand’s involvement in the Second World War. Although investment in equipment and defence facilities for the war overseas was big – nearly $2.5 billion in 2009 terms – money was also invested by the US in New Zealand on facilities for troops, including hospitals which were converted to civil use after the war.
Late 1940s to 1980s
After the war markets for New Zealand’s exports remained strong and investment in farming continued. Public spending on hydro plants was increased in the 1950s. Returned soldiers started families and there was a boom in the number of babies born. People invested in new housing, schools and universities.
Restrictions on imports were used to promote local manufacturing. This led to investment in businesses like car assembly to serve a tiny local market.
Investment after 1980
In the 1980s the government turned publicly run businesses into corporations known as state-owned enterprises (SOEs). Some were then sold, including Telecom and the railways. Investment in SOEs became private investment. By the late 1990s 84% of all investment was private.
Investment in business in New Zealand was 50% less per head than in Australia in 2009, partly because it cost more to borrow money.