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Service Industries

Service industries make up a large proportion of the economy, accounting for over two-thirds of GDP. The sector recorded strong growth between 2000 and 2007, with annual growth averaging 3.8%. As the New Zealand economy entered recession in 2008, services growth slowed, but not to the extent of other sectors. With the services sector expanding at a more rapid rate than other areas of the economy, the sector has increased its share of GDP from 66% in 2004 to 71% in 2011. Export-related activities such as tourism and primary sector services inputs play an important part in trends in this sector.

Infrastructure

In early 2009, the government established a National Infrastructure Unit to take a national overview of infrastructure priorities by providing cross-government co-ordination, planning and expertise. The Unit operates out of the Treasury and develops its policy advice for the Minister for Infrastructure in conjunction with an Advisory Board which is made up of a mix of private and public sector expertise.

The Unit is also responsible for promulgating robust and reliable cross-government frameworks for infrastructure project appraisal and capital asset management and for monitoring the implementation and use of these frameworks. As part of this work, the Unit has released Private Public Partnership (PPP) guidelines for use by government agencies and provides ongoing support for agencies and departments involved in PPPs.

On 4 July 2011, the Unit released the second National Infrastructure Plan which seeks to provide a common direction for the planning, funding, building and use of all economic and social infrastructure. It covers the transport, telecommunications, energy, water and social infrastructure sectors. The purpose of the Plan is to improve investment certainty for businesses by increasing confidence in current and future infrastructure provision. Through the Plan, the Government is seeking to achieve better use of existing infrastructure, and better allocation of new investment.

Further information is available at www.infrastructure.govt.nz. The next Infrastructure Plan is expected in 2014.

Transport

Transport is a major component of economic activity in New Zealand. The country's transport system owes its characteristics, not only to New Zealand's dependence on external trade and remoteness from many of its trading partners, but also to its rugged terrain and scattered population and the division of the country into two main islands spanning 2,011 kilometres in length. As a result, the establishment of a comprehensive network of roads (around 93,000 kilometres) and railways (4,000 kilometres) linked to ports and airports has involved capital costs that are high in relation to the size of the population. However, the efficiency of the country's internal transport system has played a critical role in New Zealand's economic growth.

Much of this transport infrastructure was originally developed and operated by government-owned monopolies. Today, the transport sector is largely deregulated and legislative barriers to competition have been removed. Many previously government-owned operations are now privately owned.

Roading: The allocation of funding and the management of state highway works are managed by a Crown entity, the New Zealand Transport Agency. Construction and maintenance work is contracted to private sector companies.

Land transport infrastructure and its maintenance are funded primarily from distance-based charges for diesel vehicles, excise duties on petrol and motor vehicle registration charges. More recently, the government has appropriated additional funding to accelerate the construction of new roads and the provision of public transport.

Tolling schemes for new highways are permitted where this is deemed an appropriate funding arrangement. The capital for these schemes can come from either the public funding body, or from private providers in partnership with the government.

Railways: New Zealand's railway system connects all major population centres and includes rail ferries between the North and South Islands. The system was maintained and operated under government ownership until 1993, when it was privatised. The Government has since purchased back both the network infrastructure and rail services. The national rail system operates as Kiwirail. In 2010 the government committed $750 million over three years (provided in $250 million tranches, subject to approved business cases) to support a "turnaround plan" for Kiwirail to become a fully commercial rail business over time.

While the government, through Kiwirail, owns most rail infrastructure and rolling stock, Auckland and Wellington regional authorities also own some rolling stock which is used by contracted providers of metropolitan rail services. In 2011, the government confirmed funding packages to support the upgrade and maintenance of metropolitan rolling stock and associated network infrastructure.

Shipping: Ninety-nine percent of New Zealand's total international trade by volume is carried by sea, with around 30 global and regional shipping lines calling at New Zealand ports. Coastal shipping services, operated by both local and international shipping companies, provide intra and inter-island links and play a key role in the distribution of bulk cargos such as petroleum products and cement.

Port companies established under the Port Companies Act 1988 operate 13 of New Zealand's 14 commercial ports. These companies operate at arms length from their predominantly local authority owners, although four are partly privatised and listed on the New Zealand Stock Exchange.

New Zealand's shipping policy reflects the philosophy that the country's interests are best served by being a ship-using rather than a ship-operating nation. The policy seeks to ensure for New Zealand exporters and shippers unrestricted access to the carrier of their choice and to the benefits of fair competition among carriers.

The Maritime Transport Act 1994 regulates ship safety, maritime liability and marine environmental protection.

Civil Aviation: New Zealand is one of the most aviation-oriented nations in the world. In a population of just over 4.4 million there are over 10,000 licensed pilots and more than 4,400 aircraft. Large aircraft are used for international and domestic freight and passenger transport. Light aircraft, including helicopters, are used extensively in agriculture, forestry and tourism.

New Zealand allows up to 100% foreign ownership of domestic airlines and there is no domestic air services licensing. Air New Zealand is the major domestic operator on main trunk and regional routes with some main trunk services operated by Jetstar.

New Zealand has around 40 formal air services agreements with foreign governments. The government's international air transport policy is to maximise economic benefit to New Zealand, including trade and tourism, consistent with foreign policy and strategic considerations.

Currently, around 30 international airlines, including Air New Zealand, link New Zealand with the rest of the world with both freight and passenger services, some under code-share agreements. International flights operate from a number of international airports, of which Auckland, Wellington and Christchurch are the most significant. Hamilton, Palmerston North, Queenstown and Dunedin are secondary airports used for some international flights, mainly trans-Tasman. The three major international airports are autonomous companies. Auckland International Airport is a publicly listed company and Wellington International Airport is two-thirds owned by a publicly listed company, while Christchurch International Airport is jointly owned by the Christchurch City Council and the Government.

The Government owns just under 75% of Air New Zealand, having purchased shares in the company in 2001 following a period of external shocks for the airline. Air New Zealand continues to be a publicly listed company on the New Zealand Stock Exchange. Since 2001, Air New Zealand has restructured its operations, which has had the effect of restoring its balance sheet to a sound financial position. The airline has also made profits in each financial year since 2001 and is currently engaged in a fleet replacement programme which is expected to be completed by 2015.

The Government has signalled its intention to divest a portion of its shareholding in Air New Zealand but will retain at least 51% of the company.

Tourism

Tourism is one of the largest single sources of foreign-exchange revenue and a major growth industry in New Zealand. In the year to March 2011, international tourist expenditure amounted to $9.7 billion, an increase of 1.5% on the previous year. The country's scenery, natural environment and a range of outdoor activities make New Zealand a popular tourist destination. Total visitor arrivals amounted to 2,764,640 in the year to September 2011.

Australia is New Zealand's closest market and by far the largest source of overseas visitor arrivals at 1,122,594 (44.0% of the total) in the year ending September 2011. Australian arrivals were up by 0.1% from a year earlier.

After Australia, the next largest markets are the United Kingdom (230,000 or 9.0% of the total), the United States (185,000 or 7.3% of the total) and China (135,000 or 5.3% of the total).

Visitor arrivals from a number of Asian markets have also grown strongly over the past decade, albeit with periods of temporary weakness in the face of higher oil prices and concerns over the H1N1 virus in 2009.

Tourism arrivals are sensitive to the New Zealand-dollar exchange rate and fully respond around 15 months after changes. While the New Zealand dollar is expected to remain elevated during the first half of 2012, a gradual depreciation is expected in the coming years. The Rugby World Cup, held in New Zealand over September and October 2011, temporarily boosted international visitor arrivals, but numbers are expected to return to normal levels in subsequent months.

Communications

New Zealand was the first country to open its entire telecommunications market to competitive entry in 1989. Telecom New Zealand was privatised in August 1990, and today all major competitors are privately owned. The two major providers of fixed line services are Telecom and TelstraClear, with four second-tier providers: Slingshot/CallPlus, Orcon, WorldxChange and Compass. Cellular Services are provided by Telecom New Zealand, Vodafone and 2degrees.

New Zealand has good broadband access availability (over 95% of dwellings) and significant broadband infrastructure competition in particular areas. The government is investing $1.5 billion through the Ultra-Fast Broadband (UFB) Initiative to accelerate the roll-out of fibre-based broadband to 75% of New Zealanders by 2019. This investment is being more than matched by investment from private sector partners. The Initiative prioritises businesses, schools and health services and certain tranches of residential areas. A related Rural Broadband Initiative is aimed at improving broadband availability outside the UFB area.

The telecommunications sector has been through a period of significant regulatory reform in recent years. This includes a review of the Telecommunications Act in 2005-06, resulting in the opening up of Telecom's exchanges to competitors through the process of local-loop unbundling. This was followed by the operational separation of Telecom into three distinct business divisions as a further measure to increase competition.

Legislation was enacted in 2011 to allow for the complete demerger of Telecom into two separate companies, a network operator and a retailer, with regulatory provisions applying to the dominant network operator, Chorus Ltd. In November 2011, shareholders agreed to separate Telecom from Chorus in order to participate in the Government's UFB initiative. Chorus and Telecom New Zealand are now separately listed companies.

A Telecommunications Commissioner within the Commerce Commission administers regulated telecommunication services, which include network interconnection, telephone number portability and wholesale telecommunication services. The Commissioner's key functions are to resolve disputes over regulated services, to report to the Minister of Communications on the desirability of regulating additional services and to calculate and allocate the net cost of telecommunication service obligations.

Postal and courier delivery services are provided by New Zealand Post Limited, a commercially-run SOE, and a range of private providers.

New Zealand Post used its retail network to expand into retail banking in 2002, setting up Kiwi Bank, with a further expansion into business banking in 2005. New Zealand Post did not have the resources to fund the establishment of the bank, so the Government made a one-off investment of $78.2 million in New Zealand Post to fund the establishment expenses and capital expenditure involved, and to ensure there was sufficient capital to meet Reserve Bank requirements. Since then, New Zealand Post has made further capital injections to bring Kiwibank's share capital to $310 million at 30 June 2011. The Government neither guarantees the bank nor subsidises its on-going operations. Kiwibank announced an after-tax profit of $21.6 million for the year ended 30 June 2011 compared with a profit of $45.8 million for the previous year.

Two major national radio networks, as well as a network that relays parliamentary proceedings, are provided by Radio New Zealand Limited, a Crown entity operating under a non-commercial charter. There are numerous private radio stations.

Television New Zealand Limited (TVNZ), the state-owned television broadcaster, is a Crown Company. TVNZ provides two national free-to-air television channels broadcast in both analogue and digital (with full digital switch-over expected to occur around 2013-15). The state also funds the Maori Television Service, a statutory corporation, to promote Māori language and culture. Private television operators provide a number of other national and regional channels. Digital and analogue pay TV services are also available.

There are five major daily metropolitan newspapers in the main centres and numerous provincial and community newspapers, all of which are privately owned. In addition, there are two national weekly business papers, three Sunday newspapers, a number of wire services and a growing number of internet news services (including offerings from the major newspaper groups) and blogsites.

Screen Industry

The New Zealand Film Commission was established in 1978 to finance distinctly New Zealand films, with the aim of reaching significant New Zealand audiences and producing high returns on investment in both financial and cultural terms. More than 200 feature films have been made in New Zealand since the Commission was established. Around half of these have received Film Commission finance, while the remainder have been financed by local and, increasingly, by major offshore production companies.

New Zealand's screen industry continues to gain international prominence following the success of several big budget productions filmed or produced in New Zealand such as the Lord of the Rings Trilogy, King Kong and Avatar, as well as numerous medium and small budget films produced by New Zealand and offshore companies. Filming on the two-movie Lord of the Rings prequel, The Hobbit, commenced in Wellington in March 2011.

The New Zealand screen industry recorded gross revenue of $3 billion in the year ending March 2011 with $700 million coming from feature films. Revenue from North America rose 30% to just under $400 million due to higher film sales and revenue from contracted production and post-production services.

The screen production industry is characterised by a large number of small freelancers and contractors working both independently and in co-ordination with larger production and broadcasting companies.

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