KiwiSaver: The saviour of NZ's economy

Wednesday, 3 October 2018

Business confidence is low, and the fears are not without some substance. I met the head of a supermarket chain last week who gave some sobering numbers, and he should know.

And overseas, trade tensions, Brexit and Trump don't help either.

But as a fund manager, I'm sceptical of the consensus, which can be driven  more by short-term fears than long-term facts. It was consensus that the world was going to run out of oil, that communism would dominate and that the finance industry would change its behaviours post-GFC. All were wrong.

And recent GDP numbers show that some of our domestic pessimism may be misplaced, too. Fifteen of the 16 sectors measured showed growth, and many were surprised by how strong it was.

**READ MORE:

* Should we care that business confidence is so low?

* Business confidence continues to slide, as demand and profits fall**

So is our bearishness on the economy justified? Maybe in the short term, but there is a much bigger trend forming. Business investment and confidence should be mindful of the reality that New Zealand is entering its 'Singapore moment' of long-term prosperity and above-trend growth.

Why? The answer is actually very simple. Unprecedented amounts of KiwiSaver savings will be looking for long-term investments over the next 30 to 50 years, and it will fuel a period of domestic prosperity we have rarely, if ever, seen.

The numbers underpinning the optimism are compelling. KiwiSaver is a $50 billion investment pool now, and should be at $200b by 2030. That's 73 per cent of current GDP, a huge number.

If history repeats itself, of the extra $150b saved by KiwiSavers over the next 12 years, approximately 50 per cent ($75b) will be invested in New Zealand.

That's the equivalent of 2.3 per cent of GDP a year for the next 12 years. The multiplier effect on the economy should be significant, as it has been in Singapore, Scandinavia, Europe and the US, where large pension savings have been invested locally.

Even now, over $50 million a week of new investment is made by KiwiSaver managers into our local stock market and bond markets. By 2030 it should be closer to $200m a week. It's like a rising tide, hard to spot minute by minute, but very powerful long term. It will lift many boats, or at least those fit to float.

The best example of this is next door. Australia's seemingly recession-proof economy is only partly because of all those resources. Aussies now have almost $3 trillion saved in their super funds, and a large chunk of that has been reinvested in Australians businesses over the past three decades.

Economists generally agree that's it's been a major factor in keeping Australia recession proof for 27 years, and it's helped create many new jobs.

And Australian pension money has funded considerable investment in their infrastructure, either privately or via public private partnerships. That's why roads in Brisbane are better than those in similarly sized Auckland.

The nature of the investments are very important too. Because it's KiwiSaver money, its very long-term focussed and won't come and go like offshore investment does. New Zealand has seen waves of investment from the United Kingdom, United States, Japan and China over the last century. The first three have come and largely gone, and China may well leave too. But KiwiSaver money won't, and that's very important for business confidence, investment and future job creation.

It's critical when making long-term investments to have the confidence that the money will be there to invest over the long term. As long as people are saving each week, the ability of business to raise capital and invest with confidence is greatly enhanced.

Another very special aspect of KiwiSaver investment is that it's our money.

KiwiSavers will be slowly buying back New Zealand, and that makes many investments politically possible. If business and government can agree, much infrastructure could be funded by KiwiSavers in a way free of the politics that comes with either offshore investors or the wealthy few scooping up sensitive domestic assets.

KiwiSaver has democratised savings, and it can do the same for investment too.

And remember that much of the money we save in KiwiSaver will not be going into our mortgage repayments. Thus KiwiSaver will do its bit to cool the housing market. Once again, it's hard to spot day by day, but a very powerful long-term trend. Eventually much of the wealth that gets created via longer-term growth goes back into housing market, as it has in Sydney and Melbourne, but that's after it's created the jobs and wealth.

It's a problem for sure, but a higher quality one than we have now, and with solid economic growth the government will have more options for funding social housing.

New Zealand is beginning its journey towards being a capital-rich economy, not a capital-starved one. And as much as we love to romanticise our number 8 wire mentality, too many entrepreneurs have gone overseas, or sold out to offshore buyers, for lack of domestic investors.

That's going to change in a very powerful way, and it's a very good thing. Businesses will be able to invest with confidence that long-term growth will be stronger and money will be there to fund their expansion.

In investing, as in business, the trend is your friend, and KiwiSaver is a very powerful, very positive and very long-term trend. The rising tide of KiwiSaver savings will lift those boats fit to float, leaving others will drown in their own pessimism. Time to get on board.

Sam Stubbs is founder of not-for-profit KiwiSaver provider Simplicity.