Due South

The beauty of a diversified portfolio is that when one area dips, you can expect other areas to pick up the slack. Putting all your eggs in just a few baskets is always a risky strategy - and that applies to national and regional economies as well as individual investors. 

As part of the country’s regional portfolio, Southland and Otago are currently performing very well in comparison to our traditional economic engines up north, and that’s worth celebrating. As Kiwibank chief economist Jarrod Kerr said after the release of Kiwibank’s Annual Regional Note in July this year, “the further south you go, the more optimistic people are”. 

Forsyth Barr’s Pulse of Business Survey also showed that regional businesses were performing better than urban centres by a margin of three to one and that positioned them to lead the recovery, especially those tied to the agriculture sector (agriculture still plays an outsized role in Central Otago’s fortunes and the agriculture, forestry and fishing category made the largest contribution to overall growth between 2023 and 2024). 

The lopsided nature of the recovery is further supported by looking at sectors that are doing well. Freight, agriculture, and aged care are less dependent on urban areas, whereas retail and, to some degree, construction (by value) are more dependent on urban areas. 

Another report from Dot Loves Data showed Queenstown Lakes and Central Otago as two of the top-performing regions in the country as far as economic growth goes and, due to the expected growth in population, it suggested this was likely to continue for the next decade. 

“Cromwell and Bannockburn are the next generation of Queenstown and Wānaka, given their proximity to Lake Dunstan, Queenstown Airport and more affordable land and housing. Establishing yourself in Cromwell now is akin to doing so in Queenstown or Wanaka 10 years ago,” said director Justin Lester. 

Like New Zealand, Central Otago doesn’t have a particularly diverse economy. Or a particularly productive economy. In fact, GDP generated per job is lower in Central Otago than the national average, due in part to our reliance on tourism. 

We have pushed for a more regional and longer-term approach to planning, and it’s good to see the Otago Regional Council and Queenstown Lakes District Council come together under the name Otago Central Lakes to pitch for one of the first Regional Deals with the Government. It says the region’s current GDP is $6.1 billion per year, but in ten years it could rise to $15 billion if productivity exceeds the country’s average by 25%. So how do we do that?

Tourism accounts for a disproportionately high amount of employment and keeps the money flowing through the region, but it’s a low-wage industry, and the country’s tourism sector is also lower productivity than other comparable countries, so we will not get there with more of the same. 

While the locals are not yet revolting in the streets about overtourism as they are in Barcelona or Venice, community sentiment towards tourism has grown more negative over time, and that’s especially true in Queenstown. The rest of Central Otago isn’t as badly affected, but similar infrastructure challenges are starting to be seen during busy periods, and that always becomes more apparent as the region deals with an influx of visitors over summer. 

As the document suggested, “building the productivity of these businesses is critical to economic growth for the subregion, and for New Zealand. Tourism operators in the district have invested in improving yield without increasing numbers.” 

One of the five key priorities in the Regional Deal is to capture value and ensure that ‘growth pays for growth’. This could potentially be through a visitor levy for tourists, and it also suggests that upfront development contributions or mining royalties be funnelled back into the region. 

Billions more could be added to the region’s economy with the right infrastructure and services in place, and industry group Technology Queenstown thinks the highly-productive tech sector could be a billion-dollar industry and account for 20% of the region's economy by 2043. 

In an earlier piece, we talked about the success of Boulder, Colorado. There are many similarities between our two regions, but we’re missing world-class research institutes and close links to academia, so it was great to see the University of Otago announce the appointment of Professor Richard Barker to drive the University’s ambitious plans in Queenstown and the Lakes District recently. The University has also been creating stronger partnerships with technology companies and engaging with the wider community. Otago students will be able to study towards a Bachelor of Entrepreneurship programme at the Queenstown Resort College from 2027, which is a smart move. 

This is how ecosystems are built. This is how big companies, burgeoning industries and new people are attracted. And this is how the University must evolve as the population centre of Otago shifts inland. 

New Zealand has been in and out of recession for around three years, and things have been tough for many sectors. The South has been doing a lot of the heavy lifting, but it has the potential to lift a lot more if it can diversify its portfolio and find ways to do more with less.

To talk investment - either for yourself or the region – get in touch with us at Forsyth Barr Investment Advice Central Otago on 03 443 2980.