So, this is where you guys start to have to do some work and a bit of response back, we have at about a quarter of an hour, haven’t we Theuns.
So, this graph here is a graph of, for New Zealand that was produced by the office of the auditor general by NZIER.
And so, the blue line was capital expenditure, fixed capital expenditure. And the grey line is consumption of capital.
And this circle here was 1987 to the 1993-94 recession, that ‘last one out leave – turn off the lights’ recession.
And what happened was we ran out of money as a country. So we stop spending money on capital.
And that’s what happens when countries have run out of the money or they have a banking crisis or they have a war or whatever. They don’t spend money on infrastructure.
And in New Zealand’s case, what happened was that we spent so little money on infrastructure in that period, that we were actually consuming more infrastructure than we were building. So, we were starting to run our infrastructure down quite significantly.
In 1996, which is here, coincidentally where those lines crossover again, it’s where asset management planning became mandated in New Zealand.
It became mandated because the people looking back through that period said, hey we haven’t been spending anything on infrastructure for nearly a decade. We could be in real trouble but we don’t know. So that’s when the asset management planning came in.
So then New Zealand had a period of reasonable wealth and growth through to the 2007 recession, bang, it drops off again.
It’s almost an identical pattern, isn’t it? But this time we’ve spent, we’ve invested the whole lot through that period. And the drop off didn’t get us below that consumption line so we were well ahead of that.
I’m telling you this because I want you to look further in the next slide.
When countries run into trouble financially, or banking wise or otherwise, what tends to happen is infrastructure investment tends to drop.
Particularly, capital investment – quite quickly – as in just turn the tap off, and that creates a whole heap of a knock on effects.
FEATURED IMAGE CREDIT: Chris Gin via Flickr Creative Commons License