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UPDATED SATURDAY NOON - Amid cautious signs that the national lockdown will be able to start lifting at the four week mark, BusinessDesk asks business leaders what needs to happen in the next two weeks to ensure that the economic restart is as smooth as possible:
Time ripe for a 'Green New Deal'
Gary Taylor, chief executive, Environmental Defence Society
In an open letter to the Prime Minister, leading environmental groups are arguing the post covid-19 recovery is an opportunity for a Green New Deal. This would involve looking beyond bridges and roads and embracing a wider portfolio of projects that would be truly transforming. It is an opportunity for a fundamental reset that could put New Zealand’s economy on a more sustainable and resilient trajectory.
Start with water Start with water: let’s create three water and wastewater providers across the country and start rebuilding that depleted infrastructure at scale. Wellington Water has revealed the dangers of underinvestment and continuing droughts demonstrate the need for additional drinking water security.
Electrify Then address climate change: the Green New Deal would speed up the transition towards a net zero carbon economy. It would build a national network of electric vehicle infrastructure. Government would buy electric buses and lease them to providers. It would expand and electrify the rail network. It would incentivise power companies to build windfarms, create more efficiencies out of the existing hydro system and reinforce the grid to cope with fresh disasters. It would deploy solar to every household and public building and ensure every home is properly insulated. We could get to 100 percent renewables in five years.
Then address nature: the Green New Deal would create a Conservation Corps to work with DOC to upgrade its facilities and tackle weed and pest threats at scale. The Corps would work on restoration of debilitated land by planting native forests and creating wetlands. A government fund would assist the transition out of inappropriate land uses. Improve resource consenting
Then address consenting: by all means speed it up - but we should not sacrifice the environment through ill-conceived stop-gap reforms. We are well down the track of nailing improved resource management laws and should continue that work at pace.
Shovel-ready vs people shovelling already Sam Stubbs, founder at non-profit KiwiSaver, Simplicity
To my mind it’s pretty simple. To kick start the economy, the government needs to get the most amount of money moving around as many hands as fast as possible.
Using the old economic formula for quantity of money ie. M (money) x V (velocity) = P (price) x T (transactions), economic theory says they should do three things to get the value of these factors up, so the economy kick starts:
· Up the amount of money (M). This is effectively helicoptering in cash via salary subsidies etc. They are already doing this;
· Up the velocity (V); and
· transactions (T).
That means allowing retail businesses and service suppliers to open, and spending government money on services and goods where the recipients spend it quickly.
That means spending on labour and locally produced goods and services. It does not mean spending it on imports or capital good spending.
With that end in mind, employing a lot of labour to fix up old roads is better than announcing big capital spending on new roads. The projects don’t just need to be shovel- ready, there need to be people shovelling already.
Timber mills - a key cog Marty Verry, group chief executive Red stag Timber.
The timber industry is an ideal sector to reopen during the next two months, Verry says, being in the middle between two large workforces: forestry and the building industry.
Timber mills are also highly automated, staff can be kept separate from one another and plant can be cleaned between shifts, allowing health monitoring and infection tracing. They are also easy for the Ministry for Primary Industries to monitor.
“We’re a relatively safe set of hands to open up as an industry when the time comes and we hope that time is going to be in May.”
However, for viable reopening, mills will need demand for structural timber from the building sector.
They will also need access to logs at “reasonable and relatively stable” prices and the government will need to bring forward construction projects to get bolster economic activity in an economy being coaxed back to health.
“If the builders aren’t building it doesn’t make a lot of sense to start up the sawmills,” Verry says. “There’s a really good opportunity for New Zealand to get up and running and get a bit of a head start on the rest of the world.
“What’s important is that, with the fragile recovery, that the viability of the wood processors isn’t jeopardised by the huge spike in log prices that is coming and could last six months to a year or more.”
Demand for both logs and wood products should be strong and there is plenty of scope for forest owners to profit from those export log sales once supply to processors is met.
“They can fill their boots - above and beyond what New Zealand needs.”
What does alert level 3 mean? Brad Jacobs, director, The Coffee Club
Jacobs has started to accept that New Zealand will not go from level 4 lockdown to ‘normal’ overnight.
His 66 franchised cafes offer a European coffee house experience, making them less suited to takeaways and deliveries, but that is “where we might have to go post lockdown,” he says.
The company will also need to work through the implications of alert levels that may vary in time and between regions.
“A scary thought for us would be getting stuck at level 3 over a period of time, which would be a scenario in which it would be very difficult to be profitable.”
Small and medium businesses wanted to see what the various levels would look like and what relief packages would be available during and post-pandemic.
“Above all we need clear direction. Government keeps saying they are working on it, but a wage supplement is pointless if the employer fails.”
A time for the realistic and the brave Scott Mason, Findex managing partner
The biggest challenge for business is imagining what the new world might look like for them and their customers, says Mason, from financial advisory firm Findex.
“Realistically we will need to start working from a worst-case scenario basis of a slow start within a level 3 environment, with all of the social distancing and hygiene protocols that may entail.”
Mason says that will have implications for both day-to-day operations and sales. “Companies need to answer the question as to whether their value proposition is as valid going forward as it was pre-covid and if not, then how they can evolve to match market expectations?”
For many, business dynamics will change, particularly through supply chain logistics that involve less overall customer contact.
“For business-to-consumer businesses such as retailers of consumer goods, clothing, office supplies, leisure gear and food and beverages sellers, we are likely to see an increase in home delivery services.
“We may also see a move by wholesalers to supply goods directly to consumers instead of through outlet stores.”
Businesses may also consider implementing dual half-team shifts or even re-sizing the business.
“Businesses need to look at their inward and outward supply chains and rethink who may be best to support them in the future, and on what commercial terms.”
Ultimately, Mason says, this is a time for the realistic and brave. “Doing nothing is not an option.”
Corporate undertaker Jared Booth says the accounting firm's 500 staff have been working from home during lockdown, but that one thing insolvency practitioners can’t do under level 4 is auction off business assets.
The other key issue, stemming from the economic rather than the physical impact of the lockdown, is that debtors to a company might find it hard to repay amounts owed as a result of the current situation.
“We - and our agents - may therefore need to assist debtors in some way to allow for payment to be ultimately made to the liquidation, and subsequently to creditors.”
Booth says while the firm is helping some clients get government assistance, “there are, however, a large number of ‘zombie businesses’ that have not made a profit for some time, and have no realistic prospect of success, which will ultimately go into liquidation.”
Covid-19 will probably speed up existing trends, such as the transition from in-store to online shopping, creating opportunities for some existing and new businesses.
Booth reckons the government will take steps to allow an increase in economic activity as each week passes, even if the business is non-essential, if they can do it in a way that minimises the spread of covid-19.
Just tell us the rules Justin Mowday, chief executive, DDB
Ad agency boss Justin Mowday says DDB Group has been flat out not just helping clients transition to lockdown, but communicating those changes with customers.
“We’ve got clients who run the full gamut of impact - from busier-than-ever, to relying on online sales solely, to fully closed during level 4,” says Mowday, whose clients include Vodafone NZ, Sky Network Television and Lion. As alert levels rose, “we were just in a state of just operational and logistical problem solving, and undoubtedly some clients put their activity on hold.”
“Most recently the focus has shifted to scenario planning for when Level 4 is reduced - not just how we get back to business as usual, but how we make sure our clients come out of the gate strongly and win. “It is realistic to expect non-essential needs-driven purchases will be slower but there is always a base level of demand,” he said, adding that international tourism was a category that would be "difficult."
Mowday says his agency has kept all his major brand work but clients are adding more reactive work to the mix, to keep customers informed.
The group’s 250 staff are spread across its main ad arm DDB as well as digital agency Tribal Worldwide, PR outfit Mango, data firm Track, and branding consultancy Interbrand. These units are all fully operational from home so Mowday is not overly concerned about the transition out of lockdown.
“The thing we need the most coming out of lockdown, like most businesses I suspect, is clarity. We believe the actual task of coming out of lockdown will be relatively easy, once we know the new rules." Mowday is considering staggering hours so that no more than half the staff are in the building at any one time, and keeping meetings to five or fewer people, discouraging staff from taking public transport and, if that's not possible, adjusting hours to avoid travelling in peak times.
“We will need to maintain a cautious approach to office working and believe this is entirely do-able now that we know we are able to maintain a high level of productivity wherever our people are working.
“Communication plays a critical role when issues occur and in times of change - our role is to use it effectively for our clients to help them connect with their staff, their customers and stakeholders. People will make up their own narrative in an information vacuum, but brands can often be a trusted and reassuring source of advice, information and help.”
Seeking an economic Ashley Bloomfield
Shamubeel Eaqub, economist, Sense Partners:
Many businesses will be dire financial straits post lockdown. Zero revenues for a month will not be fully offset by wage subsidies. Wages account for around 20% of outgoings, the other 80% are other expenses.
So there is likely to be another wave of job losses after the lockdown when the cash from wage subsidies and other support is used up.
Unless we do more now.
Businesses generate a gross surplus of around $25 billion in a typical quarter. In the June quarter, that could more like a loss of $10 billion to $20 billion.
And Wuhan’s experience suggests we should expect sales to be 5-to-10 percent lower, after taking some weeks to recover.
All firms are at risk, but especially those in the awkward middle, with 10 to 50 staff. They are too small to enjoy economies of scale, but big enough to need costly operations, systems and processes.
Over coming weeks I would like to see three key areas of work:
1. A clear outline of the post-lockdown world. The public must have confidence in a hard quarantine at the border, thorough testing, and other measures to be sure we are free of covid-19. It is as much about what we do, as how it is communicated. We need an economic twin of Ashley Bloomfield.
2. Rapid disbursement of additional funds to SMEs. The Swiss model is drawing a lot of attention: 500,000 Swiss francs interest-free and underwritten by government, and up to 20 million Swiss francs at 0.5% interest with 85/15 risk sharing between government and banks. All done via declaration. It would be an extension to our proposed approach and would save many SMEs.
3. The Reserve Bank needs to be part of a co-ordinated policy discussion with leading central banks on monetary financing of government debt. It is something central banks do not want to do, but a one-off and globally co-ordinated injection of say 30% of GDP into government coffers would relieve fiscal constraints on governments to unleash all they have to protect not just our lives, but our livelihoods too.
Christina Leung, principal economist, NZIER Given the extremely high degree of uncertainty at the moment, it’s unsurprising we have seen business confidence plummet.
How other countries are dealing with the outbreak and hence the effects on their economies is out of our control.
But the government can mitigate the uncertainty in New Zealand by setting out transparently its criteria for the decisions it has to make.
There is currently a lot of discussion over whether the lockdown will be extended beyond four weeks. This makes it hard to plan for critical things like cashflow and stock levels. Particularly for businesses which deal with perishable stocks, rolling in and out of different alert levels over the coming months will make it extremely difficult for businesses to operate.
The costs will be devastating for many businesses, but the ones that are able to adapt and pivot to other opportunities which spring up as a result of the current environment will be in a stronger position.
However, this transition will take time, and will be painful for many.
Advance notice vital Mark Callander, Vocus NZ chief executive:
Telecommunications company Vocus, the New Zealand parent of Orcon, Slingshot and Flip, has been focused on doing the things it can control through the covid-19 crisis.
“We have recognised that this is an opportunity for us to simplify our business and on a broader industry level, reinforced the importance of keeping customers for the entire industry.”
Callander says that coming out of lockdown the most important things will be clear direction and calm leadership.
“We need as much advance notice as possible from government. Once we’re out of survival mode we also need an immediate stimulus to get money pumping back through the economy.”
Alert levels rewrite?
Terry Copeland, chief executive, Federated Farmers: The Government may well need to re-write the alert levels as we descend down them, as it is a very different world compared to when we raced up the levels.
There will also be a need to unlock things progressively – not just open the gates. Overwhelming the national business environment and leaving confusion about what can and can’t be done will cause more harm than the current tight restrictions.
For Federated Farmers, this lockdown has provided the stimulus to do things differently and more effectively, including what we prioritise and how we communicate.
The biggest opportunity for our sector is to change the overall sentiment towards agriculture from being narrowly viewed in some quarters as an environmental impediment, to being widely viewed as:
· a vital sector pulling New Zealand out of recession;
· a large and reliable employer of people; and
· celebrated for being a world leader in regenerative agriculture done at scale
Sustainability will be viewed across community, environment, financial and cultural perspectives rather than any one of these on its own.
Level 3 versus Level 4 - detail required Kirk Hope, chief executive, Business New Zealand
"This week, we're focusing on getting more clarity on what are the criteria for transitioning between the alert levels and what does that mean for businesses?"
The national voice for New Zealand businesses says its members understand and broadly support the public health objectives of the lockdown, but there will be myriad practical questions about what can and can't be done as both the community and businesses move from one level to another.
Among the likely issues is the potential for different parts of the country to open up at different rates, and for some industries to be fast-tracked back to production either because of their institutional capacity to apply physical distancing and other safety protocols or because they can demonstrate that, at a lower alert level, they should be allowed to operate.
"Will certain businesses be able to operate between levels 3 and 4?" says Hope. "The sooner we get clarity around that, the better. There's a big difference between four weeks without cashflow and six weeks and even bigger difference between one month and two months."
For tourism and tourism-related retail businesses, the cashflow drought began three months ago, when coronavirus cases offshore started to impact on international tourist arrivals, so they are all the more anxious to start trading again, even knowing tourism numbers will be far lower.
Hope is looking to the Infrastructure Commission for a strategic approach to investment that will help retool the New Zealand economy and looking to the education sector for "rapid reskilling" rather than traditional training approaches.
While unemployment numbers are expected to explode because of the covid-19 lockdown, the country was experiencing full employment prior to that. Hope believes that when migrant workforces and seasonal holiday-makers on working visas are no longer available, there will be work available for many New Zealanders who need it, and that many young people will head back into education and training, as often happens during economic downturns.
"I think we'll find there's significant flex in the workforce that means we can can ensure we may not have as significant a level of domestic unemployment as we might otherwise have."
Start with the easy stuff Raf Manji, strategist and chair of the Christchurch City Council strategy and finance committee during the Canterbury rebuild:
Shutting down an economy seems to be quite simple: turn off the lights and go home. Re-starting an economy is a slow process, as everything needs to be turned back on, checked, re-supplied and re-fuelled. Running down supplies is one thing. Getting new ones is another.
Two things are key for the re-start: not rushing and having plenty of financial liquidity to oil the wheels. Start with the easy jobs: building and construction is one. Activities where workers can be in small groups or pods, be cleared to work together and get the basics under way: infrastructure, housing, and ongoing maintenance.
Outdoors work, such as waterways, parks, gardens, the huge backlog of projects that our conservation estates need to be done. The Provincial Growth Fund should have a long list of projects, and local government capital programmes can be brought forward once funding is available.
Now the Reserve Bank has crossed the monetary Rubicon into the land of quantitative easing, it should be clear to everyone that money is simply not a problem.
As long as inflation is within target and we have spare capacity in the economy - we will have plenty of that with our international tourism and education sector vaporising - there should be no issue with funding, and the Reserve Bank can supply as much as is needed.
At the moment it is supplying that through the banking system but soon it will realise it can also fund the public investment programme directly and for no cost. It should do so.
This reboot will be successful if it is done methodically and with a clear plan for opening up further sectors, as the risk of covid-19 spread recedes. We will need a hard border for this, even internally if required.
Large gatherings of people will still be a risk, so malls will be out, but online shopping will be in. We may even see a domestic sports programme, with our top rugby, netball and soccer teams able to be cleared to play each other. Empty stadiums maybe, but many viewers will be keen, and a thirsty global market awaits.
There will need to be strong government support for some time. Certain sectors, such as energy and transport could be in for a serious realignment, to a more sustainable structure, with self-sufficiency in mind.
Domestic manufacturing may be more in vogue and the risk in global supply chains becomes clearer. Examples of publicly supported, post-war economic reconstruction in the world’s leading economies should be of note. Japan, Germany and South Korea were all supported by the firm hand of the government in their re-development. With the invisible hand of the private sector alongside, the future could be brighter than we think.
Simon Bennett, chief executive, AWF Madison
“We just want to see some detail, they can’t tell us when, but I saw the Prime Minister’s saying 'ready yourself'...but there’s not a lot of details so we are assuming.”
Bennett, who heads New Zealand’s largest recruitment company, says work such as roading projects will come back on stream after the lockdown ends, but workers need details on what is a safe practice and what isn’t.
“A lot of it is site-specific. But for example, for a roading operation, where you need five people to get in a van, is that still okay when the airlines won’t have anyone in their middle seats?”
The recruitment boss says its blue-collar unit, formerly known as Allied Work Force and which can place up to 3,500 workers per day, was the worst hit by the lockdown.
“We have been hit on the blue-collar side, as there’s no essential services work for them except logistics and supermarkets really, so we have big parts of the workforce stood down."
For white collar jobs in its Madison and Absolute IT brands, recruiters are more likely to wait out the lockdown before placing workers in office settings.
To stay informed with the developing rules, Bennett says, “we keep close to Business NZ, who really just feed stuff back and forth from MBIE, the keeper of all these decisions.”
Jon Tanner, chief executive, Wood Processors Association
Along with other non-food manufacturers, the wood processing industry wants to restart production as soon as possible or face "irreversible market loss."
In an ideal world, that would mean being allowed to start work while the country is still at level 4, but at the very least, there needs to be a system that tells manufacturers what their obligations are at levels 3 and 2.
And no one knows the answer to that, says Tanner.
He understands that the Ministry of Business, Innovation and Employment is processing some 20,000 applications from non-essential businesses that want to be allowed to operate, but that there is no published framework to guide those applications or to know how officials are making their decisions.
Tanner says there needs to be a system as clear as the one the Ministry for Primary Industries is operating to certify food and beverage manufacturers.
"The sooner we have that, the sooner we can plan for opening up", even if that can't happen until the lockdown is lifted, hopefully at the four-week mark on April 22.
"We at least need a framework in place for level 3. There's a lot of confusion about what it means to be an approved and safe producer."
Meanwhile, he's fielding calls from international companies wanting wood products that those countries have deemed essential, but which New Zealand firms are prevented from supplying.
“The viability of these exporters is rapidly diminishing with every day, every hour that their operations are shut down and they can’t deliver to essential supply chains. Their customers will very soon be forced to find alternative suppliers with major implications for their operations and ultimately New Zealand’s economic recovery.”
Vodafone NZ Business Director, Lindsay Zwart
Almost no one is using Vodafone's roaming services at the moment, but mobile network useage is 60 percent higher than pre-covid.
That means the telco is focused on upgrading and reinforcing infrastructure to ensure network stability.
As the country comes out of lockdown, Zwart says it will be important to learn from the impact of the crisis on the country’s logistics networks and to be receptive to ditching traditional supply chains.
“We talk a lot about what 5G can bring. One area is in the 'collaborative robot' or cobot space, which starts to remove the risk of people-driven logistics, for example at ports."
The concept of “ubiquitous computing” has come of age, she says, citing the fact that after Vodafone’s Indian call centres were closed down on March 24, the company went from 95 percent voice to 90 percent online chat overnight.
“We had to determine pretty rapidly what we were going to do to support New Zealand as a country, so what we did was to convert all of our customers onto chat and we found that customers were more tolerant in chat than voice.”
Staff had to be redeployed and the Indian teams had to be set up to work from home.
“Over the past four years all our technology told us we couldn’t possibly have our contact centre staff work from home due to security concerns. But in a couple of days we changed the way we approached the contact centre and we now have all of our team working.
“It’s a new way of thinking in a way that we never thought was possible but sometimes you are put in a position where changes have to be made.”
In future, closer collaboration with government agencies and further investment in connections to remote areas will become more important.
Geoff Ross, executive chairman, Moa Brewing Co.
Moa Group is best known for brewing beer, but two-thirds of its revenue comes from hospitality, including operating top Auckland restaurants Ostro and the Auckland Fish Market, both of which have closed for the duration of the lockdown.
Ross thinks “the brakes will come off take-home food” when the country exits level 4, so its outlets are preparing menus and staff for that.
While he hopes there will be more time to prepare as the alert levels change, “the parameters of level 4 are very clear but level 3, there are so many vagaries at the moment, I’m not sure to be honest.”
“In California they’ve given exemptions to taking bottled wine home from restaurants,” Ross says, suggesting the relaxation of liquor licensing rules to help hospitality, along with diners being allowed to eat out, even if they still have to maintain their 'bubbles'.
The former adman best known for the success of 42 Below vodka is concerned about what will happen to entrepreneurship as the economy recovers.
“Typically what happens when you come out of a major event like this is that people become more conservative in their behaviour, so entrepreneurship slows and new capital, and start-ups slow. People will retreat into their day jobs and likewise investors will flock to utilities.”
“If there is a mechanism to make early stage investment attractive - if Kiwisaver funds had to give a small proportion of investment to early stage and expansion stage companies - that would be a really useful bit of stimulus,” he says.
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