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When Covid-19 hit New Zealand, the Jacinda Ardern government swiftly closed the nation’s borders and imposed one of the world’s strictest blockades in an attempt to eliminate the spread of the virus.
The decision in late March plunged companies into a crisis, and many were forced to implement radical strategic changes to survive. Air New Zealand was one of the first victims, requiring a NZ $ 900 million ($ 610.4 million) ransom from Wellington.
But with most of the restrictions now lifted and the virus seemingly under control, business confidence is making a comeback. Many corporate leaders, in industries from tourism to agriculture, hope that Wellington’s decision to prioritize health over keeping its economy open will prove fruitful in the long run.
“One thing that most companies have not had to experience throughout Covid-19 is running out of cash or liquidity problems,” said Mark Hiddleston, head of the commercial and agricultural division at lender ANZ New Zealand.
Fonterra, the world’s largest dairy exporter, is capitalizing on strong demand in China despite the pandemic © Brendon O’Hagan / Bloomberg
Mr Hiddleston attributed this in part to decisions by the central bank and the New Zealand Treasury to quickly implement interest rate cuts and a wage subsidy scheme.
New Zealand, like many other large economies, is in recession, and its gross domestic product contracted by a record 12.2 percent in the second quarter. But unemployment has remained low, with the official rate at just 5.3 percent in September, while the expected increase in corporate bad debts has not materialized.
Business confidence is increasing. A Bloomberg survey of 700 global business leaders in October ranked New Zealand as the nation that has best handled the pandemic and the market in which they would be safest to invest.
IMF forecasts suggest that the decision to implement a strict lockdown early could pay off. While New Zealand’s economy is forecast to contract 6.1 percent this year, worse than the US But better than the UK, it could grow faster than any of those nations next year, to 4.4 percent.
“New Zealand looks relatively better because the quest for eradication, as we call it, has allowed our economy to return to a new normal,” said Mike Bennetts, CEO of Z Energy, a fuel distributor with nearly 400 service stations and truck stops. “Most businesses are open and can operate without strict social distancing rules, even if the borders remain closed.”
Bennetts was one of the business leaders who advocated for a quick and tough lockdown before the spread of Covid-19 in New Zealand had a chance to catch up with the severity of heavily affected countries like Italy.
When Wellington implemented its most severe lockdown measures on March 25, which included heavy movement restrictions, demand for fuel plunged 85 percent. That forced Z Energy to raise NZ $ 350 million to bolster its balance sheet.
But demand for fuel outside of the aviation sector has almost completely recovered as the economy has reopened. “In hindsight, one could argue that [the capital raise] it wasn’t really necessary, ”Mr. Bennetts said.
Some large New Zealand companies are benefiting from a recovery in other economies that also stalled early.
Fonterra, the world’s largest dairy exporter, improved its 2021 milk price forecasts by more than 6% in October due to strong demand from China. That could bring in an additional NZ $ 10 billion for New Zealand farmers selling to the group.
“Despite the initial impact of Covid-19, we have seen demand for dairy in China recover rapidly,” said Miles Hurrell, CEO of Fonterra.
Prices for New Zealand’s other major agricultural exports – beef, lamb, and fruits and vegetables – have remained firm, supporting an industry that contributes around 5% of GDP. A big challenge for the sector is finding enough workers to cover the fruit picking jobs during the next harvest.
The coronavirus has also helped boost profits for tech and healthcare groups. Fisher & Paykel Healthcare, a maker of NZ $ 20 billion worth of respiratory products used to treat Covid-19, has said its profits in the year ending March 2021 could increase by as much as a third due to the pandemic. .
Shares in Xero, a Wellington-based accounting software platform for small businesses, have doubled since Ms Ardern ordered its national shutdown as her business has grown.
Parts of New Zealand’s major tourism industry, which relies on foreign visitors, have also managed to adapt even as the country’s borders remain closed.
New Zealand Prime Minister Jacinda Ardern arrives to meet her MPs in parliament after a landslide election victory in October © AFP via Getty Images
“It was quite dramatic because we immediately saw 90 percent of New Zealand’s business disappear overnight,” said Grant Webster, CEO of Tourism Holdings Limited, one of the largest motorhome providers in New Zealand, Australia and United States.
That prompted Webster to turn to domestic tourists and focus on new sources of income, such as providing motorhomes to residents returning from abroad to self-quarantine.
The group’s total vehicle sales rose 73 percent year-on-year between April and August, helping to cut its net debt by almost half. Tourism Holdings’ share price has recovered 325 percent since March.
But not all tourism companies have the flexibility to carry out this type of transformation.
Air New Zealand lost NZ $ 454 million in the year to June and has cut 4,000 jobs. It is burning between NZ $ 65 and NZ $ 85 million a month and will likely have to raise new shares in mid-2021, analysts say.
“The airline is likely to be in a losing and cash-burning situation until the borders are reopened,” said Andy Bowley, Forsyth Barr’s head of research. A discussed travel bubble with Australia could help it rebound again, he added. Industry groups have asked the government to relax border rules for visitors from countries considered low-risk in terms of Covid-19.
However, some are concerned that Wellington’s generosity in the form of wage subsidies and rules protecting directors from being prosecuted for business transactions while insolvent, which expired in September, may have delayed a larger crisis for the sector. business of the country.
Insolvency experts warn that a rebound in bankruptcies is inevitable, and creditors are likely to begin enforcing debt payments in the coming months.
“There is a disconnect with the recessionary economy and only a low level of bad debts. The concern is that there are still zombie companies in operation that would have failed under normal circumstances, ”said Karen McWilliams of Chartered Accountants Australia & New Zealand.
“The danger is that when these companies collapse, they could drag other companies with them.”
Still, some executives say New Zealand’s apparent success in eliminating community transmission of Covid-19 – a feat accomplished by few other countries – leaves it in a good position to benefit from any global economic recovery.
The country has seen an increase in professional New Zealanders returning home from overseas jobs during the pandemic and some think that more foreign investors and skilled workers might be tempted to follow when international borders are finally reopened.
“If you’re a Kiwi working for, say, Apple in New York, and you have the option of going back to New Zealand to live while you keep your job, that’s a compelling proposition,” said Justin Murray, president of the investment bank. , Murray & Co. “The key issue here is more of a government policy. How will the government leverage the success of the New Zealand Covid elimination to benefit our economy? “
