Asian Financial Forum: Optimism in Hong Kong despite economic outlook (NZ Herald)
Asian Financial Forum: Optimism in Hong Kong despite economic outlook (NZ Herald)
While the economy faces a challenging year, China’s reopening is a source of cautious positivity
Despite the International Monetary Fund’s (IMF) projected slowdown of growth this year to 2.7 per cent from 3.2 per cent in 2022 and its suggestion of an outlook fraught with uncertainty, the recent reopening of China resulted in an upbeat mood at the Asian Financial Forum (AFF) in Hong Kong this week.
The high-powered forum included keynote speeches from Helen Clark and former UN Secretary-General Ban Ki-moon, and brought together some 2000 delegates including politicians and policymakers, global financial and business leaders, investors and entrepreneurs from over 70 countries and regions. It was the first in-person gathering for the event after being held in a virtual format for the past two years.
Opening the Summit, Hong Kong’s chief executive John Lee acknowledged the global challenges but said the timing of the forum – just three days after resumption of quarantine-free travel to and from mainland China – provided a source of optimism.
Asian stocks traded higher following the resumption of quarantine-free travel and the end of China’s zero-Covid policy, and delegates shared this bullish view at the AFF.
When polled on expectations of the global economy in 2023, some 69 per cent said they were either optimistic or neutral. Just 31 per cent responded with a negative sentiment about the year ahead.
Chair of HSBC Holdings, Mark Tucker, said China’s reopening and the package of measures it is introducing to stabilise the weakened property market will be positive for both its own economy and the global economy more broadly, albeit with ongoing volatility and challenges associated with the escalation in Covid-19 cases.
“Hong Kong and the Greater Bay Area are likely to be the immediate beneficiaries from the mainland reopening,” said Tucker, expecting a strong recovery to be seen from the second quarter.
Even more significantly, it could potentially be the stimulus on which the global outlook for which 2023 depends on.
Tucker was enthusiastic that Asia was resilient, and had prospects for a strong rebound later in the year.
“We have seen virtually all economies in the region now recovered from the output losses incurred during the pandemic to above 2019 levels,” he said.
He highlighted that India too had become a hugely attractive market within Asia, with a strong long-term outlook, supported by the demographic dividend provided by having over two-thirds of its population of working age, along with important reforms and rapid developments in the digital economy coupled with global supply chain shifts.
“This could be the basis for a 20-30 year runway for growth, as was the case for China in the 1990s,” he said. “The same is still true of Singapore and across many Asean markets more generally.”
In contrast, he said a recession is widely expected in the United Kingdom and the EU with challenges from high inflation driven in part by higher energy prices and the war in Ukraine. Both are contributing to a cost-of-living crisis and squeeze on real incomes.
“The US economy is proving more resilient than those in Europe, and I don’t expect a hard landing,” he said. “I expect any US recession to be much shallower than those in Europe.”
“All of this means I am more optimistic about the second half of 2023. I expect inflation to slowly come under control. The markets are hoping that rates peak in the first half of the year so that any recession is shallow, regionally limited and resolved quickly.”
Chair of Agricultural Bank of China – one of China’s ‘big four’ banks – Gu Shu, shared this encouraging position, telling the forum the US is now facing lighter inflationary pressure, and inflation in the eurozone is expected to peak later this year.
“The need to continue raising interest rates weakens,” he said. “We estimate that in 2023, the pace of interest rate hikes will slow down.
“However, with rising food prices and a shortage in labour supply, the high current interest rates and tight monetary policy is likely to continue for some time.”
Navigating the polycrisis
The forum included a focus on how countries and financial institutions can tackle the looming polycrisis – a term coined to describe the multiple interrelated economic, political, and ecological shocks upending the global economy.
Panellists stressed it will be essential to work closely together to navigate the polycrisis, especially due to the many global issues that will need closer cooperation among countries to solve including the food, energy and cost of living crises, supply chains, climate change and the ongoing pandemic.
Luxembourg’s Finance Minister Yuriko Backes told the forum that while Covid tested the limits of globalisation and exposed several weaknesses, particularly in supply chains, the wrong conclusion for countries to draw from the crisis would be that we need a general decoupling from other economies.
“There is a worrying wider trend toward deglobalisation and protectionism in Europe and also elsewhere, and it is therefore important that efforts to increase autonomy do not translate into widespread market and technology fragmentation.”
Protectionism risk
Backes said there is a risk Europe’s open strategic autonomy, China’s dual circulation strategy which also aims to increase self-reliance, or the ‘Buy America’ rules introduced in the US could lead to a collective decoupling of markets and increased protectionism.
In Asia, multilateralism is on the rise. The world’s largest free trade deaL the Regional Comprehensive Economic Partnership (RCEP) between Asia-Pacific nations including New Zealand, has just reached its first anniversary in force and continues to grow to reach its full potential.
But Antony Leung, group chair of Hong Kong conglomerate Nan Fung Group, said the elephant in the room is the ongoing rivalry between the United States and China, which brings with it trade protectionism and puts wider global cooperation at risk.
“As a result, we are seeing that the world may be facing ‘one world, two systems’ – one being the US-European system, and then the rest of the world,” he said.
-Tim McCready was a guest of the Asian Financial Forum
Dynamic Business: Pandemic era lessons from the Big Apple
Taking part in Air New Zealand’s business delegation to New York on the new direct Auckland-New York City flight was a great opportunity to catch up on the United States economic environment, trading conditions, geopolitics and trends. As someone who hadn’t crossed the New Zealand border since 2020 (but pre-pandemic was a frequent long-haul traveller), it was also a chance to get a taste of travel in the Covid era.
More than 20 of NZ’s most influential business leaders joined the delegation, including the heads of Mercury Energy, NZ Beef & Lamb, Sanford, The Warehouse Group, SkyCity, Infratil, Spark, Beca, Ngai Tahu and the University of Auckland. Between the CEOs and directors on board NZ2, Air New Zealand was responsible for carrying a sizeable fraction of New Zealand’s Top 200 businesses.
These delegations are often predicated around government-to-government relations such as bilateral and multilateral meetings, or free trade agreements, but this trip was different.
Despite including Deputy PM and Finance Minister Grant Robertson and National deputy leader and finance spokesperson Nicola Willis as part of the delegation, one of the distinct things about the trip was that it wasn’t politically focused.
Air New Zealand chair Dame Therese Walsh described the visit as a chance to not only showcase the airline’s new flagship route, but to “get back to doing what Air NZ used to do – be an important part of NZ Inc thinking and New Zealand’s economic development.”
Air NZ CEO Greg Foran’s status in the US was evident (he was previously CEO and president of retail giant Walmart US). He used his cachet to pull in high-profile speakers including Indra Nooyi – the former chair and CEO of PepsiCo and often touted as one of the world’s most influential women.
Though meetings were held under the Chatham House Rule, some of the lessons that stood out from three days on the ground in the Big Apple include:
From New Zealand to New York the challenges remain the same
The mood in many meetings was sombre, as the US grapples with many of the same economic headwinds as New Zealand. A looming recession, geopolitical tensions, constrained supply chains, a shortage of talent, burgeoning inflation and interest rate rises are creating uncertainty.
While Covid restrictions have all but gone in New York, the pandemic has left a permanent mark on the city. Companies in the US have embraced hybrid working which is considered “here to stay” as employees demand the flexibility that comes with it.
Covid testing sites are still scattered about, and despite no requirement for face masks, their use seemed far more common than in Auckland on public transport and in public spaces.
ESG under strain – but ignore it at your peril
The acronym ESG – which takes into account a business’s efforts on environmental factors, social issues and corporate governance – has risen to prominence over the past few years. But recently it has become politicised in parts of the US. Its association with liberalism has seen a backlash among some Republican officials who have described ESG policies as ‘woke’.
Acronym politics aside, there was a lot of talk in New York that US investors, customers and employees are continuing to focus on whether businesses are authentic about their purpose and leadership, and whether they are doing what they say they are doing when it comes to society and the environment.
This is more important than ever as Gen Z (those born between the late 1990s and early 2010s) become more prominent in the workforce. Many are choosing not to engage with businesses or even apply for jobs with employers that have a perceived negative impact on the environment, or an organisation that lacks diversity. If a business can explain why its activities are important not just for commercial differentiation but also for the planet and society, it will be a valuable competitive differentiator.
America doesn’t have time for short poppies!
Kirsten and Craig Nevill-Manning, former Facebook and Google executives who are among our most successful offshore New Zealanders, hosted a reception for the delegation at their spectacular multi-level Brooklyn apartment complete with a stainless-steel slide to traverse the floors.
There, a panel of New York-based Kiwis spoke about the many New Zealand businesses that are doing great things in the US – but stressed that we continue to be too demure for an American audience. To get cut-through in a crowded market that moves quickly, businesses must be prepared to share their unique points of difference and accomplishments as loudly as their competitors do.
The expat community in New York is small but tight-knit. Those that we met on the ground are keen to welcome more to the city and pass on their deep experience and advice to others so that New Zealand businesses can hit Manhattan running and make their mark on the city that never sleeps.
Good news for tourism and business
Despite being closed to visitors for two years, New Zealand continues to have a lot of friends offshore. Everyone who spoke to the delegation had fond things to say about our country and those who have not yet been innately like us and have a desire to visit – even if they couldn’t pinpoint exactly why.
There was an expectation from business delegates and those we spoke to that the direct flight between Auckland and New York will have a role in shaping how NZ’s economy and future opportunities evolve.
One US-based investor likened New York to a “multiverse” since there is so much going on in such a diverse city. He said the need to transit when travelling from the east coast of the US to New Zealand previously put a lot of people off coming to Aotearoa, and the air link will now “connect Middle-earth with the multiverse”, bringing immense opportunity along with greater capital, entrepreneurship, and talent.
Tim McCready was a guest of Air New Zealand on the direct flight to New York.
Infrastructure: Women are a powerhouse in New Zealand infrastructure (NZ Herald)
Infrastructure: Women are a powerhouse in New Zealand infrastructure (NZ Herald)
Tim McCready looks at three key trends influencing the infrastructure sector
Over the past couple of years, the pandemic has had a serious impact on the cost and timings of infrastructure.
While 2022 was hoped to be the year the world returned to some kind of normality, events over the past year — including the evolution of the pandemic and the war in Ukraine — have brought with them supply chain constraints, inflation, and ongoing uncertainty. But despite these headwinds, there remains a steadfast focus on growing the sustainability and equity of the sector.
Here is a look at some of the big topics that will continue to shape the sector over the coming years:
Inflation and rising risks amid uncertain times
Inflation has become the dominating story facing the infrastructure industry in 2022.
The rapid escalation of the cost of construction is being felt worldwide and is creating major challenges for project delivery.
This is being exacerbated by ongoing supply chain constraints. Initially caused by the pandemic, this has continued as a result of Russia’s invasion of Ukraine and the continued snap lockdowns in China.
In its latest quarterly report, the New Zealand Infrastructure Commission Te Waihanga, cautions that if inflation continues to run hot and supply chains remain constrained, it will be challenging to deliver infrastructure rapidly without stretching our limited capacity to build.
But though inflation statistics suggest demand is still outrunning supply, there are emerging signs of a global economic slowdown.
China’s continued push for zero-Covid and the intermittent lockdowns that come with it, combined with its struggling real estate market, has resulted in a sharp drop in growth and the world’s reliance on China will ensure that slowdown is felt everywhere.
Last month the International Monetary Fund (IMF) cut its global growth forecast for 2023 to 2.7 per cent from a previous forecast of 2.9 per cent. In a recent update, the IMF said recent high-frequency indicators “confirm that the outlook is gloomier” than projected, particularly in Europe.
Reduced economic activity will see inflation lessen, but will likely bring with it an increase in unemployment and insolvency risk for construction firms.
As rising interest rates reduce the ability to borrow and see demand for residential building fall away, it will place the broader construction sector under pressure and shift the focus from managing cost increases and capacity pressures to managing workload and maintaining financial sustainability.
As Te Waihanga notes, if the global economy tips over into recession, falling demand from non-infrastructure construction may ease the capacity and skills pressures seen over the last year, and bring with it an opportunity to deliver more infrastructure.
Advancing women in infrastructure
Like all industries, increasing diversity and inclusiveness will be a necessity to address challenges the infrastructure sector is facing.
There has been good progress on this front over the past year. A growing number of businesses in the sector have established diversity targets.
This year Fletcher Building reported its intern cohort had a 50:50 split between men and women, and its graduate cohort was 40 per cent women.
Tonkin and Taylor has found purposefully and openly talking about unconscious bias at all levels of the organisation has been a great tool to create an environment that has zero tolerance for discrimination.
Chief executive Penny Kneebone, says momentum regarding diversity and inclusivity has picked up across the sector in the past year, noticeably via the diversity of voices in the sector sharing their thoughts, perspectives and experience.
“That is great, but it is important to keep up the good mahi and build on that momentum,” Kneebone says. She’d like to see stronger progress made regarding diversity and inclusion metrics across the sector.
“We can talk the talk, but diversity and inclusion metrics will help give the industry insights and indicators on where to take action to improve and ensure that we’re walking the walk.”
Infrastructure New Zealand, the industry’s member association, has several initiatives to help its members create and sustain a diverse and inclusive infrastructure sector.
The group is chaired by Margaret Devlin, elected to the position at the 2021 AGM, who has a particular focus on people, diversity and culture.
She is also chair of Auckland’s Watercare and Lyttelton Port and a director of DairyNZ, Hamilton Airport, IT Partners Group and Waimea Water.
Earlier this year, Infrastructure NZ established a diversity advisory board to help address key challenges facing the sector.
The Women’s Infrastructure Network, set up in 2016 to increase the number of women in leadership roles and grow the visibility of women, now has seven chapters throughout the country and a combined membership of more than 2100 women.
To further attract women to the sector, managing director of international engineering consultancy Aurecon, Tracey Ryan, says there is no single approach that will work.
“It must be a combination of leadership, policies/systems and behaviours, she says.
“We also need to get in front of school children to help break down barriers and normalise that anyone can have a career in the infrastructure industry.
“There are now more senior female leaders in the industry which has been great progress — we are still a small group, but we’re not just a couple anymore.
“It’s about ‘you can’t be what you can’t see’, so the more we support women into senior and leadership roles the better.”
Ryan is herself also co-chair of the Construction Sector Accord.
Sustainable infrastructure to the fore
The built environment is estimated to be responsible for almost 50 per cent of all extracted materials and contributes some 40 per cent of global energy-related emissions.
Emissions are made up of a combination of the energy used to run a building day-to-day as well as embodied carbon emissions — those tied into the construction, maintenance and ultimate demolition.
The focus of green building has largely been on making buildings more efficient to run, which can often come at the expense of embodied carbon emissions. But with the global transition to sustainable and net-zero infrastructure emissions solutions continuing at pace, attention is now turning to the environmental impact of construction.
The heightened awareness of the sector’s impact on the environment means it is becoming increasingly unacceptable for companies to fail to make progress in this regard.
Bolstering this push is the energy crisis in Europe. The invasion of Ukraine has spurred an effort from European countries to reduce the use of oil and gas in the region and improve the energy efficiency of infrastructure.
Last month, the International Energy Agency (IEA) released its annual World Energy Outlook report and noted that the invasion is likely to accelerate the world’s transition to greener energy from fossil fuels.
“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said IEA executive director Fatih Birol.
“Governments around the world are responding to the crisis by doubling down on clean energy — in the US, EU, Japan, China, India and elsewhere. Their new policies are set to help global clean energy investment rise above US$2 trillion a year by 2030, an increase of over 50 per cent from today.”
Infrastructure is not only highly responsible for climate change and integral to its mitigation, but it is also highly exposed to its effects.
If the coalition of nations is to meet the Paris Agreement to decarbonise the global economy by 2050, current momentum seen in green infrastructure looks set to continue.
In a world where the geopolitical and economic environment look shaky, clean infrastructure will help to boost growth, create jobs and build energy security and resilience against the ongoing effects of climate change.
Mood of the Boardroom: Too many situations vacant
A shortage of workers has become a global phenomenon, with the pandemic severely disrupting the labour market. Employers are finding it increasingly difficult to find staff as employees seek out higher wages, remote and flexible work options, and more satisfying employment opportunities that better align with their values.
Further compounding this has been New Zealand’s border closure, which restricted the flow of migrant workers for the past three years. With the border now reopened, skilled workers and pent-up demand from younger people that delayed their OE are considering a shift overseas.
The labour shortage has become a significant economic issue for New Zealand, and a contributor to the ongoing inflationary environment. Though a rising cost of labour may mean employees receive higher wages as employers attempt to attract and retain staff, the cost tends to be passed on in price increases.
When asked in the Herald’s Mood of the Boardroom survey to what degree employee churn is being experienced in their business, just 3 per cent of business leaders say not at all, and 35 per cent say churn is at a manageable level.
“Less than expected,” says Deloitte chair Thomas Pippos. Adds the CEO of a property management firm: “The rate of churn is probably no higher than it has been in the past.”
But a sizeable 56 per cent say churn is increasing, and 6 per cent consider it to be “off the scale”.
A CEO in the design sector says “the industry simply poaches and incentivises with $40,000 salary increases and we have had to do the same, which is unsustainable.”
A tech company chair says while churn has always been high in the IT industry, it is notably higher now: “And some of the salary packages being offered — like double their current salary — make it almost impossible to avoid.”
Some business leaders experiencing significant staff churn are from the real estate industry. But with house prices falling, sales sluggish and housing stock increasing, one industry leader says: “Staff are leaving because they are simply not making an income from real estate.”
Increased investment in staff development
In an effort to retain staff and make up the shortfall in accessible skilled talent, businesses are placing an increased emphasis on investing in employees.
A massive 73 per cent of respondents say their investment in training and skill development over the past two years has increased.
“Lifelong learning and development is key to a sustainable future,” responds Beca executive chair David Carter. “Our Intermediate Development Academy is our latest initiative to be launched.”
Just 4 per cent say training and skills development has decreased, though the reason for this was mostly put down to financial constraints and “expense management due to the pandemic”, or lockdowns significantly limiting the ability of businesses to run programmes to the same extent.
“Our ability to do this was limited in 2020/21, but has increased in 2022 which has balanced it out,” says the head of a professional organisation.
The remaining 23 per cent say training and skill development levels have remained the same.
Immigration delays causing a major challenge
The current immigration restrictions and its management by Immigration New Zealand is another area seen as prohibitive by CEOs.
When asked how challenging this has been on a scale of 1-5 where 1=very difficult and 5= very easy, they give a combined score of 1.85/5.
This response comes from across the board in terms of sectors. “The agricultural workforce is well under strength in key areas,” writes one CEO. “It took two years to get nurses approved, it is crazy,” says another. From a construction CEO: “Our sector needs skilled workers and ultimately the market needs immigration.”
A university boss writes: “Our chief challenge is around international students — who often become others’ workers. There is a potentially dangerous bottleneck we face.”
The need to address workforce gaps at pace, after such a prolonged period with the border closed, has heaped pressure on to Immigration New Zealand’s visa processing capacity. Last month, Immigration New Zealand stood up a Reconnecting New Zealand Incident Management team, with the authority to make decisions and improve the processing of applications. Business leaders are concerned about these delays impacting their ability to source talent, but also the toll it places on staff who already reside here.
“We have worked through the process with a handful of our team who were here when Covid first hit and have almost made it through the process,” writes a CEO in the property industry.
“It has been laborious more than anything else, but I really feel for our people who are in the middle of it. Until the lengthy process is done, they can’t settle in and make themselves at home — and the mental strain of that is real.”
Boost to working holiday scheme doesn’t go far enough
To address the significant and ongoing labour gap, the Government recently doubled the Working Holiday Scheme cap for 2022/23, which will see a further 12,000 working holidaymakers able to enter New Zealand and is extending visas for holidaymakers.
Immigration Minister Michael Wood said the changes would provide immediate relief to those businesses hardest hit by the global worker shortage.
“We have listened to the concerns of these sectors and worked with them to take practicable steps to unlock additional labour,” he said.
But when business leaders were asked whether the change will help, it was met with a muted response. Of those surveyed, just 27 per cent say it will address labour shortages in their sector.
A substantial 45 per cent say it will not help, and 14 per cent are unsure. The remainder says this question wasn’t applicable to the sector they operate in. Many of those that did respond positively left a caveat — while it may help, it won’t be enough to make up the significant number of works that are required.
“It will help, but not at the previous levels nor at the levels required,” says Accordant Group chairman Simon Bennett.
Deloitte’s Thomas Pippos suggests: “Government needs to better allow the market to operate efficiently and only intervene when there is a (looming) market failure.”
Some, including the CEO of an architecture firm, says New Zealand’s relative lateness in opening up to the rest of the world has come too late — “even giving access now, we have missed vital timelines.”
“It remains to be seen if New Zealand’s overall proposition will compete with other countries,” says Foodstuffs North Island CEO Chris Quin.
Adds an environmental services boss: “Why would they come? Australia is more welcoming.”
Growth in automation investment
When asked whether they are investing in automation as a result of tight labour conditions, 68 per cent of respondents say they are. A further 27 per cent say they are not investing in automation, and 5 per cent are unsure.
The head of a large tech firm says the convergence of new technologies — including the Internet of Things, AI and 5G — is creating compelling new use cases for businesses of all sizes to automate parts of their operations, improve efficiency, and enhance the quality of decision-making.
“This is also supporting improved environmental performance through sustainability solutions,” they say. “Now is the time to invest behind these opportunities and encourage more rapid adoption.”
Business leaders are quick to point out that the heightened focus on automation is not necessarily down to the tight labour conditions, but instead is a long-term response to other factors.
“Not because of labour, but to increase efficiencies,” says Mainfreight CEO Don Braid.
A similar response from a tech boss, who has introduced automation into the business “more because we need to do formally manual tasks more efficiently in order to remain competitive in the market”.
From Tower Insurance CEO Blair Turnbull: “We have been investing in automation for a while now and this investment is increasing with the aim of delivering a better customer experience and efficiencies. It is not related to current labour conditions.”
Change the tax settings
A follow-on question asked whether Government should change the tax settings to accelerate investment in automation to lift productivity.
Two-thirds of respondents agree that this would be a good idea.
“This may be a good tool, but we need a suite of changes to raise productivity,” says Accordant’s Simon Bennett.
Just 15 per cent think there should be no change in tax settings, while the remaining 19 per cent are unsure. “I don’t believe in ‘targeted’ tax relief,” says the CEO of a large manufacturer.
A boss in the IT sector thinks that “accelerated depreciation isn’t needed to speed up investment in this area”.
Viewpoints
We’re extremely concerned about not having enough workers to cover the 2023 harvest. That’s despite doing everything we can to attract New Zealanders, providing competitive remuneration, flexibility, training, and career progression.
Low unemployment and the lack of people coming to New Zealand on Working Holiday Visas is exacerbating the issue. RSE workers are a valued part of our business and we would like to see their numbers increase.
The current rules restrict the tasks they are allowed to do and we would really like to see this broadened. Pressures on labour supply are far-reaching, from production through to our hospitality customers. This situation has been building for three years and the impact on our teams is compounding.
We realise this may be a long-term strategy but the need is now.
— Kevin Mapson
Pernod Ricard Winemakers NZ
‘Some of the salary packages being offered — like double their current salary — make it almost impossible to avoid churn’
— IT company chair
Mood of the Boardroom: Business confidence tumbles
Mood of the Boardroom: Business confidence tumbles
Respondents to the 2022 Herald’s CEO survey rated their optimism in the New Zealand economy at an average 1.86/5 — a fall from last year’s score of 2.70/5. This is on a scale where 1 equals much less optimistic, and 5 equals much more optimistic.
Though this is a significant drop in confidence, it is not as low as the record depths seen in the 2020 survey (1.36/5).
“My overall sense is that we are drifting as a country and not really moving forward, accepting it is worse elsewhere,” suggests Deloitte chair Thomas Pippos.
Roger Partridge, chair of the think tank The New Zealand Initiative, recognises threats to the economy abound at home and abroad. “Rising inflation, rising borrowing costs, skills shortages, transport bottlenecks and an increasing regulatory burden (especially labour market regulation) are all creating headwinds for business domestically,” he says.
“Internationally, the story is similar, and in some cases worse. Business is in for a buffeting.”
While the border is now fully open, CEOs consider New Zealand’s relative lateness in reconnecting and “moving on” from Covid has contributed to the confidence knock.
Harcourt’s managing director Bryan Thomson says though there are serious concerns worldwide, such as in Ukraine, “the rest of the world seems more advanced regarding Covid recovery.”
One real estate CEO says “New Zealand not opening our borders until just recently has had more effect than many predicted.”
“Despite the removal of divisive masks, mandates, vaccine passes and the overreaching Covid protection framework, New Zealanders remain unconnected,” explains Precinct Properties chair Craig Stobo. “Our cities are bereft of people.”
Some suggest New Zealand is not as prepared as the rest of the world to deal with current challenges and those on the horizon.
“There is a growing concern of looming recessionary times and that businesses offshore are starting to plan and prepare for this,” says MinterEllisonRuddWatts (MERW) chair Sarah Sinclair. “This puts greater pressure on the government programme in New Zealand to deliver.”
From Z Energy boss Mike Bennetts: “We have failed to progressively reduce or lessen the Covid-related economic stimulation and now face more severe interventions.”
Despite the pessimism, some respondents are optimistic.
“It is hard not to be optimistic about the NZ economy when you look at the years of Covid and the good export results we achieved,” says Auckland Business Chamber director Michael Barnett.
“We only need to focus on what we have done well and build on that in a world that has a demand for the quality products and services that New Zealand is associated with.”
Industry confidence mixed
As is typical in this survey, executives rated optimism in their own industry higher than in New Zealand or the global economy, with a weighted average of 2.70/5 (2021= 3.20/5).
But delving deeper, optimism varies wildly depending on the sector.
Business leaders among the most optimistic include those working in education (3.5/5), telecommunications (3.1/5), and agribusiness (2.8/5). “The primary sector and tourism position us to outperform global economic growth,” says independent director Jonathan Mason.
A tertiary education CEO says: “The opening of the borders is key for us, but is complicated by a buoyant labour market and high inflation which is not an optimal setting for an institution like ours.”
An energy director notes “in spite of the offshore oil and gas ban, the New Zealand energy/ electricity market is proving to be resilient and effective.”
At the other end of the scale, the least optimistic industries include entertainment and leisure (1.3/5), food and beverage (2.0/5) and retail (2.0/5).
A wine industry leader: “We will be relying on growth in export markets as opposed to domestic growth.”
Domestic concerns
The top domestic issues of concern are linked to the ongoing shortage of workers, with the pandemic severely disrupting the labour market.
CEOs are particularly concerned about skills and labour shortages, which scored 9.00/10 on a scale where 1= no concern and 10= extremely concerned. This was also the top-rated concern last year when it received an even higher score of 9.18/10. Closely tied to the worker shortage and skills gap is immigration. Current restrictions surrounding immigration saw this rated at 8.52/10.
But for the first time in two years, anxiety associated with Covid has fallen to the bottom of the domestic concern table. Concerns about further waves of Covid received a score of just 4.79/10. This compares to 8.38/10 in last year’s survey.
Kirsten Patterson, chief executive of the Institute of Directors, is optimistic about the Covid recovery, but less optimistic about inflationary pressures. “Overall that results in optimism levels for 2023 balancing out to the same or similar levels as 2022 — still some uncertain times ahead.”
Inflation and cost of living pressures are also a major headache, scored at 8.30/10.
“Inflation is hugely challenging, and we’re concerned about how this is flowing through to the cost of living for Kiwis,” says Tower Insurance CEO Blair Turnbull.
“We have a number of initiatives underway aimed at tackling inflation and we’re doing everything we can to stay competitive and keep costs down… but it is really tough right now and ultimately people are going to see it reflected in what they’re paying.”
Rounding out the top five domestic concerns are those related to the Government: the level and quality of government spending (8.51/10) and policy uncertainty (8.25/10).
“Government needs to control its spending, free up labour supply, stop imposing unnecessary costs on business, and fix the infrastructure to assist in improving productivity,” says a financial services CEO.
“Businesses can work through economic cycles, but they need to have confidence in the settings.”
MERW’s Sinclair notes “there is growing concern around the risk of change and the ‘NZ Inc’ risk this may create in relation to our attractiveness to much-needed offshore resources (expertise, capital and people).”
Infrastructure constraints, rated at 7.46/10, are also a major issue.
Beca executive chair David Carter suggests many of the substantive challenges New Zealand face, including around infrastructure, require investing now for the future.
“Consistency of long-term policy settings and pan-party agreement on key infrastructure spends is critical to providing confidence to commit.”
Other notable concerns include wage increases (7.57/10), labour productivity (7.43/10) and supply chain issues (7.36/10).
Survey respondents were asked to put forward other pressing concerns on domestic issues outside those polled. A senior professional director expressed deep concern over the nursing shortage: “This is causing a crisis — particularly in aged care, despite the Government maintaining a public position that all is fine.
“This is despite care facilities for the elderly being forced to reduce capacity and send residents to either the DHB (who has no capacity) or home to families who are ill-equipped to cope. The seriousness of the situation has not yet had a quality national conversation.”
Despite the significant concerns conveyed in the Mood of the Boardroom survey, Health NZ chair Rob Campbell suggests business might be over-egging the negativity in terms of optimism.
“I think that business response to media and interest group concerns of many topics exceeds their real-world concerns.”
Strahan Wallis – CEO Clemenger Group
“We are cautious about prospects for 2023 but also know that research shows the smartest organisations increase marketing spend in the hard times, during recessions or downturns.
Media spending has been up across most categories over the last 24 months as organisations get more out of their advertising assets. There is a pent-up need now for smart companies to create new brand campaigns that will ensure customer loyalty and a quick exit from any economic headwinds over the coming 18-24 months.
Chris Quin, CEO Foodstuffs North Island
We’ve gone straight from fighting Covid to fighting inflation. What worked through Covid was keeping things simple and focused on what really mattered: keeping our team and customers safe and keeping food on the shelf.
I’m optimistic that we’re doing the right things now to fight inflation for our customers: buying well, running as efficiently as possible, and keeping costs down. And the numbers show we are doing that.
What I’m less optimistic about this year is the widening gap between government and business when it comes to collaborating to identify the right problem and fix it. There’s growing concern that the Government is trying to do too much. Right now, for businesses like ours, that means adding uncertainty, cost and complexity.
Like we did through Covid, the Government and businesses are now fighting a common enemy of inflation.
With the cost of living, we need to maintain focus on what will actually fix that and deliver on it.
The next 12 months are going to be tough on New Zealanders, it’s a time when Government and business should be working closer together — not drifting further apart.
Agribusiness: CEOs of NZ's largest exporters to China talk strategy (NZ Herald)
Agribusiness: CEOs of NZ’s largest exporters to China talk strategy (NZ Herald)
Miles Hurrell
Miles Hurrell is chief executive of Fonterra, the world’s largest dairy exporter.
This year marks 50 years of diplomatic relations between New Zealand and China, a significant milestone in the relationship with our largest trading partner.
Fonterra CEO Miles Hurrell says the dairy co-operative also entered the China market 50 years ago and it continues to be a strategically important market, receiving around one-third of its milk.
The dairy giant’s strategy in China is to meet the growing need of customers and consumers for high-quality nutrition and provide premium dairy to its people both online and in-store.
“China is an important part of the global industry supply chain. Innovation, sustainability and efficiency have seen us succeed over the past 40 plus years and we firmly believe these will underpin our future growth,” Hurrell told the China Business Summit which took place earlier this month.
Despite some softening due to Covid-19, Fonterra continues to see firm demand in China in the medium to long term.
“In this current financial year, our ingredients business continues to benefit from strong demand and great margins — especially for proteins.”
There is a strong alignment between Fonterra’s key priorities and those of the Chinese Government. China has been actively pushing for its residents to increase dairy consumption, advising an intake of 300g per person. On the sustainability front, China has indicated bold plans to have its emissions peak before 2030 and ultimately achieve carbon neutrality before 2060.
“There are good examples of us working together on addressing these challenges,” says Hurrell.
“We were pleased to launch our carbon zero butter at the 2021 China International Import Expo and are working with customers in China to deliver sustainable solutions that contribute to their carbon reduction objectives.”
Hurrell says the farming systems that New Zealand operates — not just from a dairy perspective — put this country in a strong position from a sustainability perspective.
“Chinese consumers value what we produce here in New Zealand and the way that we produce it and care for our animals and our land. They are prepared to pay for that.”
Fonterra is not complacent and is focusing on product innovation in high-value, niche categories. It is also looking to grow its food service in China by entering more Tier 3 to Tier 5 cities.
Hurrell doesn’t expect sales volumes in China to grow beyond the current third of Fonterra’s exports. “I wouldn’t see our supply to China increasing, but I don’t see it falling away anytime soon either.”
He says that increasingly, more markets are understanding what New Zealand produces and the provenance story that goes with it.
“The rest of the world is starting to recognise the importance of what we do.”
Dan Mathieson
Zespri chief executive Dan Mathieson says relationships are critical to its success in China.
Zespri has been in China for 20 years, and it represents a significant market for the kiwifruit marketer — making up 25 per cent of total sales and one of its highest-returning markets.
“We have a very strong position in China with healthy, nutritious foods that their consumers want,” Zespri CEO Dan Mathieson told the summit.
In the early days of its relationship with China, Zespri operated from a distance and had no real understanding of the intricacies of the market. “Fast forward to today, we now have 100 people in China across all of the critical elements of partnership building, and that serves us in very good stead,” Mathieson says.
That partnership building includes a shift from Zespri being a “value taker” in the early years of the relationship, to now investing in China itself. “In the last decade we’ve really doubled down our focus on social contribution and trying to work in a sustainable way with our partners in China — and there’s a lot more of that to come.”
Mathieson says it is the strength of the relationships Zespri has in China that has enabled it to overcome challenges in recent years.
“We were nervous about engaging with Chinese officials and partners for a long time. We didn’t understand each other and tiptoed around issues. But we now understand that we want to have the upfront conversations. If you’ve got challenges, you need to put them on the table. You won’t always find an immediate solution, but at least you go away from that meeting with everyone thinking about the same challenges and trying to find solutions.”
After a small sample of its kiwifruit tested positive for Covid-19 during routine testing at a retailer in China, Zespri launched emergency management plans that included cooperating with relevant government agencies to trace the product shipment. “It was the relationships with our partners in China and with government agencies that alerted us to the issues quickly and gave us the space to respond and minimise disruption to our sales and reputational damage to the brand.”
Another significant challenge for the business has been the lockdowns in Shanghai.
Within six weeks, Zespri had to divert all its vessels from the Shanghai Port to another port a few hours down the coast. “Normally that does not happen — there is a lot of process and procedure to go through,” Mathieson says. “But the relationships we built up over nearly two decades helped us to move quickly and successfully import the same amount of kiwifruit.”
Mathieson says Zespri’s relationships will be essential to helping it continue to expand its sales in China in second, third and fourth-tier cities. It plans to double its current sales volumes by 2030 and expects online sales to expand from 30 per cent to 50 per cent.