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.

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Mood of the Boardroom: Business leaders weigh in on Auckland mayoral candidates

Wayne Brown is, by far, the best candidate to become Auckland’s next mayor in the eyes of business.

When asked in the Herald’s Mood of the Boardroom survey which of the top polling candidates of New Zealand’s commercial city has the best attributes to become an effective Mayor of Auckland, 51 per cent plumped for businessman Brown.

“I have been on a board chaired by Wayne Brown,” says one professional director. “He is the kind of no-nonsense person who would cut through many of Auckland’s problems assuming he has at least some support around the council table.”

Brown is regarded as a disruptive player who will get things done.

He is a former mayor of the Far North District Council, serving two terms before being tossed out at the 2013 local elections.

He has chaired Auckland DHB and led a suite of other large organisations with a turnover of more than $1 billion, been a director or chair of various Crown-owned companies and recently led the North Island Supply Chain review for the Labour-NZ First Coalition Government, which recommended shifting Auckland’s port to Northland. A top chairperson suggests he is a “cantankerous man” and will bully his way to ensure things get done — noting that “three years will be enough!”

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: View on government moves in banking and supermarkets 

When asked in the Herald’s Mood of the Boardroom survey about the Government buying back Kiwibank to keep it fully locally owned, only 22 per cent of CEOs agree that it was the right thing to do.

“Yes, I support the move,” says the head of a corporate advisory firm. “Although a state-owned enterprise/partial float scenario would have been good for capital markets and improved the bank’s ability to access capital for growth.”

While the head of a professional services firm disagreed with the premise of the question, noting that reporting has been misleading: “They have not bought it back – it was owned by the Crown, and is still owned by the Crown!”

Last month, the Government announced that it would acquire 100 per cent of Kiwibank’s parent company Kiwi Group Holdings (KGH) for $2.1 billion from state-owned shareholders, subject to regulatory approvals from the Reserve Bank.

KGH is 53 per cent owned by New Zealand Post, 25 per cent by the New Zealand Superannuation Fund, and 22 per cent by the Accident Compensation Corporation.

Finance Minister Grant Robertson said that an ongoing shareholding in Kiwibank did not fit NZ Post’s and ACC’s long-term strategic and investment plans.

NZ Super Fund had been interested in purchasing a majority shareholding in KGH, but it withdrew its interest as it did not align with the Government’s commitment to public and New Zealand ownership.

At the time of the announcement, Kiwibank chief executive Steve Jurkovich said the acquisition would enable Kiwibank to continue to deliver on its growth ambitions and have even more impact for its people, customers, and Aotearoa.

“We look forward to working constructively with the Government under our new ownership structure to deliver on our purpose: Kiwi making Kiwi better off,” he said.

When announcing the acquisition, Robertson stressed that the Government is fully committed to supporting the bank to be a genuine competitor in the banking industry, “ensuring the bank has access to capital to continue to grow on a commercially sustainable basis and offer a viable and competitive alternative for New Zealanders”.

But almost two-thirds of survey respondents – some 63 per cent – say they disagree with the move, with the remaining 15 per cent unsure.

Despite Robertson’s reassurance, many are wary that Kiwibank will struggle to get the capital it needs to be successful.

“Look at its cost-to-income ratio, it is a very poor investment that will require much more taxpayer support,” says a banking boss. “The Government won’t have the appetite to invest the capital needed to transform Kiwibank so that it can compete with the Aussie banks.”

From a tech chair: “The mixed ownership model has worked so well. Floating 49 per cent of Kiwibank and applying the discipline of the investment community while giving the bank increased capital would have been awesome.”

“The Government is paranoid about foreign ownership… or thinks that the public is,” says a chair in the banking sector.

Mood of the Boardroom: Christopher Luxon breathes new life into the party

National party leader Christopher Luxon, a former chief executive of Air NZ and of Unilever Canada, brings a business focus to politics. MPs are measured by KPIs and New Zealand business leaders say his focus on discipline is an important skill set for the current environment.

In the 2022 Mood of the Boardroom CEOs survey, respondents were asked to rate Luxon’s performance as Opposition leader, by holding the Government to account on critical national issues, on a scale where 1= not impressive and 5= very impressive.

He received a score of 3.24/5; 6 per cent of respondents gave Luxon a “very impressive” score. The majority (70 per cent) rated him at 3 or 4/5.

Luxon took over as leader of National after just a year in Parliament when Judith Collins was toppled amid poor polling and a chaotic move to demote political rival Simon Bridges. In last year’s survey, her rating was a mere 2.06/5.

Luxon’s rise coincides with a time when the gloss is coming off the Labour Government.

Recent opinion polls show National and Labour neck and neck. The latest Taxpayers’ Union-Curia poll, released last week, had National and Act able to form a government.

National was up 3 points on last month’s poll to 37 per cent and Act up 1 point to 12 per cent.

Mood of the Boardroom: What about that surplus, Grant?

Getting the Government’s books back into the black should be a higher priority, according to a clear majority of chief executives.

When asked about the Government’s plan to return to surplus and stabilise and reduce net core Crown debt, 58 per cent say this should be a higher priority for the Government.

Just over one third, 37 per cent, say the priority on returning to surplus and reducing net core Crown debt is about right. A further 5 per cent think it should be a lesser priority.

Many respondents to the Mood of the Boardroom survey expressed dismay at the current level of spending and want to see a more prudent approach.

“This should be done by stopping bad policy, silly centralisations that deliver no gains and wasteful spending,” said a top infrastructure boss.

Others concur: “Mainly through controlled and targeted spending, and living within our means,” said a utilities boss.

“Should be largely derived by reducing Government spending,” added a CEO in logistics.

“The issue is less about the need to reduce core Crown debt than to reduce fiscal stimulus, to take pressure off monetary policy,” said a banking chair.

There is a cohort of business leaders who are less concerned with the amount being spent, but rather over what it is being spent on.

“The TVNZ/RNZ merger seems a complete indulgence in the current environment,” said one CEO.

“No one can seem to articulate the problem they are trying to fix.”

Notes Precinct Property chair Craig Stobo: “We know that the problem lies with ministerial acuity and leadership when the Office of the Auditor-General criticises the methodology of tourism support during Covid, and the accountability of the proposed Three Waters reforms, and when Treasury advice on the $350 cost of living spray is ignored”.
Concern over the efficacy of spend CEOs also have heightened concerns about the efficacy of Government spending.

A significant 85 per cent of respondents say they are more concerned now than they have been previously in this regard.

“Government seems to be spending an astronomical amount of money to deliver an appallingly low level of outcome,” said a top logistics CEO.

From a design firm boss: “Huge amount of cash, huge amount of no KPIs.”

Mainfreight group managing director Don Braid: “The tax dollars being collected are being wasted on the funding of the bureaucracy and the consultants”.

Some 14 per cent of respondents say they have a similar level of concern over the efficacy of Government spending as they have had in the past. Just 1 per cent say their level of concern is reduced compared to previously.

Finance Minister Grant Robertson has said that from a fiscal perspective, the Covid emergency is now over.

“At a broad level, my focus will continue to be on making sure New Zealand maintains responsible debt levels, and ensuring our path back to surplus.”

Robertson has made it clear that upcoming “tough choices” will not include austerity cuts to spending.

But there is concern that the extent to which spending is reined in will be limited, given the imminent general election next year.

“I believe the fiscal policy will be expansionary in 2023… which will be a headwind for monetary policy,” says Stobo.

Mood of the Boardroom: Act passes the credibility test

Mood of the Boardroom: Act passes the credibility test

CEOs are impressed with the Act Party, in particular with Act leader David Seymour and his ability to tackle topics that other parties deflect away from.

Seymour received the highest score from CEOs among minor political party leaders in the Herald’s Mood of the Boardroom survey, scoring 4.08 on a scale where 1 equals not impressive and 5 equals very impressive.

When asked if Act provides a more credible opposition to the Government than other parties, 46 per cent responded yes.

A further 44 per cent said no, and 10 per cent were unsure.

“David Seymour is an exemplary Opposition politician,” says one economist. “He combines political convictions with an understanding of policy development, and compared to Christopher Luxon — and despite Luxon’s business pedigree — Seymour is the far more experienced political leader.”

Seymour leads a 10-strong team in Parliament noted for its discipline and cohesiveness.

At their annual conference in July, he released a “laundry list of reversals” that the party would strive to achieve in the first 100 days of a new Government which included Act.

Mood of the Boardroom: Co-governance shouldn’t be a political football

Mood of the Boardroom: Co-governance shouldn’t be a political football

The way that debate has played out is reflective of something that I am increasingly concerned about in New Zealand: a developing division in the political discourse that is artificially divided in a way similar to what we have seen play out recently overseas.

Top law firm boss Hayden Wilson says that co-governance, in a legal sense, is not a new concept, and while it is sensible to discuss appropriate governance models for the public sector, he is concerned about the way it is being latched on to as a rhetorical tool in political debate.

Ongoing water and health reforms have seen co-governance make headlines recently.

Local Government Minister Nanaia Mahuta says that co-governance is about the Crown meeting treaty obligations and maintaining relationships between councils and mana whenua.

But National Party leader Christopher Luxon believes New Zealanders don’t have a good idea of what it means, and suggests the Government needs to set out clear guidelines on what is and what is not included for constitutional issues such as co-governance.

Wilson, who chairs Dentons Kensington Swan and is a member of Dentons’ global board of directors, says New Zealand’s government exists as a result of a treaty partnership, and governance models that seek to reflect that relationship with Māori and provide for a more inclusive decision-making, can only be a good thing.

“Co-governance is a product of New Zealand’s unique place in the world and our unique arrangements,” he says, noting it offers a real opportunity for something that is different, more effective, and truly New Zealand.