Confidence slipping in small business community

New Zealand small businesses are less optimistic about the future. Photo / 123RF

New Zealand small businesses are less optimistic about the future as successive years of robust economic growth appear to have peaked, although the big end of town still has grand aspirations, according to a Westpac Banking Corp survey.

About 41 per cent of small and medium-sized firms feel confident business conditions will improve a little or a lot, compared to 52 per cent in 2015, and 31 per cent plan to expand in coming years, down from 36 per cent three years earlier, the Westpac Grow NZ survey found.

The bank surveyed 1,269 business owners and senior managers and included big businesses for the first time, which was far more eager to expand with 69 per cent planning for growth.

"This time, reports of positive growth were higher than ever before, however, expectations that business conditions would improve have tapered off," Westpac New Zealand chief executive David McLean said in a statement.

"That thinking is consistent with the view of Westpac economists, who believe we are now past the peak of the business cycle."

The survey echoes other business confidence measures, which have shown firms have become gloomier since the formation of the Labour-led government, despite activity indicators remaining upbeat.

The Westpac survey showed 35 per cent of firms experienced positive growth in recent years, compared to 34 per cent in 2015, while at the other end, just 2 per cent were really struggling, compared to 4 per cent.

McLean said a big barrier for SMEs to expand was maintaining a work-life balance, with 22 per cent saying it was a barrier to growth, followed by 10 per cent saying a lack of funds, a 9 per cent saying a lack of qualified staff, increased costs or retirement.

The top obstacles for big business was a lack of qualified staff at 21 per cent, followed by increased competition at 19 per cent, the current state of the market at 12 percent, and taxes or the need for technology each at 7 per cent.

Small firms keen to grow were more included to develop new products, increase sales and marketing, upskill or train staff, or take on more employees.

The small end of town has underpinned New Zealand's jobs growth over the past year, with SME employment rising 8-to-10 per cent compared to the nationwide pace of 3.1 per cent. SMEs account for about a third of the country's 2.62 million-strong labour force while accounting for about a quarter of economic activity.

"Difficulty finding labour has emerged as a major constraint on business, with the unemployment rate now at a nine-year low," McLean said. "What we're seeing in the survey results is that businesses want to hold on to the good people they've got and invest in their professional growth."

The split between small and big business showed on plans for firms to innovate, with 30 per cent of SMEs building innovation into their business plans and 14 per cent limiting a percentage spend to research and development, compared to 49 per cent and 21 per cent for large firms. Some 41 per cent of SMEs undertake innovation on an ad hoc basis and 17 per cent said they did none, compared to 37 per cent and 5 per cent among big business.

Large firms were also more positive about automation, with 63 per cent upbeat about how it will affect its business over the next five years and 55 per cent saying it's likely they'll automate part of their activities, compared to 35 per cent of SMEs optimistic about the impact of automation and 24 per cent expecting to adopt it.

The government plans to build on its Future of Work work in opposition with a tripartite forum with workers and business to prepare for the changing nature of labour in coming decades and has tasked the Productivity Commission to hold an inquiry into the issue in the upcoming financial year.

Automation and artificial intelligence attract strident critics and defenders, with some fearing mass displacement of workers while others see opportunities for higher-skilled and creative work.

An International Monetary Fund working paper by Andrew Berg, Edward F. Buffie, and Luis-Felipe Zanna and published this week analysed the implications for inequality and output based on three scenarios: robots do everything, robots cannot do everything, and robots do not substitute for skilled labour.

The IMF paper said this technological shift might be different to previous transformations, with robots close substitutes for humans and likely to attract capital reinvestment, reducing the attraction of human labour, which was "very good for output" and also "very bad for distribution". That basic premise held across all three scenarios, as workers forced out of automated industries competed in other sectors which would drive down those wages.

The report concludes the only way to avoid increased inequality is if robots do a small number of tasks, make a limited contribution to economic output, or are found to be poor substitutes for humans.

The authors see three workstreams as being a high priority: discussing the policy response such as investing in education to upskill workers, introducing a universal basic income, or taxing capital; deeper examination of countries on the technological frontier such as the US to see whether experienced flat wages can be explained by their framework; and what the implications are global workforces in developing nations.