Is the lack of business confidence real, or a political construct? James Penn reports.
The conundrum at the heart of the Kiwi economy right now is this: despite the highest level of quarterly growth seen in the past two years, business confidence continues to sink.
In this year's Mood of the Boardroom survey, executives' optimism about the New Zealand economy compared to a year ago, as measured on a scale of 1 (meaning "much less optimistic") to 5 ("much more optimistic") fell to 2.2. That compared with an average of 3.07 last year.
When it comes to the business situation relating to their own industry, executives are also pessimistic, relatively speaking: an average rating of 2.65 this year versus 3.41 in 2017.
Though those figures may be out of step with the economic growth figures, the conundrum — and its importance — grows, considering the potential to spread to consumer confidence, and therefore underlying economic activity.
For business, the chief concern is uncertainty. Asked to rate their level of concern regarding various domestic factors and their impact on their own industry, "general uncertainty about the impact and direction of current Government policies" came out top.
The rest of the top five ranking factors arguably all cement uncertainty too: skills and labour shortages, regulation, employment law changes, and transport infrastructure.
Craig Stobo, chairman of the Local Government Funding Agency, points to the MMP environment as the root of much of the policy uncertainty shrouding business confidence.
"The multiplicity of Government reviews has been driven by a lack of election policy preparedness, which is understandable in an MMP environment," says Stobo. "What is not understandable is the subsequent sudden decision on mining and drilling without prior public consultation or an equivalent review. Potential further policy uncertainty makes it harder for businesses to hire and invest."
Others agreed, with NZ First a particular target of frustration.
"The Government is trying to forge a better understanding with the business sector but they keep doing things that make us nervous," declares an agribusiness boss.
"Shane Jones is a confidence 'wrecking ball' and there seems to be a NZ First dominance in the coalition."
"A lot of new ministers, who have a low understanding of what matters to business. A lot of changes without consultation, and doctrinaire thinking."
Another executive, this one from the financial sector, cited NZ First's involvement in economic policy as key, among broader concerns about the country's economic direction.
"The Government seems hell bent on smooth talking — especially Robertson, Hipkins and Ardern — whilst quietly reducing the economic well-being of New Zealand," says the banking executive.
"NZ First's 'bribe' to be in government is delivering the worst possible investment decisions — based on vote-buying and self interest rather than rational analysis. The lack of commercial judgement in government is deeply concerning."
However, others were more positive.
Ross Buckley, chair of "big four" accounting and professional services firm KPMG, says they observe strong performance.
"Big four firms are a good barometer of the economy. There are many sectors that we are working with that are performing well, including Food & Agri and Financial Services, and many of the underlying business fundamentals are solid."
"We remain positive about New Zealand's economy and the role we play in it," says Don Braid, CEO of Mainfreight. "We are unsure where the pessimism is coming from in other quarters — perhaps it is the politicisation of business."
This reflects a broader debate around business confidence surveys, with some arguing that responses are driven more by political leanings than by underlying business confidence.
Indeed, 48 per cent of executives say they expect to authorise more capital expenditure over the coming year (18 per cent say they expect to authorise less, and 34 per cent will hold levels constant).
A majority expect revenue growth (68 per cent) and profit growth (58 per cent).
But should planned policy changes come to fruition, these numbers could fall. Most significant among those changes is the Employment Relations Amendment Bill.
"While we are comfortable about our own business prospects over the coming year, we have significant concerns around the proposed Employment Relations Bill," says Mark Cairns, CEO of the Port of Tauranga.
"We don't have a problem with collective bargaining (we have five collective agreements) or unionism (we consider that we have productive working relationships with the three unions that we deal with). We do have significant concerns about not being able to opt out of Multi-Employer Collective Agreements (MECA)," he explains.
"Under a MECA environment, industrial action at one port means it is likely that all ports in New Zealand would close (two ports have been closed due to strike action this last year). With more than 40 per cent of New Zealand's exports routed through Port of Tauranga, this would be a disastrous outcome for our economy."
"Inevitably, the proposed changes in employment law will have or already have been factored in to business expectations," says David Mair, CEO of Skellerup Holdings. "Where they can, companies will capitalise labour (machines vs people); or simply move products and processes offshore. As usual, the Government is focused on employment, but the
number of unemployed will grow."
Says the CEO of a construction firm: "The current Government is naive about how the decisions they make affect the decision-making process of CEOs. They tend to tell rather than listen and, to be frank, they haven't got much of a clue on the way the economy works.
"Business copes, that's our job, but we are dealing in a bit of a fog."
The fog is thickened by question marks over the adequacy of transport infrastructure and New Zealand's labour market, too.
Many of these challenges — employment legislation, skills, infrastructure, and productivity — are inter-related, as reflected in one agribusiness leader's comments:
"We need better regional infrastructure. Productivity is held back by clogged roads. We want to grow and employ more people, but there is a shortage of the skills we are looking for. And we don't really want to take a chance employing new people we may be unsure about because it looks like it will be much more difficult to sort out."
A shipping boss concurred: "The issue of transport infrastructure is one of great concern. The negative impacts of reducing productivity and congestion are ones that can limit NZ's ability to grow.
"Looking at the future is easy enough to do — but creating a plan to deal with the task and ensure future success and sustainability is key. We are simply moving too slowly."
"Auckland congestion is a major drag on productivity and quality of life," said Tom Nickels, managing director of Waste Management. "AT and NZTA need to prioritise investment in road and heavy rail to support the forecast growth in Auckland; if not, the adverse impact on the ability to move goods and services and flow-on effects will be intolerable. PPPs and tollways should be considered."
For other executives, such as Anna Curzon, chief partner officer at Xero, the challenge is one of long term vision.
"More clarity of vision needs to be given to the type of nation we want to be. We need to be laser-focused on the things we want to be world class at, given our challenges," she argues. "Like encouraging more remote workers and learners and providing the IT infrastructure to make this happen (i.e. in a bid to ease congestion and increase productivity).
"This requires big picture thinking across not just capital investment but also designing for the future of work."
Sam Stubbs, managing director at Simplicity, sees cause for optimism outside the political arena entirely — and believes New Zealand is "about to have our Singapore moment."
"New Zealand business is underestimating the impact of KiwiSaver capital flows, which will inject $75b into the local economy over the next 12 years," he explains. "It's a rising tide of savings, investing every week, and looking for long term investments, including infrastructure. It's domestic savings and de-politicised.
"NZ has never in its history seen such a large amount of domestic investment capital that wasn't government debt or highly leveraged and speculative."
Though most bemoan the uncertainty, one industry will see opportunity.
"Good legal advice becomes all the more important in time of economic turbulence, and regulatory change," says Lloyd Kavanagh, chair of law firm MinterEllisonRuddWatts. "We expect both in the next 12 months."