KEY POINTS:
It won't happen overnight but within 10 to 15 years small and medium-sized NZ businesses should start finding it cheaper to raise money for expansion.
Why? KiwiSaver, or so say those keenly anticipating the day when billions of dollars are sitting in New Zealanders' superannuation accounts looking for
a home.
Much of the KiwiSaver focus for smaller businesses has been on the Government's requirement that employers must start matching their workers' super contributions within four years. But the cumulative effect of superannuation savings building up in KiwiSaver accounts could mean that finding money and investors to expand the business becomes a lot easier, say economists.
Rozanna Wozniak, chief economist at Arcus Investment Management, thinks that in time, smaller NZ businesses should be able to reap some of the wider economic benefits brought about by KiwiSaver.
Wozniak says deeper, "more liquid" capital markets tend to offer a lower cost of capital to business. The more money is in the investment funds, the more also eventually finds its way into so-called "non-traditional investments", which include venture capital and infrastructure investment.
Despite large sums of KiwiSaver money inevitably heading offshore into overseas stock markets, fund managers still have a "home bias", meaning a lot will end up being invested here in NZ.
The funds management business in NZ has been constrained by a lack of money coming into it, says Wozniak, since many Kiwis have invested in real estate.
Greater amounts of money being invested in the local stock exchange could mean an increase in the number of local companies that will choose to float.
Political opposition to private money being invested in infrastructure projects may diminish too, since there would be a greater pool of New Zealanders' money able to be used in private-public partnerships.
Dr David Chessell, director and co-founder of Access Economics in Australia, has looked into the effect on the economy of the trillion dollars in local superannuation funds. In a speech given last year called "Is superannuation the 800-pound gorilla of the Australian capital markets?", he pointed out that a quarter of the total market capitalisation of the ASX - $300 billion - had been invested by superannuation funds.
One of the feared effects a compulsory system of savings in Australian was that people would start cutting back on "non-super" savings. Studies by the ASX had shown that the proportion of adults with share portfolios outside their super funds, and the value of these portfolios had grown, not fallen with compulsory super.
Michael Littlewood, a leading Kiwi-Saver sceptic and a director of the retirement policy and research centre based at the University of Auckland's business school, says he does not think the trustees running big Kiwi-Saver funds will start investing in small NZ businesses.
"They don't do it now and they won't do it in the future," he says. "They are not appropriate investments for large 'trusteed' pools. Nobody is going to invest a superannuation fund in a corner dairy."
"There will be a lot more money in the NZ superannuation funds. Will households be wealthier? Possibly, not necessarily, because households will change their behaviour." Littlewood says he does not think the introduction of KiwiSaver will mean much change in the "overall balance sheet" of NZ households - merely a "re-arrangement" of things.
Commerce Minister and Minister of Small Business Lianne Dalziel, speaking to a business audience in Rotorua last week, admitted there would be an outlay for businesses first dealing with KiwiSaver.
"There is going to be a cost but the benefits far outweigh it, not just for the individuals who save more for their retirement but also for the New Zealand business environment, due to the flow-on effect of the greater availability of investment finance."
David Skilling, chief executive of the New Zealand Institute think tank, backs up the theory a rise in the "pool of local capital" should make raising capital easier for local businesses.
He says: "If you look across the Tasman to Australia you've seen significantly expanded availability of capital to finance firm growth.
"Particularly for NZ, given we've got lots of small to medium-sized firms, having more local capital will help those guys out a lot." This could mean local entrepreneurs having to rely less on debt financing - which in New Zealand often means taking out a mortgage on the house.
To the extent that we save more, the 'risk premium' on borrowing in New Zealand should reduce, says Skilling. "This won't happen overnight, but going forward 10 to 15 years you can assume that uptake in KiwiSaver is what people hope, then you can see the cost of capital coming off.
"In terms of the environment that allows firms to grow. That, I think, will become a lot more conducive and will provide a small or medium-sized business wanting to expand."
Skilling says international lenders want to be compensated for the risk taken when they invest in NZ. "If you're lending to a highly indebted person or country you want to be compensated for the increased risk. If you add the fact we're heavily exposed internationally, and the fact you're exposed to movements in the NZ dollar, that creates a risk premium."
Philip Houghton-Brown, chief investment officer at ING New Zealand, a KiwiSaver default provider, says the "home bias" seen by Australian investment funds is greater than that in NZ, where investment funds typically put between 10 and 20 per cent of their portfolios in local equities and 30-40 per cent offshore. Australian funds put between 35 and 50 per cent into Australian shares.
He says that already NZ funds, such as those managed by ING, are already moving into more alternative investments, such as venture capital and private equity.