“Small businesses have been doing it tough post-Covid, working long hours with less to show for it in an inflationary environment.
“With small businesses representing 97 per cent of all firms and a quarter of our national GDP, their productivity has a significant impact on our broader economy.”
New Zealand’s small business productivity growth last year trailed both Australia and the United Kingdom – also measured in the report.
National average productivity fell 2.5 per cent in Australia in 2023 when compared with 2022, while the UK’s national average declined 2.9 per cent.
“Previous Xero research in this area suggests that stricter pandemic lockdowns, and slower generation and dispersion of innovation or new technologies could be contributing to this decline,” Snelling said.
“Recent research by New Zealand Treasury notes that New Zealand has also been more affected by worldwide uncertainties such as wars and related supply chain issues than other countries.”
Despite this, New Zealand still recorded a national average productivity of sales per hour worked in 2023 of $102.40, compared with Australia’s A$100.30/hour (NZ$107.54) and the UK’s £39.50/hour (NZ$81.90).
Looking closer at the local industry data, Snelling said hospitality’s underperforming productivity is bleak news for the struggling industry.
Hospitality had the lowest productivity of the eight industries tracked by XSBI, generating only $14.30/hour. This was well behind the next lowest which was ‘other services’ recording $95.50/hour.
Snelling said New Zealand’s hospitality workforce has a higher proportion (around 30 per cent) of short-term and temporary migrant workers than Australia (around 15 per cent) and the UK (around 16 per cent).
“This makes it harder for New Zealand small businesses to train and retain staff than in the other two countries,” she said.
Five industries had higher productivity than the national average last year with real estate services leading the way at $125.20/hour.
Meanwhile, all major urban centres recorded negative labour productivity growth in 2023 when compared with 2022.
Five regions performed better than the national average – Otago (-3.2 per cent), Hawke’s Bay (-3.8 per cent), Northland (-4 per cent), Auckland (-4.9 per cent) and Wellington (-5.9 per cent).
The Waikato region had the biggest decline in productivity (-7.9 per cent), followed by Canterbury (-7.5 per cent), Bay of Plenty (-7.2 per cent), Taranaki (-6.7 per cent) and Manawatū-Whanganui (-6.2 per cent).
“We should pay particular attention to the productivity decline recorded in Auckland - our largest city. It accounts for 38 per cent of the New Zealand economy, making it a concerning barometer for the country’s overall economic outlook,” Snelling said.
Northland led all regions in “post-pandemic” (Jan 2022 to Dec 2023) productivity growth (+5.8 per cent) when compared with the measured pre-pandemic period (Jan 2017 to Feb 2020).
“Those interested in regional development should be paying attention to what’s going on in Northland as a case study that could benefit other regions,” Snelling said.
“We know the pandemic acted as a catalyst for small businesses’ adoption of technology. It’s likely this encouraged rural small businesses to embrace technology more than before, allowing them to catch up to urban-based small businesses.”
Post-pandemic productivity growth was also seen in Waikato (+4.5 per cent) and the Otago and Hawke’s Bay regions (+1.9 per cent).
Meanwhile, Auckland’s post-pandemic productivity fell 1.2 per cent. Canterbury also declined 2.2 per cent and Wellington was down 6.7 per cent.
“When considering why Auckland’s productivity performance has declined in recent years, the city’s prolonged pandemic lockdown periods may be a contributing factor,” Snelling said.
“Rural regions such as Northland experienced shorter pandemic lockdowns compared to the likes of Auckland, which has very likely had an impact on productivity differences between the two regions.”
Earlier this year, Stats NZ figures showed that overall productivity in New Zealand had been steadily declining since 1997-2000.
Its labour productivity index rose by an average of 0.2 per cent a year between the 2019 and 2023 financial years. This compared to labour productivity increasing by an average of 2.8 per cent a year between 1997 and 2000.
Snelling said improved productivity not only helps small businesses lift profits, but also empowers them to pay higher wages and lower their prices.
“[This] ladders up to strengthening the broader economy,” she said.
“It will be a serious concern if their productivity continues to decline, as many small businesses will suffer and our economy will lag behind our international counterparts.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
