The “Small business productivity: Trends, implications and strategies” report crunched data from more than 240,000 Xero small business customers and covered productivity across NZ, Australia and the UK over a seven-year period.
Productivity in New Zealand compared to A$100.30/hour ($109.70) in Australia and £38.80/hour ($81.50) in the UK as of December 2023.
New Zealand’s small business productivity had plunged to as low as $59.20/hour in April 2020 following the first lockdown a month earlier.
The report said compared to other countries, New Zealand recovered from the pandemic fairly quickly.
Its spike to $122.60/hour by late 2022 “likely reflects the skill shortages experienced at the time, which may have forced many existing workers to work harder”, the report said.
Xero country manager Bridget Snelling said the decline in productivity over the past 12 months has likely added pressure to the bottom lines of small businesses.
This has made it harder to lift staff wages and keep prices low for customers, she said.
“Small businesses have been doing it tough post-Covid, working long hours with less to show for it in an inflationary environment,” Snelling said.
“Improved productivity will not only help small businesses lift profits … but it will also strengthen the broader economy.”
Snelling said demand-side issues took over last year as higher interest rates slowed consumer demand in New Zealand.
And those pressures are unlikely to ease this year, with recent spending data highlighting the softness in the economy as Kiwis grapple with tight budgets.
Westpac senior economist Satish Ranchhod told the Herald last week they saw “spending appetites and economic activity generally crawling through the early part of this year”.
“I think we’re going to see households being cautious about their spending over the coming year,” he said.
The Productivity Commission, in its final report in February before being disestablished, warned New Zealand needed to prepare its economy to cope with more big supply shocks in the coming years.
The Improving Economic Resilience inquiry concluded New Zealand is “highly likely to experience more frequent supply chain disruptions due to an increasingly uncertain global environment”.
How to fix our productivity woes?
Snelling said one action small businesses can take to improve productivity is to digitalise.
“Insights developed by the New Zealand Institute of Economic Research show us that a 20 per cent increase in the number of businesses adopting cloud-based business tools in the future could add up to $7.8 billion to Aotearoa’s annual GDP through improved productivity,” she said.
“This signals that digitalisation is part of the solution to our productivity woes, and holds the potential to unlock benefits for small businesses.”
She called on the Government to do everything it can to support the digitalisation of the small business economy to turn New Zealand “into a world-leading digital nation”.
Snelling said small businesses could also boost their productivity by adopting better work tools to amplify the effort of employees.
“Another move is to upskill workers by investing in training and development. Lastly, small businesses can put a real focus on entrepreneurship - it’s not just the act of launching a successful business, it’s also important to optimise it by scaling up, rethink supply chains, and empower an entrepreneurial team.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports.
