When Covid-19 hit New Zealand, Jacinda Ardern’s government quickly closed the nation’s borders and imposed one of the strictest bans in the world to prevent the virus from spreading.
The decision in late March threw businesses into crisis, forcing many to make radical strategic changes in order to survive. Air New Zealand was an early victim and required a NZ $ 900 million (US $ 610.4 million) bailout from Wellington.
But with most of the restrictions now removed and the virus appearing to be under control, business confidence is returning. Many business leaders – in industries from tourism to agriculture – hope that Wellington’s decision to prioritize health over keeping the economy open will prove fruitful in the long run.
“One thing most companies haven’t seen in Covid-19 is running out of cash or liquidity problems,” said Mark Hiddleston, head of trade and agriculture at lender ANZ New Zealand.
Fonterra, the world’s largest exporter of dairy products, is benefiting from strong demand in China despite the pandemic. © Brendon O’Hagan / Bloomberg
Mr. Hiddleston attributed this in part to decisions by the New Zealand Central Bank and the New Zealand Treasury Department to rapidly implement rate cuts and a wage subsidy system.
New Zealand, like many other large economies, is in recession. The gross domestic product shrank by a record 12.2 percent in the second quarter. However, unemployment remained low at an official rate of just 5.3 percent in September, while a projected increase in corporate bankruptcies has not occurred.
Business confidence rises. A Bloomberg poll of 700 global business executives in October ranked New Zealand as the best nation to weather the pandemic and the market in which they would be safest to invest.
IMF projections suggest that the decision to put a strict lockdown ahead of schedule could pay off. While New Zealand’s economy is expected to shrink 6.1 percent this year – worse than the US but better than the UK – it could grow 4.4 percent faster than any of those nations next year.
“New Zealand is looking relatively better because extinction, as we call it, has allowed our economy to return to a new normal,” said Mike Bennetts, general manager of Z Energy, a fuel distributor with nearly 400 gas stations and truck stops. “Most companies are open and able to operate without strict social distancing rules, even if the borders remain closed.”
Mr Bennetts was among business leaders advocating a quick and tough lockdown before the spread of Covid-19 in New Zealand had a chance to hit the severity of the hardest-hit nations like Italy.
Despite the initial impact of Covid-19, the demand for dairy products in China has recovered quickly
When Wellington rolled out its toughest lockdown measures, which included severe restrictions on movement, on March 25, demand for fuel fell 85 percent. This forced Z Energy to raise NZ $ 350 million to strengthen its balance sheet.
However, the demand for fuel outside of the aviation sector has recovered almost entirely after the economy reopened. “In retrospect, you could argue that [the capital raise] wasn’t really needed, ”said Mr. Bennetts.
Some large New Zealand companies are benefiting from a recovery in other economies that has also closed prematurely.
Fonterra, the world’s largest milk exporter, raised its milk price forecast for 2021 by more than 6 percent in October due to strong demand from China. This could provide an additional NZ $ 10 billion for New Zealand farmers selling to the group.
“Despite the initial impact of Covid-19, the demand for dairy products in China has recovered quickly,” said Miles Hurrell, CEO of Fonterra.
The prices of New Zealand’s other major agricultural exports – beef, lamb, and fruit and vegetables – have remained unchanged, supporting an industry that contributes around 5 percent of GDP. A major challenge for the sector is to find enough workers to pick fruit during the upcoming harvest.
Coronavirus has also helped boost profits for health and technology companies. Fisher & Paykel Healthcare, a manufacturer of NZ $ 20 billion in respiratory products to treat Covid-19, announced that its profits could increase by up to a third through March 2021 due to the pandemic.
Shares in Xero, a Wellington-based small business accounting software platform, have doubled since Ms. Ardern ordered her statewide lockdown as business is booming.
Parts of New Zealand’s major tourism industry that relies on foreign visitors have also adapted, although the country’s borders remain closed.
New Zealand Prime Minister Jacinda Ardern arrives for a meeting with her MPs in parliament after a landslide election victory in October. © AFP via Getty Images
“It was pretty dramatic because we immediately saw 90 percent of New Zealand’s business disappear overnight,” said Grant Webster, general manager of Tourism Holdings Limited, one of the largest RV manufacturers in New Zealand, Australia and the United States.
This prompted Mr Webster to focus on local tourists and focus on new sources of income, such as providing RVs to residents returning to quarantine from overseas.
The group’s total sales increased 73 percent year over year between April and August, helping cut net debt by nearly half. Tourism Holdings’ share price has rebounded 325 percent since March.
But not all tourism companies have the flexibility to carry out this type of transformation.
Air New Zealand lost NZ $ 454 million in the year to June and lost 4,000 jobs. According to analysts, it burns between NZ $ 65 and NZ $ 85 per month per month and is expected to need to raise new equity by mid-2021.
“The airline is likely to be loss making and is in a position where money will be burned until the borders are reopened,” said Andy Bowley, director of research at Forsyth Barr. A planned travel bubble with Australia could help it rebalance, he added. Industry groups have asked the government to relax the border rules for visitors from countries classified as low risk with regard to Covid-19.
However, some fear that Wellington’s generosity in the form of wage subsidies and regulations protecting directors from prosecution for the trade while the bankruptcy – both expired in September – may have delayed a major crisis for the country’s corporate sector.
The danger is that if these companies collapse, they could drag other companies with them
Bankruptcy experts warn that a surge in bankruptcies is inevitable. Creditors are expected to begin enforcing debt payments in the coming months.
“In the recession there is a disconnection from the economy and few bankruptcies. The concern is that there are still zombie companies that would have failed under normal circumstances, ”said Karen McWilliams of Chartered Accountants Australia & New Zealand.
“The danger is that if these companies collapse, they could drag other companies with them.”
However, some executives say that New Zealand’s apparent success in eradicating community transmission of Covid-19 – an accomplishment that few other countries have achieved – leaves it well-positioned to benefit from a global economic recovery.
The country has seen a surge in professional New Zealanders returning home from their overseas jobs during the pandemic, and some believe that more foreign investors and skilled workers may be tempted to follow suit when international borders finally reopen.
“If you’re a Kiwi working for Apple in New York, for example, and have the option of moving back to New Zealand to live while you keep your job, that’s a compelling proposition,” said Justin Murray, chairman of the investment bank , Murray & Co. “The main problem here is more government policy. How will the New Zealand government use success in eliminating Covid to help our economy? “