We’re now just past the halfway mark for the Level Four lockdown and things continue to change and evolve. From the support package offered, to the impact on businesses and communities, and what this will all mean for our short to medium and long-term future, there are many uncertainties.
Right now though, CEDA’s priority is to continue focusing on supporting businesses, as well as working with local councils and other regional and national stakeholders to plan for recovery.
Every day we’re seeing and hearing the challenges our business community are facing, and once this crisis is over, it is unlikely that things will return to how they were before. Some businesses may not survive the fall-out, and if they do, full recovery will take time.
Over the past few weeks, I have been buoyed by the response from Government, and the agility of which this has been applied.
A recent OECD report shows the economic impact to New Zealand to be an initial drop of almost 30% activity, however it does not take into account mitigating factors. To counteract the economic effects of COVID-19, Central Government has rolled out a number of packages to assist businesses. The Wage Subsidy, for example, has already supported more than one million New Zealanders’ with secure income for the next 12 weeks at least, as part of the overall $20 billion in expenditure that has been approved to date.
In addition, the Business Finance Guarantee Scheme has been set up for small to medium sized businesses, and most recently companies facing insolvency have been given a safe harbour to help them continue to trade.
But is it enough?
Recently CEDA sent out the second in a series of online surveys to our business community, asking them to identify their concerns around the impact of COVID-19. The key pain points are currently cashflow, reduction in sales, ongoing financial viability and staff well-being. Business owners are facing increasing uncertainty and they are looking for support to deal with these issues.
Kirk Hope, Chief Executive of BusinessNZ agrees that the situation many businesses are facing is difficult.
“The BusinessNZ Network has received thousands of phone queries and emails from businesses seeking advice and support. Many of these queries have been about wage subsidy details and the requirements on businesses during the lockdown,” he says.
“Businesses also remain concerned about their ability to make rent payments, and commercial property landlords are concerned about the consequences if full rent payments are not received.”
Commercial rent typically accounts for 40% of a businesses’ fixed costs. The government has been reluctant to wade into commercial tenancies, however, for some that is not good enough, with a call for grants rather than loans to cover these expenses. Announcements on the 15th April indicate there will be measures to support commercial tenants and landlords, and while commercial lease cancellation has been extended, changes to property law require parliamentary approval.
“BusinessNZ is advocating for additions to the Government’s support package to address pressures around payment of rent for commercial premises.”
Managing Director of Manawatū based engineering business Etech, Rob Baan, is also worried about the fixed costs to businesses.
“The Government is focussed on keeping people from joining the benefit line-up, by dishing out wage subsidies, but businesses are not receiving any real financial assistance,” he says.
“The cost of the lockdown borne by the business community far outweighs the financial support currently being offered by the Government. For most businesses with skilled staff, the subsidy will only cover 30-50% of their real wage costs whilst other costs such as rent, rates and insurance are still ongoing.”
Rob believes that many SME business owners will feel compelled to permanently close their doors under the lockdown, when faced with the alternative of borrowing significant money to keep their staff and business connected.
“The Business Finance Guarantee Scheme is targeted at companies that face insolvency. However, the banks are required to administer the scheme using their own normal lending criteria. Companies will either not qualify because they are currently in a reasonable financial position and don’t need it today, or they don’t meet the criteria because they pose an undue risk to the bank of defaulting down the line.”
This is a dynamic situation, and CEDA wants to ensure our business community remains well informed and ultimately are as prepared as they can possibly be for life post COVID-19. Understanding the impact of this lockdown on our labour market and unemployment rates, our regional, national and international supply chains, the domestic and international movement of goods, services and people, is crucial to developing a targeted response that will support a strong recovery.
It’s also important that we don’t lose sight of the strategic projects in our region either – these should be prioritised and pursued in earnest, as they will create jobs and retraining opportunities, as well as contracts for many of our local businesses. I’m referring of course to projects such as Te ahu a Turanga, the establishment of KiwiRail’s regional freight hub and many others.
If we are prepared and ensure the right levels of support are available, both nationally and locally, the more likely our economy will bounce back once lockdown is over.