Business confidence tanks

29/09/2020

Business confidence has plummeted:

The New Zealand Herald’s  2020 Election Survey has been released with top business leaders saying New Zealand’s Covid-19 recovery is in peril – and they want a decisive role with Government in the country’s future.

The annual boardroom barometer of 165 CEOs and high-profile directors has business confidence at the lowest it’s ever been in the survey’s 19-year history.

When asked to rate their level of optimism in the New Zealand economy the CEOs surveyed collectively scored it a 1.36 out of 5.

These are bigger businesses and predominantly urban.

I doubt if farmers are any more confident given the fear and uncertainty around added costs and complexities that are being imposed on primary production.

Westpac CEO David McLean says the future has never been so uncertain, but that means that the need for crisp and clear policies and plans has never been greater.

“We need to see pathways mapped, not just for how to escape from the current Covid-19 crisis, but to take us toward a better future by addressing some of the big challenges we face beyond Covid-19, such as increasing our productivity and tackling climate change,” said McLean.

Many, like Mainfreight’s Don Braid, question Prime Minister Jacinda Ardern’s heavy reliance on Government bureaucrats for advice and execution and her apparent unwillingness to listen to the private sector for ideas.

“There are many willing to devote time, energy and ideas in areas that allow New Zealand to find the right environment to operate in a post-lockdown economy,” said Braid.

The New Zealand Herald’s Mood of the Boardroom 2020 Election Year survey, taken in association with BusinessNZ, provides an in-depth assessment of CEO opinion at what is the most concerning time in the survey’s long history.

“It’s heartening that a record number of CEOs took part in the 2020 survey against a background of the Covid-19 pandemic. Optimism may be at the lowest levels seen in the survey’s history, but the CEOs’ responses demonstrated their own commitment to turning the economy around,” said says Mood of the Boardroom executive editor and NZ Herald’s Head of Business Content, Fran O’Sullivan.

With the General Election just weeks away business leaders are looking for more from both Labour and National.

Deloitte CEO Thomas Pippos points to tax policy being a key issue.

“Though Labour’s proposal to increase the highest personal tax rate doesn’t impact on the majority, National has upped the ante by helicoptering in temporary tax relief across the board to stimulate economic growth. Tax therefore promises to be a very complicated and emotive topic, that will either be centre stage this election or not far from it,’’ says Pippos.

BusinessNZ CEO Kirk Hope said Labour’s economic policy response to Covid has underpinned the economy in a challenging time.

“However, the long-term plans are less well understood. They will need to do a hard sell. National’s plans are slightly more pro-business. But both parties need to talk about how quantitative easing enables them to maximise a reduction in borrowing costs to help grow the economy.” . . 

You can read more about the Mood From the Boardroom at the NZ Herald here.

Confidence isn’t helped by the fact that Labour hasn’t released its fiscal plan:

The New Zealand Taxpayers’ Union is calling on the Labour Party to immediately release their fiscal plan, so it can be subjected to the same scrutiny as the National Party’s fiscal plan.

Union spokesperson Louis Houlbrooke said: “The National plan was found to have a few holes after analysis by Labour and independent economists. The Nats admitted to one $4 billion mistake but denied another. It is healthy that major spending plans are put under intense investigation before an election.”

“That is why the Taxpayers’ Union is calling on Prime Minister Jacinda Ardern to immediately release Labour’s own fiscal plan. She has told the nation that her numbers ‘stack up’. That clearly means their plan is finished, fact checked, and ready to go. There is no need to wait for a September Treasury data release to unveil the plan – the Pre-Election Economic and Fiscal Update (PREFU) was reported a little over a week ago. All the fiscal data is there.”

“Let people like Paul Goldsmith, David Seymour, Cameron Bagrie, and your humble Taxpayers’ Union check that Labour’s numbers really do stack up. Then, taxpayers can make an informed choice about who should manage our economy in a post-COVID recession.”

It’s not just a fiscal plan that hasn’t been released, Labour keeps telling us it has a plan for recovery but has given scant details.

Uncertainty is one of the bigger drags on business confidence.

That matters because businesses that lack confidence at best don’t invest and don’t hire more staff, at worst they retrench and make staff redundant.

That so much about Covid-19 and how it will impact the country and the world is uncertain, and to a large degree uncontrollable, makes it even more important that politicians are upfront about their plans and what they can control.


Rural round-up

10/11/2019

Pressure on Jacinda Ardern over water quality amid farmer well-being concern – Pattrick Smellie:

Suddenly, farmers’ mental health is in the news again.

It’s not sensationalist or alarmist. It’s a fact.

A growing number of farmers are feeling massive personal pressure from several directions, with the greatest source of that pressure being felt as the Government’s agenda to make agriculture contribute to cleaner water and climate change action.

It may not be totally rational. Global prices for our key agricultural commodities are currently high and include a very healthy-looking dairy payout in the season ahead. Export returns are further assisted by a weak Kiwi dollar. . .

2020 Zanda McDonald Awards finalists announced:

Things are heating up for the prestigious Zanda McDonald Award, with one Australian and two New Zealanders announced today as the three finalists for the 2020 trophy.

The trans-Tasman award is widely seen as a badge of honour in agriculture, recognising passionate and outstanding young professionals working in the sector.

The 2020 finalists are Dr Elle Moyle, 29, from Victoria, Jack Raharuhi, 27, from Westport NZ, and James Robertson, 22, from Auckland NZ. The three were selected from a shortlist of six applicants, who were interviewed by the judging panel last month in Wellington. . .

“Farmers barely covering interest costs’ – Westpac boss David McLean :

Some heavily indebted dairy farmers are barely covering their interest payments despite relatively strong prices for several seasons, Westpac NZ chief executive David McLean says.

“The ones who’ve got more leverage, most of those are still covering their cost of production but some of them are close to the edge,” he says.

“Their interest cover isn’t that great – there are a lot of farmers who are doing it tough and there’s not a lot of buffer.” . . 

Dairy prices should bring some cheer as bankers get tougher on farmers and govt further burdens them – Point of Order:

The sun  may be shining  again  on  NZ’s  dairy industry:  spirited  bidding  at  the latest    global  dairy trade  auction  backs  up Fonterra’s move  last  month to  lift the  projected  payout  range to $6.55-$7.55 kg/MS.

The  average GDT  price  rose 3.7% to $US3446 a  tonne,  with the  key products  WMP up  3.6%  to $US3254, and SMP  6.7% to $US2924.

WMP prices, after dipping mid-year, have remained above the important $US3000/tonne level since July.  ANZ  in a market commentary   noted the auction outperformed expectations. Futures prices have steadily lifted since the previous GDT event in October. . . 

BioBrew delivers probiotic technology to support dairy farms:

CalfBrew improves profitability while reducing the need for antibiotics and other problematic synthetic inputs.

A small NZ company, BioBrew Ltd, has developed a novel approach to probiotics that delivers a very strong ROI and increases the sustainability of NZ dairy farms.

Developed with the assistance of Lincoln University and with funding from Callaghan Innovation and the Sustainable Farming Fund, CalfBrew delivers the finest probiotic technology available. CalfBrew improves profitability while reducing the need for antibiotics and other problematic synthetic inputs. . .

Meet the winners of the New Zealand International Business Awards 2019:

A Canterbury business creating a high-value, top-dollar future for merino wool has won the Supreme Award at the New Zealand International Business Awards 2019, leading a stellar list of category winners.

Based in Christchurch, The New Zealand Merino Company Limited is an integrated sales, marketing and innovation company for merino wool, and the world’s leading supplier of ethical wool through its accreditation brand, ZQ Merino.   

The company aims to help transform merino wool from a commodity into a high-value fibre, working with brands to create unique design-led and R&D-based products that incorporate merino wool, and in turn helping growers to get better returns. . .

 


Reserve Bank’s plan to cost farmers up to $8m/year more

07/05/2019

The Reserve Banks’ plan to require banks to hold more reserves could cost farmers up to $800m a year in extra interest:

Estimates of the impact on interest rates range from the Reserve Bank’s own stab of 20 to 40 basis points up to the 120 bps estimated by the local arm of Swiss investment bank UBS, Federated Farmers says.

Multiplied across the agricultural sector’s $63 billion debt pile that would see farmers slugged for anywhere between $120m and $800m in extra interests costs annually.

“For farmers an increase in costs along the lines of the Reserve Bank’s modest estimate would be unwelcome enough while the worst-case scenario would be devastating,” the federation wrote to the Reserve Bank.

The bank wants trading banks to increase the minimum amount of capital they hold against loans from 8% to 16% within five years.

The increase is designed to ensure the banks have the capital needed to survive the write-downs on loans the Reserve Bank estimates would come with a one-in-200-years downturn.

Officially, the cost to the banks of meeting the new capital minimums is being put at $20b but banking sources believe it could be billions more. . . 

Ensuring banks survive a crisis is sensible but the Reserve Bank’s plan would require far greater reserves than ought to be needed and that will add high and unnecessary costs to loans.

Westpac NZ chief executive David McLean said shareholders in the banks’ Australian parent companies will not stump up that sort of money unless they can see a return.

In all likelihood that means interest rates would have to rise to offset the decrease in returns that would come with holding higher amounts of capital against the same amount of lending.

“We think the middle of that 80 to 120 basis points range is where it might come out but that is an average across all lending and it may fall differently across different portfolios of lending,” McLean said.

The increase is likely to be at the higher end of that range for agricultural lending because of the higher risk weighting applied to lending against farms, which historically experience bigger ups and downs in values and are seen as a riskier form of security than houses.

Because agricultural lending soaks up more capital per dollar lent the returns are lower for the banks’ shareholders relative to other types of lending where less capital is required. . . 

Should borrowers have to pay the price for safeguarding banks against a one in 200 year downturn?

The ANZ is warning farmers that if the Reserve Bank’s plan is implemented it will increase the cost of borrowing.

That in turn will increase the cost of production resulting in lower profits from farming and/or higher prices for food and fibre.

The Australian-owned companies which dominate the banking sector in New Zealand weathered the global financial crisis, why force them to hold such high reserves?


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