Source: Liam Dann, Business Opinion NZ Herald : 5 April 2020
Things are bad for the economy. But, taking it for granted that New Zealand faces enormous challenges in the months ahead, let’s take a look at what we have going for us. Why now? Because we have to stay strong and focused on getting through this so we can start to rebuild.
1) We are an island nation
The aviation boom of the past two decades has long since banished the “tyranny of distance” and our connections with the world mean we face a challenge getting on top of the first wave of the virus. But longer term our isolation means we have much more ability to control our borders than many countries.
2) We produce a surplus of food
We have the ability to feed our own population – a luxury many countries don’t have. So that’s a good starting point for apocalyptic scenarios. We won’t starve.
More realistically, our economic base as a commodity food exporter puts a floor in how bad the economy can get.
New Zealand spent most of the 20th century reliant almost entirely on agricultural commodities for foreign earnings. It was a different country, but we got by and enjoyed a good standard of living. Many of our biggest trading partners are reliant on imported food. They will be desperate to keep doing business with us.
3) Secure trade links
Our relationships with those trading partners are strong. Trade agreements forged laboriously over the past three decades have aligned us to like minded nations via the agreements like the Trans Pacific Partnership (CPTPP).
Look at the speed at which New Zealand, Singapore, Canada, Australia, Chile, Brunei, Myanmar and Uruguay have committed to keep supply chains open and to remove any trade restrictive measures on essential goods, especially medical supplies.
It is heartening.
Much of New Zealand’s economic growth in the past 15 years has been tied to China. That’s prompted good questions about having too many eggs in one basket.
It looked even more like that when Covid-19 first blew up in January.
But as China gets control (of the first wave at least) and gets back to work, it again looks like a good basket. China needs our raw ingredients and we need its manufacturing capacity. It’s a symbiotic relationship we need to foster and maintain.
5) An innovative economy
We have given away a lot of manufacturing capacity in recent years but New Zealand remains a smart economy. We rate near top of most “ease of doing business” surveys.
We have good technology and communications infrastructure and plenty of clever, innovative people.
One of the keys to recovery in the new economic landscape will be adaptability.
We know tourism will be down for a long time so we will need to move quick to create new opportunities and many new jobs.
After years of talking about creating a more modern, productivity economy we are now confronted with doing it – fast.
But we are well equipped to do that as long as we have the capital available to keep going forward.
6) Strong banks
New Zealand’s biggest risk is probably its level of private debt. We are leveraged to the hilt and that does leave us in the hands of the bankers to some extent.
We might have complained about the big profits over the years, but right now we are lucky the Australasian banking sector is one of the strongest in the world.
It survived the GFC intact (with the help of government guarantees on both sides of the Tasman) and the industry took action afterwards to strengthen against the next crisis.
The banks have much more local funding in place than they did then and much more long-term funding.
They weren’t thrilled about the conservative new capital regime being imposed by the Reserve Bank but were on their way to meeting it.
Now it has been relaxed to let them get through this crisis and they are extremely well capitalised. They’ve also got additional funding support from government and central bank backing.
7) Government books
The crown’s fiscal position leaves plenty of room to keep spending on direct support and to support cheap lending rates.
Through all those years we accused Bill English of being too conservative he would argue that we just didn’t know what sort of external shock we might need to survive one day.
Now with legacy passed on, across party lines, we find ourselves at a low ebb in government debt at exactly the right time.
The international ratings agencies like Moody’s and S&P are still writing good things about New Zealand’s prospects primarily for that reason.
8) Sane leaders
Our politicians, on both sides, might be a quirky earnest bunch but, relative to what we’re seeing in places like the US, that’s a very good thing.
The Opposition has been prepared to work collaboratively through this and is now doing a good job of pushing the Government on specific issues, which in turn are, mostly, being addressed.
Mistakes will be made and some things may happen slower than they should but as along as the Government keeps listening and adapting they can be forgiven.