Deloitte Message : A Great Time to Invest

Over the past year since the last Deloitte/Management magazine Top 200 Awards we have experienced only very modest recovery from the “Great Recession”. At the end of 2009 we were looking ahead to 2010 with optimism but as the year wore on consumer confidence did not rebound and business confidence fell once more. Even now, 18 months into the recovery, consumer spending remains subdued and business investment anaemic. The rebalancing in the household sector from spending, and often borrowing to fund it, to cutting expenditure and paying off debt has been more rapid than many expected. Although painful in the short term, this will prove more positive in the long run.
For business the past year has continued to see focus on cost control, cash management and balance sheet strengthening. It has been continuation of “back to basics”. Those businesses that reacted quickly to trim capacity have seen profitability recover even as demand has remained subdued. Those that did not react quickly are either now doing so or are prepared to suffer lower returns until their markets recover. I think they may have long wait.
In large part these reactions reflect the new world that business will face in the aftermath of the global financial crisis and the great recession. What does this new world look like? I think in the immediate term it will see consumers continuing to repair their balance sheets, just as most businesses have done. As this takes longer for households, growth in consumer demand will not rebound quickly. This will keep economic growth low, despite efforts of governments to stimulate it. There will be increased regulation, especially in the financial sector, and this will undoubtedly have unintended consequences which may also delay recovery.
But there are significant opportunities in the new world for business. These lie primarily in the rising economic power of Asia, and to lesser extent South America and parts of Eastern Europe. The growth trajectory will not always be even but the continued rise of emerging markets is inexorable. For anyone who has visited Shanghai the vibrancy, confidence and sheer determination to succeed is palpable.
New Zealand has real advantages as this new world unfolds. Our agricultural commodities are now strengths as demand for protein in Asia grows with increased wealth. Our relative closeness to Asia does not disadvantage our education and tourism industries. We have vibrant and growing technology sector with an increasing reputation for innovation. And perhaps most significantly of all, we are closely tied to Australia which is now well integrated into Asia’s supply chain.
So how are we doing in taking advantage of the opportunities presented by the new economic order that is emerging? The rebalancing of our economy towards the export sector is underway. The growth in trade with China has accelerated significantly following the free trade agreement – over 35 percent in the past year alone. New Zealand businesses are making material investments in China, as are Chinese businesses in New Zealand. China is now New Zealand’s second largest export market and Fonterra’s largest customer.
But to be successful will require step up in the level of business investment; in research and development, distribution channels, facilities, marketing and talent. Business balance sheets are in good shape. I think it’s time to take some risks to exploit the opportunities emerging from the new world that is taking shape.
Government efforts to help are having mixed success. There is good investment in much-needed infrastructure, particularly roads, rail and electricity transmission. The jury is still out on the broadband initiative. But the effort to open up mining has so far failed and progress on reducing the size of government slow. The hard choices foreshadowed in the 2025 Task Force Report have yet to be made.
I congratulate all the finalists in the 21st Deloitte/Management magazine Top 200 Awards, and of course the winners. Reading through the list of New Zealand’s Top 200 companies, you should all be proud of your success and the contribution you are making to wealth creation in New Zealand. Our businesses are strong and performing well, and the stable of globally competitive enterprises continues to grow. We have faced unprecedented uncertainty, and now we face unprecedented opportunity. Right now is great time to invest.