TOP 200 : Recovery Time: The 2020 View

This is special year for the Deloitte/Management magazine Top 200 awards. It marks 20 years since the first event attracted fewer than 230 business leaders and their partners to the Auckland’s then Intercontinental Hotel. Today nearly 1000 of New Zealand’s business leaders meet to celebrate business achievement each year. This outcome was not certain when we started out but Deloitte and Management magazine thought it was worth the risk. In 1990 Fletcher Challenge was New Zealand’s largest company and there was no Fonterra. And in 1994 Fortex crashed year after being named Company of the Year, highlighting that every business endeavour carries risk and that success is not guaranteed.
It turned out that 1990 was an inauspicious year to launch the Top 200 Awards. It marked the beginning of what was to become deep recession as the economy finally adjusted to the excesses of the late 1980s, global slowdown, and the reforms of the Lange-Douglas government. It sounds like an all-too familiar story as today we find ourselves at what we hope to be the end of what is being labelled by many as “the Great Recession”.
In reality the recessions are very different. In the early 1990s the balance sheets of corporate New Zealand were very weak and businesses were compelled to slash costs. Unemployment peaked at over 10 percent. This time, in the face of prolonged domestic downturn and brutal drop in world demand, businesses have coped much better. Corporate balance sheets overall are in better shape and businesses have tried to protect their workforces where they can. While it may continue to rise, unemployment doesn’t look like it will reach the levels of the early 1990s. There is pain being felt in the small business sectors of the economy, particularly among those exposed to single product or market, as so many are. I think we can expect small business failures to continue for some time even as overall growth in the economy resumes.
When the dust settles New Zealand’s relatively benign recession will be attributed to the stability of our Australasian banks, relatively low exposure to the finance industry generally, the relative strength of the Australian economy, the balanced response of Government, and the thickening out of New Zealand business that has occurred over the past decade. New Zealand has had good recession.
As usual economists are divided on the form of the recovery; “Ls”, “Us”, “Vs” and “Ws” are all currently on offer. I see most businesses being cautious and anticipating slow recovery. And there are mixed noises out of the United States – some are more optimistic, others looking for second dip. Planning is never certain, but currently seems more art than usual.
The behaviour of governments will matter. Averting Armageddon in the world’s banking system has come at an enormous price. Many countries face uncomfortable choices from taxation hikes, to cuts in welfare entitlements and services. These will have potentially lasting effects on consumer spending and economic growth. The risks of public sector borrowing requirements crowding out the capital markets are real. This will raise the cost of capital for businesses and adversely affect investment.
As significant will be government initiatives to increase regulation in an effort to prevent recurrence of the banking crisis. Some actions that look at capital and liquidity requirements and the performance of regulators will have merit. Others that focus on executive pay and bonuses are just pandering to popularism, will prove difficult to design and implement, and will have unforeseen consequences. So far our Government has been sensible in its responses.
What is important now is to take advantage of the opportunities the recession and subsequent global recovery will present. For businesses that have made the tough decisions in the past couple of years, earnings will improve substantially as the recovery kicks in. Those with strong balance sheets will have plenty of options. Asset prices have not been as low as they are now for some years and there is plenty of potential to acquire distressed assets. This is great opportunity for New Zealand firms with ambition to acquire footholds in global markets.
Consumers will be more discerning on quality, product features and price as they continue to repair their balance sheets. Those businesses that have continued to invest in innovation will be well rewarded as the recovery strengthens.
I think New Zealand has weathered the financial storm well. It’s now time for business to look forward with optimism and confidence. We have had good recession – let’s have great recovery.