Politics expected to hinder New Zealand businesses

Technology still at the forefront of executives minds

New Zealand’s recent election and the political uncertainty which has followed is having a major impact on business sentiment, with seven in ten businesses indicating politics will influence their ability to grow in the next 12 months.

This is one of the key findings from the latest Alleasing Equipment Demand Index, and it comes after the rapid emergence of Labour leader Jacinda Ardern, who has been confirmed as the country’s youngest Prime Minister in a coalition Government.

Upper corporate businesses were most sensitive to the political environment, with 77.5 per cent expecting politics to have some impact on their business. For SMEs, the figure was 70.4 per cent against a national average of 71.2 per cent.

The SME constituency have traditionally been the heartland of the National Party, and this segment showed less sensitivity to politics as they pondered the possibility of a Labour Government. Of upper corporates, 77.5 per cent anticipate an impact on their business, opposed to 70.4 per cent of SMEs.

At industry level, hospitality is the most wary of the potential impact that politics could have, with 76.9 per cent expecting politics to impact them in some way. A quarter of manufacturing businesses expect a significant impact from the political environment, while the figure from the agriculture, fishing and forestry sector was 22.8 per cent. This fell away to 11.1 per cent in the transport sector, and 9.1 per cent in construction.

Daniel Blizzard, chief executive of Alleasing, said it is clear the recent New Zealand election has been a focal point for businesses across the country, with many concerned with how the results would impact their operations.

“Seven in ten businesses have demonstrated concern regarding the impact the election result will have on their business,” noted Mr. Blizzard.

“‘Jacindamania’ has had a major influence on business sentiment, and now that Ardern is Prime Minister in what could be a volatile coalition, we expect the business sector will be watching the new Government’s movements closely, particularly at the beginning of 2018.”

Although there could be a period of political volatility, the Organisation for Economic Co-operation and (OECD) is forecasting that the New Zealand economy will continue its strong growth trajectory. This could relieve some pressure on the new Government as it settles into the Beehive in Wellington.

Under the National Party, the New Zealand economy has gone from being one of the most regulated in the OECD, to one of the most open according to the 2017 Index of Economic Freedom by the Heritage Foundation.

New Zealand businesses are now more exposed to international competition than ever before. While the ability to compete with these businesses is a key driver for a number of firms to upgrade to the latest technology (16.4 per cent), a greater number of firms are concerned with their ability to compete against their local competitors. This was cited as the biggest issue for 22.4 per cent of executives should they not upgrade.

Alleasing’s Daniel Blizzard notes that among New Zealand businesses, the manufacturing sector is the most sensitive to international competition.

“While 16.4 per cent of New Zealand business said failure to upgrade technology exposes them to international rivals, the figure among manufacturers is 28.6 per cent,” Mr Blizzard said.

“With Chinese manufacturers leading the way in implementing automation and industry 4.0 technology, this sector’s concern is understandable.

The Index reveals that some businesses are reacting to these pressures, with 47.6 per cent of businesses planning to increase their asset base this (December) quarter. Of those businesses, 23.5 per cent intend to acquire automation equipment, drones, artificial intelligence and big data.

“New Zealand businesses are beginning to embrace transformation. This is a good start because the opportunities that come with implementing Industry 4.0 technology will increase productivity and attract more capital to the country.”

To date, Alleasing Index data continues to track the percentage of businesses planning to acquire assets in the next quarter in-line with trends in Statistics New Zealand data on Gross Capital Formation over the first two quarters of 2017.

Matching the Index forecast for third quarter of the 2017 calendar year, Trading Economics is also forecasting a slight dip in Capital Formation for this period.

ENDS

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