Question

1. Recently, the COVID-19 crisis has hit the businesses very hard and New Zealand is not an exception. Few of the businesses in New Zealand disappeared, while some of them are managing by lowering their costs through job-cuts or reducing the working hours and so on. You are asked to write a report describing the reasons for why these businesses disappeared (had to shut down completely) inspite of the financial support given by the NZ-Government. Choose any two businesses-NZ. You might have personally seen some businesses’ that you visited do not exist anymore.

(Hint: Develop your report based on your personal observations and experiences, the topics learnt in FINAN200, where-ever it is relevant- cost of capital, nature of the business, investments, sales-revenues and so on.) (Word limit-not to exceed 1000 words).

Answer 1

ANSWER-

1. General situation

New Zealand is now at Alert Level 1 as of Tuesday, 9 June 2020: all restrictions lifted but for the border controls for travellers (excluding goods/cargo).

At Alert Level 1, everyone can return without restriction to work, school, sports and domestic travel, and you can get together with as many people as you want.

New Zealand has joined the small group of nations now recording no cases of covd-19. The only remaining covid 19-related restrictions are at the border.

Controls at the borders remain for those entering New Zealand, including health screening and testing for all arrivals, and mandatory 14 day managed quarantine or isolation.

The government deals with exceptions regarding entrance into New Zealand for either humanitarian or economic/business reasons on a case per case basis.

Ports are open and shipments processed. Internal courier services’ backlogs soon to be cleared.

Economic impact-

Amid fears of a global recession, New Zealand officials fear almost every sector to be seriously hit, certainly tourism, hospitality and aviation/transport.

New Zealand's economy is likely to suffer a bigger coronavirus blow than most in the OECD, new research says.

The OECD has put out a new report evaluating the impact of Covid-19 on economic activity. It does not take into account Government stimulus in those countries.

It said the initial direct effect of shutdowns could be a decline of between 1/5th and 1/4 in most economies as spending dropped by about a third.

"Changes of this magnitude would far outweigh anything experienced during the global financial crisis in 2008-09. This broad estimate only covers the initial direct impact in the sectors involved and does not take into account any additional indirect impacts that may arise."

New Zealand would see an initial drop of almost 30% in activity, the OECD said, compared to about 15% in Ireland, 22% in Australia and 25% in the United States.

The implications for annual GDP growth would depend on the magnitude and duration of national shutdowns, and the extent of reduced demand, the OECD said.

"The scale of the estimated decline in the level of output is such that it is equivalent to a decline in annual GDP growth of up to two percentage points for each month that strict containment measures continue. If the shutdown continued for three months, with no offsetting factors, annual GDP growth could be between 4-6 percentage points lower than it otherwise might have been."

The economic impact is to be significant but very possibly better than OECD expectations as the report did not take into account the efforts being made to mitigate it, such as the Government's wage subsidy.

Performance could be below OECD average as New Zealand has greater reliance on tourism (largest industry prior Coronavirus).

Short term opportunities

With the economy now full opening up and considering the government support for wages, tax relief, mortgage holidays etc, Flemish exporters should find the original New Zealand markets functioning again as expected and all major channels-to-market to function as before, albeit with some reduction in throughflow and consumption, often outcomes of the physical distancing.

With foodservices now fully resuming, we expect the demand for F&B from Flanders to pick up substantially in the coming weeks.

Sectors as F&B/agritech/technology/med devices/cleantech expected to make a relatively fast recovery with most markets to be continuous.

Special mention for pharma & medical devices, both import needs and local industry growth in view of reducing overseas dependency.

ICT solutions expected to do well from the crisis, including in New Zealand as digital is expected to remedy a lot of the challenges.

Long term opportunities

Aviation/tourism/hospitality are expected to experience a long term recovery with the loss of many businesses as it may be many months before international visitors, tourist, conference visitors, etc., will be confident to travel again.

New Zealand is in its deepest recession in decades, following strict measures in response to the Covid-19 pandemic which were widely praised.

The country's GDP shrank by 12.2% between April and June as the lockdown and border closures hit.

It is New Zealand's first recession since the global financial crisis and its worst since 1987, when the current system of measurement began.

But the government hopes its pandemic response will lead to a quick recovery.

Prime Minister Jacinda Ardern's government has said the success in suppressing the virus is likely to help recovery prospects.

Finance Minister Grant Robertson said the GDP numbers were better than expected, and suggested a strong recovery ahead.

"Going hard and early means that we can come back faster and stronger," he said.

Some economists are also predicting a swift recovery, because of New Zealand's strong response to the virus.

"We expect the June quarter's record-breaking GDP decline to be followed by a record-breaking rise in the September quarter," said Westpac Senior Economist Michael Gordon.

Ms Ardern said she backs the economy's ability to rebound.

"I think one of the key questions here is not just about what's happened over that June quarter in terms of the effect of lockdown. It's actually about the rebound - and I back New Zealand's rebound," she said.

Ms Ardern said activity is already picking up as the country has been able to open up a lot more quickly compared with other nations.

"Even with some of the more recent restrictions, we've seen a return to activity, whereas compared to Australia we are in a much better position," she added.

However Treasury forecasts released yesterday suggested massive debt and continuing disruptions are likely to delay a full recovery.

The opposition National party accused the government of a lack of pragmatism that made the impact worse than it needed to be.

New Zealand recorded a steeper drop than neighbouring Australia, where the lockdown was less severe.

But the state of Victoria has faced a second lockdown, which is likely to weigh on Australia's economic recovery.

The nation of nearly five million was briefly declared virus free, and although it still has a handful of cases, it has only had 25 deaths.

The economy is likely to be a key issue in next month's election, which was delayed after an unexpected spike in Covid-19 cases in August.

Stats NZ spokesman Paul Pascoe said the measures implemented since 19 March have had a huge impact of some sectors of the economy.

"Industries like retail, accommodation and restaurants, and transport saw significant declines in production because they were most directly affected by the international travel ban and strict nationwide lockdown," he said.