COVID-19: Building a sustainable recovery during uncertainty
In our first two articles in this series we described a general framework for economic development practitioners to navigate the COVID-19 landscape.
At the national level, wage subsidies, enhanced business support, and the recently announced Keep New Zealand Working initiative are all good examples of how government is responding to this crisis. As we have previously highlighted, local and regional councils, economic development agencies and regional tourism organisations and others have also been at the front line of the response.
As we step towards Alert Level 2, central and local government and businesses are turning their attention to how we recover from this event — how we get businesses and social services going again, and get people back to work.
KEY SUCCESS ELEMENTS
There have been three key elements to the success of the response so far — leadership, strategy and action — and they will continue to be key for the recovery.
In the response stages of COVID-19, the need for good leadership was obvious and urgent, but it’s needed just as much now that we’re starting to move into recovery. Economic organisations need to ensure they have the right people around the table to lead cities and regions in their recovery efforts.
Many of the key players will be the same in the recovery stage, but the emphasis will move away from stabilising the situation to re-establishing the normal processes of business growth, innovation and entrepreneurship.
Things have changed enormously and will continue to change in unexpected ways, but the basic factors of the economy will still be the same post-COVID. Current strategies should be used as the initial starting point for designing mid- and longer-term actions and for reimaging ways forward and testing scenarios for economic recovery and resilience.
As the trajectory of recovery becomes clearer and new opportunities emerge, strategies can be refreshed and re-set:
- We will need to assess whether existing strategies are facilitating or frustrating a sustainable recovery.
- Emerging ideas and new approaches should be pursued with increased vigour — for example, transitions to low-carbon economies; new models for infrastructure funding and financing; automation, robotics and AI in manufacturing; skills development hubs; and collective impact models.
- Old ways of thinking can be retired or upgraded in favour of more innovative models.
- Changes are needed to reflect a post-COVID reality- for example persistent border control changes; major changes in tourism, hospitality and retail; new remote working practices; and greater work-based flexibility.
Economic development leaders will need to balance speed of action with ensuring that responses are well-designed and proportionate and don’t have unintended negative consequences.
The scale of action from the Government has averted what would have been an even worse shock across the economy. Much more action is likely to follow as the Government uses its balance sheet to stimulate investment in the economy, especially in industries that can soak up and recycle capital, employ large numbers of people, and stimulate further economic activity. Infrastructure, construction and housing are three obvious areas of opportunity.
ANTICIPATING MULTIPLE SCENARIOS
Scenario planning should play an important role as districts and regions chart a path ahead.
In the face of economic and other uncertainties, scenarios can be used to consider what may happen, but they can’t tell us what the future will be. Scenarios therefore build on strategic uncertainties about possible outcomes. But they also build on a set of plausible trends that may form a ‘certain’ backdrop for the different scenarios.
This approach helps us plan for the future and agree a preferred vision of the future that partners can work towards — while still taking into account of what other desirable or undesirable events else might happen, and planning how to react if the preferred future doesn’t come about.
THREE TIME HORIZONS
The lockdown schedule has created a timeframe for us all to follow, but there are other timeframes — or horizons — that we can use to frame how we all act as well.
The McKinsey Three Horizons Model has been used for several decades to describe how companies adapt to innovation. The World Economic Forum recently described how this model can apply to the COVID-19 context. These align with the ‘three waves’ of action described recently by the Minister of Finance.
- Horizon 1. Responding to the crisis — This is where society is scrambling to respond to the radically changed situation and taking drastic measures to ‘flatten the curve’ of the pandemic and avert major disruptions to business and household balance sheets. With COVID-19 the timeframe for this has been about the past 60 days.
- Horizon 2. Recovering from the crisis — Here, stringent restrictions are reduced but supply chains and travel plans are subject to disruption by emerging restrictions on the back of secondary outbreaks. This is the horizon where large-scale public sector intervention ramps up and takes effect. This timeframe starts at around Day 100 and could last for 12 to 18 months.
- Horizon 3. Later stage recovery moving into resilience and reimagination — This is where we assimilate our responses to COVID-19 into a new normal. The World Economic Forum article noted how the normal won’t be just a return to how things were before, as the pandemic response will accelerate transformations that might be hard to reverse — from the expansion of governments’ role in the economy to the adoption of remote working protocols. But it is also unlikely to be a completely different world compared to pre-pandemic, given the deep structures of our economy and society. The timeframe for this is two to five years, depending on the speed of recovery and people’s willingness to adapt to new practices.
A combination of a bottom-up ‘ideas-driven’ approach and a more top-down strategic approach will ensure the recovery effort has structure and long-term integrity, while also promoting the rapid identification and execution of actions that can have an immediate impact.
Getting this right requires a careful balancing of multiple risks. On one hand, poorly targeted support could extend the life of uncompetitive firms and sectors or shelter over-leveraged households. On the other hand, too little support risks a cascading economic collapse, destroying otherwise competitive and productive firms and jobs, along with the huge human cost of this kind of collapse — as in the Great Depression.
In deciding what levers to pull, economic development practitioners should consider the key drivers of local and regional economies and the actions that need to be taken to support recovery and longer-term transformation and resilience. These include:
- Improving business performance and resilience
- Supporting priority sectors
- Developing skills and reducing unemployment
- Investing in infrastructure to support recovery
- Enhancing well-being and quality of life; and
- Destination promotion and branding
For each of those drivers, there will not be simple cookie-cutter answers that can be applied everywhere. Every region, community, industry and firm is different, and the answers for each will vary. A consistent framework that helps decision makers work their way from the current situation to an intelligent, agile and resilient ‘new normal’ is a more fruitful approach.
For each of the drivers listed above, economic development leaders should ask:
- What does this mean for our area? What are the dimensions of the issue?
- Why is it important for us? Does our existing strategy help frame this issue, or are things now entirely novel?
- What are the key steps for us to take? Can we step this out using the Three Horizons / Three Waves models?
- What are the critical success factors and the banana skins to watch for?
- What are some useful case studies and examples from around New Zealand and internationally, so we don’t reinvent the wheel?
The relative importance and focus on each of the listed drivers during a recovery phase would differ depending on the nature of the local economy and on existing regional priorities. There is also an opportunity to consider recovery in terms of significant opportunities that could be unlocked as part of a recovery phase. For New Zealand, one of the immediate opportunities for economic development relates to the expected increase in infrastructure investment.
KICK-STARTING THE ENGINE: THE ROLE OF INFRASTRUCTURE
Governments can’t easily create new businesses, but they can help businesses and the economy by accelerating the pace and scale of investment in the underlying structures of the economy — that is, infrastructure. Not only does having the right infrastructure allow a stronger economic recovery, it also allows the economy to evolve and become more productive over time. The other benefit of infrastructure is that it employs people and can stimulate local and regional economies.
Through initiatives such as the Provincial Growth Fund, the Government has already committed to using infrastructure as a tool for economic development. Across New Zealand, economic development practitioners have played a key role in designing and securing funding for projects that align regional economic priorities and support employment and business outcomes in their regions. Moving forward, infrastructure investment is likely to play an even more important role and will continue to be a driver of economic opportunities.
Already the Government, through Crown Infrastructure Partners and the PGF, has asked cities and regions to identify their ‘shovel-ready’ infrastructure projects that, with government funding, could be quickly deployed. The scale of this programme is difficult to assess at this stage as the process is being run bottom up’. About 1,800 projects have been put forward by local government and businesses for consideration, ranging in scale from large transport infrastructure projects, to convention centres, to smaller community facilities. The total value of these projects could be as much as $127 billion, so clearly there will need to be a process to decide which of them should be supported.
The result of this will, to some extent, be a new national infrastructure plan — built on the already announced $12 billion Infrastructure Fund, plus the other projects that cities and regions can offer up as ready to go.
PRIORITISE, PRIORITISE, PRIORITISE
One of the key definitions of strategy is the choosing of a path from multiple alternatives, and then sticking with it but adjusting as facts change. In the COVID-19 recovery, it will be critical for everyone to develop and follow a well-designed, rigorous and consistent prioritisation framework.
To invest in recovery effectively, we need to know what future we are preferring, and what dimensions we will privilege ahead of others. Our country has already made clear steps towards a more sustainable, resilient and inclusive economy, and there is no reason to expect this year’s Budget to be any different, albeit with a focus on how COVID-19 has changed the dimensions of investment.
Districts, cities and regions need to do the same and to have a rigorous approach to their investment and funding decisions. Not only will this ensure that the quality of the recovery is better, it will also ensure the burden on current and future businesses and citizens is equitable and sustainable.
ABOUT THE AUTHORS
Harvey Brookes is a regional economic development expert with more than 25 years’ experience focusing on Auckland and the Waikato.
Harvey brings a strong inter-disciplinary and outcomes-based approach, and a proven track record of working with stakeholders and partners to develop enduring solutions to complex problems and opportunities. His approach blends together a unique combination of strategic thinking, applied science, performance excellence, public policy and industry development.
Since late 2015 Harvey’s main focus has been economic development in the Waikato, and he is now based in Hamilton. In 2015 he led the region’s economic development programme, and oversaw the design, funding and establishment of Te Waka — the region’s first economic development agency (EDA).
Patrick McVeigh has more than 25 years’ experience working across the public and private sectors in strategy development, policy formulation, research and evaluation, scenario planning and visioning. He has delivered a broad range of projects in a variety of subject areas and locations, bringing high-level political understanding and finesse. Patrick is a hands-on practitioner who focuses on the client’s needs.
Patrick’s strong consultancy background is based on eight years’ experience in public policy and economic development roles in London, where he worked with clients in local, regional and central government.
Patrick has a BSc in Town Planning Studies, a Post Graduate Diploma in City and Regional Planning (Distinction), and a Post Graduate Diploma in Social Science Research Methods — all from Cardiff University.
Jason Leung-Wai joined MartinJenkins in 2013 after 10 years in an economic research consultancy. Before that he contributed seven years to the public service, working for the Ministry of Economic Development.
Jason’s focus is on encouraging economic growth, particularly from a regional perspective. He has supported regions to design and implement economic development strategies. He has put together regional and industry profiles and has prepared economic impact analyses for industries, events and infrastructure.