COVID-19 and our regions: Responding to the urgent, planning for the long term
The COVID-19 global pandemic and state of national emergency in Aotearoa are unprecedented events for our country and the world. There has been no equivalent in modern times. While many key services and industries are still operating, including here in New Zealand, the crisis has severely curtailed much economic, social and cultural activity across the globe.
Assessing the economic impacts on New Zealand’s regions
New Zealand’s relatively small size and geographical isolation mean that a physical lockdown has been relatively easy to achieve. But our heavy reliance on international trade and tourism has highlighted our economy’s sensitivity to changes.
With the surge in tourism to New Zealand over the past five to 10 years, this sector now accounts for about 10% of our GDP. In the year to March 2019, tourists (both international and domestic) spent about NZ$41 billion; international visitors, our largest export earner, brought in over NZ$17 billion (Tourism Satellite Account: 2019). The impacts on tourism are now starting to be seen in provisional data from MBIE. Arrivals from China has dropped 98% compared to the same time last year, and overall arrival numbers are down 75%. Over the next four weeks, people movements in and out of New Zealand will be close to zero.
Our tourism sector is dominated by a few large businesses and many small businesses running on narrow margins and tight cashflow. The tourism sector was hurt by the restrictions on international visitors in response to COVID-19 but the lockdown has now seen the entire sector shut down. The economic and community effects of this are already evident in business closures and job losses in the tourism industry and tourism-related businesses. How long it will take to recover is a question we cannot yet answer.
Hobbiton — New Zealand’s most-visited tourism attraction — is just one of many examples. A significant number of staff members have been made redundant and the remaining employees faced significant pay reductions. But Hobbiton is a successful, highly respected business and we all would expect that it will rise to its previous success again. For many other, smaller businesses, however, the hit from the lockdown will be final and fatal.
What is not clear is how businesses that supply and service the tourism sector are faring. This picture will emerge in the coming weeks and months.
It is clear, however, that the regional economic impacts will be far-reaching and enduring. Some economists estimate that unemployment will increase from the current 4% to somewhere between 15% and 30%. That is an additional 300,000 to 720,000 people left jobless across the country. Many of these will be from small businesses operating in regional New Zealand.
Once we get past the pandemic, these numbers should recover. The questions are: will it be a full or only a partial recovery, how long will it take, and will the recovered economy be different from what it was before?
Dealing with the immediate impacts
There are economic needs that need to be dealt with immediately. Many businesses across New Zealand face enormous challenges just to stay afloat. Many workers have already lost their jobs. Even for those businesses where workers are able to work from home there will be a period of adjustment.
Our own team at MartinJenkins is fortunate that we have the tools and technology in place to allow us to continue to support clients across Aotearoa. Communication between our staff is flowing well and the adjustment to working from home is going smoothly.
The New Zealand Government has moved quickly, responding to this unprecedented event in equally unprecedented ways. Between 17 and 27 March, the Government rolled out a $16 billion package of subsidies and support to keep businesses operating, people employed, and our health systems functioning. The Reserve Bank dropped the Official Cash Rate to 0.25% and bought $30 billion of bonds and other securities on the secondary market in efforts to keep interest rates low and maintain liquidity.
Our banks have agreed, with government support, to defer interest and principal payments for up to six months for households that suffer immediately financial impact from COVID-19. Distressed households can defer mortgage payments — one of their most significant costs. Further measures to support the recovery are anticipated, including an ambitious infrastructure investment programme.
Examples of regional and local responses to the crisis
Right now, in all regions, local government, Economic Development Agencies (EDAs), Chambers of Commerce, the Employers and Manufacturers Association, and other agencies are working together and with central government to support local businesses and communities in this crisis. For example:
- Queenstown Lakes District Council has set up a taskforce to prepare a Council package to support business and community recovery, such as bringing forward spending that supports local jobs. The taskforce includes the tourism organisations and Chambers of Commerce.
- Working with local business advisory experts, the Waikato Economic Development Agency Te Waka is publishing regular business survival and continuity tips. It is making sure business owners are aware of the support packages available, as well as providing advice on the key things to focus on.
- With the Ministry of Social Development, many regional Economic Development Agencies are setting up job-matching schemes to match recruiting businesses with available employees as quickly as possible.
- The Auckland Chamber of Commerce is working with key agencies to put employers in touch with assistance, including cashflow support, tax relief, employee assistance, exporter support, and tourism operator assistance.
- Venture Taranaki is helping small and medium businesses to access legal, accounting, business continuity, or HR advice. Venture Taranaki pays for two hours of an advisor’s time.
- Enterprise Canterbury is creating a local database of food producers in North Canterbury to help them sell their produce locally (as some of them have lost their usual markets).
- The Employers and Manufacturers Association (EMA) is operating an AdviceLine to help employers with key questions and to link them to supporting agencies.
- The EMA has also enabled businesses to band together and share information and knowledge through a private Facebook group set up for its members and others in the BusinessNZ network.
All these are important immediate responses that will help cushion the short-term impacts of COVID-19. Business owners should get in touch with their local Economic Development Agency or Chamber of Commerce to access the support being offered.
Economic Development New Zealand (EDNZ) is the peak body for EDAs, and contact details and further advice for regional economic development practitioners is available on the EDNZ website.
Where to from here — the 4 R’s
While these immediate responses are critical, and will likely be needed for some time yet, we also need to keep an eye on the horizon and think about the future.
When it comes to planning for disaster response, emergency management and civil defence organisations have adopted a common framework, often described as ‘the 4 Rs’:
This framework is used to plan for future crises, so that people and communities are prepared and are able to absorb the impact of the event, then respond, and then recover.
New Zealand has plenty of these plans for civil defence and they are being put into action right now. The same sort of framework can be applied to regional economies as well. Elements of the 4 R’s framework were part of New Zealand’s responses to the Global Financial Crisis and the Canterbury earthquakes.
So, as well as remaining focused on our immediate response, now is also the best time to think about:
- how our regional and local economies will recover from this event
- how, by planning deliberately and intelligently, we can get ourselves into a better state of readiness, and
- making sure we reduce risks to our economy, ensuring it is more resilient and better adapted for the next crisis.
A regional economic development approach to COVID-19
Recognising exactly where we are in the sequence of events, we can adapt and reorder the 4 R’s for a regional economic development approach to COVID-19, including a focus on another critical ‘R’ — Resilience.
We at MartinJenkins would recommend that — at least for the next four to 12 weeks — the following should be the order of priority:
- Response — This includes, as outlined above, helping households to withstand short-term shocks; supporting businesses to maintain cashflow, retain customers and employees, respond to redundancy, and encourage redeployment; and supporting businesses to adapt to new models of working.
Read the article here.
- Recovery — We need clear recovery plans in place as firms come back up to speed, including, for example, plans for: attracting talent; reopening supply chains and regaining customers; marketing our tourist attractions, goods and services domestically and internationally; and supporting key employers.
- Readiness — This involves changing the way we work to make sure we are prepared for the next pandemic or other major crisis. This could include greater automation, more local manufacturing, greater use of teleworking, and the ability to pivot activity.
- Resilience — The world has been doing a fair bit of thinking about resilience in relation to climate change and how to reduce its impacts. Similarly, recent work on Just Transitions focuses on resilient and sustainable employment. A stronger focus needs to be placed on economic diversity to reduce reliance and spread risk. Concepts of adaptability and resilience can be applied more broadly to regional economic development.
Looking at the 4 R’s framework in more detail
In our next four articles we are going to look in more detail at the 4 R’s framework from the perspective of economic development. We will be looking at what is already being done, what is being suggested, and what else could be done.
The first of the four articles will delve deeper into the responses we are seeing, both here in New Zealand and internationally. The second will look at how our economy and our regions and communities can recover from the economic impacts of COVID-19, to be in a better position than it was before.
The third article will explore what we need to do to be ready for the next major event. The final article will explore how to ensure we emerge from this major crisis with a more resilient economy that is ready for the next one.
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.