Bayly's Business Brief - February 2022

Welcome to my monthly roundup of business news from across the country.



Small Business


The NZIER Quarterly Survey of Business Opinion released mid-January found that business confidence has fallen markedly – news that should come as no surprise to anyone. Supporting our small businesses – the powerhouse of our economy – will be essential this year. Many struggled last year with the ongoing lockdowns, and with our borders still closed, access to labour remains a key concern for many business owners.

Additionally, most businesses have been facing significant supply chain issues, and cost pressures continue to rise, especially across building/construction and manufacturing.

And the latest inflation figures only compound these woes. Now at a 30-year high of 5.9 per cent, inflation is a triple whammy for small businesses. Rising interest rates mean it’s more expensive for small business owners to finance their business. Higher interest rates leave consumers with less money in their pockets to spend. And employees will be looking for a pay rise to cope with the rising cost of living, putting wage pressure on employers.

Hospitality businesses especially are facing more costs with the Government-imposed regulations around vaccine mandates. I spoke to Peter Freeman, owner of the St Heliers Bay Cafe & Bistro in Auckland in December, about his frustration with the new system – watch that interview here.



Building & Construction


The cost of building materials continues to escalate, with the latest research from EBOSS finding that material costs increased by 16 per cent over the last three months of 2021. Costs are expected to rise by a further 12 per cent over the next six months.

Compounding this is the growing issue of supply, with increased shipping costs, worldwide shipping issues and delays at New Zealand ports continuing to affect suppliers’ abilities to get goods to market. Direct shipping lines out of China and Europe to New Zealand have greatly reduced, meaning goods now need to be transhipped via Australian ports, adding more time and cost to New Zealand consumers.

In late January, Winstone Wallboards updated its lead delivery times for its GIB products: almost four months for delivery to Auckland and over six months to Tauranga – this at a time when the number of housing consents in New Zealand is at an all-time high. BRANZ is forecasting new residential building consents to stay at record levels of 40,000-plus for the next four years, but EBOSS says the problems around supply and material costs, along with the acute shortage of labour, mean the industry may not meet this growing demand.

In addition, close to 100 per cent of suppliers surveyed reported that while the costs to buy materials from overseas have increased, only two-thirds have passed those costs on to customers.

And it’s not a simple fix – imported products, or products containing imported components, cannot easily be replaced by materials produced domestically, suppliers say.

You can read the full report here.



Commerce & Consumer Affairs


Recent changes to the regulations of the Credit Contract and Consumer Finance Act (CCCFA) have had unintended consequences, with banks and other lending establishments becoming ultra conservative, making it harder for people to access loans such as mortgages – including those with previously good credit histories.

Many people applying for a mortgage have found their pre-approval has been dropped by their bank, and those applying for a loan have reported that banks have been scrutinising their personal spending habits. Small businesses have also been affected, as many small business owners rely on raising a mortgage to fund their business. They are now facing an increasingly onerous task to access credit.

One of the roles of Government is to ensure the financing market operates properly, but in this instance, the law changes have had far-reaching and undesirable effects.

While Commerce Minister David Clark has blamed the banks for “not interpreting the law correctly” and stalled any decision by calling for an inquiry, National proposed a simple workable solution: a Member’s Bill that would require the Government to issue new regulations that contain separate and different provisions for different classes of lender.

Sadly, Minister Clark rejected our proposed Member’s Bill, saying “it would cause unnecessary delays in dealing with this matter” which is ironic when the MBIE-led inquiry isn’t expected to be completed until April.

National will continue to work constructively with the Government to ensure that vulnerable borrowers continue to be protected, while ensuring people can access credit without undue delay.



Manufacturing


In January I visited Hector Egger New Zealand, a new company based in Otago which specialises in manufacturing high-tech timber structures and prefabricated timber panels, such as walls, floors and roofing, for residential and commercial building construction.

Its brand new factory in Cromwell opened in January 2021, from where it manufactures timber structures and elements ready to transport to a site for erection. All timber elements can be delivered to site fully lined, insulated, fitted with conduits and flush boxes, window and door openings pre-cut to millimetre tolerances, and external walls lined with breathable and waterproof façade membrane and battens. Onsite installation is fast and efficient to assemble to weathertight before cladding, roofing and finishing trades can start to complete the building.

These highly insulated and energy-efficient buildings predominantly use New Zealand sourced, sustainable timber and building materials.

Offsite manufacturing is the future of construction in NZ as it means buildings can be produced much faster than traditional building methods. All components are produced in the factory, and it takes less than a week to erect the framework for an entire house on site, with the house complete and ready for its occupants in under three months. There’s also a greater degree of cost certainty and higher quality outcomes. Also, offsite manufacturing allows bulk material deliveries direct from manufacturers which in turn provides greater certainty around building material supply.

Hector Egger New Zealand is the joint venture business formed between Swiss company Hector Egger Holzbau AG and local Queenstown-based partners Tristan Franklin and Stephan Mäusli. Hector Egger Holzbau AG has 21 years’ experience in offsite manufacturing of timber elements and panels, with three ISO 9001 certified factories operating in Switzerland.

Watch my interview with Stephan Mäusli here.



FPAs and Small Business


The Government is currently working on legislation that will introduce Fair Pay Agreements (FPAs) to workforces across the country. These will allow unions to negotiate with the largest employers in a particular sector to set minimum wage rates, overtime and penalty rates, plus hours and conditions of work, which will then be applied to all businesses in that sector, regardless of size. Legislation is expected to be introduced to Parliament this year.

National strongly opposes this planned scheme. It is compulsory wage control and a return to the days when unions controlled the workplace. Small business owners would lose the flexibility and autonomy to negotiate directly with their employees and put in place arrangements that suit their own business and their employees.

FPAs impose the same rate of pay on all workers regardless of their skills, experience, strengths and productivity. Individual workers will no longer be able to negotiate with their employer for a rate of pay that rewards them for their efforts, and employers won’t be able to negotiate with their employees to arrange working hours and conditions that meet the needs of their business. All agreements will be made between unions and business representatives.

An example of what this FPA will do is a dairy owner in Pukekawa or Kaiapoi will have to pay the same rates as the owner of a large supermarket in central Auckland or Wellington.

Once FPAs are mandated for a sector, individual businesses won’t be able to opt out.

The role of the Government is not to change the shape and direction of New Zealand on its own, but to provide the framework and allow individuals and businesses to lead the way.