Covid reality bites: Business closures spike 130pc
Wednesday, 3 March 2021
Businesses that have held on through months of Covid-19 disruption are starting to fold as pressure mounts with no clear end in sight.
For many months, New Zealand has been operating in an environment in which fewer businesses than normal had closed – from October 2019 to October 2020, the net number of businesses increased by 4.7 per cent.
The credit was given to the wage subsidy, which gave a cash boost to those that might have otherwise closed for reasons unrelated to Covid-19.
But new data shows that all started to change at the end of last year.
Justin Lester, government director at Dot Loves Data, said business resilience was now “being tested”.
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In September through to November last year, 16,234 businesses closed permanently, compared to 7154 in the same period in 2019. That is an increase of 127 per cent. It is still down from the peak of 20,853 business closures due to the global financial crisis. That level was reached in July to September 2011, three years after the initial impact of the downturn.
The number of new businesses opening last September to November was up 8 per cent to 19,906.
“There have been more liquidations compared with any other time in the last five years, but we’re not yet close to the peaks reached between 2008 and 2011 during the aftermath of the GFC.”
Lester said it took a while before people got to the point of closing a business or liquidating.
“What we are seeing is people in Queenstown, Wanaka, the West Coast of the South Island, Te Anau, these areas are heavily affected … the longer this goes on, the worse it will get and compound. We’re far from being out of the woods, it will take time.”
He said the impact was so far not as severe as in the global financial crisis, nor as bad as had been expected.
But it was possible the country would not see the worst until next year or even later.
ANZ economist Sharon Zollner said the data was consistent with her expectation that the economy would go sideways.
Many businesses were starting to feel the real impact of closed borders, she said. For tourism, the borders had closed at the end of a good summer, and then the wage subsidy had paid out a significant amount of money to many.
Domestic tourism had been a boost through winter, when normally there would be more New Zealanders heading overseas on holiday than foreigners coming here.
But from September, the “giant hole” in the cashflow of many tourism and other service businesses had become obvious. Many businesses, particularly in places like Te Anau, were “eating through their buffers”, she said.
“The prospect of a bubble keeps getting pushed back. Some firms are clearly having to make some tough decisions.”
She said overall businesses were still relatively buoyant and many had been pleasantly surprised by the bounceback in spending after lockdown.
But there were still pockets of real pain for those in the wrong place at the wrong time.
Zollner said it was not possible to put the tourism sector on hold indefinitely and the Government could not afford to save every business, particularly when it was not clear what type of tourist would come to New Zealand when the borders opened again nor the numbers.
“You can’t build a bridge when you don’t know what’s on the other side.”
The process of supporting some strategically significant ones that it would be hard to resurrect made sense even if it seemed “blatantly unfair”, she said.
When borders did open again, retail could suffer because people would return to saving for overseas holidays rather than treating themselves to things like spa pools at home.
Employers and Manufacturers Association chief executive Brett O’Riley said numbers of closures were still relatively low.
But he said it was sobering to think it was potentially the tip of the iceberg.
“There are quite a few zombie businesses at the moment, people not drawing a salary, relying on government assistance, but hanging in there. That’s not a long-term thing. The number is disturbing and even more when you think of how much stimulus has been put into the economy.”