The alert level split between Auckland and the rest of the country is costing the economy $800 million a week, ASB estimates.
Ra Beazley, co-owner of Ika Bowl cafes in Auckland, says if it weren’t for the overheads and debt he wouldn’t be working in hospitality amid ongoing uncertainty.
“2020 and 2021 have been pretty bad. Morale-wise this lockdown announcement was pretty shocking at first but it’s more like, numbness now,” Beazley said.
“I think you’re backed into a corner, you don’t really have a choice. A lot of money and energy has gone into these businesses, and it’s deteriorating as we go on. And obviously it’s no one’s fault.”
Beazley started the business four years ago straight out of high school, but the ongoing uncertainty of working in hospitality has diminished his passion, he said.
“You could say we’re resilient, but we’re giving a lot for what in return? For now we’re just trying to survive.”
He said even out of lockdown his central city businesses were struggling without foot traffic as people continued to work from home and ongoing construction in the CBD.
Earlier this year Auckland entrepreneur Chris Monaghan shut down his two Auckland central restaurants after Covid took away its core clientele, tourists and office workers.
He said there was “no point carrying on”.
“Hospitality is brutal. You need all variables working to ensure the small margins are realised. With no tourists in the city and a work from home new norm, it doesn’t stack.
“This pandemic has seen some industries boom and others fall. It’s not a one-size-fits-all approach. Particular industries have been hung out to dry and it seems the Government’s approach is they are just collateral damage.”
Data from consultancy firm Dot Loves Data shows the business landscape hadn’t recovered from Covid even before this year’s first national Alert Level 4 lockdown.
In the three months before August there were 12,000 business closures.
That number was higher for the three month period than it was the three month period following the end of the wage subsidy in September last year, Dot Loves Data director Justin Lester said. Auckland was the worst-hit region with 5511 businesses closures.
“Having MIQ in Auckland really disadvantages the city. It’s turned Auckland into a sick bay instead of recognising that we are the country’s engine room.”
– Michael Barnett, Auckland Chamber of Commerce
The number of new businesses that opened nationally in the last three months was 7625. This was the lowest level of openings (for a quarterly period) since January 2014, Lester said.
ASB chief economist Nick Tuffley said when the entire country was locked down there was about $1.9b worth of activity each week that was prevented or limited because of restrictions. This was a rough calculation based on what was learned about lost economic output during past lockdowns.
And about $800m worth of activity a week was prevented due to restrictions amid the current alert level split, with Auckland still in Level 4 while the rest of the country was in Level 2. Auckland made up about 70 percent of that loss in activity, he said.
Auckland Business Chamber chief executive Michael Barnett said this lockdown could deliver the final blow for some businesses, particularly those struggling in hospitality and tourism.
The chamber was petitioning to support businesses through an employer subsidy by extending the resurgence payment to weekly instalments. And on Friday, Finance Minister Grant Robertson announced a second round of the resurgence payment would open from September 17 until one month after the entire country moves to Alert Level 1.
He said the lockdown and restraints on all but essential business was costing the country billions, and the resurgence payments would return some of those lost dollars in earnings and productivity back into the economy.
Barnett said the Government also needed to address its MIQ system, moving facilities out of the country’s largest city.
“Having MIQ in Auckland really disadvantages the city. It’s turned Auckland into a sick bay instead of recognising that we are the country’s engine room,” Barnett said.
“Businesses were only just recovering from last year’s lockdowns. They’ve had their assets destroyed slowly through these lockdowns and now they’re back into lockdown with no revenue.
“This is a tough time for businesses and many of them will fail.”
Restructuring Insolvency & Turnaround Association of New Zealand chair John Fisk said the pandemic had not impacted the economy like the Global Financial Crisis did in 2009, when consumer demand fell and businesses felt the impact some years later in 2011.
He said this event was harder to predict because of the booming months that followed last year’s big lockdown.
“It’s a very, very different time,” Fisk said.
“The expectations we had when we went into lockdown last year just did not eventuate in terms of the damage. Covid has been a game changer in a lot of ways.”
He said previous recessions had been led by a drop in consumer demand but Covid had spurred a shortage of supply.
“We’re seeing a shortage of labour supply with record low unemployment rates [and] also supply chain issues. And it doesn’t look like that’s going to change in a hurry.
“There’s a limit to how much businesses can pass those costs on.”
He said increasing pressure on working capital would likely result in big businesses amalgamating and restructuring while small, medium firms would fall over.
“For the smaller businesses I’ve got concerns.”
Fisk said while businesses had shown “incredible resilience” over the past 18 months, the next year will be more challenging.
“Businesses need to prepare themselves for more disruption and focus on having the right working capital and structure to be able to cope with those knocks as they come along.”