YEAR IN REVIEW: NZ politics keeps business world on its toes in 2017
By Paul McBeth
Dec. 22 (BusinessDesk) - Political rumblings came into focus in the business world through the tail-end of 2017 as Jacinda Ardern's unexpected rise to the prime minister's office brought a fresh approach to dealing with burgeoning capacity constraints and introduced a level of regulatory risk that's been ignored for the past decade.
Market analysts and economists generally predicted a Bill English-led National Party would retain the Treasury benches for a fourth term, propped up by NZ First and Act. Those odds narrowed as support for Labour's Ardern built up rapidly following her August elevation to the leadership, with investors unsettled by the campaign on a stronger response to migration, new levers to deal with infrastructure issues in housing and transport, and new regulatory measures to combat climate change more aggressively.
Business confidence has soured with the Beehive's red hue, however the economy is in good heart with the figures showing gross domestic product expanded 2.7 percent in the September quarter from a year earlier as an expanding population kept retailers' tills ringing, a tourism boom kept hoteliers busy, and the massive pipeline of building work continued to stoke construction activity.
"We've been employing a lot more people and the size of the labour force has expanded, but productivity growth has been weak," said Phil Borkin, senior economist at ANZ Bank New Zealand. "It's not as weak as we earlier feared but it's still quite soft and that's not a sustainable story."
One headwind faded this year with the recovery in dairy prices, which had banks nervous about the extent of the sector's credit. Those fears have largely abated. Fonterra Cooperative Group plans a bigger payment to farmers for the current season, although it most recently reduced the forecast.
While the gains in both commodity milk powders and value-add milk fats were a boost for Fonterra, it wasn't all plain sailing for the company with an arbitration court in Singapore ordering the Kiwi firm pay 105 million euro of compensation to France's Danone over the botulism scare in 2013. What's more, the threat of synthetic alternatives to meat and animal-based proteins is becoming more of a reality, so much so that chief science adviser to the PM, Peter Gluckman, deems what he sees as one of the big existential risks facing New Zealand as being real.
Water use has continued to be major issue spurring claims of a rural-urban divide if Labour pushed ahead with plans to introduce a tax for commercial users. That didn't eventuate after NZ First rejected anything beyond a levy on water exporters, but has chilled agricultural businesses who are the most pessimistic about the state of the economy as we head into 2018.
House prices reached dizzy new heights, albeit on a smaller turnover as the volume of sales slumped by about a fifth on tighter credit conditions, Reserve Bank-imposed restrictions on highly-leveraged borrowing, and heightened uncertainty about the election outcome.
"When you combine those factors with the LVR impacts and the tightening of bank lending, it’s certainly kept the industry on its toes," Real Estate Institute chief executive Bindi Norwell said. "But now the warmer weather has returned, there is the prospect of reduced LVRs in the New Year and there is more certainty post-election, we’re looking forward to things returning to normal."
The government expects its $2 billion Kiwibuild programme will spur greater activity to meet the housing shortfall, while plans to block foreign buyers of existing residential property is also thought to help quell the market in future booms.
Foreign buyers were a thorny issue this year, with the Overseas Investment Office given a hurry up earlier this year when several transactions were caught in a twilight zone for some investors who couldn't see an end in sight. Others got around that by becoming citizens, such as outspoken Silicon Valley tech billionaire Peter Thiel, whose questionable Kiwi roots were outed this year, although China's HNA couldn't shake the growing unease about its debt-fuelled expansion and was turned away from buying the country's biggest finance company, UDC.
Migration remained a hot topic for the business world as it peaked in July at an annual net inflow of 72,400, underpinning consumer demand and helping firms fill jobs facing skills shortages. Still, that inflow has been largely stuck in Auckland, putting pressure on infrastructure and clogging up traffic, and prompting policymakers of both hues to try to turn off the taps and slow the tide of new New Zealanders. The new government expects to slow that further, although the latest figures are already starting to show the tide turning, notably in the number of Kiwis heading across the Tasman.
The trans-Tasman shuffle isn't just limited to people - NZX-darling Xero is set to shed its local listing in favour of being solely represented on the ASX, something it says will give it more credibility in attracting international investors and analyst coverage.
The move was a blow for the stock market operator, which has had to watch a number of firms depart the bourse without a steady pipeline of initial public offerings to replace them. NZX came under new management this year with Mark Peterson at the helm and he's steering it back to its core business of running the market, something the firm has been criticised for putting on the backburner in the past.
For the Reserve Bank, tepid inflation continued to be a struggle, although it got a stronger grip on what was underpinning the lack of price pressure in 2017. Governor Graeme Wheeler cut the official cash rate to 1.75 percent at the start of the year and kept things pointing in the same direction until his exit in September. His communications got a little clearer on his way out the door, although he blotted his copybook with an over-the-top swipe at BNZ economist Stephen Toplis, going over his critic's head and complaining straight to BNZ CEO Anthony Healy.
The central bank is in for a shake-up under the new administration with the governing legislation up for review, and outspoken NZ Super Fund head Adrian Orr tasked with running the Reserve Bank from March.
The Commerce Commission played an active role this year, rejecting the planned merger of dominant newspaper publishers NZME and Fairfax NZ over the potential loss of voices in the media, turning down Vero's bid to buy insurer Tower, blocking a tie-up between Vodafone New Zealand and Sky Network Television over content control fears, and filing an injunction of a planned private equity purchase of OfficeMax.
Vodafone NZ is being shopped around fund managers for a float next year, but only aged care operator Oceana Healthcare went public in an IPO this year. Commercial lawyers had picked 2017 to be ripe for merger and acquisition activity with big investors flush with cash, but a lot of effort was poured into pitching for ways to break up Fletcher Building after New Zealand's big building firm slashed earnings several times due to a handful of major projects that were running at a loss.
Construction issues weren't just limited to stretched capacity constraints, with Steel & Tube Holdings pleading guilty Fair Trading law breaches in the way it represented steel mesh products that didn't meet required standards.
Meantime, convicted Tenths Trust fraudster Ngatata Love was released on parole in 2017, while his partner in crime Lorraine Skiffington died, and a house tainted by their fraud was ordered to be sold. Market manipulator and former high profile fund manager Mark Warminger gave up his appeal, while Goldman Sachs got ticked off for its role relating to the unlawful trading.
Analysts and economists ended the year relatively upbeat about 2018, with the growth outlook still relatively robust despite the need for productivity gains to start emerging, and as the benchmark S&P/NZX 50 Index looks set to post its best return in five years.
ANZ's Borkin says business confidence needs to perk up, and if it doesn't, could become a self-fulfiling prophecy in stoking a downturn - which would be unusual given the rest of the global economy is looking relatively upbeat, notwithstanding the geopolitical risks and toppy asset prices.