On the radar

New Zealand’s strong growth and bold reform agenda have made it one of the world’s most dynamic economies and a prime destination for companies to hold major events and conferences, writes Domini Stuart.

Craig Richardson is chief executive officer (CEO) and managing director of Wynyard Group, a market leader in advanced crime-fighting software used by government agencies and financial organisations. He was born and raised in Australia, and his software grew out of working with the Australian Federal Police. But, 18 months ago, he launched Wynyard Group with a listing on the New Zealand Stock Exchange.

“New Zealand is a relatively small country, which means most of what you need to start and grow a hi-tech company is easily accessible,” he says.

“There’s a concentration of talent here, particularly in the technology area. And New Zealand has a culture of building things for export because the local market is just not big enough to support substantial growth. I think that’s a different mindset from Australia, where you can make your first $10 or 20 million just in Sydney, Melbourne and Brisbane. We always had the view that we needed to make our first 20 million in the UK or the US,” he says.

New Zealand also has a flexible and generally light-handed approach to regulating the labour market. “There’s still debate as to whether deregulating and removing all of our protections in the eighties and nineties was the right thing to do, but it has left New Zealand with a very open and competitive environment,” says Chris Money, director at PwC New Zealand. “Labour is cheap and plentiful.”

“Because it’s so cheap and easy to start a business, there’s a culture of ‘having a go’,” adds Robbie Gimblett, leader of the private business market sector of PwC New Zealand. “Kiwis are known for their adaptability and ingenuity – there’s a saying here that all they need to make or fix something is a piece of Number 8 wire – and, generally, they aren’t afraid of failure. They’ll take a product to market quickly and do the fine-tuning as they go.”

New Zealand has an aggressive regulatory regime for listed companies but the capital market, stock exchange and regulator are all very supportive of small company listings.

“There’s a growing acceptance that the technology sector in particular is expanding very rapidly with high-quality companies,” says Richardson. “The downside is that the market is very small with a limited number of offshore investors, so growing companies can reach the ceiling very quickly.

“It’s becoming reasonably common for companies to access capital at an early stage through an initial public offering (IPO) in New Zealand because you can have cut-through here and get close enough to institutional investors for them to understand your business. Then, as you scale up and look to access more capital and a more liquid market, you can move across to the Australian Securities Exchange (ASX). 

“Xero and Orion Health are good examples, they’re two of the most successful tech companies to have come out of New Zealand in last five years and both are dual listed,” he adds.

Challenges for the board

A fast-growing company with an offshore market demands a range of boardroom skills. Richardson is confident that New Zealand has a critical mass of directors and management teams with the experience to do the job.

“We have maintained our industry advisory council of former intelligence agency and law enforcement executives who continue to assist with strategy and market expansion,” he says. “We have also attracted a strong, independent board of local and internationally-based directors. Our chairman is a former CEO of ANZ Banking Group in New Zealand and his former legal counsel is one of our directors so we have the “big company” experience. We also have two entrepreneurs who have successfully grown technology companies and other directors with US and UK industry expertise. When I think of the boards I’ve dealt with in Australia, the directors have been very high quality but they haven’t come from a start-up, high-growth technology company background.”

Governance in private companies is more of a concern. “With the farming sector, private companies drive the New Zealand economy but there’s still nowhere near enough independent directors on the boards of private businesses,” says Gimblett. “We are seeing one positive trend, however, which is a move toward advisory boards. These can work well for start-ups and fast-growing companies because they’re more informal and so more flexible.”

An economic turnaround

When Lehman Brothers collapsed in 2008 New Zealand was already in recession. By the middle of 2009 the economy had shrunk by a further 3.6 per cent. 

“That was quite a painful time, but a lot of Kiwis were spending more than they were earning and that can’t go on forever,” says Gimblett. “They had no choice but to clean up their balance sheets and cut down on expenditure. You could say we hit a speed bump, sorted things out and now seem to be on a more sustainable path.”

By the end of 2009, demand from the country’s two biggest trading partners, Australia and China, triggered historically-high prices for dairy. The subsequent economic turnaround was so impressive that HSBC economist Paul Bloxham was moved to describe New Zealand as the “rock star economy of 2014”. Growth for the year was 3.2 per cent compared with Australia’s 2.7 per cent, and New Zealand also finished the year with one of the lowest unemployment rates in the Organisation of Economic Co-operation and Development (OECD).

“Growth is being driven largely by construction associated with the Christchurch rebuild,” says Money. “Obviously a lot of money is going into the city to fund major capital projects and also to rehouse people who lost their homes in the earthquake. We’ve also got strong net migration into New Zealand and a significant undersupply of housing in Auckland, so construction, infrastructure and housing are being driven out of Auckland as well. Meat and log prices are pretty good and stable, and tourism is also performing strongly, so we’re expecting to maintain an average of about 3 per cent growth over the next few years.”

An attractive destination

Tourism is one of the brightest stars in New Zealand’s economic firmament, currently generating $9 billion a year and with strong growth predicted to at least 2020.

“The government has invested $600 million in tourism and tourism promotion since 2008 and that really seems to be paying off,” says Franck Hesse, area director of sales and marketing at IHG New Zealand, the parent company of Crowne Plaza, InterContinental and Holiday Inn hotels. “Close to three million people visited New Zealand during the last year and they spent over $7 billion.”

The film director Peter Jackson has also done much for the New Zealand economy by filming both the Lord of the Rings and The Hobbit trilogies in his native land.

“The 100 per cent Pure New Zealand advertising campaign had already created a strong brand when it was relaunched in 2012 as ‘100 per cent Middle-earth, 100 per cent Pure New Zealand’,” says Bjoern Spreitzer, international business events manager at Tourism New Zealand. “A lot of people are now motivated to come here because they feel as though they’re actually visiting Middle-earth.”

A significant income-earner in its own right, the business events sector also drives the broader tourism industry. “We know that many delegates bring their partners or families and stay on after their conference or event,” says Sue Sullivan, CEO of Conventions & Incentives New Zealand. “They spend significantly more than leisure visitors, go home as ambassadors for New Zealand and very often come back for a holiday.”

Four new conference venues should be operating by 2018, including one in Auckland that will accommodate up to 3,000 visitors. “This will open new markets by enabling us to host much larger conferences,” Sullivan continues.

New Zealand is an attractive option for conference organisers as well as the delegates themselves.

“We’re remote enough to be one of the safest countries in the world, which is increasingly important, yet we’re an easy 10-12 hour flight from the west coast of the US as well as much of Asia,” says Spreitzer.
“The city centres are relatively small so the hotels are usually within walking distance of each other, and it’s very easy to travel out of the cities to see dramatically different scenery and many other attractions.”

New Zealand has non-visa arrangements for business visitors from 50 countries and, recently, the government made favourable changes to the rules around the Goods & Services Tax (GST).

“A new refund scheme means that non-resident businesses can save 15 per cent on the cost of events held in New Zealand,” says Hesse.

Emirates and most Asian carriers fly into New Zealand and the national airline, Air New Zealand, has significantly increased capacity on most of its routes. “Air New Zealand is another of the country’s major success stories, posting record profits this year as Qantas and Virgin were reporting losses,” says Spreitzer.

Fluctuating dairy prices

The biggest cloud on New Zealand’s economic horizon is the plummeting price of dairy products, the country’s biggest export commodity. In December 2014, prices fell in auction to the lowest level in more than five years, and agribusiness banking specialist Rabobank is predicting that dairy farmers will continue to face acute challenges in the next 18 months.

“Over the past seven years, dairy prices have shown enormous volatility, with extreme highs, followed by sharp retractions in pricing,” says Ben Russell, CEO of Rabobank New Zealand. “Clearly the rollercoaster ride continues.”

The medium to longer-term outlook remains sound but persistently low prices will inevitably have an impact on the economy as a whole.

“Like Australia, New Zealand is vulnerable to a fall in commodity prices, though New Zealand’s economy has traditionally been more patchy,” says Gimblett. “Fluctuations in commodity prices have been the reality for New Zealand for the last 25 years,” adds Money. “I think that, as a result of that, our firms have learned to be a bit more agile and resilient, as well as a bit more conservative than their Australian counterparts.”

New Zealand is also very committed to finding new ways of creating export income.

“There’s a sense of urgency in their diversification into more modern industries,” says Richardson. “For example, the universities, governments, industry and even the retail investor market are all lined up behind high technology so it’s almost starting to feed itself. I haven’t seen quite the same sense of urgency in Australia. I get the feeling that many people are still thinking ‘after the resource sector what do we do next?’”

Money would like to see more Australian companies forging links with New Zealand. “My question for any company in Australia that’s looking to expand is why not consider New Zealand?” he says. 

“I’m sure many Australian organisations could benefit from our good,