Dynamic Business: The value of seizing the moment (NZ Herald)

The forces and trends that shape the world are not always front of mind when running a business.

But in a world where trends are dramatically changing the way value is created, they form an important backdrop that all company strategy and planning should be considerate of.

Some of the most successful businesses over the past decade have prospered because they have managed to successfully navigate the challenges and opportunities these global forces bring with them.

Andrew Grant, Senior Partner (Asia-Pacific) at McKinsey and Company, says New Zealand is a small, nimble nation with an inherent ability to respond quickly to global forces.

“Over the years we have had many global trends working in our favour, but we’ve failed to respond fast enough to seize the moment and capture the opportunity,” he says.

McKinsey uses the metaphor of a crucible for these forces — “a place or situation in which concentrated forces interact to cause or influence change or development,” and segments these “crucibles” into global growth shifts, accelerating industry disruption, and a new societal deal.

Some, like cybersecurity, geopolitics, and the rapid invasion of technology are already front of mind for executives and the boardroom.

Others, though not so obvious, are just as important to consider.

No one can know for sure what the future will look like. But businesses — both old and new — that grapple with these crucibles and question the assumptions of their business model, can expect to compete more effectively in the increasingly disruptive world we have found ourselves in.

1. Beyond Globalisation

Globalisation as we have known it — and as New Zealand has greatly benefited from — is going to change.

Donald Trump, Brexit, Jeremy Corbyn, TPP: the results of recent elections and referendums worldwide can be attributed to a growing sense of disillusionment, anti-globalisation and protectionism.

Traditional measures of globalisation are also slowing. Trade growth over the past decade has been half of that in the late 1990s and early 2000s.

Following the global financial crisis in 2008-2009, global capital flows as a percentage of GDP dropped dramatically — and have not returned to pre-crisis levels.

Despite this, many argue globalisation has accelerated — but it is taking place in different forms: cross-border data flows are increasing at rates approaching 50 times of those in 2005; the McKinsey Global Institute estimates there are now 914 million social networking users with at least one foreign connection.

The world now has 429 million international travellers, 361 million cross-border e-commerce shoppers, and 244 million people that live outside their home country.

Competing with the increasing number of global players means maintaining a local touch is increasingly important for companies. Rising tension between technology firms in China and the rest of the world is creating a gulf that will be an important factor shaping the future of global tech innovation.

The New York Times’ Farhad Manjoo explains: “You can be Alibaba or you can be Amazon. You can be Uber or you can be Didi. But you can’t be both.”

2. ICASA Factor

Brazil, Russia, India and China (or the “BRIC economies”) are four major emerging national economies postulated by Goldman Sachs in 2001 to become among the four most dominant economies by the year 2050 and the biggest drivers for future global growth.

But more than 85 per cent of the growth from the BRIC economies came from China.

McKinsey proposes that ICASA — India, China, Africa and Southeast Asia — will become the dominant force, primarily because the greatest growth engine has been urbanisation.

At the same time, these regions present some of the biggest risks to global growth, as they struggle to deal with internal obstacles including sustainable urbanisation, increasing productivity, mobilising domestic resources and deepening regional integration.

3. Resources (Un)limited?

As the world’s population approaches 9 billion, there is growing urbanisation which brings with it a rapidly increasing demand for resources. This includes a dramatic increase in the demand for protein, consumption of oil and gas, fresh water, and synthetic and natural fibre.

Yet advances in analytics, automation, the Internet of Things and material science are reducing resource consumption in other areas.

McKinsey and Bloomberg have estimated advanced mobility systems — including self-driving cars, ride-sharing, and electric vehicles — could yield US$600 billion (NZ$880b) in societal benefits through to 2030, by cutting the costs of traffic congestion (about 1 per cent of GDP globally), road accidents (1.25 million deaths in 2015), and air pollution (health problems like respiratory ailments).

In other sectors, algorithms are helping optimise and predict energy use, enhanced oil recovery is transforming resource production, and innovative new materials are helping reduce resource use. Demand for resources is growing, but innovation and technology provide the opportunity for the world to be more efficient with what we have.

4. Technology Invasion

Technology change is happening continuously. But Grant believes we are underestimating the scale and the pace at which technology is evolving and will shape business. “People don’t quite understand how profound and how long the journey is going to be.

“The ubiquity of technologies and the ability to roll it out globally is making new advances far more impactful than ever before.”

We’re seeing rapid innovation in areas where families of technologies are coming together.

The smartphone brought the touchscreen, applications, CPU, LCD displays, wireless connectivity, and lithium-ion battery technology together with advances in miniaturisation.

The development of the autonomous car is combining video cameras, presence sensors, Radar, Lidar, GPS and CPU technology. Instead of linear step changes, we can expect to see combinations of technologies make the scale of change much more powerful.

5. Customer-to-Business

B2C (business to consumer) and B2B (business to business) have long been commonplace, but digitalisation and new business models are giving consumers the ability to shape goods and services, often receiving free access to what would once have been paid for.

Alibaba’s founder and executive chairman, Jack Ma, declared the start of C2B, or consumer to business, open several years ago.

Rapidly growing Chinese mobile manufacturer Xiaomi uses crowd-sourcing to engage with consumers for fast, first-hand feedback on its products. Grant says Xiaomi is becoming representative of where the business world will need to position itself for the future.

Customers are increasingly dictating the terms of what they need (and what they want) directly to companies and the Internet is providing the ability for this to occur as never before. Consumers have an ever-increasing choice, and companies must make decisions about their product offering and which business models they should use to continue to create value.

6. Ecosystem Battles

Five of the 10 largest companies in the United States are platform-oriented. Airbnb now has four million listings globally, more than the top five hotel brands combined.

The company says “on any given night, two million people are staying in other people’s homes around the world on Airbnb”. Uber might be the world’s largest taxi firm, but it doesn’t own its cars. Neither of these companies existed 10 years ago.

Alibaba — the world’s largest retailer — moved NZ$37b (US$25.3b) worth of stock during its November 11 extravaganza, but doesn’t own warehouses to store the eye-watering quantity of products sold through its platforms.

These platforms offer business models that can be enormously disruptive in the way they shape the world, and are shaking up industries that were immune from significant competition in the past.

7. Dealing with the Dark Side

Cybersecurity has become a trillion-dollar issue. Grant says boards of Fortune 500 companies are now spending about 15 per cent of their boardroom agenda on cybersecurity.

The Herald’s Mood of the Boardroom in September revealed that New Zealand’s executives are highly concerned about the threat, with 67 per cent of respondents now doing significantly more to combat cybercrime and 30 per cent doing more “in a modest way”.

Previous Mood of the Boardroom reports suggest a clear — and rapid — trend: in the 2015 survey, cyber crime rated 5.9/10 in terms of impact on business confidence. Last year it became the top issue at 7.16/10, and this year it sat head and shoulders above other issues, with an impact rating of 7.64/10.

Alongside cybersecurity, McKinsey estimates that 81 per cent of executives worldwide single out geostrategic factors as the top risk to growth.

Examples of the severity geopolitics can have on business include:

  • A 4.5 million shortfall of Russian tourists as a result of the ban on agency tours to Turkey in retaliation for shooting down a Russian warplane.
  • 120,000 tonnes of Norwegian trout and salmon have been banned from Russian markets in retaliation for EU and US sanctions over the Ukraine crisis.
  • 16 per cent of London properties listed online have had their price cut after the UK referendum to leave the European Union.
  • 500 direct daily flights were halted in the Middle East as a result of the diplomatic stand-off between Saudi Arabia, Iran and Qatar.

8. Growth Formula Experiments

There is no shared narrative on why economic growth is stuck. Is the problem in developed economies a supply problem or is it a demand issue?

Monetary easing, a universal basic income, and debt mutualisation are among the suggestions on how to restart growth. There is extraordinary experimentation going on, but no consensus.

Grant says solutions will not be singularly political. They will require business, civil society, and the political arena to come together.

“Some interesting insights are coming from Denmark, Switzerland, Finland, Israel, Singapore… I think New Zealand has a real opportunity to lead on this,” he says.

9. Middle-class Progress

The benefits of globalisation have not been distributed evenly. Alhough globally the middle-class have done well, those in advanced nations have missed out.

This has created a widening of earnings disparity, and has been blamed for the increasingly negative view towards immigration, the status quo, and trade deals that appear to favour the boardroom over the workers.

Much disillusionment has been blamed on, and exploited by, politicians, but trust has become a critical flashpoint that companies must address and build back to ensure long-term, sustainable businesses.

Sources: Presentation by Andrew Grant — A new narrative of progress? Major Macro Trends Shaping our Region — to the 2017 Infinz conference; McKinsey report — The global forces inspiring a new narrative of progress.

Phil Goff extends alliance with Guangzhou, Los Angeles (NZ Herald)

Auckland Mayor Phil Goff has signed an agreement with Guangzhou Mayor Wen Guohui and Los Angeles Deputy Mayor Jeff Gorell to extend the alliance between their three cities for another three years.

The third and final Tripartite Economic Summit took place in Guangzhou last week.
Los Angeles, Guangzhou, and Auckland are sister city triplets, and the past three years has seen the Summit rotate between the three ‘gateway cities’ – previously in Los Angeles in 2015 and Auckland last year.

The 97 Auckland delegates represented 70 businesses including tourism, urban planning and design, bioscience, creative, digital and education.

Auckland Council says this has been the largest ever trade delegation to come out of the city noting that business delegates all paid their own way to attend.

Goff – who signed the free trade deal between New Zealand and China during his period as Labour’s Trade Minister – said , “If like me you’ve been coming here for 30 years, you can appreciate just how quickly, how dramatically, how strongly this country has grown.”

“When I came to Guangzhou in the 1980s I travelled by steam engine on the rail. Today, we see a nation that has progressed more quickly and further than any nation I can recall in history.”

Now, Guangzhou is China’s third largest city, contains seemingly endless skyscrapers, and is considered a manufacturing and commercial hub. Although it may not always be the first city companies have in mind when they consider entering China, it has been consistently ranked as by Forbes magazine as the best commercial city in mainland China when considering ease of doing business, talent, location, and international connectivity. Many delegates left the Summit noting that Guangzhou may be a more accessible market for their business than the more recognised larger markets of Shanghai and Beijing.

New Zealand can tend to overuse the phrase “punching above its weight,” but in this sibling rivalry we indisputably are. Auckland’s population of 1.5 million is dwarfed by Guangzhou’s 14 million. Auckland’s estimated GDP of NZ$93.5 billion could be considered a mere rounding error when compared with Los Angeles’ over US$1 trillion.

Yet Auckland’s 97 delegates were met with around 500 others from Los Angeles and Guangzhou that saw value in making connections and seeking out opportunities to collaborate.

The biomedicine and health forum was an example of these collaborations, co-organised by Auckland’s Maurice Wilkins Centre – New Zealand’s Centre for Research Excellence targeting major human diseases – and the Guangzhou Institute of Biomedicine and Health (GIBH), part of the prestigious Chinese Academy of Sciences.

The Maurice Wilkins Centre has been working closely with its Chinese counterparts since 2012, establishing a joint centre for biomedicine with the Guangzhou institute in 2015. The two research arms are now expanding their relationship with new projects, joint symposia in both countries, and increased exchange of staff and students.

“GIBH is one of China’s leading biomedical research groups and hosts many world leaders in their fields,” says Professor Rod Dunbar, Director of the Maurice Wilkins Centre.

“We are delighted that our colleagues in GIBH see such value in intensifying our collaboration, and look forward to working with them to deliver new treatments through the clinic.”

Businesses took part in business matching, sector specific sessions and forums, and a visit to tech giant Huawei’s nearby Shenzhen campus.

While New Zealand can be blasé about our mayors and local Councillors, in China they are considered almost like celebrities. It is for that reason that many of the Auckland business delegates considered the high-level representation to have helped connect them to significant players within companies that they would not have otherwise had access to. While the primary aim of the Summit is to build connections for the long-term outcomes that can eventuate, ATEED has said that several companies have made excellent progress at this year’s Summit.

The Council will track and report on the business outcomes of the Tripartite Summit where possible.

– Tim McCready travelled to China as a guest of Alibaba.

11.11: It’s shopping – but not as you know it (NZ Herald)

Step off the plane in China and there is no doubt about what day it is – Singles’ Day.

It’s hard to escape the sale buzz – billboards, the airport arrival hall, malls, hotel elevators – the advertisements are everywhere.

And the numbers are astounding: more than 140,000 brands offering 15 million product listings to hundreds of millions of consumers. The annual sales event dwarfs its Black Friday or Cyber Monday equivalents in the United States.

Last night, e-commerce giant Alibaba lived up to the hype. Oscars producer David Hill was responsible for the gala event that counted down to the start of the shopping extravaganza. Held at Shanghai’s Mercedes-Benz stadium, the event was broadcast on three TV channels and featured American rapper Pharrell Williams, British singer-songwriter Jessie J and former world number one tennis superstar Maria Sharapova – plus 100 or so other celebrities.

“If you analyse why we are doing the show, it’s to turn shopping into sport and to make shopping into entertainment, so the show has got to reflect that philosophy. And the way the show is constructed – with so many segments, so many stars and fun bits – it reflects the overreaching theme of what Singles’ Day has become,” said Hill.

“We can do things in China we can’t do virtually anywhere else in the world. In America, if you stream to any more than one or two million people you get a swirling circle of death, meaning it’s not connecting. In China, we can stream to over 35 million people. It boggles the mind.”

This year’s 11/11 fiesta has been themed around “retail as entertainment”.

The company’s chief marketing officer, Chris Tung, describes the shopping festival as “bringing consumers around the world a step closer to realising the aspirational life where entertainment and retail becomes one”.

The event is also an opportunity for Alibaba to show off its latest shopping technologies, and gives us a glimpse into what the future of shopping might look like.

Alibaba’s “See Now, Buy Now” was an eight-hour marathon of singing, dancing and fashion. Broadcast on seven TV and online channels in China, the show encouraged viewers to shake their phones whenever they saw something they liked to immediately purchase it.

The Tmall platform is running a “Catch the Cat” promotion, designed to drive consumers to bricks and mortar locations including global brands Procter & Gamble, KFC and L’Occitane.

Customers use their mobiles to earn coupons, discounts and prizes by “catching” the e-store’s cat mascot – in much the same way as the game Pokemon Go.

Other online promotions are giving out virtual red envelopes containing a total of more than 250 million yuan ($54.3 million).

Maggie Zhou, managing director of Alibaba Group Australia and New Zealand, is keen to ensure New Zealand is one of the key markets supported in these new initiatives.

“New Zealand products are perceived as high quality and continue to outperform in China, and we are working … to engage more closely with New Zealand merchants and partners to further encourage this growth.”

Tim McCready travelled to Shanghai as a guest of Alibaba.

Infrastructure: Looking at the opportunities for asset recycling (NZ Herald)

Asset recycling enables the Government to boost its available funds by either selling or offering a long-term lease of underutilised, inefficient, or surplus public infrastructure to investors in the private sector.

In exchange for the sale or lease of those assets, the Government can receive a large up-front, lump-sum payment.

Capital received from divestment can be used to revitalise existing assets, or fund new and critical infrastructure needs that might otherwise have been unfunded or funded using more traditional methods such as raising taxes or increasing public debt.

New South Wales
Since 2012, asset recycling has been one of the core principles of Australia’s New South Wales Government property policy.

The NSW Department of Premier and Cabinet says that “real property assets are only held by Government when required, and in the form necessary, to support core government service provision.”

Australia’s asset recycling has extended to the sale or long-term lease of public assets including ports, “poles and wires” electricity assets and its land titles registry, and has reached a combined value of A$53 billion.

Former NSW premier Mike Baird campaigned at the 2015 election on a platform of infrastructure investment, of which the recycling of assets was the method to achieve this.

Baird’s re-election demonstrated that asset recycling and new infrastructure funding mechanisms can be economically effective as well as politically popular – but they take leadership and vision.

A recent report on asset recycling by Property NSW showed overwhelming support for the NSW Government’s policy of recycling property assets to fund infrastructure and better services.

Of those surveyed, 71 per cent said they favoured leasing or selling under-utilised assets over more traditional measures, such as raising taxes or increasing levels of public debt.

Interest from the US
During his visit to Australia earlier this year, United States Vice-President Mike Pence told business leaders that the Trump administration hoped to emulate the Australian model of infrastructure asset recycling as part of the President’s US$1 trillion infrastructure plan.

New York’s LaGuardia Airport was cited by Pence as one example of an asset that had the potential to be redeveloped with the injection of private funds.

LaGuardia is so badly in need of upgrades, expansion and improvements that President Trump has referred to it as “like from a third world country”, contrasting it (and other US airports) to the “incredible airports” in Dubai, Qatar and China.

Upgrading Circular Quay
It is estimated that the number of jobs in the iconic Circular Quay precinct in Sydney will increase by around 4500 in the next 30 years.

The ferry wharves and adjoining promenade were built in the 1940s and are nearing the end of their life. They are also not compliant with the Disability Standards for Accessible Public Transport.

For these reasons, they are considered long overdue for a facelift.

In order to fund the upgrade, Property NSW is divesting commercial assets that are considered not core to service delivery or of long term strategic importance.

This includes the sale of rights to the ground lease rental income at Darling Quarter for 30 years, for an upfront payment of A$192 million ($215m).

The revitalisation of Circular Quay will support new construction jobs, and the upgrades will deliver improved transport services and an enhanced retail offering for workers and visitors, boosting economic growth and tourism to the precinct.

Viewpoint: Michael Barnett, Auckland Chamber of Commerce chief executive
It would easy to be populist and label it privatisation and kill another opportunity for Auckland. The reality is, existing funding models are failing us and we either need to find an innovative response to this or pay the price of a lack of investment in our infrastructure over the last 40 years with low productivity and community frustration.

Old style asset recycling was essentially selling one lot of assets to fund other priorities – this often meant selling an income generating asset to fund another asset that didn’t.

Today it’s about maintaining ownership control and not owning – an example of this could be with Ports of Auckland where the land and the business could be separated or perhaps an environment where an investor of “like values” might take partial ownership of an asset investing say on behalf of a superfund of New Zealanders with only the intention of investment and not for selling on.

Of course, any funds released should then be invested in our infrastructure needs (transport) – the important thing here would be to have a narrative that articulated the benefit to Auckland that may not be in cash but in productivity, employment opportunities and growth.

Viewpoint: Kim Campbell, Employers and Manufacturers chief executive
If we are to have sufficient funds for the development of Auckland’s growing infrastructure needs we will need to find more innovative funding devices.

The community appears allergic to rates, and tolling the roads is consistently blocked by central government. So what’s left?

Recycling of assets is a tried and proven device overseas where city assets are identified as being underused, redundant or inappropriate, and sold. The funds are immediately put to use for items which will increase the city’s overall productivity.

There are many such assets in Auckland. They may have some amenity value, but the benefits may accrue to a small part of the community. This includes shares in airports, golf courses, quarries, forests, transport corridors, water systems and theatres – to name a few.

Their sale is quite legitimate as long as the money is put to more productive use immediately. Often the sold assets become more productive under new owners as we have discovered with the sale of our electrical generation assets. NSW has a long and successful history of this, including Barrangaroo and White Bay.

Viewpoint: Paul Blair, Head of Institutional Banking, BNZ
BNZ is open to talking about ways to solve the big issues facing New Zealand. Countries and governments around the world are facing infrastructure challenges – New Zealand is not alone.

It is important to look at and consider potential ways to solve issues and have those challenging conversations, but any single “tool in the tool box” (like asset recycling) can’t be a silver bullet – multiple approaches and great collaboration is more likely to get a good result.

Governments face ever-rising demands for new and better enabling infrastructure. Asset recycling is one of the tools that have been used successfully in NSW and other overseas jurisdictions. New Zealand has an opportunity to learn from these case studies.

There are many other tools as well (including modern regulation of infrastructure sectors, centralised and specialist procurement, integrated planning, governance and finance, the use of incentives to encourage private sector and local government investment, etc) and a combination of approaches is likely to be needed as these are complex problems.

New Zealand is an extremely open economy. New and modern business models and exponentially expanding technology mean we are highly integrated into global business flows and trends which are changing at an unprecedented rate.

Business and society change is driven by new technology such as artificial intelligence, social media, robotics, data science, 3D printing as well as big macro shifts in demographics, infrastructure pressures and geo-political changes.

All of this change, coupled with government’s relatively limited risk appetite and the complexity of legislating for and regulating this change, means that governments need to look at alternative models to deliver the infrastructure required to meet New Zealand’s social and economic needs.

Infrastructure: ICBC hungry for projects (NZ Herald)

ICBC NZ has invested across a range of industry sectors, including financing support to the banking syndication for Wellington’s Transmission Gully motorway, several key pieces of infrastructure in the Christchurch rebuild, and a funding facility for a telecommunications firm.

Although ICBC NZ has been shortlisted several times for recent private-public partnership (PPP) tenders, the bank is yet to secure a successful deal.

“We are the newcomer to this market,” says Karen Hou, chief executive of ICBC NZ. “We haven’t yet led a PPP, but the team has become increasingly experienced and we are becoming stronger in-market.”

“It takes a lot of time and effort to prepare a bid. Our commitment to this shows our dedication to being involved in successful infrastructure projects here.”

ICBC NZ has had positive feedback on its bids. Although the future of PPPs has become less clear with the change in Government, the bank is enthusiastic about future projects and ready to show its capability.

“It is important to have new players in the market,” she says. “Having more expertise, funding sources and competition is crucial for long-term, sustainable growth.”

ICBC head office has signalled the significance it places in investing in New Zealand.

The bank’s new global chairman, Yi Huiman, visited New Zealand as part of his first international trip last year, meeting with the Government to discuss New Zealand’s infrastructure investment needs.

“The new board is two years old, and three of the most senior members – chairman of the board, CEO, and chairman of the supervisory board – have already come to New Zealand,” says Hou. “That is unprecedented, and demonstrates that they are very supportive of ICBC’s activity here.”

One Belt One Road
China’s One Belt One Road (OBOR) initiative aims to be the world’s biggest infrastructure project, and encourages Chinese companies to implement infrastructure programmes that help to integrate Asia, Europe, and Africa.

Chinese President Xi Jinping said of OBOR: “The initiative aims to promote orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets by enhancing connectivity of Asian, European and African continents and their adjacent seas.”

Previously, he said: “the programmes of development will be open and inclusive, not exclusive. They will be a real chorus comprising all countries along the routes, not a solo for China itself.”

Hou says ICBC reflects President Xi’s importance placed on investment in global infrastructure – the bank is present in 18 countries along the Belt and Road, loaning US$78.6 billion (NZ$113b) against 288 projects.

New Zealand is at one end of the economic corridor, stretching from the South Pacific through Southeast Asia and into Europe.

Though there is demand for infrastructure projects in New Zealand, Hou says she wishes there were more opportunities available.

“Although there are currently not many PPP projects available for investment, we hope there will be more launched soon,” she says.

“There is a huge demand for further infrastructure in New Zealand, but New Zealand is short of the capital, skilled labour and quick decision-making.”

Hou sees this as a great opportunity for both countries. New Zealand can provide projects and investment opportunities, while China brings experience and expertise across a range of infrastructure classes – bridges, railways, motorways, schools, power and water – along with capital.

Hou says ICBC has around six million corporate customers in China. The bank has a very robust credit approval system, knows their background, and understands their involvement in global projects.

“Many corporate investors are showing increased interest in investment opportunities in the New Zealand market from China, Asia, and the rest of the world,” says Hou.

“When they come to this market, we help to bridge the understanding, knowledge and information gap between the two countries.

“When our customers first come here they always consult us on the current market situation. Because of our intimate understanding of both sides, we have an unparalleled advantage.”

Hou says the bank’s experience with infrastructure projects across many countries ensures it can identify and select the best Chinese partners.

“The bank wants to deliver successful projects, so it is important to us that we select those companies that have significant global experience on major projects, as well as a good attitude towards environmental protection.”

Leading in clean energy and green investment
ICBC has become a leader in supporting clean energy and environmental infrastructure, with the bank providing funding globally in projects including hydroelectric, wind, geothermal, and solar.

“People might not have a good impression of China’s environmental concern,” says Karen Hou, chief executive of ICBC NZ. “But that is in the past. Nowadays China is totally different, highly developed, and people’s ideas have totally changed. We want environmental protection, and a better life.”

The bank has now recently announced its One Belt One Road Green Climate Bond that will be listed in a new market known as the Luxembourg Green Exchange (LGX).

The use of proceeds for this bond will be dedicated to ICBC’s global financing and refinancing of eligible green assets in renewable energy, low carbon and low emission transportation, energy efficiency, and sustainable water resources management in areas key to the OBOR initiative.

ICBC is the first Chinese bank with a “Green Bond Framework” aligned to both international and Chinese green standards.

It is also the first Chinese bank to receive a “Dark Green” second opinion by the Oslo-based Centre for International Climate and Environmental Research.

http://bit.ly/TimMcCreadyDonaldTrumpMood

Tim McCready

The “Trump factor” is one of the major issues impacting chief executives’ confidence in the global economy.

In last year’s Mood of the Boardroom survey – held just over a month before the US presidential elections – CEOs rated the election outcome as their third greatest international concern impacting on business confidence.

A year on, they see Donald Trump’s presidency and its resultant political instability as taking the edge off a generally positive outlook. CEOs rated the “Trump factor” their second highest international concern at 6.47/10 with 10 saying they were “extremely concerned” about its effect on political instability.

“The Trump regime has amplified geopolitical instability considerably,” said Rob Cameron, founder of merchant bankers Cameron Partners. “Global political outcomes are more unpredictable.”

“His performance is so poor we can only hope for impeachment,” added a law firm head.

Despite the negativity towards the president, 80 per cent of those surveyed say their view of Trump’s performance won’t affect their own company’s intentions with the United States:

“Operating in the US isn’t easy, regardless of who is in power,” said a tourism boss. “The domestic economy actually feels very strong in the US from a business operating perspective.”

“It remains a key market for us, no matter the presidency. Therefore, we remain committed to the United States,” added Don Braid, Mainfreight’s group managing director.

Others cited the ability for the US Congress to moderate the actions of the President as offering reassurance:

“Fortunately, in the United States, the founding fathers designed a constitution with checks and balances. Despite the concerns about Trump gaining a lot of media attention, his ability to implement action is limited,” explained a major law firm partner.

“He is mercifully restrained by the constitution and the checks and balances in the system,” said Kate McKenzie, Chorus CEO.

Several executives in the real estate industry thought Trump was having a positive impact on their business, as he unintentionally makes New Zealand a more appealing environment:

“As more Americans look to diversify investment and lifestyle outside the US, New Zealand’s clean green image and welcoming economic and political environment makes us a favoured destination,” said one real estate chief executive.

Another commented: “Trump’s irrational behaviour makes New Zealand’s isolation one of our greatest strengths.”

Neil Paviour-Smith, managing director of Forsyth Barr thinks Trump will help New Zealand businesses to bolster its trade in other markets. “While the New Zealand economy is continuing its expansionary phase, we are seeing more synchronised growth globally – including former laggards Japan and the EU – despite a lot of distraction from geopolitical-related activities.”

Much of the comment was pungent. Simplicity’s Sam Stubbs predicts – “as the ultimate apprentice in the ultimate game show, he will be, ultimately, fired.”

Closer to home there was some criticism of New Zealand businessman Chris Liddell – a former chief financial officer at Microsoft and General Motors – who heads Trump’s strategic development group focusing on priority projects and liaison with the private sector.

“Trump is an absolute tosser! What is Chris Liddell doing there?” questioned Local Government Funding Agency chairman Craig Stobo.

Another added: “Though in talking with a prominent Kiwi in the White House, he believes Trump is a very clever person who knows business and will succeed – as long as he gives up the stupid tweeting and mind games over people.”

Though Liddell is still in the White House, the turmoil and unprecedented staff turnover in Washington and delays in filling key jobs in US Government departments, has been noted.

“A disastrous lack of leadership is leaving the United States increasingly rudderless,” said Beca’s Greg Lowe.

“Trump is worse than I thought he was going to be,” added a real estate executive.

The Trump administration has seen a number of high-profile staff leave the White House.

Recent departures include Sebastian Gorka, deputy assistant to Trump; chief strategist Steve Bannon; communications director Anthony Scaramucci – dismissed after only 11 days in the job – and chief of staff Reince Priebus.

But the new chief of staff, former marine general John Kelly, is said to be bringing discipline to the show.

Protectionism rears its head
One of Trump’s first actions as president was to throw out the TPP agreement which New Zealand signed in Auckland in February 2016 along with 11 other nations. During the 2016 presidential campaign, Trump frequently criticised TPP – labelling it “horrible,” a “bad deal,” and a “death blow for American workers”.

His new “America First” strategy has had a wide impact on US involvement in regional and multilateral trade agreements. The president favours individual deals on the proviso they can be quickly terminated in 30 days “if somebody misbehaves.”

He has recently stepped up calls for a more protectionist stance. Dismissing some of his top staffers as globalists, he has demanded a plan be drawn up to impose tariffs to remove China’s “unfair advantage” displayed by its trade surplus with the United States. “There is no dodging it, the world is more fearful and feels (but may not be yet) more protectionist,” says a senior player in the investment community.

“The move towards protectionism causes one to be more cautious and concerned about the outlook,” says Cathy Quinn, partner and former chair at MinterEllisonRuddWatts.

The protectionist stance also brings with it the possibility of border taxes, which some congressional Republicans have put forward to support Trump’s commitment to increase American competitiveness and prevent jobs shifting overseas.

This would mean companies could no longer deduct the cost of imports, creating strong incentives to retain and relocate supply chains and research to the United States. But there are fears this could spark a trade war, as countries move away from the US and source products and materials elsewhere.

Without a detailed proposal for border taxes, it is impossible to comment on the specifics. But chief executive respondents to the Herald survey indicated they are reasonably concerned about potential risks to exporters trading with the United States, rating this at 5.2/10.

“Implementation of the Border Adjustment Tax poses a very serious risk to New Zealand’s wine exports to the United States – our biggest export market – and will undoubtedly be damaging to the industry,” says Erica Crawford, founder and managing principal of Loveblock Wines.

Threat of nuclear war
There is no doubt the threat of nuclear war has escalated considerably since Trump became president.

Earlier this month, Pyongyang said it had successfully trialled a hydrogen bomb that could be loaded onto a long-range missile.

North Korean state television said the trial, which was ordered by leader Kim Jong-un was a “perfect success” and a “very meaningful step in completing the national nuclear weapons programme.” It received international condemnation – including from New Zealand’s Foreign Minister Gerry Brownlee, who called the test “utterly deplorable.”

As is customary, Trump responded by tweet: “North Korea is a rogue nation which has become a great threat and embarrassment to China, which is trying to help but with little success.”

This was followed by: “South Korea is finding, as I have told them, that their talk of appeasement with North Korea will not work, they only understand one thing!”

Trump didn’t expand on what that “one thing” might be, but at an unrelated event last month he promised to inflict “fire and fury like the world has never seen” upon the totalitarian state if it acted in a hostile manner.

It is not surprising then, that the potential for nuclear war in Asia was considered by CEOs to be of reasonable concern, rating at 5.9/10.

“North Korea is a serious issue, which would have come to a head with or without Trump. The problem is Kim Jong-un can’t be fired, only fired upon. This is not reality TV,” said Simplicity’s Stubbs.

The Trump Factor
CEOs rated President Trump’s policy initiatives and actions on a 1 to 5 scale (where 1= not impressive and 5= very impressive).

  • Implementing his campaign agenda including a radical cut to the corporate income tax to 15 per cent: 1.51/5
  • Trump’s call for an “America First” trade policy with a focus on bilateral trade deals: 1.31/5
  • Threats of a nuclear strike on North Korea: 1.30/5
  • United States withdrawal from the Paris Climate Accord: 1.24/5
  • Dealing with Russian security concerns: 1.24/5

http://bit.ly/TimMcCreadyKingmakerorQueenmaker

Tim McCready

New Zealand First leader Winston Peters may not be universally admired by the C-suite, but chief executives rate him a shrewd politician.

“Winston is undoubtedly in my view a supreme politician!” said Joanna Perry, professional director and chairwoman of the IFRS Advisory Board. A legal firm boss added, “Peters plays the political game very astutely. But he is the ultimate opportunist on the political front.”

Peters, 72, has previously held the roles of Deputy Prime Minister in Jim Bolger’s National Government (sacked by Jenny Shipley) and Foreign Minister in Helen Clark’s Labour Government.

NZ First currently has 12 MPs, and following the election expects to have former Labour MP Shane Jones join the ranks, listed comfortably at eighth on the list.

NZ First has released some favourable policies for business – including cutting corporate tax rates to 25 per cent – but his negative stance on the TPP, foreign investment and immigration, along with his growing shopping list of bottom lines, has damaged his reputation with business leaders.

Chief executive respondents to the Herald’s CEO Survey rated Peters’ political performance as leader at 2.76/5 on a scale where 1= not impressive and 5= very impressive. But it is the NZ First leader’s ability to exert leverage under the MMP political system which makes him a key player at the September 23 election.

It is possible Peters will not be the sole potential kingmaker or queenmaker when coalition negotiations begin after the votes come in. Or at least not with the same levels of bargaining power the NZ First leader might have had eight weeks ago, before Labour began its poll climb.

Before Labour’s leadership change, NZ First was considered the only path to power for either National or Labour. But in light of the “Ardern Effect”, there is some evidence that disillusionment with the status quo is spilling over to Labour, with recent polls showing they now have more than one path to form a government.

CEO respondents identified the young vote – and young females in particular – as those who might be drawn to vote for Labour this time, favouring a removal of a stale Government in favour of a fresh one.

When asked who NZ First should form a coalition with, most CEOs (69 per cent) opted for National. Just 4 per cent said Labour. What is notable is that a considerable number said the decision should be up to the voter – and not a case of the tail wagging the dog.

“The party who secures the largest portion of the vote from the electorate as that is the party most New Zealanders want to see form government,” said Beca’s Greg Lowe. Others thought NZ First should just support the largest party on confidence and supply rather than trying to “blackmail policy concessions that result in much being watered down”.

There was growing support for both major parties to reject NZ First as a coalition partner and instead form a grand coalition – between Labour and National – as has been seen in Germany, or for both parties to simply go back to the polls instead of making a deal with Peters. “Maybe National and Labour should form a grand coalition to get some long-term things right,” recommended an automotive CEO.

Both National and Labour have ruled out giving the prime ministership to Peters. Unsurprisingly, 94 per cent of chief executives were also strongly opposed to the major parties conceding the prime ministership on an interim basis to achieve power.

Most thought the party with the largest share of the vote should be in control, and that minor parties should not have this level of influence.

Some of the responses were on the nose: “Heck no,” “FFS”, and “Winston doesn’t have the work ethic to be Prime Minister even for a couple of weeks.”

In this year’s Mood of the Boardroom, a majority of chief executives expected the disillusionment with traditional politicians would spill over and affect the results of the upcoming election.

Brexit. Jeremy Corbyn. Donald Trump.

Recent outcomes of elections and referendums around the globe have been anything but predictable and can be largely attributed to disillusionment and rejection of immigration, globalisation, and a loss of national identities.

But many also believe disillusionment with the status quo can be explained by the curse that comes with ruling for three terms:

“We are already seeing it – sensationalism and strong communicators are winning votes,” adds a media industry CEO.

“There will be some fatigue with another National government term but not the disillusionment with political institutions that we have seen in the US and Britain,” reckoned Rob Cameron, founder of Cameron Partners.

“We are in a very different position to the US and UK,” says a professional director. “Our economy is strong and we have choices as long as we make them wisely.”

Others think the disillusionment runs deeper. An executive in the wine industry: “People are sick of smug, self-indulgent, middle-aged white men. At least I am.”

http://bit.ly/TimMcCreadytaxcuts

Tim McCready and James Penn

The Government’s election-year Budget contained $2 billion worth of tax cuts from April next year – on the proviso National gets elected on September 23.

When the Mood of the Boardroom asked CEOs whether now is the right time to cut personal income tax, most (56 per cent) responded no, 38 per cent said yes, and a further 6 per cent were unsure.

“Tax at the current level is workable; there is no urgency,” says Oregon Group managing director Thomas Song. A recruitment head suggests tax cuts are a good idea “if you want to buy votes”.

Many responded that any tax cuts should be targeted to low and mid-income earners. “Target those that really need it,” says the managing director of a public relations firm. “Give cuts to lower and middle-income earners as a matter of urgency,” said a wine industry executive. “Giving cuts to top bracket achieves nothing.”

Most respondents felt that investing into other areas – particularly housing, infrastructure, education, health and climate change – is more important.

But Bill English disputes that you can’t have both.

“We can achieve our social and our environmental objectives at the same time as having a strong economy,” said English during the recent TVNZ leaders debate.

“We can have a strong economy with reasonable taxes, give hard-working families $1000 a year on the average wage, that they can make some choices about.”

“There is still too much to do in New Zealand,” says a major banking boss. “Infrastructure investments, and fixing our schools and hospitals. After that, maybe.”

Vector Director Dame Alison Paterson agrees: “I think the majority of New Zealanders believe that while there are children living below the poverty line, there should be no personal income tax cuts.”

CEOs were asked whether now is the right time to bring in a new progressive tax rate on high earners. A large majority – 79 per cent – responded no. Just 13 per cent responded yes; 8 per cent were unsure.

Many chief executives were concerned this would discourage growth and could make it difficult to attract and retain skilled workers in New Zealand. “We don’t want to drive talent offshore,” says Mai Chen, managing partner of Chen Palmer.

Most of those in favour to raising taxes for high earners had a caveat: “it is subject to where reinvestment goes,” said a media boss. “As long as the proceeds are targeted towards eliminating inequality,” said another.

There was scepticism among respondents that increasing the tax burden on high income earners would help contribute to long-term productivity and societal gains, and would be against global trends.

“Higher earners will generally still spend a high proportion of their disposable income,” explains a printing boss. “The Government collects GST from every additional dollar spent, and they are more likely to spend in areas such as medical insurance and private education, resulting in a lesser load on government services.”

Several CEOs worry that increasing tax on higher earners could lead to an increase in tax avoidance measures. “A huge proportion of the New Zealand tax burden is paid by a small number of supposedly high-income salary earners,” says an agribusiness boss. “A new progressive tax would make this burden worse.” Others suggested a wealth tax or capital gains tax might be more productive in the long-term.

The other major form of tax paid by individuals is GST. Executives were keen to see a movement towards a regime where GST, as well as regional petrol taxes, was returned to the regions in which it was collected, to go towards local economic development. Indeed, 76 per cent of respondents supported such a policy.

Mainfreight group managing director Don Braid is one of those in favour. “It is so important this debate is had,” says Braid. “Having Wellington think they have the answers for how much is spent on infrastructure in the regions is yesterday’s answer. We need to be thinking about a bottom-up approach to regional tax investment.”

Enthusiasm wasn’t universal.

“Having seen the standard we currently have at local government level, further devolution of power would need to be coupled with a major rethink on how to attract talent and experience to move into that space.”

“Daft idea,” said one executive. “Local government would just waste the money.”

Thomas Song’s top three issues

  1. Productivity: Every factor of input is expensive because of the political insistence on New Zealand labour. If we buy infrastructure, we should buy “quality and speed at cheapest price”. How the supplier delivers shouldn’t be our concern except, of course, slave labour excluded.
  2. Ignorance of world affairs: Move to educate with diverse sources of teachers from offshore.
  3. Complacency: The average Kiwi has very little idea about our largest trade partner – China. Most still believe China is still in the Mao era of cheap labour. Again, make knowledge of our trading partners a priority.

http://bit.ly/TimMcCreadyJamesShawMood

Tim McCready

Chief executives have strongly marked down Greens leader James Shaw’s leadership abilities in the wake of the Metiria Turei scandal which claimed the career of his former co-leader.

Whereas last year, CEOs ranked Shaw second in their performance rankings for Opposition MPs, this year he has slumped to ninth place just behind fellow Green MP Julie-Anne Genter.

It is a stunning turnabout for the MP last year’s Mood of the Boardroom had billed as part of a “dream team for the future” along with first-ranked Opposition MP Jacinda Ardern.

“James disappointingly has been damaged by the Metiria issue and undone all the good work securing new urban Green voters. He lacked decisiveness on an issue that was black and white,” says a transport CEO.

A professional director agrees: “I would have rated James a five six weeks ago, but his handling of the Turei affair was appalling and the Greens are damaged almost to the point of extinction as a result.”

Chief executives believe Shaw should have called time on Turei after her admission she had intentionally misled authorities about her living costs while on the DPB.

Her admission of benefit fraud initially spiked the Greens poll ratings. But outrage grew after further revelations that Turei had registered at her former partner’s address in a prior election in order to vote for a friend.

The fallout continued when Kennedy Graham and David Clendon – two of the Greens’ most long-serving and respected MPs – quit in protest, saying they could no longer support the leadership. The killer blow came when a Newshub-Reid Research poll revealed a slump in support for the Greens – down 4.7 points to 8.3 per cent. Turei finally admitted defeat and stood down leaving Shaw as the party’s sole leader.

“It has become a joke,” says a banker. “The Greens were clearly out to steal votes from Labour with their announcement of a no-questions-asked welfare policy, and Labour have clearly done their best to steal those votes back again, helped by Ms Turei’s extraordinary performance.”

Chief executives had to this point considered Shaw an asset to the Green Party. He has an impressive background, with a pre-politics career in management consulting, working offshore with multinationals to develop their sustainable business practices.

Stick to the environment
CEOs believe the Greens should now “stick to their knitting” and refocus on environmental policies instead of standing by while Labour and National grab terrritory.

A banking boss says: “If James Shaw can make the Greens a truly environmental party – rather than a party of social justice activists and protests – that will be good.

“It will push Labour and National to up their game around New Zealand’s pressing environmental issues.”

“The Greens need to provide the necessary environmental platform and stand strongly on that platform,” says a wine industry boss. “Sadly, they have neglected the environmental aspect for a Labour agenda.”

Labour’s eleventh-hour leadership change to Ardern has seen her reclaim the progressive agenda as her party hoovers up the soft Green vote.

An automotive sector boss said the leadership spill had demonstrated they are not sure themselves whether they are environmentalists, left-wingers or a Third Way party.

“Talk to James and you might think the latter, but I’m no longer sure and Jacinda might be better without them.”

Scrap the MoU with Labour
Some 78 per cent of CEOs now think that the memorandum of understanding (MoU) that Labour and the Greens forged in May 2016 should be scrapped.

Others think it had its merits when the Opposition needed to project an alternative option to a popular National-led government.

“The context in which it was signed is more part of the past than the present given where Labour in particular was in the polls,” says Deloitte CEO Thomas Pippos. “In terms of today, I would have thought the Greens would be better placed out of it and more focused on Green issues in and around the centre; as they could naturally, under an MMP environment, be within successive Governments for extended periods of time.”

During Three’s recent The Nation debate, Shaw was asked why the Green Party did not transcend left and right as it said it would when it was set up.

Shaw explained: “We felt it was only fair to voters who want to know which way their vote is going to count that we would say we’re with the parties of change.

“If you want a progressive, Labour-led government, the Green Party has to be at the heart of that government because they won’t be able to govern without us.”

But many CEOs disagree, saying that a blue-green government is one they could get behind.

“Greens should work with National to form a government” says Onno Mulder, City Care Group CEO.

Mainfreight group managing director Don Braid offers the Green Party and Shaw sage advice: “Get on and believe in yourselves rather than worrying about who you might need at your side, or not!”

Tell me: Who are you?
“Raise your profile” is the overwhelming message from CEOs when asked about Opposition MPs.

While most were rated an average of between two and three (out of a possible five), an alarming proportion of “Unsure” votes were given as well.

MPs such as Labour’s Chris Hipkins and Dr David Clark and NZ First’s Tracey Martin all received “Unsure” responses from over 40 per cent of respondents, for example.

Martin was ranked lowest overall of 20 Opposition MPs rated by respondents, with an average rating of just 1.57.

This translated into uncertainty and pessimism about a potential alternative government.

“What do these people actually do?” asked the director of a law firm. “One hears nothing of them until election year.”

“There is a lot about a Labour government that is unknown – and thus risky,” said Rob Cameron, founding partner of investment banking firm Cameron Partners.

However, cause for cheer will be the performance of Labour’s core election team.

Leader Jacinda Ardern was well in front, with an impressive average rating of 3.81.

She was flanked – as in the election campaign – by deputy leader Kelvin Davis on 2.97 and finance spokesperson Grant Robertson on 2.96.

“The bench strength outside of any Government always suffers from a concern around whether they are ‘game fit’,” said Deloitte CEO Thomas Pippos. “The inexperience in this case exacerbated by the number that have never been in Government – or if in Government, in lesser roles and 9 years ago… but everyone starts somewhere.”

NZ First leader Winston Peters received a smattering of ratings across the spectrum – culminating in an average rating of 2.64. This was a slight drop on his rating from last year (2.90).

“Winston gets a midway mark for being Winston,” summarised one business leader.

“Really!” said one investment banker, when asked his opinions on Peters’s key election policies. “Is that all they have got?”

“Dog whistle – playing to the base,” said Matthew Cockram, CEO of Cooper and Company. “None of these things will add to New Zealand’s productivity or wealth.”

http://bit.ly/TimMcCreadyWater

Tim McCready

Many CEOs raised the state of New Zealand’s water quality as one of the top issues currently faced by the nation. “We are risking killing the goose that’s laid the golden eggs due to our complacency around water quality,” says Theresa Gattung, AIA Australia Chair.

A staggering 93 per cent of CEOs agree more should be done to ensure New Zealand has clean water in the future (3 per cent said we are doing enough, 4 per cent are unsure).

CEOs suggested the current government was under-performing in tackling water quality and the environment, scoring 2.51/5 (where 1 = not impressive and 5 = very impressive).

“We need to be far more aspirational with our targets,” suggests a food and beverage boss.

Added Gattung: “What we have collectively allowed with regard to water degradation is a disgrace and we cannot accept the current timeframes to get back to swimmable waterways.”

Business leaders are concerned New Zealand’s “100 per cent Pure” slogan may not be sustainable unless corrective action is taken. Last month, the Al Jazeera channel launched a two-part investigation into New Zealand’s water quality. The documentary – Polluters Paradise – focuses on the impact dairy farming has had on rivers and lakes, and asks whether New Zealand’s waterways are “as sparkling as the tourist ads suggest?”

The investigation claimed there were “troubling questions about what can happen when a nation’s desire for economic growth, however understandable and justifiable it may be, takes undue precedence over the environment”.

This is a significant worry for many CEOs, who say if decisive action is not taken soon, we could blow New Zealand’s unique environmental position and perception, causing far-reaching economic impact. Several respondents thought water ownership was a major issue. “We need to reach agreement on the ownership of water with Maori, with regard to the Treaty of Waitangi provisions,” says an agribusiness leader.

An independent director agreed: “There needs to be a national conversation on water ownership, management and protection.”

Perhaps offering some perspective to the water debate, one chief executive pointed out that such a high percentage calling for more to be done with respect to water quality is not unexpected: “for context, you would tick yes for every other country in the world too”.

Peak cow
A significant percentage of chief executives believe dairy intensification in New Zealand has gone too far (43 per cent say yes, 27 per cent say no, 30 per cent don’t know), suggesting it is time to move up the value chain event to plant-based milk.

Several business leaders say expansion on to marginal land that is unsuitable for dairy farming is causing lasting damage: “We are doing things with some land that is not naturally aligned. Long term, that will have an impact,” says a capital markets head.

“New Zealand has reached peak cow,” says a major banking chief executive. “The focus should move to creating more added value from dairy, rather than increasing the number of commodities we put on the international market.”

Policies
Several policies relating to water have been announced during the election campaign.

Labour wants to charge for the large scale commercial use of water. The royalty for bottled water would be charged per litre, whereas irrigation would be charged per 1000 litres. Revenue from the royalties would go to regional councils, with the expectation it would be used to keep waterways clean.

Labour’s finance spokesman Grant Robertson says the likely rate for irrigators would be somewhere between 1 or 2 cents per 1000 litres.

The Green Party also wants to charge for the sale and export of bottled water, putting a 10 cent levy on its sale and export, which would be applied at the point of manufacture. The revenue from the levy would be distributed between councils and mana whenua, with councils expected to use the revenue for environmental programmes and drinking water management.

Though many respondents indicated they are in favour of a water tax, the varied responses from CEOs demonstrate it is not a simple task:

  • “Labour’s water policy is a good start to rethinking how to allocate a valuable resource. Would water bottle sales be a more economically sustainable export than dairy?” Craig Stobo, Chair, Local Government Funding Agency
  • “Focus on where water is used and/or polluted – agriculture rather than the small percentage in bottled water.” Food and beverage boss
  • “This is not just a rural issue. Many cities have woeful sewage management and this needs to be addressed as well.” Agribusiness chief.