Project Auckland: Opportunity costs lie in flood and cyclone response

 

Project Auckland: Opportunity costs lie in flood and cyclone response

Project Auckland: International cities show how to soak up stormwater

Project Auckland: International cities show how to soak up stormwater

In 2015, China implemented a concept known as “sponge cities” in 16 urban areas to combat flooding caused by stormwater.

The initiative was in response to the devastating Beijing flood in 2012, which claimed 79 lives and prompted authorities to make sponge cities a nationwide policy.

The idea was promoted by Chinese landscape architect Yu Kongjian, who advocated for the integration of nature’s ability to absorb, store and filter water into city infrastructure to mitigate against runoff.

This approach involves using green infrastructure to allow water to follow its natural channels, with streams and creeks uncovered, parks and grasslands restored, and planting used to slow down the flow of water and enable natural absorption, infiltration and purification. This is in stark contrast to the conventional grey infrastructure solution that speeds up the flow of water using pipes and drains.

Qunli stormwater park, in the northern Chinese city of Harbin, is an example of the concept. The park collects, filters and stores stormwater, and has become a popular urban amenity for recreational use. Capable of retaining and filtering up to 500,000 cubic metres of stormwater, the park has solved the stormwater inundation issue for an area 10 times its size, spanning over three kilometres.

Reflections from Hong Kong (LinkedIn)

Asian Financial Forum: Optimism in Hong Kong despite economic outlook (NZ Herald)

Asian Financial Forum: Optimism in Hong Kong despite economic outlook (NZ Herald)

While the economy faces a challenging year, China’s reopening is a source of cautious positivity

Despite the International Monetary Fund’s (IMF) projected slowdown of growth this year to 2.7 per cent from 3.2 per cent in 2022 and its suggestion of an outlook fraught with uncertainty, the recent reopening of China resulted in an upbeat mood at the Asian Financial Forum (AFF) in Hong Kong this week.

The high-powered forum included keynote speeches from Helen Clark and former UN Secretary-General Ban Ki-moon, and brought together some 2000 delegates including politicians and policymakers, global financial and business leaders, investors and entrepreneurs from over 70 countries and regions. It was the first in-person gathering for the event after being held in a virtual format for the past two years.

Opening the Summit, Hong Kong’s chief executive John Lee acknowledged the global challenges but said the timing of the forum – just three days after resumption of quarantine-free travel to and from mainland China – provided a source of optimism.

Asian stocks traded higher following the resumption of quarantine-free travel and the end of China’s zero-Covid policy, and delegates shared this bullish view at the AFF.

When polled on expectations of the global economy in 2023, some 69 per cent said they were either optimistic or neutral. Just 31 per cent responded with a negative sentiment about the year ahead.

Chair of HSBC Holdings, Mark Tucker, said China’s reopening and the package of measures it is introducing to stabilise the weakened property market will be positive for both its own economy and the global economy more broadly, albeit with ongoing volatility and challenges associated with the escalation in Covid-19 cases.

“Hong Kong and the Greater Bay Area are likely to be the immediate beneficiaries from the mainland reopening,” said Tucker, expecting a strong recovery to be seen from the second quarter.

Even more significantly, it could potentially be the stimulus on which the global outlook for which 2023 depends on.

Tucker was enthusiastic that Asia was resilient, and had prospects for a strong rebound later in the year.

“We have seen virtually all economies in the region now recovered from the output losses incurred during the pandemic to above 2019 levels,” he said.

He highlighted that India too had become a hugely attractive market within Asia, with a strong long-term outlook, supported by the demographic dividend provided by having over two-thirds of its population of working age, along with important reforms and rapid developments in the digital economy coupled with global supply chain shifts.

“This could be the basis for a 20-30 year runway for growth, as was the case for China in the 1990s,” he said. “The same is still true of Singapore and across many Asean markets more generally.”

In contrast, he said a recession is widely expected in the United Kingdom and the EU with challenges from high inflation driven in part by higher energy prices and the war in Ukraine. Both are contributing to a cost-of-living crisis and squeeze on real incomes.

“The US economy is proving more resilient than those in Europe, and I don’t expect a hard landing,” he said. “I expect any US recession to be much shallower than those in Europe.”

“All of this means I am more optimistic about the second half of 2023. I expect inflation to slowly come under control. The markets are hoping that rates peak in the first half of the year so that any recession is shallow, regionally limited and resolved quickly.”

Chair of Agricultural Bank of China – one of China’s ‘big four’ banks – Gu Shu, shared this encouraging position, telling the forum the US is now facing lighter inflationary pressure, and inflation in the eurozone is expected to peak later this year.

“The need to continue raising interest rates weakens,” he said. “We estimate that in 2023, the pace of interest rate hikes will slow down.

“However, with rising food prices and a shortage in labour supply, the high current interest rates and tight monetary policy is likely to continue for some time.”

Navigating the polycrisis

The forum included a focus on how countries and financial institutions can tackle the looming polycrisis – a term coined to describe the multiple interrelated economic, political, and ecological shocks upending the global economy.

Panellists stressed it will be essential to work closely together to navigate the polycrisis, especially due to the many global issues that will need closer cooperation among countries to solve including the food, energy and cost of living crises, supply chains, climate change and the ongoing pandemic.

Luxembourg’s Finance Minister Yuriko Backes told the forum that while Covid tested the limits of globalisation and exposed several weaknesses, particularly in supply chains, the wrong conclusion for countries to draw from the crisis would be that we need a general decoupling from other economies.

“There is a worrying wider trend toward deglobalisation and protectionism in Europe and also elsewhere, and it is therefore important that efforts to increase autonomy do not translate into widespread market and technology fragmentation.”

Protectionism risk

Backes said there is a risk Europe’s open strategic autonomy, China’s dual circulation strategy which also aims to increase self-reliance, or the ‘Buy America’ rules introduced in the US could lead to a collective decoupling of markets and increased protectionism.

In Asia, multilateralism is on the rise. The world’s largest free trade deaL the Regional Comprehensive Economic Partnership (RCEP) between Asia-Pacific nations including New Zealand, has just reached its first anniversary in force and continues to grow to reach its full potential.

But Antony Leung, group chair of Hong Kong conglomerate Nan Fung Group, said the elephant in the room is the ongoing rivalry between the United States and China, which brings with it trade protectionism and puts wider global cooperation at risk.

“As a result, we are seeing that the world may be facing ‘one world, two systems’ – one being the US-European system, and then the rest of the world,” he said.

-Tim McCready was a guest of the Asian Financial Forum

Dynamic Business: Pandemic era lessons from the Big Apple

Taking part in Air New Zealand’s business delegation to New York on the new direct Auckland-New York City flight was a great opportunity to catch up on the United States economic environment, trading conditions, geopolitics and trends. As someone who hadn’t crossed the New Zealand border since 2020 (but pre-pandemic was a frequent long-haul traveller), it was also a chance to get a taste of travel in the Covid era.

More than 20 of NZ’s most influential business leaders joined the delegation, including the heads of Mercury Energy, NZ Beef & Lamb, Sanford, The Warehouse Group, SkyCity, Infratil, Spark, Beca, Ngai Tahu and the University of Auckland. Between the CEOs and directors on board NZ2, Air New Zealand was responsible for carrying a sizeable fraction of New Zealand’s Top 200 businesses.

These delegations are often predicated around government-to-government relations such as bilateral and multilateral meetings, or free trade agreements, but this trip was different.

Despite including Deputy PM and Finance Minister Grant Robertson and National deputy leader and finance spokesperson Nicola Willis as part of the delegation, one of the distinct things about the trip was that it wasn’t politically focused.

Air New Zealand chair Dame Therese Walsh described the visit as a chance to not only showcase the airline’s new flagship route, but to “get back to doing what Air NZ used to do – be an important part of NZ Inc thinking and New Zealand’s economic development.”

Air NZ CEO Greg Foran’s status in the US was evident (he was previously CEO and president of retail giant Walmart US). He used his cachet to pull in high-profile speakers including Indra Nooyi – the former chair and CEO of PepsiCo and often touted as one of the world’s most influential women.

Though meetings were held under the Chatham House Rule, some of the lessons that stood out from three days on the ground in the Big Apple include:

From New Zealand to New York the challenges remain the same

The mood in many meetings was sombre, as the US grapples with many of the same economic headwinds as New Zealand. A looming recession, geopolitical tensions, constrained supply chains, a shortage of talent, burgeoning inflation and interest rate rises are creating uncertainty.

While Covid restrictions have all but gone in New York, the pandemic has left a permanent mark on the city. Companies in the US have embraced hybrid working which is considered “here to stay” as employees demand the flexibility that comes with it.

Covid testing sites are still scattered about, and despite no requirement for face masks, their use seemed far more common than in Auckland on public transport and in public spaces.

ESG under strain – but ignore it at your peril

The acronym ESG – which takes into account a business’s efforts on environmental factors, social issues and corporate governance – has risen to prominence over the past few years. But recently it has become politicised in parts of the US. Its association with liberalism has seen a backlash among some Republican officials who have described ESG policies as ‘woke’.

Acronym politics aside, there was a lot of talk in New York that US investors, customers and employees are continuing to focus on whether businesses are authentic about their purpose and leadership, and whether they are doing what they say they are doing when it comes to society and the environment.

This is more important than ever as Gen Z (those born between the late 1990s and early 2010s) become more prominent in the workforce. Many are choosing not to engage with businesses or even apply for jobs with employers that have a perceived negative impact on the environment, or an organisation that lacks diversity. If a business can explain why its activities are important not just for commercial differentiation but also for the planet and society, it will be a valuable competitive differentiator.

America doesn’t have time for short poppies!

Kirsten and Craig Nevill-Manning, former Facebook and Google executives who are among our most successful offshore New Zealanders, hosted a reception for the delegation at their spectacular multi-level Brooklyn apartment complete with a stainless-steel slide to traverse the floors.

There, a panel of New York-based Kiwis spoke about the many New Zealand businesses that are doing great things in the US – but stressed that we continue to be too demure for an American audience. To get cut-through in a crowded market that moves quickly, businesses must be prepared to share their unique points of difference and accomplishments as loudly as their competitors do.

The expat community in New York is small but tight-knit. Those that we met on the ground are keen to welcome more to the city and pass on their deep experience and advice to others so that New Zealand businesses can hit Manhattan running and make their mark on the city that never sleeps.

Good news for tourism and business

Despite being closed to visitors for two years, New Zealand continues to have a lot of friends offshore. Everyone who spoke to the delegation had fond things to say about our country and those who have not yet been innately like us and have a desire to visit – even if they couldn’t pinpoint exactly why.

There was an expectation from business delegates and those we spoke to that the direct flight between Auckland and New York will have a role in shaping how NZ’s economy and future opportunities evolve.

One US-based investor likened New York to a “multiverse” since there is so much going on in such a diverse city. He said the need to transit when travelling from the east coast of the US to New Zealand previously put a lot of people off coming to Aotearoa, and the air link will now “connect Middle-earth with the multiverse”, bringing immense opportunity along with greater capital, entrepreneurship, and talent.

Tim McCready was a guest of Air New Zealand on the direct flight to New York.

Infrastructure: Women are a powerhouse in New Zealand infrastructure (NZ Herald)

Infrastructure: Women are a powerhouse in New Zealand infrastructure (NZ Herald)

Tim McCready looks at three key trends influencing the infrastructure sector

Over the past couple of years, the pandemic has had a serious impact on the cost and timings of infrastructure.

While 2022 was hoped to be the year the world returned to some kind of normality, events over the past year — including the evolution of the pandemic and the war in Ukraine — have brought with them supply chain constraints, inflation, and ongoing uncertainty. But despite these headwinds, there remains a steadfast focus on growing the sustainability and equity of the sector.

Here is a look at some of the big topics that will continue to shape the sector over the coming years:

Inflation and rising risks amid uncertain times

Inflation has become the dominating story facing the infrastructure industry in 2022.

The rapid escalation of the cost of construction is being felt worldwide and is creating major challenges for project delivery.

This is being exacerbated by ongoing supply chain constraints. Initially caused by the pandemic, this has continued as a result of Russia’s invasion of Ukraine and the continued snap lockdowns in China.

In its latest quarterly report, the New Zealand Infrastructure Commission Te Waihanga, cautions that if inflation continues to run hot and supply chains remain constrained, it will be challenging to deliver infrastructure rapidly without stretching our limited capacity to build.

But though inflation statistics suggest demand is still outrunning supply, there are emerging signs of a global economic slowdown.

China’s continued push for zero-Covid and the intermittent lockdowns that come with it, combined with its struggling real estate market, has resulted in a sharp drop in growth and the world’s reliance on China will ensure that slowdown is felt everywhere.

Last month the International Monetary Fund (IMF) cut its global growth forecast for 2023 to 2.7 per cent from a previous forecast of 2.9 per cent. In a recent update, the IMF said recent high-frequency indicators “confirm that the outlook is gloomier” than projected, particularly in Europe.

Reduced economic activity will see inflation lessen, but will likely bring with it an increase in unemployment and insolvency risk for construction firms.

As rising interest rates reduce the ability to borrow and see demand for residential building fall away, it will place the broader construction sector under pressure and shift the focus from managing cost increases and capacity pressures to managing workload and maintaining financial sustainability.

As Te Waihanga notes, if the global economy tips over into recession, falling demand from non-infrastructure construction may ease the capacity and skills pressures seen over the last year, and bring with it an opportunity to deliver more infrastructure.

Advancing women in infrastructure

Like all industries, increasing diversity and inclusiveness will be a necessity to address challenges the infrastructure sector is facing.

There has been good progress on this front over the past year. A growing number of businesses in the sector have established diversity targets.

This year Fletcher Building reported its intern cohort had a 50:50 split between men and women, and its graduate cohort was 40 per cent women.

Tonkin and Taylor has found purposefully and openly talking about unconscious bias at all levels of the organisation has been a great tool to create an environment that has zero tolerance for discrimination.
Chief executive Penny Kneebone, says momentum regarding diversity and inclusivity has picked up across the sector in the past year, noticeably via the diversity of voices in the sector sharing their thoughts, perspectives and experience.

“That is great, but it is important to keep up the good mahi and build on that momentum,” Kneebone says. She’d like to see stronger progress made regarding diversity and inclusion metrics across the sector.

“We can talk the talk, but diversity and inclusion metrics will help give the industry insights and indicators on where to take action to improve and ensure that we’re walking the walk.”

Infrastructure New Zealand, the industry’s member association, has several initiatives to help its members create and sustain a diverse and inclusive infrastructure sector.

The group is chaired by Margaret Devlin, elected to the position at the 2021 AGM, who has a particular focus on people, diversity and culture.

She is also chair of Auckland’s Watercare and Lyttelton Port and a director of DairyNZ, Hamilton Airport, IT Partners Group and Waimea Water.

Earlier this year, Infrastructure NZ established a diversity advisory board to help address key challenges facing the sector.

The Women’s Infrastructure Network, set up in 2016 to increase the number of women in leadership roles and grow the visibility of women, now has seven chapters throughout the country and a combined membership of more than 2100 women.

To further attract women to the sector, managing director of international engineering consultancy Aurecon, Tracey Ryan, says there is no single approach that will work.

“It must be a combination of leadership, policies/systems and behaviours, she says.

“We also need to get in front of school children to help break down barriers and normalise that anyone can have a career in the infrastructure industry.

“There are now more senior female leaders in the industry which has been great progress — we are still a small group, but we’re not just a couple anymore.

“It’s about ‘you can’t be what you can’t see’, so the more we support women into senior and leadership roles the better.”

Ryan is herself also co-chair of the Construction Sector Accord.

Sustainable infrastructure to the fore

The built environment is estimated to be responsible for almost 50 per cent of all extracted materials and contributes some 40 per cent of global energy-related emissions.

Emissions are made up of a combination of the energy used to run a building day-to-day as well as embodied carbon emissions — those tied into the construction, maintenance and ultimate demolition.

The focus of green building has largely been on making buildings more efficient to run, which can often come at the expense of embodied carbon emissions. But with the global transition to sustainable and net-zero infrastructure emissions solutions continuing at pace, attention is now turning to the environmental impact of construction.

The heightened awareness of the sector’s impact on the environment means it is becoming increasingly unacceptable for companies to fail to make progress in this regard.

Bolstering this push is the energy crisis in Europe. The invasion of Ukraine has spurred an effort from European countries to reduce the use of oil and gas in the region and improve the energy efficiency of infrastructure.

Last month, the International Energy Agency (IEA) released its annual World Energy Outlook report and noted that the invasion is likely to accelerate the world’s transition to greener energy from fossil fuels.

“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said IEA executive director Fatih Birol.

“Governments around the world are responding to the crisis by doubling down on clean energy — in the US, EU, Japan, China, India and elsewhere. Their new policies are set to help global clean energy investment rise above US$2 trillion a year by 2030, an increase of over 50 per cent from today.”

Infrastructure is not only highly responsible for climate change and integral to its mitigation, but it is also highly exposed to its effects.

If the coalition of nations is to meet the Paris Agreement to decarbonise the global economy by 2050, current momentum seen in green infrastructure looks set to continue.

In a world where the geopolitical and economic environment look shaky, clean infrastructure will help to boost growth, create jobs and build energy security and resilience against the ongoing effects of climate change.

Mood of the Boardroom: Too many situations vacant

A shortage of workers has become a global phenomenon, with the pandemic severely disrupting the labour market. Employers are finding it increasingly difficult to find staff as employees seek out higher wages, remote and flexible work options, and more satisfying employment opportunities that better align with their values.

Further compounding this has been New Zealand’s border closure, which restricted the flow of migrant workers for the past three years. With the border now reopened, skilled workers and pent-up demand from younger people that delayed their OE are considering a shift overseas.

The labour shortage has become a significant economic issue for New Zealand, and a contributor to the ongoing inflationary environment. Though a rising cost of labour may mean employees receive higher wages as employers attempt to attract and retain staff, the cost tends to be passed on in price increases.

When asked in the Herald’s Mood of the Boardroom survey to what degree employee churn is being experienced in their business, just 3 per cent of business leaders say not at all, and 35 per cent say churn is at a manageable level.

“Less than expected,” says Deloitte chair Thomas Pippos. Adds the CEO of a property management firm: “The rate of churn is probably no higher than it has been in the past.”

But a sizeable 56 per cent say churn is increasing, and 6 per cent consider it to be “off the scale”.

A CEO in the design sector says “the industry simply poaches and incentivises with $40,000 salary increases and we have had to do the same, which is unsustainable.”

A tech company chair says while churn has always been high in the IT industry, it is notably higher now: “And some of the salary packages being offered — like double their current salary — make it almost impossible to avoid.”

Some business leaders experiencing significant staff churn are from the real estate industry. But with house prices falling, sales sluggish and housing stock increasing, one industry leader says: “Staff are leaving because they are simply not making an income from real estate.”

Increased investment in staff development

In an effort to retain staff and make up the shortfall in accessible skilled talent, businesses are placing an increased emphasis on investing in employees.

A massive 73 per cent of respondents say their investment in training and skill development over the past two years has increased.

“Lifelong learning and development is key to a sustainable future,” responds Beca executive chair David Carter. “Our Intermediate Development Academy is our latest initiative to be launched.”

Just 4 per cent say training and skills development has decreased, though the reason for this was mostly put down to financial constraints and “expense management due to the pandemic”, or lockdowns significantly limiting the ability of businesses to run programmes to the same extent.

“Our ability to do this was limited in 2020/21, but has increased in 2022 which has balanced it out,” says the head of a professional organisation.

The remaining 23 per cent say training and skill development levels have remained the same.

Immigration delays causing a major challenge

The current immigration restrictions and its management by Immigration New Zealand is another area seen as prohibitive by CEOs.

When asked how challenging this has been on a scale of 1-5 where 1=very difficult and 5= very easy, they give a combined score of 1.85/5.

This response comes from across the board in terms of sectors. “The agricultural workforce is well under strength in key areas,” writes one CEO. “It took two years to get nurses approved, it is crazy,” says another. From a construction CEO: “Our sector needs skilled workers and ultimately the market needs immigration.”

A university boss writes: “Our chief challenge is around international students — who often become others’ workers. There is a potentially dangerous bottleneck we face.”

The need to address workforce gaps at pace, after such a prolonged period with the border closed, has heaped pressure on to Immigration New Zealand’s visa processing capacity. Last month, Immigration New Zealand stood up a Reconnecting New Zealand Incident Management team, with the authority to make decisions and improve the processing of applications. Business leaders are concerned about these delays impacting their ability to source talent, but also the toll it places on staff who already reside here.

“We have worked through the process with a handful of our team who were here when Covid first hit and have almost made it through the process,” writes a CEO in the property industry.

“It has been laborious more than anything else, but I really feel for our people who are in the middle of it. Until the lengthy process is done, they can’t settle in and make themselves at home — and the mental strain of that is real.”

Boost to working holiday scheme doesn’t go far enough

To address the significant and ongoing labour gap, the Government recently doubled the Working Holiday Scheme cap for 2022/23, which will see a further 12,000 working holidaymakers able to enter New Zealand and is extending visas for holidaymakers.

Immigration Minister Michael Wood said the changes would provide immediate relief to those businesses hardest hit by the global worker shortage.

“We have listened to the concerns of these sectors and worked with them to take practicable steps to unlock additional labour,” he said.

But when business leaders were asked whether the change will help, it was met with a muted response. Of those surveyed, just 27 per cent say it will address labour shortages in their sector.

A substantial 45 per cent say it will not help, and 14 per cent are unsure. The remainder says this question wasn’t applicable to the sector they operate in. Many of those that did respond positively left a caveat — while it may help, it won’t be enough to make up the significant number of works that are required.

“It will help, but not at the previous levels nor at the levels required,” says Accordant Group chairman Simon Bennett.

Deloitte’s Thomas Pippos suggests: “Government needs to better allow the market to operate efficiently and only intervene when there is a (looming) market failure.”

Mood of the Boardroom: Business confidence tumbles

Mood of the Boardroom: Business confidence tumbles

Respondents to the 2022 Herald’s CEO survey rated their optimism in the New Zealand economy at an average 1.86/5 — a fall from last year’s score of 2.70/5. This is on a scale where 1 equals much less optimistic, and 5 equals much more optimistic.

Though this is a significant drop in confidence, it is not as low as the record depths seen in the 2020 survey (1.36/5).

“My overall sense is that we are drifting as a country and not really moving forward, accepting it is worse elsewhere,” suggests Deloitte chair Thomas Pippos.

Roger Partridge, chair of the think tank The New Zealand Initiative, recognises threats to the economy abound at home and abroad. “Rising inflation, rising borrowing costs, skills shortages, transport bottlenecks and an increasing regulatory burden (especially labour market regulation) are all creating headwinds for business domestically,” he says.

“Internationally, the story is similar, and in some cases worse. Business is in for a buffeting.”

While the border is now fully open, CEOs consider New Zealand’s relative lateness in reconnecting and “moving on” from Covid has contributed to the confidence knock.

Harcourt’s managing director Bryan Thomson says though there are serious concerns worldwide, such as in Ukraine, “the rest of the world seems more advanced regarding Covid recovery.”

Agribusiness: CEOs of NZ's largest exporters to China talk strategy (NZ Herald)

Agribusiness: CEOs of NZ’s largest exporters to China talk strategy (NZ Herald)

Miles Hurrell

Miles Hurrell is chief executive of Fonterra, the world’s largest dairy exporter.

This year marks 50 years of diplomatic relations between New Zealand and China, a significant milestone in the relationship with our largest trading partner.

Fonterra CEO Miles Hurrell says the dairy co-operative also entered the China market 50 years ago and it continues to be a strategically important market, receiving around one-third of its milk.

The dairy giant’s strategy in China is to meet the growing need of customers and consumers for high-quality nutrition and provide premium dairy to its people both online and in-store.

“China is an important part of the global industry supply chain. Innovation, sustainability and efficiency have seen us succeed over the past 40 plus years and we firmly believe these will underpin our future growth,” Hurrell told the China Business Summit which took place earlier this month.

Despite some softening due to Covid-19, Fonterra continues to see firm demand in China in the medium to long term.

China Business Summit 2022: Opening up panel – Education & Tourism