New Zealand businesses constrained by barriers to investment
Four in 10 New Zealand businesses (39.8%) are being held back from replacing unproductive assets by the tax rate and regulatory burden, despite 81.2% of firms indicating they are suffering from using outdated assets. In addition, the strength of the New Zealand dollar is also a barrier to investment, with just under half of all businesses (46.9%) noting this is an issue.
These are just some of the findings from the latest Alleasing New Zealand Equipment Demand Index (the Index), which examines the current asset inventory of New Zealand businesses as well as their expectations for future investment.
The Index data suggests that despite businesses showing a willingness to adopt a proactive approach to capital expenditure (capex) over previous rounds of research, increased confidence in their own operations and optimism towards the state of the economy, there are considerable roadblocks to doing so. In addition to the high dollar, tax rate and regulatory burden, a considerable number of firms have indicated that a significant increase in retail demand (30.3%) would need to happen in order for them to replace overused assets.
Alleasing’s Chief Executive Officer, Daniel Blizzard, points out that if businesses continue to be held back when it comes to investment, the number of those negatively impacted by assets overdue for replacement will continue to rise unabated.
“The results of the latest Index show that impediments, including the tax rate and red tape, are preventing New Zealand businesses from replacing unproductive equipment. Businesses have also signalled the strength of the dollar as a hindrance, but given the likelihood it will drop in the second half of the year, tax and regulatory burdens are a more serious challenge that is not easily overcome.
“Very few New Zealand businesses are spared the impacts of inefficient assets – this is a critical issue as it poses a threat to future business growth and economic development.
Looking at the data on a segment level, twice as many SMEs as corporates said that a reduction of working capital constraints would need to occur for them to acquire more productive assets (15.9% versus 7.9%). This reflects the broad scale of working capital constraints and extensive difficulty for smaller businesses to access secured finance.
Aside from identifying barriers that are preventing businesses from replacing unproductive assets, the Index also sought to identify budget challenges firms are facing, and strategies implemented by CFOs and corporate treasurers to overcome these.
The results highlight that more than half of New Zealand businesses (51.8%) are seeking an alternative to traditional bank debt in order to drive growth and productivity, in response to lengthening cash flow cycles. Such alternatives include invoice factoring, short-term finance and peer-to-peer lending. Minimal variance exists by location, reflecting the broad scale of working capital constraints and extensive difficulty accessing secured finance.
“Alternative finance is increasingly looked upon by businesses as way to overcome budget challenges. However, the fact that more than half of New Zealand’s micro companies are resigned to drawing on valuable cash reserves while as little as 13 per cent of corporates are in the same boat, reflects the significant disparity in access to credit,” Mr Blizzard said.
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About the Alleasing New Zealand Equipment Demand Inex
The Alleasing Equipment Demand Index is a quarterly index, which examines the current asset inventory of New Zealand businesses, as well as expectations for future investment. Circa 450 firms that turn over $1-$100M are surveyed each quarter. These businesses have been broken into three segments: micro business ($1-5M annual turnover), SME ($5-20M annual turnover) and corporate ($20-100M annual turnover). The inaugural index was run during July and August 2015 – the research is executed by East & Partners on behalf of Alleasing.
Alleasing is a leading, independent provider of asset finance and leasing solutions. We have financed billions of dollars of assets for businesses in Australia and New Zealand during our 25 years of operation.
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