A BRAVE NEW WORLD

STATE OF THE NATION

A BRAVE NEW WORLD It's up to us.

BY: DENIS MCMAHON, FOUNDER AND CHAIRMAN OF PMG FUNDS

AUGUST 2020

Since NZ emerged from lockdown 1.0, life in Level 1 felt relatively normal. But for many businesses, it is far from it. Now in lockdown 2.0 for Auckland and Level 2 for the rest of New Zealand, it’s no surprise retail, hospitality and tourism sectors are still suffering.

In 2019, total international tourism accounted for $17.2 billion 1 . That’s a lot of money not coming into NZ right now. Even local cafes and restaurants, which serve mostly domestic patrons, are noticing it.

1 https://www.tourismnewzealand.com/about/about-the-tourism-industy/

"What I can say is, from my experience over thirty years in the property industry and having not only witnessed but survived the three previous downturns, businesses will do what needs to be done to survive and prosper. "

Chatting with one of my favourite café owners back in May, I very quickly realised that her idea of normal was gone. She had no idea if and when things were ever truly going to return to what was once the norm. I guess it was then that it registered for me just how dramatically and quickly our world had changed. But also, the opportunities to innovate that lie ahead.

It also underlined how different this crisis is compared to ones in the past that I have lived through since founding PMG in 1992. Different because this has been artificially manufactured in response to a health threat and has, in the words of Tony Alexander, been created by "the temporary, 2020 voluntary crushing of the economy". It has not arisen from high inflation, housing bubbles or suspect bank lending practices, but in response to a powerful virus. If ever there was a cause to reflect on just how brittle our world really is, then this is surely it.

The good news is that, unlike the Global Financial Crisis (GFC) for example, most businesses were able to immediately reclaim their lives by simply starting up again, post lockdowns. For the lucky few, it has meant not only business as usual but they will have worked longer and potentially employed more people (at least temporarily) to catch up on the backlog. Professional services firms such as

There is much to take heart from and so I for one have not been paying attention to the prevailing doomsday theories circulating in the media. " "

lawyers, accountants and investment advisors etc. businesses up and down the country; those business have seen this with increased employment and owners already know what they have to do to survive insolvency disputes. and will be making those changes themselves.

Others have come back to discover that things What they do need, is for you and me to put the may have changed in terms of customer numbers narrative of fear with these few months behind us or behaviour and are coming up with new and to go out and support them in this brave new strategies to combat that. For some, their business world that we find ourselves in. For this is truly a will be a thing of the past, with tourism and unique crisis that was brought on by literally having hospitality sectors being most notably affected. to close our doors, and so the worst of its damage

The fiscal response from governments can be mitigated by opening up the economy and worldwide has been to throw money at the getting the wheels of industry turning again. situation, which is absolutely the right response, Of course, it won’t be easy or plain sailing, as we’ve provided that it is targeted to achieve the desired seen with Auckland going into lockdown 2.5 (down recovery. The New Zealand Government’s from 3.0), but we have so many more positives in response has been no different. our favour than in 2008 with low, possibly negative,

I will not join the fray of the debate on the likely interest rates, a strong banking sector, a Reserve success of such an approach, or of its long-term Bank that is making all of the right moves and our cost and effect on the country. What I can say primary markets holding up well. There is much is, from my experience over thirty years in the to take heart from and so I for one have not been property industry and having not only witnessed paying attention to the prevailing doomsday theories but survived the three previous downturns, circulating in the media. I will be focused on making businesses will do what needs to be done to sure that those of our tenants who are experiencing survive and prosper. temporary difficulties receive our help and support

The latest buzz word doing the rounds from just as we did in the GFC. the spin doctors in Wellington is “reimagining”; The good news is that those tenants who we business needs to reimagine itself in this new assisted through those dark times are still with us environment. Business does not need this advice today and, I am certain, will still be with us for years from a group of people who are being paid by to come. We’re in this together. the efforts of the 500,000 small to medium-sized WE HAVE SO MANY MORE POSITIVES IN OUR FAVOUR THAN IN 2008 WITH LOW, POSSIBLY NEGATIVE, INTEREST RATES, A STRONG BANKING SECTOR, A RESERVE BANK THAT IS MAKING ALL OF THE RIGHT MOVES AND OUR PRIMARY MARKETS HOLDING UP WELL. " "