More of New Zealand’s small businesses shrank in 2021 than grew primarily due to the challenges presented by the COVID-19 pandemic, according to CPA Australia’s annual survey of 11 Asia-Pacific economies.
Only 33.2 per cent grew, the second-lowest result in the survey, while 41.9 per cent shrank. However, 2022 is likely to be a better year than 2021, with 56.1 per cent expected to grow in 2022, which is up from last year but still falls short of the survey average of 61.9 per cent.
“The results are somewhat surprising given New Zealand’s success in limiting the impact of Covid-19 last year,” said Gavan Ord, CPA Australia’s Senior Manager Business Policy. “Only Australia reported a lower growth rate, at 32.2 per cent.”
Improved expectations for 2022, according to Ord, reflect a more confident economic outlook, as well as a higher percentage of small businesses planning to invest in innovation and exporting.
However, Ord noted that the economic environment for New Zealand small businesses has recently become more difficult, with inflation and interest rates rising, oil price shocks from Russia’s invasion of Ukraine, and the effects of Omicron still reverberating throughout the economy.
“New Zealand businesses are probably not that well-equipped to respond to the current circumstances. They’re not digitally savvy compared to their Asia-Pacific peers, and many are not seeking advice about how to manage this environment.”
According to the survey, NZ small businesses are still significantly less likely to earn revenue from online sales. More than 35 per cent of businesses do not generate any revenue online, compared to only 1.3 per cent of businesses in Mainland China.
As a result of Covid-19, NZ small businesses were the third least likely to start or increase their focus on online sales. Furthermore, nearly one-third (30 per cent) of surveyed businesses did not invest in technology in 2021, compared to only 5.2 per cent of surveyed businesses in Vietnam.
Furthermore, compared to 0.1 per cent of Mainland Chinese businesses, more than 35 per cent of New Zealand small businesses have not adopted new payment technologies such as Apple Pay, Paypal, or buy now pay later. Compared to the survey average of 17.2 per cent, 36.8 per cent did not use social media for business purposes.
According to Ord, one possible explanation for New Zealand small businesses’ lower levels of technology investment is the lower short-term returns they provide. Only 32.3 per cent of businesses that did invest said the investment improved their profitability, compared to the survey average of 53.6 per cent.
“This demonstrates the need to improve the digital skills of our small businesses and for them to seek advice to ensure they adopt the right technology solutions for their business,” Ord said.
Another possible explanation for New Zealand’s small business sector’s lack of investment in digital capability is the demographics of the sector. New Zealand had the second-highest proportion of respondents aged 50 and up among the 11 markets polled.
Only 24.8 per cent of respondents were under the age of 40, compared to a survey average of 45.2 per cent. According to Ord, the survey results show that the use of business technologies falls for respondents aged 50 and up, and falls sharply for those aged 60 and up, regardless of the market.
Small businesses in New Zealand, on the other hand, take the threat of a cyberattack seriously. While 30.3 per cent expected an attack in the next 12 months (survey average 44.3 per cent), 42.6 per cent reviewed their cyber defences in the previous six months, matching the survey average of 46.7 per cent.
Responses to questions about external funding and business growth appeared to reflect, in part, the various government policy responses to the Covid-19 pandemic last year.
In 2021, 45 per cent of New Zealand’s small businesses required funding from a third party (survey average 60 per cent). Only 24.8 per cent sought funds for business growth (survey average 48.2 per cent). In comparison, 40.4 per cent sought funds for business survival (survey average 49 per cent).
New Zealand was the only market where “government grant or funds” was the most frequently mentioned source of funds (28.4 per cent). Only 24.1 per cent said a bank was their primary source of external finance, compared to a survey average of 34.2 per cent.
While only 28.1 per cent of NZ small businesses expect to increase employee numbers in 2022 (survey average 39.9 per cent), this is a sharp improvement in 2021, when only 11.3 per cent of businesses expected to increase their staffing levels.
“This result reflects stronger growth expectations for 2022, but achieving it may prove difficult for many businesses due to labour shortages”, said Ord.
Ord says that while New Zealand continues to lag in digital capability, the penny may be dropping, albeit slowly. “While the 32.3 per cent who said technology investment in 2021 made their business more profitable was low by comparison to the Asia-Pacific, that number was a great improvement on the 17.7 per cent recorded in 2020.”
“Year after year, the survey results show a clear connection between increased investment in technology and digital capability and business growth. That helps explain why many New Zealand small businesses are confident they will grow faster in 2022 than in 2021.”
Read CPA Australia’s Asia-Pacific Small Business Survey 2021-2022