This article was first published in the June 2011 International edition of Accounting and Business magazine.
On February 22 this year, New Zealand’s second largest city, Christchurch, felt the earth tremble. Still unsettled from the 7.1 magnitude earthquake that hit in September 2010, the country’s self-styled garden city was struck by a 6.3 magnitude aftershock that proved to be more damaging than the initial quake.
With an epicentre just underneath central Christchurch, February’s aftershock crippled the city’s central business district (CBD) as well as its eastern suburbs, killing 181 people. The estimated cost of the quake stands at NZ$30 billion (US$24 billion).
Two months on, the city is slowly getting back on its feet. Yet its basic infrastructure is still in disarray and areas of the CBD are still cordoned off because of damage. ‘More than six weeks on, the Christchurch City wastewater system remains at crisis point, with only a third of sewage-treatment ponds operating and hundreds of kilometres of broken pipes,’ says Ian Whitehouse, a Canterbury Water Management Strategy facilitator with Environment Canterbury, a regional government agency.
The CBD is classified as a ‘red zone’, meaning residents, business owners and the public are restricted from entry because of the potential danger caused by unsafe buildings. Despite this, some temporary entry to areas is now permitted. ‘The clean-up work is continuing around the clock and visible progress is being made as more red zones are changing the colour of their stickers to orange or yellow or green [indicating a lessening of the potential danger] and cordons are removed,’ says Elena Andrews FCCA, financial controller of Tower, an insurance and investments services group with offices throughout the country. She added that businesses in the CBD are hoping to re-open by the end of October.
While many people are unable to have access to their central offices, ‘businesses and people that can continue to work are doing so’, says Cathy Moran FCCA, management accountant at Vbase, a Christchurch-based venture-management company. ‘Clearly, some firms, such as demolition and construction entities, are thriving.’
Whitehouse pointed out that ‘much of Christchurch’s wealth comes from its rural hinterland. Fortunately, agricultural commodities are doing well and therefore the underlying economy is strong.’
In unaffected areas, such as in the city’s north-west, it is business as usual. ‘Six weeks after the earthquake the retail sector has bounced back with weekly [debit card] transactions down by only 3% from a year earlier,’ says Whitehouse.
Jonathon Lewis runs Images Unlimited, a large-format printing company located outside of the quake zone. He says that since the disaster, orders for temporary signage and promotional materials for companies relocating out of the CBD have been on the rise. ‘We lost our immediate order book and have started to rebuild, again. This happened to us after the September earthquake as well,’ he says. ‘We are seeing some traction, and the telephone is ringing more.
‘There are pockets of businesses that are working very well at the moment, led by market need for their industry,’ adds Lewis. ‘Construction and demolition are the obvious ones but also office-relocation companies, office furniture and signage companies are benefiting from additional work that wouldn’t have been needed if the quake had not happened.’
For businesses in the CBD, things are different. It was six weeks before many inner-city businesses and residents were allowed back to their premises to recover servers, documents, stock and personal items, says Moran.
Some businesses found that there was not much to recover. ‘Many permanent records dating back decades traditionally held with corporate solicitors have been lost forever in the demolition or destruction of many parts of the financial-services district,’ says Bruce Gemmell, office managing partner for Wellington and Christchurch at Ernst & Young New Zealand. For other companies, moving to a new office location has brought new business practices.
‘The organisation I work for has about 320 staff in Christchurch, and our office was in the CBD,’ says Whitehouse. ‘Staff are now spread across three locations on the edge of Christchurch. We no longer have landlines, only mobile phones. The organisation has finally upgraded its IT to enable full remote access to all corporate file servers. Some staff work from home and we all hot-desk as there are not enough desks for everyone.’ Companies like Whitehouse’s may have been able to overcome their inability to get into the CBD but it has not been the same for everyone.
‘Businesses stuck inside the cordon with specialised premises can’t just pick up servers and files and carry on,’ says Moran.
‘The most affected industries include hospitality, telecommunications, real estate, and most recently the insurance business,’ added Andrews.
The New Zealand government has had concerns the local insurance industry could be overwhelmed and is prepared to step in and help meet claims. Finance minister Bill English in April announced a ‘back up financial support package’ for AMI Insurance where the government has pledged an initial NZD$500m in potential assistance.
Implications for the insurance business are far-reaching, says Andrews. ‘Premiums will certainly increase partly because of higher re-insurance premiums and partly because of the increase in government earthquake commission levy, which forms part of the premium. The latter has just been increased by 20%,’ she says. ‘New Zealand had been enjoying one of the lowest costs for insurance in the developed world. After the Christchurch events, insurance might no longer be affordable for some.’
Meanwhile, Andrews says that tourism is the sector that has borne the brunt of the disaster. ‘The largest blow for the tourism industry this year is the loss of the seven Rugby World Cup games that were scheduled to be played at AMI Stadium in Christchurch between 9 September and 23 October. The England team was also going to be based here – so the amount of tourism dollars lost is huge,’ she says.
Gemmell agrees, noting that the number of beds available in Christchurch hotels ‘has dropped by almost 75% as a result of the earthquake, building damage, and building demolition.’
The New Zealand government has committed to spend NZ$8.5 billion over the next few years to help rebuild the city’s infrastructure and businesses. In the short term, it has also undertaken a number of initiatives, as have private corporations, to help revitalise the local economy.
‘The government has provided assistance packages to Christchurch businesses and workers affected by the February earthquake. The packages include an earthquake-support subsidy for employers and job-loss cover for workers. The employer subsidy is a weekly wage subsidy to assist businesses that have been unable to operate because of damage, or being cordoned-off, or because essential services have not been available. The job-loss cover subsidy is paid to people who have been displaced as a result of the earthquake, because their employers could not keep the business going and had to shut their doors,’ says Andrews.
Free help for businesses
Meanwhile, notes Lewis, business mentors are available for free to Christchurch businesses. The Canterbury Employers’ Chamber of Commerce, Canterbury Development Corporation [Canterbury is the district in which Christchurch is located], and the Christchurch City Council, along with other interested parties, are providing advice and assistance through the government-run advice-and-assistance service Recover Canterbury. Westpac Bank is building a new business centre in the suburb of Addington (that they hope will be operational at the end of May) as a facility with offices, computers, internet and faxes to enable smaller businesses to get back up and running, notes Moran. Banks have been supportive in funding packages to help businesses with immediate cash flow problems, and although there are still a number of uncertainties about taxes, the government has done its best to clarify tax law following the disaster (see box on page 17).
The consensus is that the city will suffer in the short-term. ‘The International Monetary Fund is predicting New Zealand’s economic growth will slow to 0.9% in 2011 compared with 1.5% in 2010,’ says Whitehouse.
Gemmell notes that families leaving Christchurch has also had a significant impact on the local economy. ‘There has been an inevitable and significant economic shift in spending and short-term investment away from Christchurch by way of families relocating on a temporary basis while the city recovers,’ he says. ‘It is debatable as to how many will choose to stay away permanently. Immediate beneficiaries are other towns and cities in the South Island such as Nelson, Wanaka and Dunedin to name a few.
‘Interestingly, we are seeing a short-term population influx of those providing central recovery and demolition services. We expect this to increase as more opportunities for others to be involved in the recovery become apparent,’ he adds.
Lewis says: ‘The best way to help Christchurch is to encourage people to continue to come here, to trade with Christchurch businesses and get back to normal as soon as possible. The local ski fields are nearly open, and local attractions outside of the CBD are mostly functional. If we are to rebuild the city we need to focus on the positives, not be worried about what has happened.’
Gemmell’s attitude mirrors Lewis’s. ‘Despite the challenges,’ he says, ‘the long-term outlook for Christchurch is surprisingly optimistic, with the city attracting people with energy, capital and the drive to seize opportunities that are present in a changing but exciting redeveloping environment.’
Looking ahead, chamber of commerce chief executive Peter Townsend says: ‘In this small city there are very few people who don’t know, or know of, one of the people who tragically lost their lives. The chamber’s focus is predominantly on business recovery, but the ripple-effect of business recovery shouldn’t be overlooked. The region’s businesses provide jobs, goods and services that we all need. It is in everyone’s interest that the business community gets up on its feet again as soon as possible.’
Karryn Millar, journalist
Changes to tax requirements in Christchurch post-quake:
- Cash payments or in-kind benefits up to NZ$3,200 made to employees following the earthquake can be made without the need to deduct tax or pay fringe-benefit tax;
- Exemptions are provided for sundry benefits to employees when the employer is unlikely to know which employee has taken advantage of the benefit;
- The redundancy pay rebate has been extended to September 30;
- A new rule that treats occasional gift-like payments as income for people with Working for Families Tax Credits has been suspended as a result of the earthquake, for affected people;
- The removal of a rule that would have treated donated trading stock as being sold at market value; and
- The Commissioner of Inland Revenue has been given the flexibility to alter filing and payment dates.