Horrible year for business in Canterbury

The September 4 earthquake rocked the business community, especially in the central city district.

Trade dropped away immediately and took weeks to rebound.

Christchurch residents became wary of the town centre and anecdotes suggested some staff were reluctant to return to work in retail businesses.

The drift to shopping in suburban malls, long a drain on the life of the centre, was accentuated.

Small suburban shop strips, often old brick buildings, disappeared across many parts of Christchurch after September. They are just vacant spaces now. The old retailing suburb of Sydenham was particularly badly damaged.

By January this year, though businesses were bouncing back and beginning to appreciate their luck that the impact of September's 7.1- magnitude quake, centred 40 kilometres away near Darfield, had not been worse.

But it proved to be a forewarning of what was to come on a devastating scale on February 22.

The damage is mind-boggling, especially in the CBD. February 22's legacy is still everywhere to be seen – broken buildings, empty lots, temporary premises, portable buildings, and clogged suburban roads in the west and north.

The region has escaped a huge leap in unemployment because of the speed at which businesses handled the crisis and the more than $200 million the Government pumped into supporting them with a 14-week wage subsidy.

Many firms have credited that money with saving their business from failure and staff from the dole queue.

But unemployment in Canterbury has risen, of course. About 20,200 were unemployed as at June 20 this year, up from 16,800 in June 2010.

That is a 5.7 per cent unemployment rate (not seasonally adjusted), still below the 6.6 per cent national unadjusted rate.

The 5.7 per cent rate does not sound high, but it is the highest in a decade for Canterbury.

Of the 20,200 unemployed, 7055 people are on the unemployment benefit, only about 1500 higher than at the start of the year.

"It is still pretty tough in Christchurch," says ANZ Bank southern manager Troy Sutherland, who is impressed with the fortitude and adaptability of the region's businesses.

While 2011 will be "quite miserable" for businesses, Sutherland says many of the displaced businesses in temporary or new locations are in good shape and "are operating at some sort of capacity, even if it is a reduced capacity".

For all displaced companies, the unexpected financial costs of relocation and reorganisation has placed great pressure on business owners.

Some of the costs may be recovered from insurers but that is proving a protracted process.

Sutherland says the leadership shown by the Canterbury Employers' Chamber of Commerce and the Canterbury Development Corporation, who set up joint venture Recover Canterbury, to help and guide traumatised business owners, gave comfort to the business community.

After the destruction of the CBD on February 22, nearly 6000 businesses (about 20 per cent of all Canterbury businesses) and their 52,000 workers fled their premises.

Some set up shop in their homes and garages, others secured new digs, fitted them out, reconnected with suppliers, dealt with damage to their homes and stressed staff, retrieved goods and documents from damaged buildings and are now mired in a difficult claims process with insurers.

Most are still in their new locations and only a handful have returned to the CBD to a couple of new buildings and a few others, which are approved for occupation.

More than 4000 have had access to their premises in the CBD to recover documents, equipment and stock.

Recover Canterbury manager of recovery, Michaela Blacklock, says its 40 advisers "on the road" have made contact with about 4000 businesses and probably have a case management load now of 800 to 1000 businesses.

They are not only former CBD businesses, but also small firms in the suburbs still struggling to get on their feet.

Recovery Canterbury was working with these firms in conjunction with Christchurch City Council advisers, who were focusing more on planning issues.

Blacklock says businesses are finding now that sales have not rebuilt as far or as quickly as they had hoped and they are considering how to adapt.

Sutherland says business owners have been forced to contract to their core business, "what they are good at".

Recover Canterbury is reviewing how long it will offer its advisory service.

Blacklock says it expects to continue running the service well into next year.

The Canterbury Employers' Chambers of Commerce has just moved into new premises after operating for six months from the home of its chief executive Peter Townsend.

Townsend says the business community is in remarkably good spirits a year on from September 4.

The doubling of the Earthquake Commission's repair and rebuild cost estimates to $7 billion means the recovery and the economic activity it will generate in Canterbury will be a great deal bigger – when it happens.

Business is still strong in areas unaffected by the quakes and exports are strong, he says.

The obvious casualty is the tourism sector, with most of the large hotels and venues either damaged or behind the cordon in the CBD.

Tourist numbers are down 30 per cent. Retail and hospitality businesses are also hurting.

Several large chains have lost a few stores each in the CBD and on the fringes along Moorhouse Ave.

Premier department store Ballantynes, whose store is behind the cordon, is operating a smaller business through its online arm, its Timaru store and special events, but hopes to reopen at the end of November.

Townsend says the chamber's membership is increasing rather than shrinking.

It has surveyed its 350 members in the CBD and found 90 per cent are still operating.

"A year down the track, I think we are in much better shape than a lot of us would have anticipated but we just now need to get on with things," Townsend says.

Insurance is the number one roadblock to recovery. Patience is wearing thin.

"I cannot go a day without a customer talking to me about insurance. It's what people rely on and fear the most," ANZ's Sutherland says.

Townsend is concerned insurance wrangles and the delays to repairs and rebuilding will undermine business confidence.

"We are probably still at the tail end of the seismic effect. I think the time is coming for the insurance companies to start putting stakes in the ground and say yes, we are comfortable in moving forward."

There is no insurance for new customers and new premises in Christchurch and new buildings, not that there are many new buildings yet.

Insurers are renewing policies for existing customers but on much more expensive terms. Business premiums have at least doubled and the new excess terms may be unaffordable for some.

Before the quakes, a standard excess on a business insurance policy was 2.5 per cent of any claim. Now it is 10 per cent of the value of the business assets.

Sutherland says one of ANZ's customers, a building company, has just laid off 30 staff because the rebuilding work is on hold over insurance issues.

"It beggars belief that we are actually in an environment now where we know we are going to have to build thousands of houses and yet this company has had to let go 30 people just to survive."

ANZ has customers geared to start building 200 houses a month, but nothing is happening.

"That's a very scary proposition for them because they have got that workforce and they are trying to retain the skills in that workforce."

"And what it may lead to if it goes on for much longer is the exact workforce that needs to be in Christchurch leaves."

ANZ's New Zealand chief executive, David Hisco, is concerned enough to be talking to Prime Minister John Key, Sutherland says.

Townsend calls the insurance delays a cancer. He urges insurers and the Earthquake Commission to start on some of the easier repair work.

"We need to start picking the low-hanging fruit in my opinion because most of the community is poised to go and we are just not going."

There is a concentration by the insurers and EQC on the hard end and that is perfectly understandable, but if nothing can be done there at present, "let's get on with something else."

"A damaged house in a green zone area that could be fixed relatively easily, and the fix isn't likely to be impacted by any minor aftershocks, that's the low-hanging fruit."

ANZ chief economist Cameron Bagrie says the effect of the Canterbury disasters on the national economy had been a great deal less than most economists had expected.

The "king hit" never happened. The reasons were that New Zealand's economy was already gaining momentum in early 2011 and the "remarkable resilience" of businesses in Canterbury. It is easier for an economy to roll with the punches when there is some growth happening, Cameron says.

The Canterbury economy has shrunk in the past year since September, but it could have been much worse.

The National Bank's latest business survey shows the Canterbury region's business activity was 1 per cent weaker for the year till June than the previous one. In the March quarter economic activity fell 2.5 per cent but rebounded 1.9 per cent in the June quarter.

"The insurance market is a big bottleneck at the moment and we just need to get it freed up," Cameron says.

The question was whether the Government will be forced to intervene and EQC or a bigger version of it have a role to play in the business market as well as the residential market.

"When there is market failure there is a very clear role for state-government intervention." Ultimately the taxpayer would end up wearing the cost.

John Brophy, Westpac's head of business banking in the South Island, says not too many companies among its customers are in difficulties. Only a handful have been handed to Westpac's "areas of intensive care", which is a good sign.

The struggles are mostly among the smaller businesses without the resources to cope with the added costs of relocation. The reconstruction will bring a lot of people to Canterbury and boost the economy "but when that starts is the $64million question".

He describes the situation now as stable. "I am expecting things to get better but the time-frame is the issue."

Just how many businesses will have folded because of the quakes is not known.

In September, Townsend forecast about 150 businesses in the central city would fail following the September earthquake.

February was much, much worse, so inevitably many more will have closed, failed or left. The casualties will become clearer as time goes on.

HOW BUSINESSES HAVE SURVIVED

Truescape, IT company in Sydenham.

Founder Sam Chaffey says a year on from September 4 the company is in a stable position and hiring staff. It provides 3D visualisations for utilities and infrastructure projects. A good deal of its business is offshore. Staff had coped well, but the battles were with the new location in Sydenham.

It was taking a lot more effort just to maintain sales, and though the company's revenue in the past year was pretty much the same as the previous year it is lower than where the company had planned to be, because of relocation and dislocation. Recruiting staff with the skills needed was a problem. The company had lost three of 11 staff but had employed another five and intended to hire more. It had a United States subsidiary and was setting up one in Canada.

"Getting people to come here is harder now than it was." It would be easier to recruit from offshore than from elsewhere in New Zealand.

Christchurch businesses were still dislocated and operating more "in silos" because there was no longer a city centre. Bars and restaurants were scattered so it was not as easy to meet up. Working with insurance companies was far from straightforward and unnecessarily complex. Relocation costs had put pressure on the company. Six-month old claims with insurers still were not settled, but the company's bank had been extremely supportive.

Prometal, sheet metal fabrication shop in the eastern suburbs.

A year on from September 4 and John East, the co-owner of small manufacturer Prometal in the eastern suburb of Bromley, is only just close to a settlement with his insurer AMI Insurance over his orange zone Burwood home "buggered" by the September quake.

Though his business's buildings are "buggered" too, from the February quake, sales are still flowing in and the last three months May to July have been 10 per cent ahead of the same period a year before.

He and co-owner Mike Owens have decided to up sticks to Harewood in the west, near the airport, and expect to sign up for a piece of land for a factory. They hope to have a new, larger factory built before next winter.

That sounds optimistic given the unwillingness of most insurers to take on new business. East says their insurers are transferring their existing policies to the new property and were reassured by his and his partner's commitment to buy the land.

Prometal has lost three employees – one to Australia, another soon to cross the ditch, and one to New Plymouth.

Though Prometal was employing replacements, the three had a good deal of skill that was lost to the company.

His 35 staff are tired of using portable toilets since last September. The council sewerage pipe in the road had collapsed but despite assurances from the council that it would be repaired, nothing has happened.

Stonewood Homes, residential building company.

Stonewood owner Brent Mettrick says it's been the year from hell, with huge disruption to cashflows. Right from the start the company was committed to not laying off staff and is gearing up for "a tidal wave" of house building work, but it is difficult holding on and waiting for that.

In September it had $3.4million of business due for payment but only $500,000 came in. It was much the same in February. About $1.1m was due at the end of the month and only $50,000 was paid because of the disruption to banks and solicitors. At the time it had 55 houses being built, about $1m of work.

Fletchers and the other big project management companies had been "bastards", poaching staff by luring them with high salaries. The company has had to absorb a "massive" increase in wages to hold on to its staff. A building supervisor in training on $55,000 a year had been lured away with a $110,000 salary.

People wanting new houses are having to transfer their existing policies to the new house. But that means that the buyer of the old house could not pick up the previous owner's policy.

At present he had about eight homes sitting empty waiting for the buyers to secure insurance. The lack of insurance is "immensely frustrating".

Of the 150 houses Stonewood built after September 4, only one had been damaged, and that was where the land collapsed underneath. The company was using brokers to search for insurance in Britain because of refusal by insurers in New Zealand to insure new homes. However, the company had insurance to cover the building of the new houses.

The Press