Tuesday, 3 December 2013

We've been through some interesting times in Christchurch

If you look at disasters elsewhere in the world it is not unheard of to have a 30% depression in business activity, for example following Hurricane Katrina in New Orleans. It didn’t happen in Christchurch.  

There are four fundamental reasons why it didn’t happen and they are really important reasons for all of us to learn from.

The first reason was Central Governance.

Post the 4 September 2010 earthquake, I was on Morning Report on 6 September 2010 from a broken Christchurch saying that we were really in trouble as we had no sewerage, no electricity, no water, we couldn’t get up and down the street, and there was no business activity to speak. I said if we don’t do something about that we are going to have business collapse within a week. As most businesses, particularly small businesses, rely on their cash flow to pay their employees and if you can’t pay your employees you will be out of business. It turns out Bill English was listening to Morning Report and he rang me immediately and said “I understand what you are saying and I get it, what do you want us to do?” I said “I think the Government needs to treat Christchurch as a place where there is business as usual – but where there is no business.“ What that meant was pumping cash in and protecting cash flows. Bill said “he got that and how much?” I said “$15m”. He said “how many businesses?” I advised “2,500”. We agreed we would see how we would go.

As it turned out post September there were 2,300 businesses and 11,700 employees who received $10.2m and it was done on a high trust basis i.e. name of company, IRD number, how many employees and the cash was given. There was money going into bank accounts during the week of the September earthquake.
Post 22 February Bill English rang and said “don’t worry Peter we know this is much more serious and we are going to up the earthquake support subsidy from $350 per employee per week, to $500 per employee per week and it’s going to apply to all companies, not just small companies”.

On 24 February, two days after the earthquake, there was money sitting in bank accounts. You just had to supply your company name, IRD number, and how many employees. Since then the Government has done some work on fraud, because this is real high trust issue, and the number of companies taking advantage of the situation was lower than the fraud rate of the structured unemployment benefit. That says something about how people responded. Post 22 February there was $200m cash put into companies. I’m still getting phone calls today from companies who say that if it hadn’t been for the earthquake support subsidy they would have gone out of business. Post 22 February it was thousands of businesses (something like 15,000) that were recipients of that money. It was a really significant thing to protect the fabric of business and to protect the relationship between the employer and employee. The other option would have been to put in place a ramped up unemployment benefit so that the employees continued to get paid, but that would have destroyed the fabric of the relationship between the employee and the company; and that would have destroyed the company – which would have been a real economic disaster.

So the first lesson is cash.

Click here to read more.

No comments:

Post a Comment