Why strong lockdown gives country economic advantage

New Zealand looks on track to emerge faster than many countries from the first phase of the Covid19 pandemic.

That’s extremely good news from a health perspective.

It is also extremely good news for the economy, although it might not feel it right now.

Acting firmly has put us on the quickest possible path to recovery. We are tracking along the path of the best-case scenario that Treasury painted last week.

Despite the immediate pain the lockdown is causing, it puts us on the lowest unemployment path and the least costly in terms of government borrowing.

If we can stay on that path it also puts us in a strong place — relative to other countries — as we rebuild the economy.

We know there will be global demand for food and that will underpin our economy.

Being in good shape to guarantee safe production and supply of dairy, meat, kiwifruit and other produce is a huge win.

It shouldn’t be underestimated and is an important economic reason why those crying “overreaction” to New Zealand’s response are wrong.

Bio-security is crucial to New Zealand. Long-term disruption to our primary industries caused by a more widespread Covid-19 outbreak would have been economically devastating.

In the US, pork production has been hit after a virus outbreak at one of its largest processors.

That’s not a fate worth thinking about for our freezing works and dairy factories.

Tourism earnings are gone for some time. The sector was our largest foreign-exchange earner and with huge flow-on through the domestic economy.

We had no control over that loss. But it makes the loss of agricultural exports — even for a season — unthinkable.

We could not expect to lose tourism and agriculture and retain the standards of living that we still hope to.

Those arguing we’ve damaged our economy with our response are rightly concerned for our many small business operators and the pain they are going through.

It’s vital that we acknowledge that pain.

There’s been a lot said already about the sacrifice being made by essential workers on the front lines.

We need to also acknowledge the sacrifice of those who can’t work.

It’s real and devastating. In some cases people are seeing a lifetime’s worth of work and dreams destroyed.

Those sacrifices need to be addressed, with the financial support from the Government to rebuild or to restart.

We need to see much more business support than we’ve seen so far.

But lockdown critics need to take a broader view.

We can expect domestic growth to bounce back quickly if we get control of the virus.

We will have some of the control over that part of the economy.

The Government has billions at its disposal to assist retail and manufacturing businesses.

Where we lack control is the global economy.

Global growth will be slow for some time and that puts a dampener on the prospects for an export-led recovery.

The World Trade Organisation’s outlook for trade in the next year is grim — it’s estimated to fall by between 13 per cent and a third.

Prices of many commodities — oil and metals especially — are being hit hard by the fall in global demand.

That’s hurting many of our trading partners.

Thankfully, food prices are holding well — and our reputation as a safe producer gives us an edge.

Education — another big servicebased sector — is also on hold for this year at least.

Given the length of time they stay here, a Covid-19-free country might offer a path back for students next year, even if border controls still require a two-week quarantine.

Regardless, a traditional exportled recovery isn’t on the cards for some time.

But there is another area where the world may be able to help us.

As share markets have shown in their bounce of the past few weeks, there is still a lot of wealth in the world looking for a home.

If New Zealand can get Covid-19 free (or close to it) early then it will play into the prevailing global stereotype of this country as a safe haven.

If we want it, there will be international capital looking for a home. And if New Zealand is back in business we can present attractive opportunities for foreign investors.

The Employers and Manufacturers Association is calling on the Government to revisit Foreign Direct Investment rules to take advantage of this.

It wants fast-tracking of Overseas Investment Office approvals to encourage private-sector investment into new projects and expanded production activity.

There are risks to inviting in foreign investors. We need to hold our nerve on our assets’ value. In the 1980s and 90s the country panicked and sold off too much, too fast and too cheaply.

But, on balance, rule changes to let the world know we are open for business investments — even temporary ones — make sense.

If our strong response to eliminating Covid-19 can attract a foreign-capital cash injection, it will be another reason to applaud the strategy.