Business confidence is a key driver as the economy emerges from the COVID-19 storm. But it seems federal and state governments are very concerned about our ability to return to pre-pandemic levels without significant support.
It seems as the weeks pass by, we are slowly returning to an Australia somewhat recognisable to the burgeoning first world economy we had all grown to know as “normal”. There is certainly a feeling of uncertainty and hesitation amongst all of us, as we start to restore our daily lives back to “Before COVID” (BC) times. I recall back in February, only one-month BC, our Victorian operation had recorded its best trading year to date since the company was founded, yet only one month later as restrictions began to close down parts of the economy, our trajectory had spiralled downward, as many of our CICA members have experienced.
But now, as I mentioned, it seems to be on a path to stabilisation. It seems as though the value of the Euro has restored to BC levels. It seems our customers have more confidence to plan project works in the industrial sector. It seems the construction sector has managed continuity through the pandemic and it seems like life will gradually return back toward our “old normal”. It seems, to the most part, Australia has managed the pandemic well, relative to the rest of the world.
“It seems” though, is not a great term to gauge confidence, and confidence is the fuel small-medium enterprises hunt to generate growth and prosperity. Given how active both federal and state governments have been to provide support for businesses through tax rebates, employment programs and investment allowances, it seems they are very concerned about our economy returning to pre pandemic levels without significant support.
Governments, both state and federal, are keen for us to invest. But investment comes with confidence, and confidence must exist in both private businesses and the banking sector together. This becomes a very interesting three-way dance between 1 – businesses and business confidence, 2 – government support, and 3 – the banking and finance sectors appetite for risk. Interesting because on the one hand, we have many thousands of businesses registering for Job-keeper, plus taking up payment deferment options with their banks and financiers, then, on the other hand, attempting to take up investment allowance incentives through capital acquisitions and engaging with alternate banks and financiers to achieve the lending. I have been watching with interest, the appetite of financiers to pledge support for acquisitions during this time. Each tend to have a slightly different slant in their risk profiles, most though, seem very open to support acquisitions for new equipment or close to new equipment, while many (not all) are very hesitant to fund in the older, eight year plus machinery category.
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Just while I’m mentioning banking and risk profiles, I’ve never been able to grasp why, for example, I could buy a new vehicle, and spend, say, $130,000 on a new Range Rover and gain immediate support for its funding, yet if I wanted to spend the exact same amount of money on an older crane, most lenders would reject the deal. I know which of the two would earn more money over the next five years, plus sell for more after the five years has expired, but many lenders run from these deals, particularly in economic conditions such as now. But hey, that’s why they’re the bankers instead of us.
A further interesting angle is the role of the federal reserve, as it works independently from government to provide a more palatable investment environment. Every month we hear speculation of interest rate reductions. With the official cash rate at already record low 0.25 per cent levels, what does this really mean to us real people with real businesses? Put simply, if the reserve lowers to zero or even in to negative interest rates, there is no incentive for our banks to make money on the short term market, that is, a bank holding excess money places it short term to the reserve and will only receive a 0.25 per cent short term return. That means, in theory, our local banks increase their available funds, or the “supply of money” as it’s known, to lend to businesses who want to invest in new capital acquisitions on fixed term equipment finance loans to capture a greater return on the retail interest rate market, say around the 3.6-4.4 per cent mark. The theory is, the lower the reserve rate, the greater the supply of money available for us small-medium enterprises to use on capital acquisitions and other products the bank can capture a greater interest return on. But that’s the supply side only, the banks then must have confidence that the demand for such equipment in the market place warrants the investment and is sustainable for the purchasing business long term. That’s why the government business incentives have been pledged in such a targeted way. To ensure investing businesses can secure continuity through the pandemic and continue to prosper on the other side. Convincing the banks that this fits with their own risk profiles can be the tricky part.
At CICA we have been monitoring our members and industry very closely. The CICA Board has, and continues to, meet fortnightly via Zoom during the pandemic, and discusses with our CEO, Brandon Hitch, the feedback from our membership, the take-up trajectory of CICA services and products, along with modifications required (if any) in approaching our special projects and lobbying activities and expenditure. For the most part, we have kept significant areas of lobbying unaltered, notably in the area of roads and road access. We have gained significant progress in some east coast locations, with limited single trip permits now being granted regularly in Victoria for six, seven, eight and nine axle cranes, boom in rack.
It has been exceptionally important to us to keep very active and engaged as we have been unable to conduct business in its usual way. It seems our industry and members have the resilience to push through this very trying time and I look forward to a time where I can comment with certainty that this has been achieved.