Jul 09 2020
Across more than 200 New Zealand industries – from agriculture, manufacturing and mining, to retail trade, transport, education and more – IBISWorld analysts have researched and identified five Kiwi industries set to perform well, and those set to underperform, over the course of the 2020-21 financial year.
The COVID-19 pandemic has shaken up the performance of the New Zealand economy, introduced new industries into IBISWorld’s list of top performers, and moved previously strong industries into the underperformance category. Overall, GDP in New Zealand is expected to decline by 3.9% in 2020-21, to total $246.5 billion. While expansionary monetary and fiscal policy will help the economy rebound, the ongoing hindrance of closed international borders is expected to constrain economic recovery in the current financial year and beyond.
Industries to fly in 2020-21
The Superannuation Funds industry is anticipated to rebound strongly from the COVID-19 outbreak to record revenue growth of 104.8% in 2020-21, to $14.2 billion. Revenue in the industry is derived from investment in global financial markets, which are expected to recover as investor sentiment improves and fiscal stimulus support economic activity. Industry assets, which are a more accurate indicator of overall industry performance, are expected to grow by 10.3% in 2020-21 to $101.2 billion, outperforming growth of only 5.0% in 2019-20.
The COVID-19 outbreak has led to an increasing number New Zealanders accessing hardship withdrawals from KiwiSaver, a voluntary savings scheme set up by the government to help New Zealanders save for their retirement. Around 17,000 New Zealanders make hardship withdrawals every year, which enables earlier access to saved funds. Normally, New Zealanders are prevented from accessing these funds until they are 65. New Zealanders have also increasingly transitioned to conservative investment portfolios, which can drag down industry assets and weigh on investment revenue. These hindrances are expected to dampen the recovery of the Superannuation Funds industry, which is expected to grow at an annualised 3.7% over the five years through 2025-26, to total $17.1 billion.
Data Processing and Web Hosting Services
Firms in the Data Processing and Web Hosting Services industry provide the technologies and services a website requires for internet viewing. Revenue in the industry is expected to surge by 17.2% in 2020-21, to $589.6 million. The industry is one of the few that has performed well during the COVID-19 outbreak, with demand surging from the Online Shopping industry as social distancing restrictions have prompted consumers to shop online. Businesses in New Zealand have expanded their ecommerce operations and shifted to remote working, driving demand for web hosting. Remote working operations often have latency and security requirements, which drives demand towards local web hosting providers in New Zealand, rather than overseas competitors.
COVID-19 has been nearly eradicated in New Zealand and social distancing restrictions have been removed. Despite a return to normal operating conditions, consumers and businesses are expected to retain their habitual use of online channels which increased significantly during the national lockdown in March and April 2020. This is expected to drive ongoing demand for web hosting. Many consumers have been exposed to the convenience of online retail for the first time during the COVID-19 lockdown. Some businesses are expected to retain working from home arrangements after successful trials during the lockdown period, which will further support demand for web hosting. Overall, the Data Processing and Web Hosting Services industry is projected to grow at an annualised 5.5% over the five years through 2025-26, to total $769.1 million.
The Beekeeping industry has benefited throughout the COVID-19 pandemic, as rising consumer health consciousness has driven demand for premium health products, such as manuka honey. Industry revenue is expected to increase by 10.9% in 2020-21, to $608.0 million. Consumers in both local and overseas markets have been drawn to the anti-viral properties of New Zealand’s manuka honey despite it not being a medically tested treatment for COVID-19. Manuka honey can sell for up to $400 a kilogram in export markets, which is well above the domestic price of up to $125 per kilogram in 2019.
Production of manuka honey in New Zealand is expected to rise in 2020-21, as new enterprises enter the industry in pursuit of attractive profit margins. Export revenue is forecast grow by 13.8% in 2020-21, due to rising demand from key export markets such as China and the United Kingdom. The outlook for the Beekeeping industry is favourable, as export demand remains strong. However, industry operators will likely face greater internal competition and price pressure, as the number of beekeepers in New Zealand continues to rise. Overall, revenue is anticipated to grow at an annualised 5.2% over the five years through 2025-26, to $783.0 million.
Fishing and Aquaculture
The Fishing and Aquaculture industry is expected to recover in 2020-21, after declining by 11.0% in 2019-20. Firms in this industry are highly reliant on export markets for revenue, due to the small size of the domestic market. Export revenue is expected to account for 31.8% of industry revenue in 2020-21. Seafood exports to China were suspended from February to April 2020, as China responded to the emergence of COVID-19. This presented a major threat to fisheries in New Zealand, as China accounts for 61.1% of export revenue.
Since April 2020, seafood export restrictions have been lifted, enabling an expected resurgence in industry revenue of 3.2% in 2020-21, to $1.5 billion. However, this revenue growth continues to be exposed to trade risks. In June 2020, a resurgence of COVID-19 in China linked to imported seafood triggered a consumer boycott of imported salmon. Fortunately for the industry, this boycott was short-lived and export volumes were not significantly disrupted.
In the second half of 2020-21, the relaxing of social distancing restrictions in major export markets is expected to drive demand for seafood from hospitality industries overseas, including restaurants, cafes and hotels. In particular, rock lobster exports are expected to surge due to rising demand from Chinese consumers. Industry revenue is forecast to continue rising over the next five years, as rising household incomes in Asian countries spur greater demand for luxury seafood products imported from New Zealand. Overall, industry revenue is expected to increase at an annualised 2.6% over the five years through 2025-26, to total $1.7 billion.
Postal and Courier Pick-up and Delivery Services
Revenue in the Postal and Courier Pick-up and Delivery Services industry is expected to grow by 2.4% in 2020-21, to $2.48 billion. Social distancing measures implemented due to the COVID-19 pandemic have contributed to a resurgence of industry demand, with the industry reporting the strongest revenue growth since 2012-13. Couriers and postal service providers have benefited from a surge in online shopping activity, which has increased demand for parcel deliveries. Parcel and courier services tend to yield higher profit margins than traditional mailing services. As a result of the boost in online shopping activity caused by the COVID-19 outbreak, profit margins are expected to improve in 2020-21.
According to NZ Post, the volume of letters delivered in New Zealand has fallen by approximately 60 million per year over the past five years. In 2020-21 and beyond, industry operators are expected to struggle with a deterioration in demand for letter delivery. However, demand for parcel delivery is anticipated to continue rising, offsetting revenue declines and enabling overall growth. The industry is expected to become less concentrated, as new firms specialising in parcel delivery begin to operate. Price competition is expected to intensify, hindering average industry profitability over the next five years. Overall, revenue in the Postal and Courier Pick-up and Delivery Services industry is expected to increase at an annualised 0.5% over the five years through 2025-26, to $2.54 billion.
Industries to fall in 2020-21
Revenue in the Tourism industry is expected to decline by 26.3% in 2020-21 to $30.8 billion, as a result of New Zealand’s ongoing border closures to international arrivals. New Zealand is not expected to open up its borders during 2020-21, due to continued fears of importing COVID-19 from overseas. The New Zealand Government (Te Kawanatanga o Aotearoa) may reach an agreement with the Australian Government to enable a resumption of travel between the two countries. However, this travel arrangement may only be available to Australian states and territories that have demonstrated control of COVID-19, particularly after the recent flare-up of new cases in Victoria.
Significantly reduced tourism activity is putting pressure on tourism businesses across the country, with industry-wide profitability expected to strongly decline in 2020-21. Air New Zealand, the largest player in the Tourism industry, has significantly reduced its international and domestic capacity, and the national carrier's revenue and profitability are likely to fall significantly in the current year. The number of tourism enterprises in New Zealand is expected to decline throughout 2020-21, particularly in regional areas. Employment is also expected to decline by 11.6% in the current financial year. The loss of employment has been partly mitigated by the Central Government's COVID-19 Wage Subsidy scheme, which has provided income to businesses to retain employees if they have lost 30% or more of their revenue.
While continued fears about COVID-19 outbreaks in other countries are projected to limit international travel, domestic travel will likely strengthen in 2021-22 and beyond, providing a boost to tourism establishments in regional areas. Overall, the Tourism industry is expected to grow at an annualised 6.8% over the five years through 2025-26, to $42.7 billion.
Land Development and Subdivision
The economic fallout from COVID-19 is expected to significantly undermine demand for land development and subdivision services during 2020-21. Revenue in the Land Development and Subdivision industry is projected to decline by 22.3% during 2020-21, to $2.7 billion. Demand conditions have worsened across the residential, commercial and industrial building markets. The deferment or cancellation of investment in the pipeline of projects is expected to immediately dampen demand industry services both in 2020-21 and in subsequent years.
The industry is expected to be disrupted by ongoing supply chain difficulties, particularly with sourcing building materials, capital equipment and skilled personnel from overseas. This trend has already been demonstrated by delays in the supply of import goods sourced from the United States and China in the second half of 2019-20.
High unemployment, slower population growth, subdued growth in household income and high debt levels are forecast to affect industry performance over the five years through 2025-26. Industry revenue is expected to decline at an annualised 1.3% over this period, falling to $2.5 billion. However, some growth opportunities exist for industry firms. The rise of online retail and merchandise trade caused by COVID-19 social distancing restrictions is expected to drive demand for warehouse and distribution facilities, which will support land development for industrial estates close to major cities and transport hubs.
The Department Stores industry is expected to decline by 15.3% in 2020-21 to $4.1 billion. Consumer expenditure on retail items such as clothes, accessories and electronics is expected to be substantially lower in 2020-21, reflecting weaker consumer sentiment and lower household discretionary income. In addition, any remaining expenditure on these items is expected to increasingly transition to online channels, bypassing department stores and other brick-and-mortar retail outlets. Profit margins are expected to fall significantly over 2020-21, as industry operators are forced to drop prices to retain demand. Supply chain disruptions caused by COVID-19 in overseas economies are likely to continue to hinder department stores by restricting stock availability.
The outlook for department stores is bleak, as an increasing number of foreign retailers enter the New Zealand market through online channels and intensify competitive pressure. The New Zealand dollar is forecast to appreciate over the five years through 2025-26, reducing import prices and heightening competitive pressure for department stores. New foreign players specialising in specific product categories, such as makeup or clothing, are likely to draw customers away from department stores. Revenue is expected to partially recover in 2021-22, reflecting a normalisation of the economy following the COVID-19 pandemic. This trend is forecast to contribute to industry revenue growth at an annualised 1.3% over the five years through 2025-26, to $4.4 billion.
Oil and Gas Extraction
The Oil and Gas Extraction industry is expected to decline by 11.4% in 2020-21, to $4.5 billion. The COVID-19 pandemic has weighed heavily on global economic activity. As a result, oil and gas prices have declined precipitously, significantly hindering industry revenue. Despite the easing of restrictions in New Zealand, the industry is expected to continue struggling amid ongoing restrictions on international travel, which has reduced demand for vehicle fuels, as well as lower global manufacturing activity.
In 2020-21, industry firms are expected to reduce capital expenditure and delay investment decisions in response to ongoing global economic uncertainty. Given the finite resources available in existing oil and gas fields, ongoing resource exploration and development is necessary for the industry's long-term future. Delayed investment in 2020-21 is expected to have an ongoing effect on oil and gas production in future years, and hinder industry performance over the next five years. Overall, industry revenue is forecast to grow at an annualised 2.7% over the five years through 2025-26, to $3.9 billion. The world price of crude oil is projected to rise over the period as global supply and demand conditions stabilise. However, this outlook relies on the COVID-19 outbreak not becoming a long-term issue.
Electricity Transmission and Distribution
The Electricity Transmission and Distribution industry is expected to decline by 4.4% in 2020-21, to $4.3 billion. This decline is primarily attributable to weaker demand from manufacturers in New Zealand, caused by the global COVID-19 recession. In particular, the scale down and eventual closure of the Tiwai Point Aluminium Smelter in Southland is expected to significantly reduce revenue for industry firms. The Tiwai smelter typically accounts for close to 13% of New Zealand’s total energy consumption each year. Output from the smelter is expected to gradually decline ahead of the final closure scheduled for August 2021. Further investment in transmission and generation infrastructure is expected to be placed on hold, amid an oversupply of electricity in New Zealand following the closure of the Tiwai Point smelter.
In addition to the COVID-19 pandemic, the ongoing consumer- and industry-led shift towards small-scale generation through the use of solar panels is expected to threaten industry operations. The use of battery storage and energy-saving technology may reduce demand for grid-supplied energy. However, this trend may be offset by increasing electrification of the economy, including the uptake of electric vehicles. Overall, industry revenue is projected to rise at an annualised 1.1% over the five years through 2025-26, to total $4.5 billion.
IBISWorld reports used to develop this release:
- Superannuation Funds in New Zealand
- Data Processing and Web Hosting Services in New Zealand
- Online Shopping in New Zealand
- Beekeeping in New Zealand
- Fishing and Aquaculture in New Zealand
- Postal and Courier Pick-up and Delivery Services in New Zealand
- Tourism in New Zealand
- Land Development and Subdivision in New Zealand
- Department Stores in New Zealand
- Oil and Gas Extraction in New Zealand
- Electricity Transmission and Distribution in New Zealand
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647