A Business Growth Fund (BGF), with the Government and New Zealand's major banks as investors, proposed in Budget 2022 by the previous Labour Party government as a way of helping source equity investment for capital starved small businesses, doesn't appear any closer to getting off the ground following a change of government.
Following BGF initiatives in the United Kingdom, Canada and Australia, the Labour government said it was prepared to tip in up to $100 million to invest alongside banks in a private equity-style BGF. The BGF proposal followed a recommendation from the New Zealand Small Business Strategy, issued by the Government's Small Business Council in 2019.
The Ministry of Business, Innovation & Employment (MBIE) commissioned Deloitte to do an independent analysis of a potential BGF in late 2022. MBIE says there's a critical gap in access to growth capital for SMEs earning between $3 million to $30 million in annual revenue.
"They are typically too small to access public markets, non-collateralised debt is very expensive and there are few capital providers who are willing and able to undertake due diligence on businesses at this scale. Overseas, major banks have been the primary shareholders of similar solutions to the proposed BGF," MBIE said.
The Australian Business Growth Fund (ABGF) launched in 2021 with A$100 million from the Scott Morrison-led Liberal-National Coalition government and continues under Anthony Albanese's Labor government. The Australian parents of NZ's big four banks - ANZ NZ, ASB, BNZ and Westpac NZ - have each invested A$100 million, with HSBC and Macquarie Group also tipping in A$20 million.
NZ's major banks have sounded unenthused about investing in small and medium-sized businesses (SMEs) via a BGF, and the Labour government didn't get one off the ground before it was dumped out of government in last October's election.
Interest.co.nz asked Economic Development Minister Melissa Lee whether a BGF will go ahead under the Coalition Government.
Via a spokesman, Lee said the Government's exploring options to support business growth, including "holding discussions with industry for their feedback and insight."
"We are looking at ways that we can support New Zealand’s businesses to grow that align with our coalition agreements," said Lee.
"The Government is currently focused on the delivery of its 100 Day Plan priorities. Decisions on longer-term priorities will be made in due course."
Former BNZ boss Anthony Healy is CEO and Managing Director of the Australian Business Growth Fund (ABGF). Healy spoke on interest.co.nz's Of Interest podcast in March last year in detail about the ABGF, and why he believed a similar BGF would be a good idea for NZ.
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6 Comments
Lee said the Government's exploring options to support business growth, including "holding discussions with industry for their feedback and insight
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It's a bad idea in amongst some good ones.
It's a bad idea in that the root cause of the issue is the banks risk rating on residential property is so low and the margins so astonishingly (world beating - FTW!) high that no self-respecting bank will change its' book to accommodate SME's.
Even if you ignore the root cause and try to fix the symptom, you are in fact breeding a worse situation by making unqualified loans with poor hurdle challenges, supporting poor business investment at unrealistic risk ratings.
There'd be a high failure rate but bound to be some diamonds in there - but no-one would know if there's no capital for them to get off the ground. As an example I was reading yesterday how Warren Buffet bought a 10% stake in BYD while it was still a couple of guys fiddling round with batteries in a workshop.
It's a bad idea in amongst some good ones
That's a very short-sighted lazy outlook coming from the banks' perspective, should we clarify
Their books are as good as the housing market is. Look at more than 20% drop in that market and their books will start to look terrible. Happened in the GFC from way lower heights, just not here
Also, this business practice of starving the economy of money by tunneling them into profits via extreme mortgage payments will work so far. In the long term the economy will lag behind more and more and less value can be extracted out of it. Plus the social consequences. But what do overpaid CEOs care when they're leaving the boat in 5 years time anyway?
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