The nurturing of both new and existing businesses plays an equally important role in Rotorua’s economy – that’s according to a new report by economist Benje Patterson commissioned by Rotorua Economic Development (RED).
While new businesses have generated a steady stream of jobs in Rotorua over the last 15 years, the report shows that those economic gains can be eroded if existing businesses are shrinking at the same time. Since 2005, there have been four years where the total number of people employed within Rotorua businesses fell.
Business numbers in Rotorua also experienced bigger swings across the business cycle than the rest of New Zealand over the same 15-year period.
RED chief executive Michelle Templer said that RED funded the report to help identify where the organisation’s resources should be focused to support economic growth.
“There’s an accepted rationale that new businesses have the biggest impact on job creation and therefore community wellbeing,” she says.
“However, the report shows that, while new and productive businesses can create employment by replacing less innovative and shrinking ones, it’s equally important to help existing enterprises become more cost efficient, productive, competitive and financially sustainable.”
“Part of our role is encouraging the development of essential infrastructure and providing information and support to help businesses become more resilient and entrepreneurial over the long term.”
The report also identifies how job creation varies between industries. Rotorua’s economy relies heavily on the tourism and forestry sectors, which have both experienced larger than average swings in business numbers. However, while jobs created in the accommodation & food services and retail industries have concentrated on new businesses, tourism has contributed to the economy in a different way.
“Arts and recreation services, which is driven by both community and tourism-related recreational pursuits, was a key contributor to job growth over the past five years, with growth evenly spread over new and existing businesses,” said Templer.
The report relies on data stretching from 2005 to 2019 and was presented to a group of local business leaders on Friday. Key findings include:
- The number of businesses in Rotorua has recovered from the 2013 trough of 6,936 and is now back to levels that persisted immediately prior to when the Global Financial Crisis hit in 2008.
- Business births have risen strongly since 2013 as economic conditions improved.
- New businesses generate a steady stream of jobs, but these gains can be quickly eroded when existing businesses back pedal. On average over the 15 years to 2019, new businesses accounted for a 2.1%pa contribution to total jobs growth, while existing businesses detracted 1.3%pa from the result.
- The average Rotorua start-up business has 4.8 employees, close to the national average of 4.7 employees.
- Over the five years to 2019, the top five types of businesses for job creation in Rotorua District were: accommodation and food services, education and training, retail trade, public administration and safety, and health care and social assistance.
- Industries where employment was expanding offered average returns on equity of 18.1%, while industries where job numbers were contracting offered average returns of 14.6%.
- Over the five years to June 2018, new jobs’ pay increased by an average of 4.2%pa, while pay for continuing jobs with existing employers increased by an average of 2.6%pa.