Y2K compliance put at $2.5b for small, medium business

Year 2000 issues could cost the New Zealand economy as much as $2.5 billion for a month-long 'disruption' in small to medium-sized enterprise companies alone, the OECD suggests in a report released this month. The report, which also says Y2K may cause 'significant short-term economic disruption worldwide'.

Year 2000 issues could cost the New Zealand economy as much as $2.5 billion for a month-long "disruption" in small to medium-sized enterprise companies alone, the OECD suggests in a report released this month.

The report, which also says Y2K may cause "significant short-term economic disruption worldwide", will be presented to the Global Year 2000 Summit to be held in London on October 15th and 16th.

The report also has less than comforting things to say about governments' responses to Y2K. "Compliance levels appear to be particularly worrisome within the health care sector, some sectors of government and small and -medium-sized enterprises."

The OECD, whose members include New Zealand and Australia, undertook the study to help countries respond to the year 2000 problem.

Initial studies of potential macro--economic effects of the year 2000 problem in Canada, Korea, Netherlands, the UK and the US indicate that countries could experience short-term inflationary pressure, declines in productivity growth and -financial-market drops as investors become more aware of the risks.

Most studies estimate a negative impact on countries' gross domestic products (GDP) of between 0.3% and 1.1% over the next two years, according to the OECD study. By way of comparison, during the global economic downturn in 1973-74, the US GDP dropped 3.7%, the study says. Edward Yardeni, chief economist of Deutsche Bank Securities, puts the chance of a serious global recession, such as in 1973-74, as high as 70%.

Even countries with strong economies which have worked hard to fix the year 2000 problem in their own business and government computer systems are not immune, given the interdependence of economies and networks, the study warns. Year 2000-related problems may arise not just in computer systems but also from embedded chips in transnational communication networks, industrial control systems and safety systems. Worldwide, the number of installed chips is estimated to be as high as 25 billion.

Although the potential for short-term economic disruption remains high, OECD nations have not been idle in attempting to fix the problem, the study says.

Many OECD countries have elected to fund the fix through the existing budgets of relevant agencies. But Australia, Ireland, Japan, Korea and the Netherlands have created explicit policies to set aside additional funding for priority sectors and areas.

While the short-term outlook is not positive, the study emphasises that much is uncertain and unknown about what will happen to computer systems when their internal clocks tick past 1999

A significant portion of the estimated cost of fixing the year 2000 problem — estimates which range from $US300 billion to as high as $US1.6 trillion — could be attributed to costs which would have been incurred in any event, though perhaps at a later time, the study says.

More information can be found about the study at www.oecd.org.

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