ECONOMICS: Beating The Doldrums

Late in 2006, and with great fanfare, 2007 was designated Export Year. The then prime minister, Helen Clark, and gaggle of cabinet ministers, including New Zealand First leader Winston Peters, visited tapware manufacturer and exporter Methven in the Auckland suburb of Avondale, to make the announcement. It included news of a $33.75 million boost for scheme to help exporters break into offshore markets.
As part of the lead up to Export Year 2007, conference for the chief executives of more than 50 export companies was held in Auckland to brainstorm what the business sector could do to lift export performance. Other initiatives rolled out during the year included targeted trade missions, beefing up the mentoring programme for up-and-coming exporters and increasing access to exporter education courses.
Peters said export growth was critical to New Zealand’s long-term economic sustainability. “As country, we face two inconvenient truths when it comes to exporting,” he noted. First, our exports must grow or our economy will falter. This called for structural and practical changes that would provide incentives for businesses to begin exporting, or to export more. Second, the initiatives and policies unveiled as part of Export Year must pay dividend over the next decade and beyond. “The success of Export Year 2007 will not be measured in 2008, but in much stronger economy in 2017 that offers greater business profitability, higher wages, and better social services,” Peters said.
By that test, we have several years to wait before we can declare Export Year 2007 success. John Walley, chief executive of the Manufacturers and Exporters Association has, however, already deemed it flop. The domestic economy and some manufacturers did well, he argues, but others – particularly those with large export sales – saw little return as the currency breached all records.
He laments that economic policy settings created “two economies” – domestic and tradeable – and, because of the strong kiwi dollar and competition from imports, an increasing number of companies relocated production and jobs to low-cost countries to stay competitive, reduced activity or ceased trading.
The GPS technology manufacturer, Rakon, is among the companies to announce plans to escape the volatility of the New Zealand dollar in recent months. It is shifting its operations to new joint venture factory complex in China. Among the benefits: greater control of its supply chain with material cost-saving benefits, and closer proximity to major customers.
This exodus is helping to shrink the country’s manufacturing output and coincides with our exports growing more slowly than those of our competitors. Manufacturing employed 21 percent of the workforce in 1989. This has shrunk to 14 percent and manufacturing no longer is the largest employer in the country. Trade imbalances have become chronic and – as Walley points out – the contents of our exports are simplifying.
June-quarter GDP figures showed activity in primary industries increased 1.5 percent, but activity in goods-producing industries decreased 0.5 percent, the sixth quarterly contraction. Manufacturing activity declined 1.3 percent, led by
machinery and equipment manufacturing (down 7.3 percent), non-metallic mineral manufacturing (down 11.7 percent), and food, beverage and tobacco manufacturing (down 1.5 percent). Increases were recorded in petroleum, chemicals, plastics and rubber manufacturing.
Another set of data showed manufacturing sales volumes rose for the first time in six quarters in the June quarter, led by the dairy and meat industries. But if meat and dairy are shaken out, manufacturing shrank 2.8 percent and eight of 15 industries recorded declines, and total manufacturing sales values fell almost five percent because of low meat and dairy product prices.
More recent statistics suggest little, if any, light at the end of the tunnel. Manufacturing activity stumbled in August after general period of improvement since the start of the year, according to the monthly performance of manufacturing index produced by BNZ Capital and Business NZ. It recorded reading of 48.7 for the month, down 0.9 points, from July (readings below 50 indicate manufacturing activity is contracting). The contraction has lasted 16 months.
With manufacturing in the doldrums, Finance Minister Bill English was right to be less than ebullient when June-quarter data showed our June-quarter current account deficit hitting five-year low. This was encouraging, but more work was needed to narrow our trade and investment gap with the rest of the world, he said. If we wanted strong recovery that provided sustainable jobs and growth, we must lift our export performance, “which has remained relatively static”. He talked of his Government’s “comprehensive programme to rebalance our economy around exports and investment”.
Let’s hope we don’t have to wait until 2017 to find out if it is delivering.

Bob Edlin is leading economic commentator and NZ Management’s regular economics columnist.

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