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APR 12

Government needs theory of constraints training

Statistics New Zealand’s Business Operations Survey was released recently and one of the areas covered was the barriers to generating overseas income. Predictably the exchange rate was the biggest barrier for firms already exporting. In fact, if we look at the table below, the exchange rate is the first, second and third biggest barriers (low demand and increased competition offshore is generally due to price pressures generated by an uncompetitive exchange rate).

The problem is our Government is focused on the smaller constraints and ignores the larger ones. There is significant Government activity around negotiating free trade deals, which seek to deal with access and tariffs in overseas markets, but this is low on the list of barriers. New Zealand Trade and Enterprise provide some help in the middle area by giving some access to finance and some exporting expertise. This leaves the top three constraints completely untouched.

Essentially there are Government interventions to deal with the smaller constraints but no political will to deal with the major issues. The fact that only 18 percent of businesses actually export, according to Statistics New Zealand, underlies this attitude.

The distance from markets is an unavoidable physical constraint for New Zealand exporters – that leaves only the top three exchange rate competitiveness issues. Distance will always be a problem and even the internet offers no salvation; software companies based in New Zealand struggle to compete in offshore markets. Make no mistake uncompetitive exchange rates mean a low wage future for New Zealand.

Around the world we see quantitative easing in the United States and United Kingdom, direct intervention in Switzerland in Singapore, and capital controls in Brazil. We must address this competitive element. If competitors seek to improve the competitiveness of their currencies we must respond to provide a level playing field.

John Key has mentioned that the Government is “considering what we can do to resist a rising exchange rate”. Any such action will be welcome among exporters and it is clear from Statistics New Zealand’s research that it is long overdue.

tags: theory of constraints, exchange rate, export barriers
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