What you hear depends on who you listen to...
A recent article featured on Stuff.co.nz highlighted the real difference in views between NZMEA and other broader based Associations. What you hear depends on who you talk to; I only talk to manufacturers and exporters, others have to listen to memberships whose interests are skewed to the domestic economy.
That said not all exporters and manufacturers are suffering from the overvalued NZ$; but many of them are moving into the terminal phase and that really is a problem for jobs and the current account. It goes like this, it so happens right now if you have some imported costs and sell in either NZ$ or AU$ things are pretty good; those terms generally apply to importers and some manufacturers. Regardless of the fact that some or all of your costs are in NZ$ if you sell in US$ or Euro the pain increases as the NZ$ appreciates – at some point the decision has to be made to give up offshore markets or change business model. Many are in the end game that started in 2005 with an increasing reluctance to invest in export growth. We can see this happening from the job loss headlines of the recent past.
We hear from the likes of, Phil O’Reilly, that firms should move offshore and there is nothing to be done with the exchange rate. He goes even further suggesting that most don’t complain about the currency instead they worry about what they can do to deal with the currency problem. On the face of it a positive, we can fix it, message. But peel it back this is a message of despair and degradation encouraging those suffering and those who could do something about it to throw in the towel.
The exchange rate really does matter; Phil should read his own Export NZ survey and understand it screams “the exchange rate matters”. We have to get over thinking there is nothing we can do; we can, a simple bit of reading around what Singapore and Switzerland are doing demonstrates that action is possible.
We need to focus on balanced current account underpinned by a growing export sector in jobs, volume and complexity.
Business NZ and others of that ilk take different position; they claim there is nothing that can be done to fix the exchange rate and suggest that firms should move off shore to deal with the problem – in our view this is exactly what policy should seek to avoid, but if current settings continue more manufacturers and exporters will fail and more companies will move overseas, losing or taking crucial jobs, skills and economic activity with them.
The NZMEA chooses to reject the message of despair and degradation; we want to see New Zealand economic activity stay on shore, providing well paid employment. We want to see local investment increase to support innovation and growth for the future– for this to be achieved policies around the exchange rate must change. Such a change is inevitable, it will happen; the only question is how much more will we have lost before that happens.
In the short term, consumers, importers and some politicians enjoy an overvalued exchange rate, but in the long term, a simple and crippled export sector will cost everyone in our economy.
To read the full article click here. Also related is Simon Ward’s comment on New Zealand Associations, found here. Also see other comments on JLW.