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19
DEC 12

Ignoring the elephant in the room




Sir Ken Stevens, founder of Glidepath and Chairman of Export NZ, was interviewed on Radio NZ earlier this month, giving an outline of the recent success of his company and views and comments on the New Zealand economy. Our concern was how little attention he gave to currency and trade rules, we even got comments from some members stating how damaging such omissions can be, helping to entrench the status quo. There are ways to address our rapidly appreciating exchange rate, but those with the power to do something continue to ignore them.

We sent Sir Ken an email to pass on the concerns expressed by our members; suggesting that in our opinion, Export NZ could do more to support the real economy. Their own recent survey had highlighted that 65% of respondents cited the exchange rate as the biggest barrier to growth, but this was barely mentioned in their commentary.

As a response, we got an email back from the Executive Director of Export NZ, containing some information they produced and comments on our email. In their opinion, the fact we point out shortcomings and issues facing manufactures and exporters means we come across as overly negative – and that we need to promote the sector in a positive light; they did not respond to the exchange rate issue.

Being positive would require us to ignore the plight of our members battling against a continually appreciating dollar that eats away at margins and the will to invest. Being positive would require us to ignore what is happening in the world as currency manipulation increases. Being positive would require us not to point out the policy mistakes that are being made from an export perspective. We could ignore the elephant in the room, wave the pom-poms and cheer from the sidelines as our exporters, one by one, give up and fade away - one way or another.

Our organisation is not compromised by members who are not manufacturers or exporters; we can and will continue to speak out for as long as our members wish or until matters change. If that is perceived as negative so be it, but without change, there will soon be little left to argue about. It is a great pity that other so called voices for the sector, support their non-manufacturing non-exporting majorities, cling on to the orthodox and excuse the damage being done as inevitable. They could serve their manufacturing and exporting members better.

They claim manufacturing is not in a crisis, that an image of crisis might discourage new talent into the sector as though denying a crisis will somehow make the problems go away - smart people will see through the spin. The data we see and the people we talk to suggest that a crisis is real. Some do well but many more struggle in the current climate. Our membership base is clear and focused, allowing us to have clear views and goals – rather than equivocation trying to keep a broad base happy.

They characterise talent lead innovation as the largest competitive advantage for manufacturing, and that positivity is needed to attract new talent into the sector. Well that is half right but innovation requires more than talent, it requires investment and it requires a supportive context; any amount of spin cannot fill those gaps. Smart people see that the emperor has no clothes.

Innovators need the innovative space that comes from a better economic outlook, shown through lower unemployment rates, higher wage rates and higher GDP growth. If current policies remain unchanged our economy will continue the slide to simplification and the only activity to remain will be those things that cannot relocate; an economy with that structure has little space for innovators. Others countries are choosing a different road, read the background on Switzerland and Singapore for examples.

If the dollar continues to appreciate and government and associations alike show no inclination or intent to address the issue, firms are going to contract, close or leave New Zealand. Phil O’Reilly, head of Business NZ even suggested that moving firms offshore was a solution to the high dollar in a recent Stuff article – isn’t that a statement of despair and destruction? Shouldn’t we be creating an environment that encourages investment in New Zealand production, rather than driving it away?

From our point of view there are choices to be made. We know consumers prefer the high dollar, but the manufacturing and export sector must be able to grow locally to create the highly paid jobs that fuel consumption and grow our economy, raising living standards for all.
Ignoring or spinning the issues does nothing to fix them. We need to change the prevailing mindset to show that manufacturing and exporting are not optional extras, they do truly matter and the exchange rate cannot just be ignored. We will continue to advocate and promote this position; we hope others follow suit.

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The following is an email conversation discussing New Zealand associations and economic views. 

Hi Ken,

I heard you on the radio Friday week ago, and so did a few of our members. It was good to hear that Glidepath is doing well and that is a credit to you and your team, however it was disappointing to hear you not give the currency and trade rules the attention they really deserve – a couple of members commented on the damage such omissions do as they help entrench the damaging status quo. 

We all know there are things to be done with exchange rates, our policy rigidly and simply ignores those things. The absence of a level playing field is also well known – your own comment on the need to use US steel on US contracts underlines that. Yet we ignore these things.

The Export NZ brand could do much more in support of the real economy but seems too wedded to the Business New Zealand economic orthodoxy to speak up for its members interests, in so doing it does us all a disservice. Your own recent survey highlighted 65% of respondents cited the exchange rate as the barrier to growth yet it hardly rated a mention in the Export NZ commentary. How does this help the export sector? 

I will send you a copy of “In the Wake of the Crisis” that speaks to much of what is damaging our export sector. All I ask is that you find time to read it and then pass it on to someone else. 

Regards,

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As a response, we recieved the following email from Catherine Beard, Executive Director of Export NZ.

Dear John,

Sir Ken passed your e mail onto to me so I could send you a copy of the information we have produced lately on the topic of exchange rates and lifting New Zealand’s export performance.
I have to say that there is some concern from our membership that your advocacy comes across as being overly negative when there are a significant number of manufacturers doing well or very well despite the tough trading conditions (TIN 100 co’s continued growth, etc and PMI that is not bad compared to other countries). When commentators constantly refer to a manufacturing “crisis”, all this serves to do is tell the media, public, policy makers and politicians that manufacturing is a sunset industry, when from our point of view this is far from the case.

I am currently in the UK and have met with the manufacturing industry association here EEF; and they agree that it is not a successful strategy to focus too much on what government can do for you; rather the strategies to help manufacturers be resilient in a competitive global market place. The nature of manufacturing is changing and the pace of change will only increase. Those that will be successful with be the innovators that can compete even in a high cost economy like the European manufacturers, focusing on quality and innovation. In addition, global surveys of manufacturing competitiveness indicate that most CEO’s rate talent led innovation as the number one competitive advantage.

How will we attract the next generation of talent into manufacturing when it is claimed its constantly in crisis, when in fact the sector has been remarkably resilient in very tough trading conditions and can offer high wage (relative to other sectors) and interesting jobs.

Kind Regards,

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After reading this, I passed the thread to NZMEA President, Brian Willoughby of Contex Engineers LTD. The following is what he thought of the conversation.

One can understand the Reserve Bank noting things they could do, and then commenting on efficacy, political difficulty and possible side effects and undesirable outcomes each of them may have if implementing each proposal. However to do so without proper appraisal of the damaging effect of the existing systems (OCR) is wooly logic so the status quo gets accepted as just being there and isn’t properly measured against the other alternatives.

The Danish example is noted with manufacturing clearly being the big difference, but then status quo belief suggests something entirely different to achieve outcomes in NZ; such as play to our strengths which are add value to our primary products, increase the effectiveness of resource extraction and tourism. It implies we don’t need manufacturing and will ignore the evidence that proves nothing else gets us over the line to adding value and wealth anywhere near as fast as manufacturing can. It also ignores the evidence that shows we are losing the talent we need to be good manufacturers because of the existing policies that send our best and brightest away.

It’s just bewildering that anyone can just keep tiptoeing around the elephant in the room. The dollar is too high given the state of our existing manufacturing base, skills and practices and infrastructure. If those things are to be elevated so that we can eventually stand and fight back with a healthy economy that can support a strong dollar we need some changes made to the economic landscape that are all aimed at conspiring to bring the dollar down. Changing all the other things will not work; or even happen without investment and why would you when the dollar stops you making a profit.


  


tags: exchange rate, brian willoughby, exports, manufacturing
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