Fran on F&P

April 20th, 2008 at 8:06 am by David Farrar

Fran O’Sullivan looks at the decision by F&P to shift its Dunedin production line overseas.

Chairman Gary Paykel has had plenty to say, largely behind scenes, about the difficulty of running internationally competitive manufacturing export businesses from countries that pay First World labour costs, are distant from the world’s major consumer markets, have outrageously uncompetitive transport costs and, in particular, are slammed by a crazy monetary policy which, in New Zealand’s case has had our dollar rubbing up at US80c for far too long.

There seems a degree of inevitability.

But despite his warnings and those of other manufacturers the Government did nothing major to offset the situation, despite labelling 2007 Export Year. It could have explored a special tax rate, as suggested by New Zealand First and United Future, to gear business towards increasing its export footprint offshore from manufacturing bases here. But didn’t.

It could also have cut Government spending, as the OECD suggested, to take the pressure off monetary policy. But didn’t.

The New Zealand dollar has appreciated 27 per cent against the greenback in the past two years. Investors are sucked in by interest rates that dwarf those in other OECD countries as the Reserve Bank tries to squeeze out inflationary pressure.

The Government can not stop individual manufacturers making decisions as to what is best for them. But they can play a significant role in setting an environment which is friendly for businesses to prosper.

New Zealand manufacturing is not dead – far from it. Statistics New Zealand’s manufacturing survey for the December quarter showed total manufacturing sales increased 8.3 per cent and manufacturing volumes rose 3.4 per cent.

But the ability of manufacturers to withstand higher compliance costs, such as the KiwiSaver superannuation phase-in, will get tougher if the exchange rate persists at current levels.

Every extra cost is what may push an employer and manufacturer past the tipping point.

But the reality is that Fisher & Paykel’s move is also a consequence of globalisation. The New Zealand Institute’s David Skilling has promoted the necessity for more businesses to go offshore and relocate closer to markets.

Skilling’s weightless economy is predicated on the notion that if New Zealand keeps the brains trust here – the designers and engineers who create the products and the company headquarters – New Zealand will benefit.

That is the likely best future for us. China is becoming or has become the world’s manufacturer. We need to specialise in areas where we have a comparative advantage.

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