The Opposition parties' inquiry into manufacturing has found major "fissures" in the sector, with traditional agricultural producers pitted against new, high-value industries, and industries focused on the local market less concerned about the high kiwi dollar than exporters.
"This distinction lies at the heart of a long-standing concern about New Zealand's over-dependence on the primary sector, a failure to diversify away from primary-related outputs, and a consequent decline in innovation, research and development, and company development in new, high-value adding sectors," the 40 page report, released in Christchurch today, says.
"This failure is considered by many to be a major cause of our relative decline in standard of living."
It suggests the sector's biggest lobbyist, Business New Zealand, does not speak effectively for exporters of high value and "elaborately transformed" manufactured exports because its members who produce for the local market are less concerned about the over-valued New Zealand dollar.
Business NZ did not make submissions to the inquiry, which was released under the names of the Labour, Green, New Zealand First and Mana parties. A prime mover in establishing the inquiry was the Christchurch-based New Zealand Manufacturers and Exporters Association, whose chief executive John Walley, is a long-time critic of current monetary policy settings.
"The division between the NZMEA and Business NZ was presented to the inquiry as an important fissure between manufacturers who were primarily exporters, and those who cater primarily for the domestic market," the report says.
"Such a division would, of course, suggest quite different attitudes to a high New Zealand dollar. Whilst the inquiry has little to say on this essentially organisational and political issue, it notes that a model ... predicated on export growth on a more productive basis is unlikely to be given priority by business factions benefitting from a high New Zealand dollar and relatively unconcerned about its impact on exports."
That suggestion was rejected by Catherine Beard of Business NZ.
"Our members don't appreciate the implication that they are in a sunset industry," she says. "Plenty find the negativity to be a distraction and not sending a good message to all the bright young things we want to attract into the sector."
The report pits a prevailing economic "orthodoxy" against what it says is an emerging "new orthodoxy" that proposes solutions to long-standing barriers to growth in the manufacturing sector.
"The current macroeconomic orthodoxy hides serious problems in manufacturing sector performance. In particular, it either ignores or understates the impact of adverse exchange rate movements on manufacturing exports, especially those in the elaborately-transformed area."
However, submissions to the inquiry had found a range of available measures that included the ability to "manage the exchange rate, investment patterns, and the current account deficit, as well as a move from dependency on the primary sector to increased exports of more sophisticated products derived from a sector driven by innovation, an improved R&D and investment performance, and a higher skilled workforce."
"The inquiry accepts that a re-assessment of macroeconomic settings in New Zealand is long overdue, and that the "new orthodoxy" offers an alternative policy framework in which the manufacturing sector is more likely to prosper."
Economic Development Minister Steven Joyce says the inquiry produced "retread" recommendations for a "crisis that doesn't exist", pointing to last Friday's BNZ-BusinessNZ performance of manufacturing index, which showed the sector expanding at its fastest rate since 2004.
The Engineering, Printing and Manufacturing Union urged the government to adopt the report's recommendations, citing last week's announcement of 84 redundancies at Air New Zealand's Blenheim-based subsidiary, Safe Air.
The inquiry makes 11 specific recommendations, including policy changes to allow a "fairer and less volatile exchange rate", beefed up research and development tax credits, and a national procurement policy "that favours Kiwi-made".
"Any restraint on effective procurement measures imposed by free trade agreements was a concern for some submitters," the report noted, recommending manufacturers be given a stronger voice in FTA negotiations.
It also recommends an accelerated depreciation regime and a selective approach to foreign direct investment.
"Submitters were, in general, comfortable with more FDI ... where such investment brought clear advantage to New Zealand," as opposed to foreign buyouts of existing firms.
The inquiry recommends that significant plant closures or restructuring should be subject to a project-based taskforce model involving local and national government, representatives of the sector and affected workers, supported by appropriate analytical skills.
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