Exchange rate still 'No 1' concern for exporters – industry insider

Export NZ executive director Catherine Beard

Exporters say the exchange rate is their No 1 cause for concern and is "ruining" the economy.

Export New Zealand’s latest 2012 survey paints a positive picture for the industry, with just over half the respondents expecting their profitability to improve within the next year.

And 35.7% of them expect to employ more people and nearly half are holding out for a slow but steady increase in orders.

The sample size of the survey was small, with just 169 responses. Most came from Auckland (37%) and Canterbury (14%), with just 3% from Wellington.

The second most concerning obstacle facing the survey participants is exchange rate volatility. But that is number one as far as New Zealand Manufacturers and Exporters is concerned.

“The protracted period of overvalued currency is ruining the export industry,” chief executive John Walley says.

“We’re seeing plenty of manufacturers, exporting largely to the US, who have doubled their productivity and their output, yet they’re barely making any more, all because of the exchange rate.”

Export New Zealand executive director Catherine Beard says demand offshore is the No 1 obstacle to exporting.

The 6% tariff on exports to the US and Europe is also seen as a major regulatory barrier within New Zealand limiting exports.

Compliance costs, taxes and freight costs for small business also rated a mention, as did a lack of connectivity to the South Island, a free trade agreement with China allowing for the importation of less expensive fabrics and an old and out-dated patents act.

Industrial action also appears to have knocked exporter confidence and depleted funds, with last year’s bitter and protracted Ports of Auckland union dispute affecting 28% of Auckland respondents negatively and 15% of Tauranga submitters.

Exporters lost between $5000 and $250,000 as a result, with one respondent having lost $4000 a week.

When asked if the Government was doing enough to support exporting, 61.3% said no (down from 65% last year) and when asked what kind of Government assistance was favoured, the majority said export market development, followed by R&D assistance.

“The emphasis on more help needed for export market development probably reflects the fact that many of our exporters are relatively small by world standards.

"The regions where respondents said they expected most growth were Australia, North America and China, and 40% of respondents expect to enter new markets in the next 12 months, which is encouraging,” Ms Beard says.

But Mr Walley told NBR ONLINE the volatility in the dollar has definitely hurt the industry, while the effects are starting to be felt more widely.

“Commodity prices are starting to fall now too as a result and that’s having an effect on the primary industry.”

Mr Walley is no stranger to the exchange rate argument. As recently as last month, he called for a lower official cash rate.

“Continued low growth, and broader economic conditions that prevent any realistic expectations of faster export growth, justify a cut.

"It is clear to anyone involved in the export sector that current performance is poor and prospects for future growth are no better. This is largely the result of the reserve bank’s high interest rate policies that drive up the exchange rate reducing export returns.

The International Monetary Fund has stated that a 15% drop in the New Zealand dollar would be needed to balance our current account – this should be an aim for the government, treasury and the reserve bank.”

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2 Comments & Questions

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Meanwhile back in the real world the "Big Mac" index shows the NZ$ is undervalued.

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Unfortunately John, an OCR cut will make bugger all difference to the currency, but will continue to fuel the housing market and lead eventually to higher than otherwise interest rates, which indeed will raise the NZD as its extra yield will be attractive - there are no easy answers on the currency, it is the price you pay for being better off than most others at the moment

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