NZ export values up but export volumes low - study

By NZPA

Wednesday 19th June 2002

While export values have skyrocketed over the last two years, export volumes have been "lacklustre", a study of New Zealand's largest exporting manufacturers has found.

The Manufacturing Export Study by Infometrics is the sixth since 1991, surveying 30 New Zealand manufacturers to find the keys to their success.

Author Andrew Gawith noted that at the time of the last study in mid-1999, the currency was in retreat. The real exchange rate had sunk around 20 percent between June 1997 and June 1999, and fell a further 13 percent during the following two years, reaching a 15 -year low point in the first half of 2000.

"On the face of it, the low real exchange rate has boosted exporters' price competitiveness. That should have resulted in more sales and/or bigger margins."

Instead, manufactured exports -- while they had risen in value by 40 percent or $2 billion in the last two years -- had grown in volume by just 6.5 percent.

Mr Gawith said there were at least five possible reasons for the lack of volume growth:

* manufacturers had been "wary" of expanding capacity on what they thought was a temporary competitive edge thanks to the low kiwi dollar;

* some manufacturers had entered into extensive forward cover contracts soon after the New Zealand dollar had fallen below US50c, shutting out gains from a lower currency;

* the high import content of many manufactured goods;

* the demand for some manufactured goods fell sharply over late 2000 and through 2001;

* some companies had either outsourced their production to foreign plants or shifted their focus away from manufacturing, resulting in a marked fall in export receipts but not necessarily net profit.

The study noted that the "apparent stalling" of growth in export receipts could reflect a general maturing of the sector, as it moved away from gross sales towards more value-driven strategies.

It also noted that over the past five years, export receipts from Australia had dropped off, slipping from 41 percent to just over 30 percent.

At the same time, export values generated in the United States had risen 6.7 percent to 17.6 percent.

"A large part of the reason for the substantial shift in market shares relates to the exchange rate", which had made the US a more attractive market.

"Of the 30 firms covered in this study, around seven have recently developed, or are in the process of developing, distribution of their product in the United States. In virtually all instances, Australia is still the most significant export market for these seven firms."

In a joint statement, the ministers for Economic Development, Trade Negotiations and Science welcomed the study, saying it showed export growth had as much to do with attitude and relationships as technology.

A key strategy, they said, appeared to be the development of smarter distribution strategies.

"The study ... shows that strategies designed to maximise efficiencies in logistics and transport have enabled some firms to outperform their competitors in delivery, despite being located much further away from their markets."

Several companies had also become specialist research and development (R&D) centres for foreign parents, Science Minister Pete Hodgson noted.

"In general the study notes a marked lift in the quality and sophistication regarding technology and R&D. It also suggests inward investors are attracted to New Zealand as an R&D location because of value for money, multi-skilled researchers, stable R&D teams and most importantly, the quality and originality of kiwi innovation."

The study was jointly funded by TradeNZ, the Treasury and the Ministry of Economic Development.

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