You don’t know what you’ve got till it’s gone…

2 March 2007

You don’t know what you’ve got till it’s gone…

The latest Canterbury Manufacturers’ Association (CMA) Survey of Manufacturers completed during February 2007, shows total sales in January 2007 increased just over 37.5% (export sales were up 63% with domestic sales increasing around 17.5%) on January 2006.

The CMA survey sample this month reported NZ$340m in annualised sales, with an export content of 53%. Net confidence was recorded at -17, a decrease from the December 06 result which was zero.

The current performance index (a combination of profitability and cash flow) is at 98, up from the previous month’s 91.5, the change index (capacity utilisation, staff levels, orders and inventories) remained at 100 on the previous month, and the forecast index (investment, sales, profitability and staff) dropped to 101 from 102 in December 06. Anything less than 100 indicates a contraction. Constraints reported 25% production, 8% staff and markets 67%. Staff numbers for January increased to just under 4%.

“The past quarter has seen strong sales for manufacturers, however massive increases in material costs mask a worry on profitability, and concerns of the overvalued New Zealand dollar are impacting investment”, says Chief Executive John Walley. “Forward orders have some strength, but the story of performance will be that of the exchange rate. If comments of 80 cents to the US dollar materialise, then the bells will toll for many exporters. This is simple fact not melodrama”. “Offshore lenders see strength in the dollar and nothing the Reserve Bank has done through its policies indicates that those lenders need change their minds. Although something unexpected in RBNZ behaviour next week could worry lenders and lead to some relief for exporters”.

“We are seeing major changes in the nature of supply chains as relationships are reverting to the short term. Certainty only flows from project to project and as horizons close, firms report that commitments are becoming much shorter term and future investment and development decisions are going on hold”.

“As the “Buy Kiwi Made” model transforms to the “NZ Inc” model, with the production part of manufacturing being off-shored, the question being asked is - where to next?” “Moving production is threatening supply chains of those that remain as critical mass is lost in our economy. The absence of complex and competitive supply chains threatens the creation of Intellectual Property (IP) and off-shoring increases the risk of losing the IP that exists. There is much risk and uncertainty around whether the Government will implement policies to redress this or will New Zealand at best, become little more than an ideas incubator for Australian, American and Chinese-based interests, rather than creating growth and employment here”.

“Companies that have a domestic focus have reported a drop in sales following the Christmas and New Year period. Respondents report that the local economy is being supported by a strong agricultural sector and while freight and the lack of infrastructure at New Zealand’s ports is a concern, the upbeat signals are there for the domestic economy”.

“Sales up, margins down and exchange rate worries for exporters and pressure domestically from low cost imports sums up the present situation. The future is the story of the exchange rate and for that to improve we must look for policy changes to better balance the economy, unfortunately we see an absence of the political will to grasp that particular nettle.

ENDS

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