Building Locomotives is About Building an Economy

Building Locomotives is About Building an Economy, says Productive Economy Council

Stephen Joyce needs to take a “whole of the economy view” of KiwiRail’s intended purchase of locomotives and rolling stock, says Selwyn Pellett the spokesperson for the Productive Economy Council.

“We are an ambitious nation and it would be nice if our political and economic decision making could catch up with that ambition. New Zealanders want to see our Kiwi SOE dollars spent here, building our own rail locomotives and rolling stock, creating jobs, new skills, tax revenue and export opportunities. Not protected industries but invested industries. This type of economic investment is very sticky and that is its appeal, says Pellett.

“In the productive economy we are always looking for opportunities to build capacity and capability for the downstream benefit of staff and shareholders, especially if it can be de-risked off the back of a secure contract. It’s not always possible to recover the entire cost of a particular investment over the life a single project, but if that investment provides an opportunity to build a new revenue stream and become world class in the design and manufacturing of that product or product family then why would we not go for it? Yes, the future of that business depends on finding viable markets to sell into, but the nation has to be up for that challenge” says Pellett.

“In an energy-restricted future – where rail must play an increasing role here and in other countries – why would we not gear up to be world class in all things rail? We already have world-leading power electronics capability in this country and a great green badge waiting to be leveraged outside of tourism. If the power electronics industry in this country turned its expertise to power efficient rail management it would be a fantastic opportunity for this country’s future exports,” he says.

“Trying to create a business like that isn’t easy, but the safest business to gear up for is one that has a large contract, where the set up costs are covered, where the end customer is cooperative, and where the capability exists, or can be expanded from an existing core capability. It seems to me this situation meets all of these tests,” says Pellett.

The argument that KiwiRail can’t take the commercial risk of a late delivery is wrong. Let’s quantify that risk in hard dollars against the economic benefit to the country of 770-1270 full-time equivalent jobs over the construction period, $232-$250 million added to gross domestic product, Crown revenue net increase of $65-$70 million and the trade balance improvement of $114-$122 million.

“The Canadian government’s investment in aerospace industries over the years is a prime example of a government policy of investment to develop an industry – investment that has paid dividends. Similarly the investment, sponsorship and drive by Taiwanese government into the semiconductor industry now delivers over $14 billion USD per year. Closer to home, was the economic impact for Australia in deciding to build an Australian car in 1948. We want to catch up to the lucky country, yet we don’t set out to create our own luck,” says Pellett.

“It’s a matter of optimism; a belief that your country can build something that will compete on the global stage and bring economic benefits back to the country, combined with an understanding that to do so requires support from government, effectively socialising some of the risk. All of the examples given had their genesis in this kind of socialised risk allowing an industry to grow that would otherwise not be formed without that support.”

“Does our government risk something by choosing to invest in rail as an industry? Of course it does. But we all risk much more by choosing to believe that this country cannot build industries that can compete on a global stage. This government espouses inspirational goals so why do we have such low expectations of our own capability? ” says Pellett

“BERL has made the commercial case for building the locomotives here and as a country we are up for it so perhaps Mr Joyce and the board of KiwiRail could reconsider this issue,” says Pellett.

ENDS

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