Thursday 14 July 2005

Hon Michael Cullen - Address to Open NZ Marine Industry Conference

Park Heritage Hotel, Cnr Froude & Tyron Sts, Rotorua

Anyone looking in from outside might assume that a strong marine manufacturing industry is inevitable in New Zealand. After all, we have an immense coastline relative to our land area, a population which blends the descendents of a pacific seafaring culture with one of history’s greatest maritime powers, and a predilection for innovation and experimentation.

In reality, there is nothing inevitable about the impressive growth of the marine industry in New Zealand. The industry today is the product of decades of hard work, risk taking, innovation and investment in skills and technology. While you have capitalised on the international exposure from the Americas Cup, you realised early on that such events are only a stepping stone to securing a stronger market niche.

From time to time, there are voices of resentment at the ‘darling’ status of the marine industry. These miss the point entirely. It is an industry worth around $1.2 billion per annum, with a solid domestic market which is the springboard for export earnings currently worth around $525 million. It employs more than 8,000 people with a wide variety of skills, from sophisticated electronics, to engineering, design and manufacture.

New Zealand builds more boats per capita than any other country. This is an industry with the capability of advancing on a broad front into export markets with immense potential for growth, and immense potential for involving a large number of New Zealanders, as entrepreneurs, investors and skilled workers.

Among the boat producing sectors, superyachts generate 18 per cent of total output, launches and yachts account for 12 per cent, and power and trailer boats for 11 per cent. Meanwhile our components industry is growing rapidly.

Further growth in export sales is being fuelled by international boat manufacturers setting up in New Zealand or having their boats built under contract here.

One of the keys to our marine success is a highly-qualified workforce, and this in turn is sustained by the training of young people. The Boating Industry Training Organisation grew from the determination of the marine industry, along with New Zealand Trade and Enterprise, to actively address future labour demands, rather than allow the future of the industry to be at the mercy of short term labour supply.

We now have an industry-training scheme that is one of marine industry’s best kept secrets. It has more than 500 full-time apprentices. It promotes the value of specialist skills, and it works with industry to make sure the training it provides is tailor-made to meet emerging industry requirements.

So the future of the industry is not dependent upon what happens in the waters off of the Spanish coast in the next couple of years, although that event will provide another opportunity to showcase what New Zealand is capable of.

Rather, the future of the industry depends upon maintaining a solid domestic demand for marine equipment, expanding export markets, broadening the range and sophistication of products and services, and building upon the strengths of the current industry clusters.

Like the rest of the manufacturing sector, the NZ marine industry is in no position to compete with emerging high-volume low-margin manufacturers in places like China. We will never win in a competition based on volume and price.

Instead, the path ahead is towards securing international brand leadership, which is something that many of our best and brightest companies are approaching, but have yet to achieve.

This means building on the particular strengths for which New Zealand manufacturers are noted, such as:

Innovation in applying advanced technologies and materials;

Short-run quick-turnaround production; and

World class quality in design and construction.

It also means applying the lessons of the last decade in which the industry proved that, when you are a very small player in a large global market, there are more gains to be made through collaboration than through competition. Certainly, I would argue that that is the challenge of the next decade:

Better internal collaboration amongst marine companies, so that New Zealand consortia can offer a more comprehensive set of products and services to the market. This means learning to benefit from the flexibility of our small size, but avoiding the pitfalls of an industry comprising 1300 mostly small sized companies;

Better collaboration in existing global value chains, through partnerships with offshore companies to access markets and distribution channels, and to press forward with research and development and design; and

Better collaboration with government agencies to facilitate entry into new markets and solidifying the ‘marine New Zealand’ brand in existing markets.

This government is fully committed to an ongoing partnership with the marine industry. Our role is both to help clear impediments, and to provide opportunities for innovative and successful companies where we can. We
funded the Marine Industry Report conducted in mid 2003 which highlighted some critical development issues for the industry.

This led to:

Support for the development of training/advanced qualifications;

Research and technology development (for example, exploration of the benefits of resin infusion); and

Market development, where our support is concentrated on identified market opportunities in key markets such as North America, Europe, South East Asia and the Middle East.

We have shown a willingness to think outside the square, as shown by the creation of the ‘beach-head’ in Fort Lauderdale, Florida which was opened by Trade New Zealand to give the New Zealand marine industry a gateway into the important US market. It gives companies a focal point, a physical address, and serves to provide subscribers with a range of services, including research market intelligence, assistance at trade shows, introduction to potential clients and identified and qualified business opportunities.

Beach-heads, of course, pave the way for full scale invasions, and internationally NZTE helps the marine industry showcase industry capability at key boat shows, and has also invested in the 2005 Auckland Marine Week to help industry get international focus back on New Zealand after the loss of the America’s Cup by attracting industry legends, leaders, and influencers back to New Zealand.

The industry will also benefit from the changes announced in this year’s Budget aimed at attracting investment in New Zealand companies and at building our productivity.

The business tax package, for example, is aimed at ensuring a more productive use of capital and improving New Zealand's access to worldwide capital, skills and labour. The key elements of the package are:

Changing tax depreciation rates to reflect better how assets decline in value. Depreciation rates for short-lived plant and equipment will increase and rates on buildings will reduce;

Raising the low-value asset threshold from $200 to $500, thereby reducing compliance costs from having to maintain fixed asset registers;

A temporary tax exemption of five years on foreign income for people who are recruited to New Zealand to work, be they foreigners or New Zealanders who have been living abroad for ten years or more;

Better access to tax deductions for R&D expenditure for companies who bring in new equity investors, so as to match the growth cycle of technology companies; and

Finally, a range of tax simplification measures including alignment of payment dates for provisional tax and GST and changes to FBT.

Alongside of there tax measures, Budget 2005 continues to support the Growth and Innovation Framework with fresh investment. This involves:

$31 million to increase the gains from international economic partnerships;

$49 million to implement the digital strategy announced earlier this week;

$72 million to increase support for business research and development; and

$118 million to increase capability in scientific research.

These are investments in programmes that are already working for New Zealand businesses, boosting our productivity and expanding our capacity and the return on our skills.

In education, which is crucial if we are going to create the skilled workforce we need to boost productivity, Budget 2005 allocated $300 million over the next four years to develop quality tertiary education. The package includes higher funding rates for technical and scientific subject areas including science, trades, and technical subjects. It also includes an additional $45 million to expand Modern Apprenticeships and Industry Training.

Alongside of that we have reoriented our immigration policies towards attracting the skilled people we need and facilitating their settlement here.

Budget 2005 also gives infrastructure spending a further boost through additional transport spending. The total funds available to the Land Transport Fund over the coming four years will be $8.4 billion. In addition, a further $100 million a year will be provided to the Fund in the three years to June 2009 to enable planning to proceed for a higher rate of roading construction.

This is just one element in an ongoing upgrade of our infrastructure. After a marked slowdown during the 1990s in the rate of public investment in roads, electricity, water and so on, we have increased by over 70 per cent the net purchase of physical assets by government. We cannot hope to build a modern, high value-added economy on a creaking infrastructure, and although we cannot reverse a legacy of under-investment overnight, we have in most areas set out a comprehensive long-term strategy for doing so.

As for the immediate outlook, we are seeing the domestic economy slow and over the next two years most forecasters are picking an annual growth rate of around 2 ½ percent. Beyond that the strengthening world economy should return us to higher rates of growth, but there is considerable volatility around some of the key variables. Oil prices have reached and surpassed US$60 per barrel and are expected to remain high for some time.

The exchange rate has shown signs in the last ten days that it may be dislodged from its persistent pegging around the 70 US cent mark. However, what will confirm this trend will be a growth in confidence in the US economy, and that appears unlikely so long as there is no credible plan to solve the twin problems of the US current account deficit and the federal budget deficit.

One of the more interesting developments for manufacturing is the growth of the Chinese economy. Pleasure boats are not something we normally associate with the Chinese consumer, but one of the lessons of the last decade is the speed with which the Chinese market for luxury goods grows as the size of its affluent middle class crosses successive thresholds.

When the Chinese enter the market, they do so in numbers. I understand that the city of Shanghai is clearing space for 10 new marinas to be built to meet demand. The market for well designed, high tech, quality New Zealand marine products could be substantial.

This government is keen to assist the marine industry to capture these and other similar opportunities. We have to do our homework, of course, and be disciplined in our thinking and planning.

I trust that this conference will be an important milestone in setting new priorities for collaboration within the industry and with government. We have shown over the last five years that we are ready to listen and prepared to back up a good business case with resources that will benefit New Zealand companies.

I can assure you that that commitment will stand over the next five years and beyond.

Thank you.

ENDS

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