Foreign Investment - The canaries in the coal mine.

The Canterbury Manufacturers’ Association says that internationally owned companies will continue to push the trend of local factory closures and company relocations as they respond to New Zealand policy settings and chase better returns elsewhere, without any bias towards New Zealand interests.

“Foreign direct investment can be a positive thing for the growth of New Zealand companies. Without such investment, many of our firms could not take their products beyond the development phase or push into offshore markets. The other side of the coin is that international ownership tends to act as the “canary in the coal mine” and react first to adverse conditions”, says Chief Executive John Walley.

“For companies such as Electrolux, G.L. Bowron, Dynamic Controls and Gale Pacific, the decisions are made elsewhere without a New Zealand focus. They operate on a sentiment free basis, and are a clear indicator of how our economy is really performing”.

Mr. Walley says that once a locally based operation faces unfriendly exchange rates or other cost drivers, offshore decisions follow; New Zealand’s economy looses that company’s demand for local innovation and production capabilities, and reduces pressure to develop local capability in the future.

“When we see companies like Fisher & Paykel added to the list, and even food processing companies finding it all too hard; everyone of us has good cause to be worried about the future and what the trend says about New Zealand’s policy settings. New Zealand increasingly has to rely on the export of commodities, and as low cost countries develop their own primary sectors, they have the potential to place downward pressure on global commodity prices”, says Mr. Walley.

“Unless things are changed to push back against this obvious trend, then more companies will be lost to New Zealand. There is has to be a better way, other than the OCR to control domestic inflation and take the heat out of the exchange rate. Measures such as mortgage levies, higher equity ratios for lenders and borrowers, variable GST and capital gains tax; that are confined to the internal economy, can be used at time of low interest rates and high global liquidity elsewhere and do not result in driving a bigger wedge between interest rates”, says Mr. Walley.

“Right now, our economy is losing its companies, jobs and skills and will probably lack the resources and capability to get them back, and support complex supply chains in the future. Unless policy settings recognise the needs of exporters, more relocations and closures will continue to happen and we sit like frogs - doing nothing and slowly boiling”.

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