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Transformation needs solidity and sustainability

Canterbury Manufacturers’ Association
Media Release
10 November 2006.

Transformation needs solidity and sustainability.

The Canterbury Manufacturers’ Association says that the Government cannot achieve ‘economic transformation’ without changing its policy settings to support exporters.

“Once again, the Government is talking of these grand transformational plans but at the same time it is telling exporters to get used to higher exchange rates”, says Chief Executive John Walley. “It can be expected that the dollar will remain high, if interest rates stay at current levels, but this will not be welcome news to the tradable sector. Low cost countries such as China are developing their agricultural industries and at the same time supporting exports and maintaining barriers to exports. Therefore, New Zealand exporters face an uncertain future on the return on their products and commodities on world markets – with current policy setting it is less than logical to try and build export markets”.

Mr. Walley says that a lot of money is being pushed into the domestic market and people are spending more on imported goods, especially with Christmas rush looming. Although the Reserve Bank is hoping that consumer spending levels will flatten out in the next two years, employment data suggest that they will raise the OCR next month. The heat in the domestic sector will continue to drive inflationary pressure and uncertainty in the exchange rate and export returns.

“Government policy settings must bring balance into the economy and support the tradable sector, not just the rhetoric of transformation. The growth story must be one of more than spending and debt. Growth must be sustainable and benefit the country into the long term, and not just a transient bubble few years either side of the rugby world cup. The Government needs to promote solid growth in the industrial and exporting sectors in order to balance the bubble in the domestic market” says Mr. Walley.

Mr. Walley says that it is encouraging that the Government is starting to look beyond the agricultural sector in its drive towards economic transformation however; it needs to adjust its policy setting to support exporters if this initiative is to be successful.

“The CMA welcomes the review of Government funded business development agencies as a step in the right direction”, says Mr. Walley. “There is a role for handout based Government support for exporting tradable businesses. However, the provision of tax incentives for companies that are developing new products, markets and processes is a fairer and more balanced approach to encouraging business growth and will reach a greater number of companies that have a chance to ‘transform’. If New Zealand firms are to transform and win in export markets then they not only need support but much less volatility in our ‘yo yo’ currency”.

ENDS

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