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'The Nation' - Steven Joyce

'The Nation'
Steven Joyce
Interviewed by RACHEL SMALLEY

Rachel Welcome to The Nation, I'm Rachel Smalley. At least 100jobs gone at the Kawerau Paper Mill, 120 gone from Solid Energy, 65 jobs at the Tiwai Point Aluminium Smelter, and more jobs are at risk at a major mussel processor in Tauranga. So by anyone's measure it hasn’t been a great few weeks for manufacturing. Is this just part of the ups and downs of business, or does it suggest our manufacturing industry is growing increasingly fragile. Economic Development Minister Steven Joyce is with us. Good morning Minister. Thank you for coming in.

Earlier this month, when Norske Skog said it was going to shut down one of its machines at the mill, the government decided not to step in and not to do anything that could potentially save that section, why not?

Steven Joyce – Economic Development Minister
Well I think firstly we are very involved with Norske Skog, have been for many years. New Zealand Trade & Enterprise have been working with them for some time. They’ve actually ben spending a quarter of a million dollars on a plan to move them into the biofields industry that Norske Skog's been working on, and we're also looking at a primary growth partnership. So it's not actually correct to say that we're not involved.

Rachel Sure, okay, there's about a 100 jobs that are going there. Did you have a conversation with Norske Skog about this? Did you know this was going to happen, and that the Australians were potentially going to subsidise?

Steven Yes. Well it's actually been in the public domain now for some months, and I met them in late June. What they really announced in the last week is confirmation of something that they'd already announced, and the reality is that we're talking about the newsprint industry, which is in decline right around the world, and they showed me their figures, and it's actually a decline that’s speeding up, and we can see it every day. So we see the newspapers, and the most obvious one, the New Zealand Herald, is moving to a much smaller format which reduces the amount of newsprint that’s required, and that’s happening across the world. It's happening across Asia, and in Australasia there is a surplus of newsprint production, and the Norske Skogs of the world are seeing the newsprint production decline. So you can't change that.

Rachel Sure but the Tasmanians obviously see some value in it because they have subsidised to keep the business there. Did you consider doing it?

Steven Well no we didn’t and we weren't asked, partly because Norske Skog are not interested in doing that in New Zealand because that’s most of their population base is in Australia. And so if they are going to do any of that it'll be in Australia, but also ultimately the Australian governments including Federal and State have to be accountable to their own taxpayers. I think the New Zealand taxpayers would look a bit sideways at us if we were investing in what is a declining industry, and seeking to prop up an industry. The challenge with all of this, because everything changes over time, you can't freeze industries in place, and the newsprint industry's a prime example of that. The challenge is actually to ease the opportunities for other jobs and that’s why we're investing so much in the research and development area, and that’s why we want to make the changes, more changes to the RMA to ease the development of jobs and development of businesses, and to encourage businesses to invest, and that’s very important.

Rachel So does that mean the government doesn’t really see a future in low cost manufacturing?

Steven Absolutely it sees a future in low cost manufacturing. It sees a future in manufacturing that’s competitive on the world stage, and that’s growing. And so you mentioned in your intro the loss of jobs in some parts of the country. What you didn’t mention is all the companies that are hiring. So I was in Christchurch on Thursday talking to the Tate CEO there, they are desperate to hire more engineers in Christchurch. You're talking right around the country there are definitely businesses that are screaming out to hire more high qualified people.

Rachel Okay but what becomes of commodity manufacturing jobs?

Steven Well it's very interesting. I mean the trouble with the commodity based stuff of course is that we're all subject to world prices. So what are we seeing at the moment? We're seeing in the Australasian sense, we're seeing coal come down in price. We're seeing aluminium come down in price. Interestingly Methanol's been strong. So we're seeing 500 jobs invested in Taranaki setting up the second Methanex Methanol train. That’s been very busy for the first half of this year, and I understand they're looking at opening their third. Meanwhile in Tiwai Point we've got the issues with aluminium there, and coal on the West Coast, which is – actually the coal price is lower than it has been on the historical average, but it's particularly lower than it has been during the boom years over the last few years, and these things are challenges the world over, they're not unique to New Zealand. Australia is dealing with the same issues now. They’ve had a dream run with their resources industries, but some of those areas of coal and iron ore are now coming off.

Rachel The situation though is compounded and you say you want businesses to be more competitive. The situation is compounded by the strength of our dollar isn't it?

Steven Well it is for some companies, there's no doubt about it.

Rachel Exporters absolutely.

Steven Well no, not all exporters, and I think that’s where it's wrong. A lot of exporters – I mean every exporter let's face it, likes a lower dollar. What they would love really is to have a lower dollar which they'd sell stuff, cos they'd sell their stuff for more, and they'd like a higher dollar for the stuff they buy. They'd like two exchange rates. And I understand that, cos I've been involved in an export industry myself, and you'd always love two exchange rates. Unfortunately the world only gives you one, that’s right. So their input costs are significantly lower. So if you take oil and gas and a lot of those things that come in on world prices, the input costs are lower. And yes it's more challenging with some of the export costs or the sales costs, sales revenues that you get, but it is a mixed story. A lot of manufacturers are doing very well, some struggling, particularly the more commodity based ones.

Rachel Most would want that dollar to be lower though, that’s a given.

Steven Well no no, with respect I don’t know that it is a given, and if you actually do a survey around the place, yes everybody wants to get more revenue for their products, but I at Stabicraft in Invercargill last week, they're selling their boats right around the world and doing it very successfully, and there's great stories of successful New Zealand manufacturers all over the country.

Rachel John Key wouldn’t be as optimistic as you. Earlier this week he said to the Wall Street Journal, and I quote "we're concerned at the level of the exchange rate because we think at about 75 US cents it's very difficult for our export sector. It's 83 cents now so…

Steven Oh it is challenging. Nobody's arguing that it isn't challenging.

Rachel You'd agree with it then?

Steven Yeah, absolutely.

Rachel Okay, so based on that, that would suggest that right now New Zealand manufacturers can't be competitive.

Steven Well no but you see the evidence of that is not the case across the board. So what we've seen – you mentioned some figures in terms of manufacturing in the last quarter. Well what happened in manufacturing is that coal and minerals in manufacturing reduced, but actually machinery manufacturing went up, actually grew during the quarter. Also food and beverage manufacturing went up. So yes it's challenging, there's no doubt about that, and there's never been an exporter that doesn’t want to lower exchange rate, no matter what level. I mean we used to have 40 something cents in the US dollar in the early 2000s and there were still people wandering around saying it should be lower.

Rachel At what stage does the dollar become too high Mr Joyce, at what stage is it too high?

Steven Well over time it won’t become too high. I mean the individual vagaries…

Rachel Could.

Steven …well that’s right, but ultimately it's market fundamentals. And so ultimately nobody's going to bid the New Zealand dollar beyond what they consider it should be at. Now even if it bounced through say for example the quantitative easing that's coming through at the moment, it will come back again. Because fundamentally the value of the New Zealand dollar is determined by what the world believes is the future of the New Zealand economy, and if they bid it up too high, then they will look at it and say well actually we've bid it up too high, and we'll bid it down again.

Rachel The Economists suggest it could hit parity?

Steven It may do, but that'll be because the US is completely in the toilet.

Rachel But then how can New Zealand businesses be competitive if it hit parity?

Steven Well fundamentally the real opportunity at the moment, and everybody knows this, is that it's the Australian dollar, and we're currently at quite low levels against the Australian dollar, about 78 cents, and you can't have things changed, different exchange rates for different countries as we know. If we went down further against the Australian currency, which is what for example Mr Wally recommends. He suggests that there should be a 20% devaluation in the New Zealand dollar, 25% I think he's looking for, but that would put us at 58 cents Australian which is just ridiculous. And also it would put us against about 60 cents US, which people would say well that'd be nice. But then of course you'd actually be talking about very substantial rises in living costs for New Zealanders. So unfortunately you only have one exchange rate. The exchange rate is the assessment of what people things of the future of the New Zealand economy. The quickest way to get it down would be to do some very reckless things that would actually put our economy at risk.

Rachel Winston Peters thinks he has the answer with his Reserve Bank Amendment Bill, he's been drawn for the ballot. He wants the primary function of the Reserve Bank to be broadened really, and I quote from what his bill says. He wants it to include other critical macro-economic factors such as the rate of growth, export growth, the growth word that we constantly hear from the government. The value of the dollar and employment.

Steven Well with the greatest respect to Winston, he's been around for 27 or 30 years.

Rachel Well he might have some smarts about it.

Steven No no, he's been around for 30 years, he's never come up with a solution. If there's a problem in this country he's part of it, because he's been around for such a long time. He had a time as Treasurer and never promoted these views as Treasurer, so now because he's worried, and because he's rightly worried about you know the big commodity manufacturers, and I am too, he's promoting a snake oil solution that would achieve nothing. Because here's the deal…

Rachel Okay, his Amendment Act does have the support though in part, in general by David Parker, the Labour Finance Minister.

Steven Well I'm sorry that gives me no comfort whatsoever.

Rachel He says we face competitive devaluation abroad and we ignore it at our peril.

Steven Well I'm sorry, it's truly ludicrous, and fundamentally it is a snake oil salesman solution, and Parker was called on the left this week by his own supporters on the left, who said what he's arguing for, is he's sitting in front of exporters and saying I want to make life easier for you, and then he's turning around to New Zealanders and saying it will have no impact on you. And fundamentally that is not the case, it's dishonest and you can't say it.

Rachel Sure, where is your growth going to come from then? What do you say to the people of Kawerau, the 100 who've lost their jobs and say what are you going to do for work before Christmas?

Steven Well there's fantastic opportunities for growth in this country and we are seeing …

Rachel Kawerau – those 100 people.

Steven Just let me come to Kawerau in a second. You asked where's the growth coming from, and I think it's important that I answer your question. The growth is going to come from a range of industries and it is coming, so we're having a very good run in food and beverage and that will continue because ultimately the world needs more food. It will go up and down, but it will be very important. We also have opportunities in the resources area, and I think it is important that we actually take the challenge of adjusting the Resource Management Act to provide those opportunities. So we have a potential loss of jobs in Spring Creek, but we also have Bathurst Resources up the road, very keen to hire…

Rachel Spent $250 million and still can't step up the mine.

Steven What I would like to see from the unions for example who are supporting these workers, that they turn around and say to their friends in the Labour Party, stop opposing RMA changes because RMA changes are very important to give these extractive industries the opportunity to succeed. Now if they're serious about jobs and I believe they are, I believe they're focused on it, then they should actually sit down with the Labour Party, also publicly that they support the government's RMA changes to give firms the opportunity to invest more in businesses in New Zealand.

Rachel Sure, but we also know that this week environmentalists have lodged more appeals.

Steven Well that’s right. I'd like to hear more from the unions out in favour against the environmentalists because actually you can't – you can't just say we want jobs, and by the way we'll keep …

Rachel Sure, but we've heard both from yourself on this programme and also Phil Heatley saying we're doing things for the RMA, we're not seeing anything, there's nothing concrete, there's nothing tangible.

Steven Well just wait a few weeks, but there is definitely, the changes are happening. But it's not just about the legal changes either, it's about how welcoming we are for those sorts of opportunities, and fundamentally we need to be more welcoming if we want to have those opportunities in those industries. Now in other industries we can move ahead but in those industries we have got a number of people who are working in resource based industries, we need to be more welcoming, more encouraging, and more understanding of the fact that you can't argue for jobs, and then turn around and oppose the opportunity for those jobs to be created. Now Kawerau's a wonderful resource base. It has the forestry industry…

Rachel Well it is and it isn't. It's got one of the highest percentages of solo mums, it has people with a large number of no qualifications.

Steven That’s true, but in terms of the opportunities for businesses in Kawerau and the surrounding area …

Rachel There's still 100 people without jobs, what do they do?

Steven Let me take you through it. In terms of the Kawerau area, their fundaments competitive advantage if you like is the geothermal which is under that plain there, and it's very positive and frankly Norske Skog are investing in that right now, and building a new geothermal plant. There's also the forestry resource, and we talk about Norske Skog but we have Carter Holt's on that site, and CSR are actually investing right now, and you haven’t mentioned that in any of your stories so far.

Rachel Sure, but this is not happening short term….

Steven I'm sorry, it is happening right now. In June I was there…

Rachel What can you say to those 100 people, where will they get jobs from before Christmas?

Steven Well excuse me, let me tell you what's going on, if you want to hear. I was there before at the end of June and walking around a construction site for a new geothermal power station. Now you didn’t mention any of that in your intro this morning, and also in the CSR site, they are investing as well. And there's also in Kawerau I think a very exciting thing that’s going on, the community's got together with the employers and they're working on this thing called the Industrial Symbiosis Project, which is all about making it….

Rachel Which sounds like a PR event I have to say.

Steven Well no – well you can say that when you're sitting quietly here in Auckland, but actually it's very real for the people in Kawerau and they're very focused on making sure that these opportunities are explored and Norske Skog are investing in the biofuels industry in Kawerau, and trying to make it happen, so a lot of people are working very hard on that.

Rachel That same company, Norske Skogs gave two reasons for closing one of its machines in Kawarau. It says falling demand and unfavourable exchange rates. So do you think that the Reserve Bank's sole objective now should still be inflation?

Steven The Reserve Bank's fundamental objective has to be inflation and keeping the New Zealand economy on track over time. You cannot say to the Reserve Bank we want you to favour one particular industry against a whole bunch of other things that’s going on. That is not the answer. The answer is to make the New Zealand businesses more competitive. That’s what our business growth agenda's about. It's investing in skills. It's investing in innovation. It's investing in the changes to the RMA to get things happening. It's investing in growing export markets.

Rachel So you won’t intervene?

Steven There's no plan to have any changes in the exchange rate, because (a) it's not possible and (b) if you talk to the Parkers of this world and the John – well John Wally at least has had the courage to come out and pick a number of what he would like to be at, but all the others, including Winston Peters, don’t know what they think it should be, because they realise that it's actually an impossible story to chase. It's effectively a bit of a snake oil solution and it's actually trying to find a solution which isn't about rolling our sleeves up and getting on with the job.

Rachel Right Economic Development Minister, Steven Joyce, appreciate your time this morning, thank you.


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