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Business NZ - Business Update No. 7

Tuesday 21 August Issue 7

Globalisation¡¦s first recession

World growth rates are retreating more quickly and in more major economies than any time since the oil shock of 1973. Europe¡¦s sluggish economy is blamed on high interest rates and unliberalised labour markets. Latin America¡¦s largest economy, Brazil, is suffering a persistent energy crisis and soaring interest rates. Many Asian economies are contracting, with Japan battling deflation. The world¡¦s largest consumer, the US, is curtailing imports and revising investment expectations downwards. Some analysts say the reasons for weakness vary from place to place, so there is no reason to expect a uniform world recession; others say increasing interdependence means economies can move down in tandem as much as they have moved up in tandem in the past.

$Kiwi on the move

Meanwhile, the NZ dollar is up and rising. There¡¦s a growing consensus among bank forecasters of a strong appreciation in the $NZ against the $US over the next 18 months. The rise in the trade-weighted index over this period is forecast at 10%, reflecting the fact that most of the exchange rate change against the $US will be due to that currency¡¦s current weakening. It¡¦s not clear how far the $US will dive, but there¡¦s unlikely to be the level of appreciation like in 1997 when the exchange rate with the $US exceeded 70 cents.

Retail power prices could rise fast

At yesterday¡¦s meeting of electricity stakeholders, the Energy Minister supported the move by Mercury Energy (Mighty River Power) to introduce a 48-hour rule ¡V Mercury has told its Auckland customers it¡¦s changing the terms and conditions of supply from a notification period of 30 days, to 48 hours. This would let Mercury cut hot water supplies if the crisis worsens ¡V but could also be used to increase prices to domestic and small business users virtually without notice. Meanwhile National MPs Tony Ryall and Pansy Wong say state-owned generation companies are profiting exorbitantly from the electricity crisis, with over $1 billion extra being paid for electricity since 1 June - and with SOEs pocketing the lion¡¦s share.

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Pressure on Qantas

Qantas Airways says it would rather walk away from Air NZ than get in bed with Singapore Airlines. A Qantas executive told Australian media on Sunday the Air NZ deal would not go ahead if Singapore remained a 25% shareholder. But this may just be tough talk ¡V Qantas badly needs growth opportunities, given the drop in value of its shares following Friday¡¦s announcements of a 19% dive in 2000/1 profits.

Knowledge Wave ripples

The South Taranaki District Council is doing what the Knowledge Wave conference recommended ¡V forming partnerships and growing clusters of related businesses. It¡¦s offering to build infrastructure or provide cheap loans to firms willing to create jobs near Hawera, and says the region¡¦s strength in engineering has drawn interest from Australian metal processing companies. The net benefits of the scheme will need to be monitored to ensure that sustainable industrial development results.

Venture capital idea

Another Knowledge Wave concern was venture capital ¡V critical thinker Owen McShane ( says the US model of venture capital, using limited liability partnerships, would suit us better than models from Israel or Ireland. Under this model, investment partners can gain limited liability by being arms length from a ¡¥general¡¦ partner who manages the investment. This model operated in NZ in the ¡¥80s, but was abused by partnerships investing in movies and other ventures purely to gain a tax loss. Then Revenue Minister Trevor de Cleene responded by taxing the partnerships as companies. McShane says a better move would have been to simply close the loophole by legislating against non-recourse loans, like the US did. All that¡¦s needed for a vibrant venture capital regime, says McShane, is a law change to let limited liability partnerships operate again, taxed as partnerships, but with that loophole closed.

School qualification shocker

Recent headlines said 20% of students leave school without any school qualification ¡V but the facts behind the headlines are even worse. The Ministry of Education has confirmed that any student who sits School Certificate ¡V regardless of whether they pass any of their subjects ¡V is deemed to have gained School Certificate. In other words, just turning up to the exam, regardless of results, will give you School Cert. This means the 20% figure is in reality much, much worse ¡V but the Ministry doesn¡¦t keep statistics on how much worse. At least the NCEA, to be introduced next year, will require students to reach a certain standard in order to get the qualification.

Seasonal work season

Firms dependent on seasonal workers had a hard time last summer ¡V Hawkes Bay fruit growers and orchardists and packhouses in Central Otago and Nelson had trouble finding seasonal labour; labouring jobs on farms and forests, and hospitality positions have also been hard to fill. A new website aims to help fill NZ¡¦s 60,000 part-time seasonal jobs, offering a database of jobs that can be accessed by prospective employees in NZ or overseas, along with accommodation, transport and immigration information links.

Growth stats

Capital Goods Price Index

Capital goods prices rose by 0.4% in the June quarter and were 3.8% higher than in June 2000. The fall in the exchange rate was a major contributor to the increase in prices, with plant, machinery and equipment increasing by 5.5% over the last 12 months while non-residential building costs increased by just 1.6%. The US is the largest source of capital equipment imports so the recent appreciation against the $US will have contributed to a reduction in imported plant and machinery prices.

Balance of Payments and International Investment Position

NZ recorded a current account deficit of $5.3b in the year ended March 2001, (4.8% of GDP). Our net investment position on 31 March 2001 was in deficit by $86.5b (78% of GDP), with total New Zealand investment abroad of $78b and foreign investment in New Zealand of $164b. Net debt has been declining gradually since 1998, when it peaked at 89% of GDP.

Manufactured exports

Manufactured exports increased by nearly a quarter in the year ended June to reach $13b. Exports of elaborately transformed manufactures were worth $9b, 19% up on the previous year, while exports of manufactured commodities were $4b, nearly a third up on the previous year.

Fast growing markets included Malaysia, China, Italy and the US. Australia remains our largest market, but with export growth of just 6%, its share of total exports fell from 36% to 31% in the year to June 2001.

Business representation

Land Transport Rule: Vehicle Dimensions and Mass

Business NZ supports Transit NZ¡¦s proposals to increase the mass and dimensions of heavy vehicles and urges the LTSA to incorporate them into relevant rules. Research undertaken by Transit, Infometrics, and Road Transport Forum NZ indicates that the proposal, by reducing freight rates, would support business growth and national prosperity. Infometrics estimates that GDP would increase 2-3%. The proposals are consistent with international best practice and so would assist NZ¡¦s international competitiveness. With the adoption of strict performance-based standards and additional compliance and enforcement measures, safety standards should improve. Fewer trucks would be needed to transport the same or greater amounts of freight, reducing the exposure of private motorists to heavy trucks. These heavier vehicles are also likely to be newer and therefore safer than elements of the existing fleet. The use of newer vehicles with more up-to-date technology would be beneficial in terms of fuel efficiency and emissions control. This submission is now complete, but individual submissions may still be made until 3 September. For more information contact Nick Clark

What¡¦s new on

„h Information need on Macraes decision
„h TEC appointments positive
„h Big changes for business
„h Industry training strategy working

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