Wariness behind export restraint

While export values have skyrocketed over the last two years, export volumes have been "lacklustre", a study of New Zealand's largest exporting manufacturers has found.

The Manufacturing Export Study by Infometrics is the sixth since 1991, surveying 30 manufacturers to find the keys to their success.

Author Andrew Gawith noted that at the time of the last study in mid-1999, the currency was in retreat. The real exchange rate had sunk around 20 per cent between June 1997 and June 1999, and fell a further 13 per cent during the following two years, reaching a 15-year low point in the first half of 2000.

"On the face of it, the low real exchange rate has boosted exporters' price competitiveness. That should have resulted in more sales and/or bigger margins."

Instead, manufactured exports - while they had risen in value by 40 per cent or $2 billion in the last two years - had grown in volume by just 6.5 per cent.

Gawith said there were at least five possible reasons for the lack of volume growth:

* Manufacturers had been "wary" of expanding on what they thought was a temporary competitive edge thanks to the low kiwi dollar.

* Some manufacturers had entered into extensive forward cover contracts soon after the New Zealand dollar had fallen below 50USc, shutting out gains from a lower currency.

* The high import content of many manufactured goods.

* The demand for some manufactured goods fell sharply over late 2000 and throughout last year.

* Some companies had either outsourced their production to foreign plants or shifted their focus away from manufacturing, resulting in a marked fall in export receipts but not necessarily net profit.

The study noted that the "apparent stalling" of growth in export receipts could reflect a general maturing of the sector, as it moved away from gross sales towards more value-driven strategies.

The study was funded by Trade New Zealand, the Treasury and the Ministry of Economic Development.

- NZPA