Exports must suit evolving Japan

By Rod Oram

Between the lines

Japan's economic depression is biting deep into New Zealand's exports, partly because we are trying to sell them the wrong goods.

Our exports are still dominated by industrial and agricultural commodities even though the demand outlook is poor. Japan industrial output will remain subdued for a long time and the country is edging towards restructuring itself out of some low-value domestic production.

Conversely, the Japanese economy is becoming even more oriented to consumers as the wealthy population ages. Given the grim mood of the Japanese about their economy, it is hard to sell them consumer goods and services. But it can be done if you have the right things to offer such as high-quality or organic foods, or services such as investment and pension advice.

Our range, however, is limited. Tourism is one of the high value-added services we can sell in reasonable volume. We also have big-selling agricultural products such as kiwifruit, cheese and vegetables but they rank low on the scale of value-added goods. After that we scratch around for niche products.

In calendar 1998, Japan's imports from New Zealand fell 10.1 per cent in yen terms, in line with the 10.8 per cent decline in all imports. Certainly, it was a brutal year for the Japanese economy. The latest data released on Friday showed it contracted by 2.8 per cent. Five quarters of decline make it Japan's longest and deepest post-war recession.

Unemployment is already at a post-war high and worse is to come: two-thirds of Japanese companies say they have surplus employees. Many other measures such as weak capital spending intentions tell the same story of a very profound and protracted recession.

Yet along with the gloomy economic news on Friday came a sliver of hope. The authorities signed off on a rescue package for the banking sector. The 15 largest institutions will receive 7.46 trillion yen ($130 billion) of public funds as new capital. In return, the banks pledged to begin writing down their mountain of bad debt and to start restructuring their businesses.

Progress will be painfully slow. If the Government comes up with a similar slug of money next year and the banks use all their profits to write down more bad debt, the banks would be solvent again by 2001. By then, the banks will be coming round from their coma and resuming normal credit functions to help revive the economy. By 2003 they will have shed 20,000 jobs and 10 per cent of their branches.

Meanwhile, the big challenge for New Zealand exporters is to develop a far wider range of value-added consumer products which will begin to align our export trade with the emerging new form of Japanese economy.