Manufacturing slide gains pace

By Rod Oram

Business Herald editor

Manufacturing has been one of the poorest-performing sectors in New Zealand during 15 years of economic reforms and the deterioration has accelerated in recent months, a Business Herald special report concludes.

The weakness of the sector raises the danger that the country will struggle to maintain an adequate industrial infrastructure. That in turn would undermine efforts by the agricultural and forestry sectors to produce more sophisticated and higher-value exports.

The report, which will be published in a special eight-page section on Thursday, is the work of nine Business Herald journalists over the past two months. The aim was to assess the health of manufacturing and to seek ideas about revitalising it.

To explore the issues further, the Business Herald and the New Zealand Manufacturers Federation have organised a one-day conference in Auckland on April 21. Some 16 speakers from industry, government and consultancies will debate how to improve New Zealand's performance in manufactured exports.

Manufacturing's contribution to gross domestic product fell from 18.4 per cent in 1985 to 15.2 per cent in the third quarter of last year, measured in constant 1991-92 prices.

Recently released data from Statistics New Zealand show the deterioration continued in the fourth quarter of last year. Sales by the manufacturing sector, seasonally adjusted, fell to their lowest level in at least three years.

The long decline has made New Zealand one of the least industrialised of the world's developed countries grouped in the OECD. On average, manufacturing contributes some 20 per cent to OECD economies.

Industry has made a diminishing contribution to OECD economies over the past 30 years as service sectors expanded and manufacturing jobs moved offshore.

But most countries have benefited from building new, high technology industries to compensate for declining old ones. Two-thirds of growth in the US economy, for example, comes from industries which were not invented 10 years ago, according to The Economist.

In contrast, New Zealand is more dependent on its traditional industries than most other countries.

Some manufacturers, such as west Auckland's boat builders, have bucked the trend, however. The special report examines how a cluster of companies have grown up in Waitakere City to produce craft from canoes to multimillion-dollar super yachts.

The cluster numbers some 40 boat-building companies plus more than 160 other firms involved in subtrades, components and a range of support services.

Together they employ more than 1000 people and generated exports worth $70 million last year. One big order was for a fleet of patrol boats for South Korea.

Whether government policy can help foster other clusters, or indeed can promote industrial development in general, has become a hot political topic. Both National and Labour are promising to develop innovative policies before this year's election.