Exports rising but sector's economic role ebbing

Increased sales of NZ manufactures overseas conceal the truth that the industry's contribution to the nation has been shrinking since Rogernomics began. Report by Brian Fallow.

In the movie Ninotchka Greta Garbo, playing a Soviet commissar, sums up Stalinism in the phrase, "Fewer but better Russians."

A Ninotchka effect has been evident among New Zealand manufacturers over the past 14 years. They are better, judging by the continuing rise in their combined contribution to exports. But they are fewer and represent a dwindling share of economic activity and employment.

Manufacturing's growing importance to the country's export income is a long-established trend. Over the past 40 years its contribution to exports has climbed from just over 8 per cent to just under 40.

In part that statistic reflects a less positive trend over the same period - the decline in prices for New Zealand's staple agricultural exports. Given health concerns about red meat and dairy products, coupled with entrenched agricultural trade protectionism, that trend is unlikely to turn around soon.

Meanwhile, manufactured exports have grown from $3.5 billion in 1985 (31 per cent of all exports) to $8.4 billion (39 per cent) last year.

However, much of that growth has occurred in manufactured commodities rather than in more job-rich forms of manufacturing. The figures for manufactured exports exclude processed primary products such as meat, dairy products, fish, wool and wood pulp.

Nevertheless, much of New Zealand's export manufacturing activity consists of adding value to natural resources such as Maui gas (methanol), pine trees (sawn timber) and Fiordland rain (aluminium).

Such manufactured commodities (as distinct from "elaborately transformed manufactures" or ETMs) typically make up about a third of manufactured exports and since 1985 have grown much more rapidly.

Manufacturers Federation data shows manufactured commodity exports having grown 247 per cent between 1985 and 1998, while manufactured exports as a whole increased 141 per cent in the same period.

Among ETM exports the strongest growth has been in electronic and electrical equipment (up 461 per cent since 1985) and industrial machinery and equipment (294 per cent).

In the year ended January growth in manufactured exports was just 1.5 per cent.

"A primary factor in this poor showing is the recession in Japan, which is dragging down manufactured commodity exports," says the chief executive of the Manufacturers Federation, Simon Carlaw.

"Over the last 12 months manufactured commodity exports to Japan have fallen by $284 million, or 24 per cent. There are no indications this situation is likely to improve in the near future."

Fortunately, Mr Carlaw says, the more labour-intensive ETM exports have grown strongly over the past year - up $400 million or 7 per cent - with positive implications for the job market.

But manufacturing's steadily rising share of exports is a success story at odds with the fact that its relative contribution to economic activity has been shrinking since the gates of the fortress economy were flung open in the mid-
1980s.

In real terms the manufacturing sector now is only slightly larger than it was in 1985. Given that the economy has grown, manufacturing's contribution to it has shrunk.

The avalanche of change that followed the change of Government in 1984 overwhelmed a lot of manufacturing firms and their employees. In the year ended June 1985 manufacturing, excluding primary food processing, represented 18.8 per cent of GDP.

Six years later, under the double-whammy of reform and recession, the manufacturing sector had shrunk by a sixth in real terms and represented only 15.3 per cent of the economy.

By last June, seven years and a complete business cycle later, manufacturing had recovered from its 1991 low - but was still a scant 2.5 per cent larger in real terms than it had been back in 1985.


And fabricated metals, representing a quarter of all manufacturing activity, is still 9 per cent smaller than it was then.

Moreover, its performance of late has been less than stellar.

Manufacturers' sales in the December quarter of 1998 were the lowest in seasonally adjusted terms they had been for 31/2 years.

The September quarter was depressed as well, when the effects of recession in the first half of the year were compounded by the Budget decision to axe the remaining tariffs on new car imports, with fatal consequences for what was left of the car assembly industry.

Manufacturing employment has remained broadly steady at around 200,000 through the 1990s, down by about a fifth on 1885 levels, and representing a shrinking proportion of a growing overall workforce.

The biggest increases since 1985 have been in sawmilling, food products and industrial machinery. But those increases have been dwarfed by job losses in clothing manufacture, where half the jobs have disappeared, and motor vehicles, where almost all of them have.

The sector has also performed less well than many others in terms of improving productivity of its workforce.

Overall, a broadly similar number of employees over the past decade have managed only a small increase in output.