KEY POINTS:
Will Export Year 2007 turn out to be the year when more New Zealand jobs are exported offshore than are created here?
The perfect storm I warned about last week has not been long in coming.
No sooner had Reserve Bank Governor Alan Bollard hiked interest rates again than one of our most iconic companies announced it was shifting production of a particular manufacturing line offshore.
It would be unfair to blame the departure of Fisher & Paykel Appliances' washing machine manufacturing business offshore on the escalating exchange rate alone.
It's hard not to feel sad for the 350 workers who will lose their jobs once the company shifts part of its production to Thailand.
But Bollard's attempt to bring inflation to heel by raising interest rates has the unfortunate effect of dragging in more offshore speculators to invest in our currency, thus pushing its value up further and under-cutting exporters' profits. A vicious circle.
Fisher & Paykel would probably have shifted production at some stage, but the escalating exchange and interest rates in recent months will have accelerated the process.
And it will accelerate the process for a number of other New Zealand manufacturers who have so far tried to resist the tide. Yesterday, mattress manufacturer Sleepyhead announced it would close its plant and shift production to China next year with the loss of another 250 jobs unless interest rates dropped and the Government changed its policies.
The Fisher & Paykel story is not just one of a company hampered by crippling exchange and interest rates. There are also extra transport costs caused by Auckland's inefficient motorway system, and the absurd stranglehold on the Tasman which means it can take 10 or so days to get products from Auckland to Sydney, with just three of those days spent at sea.
A situation which is made laughable by the Government's failure to show some courage and get rid of the huge number of territorial authorities that govern Auckland and get some efficiency into the city.
Fisher & Paykel also lost its preferential access to Australian markets when an Aussie competitor took its own production offshore for similar reasons.
Toss in the added tax incentives that Thailand is offering the company to relocate and the fact it had already lost its competitive advantage, and it was obvious that the company had to move or face potential failure.
No job is guaranteed in today's global economy. International companies - call them transnationals if you will - will site production close to markets (if they can) in low-cost economies where the people have the incentives to raise productivity.
But this iconic company tried to hold back the tide. Founders Sir Woolf Fisher and Maurice Paykel would turn in their graves if they could see what looks like the demise of manufacturing Fisher &Paykel's washing machines in this country.
When they set up their business in 1934 the pair were originally importers of Maytag washing machines, Crosley refrigerators and Pilot mantle radios.
Four years later the enterprising duo signed a deal with Detroit-based Kelvinator to manufacture their refrigerators and wringer washing machines under licence.
In time Fisher & Paykel became a great iconic New Zealand brand.
Many of the innovative qualities its founders displayed were reinforced by later managers such as CEO Don Rowlands and more latterly Gary Paykel.
Fisher & Paykel stayed resolutely New Zealand-based while many other manufacturers shifted production to China to take advantage of the world's factory.
In reality Thailand now takes China's place in the global supply chains as the cheapest, reasonably high quality, manufacturing base.
But it's not the end of the story. We don't have a hope in Hades of competing against Asia on a cost basis. But there are moves the Government could take to buy some time for our export companies.
The upcoming Budget is expected to announce a raft of goodies for exporters. But unless Finance Minister Michael Cullen takes a radical step like putting a 20 per cent flat tax rate on export-earned income, any gains will be eclipsed by the exchange and interest rates escalation.
It's not too late for Cullen to make a move - and he should.
After all he bowed to pressure from Sir Ron Brierley's Guinness Peat Group and granted GPG a five-year holiday from a quasi capital gains tax applied to other investors.
It would be unprincipled to run the GPG option again but a deal that was made available to all exporters might have the desired effect.
Throw in a conversation or three with Opposition leaders to get a policy shift to target more than just inflation and some semblance of sanity might just be injected into the mix.
