Exporters would welcome funding to get them started in overseas markets but are mostly realistic that no help will be given to calm the fast and furious rise of the NZ dollar.
By: Yoke Har Lee
Michael Carden, co-founder of Sonar 6, a performance management software company, would like a lower exchange rate for a bit of Christmas cheer. But he knows the Government won’t tamper so he stays focused on his business.
Kaweka Food’s chairman, Rod Pearce, also feels the ravages of the currency, and thinks bit more monetary policy effort from the Government wouldn’t go astray. Pearce and countless other exporters have for years contended with a volatile NZ dollar. This Christmas will be no different. Living with a NZ dollar that went from about 69 US cents in July to 76-78c in late November has been a rough ride even for the most seasoned exporter.
“A promising business we have outside New Zealand is now at risk with the exchange rate and cost differential increasing 10% in the past few months. Our clients tell us they cannot absorb that, so we must fill current orders and take the loss,” Pearce says.
A MORE STABLE CURRENCY REGIME
Exporters don’t want handouts but could do with a little Christmas fillip by way of some currency stability. Carden says: “Of course exporters would prefer to have a lower exchange rate but we are realistic enough to know that this is really not within our Government’s control. The inflation target is more important for us as that creates the basis for a stable local economy.”
Prime Minister John Key has been unambiguous about the Government’s position: no intervention in the currency market.
Exporters such as Derek Bartosh, whose company Canary Enterprises sells over $10 million of custom-made dairy products, of which 75% is exported, is also realistic.
“As far as Government currency management goes, I think it has made it very clear that it will not and cannot intervene. I guess as a free-market economy, the expectation is that our currency will find an appropriate level.
“That said, it will become increasingly difficult for price-taking exporters — for us with Fonterra being the price-maker
— to continue to maintain and grow sales with the NZ dollar above 75c.
“This in turn will have an impact on the Government’s plan to increase the ratio of export sales to GDP by 10% in the next decade. We are in an uncomfortable period vis-à-vis the exchange rate two years ago, but we have to make the most of what we have to work with from our perspective, both in terms of commodity pricing and exchange rates.”
MORE TARGETED EXPORT FUNDING
Other than wishing for a stable environment to price and sell their products, exporters are also feeling the pinch of a contracting
pool of money to help with marketing and research and development.
The popular Market Development Fund run by New Zealand Trade and Enterprise (NZTE) is in the process of being phased out. More than half of the budget allocated to the various grant programmes run by NZTE is being transferred to a new fund and the overall budget for NZTE grants programmes is being reduced in 200910 by $10 million, and by $30.4 million in 2010-11.
Bartosh would like more help, not less, for businesses to explore new markets. “Over the past six years or so NZTE has had very supportive schemes for growing exporters through its Export Development Grants. These were great initiatives to support export-driven companies, which allowed us to undertake marketing activities and to be in-market more often than we would otherwise, which in turn drove export receipts.
“These have now been replaced with some similar schemes and other support mechanisms. It is important that exporters continue to be able to gain support from government agencies like NZTE in an administratively simple manner. We see numerous examples of other governments — Australia and Spain come to mind — supporting their exporters in a variety of ways and it is important that NZTE continues to provide leading-edge support.”
Sonar6’s Carden would like to see more support for exporters with high fixed costs in the start-up and growth phases. This should be based on revenue growth and be simple to administer, without the compliance costs associated with most grants.
Exporters, whose businesses are helping to grow the economy, should be given incentives, he says; and broadband infrastructure and branding of the country also call for more Government investment.
As a “virtual” exporter, Sonar6’s biggest challenge is not the tyranny of distance but of time-zone difference. For Carden, extending daylight saving time so his company could better service California would be a perfect Christmas gift.
INFRASTRUCTURE
The better broadband and branding that are also on his wish-list would also pay dividends. “With proper focus, we could
continue to improve the country’s brand so branding becomes part of our decision-making process,” Carden says.
The National Government’s efforts at sewing up free trade agreements seem aimed at the country’s primary export producers, exporters say.
Bartosh says the playing field is never completely level. There have been multiple examples of protectionist policies by others, including the US, EU, China and Russia, that will continue to create barriers for exporters to deal with, he says.
For Pearce, who has been in the food industry all his working life, constant product development is what will set Kaweka Foods apart. “I understand that export incentives as such are a thing of the past, but I do think Government could take a more active role in supporting innovation and new technology. In the case of Kaweka Foods we have constant enquiry for new product development from many sources.
“The cost of product development is very significant and is a major financial drain, but it is work that needs to be done and could be expanded with suitable assistance.
“Our labour and compliance laws are making it very hard for us to compete on world markets and, coupled with high and fluctuating exchange rates, make small business a massive challenge,” Pearce says. [END]