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BNZ head of research Stephen Toplis says it is certainly not all doom and gloom for New Zealand's manufacturing sector

Posted in Business

Talk of the death of New Zealand's manufacturing sector is "wildly premature", BNZ's head of research Stephen Toplis says.

In a paper titled "Manufacturing In Crisis!?!" Toplis says the popular press would have you believe that we are seconds away from the complete and utter destruction of the entire sector.

"...The widespread perception is, indeed, that not only is the manufacturing sector dying but that its death will also undermine the New Zealand economic expansion that is underway."

Toplis agrees that there are a number of manufacturers who are really struggling and that the high Kiwi is having an adverse effect on many.

"But it is plain wrong to extrapolate from this that all and sundry are in a mess," he says.

"...Yes, there are serious issues facing the manufacturing sector and, yes, there are many manufacturers who are struggling and will struggle to survive. But talk of death of the sector as a whole is wildly premature.

"Furthermore, suggestion that all that is needed for success is an adjustment to the currency is misplaced. More importantly, there is clearly a significant chunk of the sector that is performing admirably and it’s about time that this was recognised."

Toplis says the New Zealand manufacturing sector represents 12.8% of  our GDP.

Of this 36% is food, beverages, and tobacco which is dominated by Fonterra and the meat processing companies. “Core” manufacturing is just 8% of GDP. In order of importance the next biggest manufacturing sectors are: - Petroleum, Chemicals, Plastics and Rubber (16% of total manufacturing); - Machinery and Equipment (14%); - Wood and Paper (12%); and - Metal Products (10%). All the rest of the sector accounts for just 17% of total including: Furniture; Non-Metallic Mineral Products; Printing, Publishing and Media; and Textiles and Apparel.

Toplis focuses in his research on the non-food sector as the food sector has unique characteristics and is often more influenced by climatic conditions than anything else.

"So, is the non-food manufacturing sector currently in terminal decline? Not according to official data produced by Statistics New Zealand. According to these data, non-food manufacturing has been trending slowly higher since its trough in March 2009. Over this period total output has increased 6.6%. Is this cause for celebration? No! Levels are no higher than where they were in 1994 and activity has been going nowhere for the last two years. But you could hardly define it as a collapse either."

Toplis reckons if there is a crisis in manufacturing, global over-capacity and the growth in emerging nations is its root cause.

"How long will it take before the plethora of new manufacturers in the emerging world face sufficient demand to warrant their continued existence? The extent of this problem should not be underestimated."

He says even in China, one of the major issues facing its expansion is the excess capacity in the manufacturing sector.

"No change in the level of the NZD will fix this problem."

Toplis says that a global comparison of manufacturing confidence reveals that New Zealand manufacturers are amongst the most optimistic in the world.

According to the latest ANZ business opinion survey manufacturing is the most optimistic sector in the country, with a net 48.7% of manufacturers optimistic about their outlook, which is 20.9 points above the average for this series.

Toplis says the BNZ doesn't suggest for a second that manufacturing output will return to its 2005 peaks anytime soon, but the medium term outlook for the “core” manufacturing sector looks relatively promising: - New Zealand trading partner growth is expected to be at or above average; and - The building sector is set to boom and will support domestic sales.

"However, there is unlikely to be substantial relief from the currency and global excess supply will remain problematic. Moreover, the food and beverage sector will suffer, ultimately, from the current drought."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

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13 Comments

Tomato sauce & baked beans !

Tomato sauce & baked beans ! ...... the pride of Australia , Heinz , relocated to NZ to save on wages !!!  .......
 
....... well , look at it logically , it has " NZ " in the company's name , not " Oz " ....... " Heioz " is just darned silly , isn't it .....
 
If anyone can can , a Kiwi can !

A rought cycle: R&D -> Design

A rought cycle: R&D -> Design -> Technology development -> Test ideas -> Manufacturing -> Distributing -> Marketing 
A nation of small population is better off focusing on the first 3 and  the last block of the cycle above.
NZ is so not good at manufacturing compared with other nations, and you do not need to!!!!

Great, I'll go and tell my

Great, I'll go and tell my staff NZ does not need them! I'll get them a lesson in how to sell houses to each other and they will be just fine.
I'm off to go and buy a pile of imports, you know, the cheap shoddy stuff - at least it is cheap!
 
NZ does not need manufacturing? Pull the other one.
 
To do R&D with nowhere to test it is stupid and dangerous - you need to be able to walk from one room to the next to chat with the workers. I take it you have never worked anywhere near a manufacturing facility?
 
 

Calm down, calm down

Calm down, calm down please...... as I whisper into your ear gentally.
 
1. Think about NZ's peers  -- USA, Germany, Northern European countries, Japan, South Korea.
2. Think about whether they are rich and advanced economy.
3. Think about why they are rich and advanced.
4. Think about if they have a huge manufacturing sector.
5. Then, think about if manufacturing will make NZ a rich country.
6. Now, you calm down, good!

Xing, what a stupid and

Xing, what a stupid and condescending reply.
1. - None of these are really NZ's peers. They are long established and rish before NZ (as we know it now) was even settled.
4. Yes they do and more importantly, they are all recognising how important it is and trying to grow it further.
6. Grow up.
 
If NZ does not sell anything abroad, the we are relying on other countries to forever lend money to us as we get more and more in debt.

Calm down please and talk

Calm down please and talk after think.
1. You call USA, Japan and South Korea long established economically and technologically before NZ?? Read a bit of world history before? They all thrived after WWII.
 
4. They do not make, say, carpets. They outsource this bit. The bits that they do not outsource are high-value bits as I listed in the post above.
 
6. ??? 
 
Not sure about the last sentence. Are you talking about NZ should export more than her imports? Do you know that 70% of NZ's merchandise export revenue is from primary sector (ag, forestry, seafood, hort etc) only a small bit/or none from manufacturing.
 
No one says manufacturing is not important. But you have to realise that manufacturing is only a part of a product cycle and it is the low value part.
 
 

NZ does make some cools

NZ does make some cools stuffs.  I like stereo and was looking to buy a Perreaux amplifier. But there is no retail outlet here in Australia where you can buy Perreaux hifi..  They don’t even do mail order..  what a shame!

Martin Van Rooyen ( the Head

Martin Van Rooyen ( the Head Honco of Perreaux ) emailed me today  that in NZ you can buy his company's products from Harvey Norman .
 
...... in Oz you can mail-order from the company website  ( phone 1800-204-459 )  They will ship the goods to you via FedEx .

the Chairman lives in Oz

the Chairman lives in Oz GBH....

Yup , that's why they'll

Yup , that's why they'll Roger Federer-Ex the goodies to him , with a money-back guarantee on the products arriving 100 % lickety splick and in pristine perfection ....
 
...... fecking hell , the house shook then ..... mega-lightening storm tonight !