By Bernard Hickey
HamiltonJet Managing Director Keith Whiteley has told a Parliamentary inquiry into the manufacturing sector that the high New Zealand dollar was a major threat to the water jet propulsion system exporter's business.
"By far the biggest threat to our business is the over-valued exchange rate," Whiteley told the inquiry set up by the Labour, Green, New Zealand First and Mana parties in Parliament.
The National-led coalition government is not involved in the inquiry and no government departments are testifying.
Whiteley said the Reserve Bank's single focus on inflation was now out of date and it should look at other measures and targets, including the exchange rate.
He said HamiltonJet, which makes water jet propulsion systems for civilian and military use, had hedged most of its foreign exchange earnings in recent years at a rate of around 71 USc, well below the current spot rate of around 83 USc.
HamiltonJet was covered for the next two to three years at rates of around 74 USc and 56 Euro cents and was making about 9% profits on its curent sales of about NZ$80 million a year. It has over 320 employees being paid an average 25% more than the national average wage, and has more than 50% of the market globally for water jet propulsion systems smaller than 1 metre diametre. The Christchurch based company's major competitor is Rolls Royce Marine.
If the currency stayed up at its current elevated levels of over 62 Euro cents and 83 USc then HamiltonJet's profit margins would fall to 2%, he said, adding that HamiltonJet's use of hedging restricted its ability to invest spare capital in new equipment.
Whiteley was asked after the apperance before the parliamentary inquiry what he thought of Prime Minister John Key's recent comments that little could be done to bring the New Zealand dollar down and that it was good for importers and consumers.
"It really is an arrogant view and it's not really very intelligent," Whiteley said.
"The single target (of inflation between 1-3%) is now past it's use-by date. It's time the government did its bit," he said, arguing HamiltonJet was continually improving its efficiency and productivity.
"We are not looking for a massive downward adjustment. Below 75 USc and 55 Euro cents would enable us to remain competitive."
Labour Finance Spokesman David Parker said if a company with a such a strong technology and market position was struggling with the current exchange rate, then others would be struggling even more.
"If one of our iconic companies can't survive despite competing and winning a 50% market share against Rolls Royce Marine, then what hope have the rest," he said.
Whiteley was one of a number of manufacturers appearing in front of the inquiry from the Christchurch-based New Zealand Manufacturers and Exporters Association (NZMEA), which has called for a revamp of monetary policy to help bring down an exchange rate widely seen as 15% over-valued by the IMF and overs.. There were 131 submissions to the inquiry, which was more than the 40 made to a similar opposition inquiry into bank profits in 2009.
'Not picking winners'
NZMEA CEO John Walley began by saying: "Any number of indicators demonstrate current policies are failing." He called on the government to create a bias in favour of manufacturing jobs, as opposed to picking winners.
Pacific Helmets Managing Director David Bennett said his family owned company, which makes safety helments for firemen, police and paramedics in 90 countries, would like to stay in Wanganui, "but things are against us."
Wyma Engineering Manufacturing Manager Stewart Hyde said his company's response to the high New Zealand dollar was to strive to take local costs out of his product by doing as much outsourcing as possible. Wyma makes root vegetable polishing and processing machines that it exports to Switzerland, Scotland and elsewhere.
"We're like the octupus trying to get all arms out of the gaps in the cage," Hyde said, saying the company had outsourcing around 40 jobs. "The key driver is the exchange rate."
"To the extent the New Zealand government wants us to stay here, then policy settings are going to have to change to make that happen."
'It drives me insane'
Gordon Sutherland, the Managing Director of Christchurch Bronze engineering firm A W Fraser, was frustrated at calls from Government and other politicians for manufacturers to get more efficient.
"It drives me insane when people say get efficient: what do you think I've been doing?," Sutherland said, referring to A W Fraser's continual reinvestment in skills and equipment, particularly when the currency was briefly low during 2008.
"But now, should we invest? I'd have to have rocks in my head to invest," he said.
"We have to get an environment to invest and a currency at a level so we can employ people. We can't just live on growing things and mining things."
The New Zealand dollar continued to skyrocket higher and yet the government and the Reserve Bank continued to pursue the current strategy assuming the currency would eventually come right.
"The definition of insanity is keeping doing the same thing and hoping the results change. It's insane."
Economic Development Minister Steven Joyce acknowledged that it was a challenging time for some companies, but others were doing well, particularly those more exposed to the Australian dollar than the US dollar.
"It's the way of the world," he said.
Joyce said it would be wrong to offer false hope of intervention in the currency because there was little the government could do to influence the US dollar.
"The 1970s and 1980s was the last time we tried that and look how that turned out," Joyce told Radio NZ.
"We're focusing on the things we can have an impact on," he said.
(Updated with more comments from manufacturers and Steven Joyce)