Comments

David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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22/11/13

RBNZ and Repayable Grants


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Recently there have been a couple of things worth discussing; the Reserve Bank of New Zealand’s (RBNZ) decision to keep the OCR at 2.5% and their comments around the exchange rate. Secondly, Steven Joyce announcing repayable grants for technology start-ups with claw back provisions if the firm is sold or moved overseas.

Reserve Bank
While the RBNZ’s decision to keep the OCR unchanged was not surprising, some of their comments showed conflicted feelings. Predictably they expressed concern over the housing market, and the overvalued exchange rate but going further and making a direct reference to the exchange rate lowering inflationary pressure and thereby extending the runway to OCR hikes.

This takes us right back to the fundamental imbalances in our economy, inflation targeting only worked because the tradeable sector deflated, inflation in our domestic sector is rarely inside the target band; to fix this targeted prudential tools are necessary. Cheap imports are great for consumers, but we need tools that can restrain domestic inflation without causing appreciation and volatility of the kiwi dollar, which is damaging to exporters and import competing manufacturers, essentially all onshore tradable activity.

An overvalued currency is always an issue for export dependent countries, even the Reserve Bank of Australia has recently spoken about the possibly of currency intervention to bring down the Australian dollar to help their struggling export sector; as a percentage of GDP Australia is less dependent on exports than New Zealand.


Repayable Grants
Steven Joyce recently released details on the Repayable Grants and Incubator Support Programme, which aims to provide support for high tech start up firms who often have issues in finding capital to grow and commercialise their innovation.

This is a repayable grant of up $450,000 for start-up firms in high tech industries. These will be distributed by privately led technology incubators, which will attempt to find the best start ups for funding and provide some guidance and knowledge.

For technology firms in New Zealand, obtaining capital is a huge hurdle, and often one that can lead to slow growth and potentially failure. The first reason for this being that a firm in the early stages of development have little or no cash flow and few real assets, making bank loans hard to get. Equally equity investors who have the risk profile and necessary experience of early stage technology based investment are thin on the ground.

The general investment incentives and culture in New Zealand also constrains such firms, limiting the amount of capital that is available. For example, the absence of any Capital Gains Tax promotes investment in asset rich, revenue poor safe assets, such as land and property, rather than into potentially high earning productive enterprise. Add the exchange rate risk that happens very early on in the life cycle for New Zealand firms, it is no surprise that equity is hard to find.

Done well the grants will be helpful for early stage firms to obtain the capital needed for development and commercialisation of their products and innovation.

Having said that, there are better ways that have greater reach, the most efficient and effective way to boost activity and innovation in the high tech manufacturing and export sectors is through the tax system, for example R&D tax credits and accelerated depreciation on productive assets.

There also needs to be a focus on existing early stage firms, not just start-ups. While start-ups are a great source of innovation, fresh thinking and potential growth, they can lack some of the business skills and market knowledge that is necessary to succeed. Promoting growth and innovation in already established firms can give great benefits, as they already have the management, leadership and market knowledge inbuilt within the firm.

We need more policy focus on how to grow our manufacturing sector more generally; targeting start ups is only one piece of the puzzle. Such policies should promote and incentivise high value added enterprise, operating on-shore. High value added manufacturing is the best way to create wealth, support innovation and the most effective use of our talent and resources.
 



tags: rbnz, reserve bank, joyce, economy, inflation, high tech, exports, manufacturing

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