New Zealand needs to fix the extreme volatility of the local currency or risk losing companies relocating in search of a less punishing exchange rate regime.
BY: Andy Hamilton
There should be no debate in New Zealand as to how we will move back up the OECD. It will not come from our government tinkering here and there. It will not come from our domestic monopolies making more money. It will not come from productivity commissions or talk feasts.
A move up the OECD will only come from Kiwi companies growing their international business, making more dollars offshore in terms of products, services, IP and repatriating some of that back.
This is a relatively simple concept which seems to get lost in the maze of public opinion and debate. At times, I don’t think our politicians and leaders help in this regard. This is time for personal responsibility, not collective love fests.
More and Bigger
From an ICEHOUSE perspective, we have tried to make ourselves more relevant to the business owners of New Zealand. We believe there are 750 “internationally capable and competitive” firms in New Zealand, split between 300 exporters and 450 domestic-focused firms.
To get into the top half of the OECD will not only require these 750 growing significantly but also a further 2250 firms – yes 3000 firms in total — becoming internationally significant. If we don’t do this, we will just stagnate in the OECD rankings and continue to lag behind Australia.
This is not an option. We must turn the great talent we have for travelling the world into something that has a purpose beyond becoming rounded young adults. We also have fantastic creativity in this country, a fantastic ability to make outstanding and healthy food and beverages; and an excellent problem-solving and work ethic. If we can bundle these skills repeatedly in the international market, then we will be able to get there.
New Zealand therefore needs to increase the number of Kiwi firms building international businesses. Existing businesses also need to scale up rather quickly.
Disastrous for exporters
So what about our exchange rate – does it really matter? We have heard many opinions on this point over the past few years. Our proposition is that it is not so much the level of the exchange rate that is the issue but the high variability that occurs which is disastrous for our exporters.
Looking at the facts, it is easy to recognise the problem: we are in the top three most-traded currencies in the world. Trade in our currency is often more than our own GDP. Does that sound right? I holidayed with a friend recently in Australia who had reduced the cost of his trophy purchase on the Gold Coast by 50% by playing the NZ-US dollar cross-rate – all over nine months. Does that sound right?
We made the choice as a country long ago to have an open economy, a place where we led the world. We continue to believe that was the right position to take.
However, we just cannot accept the status quo. Businesses are spending more time on exchange rate protection than they are in-market and with customers. The variability is killing our exporters and is encouraging our businesses to move most of the productive parts of their business offshore and into currencies where the variability is not so high.
The exchange rate variability is forcing many of our businesses to move away from New Zealand. Was that what was intended?
Once and for all I would like our government to face up to the issue and find a path forward. I don’t pretend to understand what the solution is, other than to know that currency traders around the world are playing spoof with our currency, which in turn is playing with our future.
If the solution is to fix to the Aussie or the US dollar or the euro or even some of our Asian counterparts, let’s do it. Singapore, Hong Kong and others have faced this issue.
It was only very recently that a sage economist from one of the big banks explained to me that it is not in the government’s interest to let the exchange rate dip. The domesticled recovery is one which is improved by having a high exchange rate and the government is prepared to trade off the pain of exporters to keep itself in power.
So let’s go back to the beginning. We need to be more global. We need to help our kids have bigger global visions. We need to have our start-up companies launching into world markets and our exporters just need to get damn big.
Finally, the government needs to address the volatile exchange rate issue and stop confusing us. The exchange rate conundrum needs immediate action.
Editor’s note: The views expressed above may not necessarily reflect the view of this magazine but we are happy to provide the space for gutsy opinion.
