Business and Commerce News

In a text prepared for the Canterbury Employers’ Chamber of Commerce, Reserve Bank Governor Alan Bollard said using monetary policy to constrain asset price bubbles was risky, but in an extreme situation “the fallout from the build-up and bursting of very large asset price bubbles warrants taking some risks in an attempt to moderate … the problem.”

Dr Bollard said that the current run-up in house prices was not so extreme that it warranted an extraordinary response. He said “Yesterday’s interest rate increase was just part of the normal operation of monetary policy to ensure continuing consumer price stability.”

However, Dr Bollard did say that faced with a repeat of the extreme gains in the share market in the mid 1980s “a Reserve Bank Governor might well say extraordinary measures were required”, to avoid the crash that would otherwise follow.

Dr Bollard warned that in that rare situation “Seeking to stabilise rising house prices or an overheated stock market might mean having to force inflation lower than otherwise would be required. It might also mean greater variability in the real economy, interest rates and, potentially, the exchange rate.

“We are talking about circumstances where monetary policy may well have to be quite tight - tighter than if the sole objective was to keep consumer price inflation within the target range. In such circumstances, I expect many audiences would say that the Bank was unnecessarily squeezing growth from the economy.”

However, Dr Bollard said the international evidence showed that asset price “booms and busts” sometimes caused substantial damage to households, economic growth and, in rare cases, the financial system.

Trying to constrain a growing asset bubble would not be popular, he said, but central bankers were required to makes decisions that were in the public interest.

New Zealand recorded an overall PMI value of 54.0 for December 2003 (a PMI reading above 50 points indicates expansion and below 50 indicates decline). While this was 10.4 points down from the November value, this is consistent with the usual Christmas pattern. On an annual basis the PMI was 2.4 points lower than in December 2002.

Three of the five sub-indexes recorded expansion in December (production, new orders and deliveries). The employment sub-index indicated slight decline from a peak in November. The decline in the finished stocks sub-index is an indication of high inventory turnover due to strong sales.

Three of the four regions recorded expansion, with Canterbury/Westland again indicating strong expansion. The Central region indicated a slight decline.

Demand at a domestic level during the Christmas period was considered strong by many firms, although the continued upward movement of the New Zealand dollar against the US dollar continues to undermine export returns.

“Pacific peoples have vibrant cultures that can provide opportunities to develop current businesses and to start new ventures. Pacific business people themselves have suggested that enterprise skills training is what they need to help them develop their potential,” said Jim Anderton.

“The government is committed to seeing Pacific peoples participation in the economy expanded. Government has a role in providing education and training services for Pacific peoples, and addressing any barriers to access. It is important that Pacific peoples have access to the skills and knowledge and possess the confidence to attract investment for their marketable ideas,” Taito Philip Field said.

Jim Anderton also commented that: “The Pacific unemployment rate is too high at 6.6% (Sept 2003). This rate, however, is greatly reduced from when Don Brash’s ideological colleague Ruth Richardson was Minister of Finance. Then the Pacific Island unemployment rate never fell below 22.9%, and peaked above 30% during her years in office. This demonstrates how much difference the positive results of the constructive approach taken by this government have made.”

“The Pacific business training programme aims to lift employment, management skills, and business capability, all essential to assist Pacific communities reduce this unemployment rate and increase their levels of self employment,” said Jim Anderton.

4.4% of Pacific people are self employed, just one third of the national rate (2001 figures).

Background:

A new training programme aimed at helping Pacific people improve their business skills is being piloted by New Zealand Trade and Enterprise (NZTE) from next month.

NZTE Business Development Group Manager Hans Frauenlob says the five-month pilot programme aims to improve the management capability and productivity of Pacific people’s businesses and to increase the number of businesses being established by Pacific people in New Zealand.

The new programme is being run by the Pacific Business Trust (PBT) and includes group workshops and one-to-one coaching, he says.

“The Pacific population in New Zealand is expected to double in the next 50 years and we’ve recognised the need to help improve the business skills of Pacific people and to enhance prospects for the future as increasing numbers of Pacific youth enter the workforce.”

Mr Frauenlob says Pacific people are already succeeding in business across a range of sectors, but commercialising their competitive advantages, especially in the creative industries, is an acknowledged challenge.

“The Pacific community themselves have identified that small business and self-employment are promising avenues towards increasing their work prospects and returns from employment. Ultimately we hope many of the Pacific owned and/or operated businesses that this new training programme will help foster will have an export focus, generating valuable foreign exchange and jobs.”

The new training programme is aimed at Pacific people interested in starting a business or those who are newly in business and will include workshops on a range of topics such as business planning, marketing and compliance issues/costs then follow-up coaching one-on-one. The programme will be offered in Auckland and Wellington initially, then extended to other regional centres.

Pacific Business Trust Chief Executive Jim Mather says his

organisation is excited about the potential results from the new training programme and the NZTE/PBT partnership.

“This programme is critical to the Pacific business community as it addresses the low participation of Pacific peoples’ accessing

mainstream business development and training services. Some of the historical reasons have been communication barriers and cultural issues.”

Mr Mather hopes that greater numbers of Pacific entrepreneurs will go on from this programme to more advanced training opportunities delivered by NZTE’s existing Enterprise Training Programme.

“The Pacific business community has a special contribution to make to the economic growth of New Zealand. We are ready, willing and able to make that contribution and this new training programme is a great opportunity for Pacific people.”

During the December quarter CHH recorded a $918 million charge to restructuring and non-recurring items. This included an $876 million write-down of the company’s forests and $17 million of costs associated with the closure of its Tokoroa sawmill. This resulted in a consolidated net loss of $656 million for the year.

In June last year CHH advised shareholders of the possible non-cash write down of the company’s forests of up to $900 million from the current book value of $2.9 billion. This reflects the erosion of log realisations in key markets.

Overview of Results by Quarter:

Today’s quarter-point interest rate rise will cause more pain for dairy farmers already facing the prospect of sharply lower incomes next season, said Kevin Wooding, Chairman of Dairy Farmers of New Zealand (DFNZ).

The increase in the official cash rate to 5.25 percent will add to borrowing costs, and most analysts say it will put more upward pressure on the New Zealand dollar. A sharp rise in the kiwi dollar slashed $350 million from half year revenues of Fonterra Co-operative Group in its most recent half year.

Mr Wooding said he appreciated that the central bank was independent of government and had a hard task. It was trying to put the brakes on domestic consumption which would help stop inflation rising above three percent, the upper limit of its target band.

“The government says there is nothing it can do about the rising kiwi dollar. That is only half true. Local and central government can play a significant role in keeping inflation in check.

“One of the things they must do is stop piling more costs on to farmers and other New Zealanders. Since it came to power the Labour government has added 20 new taxes, while local authorities’ rate increases consistently beat inflation,” Mr Wooding said.

DFNZ is an industry group of Federated Farmers of New Zealand, New Zealand’s premier rural organisation with more than 18,000 members.

His comments follow the Ministry of Health giving interested parties just four days to make submissions on a discussion paper ahead of a review of drinking water standards.

The ministry issued a draft preliminary discussion paper in October, but made no mention that it would seek submissions until it issued a media release on January 26. The release said that submissions would close on January 30.

“Farmers obviously have an important role in keeping New Zealand’s water relatively clean and ensuring that drinking water is up to standard. But four days does not allow enough time for any meaningful consultation.” Mr St. Clair said.

“The government has an unfortunate habit of dumping important law changes around Christmas, when many submitters are away from their desks for the summer holidays. Federated Farmers prides itself on being able to meet these onerous deadlines. But this has to be the worst example we have seen,” he said.

Federation staff immediately contacted the ministry to determine if the almost non-existent consultation period was an innocent mistake. But that doesn’t appear to be the case.

“Farmers and other New Zealanders want to have their say but are instead being engulfed in a fast-moving wave of new laws, taxes, charges, levies and regulations. We are still committed to Fight Against Ridiculous Taxes, the FART campaign, but perhaps we should launch a second front: Fight Against Ridiculous Consultation,” Mr St. Clair said.

Commission Chair Paula Rebstock said that Unison’s self assessment against the price path threshold, set by the Commission last year, indicated that Unison had breached that threshold due to price increases. In December 2003, the Commission asked Unison to provide more detailed information relating to its self assessment for the 2001-2003 period by 30 January 2004, and in addition, to provide information on any future price changes it might be proposing.

Unison announced this week further price increases that will affect electricity consumers in the Hawke’s Bay, Taupo and Rotorua regions.

Ms Rebstock said the Commission takes breaches of the thresholds seriously, and is prepared to investigate when necessary.

“The thresholds assessment is a trigger for the Commission to use when determining whether a formal investigation is required,” explained Ms Rebstock.

“The Commission will consider all of the options available under Part 4A of the Commerce Act, including control of an electricity lines business, if price increases cannot be justified,” she added.

“An investigation could also result in a settlement with the lines business that may involve setting a new pricing regime if the Commission was satisfied that some or all of the proposed price increases were justified.”

Ms Rebstock said the purpose of the targeted control regime is to promote the efficient operation of markets directly related to electricity distribution and transmission services through targeted control for the long-term benefit of consumers.

“The regime is designed to ensure that suppliers are limited in their ability to extract excessive profits, face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands, and share the benefits of efficiency gains with consumers, including through lower prices,” said Ms Rebstock.

Contributing to the lower seasonally adjusted value of imports were intermediate goods, motor spirit and passenger motor cars. These falls were mostly offset by a rise in value for transport equipment; plant, machinery and equipment; and durable consumer goods.

The provisional value of merchandise imports for the December 2003 month is $2,806 million, up 5.6 percent when compared with December 2002. The estimated value of exports for December 2003 is $2,300 million, resulting in a trade deficit of $506 million or 22.0 percent of exports. The average trade deficit for the past 10 December months was 5.5 percent of exports. Both the imports and exports trends indicate rising values in recent months. Detailed exports statistics will be released on 10 February 2004.

The provisional value of merchandise imports for the year ended December 2003 is $31,790 million, a decrease of 1.7 percent from the previous year. Mechanical machinery and equipment; plastic and plastic articles; textiles and textile articles; and aluminium oxide were the main contributors to the lower value of imports.

The estimated value of merchandise exports for the year ended December 2003 is $28,390 million, resulting in an estimated trade deficit of $3,400 million or 12.0 percent of exports. This is the second largest recorded deficit as a percentage of exports in the last ten years. In 1999, the frigate HMNZS Te Mana, valued at $632 million, was imported as well as another vessel and an aircraft, each valued at over $100 million. This contributed to a deficit that was 15.0 percent of exports for that year. With these large import items excluded, the trade deficit for the year ended December 1999 would have been 10.7 percent of exports.

During the December quarter CHH recorded a $918 million charge to restructuring and non-recurring items. This included an $876 million write-down of the company’s forests and $17 million of costs associated with the closure of its Tokoroa sawmill. This resulted in a consolidated net loss of $656 million for the year.

In June last year CHH advised shareholders of the possible non-cash write down of the company’s forests of up to $900 million from the current book value of $2.9 billion. This reflects the erosion of log realisations in key markets.

Overview of Results by Quarter:

Quarters ending

(NZ$ million)

Dec 02 March 03 June 03 Sept 03 Dec 03

Net Sales 1,048 912 928 1,007 1,018

Operating EBIT 82 77 68 89 81

Restructuring and non-recurring items 47 - - - 918

Net Earnings 4 51 41 70 (818)

Chief Executive Officer Peter Springford said that the annual result reflected the fact the company had faced up to some tough decisions, and was responding decisively to challenging conditions, particularly in export markets.

“I am satisfied with the company’s operating performance over the course of the year, given the challenges faced by the industry.

“Looking beyond our one-off costs, the result for the year is a solid one. We have steadily improved productivity across the business, and these efforts are offsetting the effects of higher New Zealand and Australian currencies.

“Productivity gains are being achieved in all sectors of the company. Costs in our Forests business have been significantly reduced, our Tasman facility has achieved record pulp production, Kinleith has broken five production records since the successful conclusion of last year’s changes, production capacity in our Australian wood products operations is up 5%, and our Sorbent tissue brand continues to grow, with all key indicators up on the previous year,” said Mr Springford.

A challenging year for the company in export markets was offset by a buoyant building industry on both sides of the Tasman. Projections indicate domestic markets are likely to remain strong into 2004.

“In the year ahead we will continue to focus the company around our core strengths in wood fibre processing while pushing towards world class productivity and taking advantage of any improvements in commodity prices as the global economy strengthens,” said Mr Springford.

The company’s Board of Directors declared a final dividend of NZ 3 cents per share for the year ended 31 December 2003. The dividend will not carry any tax credits and will be paid on 26 February 2004.

All figures are in New Zealand dollars.