Spin Cycle

by Pamela Stirling / 12 May, 2007

Did we forget something? Completely overlooked in the furore over the loss of manufacturing jobs with Fisher & Paykel Appliances' shift of its washing-machine production to Thailand was the fact that the company's share price immediately rose. Fisher & Paykel will gain a competitive advantage in Asia's low-cost environment - pre-tax savings are predicted to be at least $10 to $15 million annually - and in a nation not so obsessed with housing, that would be excellent news for investors.

But there's another reason that it matters: earlier this year the becalmed share price of Fisher & Paykel Appliances sparked reports of circling overseas interests, including the Chinese international whiteware giant Haier. The loss of jobs to Asia is a concern - although jobs in manufacturing here grew by 14 percent in the past six years. But a far bigger worry is the fact that unless enough New Zealand companies take urgent action to become truly multinational, our economy will be open prey. It will not be jobs going to Asia. It will be the profits.

Not that foreign investment is always undesirable. That would be hypocritical in the extreme, especially given the benefits Kiwi investors get from companies like Infratil and Fisher & Paykel with their interests overseas. F&P bought Italian company Elba SpA in June last year: it provides significantly increased distribution in Europe and reduces the company's exposure to the declining Australasian market. That's a smart move in every sense, and helps redress the appalling situation whereby New Zealand stands out as the only OECD country whose involvement with the world economy has actually declined since 1990.

Draw a circle of 2200km around any of Fisher & Paykel Appliances' competitors in Europe, from Dublin to Helsinki, and every one has a market of 350 million people. Draw the same circle around the East Tamaki plant and all you get beyond these shores are penguins and fish. New Zealand can never compete internationally on cost - a good part of the reason our exports have flatlined over recent decades at an alarming 30 percent of our economic activity.

And that's why there's a worrying element to the announcement of F&P's Italian purchase. Designs available from Italy meant cutbacks at the design division in Mosgiel. Those are exactly the high-value jobs New Zealand needs to keep - though assurances are that the Tamaki F&P designers will stay on.

If any company has been design-led, it's Fisher & Paykel. Products like the DishDrawer made this proportionately the most successful independent appliance manufacturer in the world. Right now, the water-efficient AquaSmart washing machine, recently released by F&P in Australia, is receiving plaudits for its design. The best news is that the design makes it the only top-loading washer in Australia to qualify for green initiative consumer subsidies. That surely deserves investor backing. If we're ever going to tackle the fact that Australia's GDP per capita is 30 percent higher than New Zealand's, this is the way to do it.

Consider the alternative: foreign investors lose confidence in our economy and decide to pull out of NZ dollar-denominated assets. It might cheer exporters. But it would hit households hard as the Reserve Bank increased the official cash rate to entice investors back into the currency.

We need urgently to correct the distorted message sent through our tax laws: save through shares in companies like F&P and you will be taxed to the max; borrow for investment property and you face no property tax and can deduct all manner of expenses. It's not a simple matter to correct: in the 1970s New Zealand had a property speculators' tax and in the 80s limited the amount of claimable tax losses on property investments to under $10,000. Both failed to stop property speculation. But our knuckle-whitening debt levels now - up 66 percent in five years on the back of easy mortgage credit - make it imperative to at least enforce the taxes we do have on reselling investment properties.

The critical thing, however, is to learn from Asia. Japan faced its own whopping increase in the exchange rate against the US dollar in the 80s - and used it as an

incentive to move companies like Toyota closer to overseas markets. The result? Toyota has just become the world's leading car company. Savers in Japan and similar places now fund a third of our bank funding. But let's not hand those investors our most iconic New Zealand companies as well.


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