Top dollar

Despite the high Kiwi dollar, New Zealand’s exporter confidence is still going strong—but how long can that last? Trade Express spoke with the experts on working with the ‘stubbornly high’ currency.

NZ-currency

Overseas trade is a tough game at the best of times, but over recent years, the lower US dollar and the high Kiwi dollar has battered New Zealand’s major exporters. As a result many of these local companies have had to employ strategies to help keep their finances in check. The question many face is: do you hedge against currency fluctuations; wait for the US dollar to strengthen again so their prices become competitive; or just get out of the game altogether until fairer weather comes around?

According to New Zealand Trade and Export (NZTE), New Zealand’s economic development and trade promotion agency, a low US dollar isn’t always bad news. Some exporters are using the strength of the Kiwi dollar to their advantage, purchasing from overseas at lower rates to save on manufacturing costs and increase profits.

“A lot of companies have focused on driving productivity via lean manufacturing,” says a spokesperson from the NZTE. “There is evidence from Treasury that companies are investing more in capital (e.g. machinery) and are automating more.”

“This has lifted production and innovation faster than might have otherwise been the case,” the spokesperson continues. “And they are choosing to invest in machinery they previously couldn’t afford, which is improving products and getting them better prices.”

One of the firms large enough to get both an international perspective on the performance of New Zealand’s exporters (both large and small) is Big Four advisory firm PriceWaterhouse Coopers. Roger Kerr, a Partner for Treasury Advisory at PwC NZ, believes these strategies are the way to go.

Kerr believes that the impact of the high NZ dollar depends largely on the individual company or industry, making the strategies employed unique and highly selective—tailored to each company and their needs.

Overall, Kerr says that NZ’s exporters have been faring reasonably well off the back of substantial increases to the price of dairy, meat, and other commodities.

“Those price increases have offset the impact of the strong dollar to a degree, so they are not doing too badly,” he says.

Another useful strategy used widely by companies in NZ involves hedging the NZ dollar against foreign currencies up to five years ahead, cushioning them to a degree for the first few years of the NZ currency’s higher value.

“However, those companies who are in manufacturing, especially those exporting food to the US and Australia, who have been well-hedged up to now, are starting to run down,” Kerr says. “So the continued high NZ dollar will start to hurt profitability, especially if they can’t get a price increase from overseas buyers.”

In the longer term, Kerr believes the expectation is for the US dollar to strengthen in the next couple of years, allowing NZ exporters to consolidate assets and steadily increase profitability—effectively healing any damage the high NZ dollar has done.

“Otherwise, there’s not much companies can do apart from reducing export volumes, or diversifying to other markets—which is easier said than done,” Kerr continues. “Failing that, if exports are not profitable, it’s often easier to stop.”

Despite this, a survey conducted by Export New Zealand in November last year revealed that some exporters remain confident of profitability in the next 12 months, with around 45 per cent of those surveyed planning to employ more people.

It’s also expected that the top five markets for New Zealand exports—Australia, Europe, the UK, the Association of South East Asian Nations (ASEAN), North America and China, would experience a 10 to 15 per cent growth in their markets, paving the way for NZ exporters.

“A significant percentage (43.9 per cent of companies surveyed) were expecting to enter new markets or regions in the next 12 months with the main focus on ASEAN, USA, Europe/UK and the Middle East,” New Zealand Export says.

In the survey, some companies did believe there were barriers which could affect their export capabilities and these included exchange rate levels, price competitiveness, and funding for export markets—almost identical to the issues facing exporters in the current market.

“Exporters are employing a number of strategies to manage the high NZ dollar, with nearly half focusing on improving productivity,” Export New Zealand reports.

Some of these strategies include: “investing in new product development, hedging, increasing prices and investing in new plant and equipment and selling online.”

But whether you decide to wait it out or proactively find ways to manage the challenges, New Zealand’s ASB Bank is confident the country’s recovery is on track, claiming that the recent falls in dairy prices and the strong Kiwi dollar were “small flies in the ointment.” It’s clear the world is still keen to buy what New Zealand has to sell.

Source: Statistics New Zealand and licensed by Statistics NZ for re-use under the Creative Commons Attribution 3.0 New Zealand licence.

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