Latest carnage shows we must diversify

ROB O'NEILL
Last updated 05:00 24/02/2013

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Company collapses and layoffs are no way to start what is supposed to be a year of slow economic improvement.

Mainzeal Property and Construction and printing company Geon have hit the skids, Solid Energy needs help, Telecom may be laying off more staff - and those are just the big headline grabbers.

But look at bit more closely and you can see that most of the above face structural or cyclical issues that are quite industry specific. Commercial construction has been flat and is yet to kick in in Christchurch. Add that to a legacy of leaky-building lawsuits and things got ugly for Mainzeal.

Geon is exposed to print, a medium which is in decline not just in the newspaper industry but across many forms of communications that increasingly move online.

It was also owned by private equity and heavily leveraged - carrying a lot of debt. While money is cheap right now, if markets aren't performing, that leaves a company vulnerable.

Solid Energy undertook some unlikely investments in sustainable energy but, at heart, is a victim of a severe decline in coal prices globally.

Telecom is different. It has been leaning down and restructuring for years and employing technology to do what people used to.

Whatever the underlying reasons, though, these events will do nothing to increase consumer or investment confidence.

Add to that a drought at the time when dairy prices are not exactly stellar and there could be trouble brewing in the rural sector over the next few months.

The high New Zealand dollar is showing no sign whatsoever of moving back into what we would consider its normal band below US70 cents. That is exerting pressure across the economy, though manufacturers with in-demand, high-value exports are, notably, still thriving.

Fisher & Paykel Healthcare turned in a blinder of a result last week, all things considered, driven by continuing innovation and deep knowledge of its markets.

And that once again raises the issue of diversification within our economy. We need a lot more F&P Healthcares, Orions, Datacoms, high-value manufacturers and software developers.

The ones we do have are making some great stuff, but over many years have shown little ability to grow to scale. Rakon looked a possible but is once again struggling as its markets commoditise.

With meat and forestry in the doldrums, New Zealand looks ever more dependent on dairy and that brings real risks, and not just market risks. Agriculture is vulnerable, as we all should realise from the Psa infection in our kiwifruit industry.

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