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Manufacturers battle to stay ahead

MARTA STEEMAN
Last updated 05:00 28/12/2013

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If you just look at the economic growth data, 2013 has been a very good year in Canterbury.

Despite all the frustrations around insurance settlements or lack of, and the snail's pace of consenting and the retail precinct development skirmishes, economic growth will have been around 6 per cent or a bit more in 2013, local economist Robin Clements says.

Historically that is very high but less than the 7.7 per cent growth in 2012 in Canterbury, as measured by the ANZ Bank's Composite Indices of Regional Economic Activity. For the year to September economic growth was 6.2 per cent and Clements reckons for the calender 2013 year it will be similar.

"Would you expect 2014 to be higher or lower than that, definitely higher. It's difficult to believe it won't be, given all the work to be done."

This sort of growth in 2012 and 2013 has not been experienced since the mid 1990s.

But raw growth figures are not the only measure of 2013 in the third year of the Canterbury rebuild.

Canterbury Employers' Chamber of Commerce chief executive Peter Townsend says looking back on 2013 he sees signs of real progress and a continuing high level of frustration.

"We are irrefutably now into the recovery."

The telltale signs are strong economic growth, which by his reckoning may be about 7 per cent, and unemployment 2 per cent below the national average, thousands of new companies being formed, and export activity across the port at record levels.

But the recovery is only just cranking up.

"I estimate, as we end 2013, that we are about 8 per cent of the way into the recovery, with 92 per cent ahead of us."

Reconstruction is blocked by what he calls "cascading constraints".

It started with insurance but as the year ends more certainty is being delivered on insurance pay-outs. For example, 11,000 seriously damaged homes in Christchurch have been or are being cash settled.

"That puts the cash in the hands of the owners and that means that we are going to see an enormous emphasis placed on housing reconstruction early in the new year."

He sees a big peak of activity near the end of the first quarter.

There are 30,000 homes still to be repaired in the under $100,000 category and another 13,000 seriously damaged homes that will be repaired through insurers, and the 10,000 homes that have been destroyed and need to be replaced.

Another constraint has been, and will continue to be, consenting, even though efforts are being made to improve the system at the Christchurch City Council.

The third constraint will be the entities responsible for the rebuild.

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"Can someone please tell me where 11,000 cash-settled home owners get access to groups of builders? And where will we locate the multitude of subcontractors required for this scale of housing repair and rebuild?" Townsend asks.

The fourth constraint, is material resources and financial capital. The massive injection into our economy will start with the housing rebuild and will be followed by the commercial rebuild.

"The year 2013 will go down in history as the last year we waited for things to happen . . . 2014 is on our doorstep and things are absolutely going to happen."

"My final plea to those who have the authority is that we get the central city positioned within a framework of certainty so people can know exactly what is going on, who is doing it, when it is happening, and can make their private investment decisions with regard to their place in the central city from an informed basis."

Managing partner of accountancy firm E&Y in Christchurch, Bruce Gemmell, says many clients have been raising capital, restructuring businesses and investing in resources. "Those clients involved with the rebuild have reported steady growth without placing themselves under undue pressure."

Local supply is meeting local demand, however, there is a growing concern those Crown projects that have been running through the planning and approvals process will conspire to place enormous pressure on the market next year.

Also, a good number of firms have been introducing joint venture or equity partners and are finding lenders requiring assurance on their abilities to meet their obligations as they fall due.

Finding suitable accommodation for all of those required to complete the rebuild will be a problem. The tourism sector continues to be challenged, although, there is some cause for optimism as more beds are coming on stream, he says.

Demolished buildings are being replaced, bringing higher confidence.

"All in all, one could summarise the sentiment in the business community as cautiously optimistic, while acknowledging there is an awful lot of activity and planning needed to ensure we don't ‘stub our toes' as we gain momentum."

One of the city's up and coming building companies, Leighs Construction, has been very pleased with 2013 in respect of the projects it has secured.

However, owner Anthony Leighs says 2013 was "quite a polar environment."

Most of the commercial building was outside the CBD.

Their projects including rebuilding at private girls school Rangi Ruru, Mainfreight's new freight terminal, new corporate headquarters for Rangiora electricity firm Mainpower, work at the public hospital, extension of Hornby Mall, the extension of Barrington Mall, and building a new office block on the corner of High Street and Lichfield streets, their only CBD project.

Leighs has formed a joint venture with a large Australian construction partner, Cockram Corporation, and the jv has won more than $100m of work on Burwood Hospital.

Leighs said it was a great step forward as it was one of the big projects up and underway in the city.

"In some ways 2013 has sort of disappointed us. We did feel that 2013 might have been the year when things got going, I suppose, as far as the reconstruction of the CBD, but that really hasn't materialised. It's been a year in which we have all discovered the extent of the challenges associated with rebuilding the CBD.

"I think it has also been a year in which some real catalyst opportunities have been missed and as a result of that we've seen some key tenants who were really an important part of getting the CBD revitalised choosing to locate elsewhere."

National retailer Rick Hellings says for Smiths City Group 2013 has been similar to 2012 with a bit of growth this year.

Rising power prices and soaring rents locally have shrunk discretionary dollars for some of its customers in Christchurch.

The reopening this year of most of Smiths City competitors, like Harvey Norman on Moorhouse Ave, has added pressure to a highly contestable game in appliances and electronics.

Christchurch is marching to a bit of a different beat with some bigger purchases determined by rebuild timetables. In 2011 and 2012 a lot of buying was replacement of damaged goods.

Big purchases for homes such as flooring and furnishings and kitchen appliance were deferred until repairs were carried out and Smith City saw that this year and expects more of that next year.

‘To be honest I don't think there will be a lot of change going forward."

But in Christchurch the momentum of the rebuild is gathering pace.

"I think next year is looking pretty good for Christchurch to be honest, " Hellings says.

Radio communications services and equipment exporter Tait Communications' managing director Frank Owen says 2013 has been a challenging year for the company, one of Christchurch's biggest employers with about 700 staff here.

"Many of our clients depend on the public purse to fund their critical communications needs, so we have seen a number of deals being deferred or delayed."

The company restructured this year, shedding about 70 positions, and amended its strategy to increase its expertise in software and services to complement the design and manufacture of radio hardware it is famous for.

"This involved some tough decisions and some real challenges, but they support our long-term aim to stay ahead of the curve and set the agenda, rather than being driven by it."

The company has won key new public safety and utilities clients in the US, Brazil, Australia, Poland and in New Zealand.

The company has established global partnerships with organisations such as Cisco, as well as continuing its relationship with the NZi3 Wireless Research Centre at the University of Canterbury.

The construction of Tait's new Christchurch campus and global headquarters began this year.

"While 2013 wasn't the year we'd hoped for, the progress we have made has given us a great stepping stone for 2014 - our order book is healthier than it was 12 months ago, and we're looking forward to building on that momentum," Owen says.

New Zealand Manufacturers and Exporters Association chief executive John Walley says insurance settlements are finally being addressed, helping many manufacturing firms get back to normal in Canterbury. He is pleased with the introduction of home loan restriction on the banks. This sort of intervention offers the prospect of controlling house price inflation without the exchange rate impact associated with raising interest rates.

"We remain of the view, further supported by the 2013 Census, that manufacturing is in crisis as onshore investment continues to decline."

While fewer than 10 per cent of people work in manufacturing, it creates more than 13 per cent of good and services and nearly a quarter of exports but its productivity is too often taken for granted. The service sector, high wages and innovation all depend on the foundations provided by manufacturing.

- BusinessDay

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