Hawke’s Bay economic outlook

Last Friday, the HB Chamber of Commerce, Hawke’s Bay Inc, EIT and the Ministry of Social Development hosted a “Hawke’s Bay Economic Summit.”

Kudos to these sponsors for an informative event, and a pile of useful background papers on aspects of the national and regional economic outlook. Here, courtesy of the Chamber, is a particularly valuable report on Hawke’s Bay economic trends prepared by Sean Bevin at Economic Solutions Ltd. And here are some of the presentations.

Key takeaways:

• Everyone in Hawke’s Bay in the exporting biz should immediately fall to your knees and thank your god for the weak Kiwi dollar.Speaker after speaker noted the weak NZ dollar as a major factor – some would say the major factor – in staving off an even more dismal economic outlook.At the same time, the exchange rate underscores the extent to which HB, as a major exporting region (and this includes the “sale” of NZ and the region to foreign tourists), is hugely dependent upon global factors which are beyond our control. The strength/weakness of the Kiwi dollar, as already mentioned. But also global financial illiquidity and the fact that NZ simply isn’t big enough to “make markets.” For example, who sets the price for apple juice concentrate? China!

• Lots of reinforcement of the fact that the primary sector accounts for about 40% of the region’s GDP and about 25% of its workforce.Of course, this left me wondering … who makes up the other 60%, what’s their current outlook, and what do they need to prosper. A great illustration of a successful HB biz outside the primary sector was provided by John Penny, CEO of ABB (formerly Vectek), a manufacturer of high tech electronic power control equipment. Indeed, the May BayBuzz Digest will be devoted to the other 60% — “the silent majority!”
• To be sure, there was the expected bad news for the region – e.g., a woebegone construction sector, rising unemployment, poor prospects for wool and timber, the bottom falling out of auto sales, stagnant population growth.But at the same time, an impressive amount of optimism was displayed about the resilience of the Hawke’s Bay economy, at least compared to elsewhere. The chief reason seems to be the dominance of food-related exports abetted by – you guessed it – the weak Kiwi dollar, plus lower input costs and high yields for pipfruit. As one speaker put it, for the products we export, we face merely a weakening of demand, versus the total collapse of demand that confronts some countries (e.g., Japan, which exports autos and consumer electronic gear). And as MP Chris Tremain noted, half of NZ’s exports already go to Asian economies that will inevitably be the growth engines of the future.
• On the other hand, equally impressive was a comment about huge over-supply in the region’s wine-making business – apparently 40% of the region’s 2008 sauvignon blanc remains to be sold, with the further suggestion that a lot of 2009 grapes will be left on the vine. Lest we regard this as an issue confined to Hawke’s Bay, the speaker indicated that 200+ vineyards are currently for sale in Marlborough.
• Chris Tremain and Neil Kirton both spoke of the need to develop region–wide stakeholder and political consensus regarding HB’s economic priorities and required initiatives.
• Finally, addressing the social dimension of recession, Ngahiwi Tomoana spoke of human costs like higher rates of spouse and child abuse, and even suicide.

All in all, a morning that was both stimulating and sobering.

Tom Belford