Tertiary Education Funding

I was pleased to hear that the inconsistency between the current funding model for tertiary education institutions  and the difficult economic times (which is seeing a big increase in demand for places)  was one of the main items run on Morning Report this morning.  I have been raising this issue with government for some weeks (see for example my speech to the Weltec graduation).  Most recently I raised the issue with Mark Weldon (Friday) and TEC boss Roy Sharp (Wednesday).  I see the tertiary education as a key part of the response to this crisis.  I would much rather have people re-skill or up-skill rather than go on the dole.  Aside from anything else this will help us grow our productivity into the long term.

We have a section on this issue in our submission to the employment summit on Friday.  We hope the Government will act immediately to review policy in this area and remove the caps imposed a couple of years ago.

Chinese Businesses Suggest Ways To Grow Economy

I attended a very special event at Parliament tonight.  Around 150 Chinese business leaders were invited by Pansy Wong to speak direct to the Prime Minister and relevant Ministers – Groser (Trade), Coleman (Immigration) and Wong on how we can get the economy growing again.  Tim Gibson from NZTE, a couple of other officials and I were privileged to be included on the invitation list.  What struck me was the similarity of view from this group of business people from one ethnic source to the wider views of the business community.  Immigration (particularly business migration), tourism and education were seen a key drivers of the recovery.  There was also a strong call for an improved export performance and a need to harness the skills of the wider New Zealand diaspora.  The PM spoke well.  Some of you regard me as too optimistic.  You should have heard the PM tonight.   Many in the audience supported this assessment.  Opportunity was a common theme of the comments from the floor.  I agree fully with suggestions from Ministers Coleman and Groser that this event become an annual one.

WelTec Graduation

It doesn’t get the attention of Victoria or Massey Universities, but one of the most important education institutions in this town is the Wellington Institute of Technology – WelTec.  I was last evening the guest speaker at the WelTec graduation ceremony.  Here are my speaking notes: 

 

Peter Steel, Deputy Chairman and Council Members, Linda Sissons CEO and Staff, Your Worship David Ogden, Mayor of Hutt City,  those who are about to Graduate or receive Honorary Degrees, ladies and gentlemen, I am deeply honoured to have been asked to speak at this graduation ceremony.

 

As of 7 February I will have been the CEO of the Wellington regional Chamber of Commerce for four years.  Four years ago I knew virtually nothing about WelTec, but over the past four years I have worked very closely with Linda Sissons and her team, and I have to say that I have been nothing but impressed.  WelTec is a key component of the Wellington economy, and I can only see that importance growing over the next few years.

 

If I had given this address 12 months ago it would have been very different.  I would still have been saying very positive things about WelTec, but my focus would have been on skills and people shortages and on the role that WelTec could play in boosting our productivity performance.

 

12 months on we no longer have full employment.  We do have a productivity challenge and there are still some skills shortages, but the problems we face in the short term are more acute as an economy.  And for many firms the challenge right now is how to survive.  A very different challenge to last year’s – how do I find more staff….

 

Everyday, the news appears to be getting bleaker, internationally and domestically.  I have to say that I am very worried.  We don’t know when this crisis is going to bottom out or at what level.  We should not underestimate how bad things could get.  I have just spent a few weeks in Europe and things there are much worse than they are here.

 

But we should not overlook the positives either.  My view is that Wellington is well placed to take advantage of the opportunities that are going to be presented by the current global challenges.  And you the graduates of WelTec are particularly well placed to take advantage of these opportunities.

 

At the most basic level you have just upgraded your qualifications and skill levels.  That puts you at an advantage over those who have not been so wise in a tight labour market.  I also think that you have been particularly wise to have studied at WelTec because the qualifications you are about to have conferred are perfectly aligned to the opportunities that are opening up for New Zealand and Wellington in particular.

 

This alignment is not a matter of chance.  WelTec needs to be commended for the way in which it has integrated itself into the local business scene and has stayed closely in touch with employer groups, economic development agencies and individual companies to ensure that the courses offered are directly relevant to employer needs.  I am not sure how widely this great work by Linda Sissons and her team is appreciated.

 

Let me say some more about the opportunities as I see them.  I will begin with an example.  Aside from insolvency practitioners, there are precious few growth areas in our economy right now. But  WelTec and other tertiary education institutions happen to be in a growth area right now.  Already enrollments for 2009 are up and this demand is only going to grow as the year progresses.  This demand is in part being driven by tighter labour market conditions.  But there also seems to be growth in international student interest.  Why is international interest growing again?  One of the benefits of the current international financial turmoil is that our currency has declined in value by a substantial amount vis a vis the US dollar and Euro and all those currencies tied in value to the US dollar (significantly China is one of these currencies).  Europe has pretty much priced itself out of the market.  The US is also seen as relatively expensive.  But New Zealand (and Australia) and being seen as high quality markets that are increasingly price competitive.  This is particularly significant as education is a real are of strength for our economy.  Aside from WelTec we have Victoria University, Massey, the Otago Medical School plus another couple of polytechnics and some great schools.

 

Let me give another example. Just before Christmas NZ winegrowers held a tasting in London at exactly the same time as a leading importer of Burgundy was hosting a tasting.  Normally, this would mean that many buyers would miss the New Zealand tasting.  But not in current market conditions.  The New Zealand tasting was packed while the Burgundy tasting had only five visitors.  The high value of the Euro has made Burgundy unaffordable. New Zealand Pinot Noir in contrast is becoming more affordable by the day.  New Zealand sparkling wine sales were strong in the UK over the Christmas/New Year period while demand for Champagne was well down.

 

We do as a region produce a bit of wine over in the Wairarapa, but far more significantly this same factor is going to play our way in other areas – the services economy where Wellington is national leader. Aside from education, hospitality and tourism, film and television, design, information technology – all areas of direct relevance to many of the qualifications you are about to have conferred – will benefit.

 

International tourist numbers are down right now.  People are staying home, or holidaying closer to home than has been the norm.  But this will change.  Word will soon get around about how great the value of a holiday is compared to North America or Europe.  And because Europe and North America have become so expensive, more New Zealanders will be holidaying in New Zealand, our domestic tourism will grow.

 

Of course, the other area of opportunity presenting itself is the Government’s proposed acceleration of expenditure on infrastructure.  Already we were under some strain in this space with the skills shortage really hurting.  The downturn in construction eased this pressure considerably, but I would have thought that all graduates from WelTec’s Centre for Industry and Trade Technology will be very welcome in the market place over the next few months.  And don’t forget that the US, UK, Australian and many other Governments are embarking on similarly adventurous infrastructure investments.  This could well create opportunities for some of you beyond our borders.

 

One area of the WelTec family that has been a particular focus of my attention has been the work done in the Centre for Service Industries, particularly relating to hospitality, food and beverage.  I was delighted a few months back that the excellence of the work done by WelTec has been recognized nationally. I see huge opportunities for this area of WelTec’s activities to grow.  This is an area where nationally we have a real need to up our act, particularly with big events such as Rugby World Cup 2011 fast approaching.  Longer term, if we are really going to grow our tourism industry we are going to have to offer a higher quality service in our hotels and in our restaurants.  This is only going to occur if WelTec keeps up the excellence that has developed in recent years.

 

Finally can I commend those who have studied business and management over the past few years.  This is another area of skill deficit in New Zealand.  We don’t have enough trained managers and too few of our companies are run by people with formal business training.

 

Congratulations on the qualifications you are about to receive.  Thank you for upskilling.  And thank you WelTec for turning out another fine group of graduates in areas so critical to our economic future.  I look forward to continuing to work closely with Linda Sissions and the WelTec team over the year ahead.  It is going to be a challenging year, and I see WelTec and other Tertiary Education providers as playing a key role in the response to these challenges.  We will need to engage closely with Government on funding policy to ensure that WelTec and others are able to deliver this contribution.  Existing policy settings may not be the right ones for the difficult times we are facing.

 

Thank you again for asking me to speak.  It has been a great honour.  Can I end by wishing tonight’s graduates all the best for their future careers, and could I make a plea for as many of you as possible to stay in the Wellington region.  We need your qualifications.

Labour Market Data

The latest numbers are out.

Here is our reaction

 

Mixed Messages in Wellington Labour Market Data

 

While unemployment continues to rise, there are some bright spots for the Wellington labour market based on today’s statistical release and the Wellington Regional Chamber of Commerce’s recent survey of Wellington businesses.

 

 

Chamber CEO, Charles Finny said that while the labour market is easing, not all businesses are finding it easier to find staff.

 

“There is something of a ‘dual labour market’ occurring where staff shortages still remain in many areas particularly, in the services sector, while others are reducing staff numbers.

 

“Our just-completed survey of businesses showed increased numbers of Wellington employers are expecting to take on new staff in the coming months while there were also increased numbers expecting to reduce staff.

 

“In spite of the increasing unemployment, many businesses are still citing ‘staff shortages’ and ‘difficulty to recruit and retain’ as their key concerns.

 

“However, all in all, our survey showed a marked increase in the proportion of businesses finding staff easier to find than it was three months ago. It is also significant that 27% of respondents said that they were likely to reduce staff numbers in the coming moths. This is up from 23.8% three months ago,” said Mr Finny.

The Household Labour Force Survey, released today, shows that in spite of increased unemployment, many businesses are still taking on new staff with job numbers up 0.9% nationwide over the December quarter – a record high.  However, while job numbers are up the total number of hours worked has fallen consistent with the slowing economy. 

 

While not so accurate at the regional level, the survey shows job numbers in Wellington are also up, 9,600 or 3.6% over the year.  

 “Our assessment, backed up by today’s data, is that ‘labour hoarding’ is occurring.   More people are being employed but are working fewer hours on average.  This is partly because many employers want to try and hold on to staff through the downturn, in spite of less work, as they may be hard to find later,” said Mr Finny.

 “All in all, though it will be a difficult road ahead for employers and we are pleased with the government’s recent announcements which will go someway toward relieving the pressure,” Mr Finny concluded.  

SME Package

I have done a number of media interviews (Radio NZ, Newstalk ZB, Dom Post) on yesterday’s announcement by the Government.  The proposals won’t solve all problems but they are a useful response to the challenges confronting us.  Here is our press release from yesterday:

Small Business Welcomes Government Tax Package

 

The initiatives contained in today’s Small Business Relief Package will provide welcome relief for cash strapped businesses according to the Wellington Regional Chamber of Commerce.

 

“Cash flow problems are an increasing area of concern for small businesses in particular and the measures announced today are a pragmatic response to the extraordinary economic conditions we currently face”, said Chamber CEO Charles Finny.

 

“Adjustments to the provisional tax rules will give businesses more flexibility in the timing of their tax payments.  This is will be extremely valuable to them in the current economic environment.

 

“The announcement comes as our latest business confidence survey reconfirmed the difficulties businesses are facing in managing their cash flows and this initiative will be a welcome respite.

 

“The tax compliance measures, including the higher tax-return thresholds, will reduce the number of transactions small and medium sized businesses have with the IRD and will be well-received.

 

“The directive to government departments to pay their bills promptly is something Wellington businesses have been talking to us a lot about recently and we are pleased the government has acknowledged our concerns.  In a survey late last year 28.6% of businesses told us they have experienced such delays in paying invoices.

 

“We are also pleased that the government will allow the New Zealand Export Credit Office to provide short-term credit insurance for exporters.  A number of our members have reported difficulties over payments for exports in recent months.

 

“All in all this is a well-timed package which will go some way towards relieving the pressure on business at this difficult time,” Mr Finny concluded.

Brief Comments

Sorry about the lack of posts, but I have been either out of contact or busy.

I was surprised by the size of the OCR cut.  I was picking no more than 100 points.

The continuing trade deficit concerns me.  We need to continue our focus on trade liberalisation and on improving our export performance.

There is a general strike on in France today.  I am not sure how this is going to advance the cause of those suffering from the financial crisis, but it is certainly inconveniencing many people.

I have yet to hear anything from the speakers at Davos that fills me with encouragement about the global financial future.  Pretty much all the sessions are watcheable on the web on the World Economic Forum website.

Relative Value Of Currencies

The latest iteration of the Big Mac Index is in the latest Economist New Zealand isn’t featured but at current exchange rates a Big Mac in New Zealand costs around US$2.50.  This puts us back as aa currency well undervaalued when compared to the US$.  As recently as July we were seen as slightly overvalued on this index. 

The Swiss should, I think, take note of the strength of their currency.  I am very worried about the competitiveness of their economy.  Last February I recall the Big Mac index showed that Iceland had the world’s most overvalued currency.  What has happened to Iceland since then???

Inflation

It was good to see that there was such a big drop in inflation confirmed in yesterday’s statistics.  I hope that this ensures a further easing in the OCR by the Reserve Bank at the end of the month.  I also hope that this will encourage financial institutions to pass lower rates on to business borrowers.

Getting The Banks To Lend Again

I was just listening to Gordon Brown’s latest package of measures aimed at getting the banks to lend again.  Unwillingness to lend remains a problem here to.  I am sure that this will be a major theme for February’s employment summit.

S&P Outlook

I was not surprised at all by the decision by S&P to change its outlook on the New Zealand dollar from stable to negative.  Our current account deficit is too large and we need to do something about this urgently.  We need a strategy to boost exports of goods and services and we need to get New Zealanders investment more offshore.  There is plenty of strategy coming out of agencies such as NZTE and MED but none really addresses how we are going to improve our export to GDP performance.  This has declined steadily over the past nine years.  It was an area of economic policy failure under the previous Government.  The current Government must turn our performance around.

 

I have radical views here.  I believe that specific performance targets need to be introduced for organisations such as MFAT (reducing trade barriers) and NZTE (improved export performance – by sectors and markets).  These things can be measured.  And CEOs, senior managers, and market and product managers can be held fully accountable for meeting these targets.  Clearly we need to be sophisticated here.  Things happen that are beyond our control.  We can’t penalise people when they try as hard as can be expected to deliver goals, but because of factors beyond their control, achieving a target is not possible.  But we need to be incentivising a much better performance.  Those who in normal circumstances meet or exceed targets should be better rewarded than we are doing now.  And those who are ineffective should be shown the door.  We are facing a crisis and we need to be responding accordingly.

 

I also believe that there is a direct link between our productivity growth performance and our export performance.  I hope that both issues will be at the core of the meeting being held tomorrow between the Prime Minister and senior economic Ministers.

 

This is not just an issue for Government.  In Wellington the EMA and the Chamber of Commerce are in active discussion with NZTE and Grow Wellington about how we can work more closely together to get more companies exporting and investing abroad, and how existing exporters can grow their exports.  To this end we are in the process of establishing “a one stop shop” dedicated to assisting export activity.  I hope other regions have a look at our model.  If it achieves the results we intend then it may be worthy of duplication in other regions.