Auckland city business and economy report 2008

Focus on ... manufacturing

Manufacturing is an important part of Auckland city's economy, with over 35,000 people employed in nearly 3000 businesses.¹⁴ This equates to 11 and 4 per cent of the city's employment and businesses respectively. Printing and publishing, food and beverage, and machinery and equipment manufacturing are the key areas of employment in the city's manufacturing base.

Manufacturers within the city are facing increasing local and global pressure. Employment in manufacturing, after declining sharply in the 1980s and early 1990s, has remained relatively stable over the past decade, before decreasing over 2005-2007.

There is evidence of restructuring within the city's manufacturing base as certain activities have declined, while others have grown. Broadly, food and beverage, and chemical and associated product manufacturing have experienced the largest growth over the last six years. Increases have been spread over a range of activities within these sub-sectors, with food manufacturing, fruit and vegetable processing and plastic product manufacturing experiencing the largest increases. Conversely, printing and publishing, machinery and equipment, and clothing manufacturing declined during this period.

Declines in manufacturing within the last two years have also occurred in Manukau city (the region's second largest manufacturing base) and the rest of the Auckland region. A similar pattern has occurred within the rest of New Zealand where manufacturing employment has declined between 2005 and 2007, but remains higher than the 2001 level. The strong New Zealand dollar, increased foreign competition and changes in the global and domestic markets (for example, the reinforcement of global hub and spoke patterns of activity through rationalisation of international shipping routes) have been factors in the recent decline both within the Auckland region and the rest of New Zealand.

Manufacturing employment by sub-sector in Auckland city, 2007

As a share of total manufacturing employment of 35,120 people

Source: Statistics New Zealand, Business Demographic dataset, 2007.

Manufacturing employment, 2001-2007

In Auckland city, Manukau city and the rest of the region

Source: Statistics New Zealand, Business Demographic dataset, 2001-2007.

Nationally, manufacturing is an important contributor to the economy and an enabler of activity in other sectors. It is highly export-oriented and contributes 63 per cent of New Zealand's exports (direct and indirectly).¹⁵

A gradual shift in the structure of manufacturing and a diversification of exports has occurred to reflect the advantages of New Zealand firms on a global scale. New Zealand's manufacturing base remains largely agriculturally focused and the region plays a key role in adding value to agricultural products. Alongside this, specialised manufacturing niches have developed in areas such as plastics, boat building and engineering. A blurring between the manufacturing and service sectors has also occurred where many manufacturers are providing after-sales product service functions as a source of growth in an increasingly competitive global environment. Continual innovation and knowledge input is required in these sectors.

Future issues

New Zealand manufacturers face several challenges related to the country's small size and geographical remoteness. Difficulties for New Zealand manufacturers include a small home base demand and limited scale, inability to set up just-in-time supplier networks due to remoteness, a tight labour market and a domination of small firms that can hinder investment in research and development activities and the up-scaling of operations.

Inward investment is also crucial, where larger foreign firms are able to expand the scope of New Zealand's economy and have the ability to leverage other resources in New Zealand. Sources of future growth in the manufacturing sector are exports and outward direct investment, although the latter is currently limited by constraints of scale in the domestic market.

Over the next two years, the forecasted combination of a lower exchange rate and lower interest rates will help promote manufacturing activity by lowering cost pressures and increasing the return to firms.

The emissions trading scheme (ETS) is likely to have an impact on the manufacturing industry. Industrial processes are due to come under ETS regulation by January 2010, which will increase the costs associated with manufacturing activity (as many manufacturing activities are carbon intensive). Furthermore, when electricity generation enters the ETS (also by January 2010), manufacturing, being an electricity-intensive sector, will experience further increases in costs.

¹⁴ This section uses a different data source to the Economic structure section. The latter estimates are slightly higher as they include both employees and self employed, whereas the Business Demographic data used in this section only includes employees.
¹⁵ NZTE, 2006: Manufacturing Plus.

Published August 2008