by HERA Director Dr Wolfgang Scholz

With the recent decision of government-owned Crown Research Institute NIWA to contract the multi-million dollar upgrade of its research vessel Tangaroa to a Singapore dockyard, and the KiwiRail announcement that the Auckland light rail trains will be imported, the Heavy Engineering Research Association (HERA) analysts have two other interesting case studies to add to the list of recently imported or to be imported heavy metals based articles.

HERA’s statistical analyses showed that from 2008 to 2009, New Zealand experienced an increase of $43 million in the value of imported steelwork in the single category of articles used in steel structures. This import value increase has to be seen in context of significant rises in steel cost during 2008/09 and also the worldwide recession, where pressure was put on everyone to win contracts at all cost from a reduced number of projects and this includes importers.

This $43 million is not a large increase but in our calculations for this category alone, we have lost over 150 direct jobs. This is serious enough to mean that our industry should be alerted to this trend and monitor developments, and be ready to take action to fight for our market share.

Heavy engineering is of strategic importance to the NZ economy be it for food processing, petro-chemical, infrastructure, mining, marine, defence or the transport industry. Steel construction innovation has provided a viable alternative to concrete construction and is continuing to provide considerable cost savings and sustainable alternatives to our economy. Our heavy steel fabrication industry has remarkable depth of capabilities due the relative isolation of New Zealand and has grown continuously since the 1990’s at well above the general rate of GDP increase. Our heavy fabricated metals product sector has also built a considerable export market, amounting to over half a billion dollars in the last year alone. HERA membership covers a number of categories including Ordinary Members, who alone employ around 8,000 people who produce an economically significant, $2 Billion per annum in sales. This industry is critically important to New Zealand and is worth fighting for, especially during a recession.

Our industry congratulated the government on the infrastructure spending package to mitigate the effects of the recession as it has been positive for our industry. However, our request to the Minster of Economic Development Gerry Brownlee, calling for action to ensure ongoing benefits to the local economy through the establishment of local industry participation plans such as those found in the USA, Australia and other countries, did not find support.

Current Government procurement rules, and this includes reforms which are currently being touted, do not in my opinion go far enough to build solid business opportunities for New Zealand companies. Government procurement which should include Regional Authorities and City Councils, as well as State Owned Enterprise, Defence and a range of other entities such as Crown Corporations, should be required to procure on the basis of best value for money over the whole of life of a product or asset, which should include operation, reliability, maintenance and ultimately, disposal.

An effective procurement policy should be focused on ensuring that domestic suppliers are given a full and fair opportunity to supply, cognizant that fair and equal trade conditions apply in competitor nations. Sadly, we often find that “the level playing field’ is tilted and distorted to a point where local manufacturers can hardly recognise it as a playing field at all. It is time for public funds to be spent on the public good where they will provide significant long-term benefits to our economy.

The Industry Capability Network (ICN) has developed a draft ‘Guide for Project Owners’ with the title ‘Developing and Implementing Local Industry Participation Plans’. The document provides an easy-to-follow guide on how to approach local participation and also demonstrates the many benefits of doing so. The approach is entirely voluntary and I believe in its current form is still too carefully-worded and not encouraging enough. However, this is an excellent start and our industry should get fully behind the development of this document and its promotion, and advocate for it to become mandatory for publicly-funded procurement. Well done, ICN!

Effective Government procurement practices would see Government entities working with local suppliers to build local capability and in some cases to develop innovative solutions to their needs, thereby growing business so they can achieve scale and be competitively match fit to export. It should be our common goal to build competitive industries, not just finding the “cheap” option. HERA performs important advocacy work to monitor imported steelwork and lobby government for support of the local metal engineering industry. To find out more, visit www.hera.org.nz