Private company sector decline

Press, 12 July 1980, Page 18

Private company sector decline

An apparent lack of confidence in their future on the part of private companies is one of the features emerging from the 1980 Survey of Business conducted for the New Zealand Chambers of Commerce, and released yesterday. The funds which they are accruing are being used to reduce previous borrowings and to increase -liquidity. They do not appear to ,be prepared to invest in assets or in their own growth. When this {rend is coupled with the recent comment of the Economic Monitoring Group of the New Zealand Planning Council that little if- any real investment in productive assets had taken place within the total private sector since 1972, a very strong message comes through. “In simple terms there is little new investment in productive assets on the part of the private sector but the larger enterprises are finding the means of their own expansion by purchasing smaller businesses as going concerns thus obtaining assets of every description, at a discount. “It is not the fault or the responsibility of the enterprises concerned, but this form of economic cannabalism, if allowed to continue, must endanger the future of private enterprise. Long term economic growth depends heavily upon the success of the smaller business. “Tax-paid profit, as a return on shareholders’ funds, is less among the private companies than the returns available elsewhere. These companies have strictly limited access to all forms of

finance, some of which are simply not available to them at all. “Over the whole spectrum of the companies surveyed, there is an enormous and ever-widening gap between actual returns from involvement in business activities and the returns which should be earned having regard to the depreciating value of money. “The 1980 survey reveals five features; a return to growth in physical volume of business, a temporary easing in the rate of inflation in the year (1979) surveyed, a low return to investors, limited investment by certain types of companies, and a faster increase in wage rates than in profits, without any evidence of improvement in labour productivity. “It is a matter for regret that the recent Budget failed to recognise or even acknowledge the need to encourage investment in productive assets, and to make equity investment attractive,” the survey says. “If, indeed, one section of the private economy is able to turn upon another and gobble parts of it up then we have all the evidence we need of a grave future for the private economy to finance its policies.”

In 1979, the firms included in the survey appear to have enjoyed an increase in volume of sales of 5.4 per cent. “This is a welcome recovery from the reduction of 3.5 per cent apparent in 1978, and it wouldihave made a major contribution to improved profitability and greater business confidence indicated by a resumption of new investment.”

Commenting on exporting, the survey says: “As in 1978, more than 50 per cent of the firms in the Survey were involved in export business. It is particularly creditable that 84 per cent of manufacturers in the Survey had export sales. However, the proportions of total sales going to exports remain low, at 2.2 per cent over all, and were only slightly higher for manufacturers.

“It follows that benefits by way of export tax incentives are low. The median percentage of tax-paid profits of exporting companies represented by such benefits has fallen, from 5.3 per cent in 1978 to 5.1 per cent in 1979.” A study of employee numbers of those companies which participated in both of the last two Surveys revealed an over-all increase in employment of 1.6 per cent, which, in effect, reversed the decline of 1.5 per cent indicated in the previous year. Variations within activity groups have been as follows:— Manufacturing plus 4.4 p.c.; Wholesale/Retail plus 0.9 p.c.; Construction minus 13.5 p.c.; Other Services minus 4.7 p.c. “Again, most of the change has occurred in the manufacturing group. The rate of decline in the construction group exceeded that disclosed in 1978.”

The liquidity of public companies continued to deteriorate in 1979, and is now lower than at any time since 1974. Private companies, on the other hand, achieved a noticeable improvement in their liquidity, which is attributed to reluctance to undertake new investment.