WORLDS FINANCE

New Zealand Times, Volume XLVII, Issue 10993, 31 August 1921, Page 7

WORLDS FINANCE

CHANGED COMMERCIAL & INDUSTRIAL OUTLOOK

HON. W. P. REEVES ON NEED FOE PRUDENCE

HEW ZEALAND’S HATURAL ADVANTAGES

The Hon. W. P. Reeves, well-known in New Zealand, where he hold Ministerial rank for some years, delivered a splendid speeon at the annual meeting of the National Bank ci New a--.an... He stressed the urgent ns-’d for prudence bi-cause of tile great y commercial and indusinal outlook in Great Britain as in N«.w_ Zsa land. The aftermath of artificial markets., inflated prises, and lavish expenditure was pictured, and trade rea-rsticn, tteacruo'l. Reiorenowes mado to the falling off In New Zealand’s exports, the drop in wool, meat, and dairy produce, anti “the unprecedented stream of bills’’ that flowed in untii tho bank was compsHatl to tako action. Banking affairs —past, present, and future —were Epne into fully, while New Zealand’s positron was faithfully pictured. M; .._-v-S struck no pessimistic note; he was no dismal harbinger of evil and ruinous times; he merely pointed cut the general position to-day, making special reference to New Zealand. He impressed upon hi hearers the fact that the Dominion’s mam strength lay in its unu.ua) natural advantages, and the industry and courage of its resourceful and educated population.

At the annual meeting of shareholders of the National Bank of Now Zealand iji London, on July l&tli, r tlie_ chairman, the Hem. W. P. Beeves, reviewed New Zealand*© recent history and future prospects in interesting fashion. _ "The chief reason,** lie said, '‘which makes prudence especially essential }n 1 the allocation of the funds at our disposal is found in ill© changed commercial and industrial outlook both here and in New Zealand. Of the general position in this country 1 n*.ill say nothing, bec-Uis© it is known to you; but on tho change for the worse which has come about in New Zealand I must dwell, both because it affects our banks so directly and because it may not be known except vaguely to many of our English shareholders and _ customers. When dwelling on the position in New Zealand in my speech to you last year, my task wa<s more -pleasant than it now is, inasmuch ns I was still able to poimt out a condition of great xirospeait.y. Already, how ever, the-rto si-grvi that this could not last, and i thought it right to warn yon that the astonishing figures of the Dominions trade then laid before vou were the result of artificial conditions that could not. continue. These signs indicated that tho exceptionally high nnces even then current would fall, and T called your attention to the excessive prices being paid for land by sanguine purchasers. and expressed the opinion that New Zealand was beginning to feel those after-effects of the war which . have weighed on t.h© industries of the woHd. Not being gifted with second right, T could not,' and did not, f-tmt the financial and industrial diffi-culti-ps now embarrassing business in the tkimifnione would come so suddenly and with such force. T should doubt whether the long htstovy of commercial fluctuations, at any rat'' of ™°2f. u 2 Hme of peace, has shown anything much more rapid. TRADT3 TRACTION. "To summarise it briefly. I woulrt that for many years past more than ninetenths of New Zealand’s exports have been nroducts of the land. Lavish expenditure, both during the war. when it was necessary, and after the Armistice, when it was not, -provided an artificial market for these products. The overdue and inevitable reaction, causing as it las in the Old World a heavy fall m the demand for commodilies, loss of conndenoe, and murid unemployment, suddenly began serieusluy to interfere vv itn New Zealand’s .principal markets. Coincident with the shrinking of buying power in England canto the action oi English manufacturers, who began, wituout warning, to fill long-standing orders from New Zealand, with the result that her banks were loaded with bills, an J" the Dominion flooded with g£°ds. rtigu os the import figures for 1910 had been —and fhev were over *£30,000,000 sterling _thev were more than doubled in 1920, an increase which no country can without a shock at a time when the profits of it* export trade are going downhill. It may he said that New Zealand importers should not have plunged in this light-hearted fashion. Though it would have been a convenience to tub if they had not, it must in fairues4 be pointed out that for something like five vears previously they had found it most difficult t<> obtain even moderate supplies from British manufacturers. Many seem, therefore, to have fallen into the habit of placing—atr over-increasing -prices—orders more or lees in excess of what thev really required, doing this in the hope of securing atJ least a part of what they needed. Last summer came the slump over here, and! British manufacturers found time to fill oversea orders. Current indents were executed to idle full. Orders two and three years old, regarded as obsolete by th© importer, were also fulfilled. Others which were to be spread over months were Kent forward itx on© or two shipments, until there was neither bond nor free storage in New Zealand port© adequate to hol-d the hug© accumulation. What orders they could the New Zealand! merchants cancelled, but. to their credit be it stated that instances of unjustifiable repudiation have been extremely rare. TRANSPORT OBSTACLES. # "Mefohant and retailer are now engaged in the anything but eaey task • deposing of their importations. As was. inevitable, the wild rush of import-

inc- business has beer* followed by a co1 * responding pause. Ships have been going out to New Zealand in ballast, and the position in Hie Dominion will gradually bo adjusted, though not;, of course, without inconvenience and. loss. The extraovdinary • commercial episode of winch [ have given the outlines affected our business very acutely. In the first place, from 3 ulv of last year ati unprecedented stream of bills on >' v ' Zealand poured into our London omet and continued without ceasing until w.e were obliged, Cxs we quickly were, simply to decline to toko bills at air except under credits or for collection. What brought things to this pass wn* not merely the volume of bills nerc, bin the fact that, owing to transport Obstacles and other checks of the New Zealand export trade, money was not con* insr across from the Antipodes in amounts anything like sufficient to ninla trood the depletion of our funds hero. We of course, wore by no means in our difficulty. Pretty well all tno Australasian banks wore in a similar position. Tt is improving now. but it will not be-normal for some tirrus. THB WOOL SURPLUS.

"If the commercial difficulties of Ney Zealand were confined to the ftpoemi of rxcessiv© iriiportatioa I have spoken thev would soon come to an end. Tn fortunately, they arc not. With the. excessive imports has com© a very serious fall in the price cf exports—a fall ettutf* ing in' some cases the disappearance of any margin of nrofit. The trade figures for last rear show in the ease 6f wool, our chief export, a drop in value ot pea»-l-v 7| millions. ’Lids nos the resu-t of p. fall in price so heavy that, whereas under the Tnuferial commandeer our wool averaged 15d net* lb. in Harjh lftet j it was quoted fit 4hi to and difficult ‘ of Rate even at flint figure. Tho time at mv cH«u>osa.l will not allow me to discuss Hi*. fbrmat ? on of the British-Auptrahan Wool Realisation Association—a tiHo ’.immonly, pod -mercifully, condoned "Bawra**—and tho various scheme* out forward- for disposing of the enormous Australian woo! surplus of IJMV>,9u bnic* which tho Imperial Gorernmenr '-enueathed to A bewildered trad©. Sufto say that, although the wool ./ilos of the Inst twb or three m-dnths been fdirlv- Successful, the problem in the main still awaits solution. With th© drop in -vvooL hides, pelts and tallow were all, depressed. ArEAT AND BUTTER EXTORTS. "ATor© serious-, however, than th© 10-ss on these mirier exports is the un.satisfactory state of th© mafket for chilled and frozen raeati Lnfet year th© meat export hoid its own. welL Tor months paA however, prices have been so bad i that in d good many cases producers are probably maJsiibg nothing out of their shipments. Til© story of dairy produce is eomewlmt better. Last yee-r the dairy 'farmers did very well. Latterly, as you know, fcho-r© has been, a heavy fall in the price of butler here. On tho other hr.rut, (he severe drought afflicting this country and pails of the Continent hns non- lasted so long that one may suppose that for some time to come it will redueis supplies of dairy produce from this end, may can so some recovery in prices, and may even later on ttffcet the price of meet I have dwelt on these three .chief exports, wool, meat, And dairy produce, because, out of exports amounting -iin all last, year to jC4fi.-tl-2.diK), they were responsible for al>6ut ,£fit, 250,000. (Tpon their profitable talc* i’.e financial stability of the Donlinioft depends. 1 nerd, therefore no excuse for pointing out that the {’’eight charged for their , fr.’ftsport from Now Zealand to England is a very vital question indeed. The', Vo ail bulky goods iti proportion to tl-Vr price, and a Very 'few pence added to Hie rate of freight absorbs .ell the .rrofit. to be made out Of them at the cre-eut prices. Freights now charged aro such that unless they are reduced the growers will be un«ble v to go on. tt is true that the position of shipowners is also by no means enviable just now -. bnt, with every sympathy for them", the producers have to live, and unices freights can be adjusted they may be driven to take Very determined s-'eps to save thcmvelvce. •BANKS AND- TF.ACFES. "It may be asked to what extent have the banks doing business in New Zen* land risen to the occasion and discharged -their manifest duty by coming *o the 'assistance of tho trading community f /.the answer lias in a nutshell —whereas 'last year the hanks, taken together, suffered a loss in deposits (excluding Government deposits) of .£3,000,000, thoir advances went up by .£20,100,000. The extra drain on their resources came, therefore, to 2223.000,000. Moreover, whereas in 1920 deposits exceeded advances by J 218,620,000, in 1021 allowances excee*ded •deposits by Jti>, 2Bo,ooo. No pue who understands what these figures mean but will admit that in thoir eti deavours to help the public the banks have gone as far as prudence will allow. "Not for many years have deposits shown a decrease, and not since the New York crisis of 1908 have advances exceeded deposits. That this, very largo increase in advances has been accompanied by a decrease in dcpocita show’s 'that the’ credits created by the banks have virtually «11 gone abroad to pit lor the excessive importations. To chock demands to the utmost, and to hasten the unloading of stocks, the minimum Mite for the best advances was gradually increased from ftj per edit, in June, r.-jl, to 7. pet cent, in 'February, 1921. hut urgent demands had to he met, for it would have been a calamity if any inijn-oving house had bden forced, to default through lack of oSei«talice, One Mich failure would probably buve led in many others, and thus precipitated p crisis. As our own customers form a largo division of Jhs mercantile community, , the calls upon us wore correspondingly heavy. Over nil banks tn* percentage increase was 63j per cent.; our own proportion was 77 per cent. Add whereas our own not less of deposits has been .£360,000, our advances show an. increase of ,£*,635,000. Theso figures, inasmuch as they represent to a largo extent a process of lending money to meet a trading emergency, cannot, and will not, remain at so high a level.. "I may inform you that during tho last two months our advances have shown a substantial decrease, and that the process is likely to continue. That they attained the dimensions which they reached was due to two reasons—first, the obligation which we in common with other banks were under to do all in our power to help the business community, and the Second the* fact that the banks kucw deiinif.eiy that in tile improbable went of oircuinstnnccs ipal>jpg it neces-

sary thev could rely on effectual sun-» port from the Government of tho Lein in i on. FINANCIAL STRENGTH OF NEW Z, PI ALA XL). «i "Two years ago I was able to tell you that the financial position of the New Zealand Government was exceptionally strong. It is bv no means weak. »° w - Indeed, if we look only to die nsures of the financial year ending on March 31st last, we see much reason for congratulation in a revenue of .£31,190.0uu, and a surplus of J2G.124.0C0. The U reasiny. moreover, still had m 31 arch more than ,£4.009.000 left of the large accumulated surplus of recent years, and has just succeeded in borrowing a further JCo.OOO'.Or.O in this country. But in financial matters the future is even more important than the past', and the outlook for the Dominion’s revenue is not altogether bright. The extra millions by which tile abnormal Customs returns swelled last vetir’n accounts are shrinkin- up ami the fall in producers profits will, T imagine, affect the mrome-tii.i fi-Mires of 1922-23. Thus New Zealanders will haw to face their very heavy taxation to the accompaniment of falling revenue and decreasing trade. Last year the taxation was estimated at between .-£l9 and .220 a head. Though falls m cue Customs end income-tax returns wilt automatically reduce the nor capita burden what is left of it will be no more agreeable to a. community that is making ‘less money. AYhat qre called the permanent appropriations, tnnt is to sa., debt-interest and pensions :now cost y 6" Zealand between £12,000,000 arid ,£J 13j».(Pf> a vear. This is a formidable sum, the m-ore so because no economy can .e----dL it while SO long as borrowing continues it must increase. Economic* will have 'to be made in the. annual approp-r «- rions This will be a very disagreeable taV Governments, as we know, face retrenchment when thev must and no. before T am reduced to hope that Mr tint’s Ministry will supply a br’Hwnt if solitary, exception to this customer official reluctance. THE GENERAL POSITION. "A fair sketch of the .general imsiwould Result in some such a this —New Zealand, after a quarter cAa century of almost unbroken prosperity, hf to fa-e an industrial and commercial depression Some of her difficulties are temporary, others may continue i ol a period stiil uncertain. To speak his u temporary embarrassments one may that the adverse balance of ?r££. troublesome as it -s. m' st put AV tent be met by economy. A mueni more difficult problem is tho dropn Prices of colonial produce, because, though these may recover somewhat there 0 is no ehanbe of their regaining the artificially high level enipycddiu.ng the war Producers have to iace W"® and, therefore, to endeavour to reduce the cost of production. The iattt>r ahvars take time. Among 1 tue ar tides of produce wool P dairv pi-odttee, Which?until.Wte reynWy Eeeu satiefaettory, will, possibly ? imurovo. Tile Government of the Dominion, though fa<^ d - by . dl revenue, has ample funds m band » the moment, and after liberal expenditure can '^ 11 < .“^“ r mboudi diilge in- the luxury of economv Thougn it mav be true that New Zealand has not bad to face a sadden . c ™“'' a ") deuressioh like the present ainoe J 8.9, »t is s true that she is far stronger andfar better equipped- to face difficulties nbw Than she wEs forty-two years agoTo give one example among many. the dewfrits in our Post. Office Savings Bank, wdiicli ware then 21812,000, were last December 400,000. In one respect only Is New Zealand Wofse off than she waf then, and that is in the burden of her public debt, and taxation. Her main strength, of course, is now, as h has been, the possession, of unusual natural advantages and tho industry and courage of a resourceful and educated .population/*