The commodities boom, fuelled largely by Chinese demand, is driving Australia’s white hot export economy. But, as Tim Harcourt argues, opportunities abound for knowledge-economy companies seeking to service unprecedented demand at home and abroad.
We all know that Australia is benefiting from another resources boom – the latest in a long history of export-orientated, resource-led growth spurts that we have experienced since the gold rush of the 1850s.
The contrast in regional fortunes has prompted leading econocrats – such as Commonwealth Treasury head Ken Henry – to refer to the ‘two-speed economy’ of resource boom states charging along at a rapid pace with the rest in their wake. Resource endowment, with fast-growing states like WA, Queensland (and the NT) having resources accounting for over 80 percent of all merchandise exports, while for a manufacturing -based state like Victoria it is around 20 percent. For New South Wales, resource export intensity is almost 60 percent – due mainly to its rich supply of black coal.
There’s further evidence of the two-speed economy story in the latest Private Business Barometer from Pricewaterhouse Coopers. According to the latest survey, profits of private businesses in Western Australia and Queensland have, on average, grown at three times the rate of businesses in New South Wales and twice the rate of Victorian businesses over the past year. In addition, more than 80 percent of Western Australian and Queensland businesses have exceeded their revenue target, compared to just under 16 percent in New South Wales and just under 11 percent in Victoria. There’s clearly something a buzz out west and up north.
But is this two-speed phenomenon a problem? Probably not. After all, the reason Australia has undertaken such extensive economic reform over the past two decades is to ensure that resources flow to their most profitable use. This is the reason we opened up the Australian economy and pursued relentless microeconomic reform.
But is there more to this story? Should the ‘second speed’ states just accept their fate? Not at all. If you look more closely at the export landscape, there are actually quite a few things that they can do in practical terms in their own right and in co-operation with their fellow Australian citizens in the other States and Territories. Take the three ‘I’s for example – innovation, investment and international competitiveness.
Firstly, there’s innovation. Many countries with few natural resources have done well economically – look at places like Japan, Korea and Singapore for example. In addition, other economies have anticipated that they will have to rely less on resources in the future – Dubai, for example, has been busily diversifying its economic base in anticipation of the day the oil eventually runs out. Victoria has been innovative in this regard with its emphasis on multimedia, biotechnology and other life sciences. And South Australia has built on its festival state credentials through the creative export industries and education. Tasmania, too, has used its natural environment to advantage and garnered a large slice of the eco-tourism and leisure and recreation market.
Even if a state doesn’t have the resources boom, it can still gain from it. Services to mining and agriculture have been two key growth sectors of the Australian exporter community. In Russia, India and China, Australian exporters of mining software and equipment are doing well. and many hail from Victoria as well as WA. When visiting the vineyards of France, Chile and Argentina you often run into South Australian wine experts – who originally cut their teeth in McLaren Vale and the Barossa – selling software, marketing and training services to locals.
Secondly, there’s investment in physical and human capital, including investment in infrastructure and in education. Investment helps protect against the cyclical nature of events such as the resources boom by ensuring that critical inputs to business are not only available but plentiful enough to allow expansion.
Thirdly, international competitiveness means that Australian companies should be testing their capabilities against the world’s best by ‘going global’. Australia’s free trade agreements (FTAs) offer real new business opportunities in some of our largest trading partners’ markets. With no minerals boom on the scale of the other states, these ‘second speed’ states can take full advantage of the opportunities available through these trade pacts.
We can expect to see more benefits of the resource boom flowing from the west and the north, but the rest of Australian can leverage off the boom times as well. By focussing on innovation, investment and international competitiveness, the rest of Australia can share in these gains from trade too.
Tim Harcourt is chief economist of the Australian Trade Commission and author of Beyond Our Shores. You can read his blog at www.austrade.gov.au/economistscorner
The following Australian Exporting information is bought to you by Australian Anthill in association with the Australian Government – business.gov.au.