03/10/2006 - 22:00

Australian exporters get up to speed

03/10/2006 - 22:00

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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.

Australian exporters get up to speed

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.

While the 19th century gold rush benefited Victoria – particularly the regional towns of Ballarat and Bendigo – today’s resources boom hails from the west, and to some extent from the north, of the country. 

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 Western Australia, Queensland (and the Northern Territory) have resources accounting for over 80 per cent of all merchandise exports, while for a manufacturing-based state, like Victoria, it is around 20 per cent.

For NSW, resource export intensity is almost 60 per cent, due mainly to its rich supply of black coal. 

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.

As a nation, some regions have always done better than others at one stage or another.

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 these states 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.

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.

South Australia has built on its festival state credentials through the creative export industries and education (for instance, through the University of South Australia’s strong manufacturing education links with Asia).

Tasmania, too, has used its natural environment to its advantage and garnered a large slice of the eco-tourism and leisure and recreation market.

Even if a state doesn’t have a resources boom it can still gain from it.

Services to mining and services to 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 SA wine experts – who originally cut their teeth in McLaren Vale and the Barossa - selling software, marketing and training services to locals.

Many manufacturers directly service the resources industry with automotive components, with  makers tapping into the needs of the mining industry  as well as their own global supply chains.

Secondly, there is 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.

The most recent DHL Export Barometer shows that exporters identify plant capacity and skills issues as key concerns for their own export efforts. Investment in such areas helps to address these issues.

Thirdly, international compet-itiveness means that Australian companies should be testing their capabilities against the world’s best by ‘going global’.

Australian free trade agreements (FTAs) offer real new business opportunities in some of our largest trading partners’ markets.

We now have FTAs with the world’s largest economy, the USA, and our neighbours Singapore and Thailand. FTAs with China, ASEAN and Malaysia are also under negotiation.

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, and taking advantage of the new opportunities offered by the free trade agreements, the rest of Australia can share in the gains from trade as well.

• Tim Harcourt is chief economist at the Australian Trade Commission, and the author of Beyond Our Shores.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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