Speech by the Minister for Trade, Senator Bob McMullan at the Top Exporters Dinner, Melbourne, 15 August 1995
First, let me say what a pleasure it is to be here tonight among so many successful exporters.
I am pleased to see this Club developing every year as a valuable source of export experience and expertise, and as a mechanism for networking and information exchange.
As successful Australian exporters, you provide a vital role model for those many Australian companies - particularly small and medium companies - which have yet to take the plunge into exporting
- or have yet to do so on a regular systematic basis as part of their plan for the future.
Recent publicity surrounding the Current Account Deficit highlights the important contribution exporters make to the nation's economic well being
- how indispensable an improved trade performance is to any realistic plan for Australia's future.
The recent figures also point to the need for us to develop a broader export base
- a base built on our traditional strengths in minerals and agriculture
- but extending well beyond the commodities markets into manufactured products and value-added services.
Australia can no longer allow itself to be at the mercy of the fluctuations of the international commodities markets or the vagaries of US and EU farm subsidies programs
- nor should we base our future growth on products in which the terms of trade are steadily declining.
I am pleased to say that I believe we are now moving towards the sort of diversified export base which will provide growth and rising living standards into the next century
- that change is, in no small part, thanks to the efforts of companies like those represented here tonight.
Indeed, in my travels overseas as Trade Minister, in Asia and elsewhere, I have seen first hand the growing success of our exporters and, in particular, the success of our manufacturers and service providers.
We haven't finished the task of restructuring our export profile, but we've made a very good start.
For example, Australia is now known for:
- Information Technology into the United States
- wine into the United Kingdom
auto parts and high technology goods and services into many parts of the world
- and high-speed ferries to Europe
: to name just a few.
In many cases, Austrade has played an important part in contributing to our export success
- a good example being the CeBIT'95 trade fair which saw some 170 Australian companies exhibiting in Hanover under the Austrade 'InTelligent Australia' banner.
Your chairman, Ross Leighton, led the Australian contingent and it was an opportunity for the Australian information technology industry to demonstrate its capabilities to an international audience
- from that single fair, Austrade advises me that Australian exhibitors have signed or expect to sign $200 million worth of business by next March
: and, at this early stage, these figures show that exhibitors are well on the way to achieving their projected post-CeBit target of more than $400 million in sales.
With all this good news, you might wonder why the current account deficit (CAD) is still a concern.
The answer is that at around 6†per†cent of GDP, it is simply too high to be sustained over the long term
- the good news is that it is coming down
- you do not have to take my word for it
: if the market analysts and media observers did not agree with me, you would have heard about it in no uncertain manner.
The explanation of the current level of deficit lies, in part, in an exceptional convergence of events in the economic cycle.
Those circumstances included:
- a severe drought which is still coming through in the figures and resulted in losses which saw meat exports fall by 10 per cent, cereals by 21 per cent and an overall loss of exports valued at $2 billion
- slow economic growth in some of our major partners such as Japan saw a weakening of non rural commodity prices in the first part of the year
- at the same time, the Australian economy was coming off a period of very high growth and high levels of investment which implied increased imports.
An examination of our imports over the last 12 months reveals that imports of capital equipment grew by 25 per cent and intermediary goods by 14 per cent
- in this context, it is well to remember that a significant part of our imports are an essential part of building our productive capacity
- these recent rises in imports reflect the high rates of investment in the economy over the last few years - investment which will begin to feed through as improved export capacity in the coming months .
This situation reached a peak in the May current account figures and, I believe, the June result signalled a turning point
- something to ponder is what level the current account deficit might have reached but for the fundamental restructuring of the Australian economy over the last decade and the hard work of exporters such as yourselves who have gone out and found new markets for Australian value-added services and products
: more about this a little later.
A number of factors point to a steady decline from the current high level of the monthly CAD figures:
- a breaking in the drought in the southern states of Australia and stronger international prices will add substantially to our grain (wheat and barley) exports
: net grain exports through November to February could rise by as much as $500 million dollars per month
- there are also positive developments in the resources sector.
For example,
- the partners in the North West Shelf have undertaken significant investment in the Goodwyn A platform which will see our crude oil, LPG and LNG exports rise by some $75 million per month from later this year
- alumina, aluminium, copper, zinc, nickel, iron ore, steel and lead exports are also expected to rise following increased production and high international demand and prices;
- similarly, ABARE forecasts increased revenues from coal exports of the order of $1.3 billion as a result of higher contract prices
: in many cases, these production and export increases are a direct result of the heavy capital investment and consequent capital goods imports which have contributed to our current account deficit in recent months
- and, finally, the planned slowing of investment and economic growth to a sustainable pace will lead to a slowing of imports.
While there may be some relatively high monthly CADs still ahead of us, I think a re-examination of the current account deficit in six months time will show a clear trend decline in the CAD, regardless of the month to month variations which are so characteristic of these figures.
This is essentially the short term picture
- a picture of measured optimism.
The other component of the deficit is structural and this is the aspect the Government has been addressing in a more fundamental way
- and this is the medium to long term task
: to consolidate the likely short term improvement.
Let's put this medium term challenge - and the strategy being developed to meet it - in context.
Something which has not been well recognised is how well the economy has performed despite the recent bad period of drought, the downturn in demand for some of our traditional resource based exports, and the declining terms of trade for primary products.
The continued growth we have experienced reflects, in part, Australia's success in restructuring and diversifying our economic base.
The results of this restructuring are now becoming evident in the trade figures:
- ETM exports have grown from 11 per cent of merchandise exports in 1984 to 22 per cent in 1994
: ETMs exports have grown on average 17.1 per cent per annum for the last ten years
- in the service sector, the story is the same - services were 17†per†cent of exports in 1984 and have grown to 23†per†cent in 1994
- service exports are now equivalent to rural exports, and services and manufactured exports combined now account for some 48 per cent of all exports.
Put more simply, the rate of growth of exports of ETMs has been almost twice the rate of growth of imports of ETMs.
Of course, the problem has been that this growth in exports has been off a low base
- the good news is that their contribution is no longer small.
Interestingly, while the CAD has averaged 4 per cent of GDP over the last five years, the deficit on our trade in goods and services has only averaged 0.5 per cent.
The remainder is explained by the deficit in the Net Income Balance (e.g. the payments on overseas borrowing).
What this clearly points out is that CAD is not really about the balance of trade in goods and services, although that is important and needs to be improved
- the fundamental fact is that we have been borrowing from overseas to invest because our level of domestic savings has been too low.
However, it should be said that, contrary to the common perception, the size of our foreign debt has not increased in relation to GDP
- in fact, it is decreasing
- since December 1993, it has fallen from 43 per cent to 37 per cent and our debt servicing ratio has fallen from a peak of 20.6 per cent to 11.4 per cent
- the largest part of the total debt is held and serviced by Australian private sector firms
: in fact, the Commonwealth and Reserve Bank account for only 13.5 per cent of our foreign debt
: the largest part of our foreign debt - 54.5 per cent - is held by the private sector
= these companies have borrowed to finance investment projects
: public trading enterprises which have also borrowed overseas to fund investment account for an additional 12 per cent of borrowings
: and State and local governments account for the remaining 20 per cent.
This is not to say that the Government is complacent about the level of our foreign debt or the current account deficit.
On the contrary, the Government has implemented superannuation and budgetary measures which will significantly increase the level of savings in Australia so that more and more of our investment can be internally funded and debt servicing requirements fall commensurately.
The savings initiatives are one part of a comprehensive strategy which has been implemented over the last few years aimed at producing a much improved export performance.
As I said earlier, the Government has made significant strides forward in making the economy more open, more export oriented and more efficient.
At the same time, Australia has experienced 14 quarters of continuous growth
- economic growth has averaged 4 per cent over the last 4 years
- in 1994, our rate of economic growth was the second fastest of all the OECD
- growth of 3.75 per cent is projected for 1995-96
- employment has grown steadily and the unemployment level continues to decline
: and this growth has been achieved while maintaining an underlying inflation rate of 2.5 per cent.
It's fashionable in some quarters to point, enviously, to the apparent success of the New Zealand economy
- but, on just about every measure, over the past decade Australia has outperformed New Zealand
: for example, in nine of the last ten years, Australia has had a higher rate of economic growth
: in aggregate, between 1984 and 1994, the Australian economy grew by 35.1 per cent
: over the same period, the New Zealand economy grew by 10.7 per cent.
Obviously, in this case we ought not be slaves to fashion.
The Government will continue its program of microeconomic reform
- a program which has already delivered significant improvement in labour and capital productivity
- with reforms in the telecommunications area and implementation of the Hilmer national competition policy reforms.
Significant initiatives to assist the development of a more internationally competitive and technologically capable industrial sector were announced in May last year in Working Nation
- and more can be expected in the forthcoming Innovation Statement.
Labour market reform will continue with an increasing proportion of workers covered by enterprise agreements.
However, microeconomic reform and improved industrial competitiveness are not much use if we cannot win new markets.
Recently, I announced the Winning Markets initiative which is aimed at assisting Australian firms meet the challenges of globalisation and to take advantage of the emerging markets in East Asia.
Winning Markets forms the fourth pillar - with macroeconomic policy, microeconomic reform and industry policy - of the Government's coordinated strategy which will deliver an Australian economy which can grow at a strong rate without experiencing the current account difficulties which have frequently plagued the economy in past growth phases.
Winning Markets has three elements.
Securing market access: this means pursuing market access through regional and bilateral fora and through the World Trade Organisation
- Australia has been at the forefront of trade initiatives within APEC
- by the time of the first WTO meeting in Singapore next year, we will have built an agenda for further global trade liberalisation
- we are also looking to make the markets around the Indian Ocean more accessible, including those of South Africa, India and the Middle East.
The second element of Winning Markets is providing services to assist the efforts of exporters:
- Austrade has been reshaping its international and Australian networks
: providing more free services to new and potential exporters, practical assistance for new market entrants including generous subsidies and revised charging practices for experienced exporters
: and later this week I will be launching TradeBlazer - Austrade's new on-line information and marketing service.
- Austrade is also examining the feasibility of constituting a commercially run enterprise to manage the distribution of Australian processed and manufactured goods in the difficult Japanese market
- my Department has set up an export barriers reporting scheme which will compile and make available information on restraints in other markets
: with the clear intention to act to eliminate unfair trade practices wherever possible.
The third and final element of Winning Markets is entrenching an export culture.
This means ensuring that there is a much broader and deeper understanding of trade issues within government, business and the community.
While this is part of a long term strategy, some action is underway right now.
For example, in the context of Winning Markets, I also announced an Air Freight Inquiry which will assess whether there are deficiencies in Australia's air freight export arrangements and make policy recommendations on improvements
- I would invite any of you with an interest to make a submission to the inquiry when they call for submissions.
And this week I will also inaugurate a Chair and Centre for the Practice of International Trade at the Melbourne Business School
- this is part of building both the capability and the culture.
As you are all well aware, there are many challenges for Australian firms in a liberalising trading environment - domestically, regionally and globally.
The Government and Austrade are committed to assisting you make the most of the opportunities which are out there and assisting you to overcome the obstacles in the path of your success.
According to the best estimates, there are some 4500 Australian SMEs regularly engaged in exporting activity, generating around $6.5 billion in international turnover which is growing at $500 million per annum.
However, it is estimated that these firms represent only 7 per cent of all SMEs engaged in manufacturing and around 1 per cent of service SMEs.
In Sweden and Taiwan, as many as 30 per cent of manufacturing SMEs are internationalised and for the service sector the number of internationalised SMEs is around 5†per†cent.
So, there would seem to be a large untapped export potential amongst our SMEs
- we hope that your firms will form the vanguard of a growing band of successful exporters.
In closing, let me say that some commentators can see the good news for the Australian economy.
Bain and Co.'s Dr Don Stammer observed in the Business Review Weekly recently that Australian businesses, in contrast to their US counterparts, tended to see the glass as half empty rather than half full.
His point was that people were underestimating the scale of reform that had already been achieved in the Australian economy.
Don Stammer points to "sharply increased" productivity which has occurred over the last 10 years or so
- that improvement is of the order of 15 per cent
- and the story for Australia's competitiveness measured by unit labour costs is even more impressive.
His outlook for the economy is a "mild and short-lived" slowdown with an upswing beginning in 1996 which is "likely to be a long and strong one"
- and, in his words, "there are attractive opportunities for business investors who position themselves early to benefit from the improved outlook for the economy over the [next] five or six years".
Of course, no single commentator, Dr Stammer or anyone else, can predict all the aspects of our economic future with accuracy
- the task is too complex for that.
But what the underlying trends show, and Dr Stammer's analysis supports, is that it is not unrealistic to suggest that the almost unprecedented period of sustained growth we have enjoyed over the last four years can be sustained for several more years, with a continuation of low inflation and a gradually improving current account situation.
This is not a scenario to view with alarm or to throw away lightly.