Australian companies have done very well at integrating into the global economy since 2000, but work needs to be done to reduce impediments to continued export growth.
That is the message of a new CEDA research report, Export Weakness, Investment Strength: The changing pattern of Australia's integration into the global economy.
The report, by prominent economist Dr John Edwards, is the latest in a series produced by CEDA's Competing From Australia project. The project explores how Australia is adapting to the new global economy, and how it must change to fulfil its economic potential.
Export Weakness, Investment Strength underlines the importance of removing bottlenecks in the Australian economy and enabling firms to expand overseas.
"Australian businesses of all sorts continue to go out into the world economy and succeed," says CEDA chief executive officer David Byers. "But all governments clearly need to work harder at removing the bottlenecks in ports and transport networks and power systems.
"And we need to educate, train and retrain Australians so as to increase the supply of skilled workers, and to support innovation."
"With the Australian economy so close to full capacity, these tasks are more important than ever before."
Australia's export volumes grew by 56 per cent in the six years to 2000. Since 2000, they have grown by just 9 per cent - a remarkable and unexpected slowdown.
But the reason is not, as often assumed, that Australian manufacturing is performing badly. Volumes of manufactured exports have actually risen faster than the average for all goods in the past six years.
Instead, most of the slowdown in export volume growth is due to the downturn in the rate of growth of rural exports, oil, metals, gold, and services, including higher education and overseas tourism. The strength in commodity prices has disguised this slowdown in export volume growth.
In important areas - metals, energy and minerals - Australia's challenge is to improve its ability to supply. While the mining investment boom in the three years to 2006 will likely result in higher export volumes in coming years, supply constraints are a relatively new challenge for Australia.
While export volume growth has flattened, exactly the opposite has happened to Australia's outward direct investment - that is, investment which gives Australian investors a long-term stake in the management of overseas companies. Australian foreign direct investment abroad has almost caught up with foreign direct investment in Australia.
On current trends, it will not be long before Australian business assets abroad exceed foreign business assets in Australia. For instance, the value of Australian direct investment in the US already exceeds the value of US direct investment in Australia.
Why has this happened? Probably because of a combination of our developed economy, the small size of our market, our large services sector and strong domestic competition laws. The typical Australian firm investing offshore is one that has been successful in Australia but has outgrown the relatively small home market, and has a business concept capable of being replicated successfully elsewhere.
Export Weakness, Investment Strength is written by Dr John Edwards, chief economist at HSBC Australia. Dr Edwards holds a PhD in economics from George Washington University, is a member of CEDA's NSW Advisory Council and was senior economic adviser to Prime Minister Paul Keating.
More details of CEDA's Competing From Australia project can be found at the CEDA Web site .
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