HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
Address to Canberra Foreign Investor Dialogue Hosted by International CEO Forum
"Competing for Business in the Asian Century"
WEDNESDAY, 26 JUNE 2013
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Thanks, it's great to back here for the sixth year in a row. I thought I'd start slightly differently today by putting our discussion in context with a few simple but stunning facts about the massive amount of global investment flowing into Australia over the last five years. At the end of the day, the best way to judge Australia's attractiveness as an investment destination is to look at the raw numbers.
Between 2007 and 2012, the total stock of foreign investment in Australia increased by nearly 30 per cent to $2.2 trillion. That's more than twice the level of foreign investment in Australia a decade ago – remarkable given the turmoil in the global economy in the last five years.
While many advanced countries around the world have struggled to secure investment financing since the GFC, Australia has enjoyed an increase in the stock of foreign investment of almost half a trillion dollars. As you'd expect, much of the increase has been into the mining sector, where the stock of foreign direct investment grew by around two-thirds between 2007 and 2011 to some $178 billion. But mining is just part of the story. For example, the stock of foreign direct investment in the wholesale and retail trade sector also grew by around two thirds over the same period. And the stock of foreign direct investment in the property and business services sector grew by more than 80 per cent.
The results for the manufacturing sector are particularly interesting. While our newspapers regularly forecast the imminent demise of Australia's manufacturing sector, the stock of foreign direct investment in manufacturing actually grew by over 30 per cent from 2007 to 2011. In fact in 2011, the manufacturing sector had the second highest level of foreign direct investment out of all sectors of our economy.
It's no surprise that global investors recognise the unique strength of our economy and are seeking to benefit from the Australian growth story. And I always look forward to this annual dialogue because I know that as global businesses you want to have a discussion based on the facts. You're the people with your finger on the pulse of the world economy and each of the regional markets you do business in. You don't commit a dollar of capital until you've rigorously weighed and measured the facts surrounding a potential investment opportunity. And of course, you're all here because you know that Australia's got one of the strongest economies in the world.
There's probably no greater display of confidence in the Australian economy and our long term outlook than the room full of global businesses here representing over $4 trillion in shareholders' capital. Australia is where you invest if you want to bet big on the future of Asia, but you want to do it in safe and competitive investment environment. Australia is the place you come for high reward with low risk. One of the most sophisticated economies in Asia. We're a young, optimistic country with our best days in front of us. We've got a rich abundance of investment opportunities as our region powers an ever increasing share of global growth. We've got an economy that's notched up 21 consecutive years of growth - a record unmatched by any other advanced economy over this period.
Over the past five and a half years alone:
Today, we've also got:
We've achieved all of this because we've successfully steered our economy through two extraordinary macroeconomic events. Unlike the early 1990s we avoided recession by supporting jobs and growth through the worst global financial crisis in three generations. And we've come through the second stage of our mining investment boom without the outbreak of high inflation and rising interest rates that characterised the first stage of the boom.
Today we face new challenges and opportunities as our economy undergoes two more big transitions. In the resources sector, the transition from unprecedented growth in mining investment to exceptional growth in commodity export volumes. And more broadly, the transition towards non-mining growth drivers. We are undergoing these transitions from a position of strength, with a high productivity economy and a productivity growth upswing. And contrary to what you often hear in the press, Australia performs well on various measures of competitiveness. But the competitiveness of a nation isn't a straight-forward concept. We sometimes see the competitiveness of a nation defined as the extent of competition in the nation's markets. Or the extent to which the nation displays pro-growth fundamentals like low inflation and high investment, education and openness. As you'd expect, Australia fares very well on all of these measures.
We also sometimes see competitiveness defined in terms of relative costs, particularly labour costs. But low wages say more about the poor skills and capital base of a nation than they say about the nation's ability to trade with the world. The key is ensuring that wages are supported by productivity. The evidence shows that, while Australian workers are amongst the highest paid in the world, they are also amongst the most productive. Australia is consistently in the top dozen most productive economies according to the Total Economy Database, which compares productivity levels across 52 countries.
Rather than strive to push wages down, this Labor Government is committed to pushing productivity even higher to support continued strong growth in the real incomes of Australian workers. We're driving reforms which will help deliver the flexibility, skills and infrastructure the economy needs to boost productivity. The National Broadband Network and our National Plan for School Improvement are just two examples among many.
We're also putting in place reforms to ensure our tax system remains competitive and help firms navigate our economic transition. Like allowing struggling businesses in a loss position to carry back their losses and offset them against previous tax paid so they can boost cashflow and keep investing in order to grow their business. Even businesses which do not directly benefit from this reform will see the benefits through stronger and more viable customers and suppliers.
And we've been helping to drive the global agenda to combat base erosion and profit shifting which put an unfair tax burden on the 99 per cent of businesses operating in Australia that do the right thing. Assistant Treasurer David Bradbury will have more to say about this agenda in the coming days, and of course our reform efforts will always ensure Australia's continued tax competitiveness.
Overall, we're starting to see evidence that we've broken the back of the weak productivity growth we inherited. We saw labour productivity in the market sector grow at 2.0 per cent through the year to the March quarter– above the average growth of the past decade. But I've never focused too much on any single measure or survey of competitiveness because they are not strong predictors of a country's economic growth. Australia's economic growth and low unemployment compared to the rest of the developed world tell you most of what you need to know. And what the competitiveness discussion really boils down to is the Australian dollar, which has remained unusually high in the face of substantial declines in commodity prices and interest rates. That owes in large part to the increasing perception of Australia as a safe haven for capital at a time when central banks in some of the world's biggest economies have been pumping out liquidity.
Just last week the IMF acknowledged the increasing global role of the Aussie dollar by announcing that for the first time ever it will separately identify the dollar in its breakdown of official foreign exchange reserves. So Australia's economic strength has been a mixed blessing – because it has also contributed to an unusually high dollar, which has hit profit margins across many sectors in the economy.
In the resources sector, commodity prices denominated in US dollars have been falling, but the Australian dollar has remained elevated. As a result, the margin between operating costs – many of which are denominated in Australian dollars – and revenues has decreased. The sustained high dollar has also squeezed profit margins in other tradable sectors, such as manufacturing and tourism. It's the sometimes harsh reality of living in a global economy. But Australia's floating exchange rate has served us very well over a long period of time, helping buffer us against global economic shocks.
The freely floating dollar is also a key reason why we've been able to sustain stable economic growth and low inflation through the largest terms of trade boom in our nation's history. That's in very stark contrast to previous commodity booms in Australia which have ended in tears with breakouts of uncontrollable inflation – a dangerous economic force which erodes a country's competitiveness.
Of course, it's fair to say that over the past year or so, the high dollar has been hindering, rather than helping the transition in our economy. That's why the Aussie dollar's recent depreciation is welcome, and should help to provide support to some non-mining sectors if sustained, assisting the rebalancing occurring in our economy. The proximate cause of our dollar's depreciation is also welcome. Ben Bernanke's indication that the US Fed could soon moderate its ultra-easy monetary accommodation depends on a stronger US economy - which is good for the global economy and for Australia.
As I've been saying for some time, Australia's economic transition won't be seamless, but there are positive signs it is gradually progressing. Mining investment is set to remain at high levels for some time, after rising by around 130 per cent since 2007-08, and we're now seeing strong growth in non-rural commodity exports. The RBA also confirmed last week that we've seen 'lending rates for most households and businesses reaching or approaching historic lows'. Low rates are supporting non-mining sectors like housing construction, with signs of a pick-up in non-mining business investment next year. But the success of our transition doesn't just depend on interest-rate sensitive sectors responding to low rates, or even the level of the dollar. Our success in the Asian Century also depends on how our businesses position themselves to take advantage of the big structural changes on our doorstep and the opportunities this brings our entire economy.
Australia's abundance of opportunities goes far beyond mining and doesn't depend on a Chinese economy growing in the double-digits. To start with, we shouldn't forget that the Chinese economy is around 50 per cent larger than it was in 2008, so growth of around 7.5 or 8 per cent is contributing about the same to global output as 10 per cent did then. And while Chinese policymakers need to very carefully manage the current situation in their credit system, it's encouraging at least that they are focused on constraining excessive unregulated lending. But the point our Asian Century White Paper made clearly is that Australia's opportunities are so much broader than just resources.
In the next two decades, 2.5 billion people will join the ranks of Asia's middle class, creating an enormous regional consumer market demanding new and more sophisticated products. Asia's rising, affluent middle class will open up new opportunities for not just manufacturing and agriculture, but also for our services sectors. Our services sector already employs around 80 per cent of workers and has accounted for around 95 per cent of jobs growth since late 2007. And we're already seeing our services industries expanding in Asia.
Asia has become the biggest source of visitors for the Australian tourism sector, contributing around 40 per cent of visitor arrivals. In higher education, the number of students from Asia studying overseas has almost doubled over the past decade to more than a million. But while our opportunities are enormous, we know that grasping them will require a big, nation-wide effort in the days and years ahead. That's a collective task for governments, businesses and the broader community – in promoting innovation, locking in our productivity growth upswing and building stronger regional engagement.
This Labor Government's plan will see Australia truly make the most of the opportunities that will flow to us in the Asian Century.