ASIA
15 March 2024
Australia's future
Glen Robinson offers his thoughts on Australia's future.
There has been considerable speculation on the shape of the country we may be faced with when we get back to normal, without defining what is normal.
As the existing international export market declines and perhaps even expires, we have very little commercial contact with the rest of the world and, consequently, we risk being left out of the changes which are going to be made.
This essay looks at the actions what we should be looking for in the future, as many companies and countries wind back towards self-sufficiency which will result in a significant reduction in exports. It would be near impossible for each country to be totally self-sufficient, as shown by taking a walk down the aisles of Coles or Bunnings and take note of the goods which are imported.
Our position on the international scene relative to our peers is that on both imports and export we are in the lower 25%, which means we should expand our export and import activities.
Australia has the highest dependency on manufactured imports and the lowest level of manufacturing self-sufficiency of any OECD country, and on the Global Ranking of Economic Complexity (2017) Australia ranks 93 out of 130. Given the benefits, opportunities, and development which we enjoy, we should be in the top 10% not the bottom 10%.
We do not have the funds.
The corruption is daunting.
The red tape associated with an offshore investment is “too much”.
The need for quarterly reporting at home is off putting.
There is a lack of legal support.
The lack of tax relief with franking credits.
It is too difficult.
These are the most frequently quoted reasons, but when a serious in-depth analysis is undertaken of these individual factors it is clear that they do not exist or cannot be credible reasons for the reluctance to invest offshore.
With those factors it would appear that the reason for the reluctance for offshore investment is related to factors in Australia, not necessarily to factors related to the target country. If this is the case, then action should be taken to identify the factors and take remedial action.
This can include the following factors.
Currently we are particularly parochial and self-centered in relation to international commercial contacts.
Within Australia, foreign companies have taken equity positions in almost every sector, and it is notable that companies both large and small have taken up positions.
We are seen as an investment target, and we are not reciprocating and not establishing businesses in the overseas markets, but we still have to pay profits, royalties, technical fees, etc., to the foreign companies operating in Australia. There is considerable information which demonstrates that the 35 % largest companies in Australia do not pay tax.
There are significant advantages to an offshore investment, and these may include servicing and working in a market which has different cycle, a much better opportunity to understand the market and the customer, it is a corporate expansion, the executives and staff have a much better opportunity to grow their expertise.
We tend to forget that many countries are going through changes, particularly the developing ones in our region. The process to acquire an offshore expansion can be tortuous, however, considerable research is required to establish a profitable and well conducted offshore business.
However, the question remains as to what actions are necessary to get our commercial organisations established offshore.
The first steps are to recognise that we must deter negative comments about the offshore focus and turn that into a positive discussion.
Develop a broadly based program, in which all sectors of the community are encouraged to participate, incorporating focused seminars, trade missions, and other activities need to be arranged, and it is expected that many separate organisations will participate and provide specific advice and assistance.
The key is that the program should be delivered by an Asia literate executive, one who has developed operational programs in and into the foreign countries, and it would be a real advantage if he/she has Asian experience.
Government also must play a part, and as a minimum, the taxation system must be modified to assist and encourage offshore expansion.
There is a considerable amount of targeted work to be undertaken, and previous studies indicate that we have a shortage of executives who can participate in such a program, we need targeted program with enthusiastic and experienced executives.
GOOD LUCK
As the existing international export market declines and perhaps even expires, we have very little commercial contact with the rest of the world and, consequently, we risk being left out of the changes which are going to be made.
This essay looks at the actions what we should be looking for in the future, as many companies and countries wind back towards self-sufficiency which will result in a significant reduction in exports. It would be near impossible for each country to be totally self-sufficient, as shown by taking a walk down the aisles of Coles or Bunnings and take note of the goods which are imported.
EXPORTS and IMPORTS
Exporting and importing is the easiest way to grow commercial contact with the global economy, however it not possible to be totally independent, as it will be necessary to import raw materials, components, and a range of items which we cannot produce or develop internally, so exporting and importing will become far more important than it has been in the past. The imports are from China, USA, Korea, Japan, and interestingly the exports are to the same countries.Our position on the international scene relative to our peers is that on both imports and export we are in the lower 25%, which means we should expand our export and import activities.
MINERALS
The mineral exports are important to Australia, and we are one of the top five nations which supply most of the non renewable mineral resources used by modern societies and they account for 40% of our exports. It is highly likely that our minerals will be reduced in volume and the type will be replaced.ECONOMIC COMPLEXITY INDEX
The Economic Complexity Index [ECI] is an important statistic as it is a ranking of countries based on the diversity and complexity of the export basket.Australia has the highest dependency on manufactured imports and the lowest level of manufacturing self-sufficiency of any OECD country, and on the Global Ranking of Economic Complexity (2017) Australia ranks 93 out of 130. Given the benefits, opportunities, and development which we enjoy, we should be in the top 10% not the bottom 10%.
OFFSHORE INVESTMENT
We do not invest globally. There is a list of frequently quoted impediments and for the sake of completeness the list includes:- We do not have the funds.
The corruption is daunting.
The red tape associated with an offshore investment is “too much”.
The need for quarterly reporting at home is off putting.
There is a lack of legal support.
The lack of tax relief with franking credits.
It is too difficult.
These are the most frequently quoted reasons, but when a serious in-depth analysis is undertaken of these individual factors it is clear that they do not exist or cannot be credible reasons for the reluctance to invest offshore.
With those factors it would appear that the reason for the reluctance for offshore investment is related to factors in Australia, not necessarily to factors related to the target country. If this is the case, then action should be taken to identify the factors and take remedial action.
WHY AN OFFSHORE INVESTMENT?
A fair question, why should we invest offshore in addition to our onshore investment?This can include the following factors.
Currently we are particularly parochial and self-centered in relation to international commercial contacts.
Within Australia, foreign companies have taken equity positions in almost every sector, and it is notable that companies both large and small have taken up positions.
We are seen as an investment target, and we are not reciprocating and not establishing businesses in the overseas markets, but we still have to pay profits, royalties, technical fees, etc., to the foreign companies operating in Australia. There is considerable information which demonstrates that the 35 % largest companies in Australia do not pay tax.
There are significant advantages to an offshore investment, and these may include servicing and working in a market which has different cycle, a much better opportunity to understand the market and the customer, it is a corporate expansion, the executives and staff have a much better opportunity to grow their expertise.
We tend to forget that many countries are going through changes, particularly the developing ones in our region. The process to acquire an offshore expansion can be tortuous, however, considerable research is required to establish a profitable and well conducted offshore business.
WHAT TO DO?
With the changes which are anticipated, it is almost certain that there will be both product and material supply changes which will present problems across a wide range of goods as well as components, which means we will be faced with extreme shortages unless we significantly increase our manufacturing capability.However, the question remains as to what actions are necessary to get our commercial organisations established offshore.
The first steps are to recognise that we must deter negative comments about the offshore focus and turn that into a positive discussion.
Develop a broadly based program, in which all sectors of the community are encouraged to participate, incorporating focused seminars, trade missions, and other activities need to be arranged, and it is expected that many separate organisations will participate and provide specific advice and assistance.
The key is that the program should be delivered by an Asia literate executive, one who has developed operational programs in and into the foreign countries, and it would be a real advantage if he/she has Asian experience.
Government also must play a part, and as a minimum, the taxation system must be modified to assist and encourage offshore expansion.
There is a considerable amount of targeted work to be undertaken, and previous studies indicate that we have a shortage of executives who can participate in such a program, we need targeted program with enthusiastic and experienced executives.
GOOD LUCK