Diversification touted as priority to boost Australian competitiveness

There is a huge opportunity for thinking through the lens of diversification in our immediate region to boost Australia’s competitiveness, Asialink Group CEO, Penny Burtt, told CEDA at a recent livestream.

Discussing the results of the 2020 global competitiveness rankings from IMD, Ms Burtt said that given Australia had experienced 30 years of economic growth, the focus on competitiveness had been a “she’ll be right” attitude, rather than “a relentless focus on competitiveness that has been the hallmark of particularly many of the emerging economies in Asia.”

Another reason why Australia has not been as focused on competitiveness, Ms Burtt said, was that Australia was not as dependent as other economies on trade.

“Our trade constitutes about 45 per cent of our GDP whereas for countries like Singapore and Hong Kong, trade is over 300 per cent of GDP,” she said.

“The same with investment. We are not as dependent on foreign investment as many as those countries in our immediate region in Asia. So we have been I think a little bit less interested in being part of the beauty contest.

“Despite the impact of COVID, Asia is pretty much going to remain on track to account for the larger share of GDP. The Asian growth story might be interrupted but it’s not going to go away.

“That should be a major wake up call for Australia.

“The IMD report ranks Australia at number 45 for international trade…and 57 out of 63 for export concentration by partner and I think most of us know that’s because China accounts for over 25 per cent of Australia’s total trade and around a third of all of our exports. Our next largest trading partner, Japan, accounts for less than 10 per cent of our total trade, 13 per cent of our exports.

“There is a huge opportunity for thinking through the lens of diversification in our immediate region as the rest of the region really quickly moves to diversify.”

In terms of our investment, Ms Burtt said Australia invests more in New Zealand than all the economies in South East Asia.

Ms Burtt highlighted three ways to accelerate diversification.

“The first is one the Australian government has recognised and been energetic about. That is being committed to creating new trade and actively pursuing new arrangements that are going to advantage Australian business,” she said, highlighting for example the Indonesia agreement which comes into place in July.

“Pointing the way with Government leading in creating those opportunities and access in the region can actually hasten things.

“The second thing is recognising the need for diversification.

“We have been so comfortable with the shape of our trading relationships that we have been very reluctant to start in markets.”

Ms Burtt said this requires a new mindset and capability building.

“Doing business in Indonesia or Vietnam is actually very different to doing business in China and investing and getting boots on the ground is fundamentally different again to popping commodities on a boat and hoping it arrives on the other end,” she said.

“The third thing…is actually having a stated policy across the community and a consensus that that is going to help with our long-term prosperity.”

Ms Burtt stated that in the imperative of driving economic competitiveness for long term prosperity, the government should also prioritise refocussing the innovation agenda and upskilling the workforce.

Ms Burtt was joined by IMD Professor of Finance and Director, IMD World Competitiveness Centre, Professor Arturo Bris, who provided an overview of Australia’s ranking in the 2020 World Competitiveness Yearbook.

“Australia is in the 18th position. It has been consistently in the top 20 and I think this year the pandemic and subsequent recession is going to be on everybody’s mind,” he said.

“Australia has a competitive economy and it falls into the category of small countries by population…that were considered to be the key to success in the future because in this year’s rankings, the top five economies – Singapore, Denmark, Switzerland, The Netherlands Hong Kong – are all small economies.

“We called this year’s rankings the demise of the large economies – like China and the United States - and emphasise that in the coming years particularly in the post COVID-19 era we need to realise the importance of being small or at least of having economies that can act in a cohesive and consistent way of being small.”

The US had dropped from three in 2019 to 10, and China, dropped from 14 to 20, Mr Bris said.

Mr Bris said that Australia is relatively better placed to deal with the recession than other countries but the consistent lack of entrepreneurship among Australian companies is a weakness.

“This year we find for example that out of 63 economies, Australia ranks number 59 in entrepreneurship and ranks also very low in issues related to digital transformation of companies (number 43) agility of companies (number 48)…these are all indicators on business efficiency,” he said.

“Creating jobs, making sure that individuals have enough for the prosperity of life, preserving the health and sustainability of the small and medium enterprises and at the end of the day providing quality of life in general – this is nothing but competitiveness.”

Speaking on how competitiveness relates to people’s lives, Professor Bris said aside from GDP is a measure of the crisis but not the medicine.

“Now more than ever we need competitiveness to be at the centre of the agenda for our economic recovery,” he said.

“Ultimately the goal of any economy is to improve the prosperity for people.

“If governments put forward the needs of people, I think we will come out of the crisis much stronger.

“I think what governments need and what politicians need, is a KPI – a performance indicator that tells them what to do, to improve it. Economic growth and GDP is not such a KPI.”

Related content: Australia ranks 18th in global competitiveness rankings

Australia has remained stagnant at 18 in global competitiveness rankings released, highlighting a weakening economy pre-COVID and a need to focus on improvements in key areas such as tax, skills, digital transformation and energy infrastructure.

In releasing the Australian results of the IMD World Competitiveness Yearbook, CEDA Chief Economist Jarrod Ball said the results provide further evidence of the need for ambitious reforms if Australia’s economy is to emerge stronger after the coronavirus pandemic.

“A key factor influencing Australia’s competitiveness ranking is statistical data for 2019. One of the areas where Australia’s relative ranking fell sharply was economic performance, falling from 14 to 23,” he said.

“Across the other pillars of competitiveness, Australia dropped slightly compared to last year including government efficiency (down two places to 15) and infrastructure (down one place to 18). Australia’s ranking for business efficiency improved (up three places to 21) as did our ranking for technological infrastructure (up nine places to 18).