State of the Nation Highlights

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Economy

Supply chains on the way out: Dr Craig Emerson

Supply chains I think are on the way out, Former Federal Minister for Trade and Competitiveness; Managing Director, Craig Emerson Economics, Dr Craig Emerson has told a CEDA audience.

                                  

"I wouldn’t be surprised if in 20 years’ time the idea of offshoring some activities in order to chase low-cost labour becomes pretty obsolete pretty quickly,” Dr Emerson said speaking at the launch event for CEDA’s report, Outbound investment.

Dr Emerson, who was a contributing author for the report, said being close to the final market will be important but with artificial intelligence and robotics, low-wage cost will not be a big locational determinant in the future.

“People bid for these services and it’s a global auction…they’re not location specific,” he said.

“One of the big areas of opportunity is agribusiness. Premium, quality, food production, very safe, reliable and therefore a very high price.”

An important factor of agribusiness includes the authentic Australian label as well as being packaged in the country before being exported, he said.

“What sort of investments do we need within this food sector because we’re not really thinking about supply chains here, we’re thinking about doing the whole thing here and then getting it marketed.”

Also speaking at the event was PwC Partner, and Outbound investment contributing author, Andrew Parker who said that Indonesia had been a missed opportunity for Australia.

“Indonesia will become the next trillion-dollar economy in our region," he said.

“1998 the Indonesian economy was just under 100 billion dollars. We have completely missed it, we were asleep when it happened.

“If you look at our direct investment in Indonesia, it is less than $9 billion, most of that goes into the resources industries.

“In about 15 years’ time…our economic modelling suggests that four of the world’s five largest economies, if you measure that in purchasing power parity terms, will be in this region.

“China, which is already the largest economy in the world in terms of purchasing power parity terms today, Japan, India and many of you would be really surprised to know that Indonesia comes in at number five.

“At the end of the 15 years, Australia won’t be a G20 economy anymore, in fact we may not even retain our place in the G30.”

Mr Parker said that the ability to manage risk had been a factor when it came to investing in Asian countries.

“There is no question that investing in Asia is not a risk-free proposition; investment is never a risk-free proposition,” he said.

“We’ve had 25, 26 years of uninterrupted economic growth in this country; there hasn’t been the need to take the risk.

“But if you believe the economic outline predictions that I mentioned…I think we need to seriously start considering what it is we need to do as a country to change our Asian capabilities — our language skills, our cultural understanding — because if we don’t we’ll be consigned to trading with Asia, we will not be taking the opportunities of trading inside Asia.”

Professor of Economics, Crawford School of Public Policy; Associate Dean, Research, College of Asia and the Pacific Australian National University and Outbound investment contributing author, Professor Renée Fry-McKibbin discussed the tumultuous last decade including the European sovereign debt crisis and the global financial crisis and the subsequent economic changes.

“One of the major challenges that has arisen…has been what Larry Summers has termed secular stagnation,” she said.

“We’re seeing really slow investment growth. We have a huge productivity slowdown that comes with that.

“One of the first reasons for the productivity slow down and the secular stagnation that we see is the natural rate of interest…is historically low in a lot of countries.

“Japan, almost the US although improving, and Europe, have seen near zero interest rates so this makes it really difficult for monetary authorities to stimulate any production.

“Another reason given for our predicament…is the effect of technological progress on different industries.

“The effects of technology have led to inequality. Industries that have benefitted are industries such as communications, entertainment, but other industries such have manufacturing have been left behind. And this has generated quite a deal of inequality.

“We see this especially in countries like the US.

“This is just going to exacerbate into the future as the different regions are not developing at the same rate. And the inequality will cause a slowdown of investment as well.

“We also have the liquidity trap argument. The liquidity trap is where the monetary authorities just can’t reduce interest rates enough, people aren’t responding. They just basically accumulate their savings.

“The liquidity trap used to be thought of as a temporary phenomenon, now people think of it as a permanent phenomenon. We’re not seeing inflationary expectations generated to get out of this in much of the world.

“The bright spot for outbound investment is in the call for infrastructure investment, there is a lot of scope there in being able to for example facilitate urbanisation in countries such as China and a lot of the other countries in our region…India, Indonesia.”

Outbound investment related content

Read and download the report

On the CEDA blog: Contributing author PwC Partner, Andrew Parker discuses whether it's possible for Australian companies to insert themselves into Asian food supply chains without risk to food fraud. Read it here.