In the six years to 2000, export volumes grew by 56 per cent Since 2000, Australia has lifted export performance by just 9 per cent. The reason is not the "usual suspect" - Australian manufacturing. Volumes of manufactured exports have actually risen faster than the average for all goods in the past six years.
Most of the slowdown is due to the downturn in the rate of growth of rural exports, oil, metals, gold, and services, including higher education and overseas tourism. For instance, declining oil production has sent the volume of "other mineral fuels" exports down an average 2.7 per cent a year this decade, compared to a gain of 12 per cent a year in the earlier period.
Masking the deterioration in export performance has been the rising market prices for key commodities, notably iron ore and coal, thanks particularly to China's insatiable demand.
In some instances, Australia is suffering at the hands of reduced demand. But in important areas - metals, energy and minerals - Australia's challenge is to improve its ability to supply. Supply constraints, such as infrastructure bottlenecks and workforce skills, will be a challenge for policy makers to address.
Australia's outward foreign direct investment has risen sharply, in direct contrast to the lacklustre export performance. Twenty-five years ago, the stock of Australian direct investment abroad was one-fifth of the foreign direct investment in Australia. Now, based on current trends, Australian assets abroad will shortly exceed foreign business assets in Australia. The likely motivations are not surprising - including improved access to overseas markets, deeper capital markets and more congenial tax regimes. Encouraging is the fact that big business is not the sole beneficiary. Offshore investment rewards specialisation rather than size.
In summary, Australia's shortcomings are in supply rather than demand, necessitating on-shore solutions. Meanwhile, opportunities exist for Australia's integration into the global economy in new ways.
The Export weakness, investment strength report was written for CEDA by Dr John Edwards, Chief Economist, HSBC. This report is the second in the Competing from Australia series. The first, Global Chains, by Professor John Houghton, details the challenges Australia faces in linking into global supply chains. The full Growth 58 report is expected to be released in early July 2007. CEDA would like to thank the report sponsors Invest Victoria and HSBC.