Question

Conduct an online research into Australian economy and discuss your views about investing in Australian projects as if you were an overseas investor. Would you consider investing in Australia and why?

Answer 1

ABSTRACT This paper considers the likely impact of e-commerce and the Internet on the Australian economy. It surveys literature on the extent and development of e-commerce in Australia and its impact on the shape of the Australian economy. Evidence for the “renewal” of the Australian economy is presented and examined, especially the question of whether Australia has enjoyed increases in productivity as a result of the production and/or use of new information and communications technology (ICT). Australia is seen as broadly well placed to benefit from the Internet and e-commerce. Traditionally isolated from the world’s main economic centres and reliant on commodities in international trade, the advent of the Internet is ideal for a country in transition to a service-oriented, knowledge-based economy. As the composition of Australia’s exports becomes more service-oriented and knowledge-intensive, traditional trading links with Europe and North America may strengthen relative to those with Asia.

I. INTRODUCTION E-commerce and the online economy are topics of wide interest, even after the so-called “tech-wreck”, beginning in April 2000, which saw many new ventures in electronic commerce fail. Questions remain about the long-term significance of the Internet for the pattern and structure of economic activity. Does the Internet herald a revolution in the way economies will operate and business will be conducted, comparable with the expansion of the railways, the invention of the telephone or the diffusion of electric power? Or is its influence greatly exaggerated — merely another channel via which firms communicate with and, in some cases, deliver products to their customers? Such questions are of interest in their own right but have special significance in an Australian context. The Internet is, if nothing else, a new communications medium and, as such, it closes gaps of distance in the physical world. Being isolated physically from the main economic centres of Europe, North America and East Asia, the Australian economy has been shaped by the “tyranny of distance”. Whatever influence the Internet may have on economies elsewhere in the world, its influence on the Australian economy ought to be significant, if only for its potential to disarm the tyrant. This paper considers the likely impact of e-commerce and the Internet on the Australian economy. It surveys literature on the extent and development of e-commerce in Australia and its impact on the shape of the Australian economy. Part II defines e-commerce and reviews some common indicators of the extent and likely growth of e-commerce in Australia and elsewhere. Part III discusses the so-called “new economy”, examining ways in which the Internet and e-commerce might transform traditional ways of doing business. Evidence for the “renewal” of the Australian economy is presented and examined, especially the question of whether Australia has enjoyed increases in productivity as a result of the production and/or use of new information and communications technology (ICT). Part IV looks more broadly at the potential impact of the Internet and global e-commerce on Australia’s longer-term economic prospects. Part V summarises and concludes the paper.

AUSTRALIAN ECONOMY

The economy of Australia is a highly developed market economy. Its GDP was estimated at A$1.89 trillion as of 2019. In 2018 Australia became the country with the largest median wealth per adult, but slipped back to second highest after Switzerland in 2019.

Economic activity in Australia continued to improve in 2017–2018 with growth spreading across the mainland state economies. Labour market conditions in Australia improved markedly in 2017–2018 while the inflation rate was steady around the lower end of the Reserve Bank of Australia's 2–3 per cent target band. Real wage growth was weak and is likely to remain weak in 2018–2019, putting downward pressure on household consumption. Output growth in 2018–2019 is likely to be solid with prospects of the Chinese economy and trade tensions between China and the United States posing the greatest downside risk to the Australian economy.

WHY AUSTRALIA

Since 1992, Australia has benefitted from uninterrupted annual economic growth. Its AAA sovereign risk profile, security and location at the nexus of East and West make it an ideal partner for trade, investment and collaboration.

Australia offers a powerful combination of plentiful natural resources and a sophisticated services sector backed by a highly educated labour force. Its ability to adapt to change and instability in the global economy has enabled Australia to achieve success across a range of industries. Australia is renowned for its resources sector, upon which Asia continues to rely to help fuel its industrialisation. The nation’s agricultural commodities and premium food are in high demand by global consumers, as are its tourism, education, wealth management, healthcare and professional services. As a leading education provider, Australia is attracting students and talent from around the world to its globally ranked universities and research and development institutions, which focus on creating and commercialising new ideas. Multinational companies can benefit from Australia’s network of free trade agreements, strong business and cultural ties with Asia, and longstanding trade, investment and research links with Europe and North America. In an uncertain world, Australia remains a safe and secure place to invest and do business.

Australia has entered its 28th year of consecutive annual economic growth, setting a new record among developed economies for uninterrupted expansion.

This enviable record of steady growth proves the robustness of Australia’s economy and its reliability as a low-risk and safe environment in which to do business. Longstanding ties with Asia have helped Australia to prosper. The nation is a long-term supplier of natural resources to the Asian region and a reliable provider of clean, green and safe agricultural products and premium food. Australia’s trade and investment partners also benefit from the high quality of Australian professional services, which include businesses in the tourism, education, financial and healthcare sectors. The country’s strong regulatory institutions, ability to respond to global changes, and diversified, services-based economy underpin its steady growth.

LARGE AND GROWING ECONOMY Despite Australia comprising just 0.3 per cent of the world’s population, its economy is expected to be the 14th largest in the world and the fifth largest in the Asian region in 2019. Australia’s nominal GDP is estimated at US$1.5 trillion (almost A$2 trillion) and accounts for 1.7 per cent of the global economy. In 1999, Australia’s total production value was just US$411 billion, meaning it has more than tripled in two decades.

HIGHEST GROWTH AMONG MAJOR ADVANCED ECONOMIES

Australia has continued to enjoy a robust economic performance relative to other developed economies while adjusting to the end of the mining boom of the 2000s. Australia is expected to realise average annual real GDP growth of 2.7 per cent between 2019 and 2023 – the highest among major advanced economies and up from an average growth rate of 2.6 per cent between 2014 and 2018.

STRONG TIES TO ASIA SUPPORT LONG-TERM GROWTH

Australia’s strong ties to the Asian region support a positive medium- and long-term growth outlook. By 2023, the regional economy is expected to account for 46 per cent of global production (US$81 trillion out of US$177 trillion) in terms of purchasing power parity valuation, more than double the ratio in 1983 (22 per cent). Over the same period, the combined economies of China and India will likely represent around 30 per cent of the world’s GDP, significantly up from six per cent in 1983.

DIVERSIFIED, SERVICES-BASED ECONOMY Australia’s economy is dominated by the services sector, which accounts for more than 75 per cent of real gross value added (GVA). Within the services sector the largest contributor to GVA is financial and insurance services, which generates 9.5 per cent of total GVA. Other top contributors include construction; health care and social assistance; professional, scientific and technical services; mining; and manufacturing.

STEADILY GROWING SERVICES AND TECHNOLOGY SECTORS

Australia’s services sector (including construction) has expanded by an annual average of 3.6 per cent since 1992, above the goods sector’s annual average of 2.1 per cent. Information media and telecommunications; professional, scientific and technical services; and financial and insurance services have seen solid annual growth rates of above 4.5 per cent, reflecting the country’s skills base in technology- and knowledge-intensive sectors.

LOW GOVERNMENT DEBT

The IMF estimates the Australian Government’s net debt will be less than 20 per cent of GDP in 2019, well below the 74 per cent forecast for advanced economies as a group. Australian Government debt is predicted to fall to around 15 per cent of GDP by 2023, while the average debt ratio of advanced economies will remain high at around 73 per cent of GDP. The low level of public sector debt underpins Australia’s AAA sovereign credit rating and stable outlook from all three rating agencies.

Australia is renowned for its abundance of resources, capability and talent. It is globally successful in the energy and resources, agribusiness, education, tourism and financial services industries. The country is applying its research and development skills to ensure it stays at the forefront of these industries. It is also developing and commercialising new disruptive technologies in a range of sectors. Australia has large reserves of mineral and energy resources and is a world-leading producer of iron ore, gold, bauxite, coal and uranium. By 2020, it will be the world’s largest LNG exporter. Australia is ranked in the world’s top 10 for solar energy production and top 16 for wind energy generation. Australian food and agricultural commodities have a reputation for being clean, green and safe, making them highly valued in Asia for their quality. Australia draws large numbers of students and visitors to its shores as the world’s third most popular destination for education and the seventh largest international tourism market based on tourism receipts. Financial services is another sector where Australia has strong capabilities. It has one of the Asia-Pacific region’s largest pool of bank assets, as well as significant wealth management and infrastructure financing expertise.

GLOBALLY SUCCESSFUL IN FIVE KEY INDUSTRIES Australia is a major producer of in-demand agricultural commodities, premium food and natural resources. The nation is a leading destination for international tourists and students in tertiary education. It also has large, expanding, sophisticated financial markets, including the world’s sixth largest pool of managed fund assets

A LEADER IN NEW TECHNOLOGIES Australia’s transition to a services-based economy is driving the development of new technologies in agriculture, education, financial services and health, among other sectors. This includes the use of blockchain in finance, immersive simulation technologies in education, robotics in medical procedures and the Internet of Things in agriculture.

ABUNDANT RESERVES OF MINERAL AND ENERGY RESOURCES Australia’s natural resources continue to be a vital contributor to the nation’s wealth. It has the world’s largest resources of iron ore, gold, lead, zinc, nickel, rutile and zircon, as well as the second largest bauxite, cobalt, silver and copper reserves. Australia also has the world’s largest uranium reserves and the second largest brown coal deposits, enabling it to play an important role in supplying the world’s energy needs.

GROWING MARKET FOR RENEWABLES Renewable energy accounted for over 15 per cent of Australia’s total electricity generation in 2016–17. Over the past decade, the amount of energy generated by wind and solar sources has grown significantly, leveraging Australia’s natural advantages. Electricity generation from wind and solar power sources accounted for half of Australia’s renewable energy generation in 2017, up from 13 per cent 10 years ago.

TOP AGRIBUSINESS AND FOOD EXPORTER Australia’s food and fibre exports were worth more than A$50 billion in 2017. Nine of the top 10 destination markets (63 per cent of total food exports) were located in Asia. The Brookings Institution forecasts Asia’s middle-class consumers to number approximately 3.5 billion (two-thirds of the world’s total) by 2030. Australia’s proximity to Asia and reputation as a safe and reliable source of quality produce ensure it is well placed to capitalise on this growth.

CLEAN, GREEN AND SAFE SOURCE OF AGRIBUSINESS AND FOOD

Demand for Australia’s agricultural commodities drives the country’s export trade in high-value branded premium products. Australia is a major global producer of beef, wheat, wool, wine, barley, lamb, raw cotton, sugar, canola, live feeder/slaughter cattle and chickpeas. Beef and wheat are Australia’s two largest agricultural exports as well as its two largest agricultural commodities in terms of production value.

STRONG, SOPHISTICATED FINANCIAL MARKETS Australia has deep and liquid financial markets, including the world’s sixth largest managed fund assets pool, eighth largest foreign- exchange market and ninth largest stock market. The managed funds sector is underpinned by a mandated retirement savings scheme (superannuation system) that has resulted in the fourth largest pension pool in the world.

AUSTRALIA’S A$8 TRILLION FINANCIAL SECTOR Australia’s mature financial services sector has estimated assets of around A$8.5 trillion (US$6.3 trillion) – over four-and-a-half times the country’s nominal GDP as at June 2018. On average, the sector has grown 9.4 per cent a year over the past two decades, well above the average nominal GDP growth rate of 5.9 per cent. The strength of the financial services industry means it is Australia’s largest contributor to gross value added, one of its highest growth sectors and a significant source of capital.

A TOP DESTINATION FOR EDUCATION AND SKILLS TRAINING Australia is the third most popular destination in the world for foreign students enrolled in higher education. Australia attracted over 623,000 international students in 2017, including higher education, vocational education and training, English language, and schools. International education contributed over A$30 billion to the Australian economy in 2017, with both student numbers and export value in their fourth consecutive year of double-digit growth.

MAJOR TOURISM DESTINATION Australia is the world’s seventh largest international tourism market based on its 3.1 per cent share of global tourism receipts (US$42 billion out of US$1.3 trillion). Australia benefits more from the contribution of tourism receipts as a percentage of its GDP than nations such as the USA, France, UK, Italy, China and Japan. The Australian Bureau of Statistics estimates that tourism contributed 3.2 per cent to Australia’s total GDP (or A$55 billion) in 2016–17.

RECORD LEVELS OF INTERNATIONAL TOURISM EXPENDITURE In 2017–18, Australia experienced record inbound tourism expenditure, led by strong growth from China, India, South Korea and Indonesia. Collectively, the tourism expenditure of the top 10 Asian markets (including New Zealand) grew by almost seven per cent to A$24 billion – totalling more than half of Australia’s tourism receipts.

Australia has an open and globally integrated economy, making it a trusted partner for trade and investment. Nine of the top 10 Fortune Global 500 and eight of the top 10 Forbes Global 2000 companies have operations in Australia. The country continues to play an integral role in Asia’s dynamic economic growth. Ten of Australia’s top 12 export markets are located within the Asian and Oceania region. International companies can tap into Australia’s deep business and cultural ties with Asia to expand into or enter global value chains across the region. Australia’s free trade agreements facilitate the smooth flow of goods, services and investments with major economies across the globe. A top destination for international investment, Australia’s inwards foreign direct investment continues to grow, driven in part by rising contributions from the Asian region. Australia’s location bridges the world’s major time zones, offering 24-hour access for organisations with around-the-clock operations.

AUSTRALIA’S TOP 12 EXPORT MARKETS Australia’s links to Asian markets are more vital than ever. In 2017, 10 of Australia’s top 12 export markets were located in Asia and all were rated above investment-grade. Their combined value was around A$275 billion, making up more than 70 per cent of Australia’s total good.

STRONG TWO-WAY TRADE In 2017, Australia’s two-way trade in goods and services totalled A$763 billion, making up more than 40 per cent of nominal GDP. The Asian region accounted for around two-thirds of Australia’s total trade, with a strong compound annual growth rate of seven per cent since 2007. Nine of Australia’s 12 largest markets – with a total trade value of around A$453 billion – are in Asia and Oceania, reflecting the nation’s advantageous location and integrated economic ties.

SUCCESSFUL TRADING ECONOMY Australia’s export volumes have continued to increase as the inflow of foreign direct investment (FDI) since 2007 translates into new production capacity. The nominal export value of goods and services surged by 15 per cent in 2017, with robust growth in mineral and fuel exports. Services exports increased by almost nine per cent in 2017 and contributed A$85 billion to export earnings, due to strong growth in education and tourism services.

HIGH-GROWTH DESTINATION FOR FOREIGN INVESTMENT Australia hosts around A$3.6 trillion of foreign investment stock. FDI and other investment (including portfolio investment) have recorded strong growth, up 8.8 per cent and 9.3 per cent on average each year respectively since 1998. As a percentage of GDP, Australia’s total value of foreign investment stock reached 193 per cent in June 2018, almost double that of two decades ago.

ASIA: A GROWING SOURCE OF FOREIGN DIRECT INVESTMENT After an average annual increase of eight per cent over 2015 and 2016, Australia’s inward FDI stock value grew by around seven per cent to A$849 billion in 2017. As a percentage of GDP, Australia’s inward FDI stock was 47 per cent in 2017, up from 37 per cent in 2011. The USA and EU remain the dominant sources of FDI but there has been a solid increase in capital inflows from Asia, particularly China and the ASEAN region.

AUSTRALIA: A TOP 10 DESTINATION FOR FOREIGN DIRECT INVESTMENT In 2017, Australia was the eighth largest recipient of FDI inflows, up one place from 2016. From 2011–17, Australia’s average annual FDI inflow was US$47 billion, compared with an annual average of US$28 billion over the previous seven years (2004–10). This represents a growth rate of 70 per cent over the two time periods, which raised Australia’s share of global FDI inflows to 3 per cent from 2011–17, compared to 2.2 per cent from 2004–10.

SERVICES ATTRACT GROWING FOREIGN DIRECT INVESTMENT Around half of Australia’s A$849 billion worth of FDI stock in 2017 was invested in service-driven sectors. The sectors experiencing the most growth in FDI stock between 2016 and 2017 were real estate (up 20 per cent to A$91 billion), construction (23 per cent to A$25 billion) and utilities (39 per cent to A$22 billion). Mining, manufacturing and agriculture accounted for the other 50 per cent of Australia’s FDI stock in 2017.

THE VALUABLE CONTRIBUTION OF FOREIGN-OWNED BUSINESSES Majority foreign-owned businesses made significant economic contributions to Australia’s mining industry (A$39 billion) and manufacturing industry (A$29 billion). The percentage of industry value added (IVA) was approximately 33 per cent for mining and 30 per cent for manufacturing. Other sectors that attracted major contributions included the professional, scientific and technical services industry (A$28 billion and 26 per cent IVA) and the wholesale trade industry (A$26 billion and 43 per cent IVA).

A WELCOMING DESTINATION FOR FOREIGN-OWNED BUSINESSES The latest figures from the Australian Bureau of Statistics (2014–15) indicate US-owned businesses made the largest contribution to Australia’s economy. EU-28-owned businesses also have a substantial presence in Australia, as do organisations from Japan. Many have developed longstanding investment relationships, built on a history of shared values and common approaches to global challenges.

AN ATTRACTIVE PLACE TO DO BUSINESS Australia is one of the easiest countries in the world to set up and operate a business, ranking in the top 20 out of 190 economies. It takes around 2.5 days and a minimum of three procedures to start a business. Australia is also placed in the top 10 for enforcing contracts (5th), getting credit (8th) and dealing with construction permits (9th).

FOURTH LARGEST PENSION SYSTEM IN THE WORLD In 2017, Australia became the world’s fourth largest pension (superannuation) market, valued at US$1.9 trillion. It also experienced one of the highest growth rates of pension fund assets in the world. Australia’s pension assets rose to almost 140 per cent of GDP in 2017, up from 114 per cent in 2007. These findings illustrate the size and long-term growth of Australia’s pension system, which is a major force behind the country’s rapidly expanding, globally significant managed funds industry.

STABLE, FRIENDLY AND EFFICIENT BUSINESS ENVIRONMENT Australia is rated among the most business-friendly economies and has one of the world’s most robust regulatory environments. The nation ranks highly on social capital, the soundness of its banks, central bank policy, and the economy’s resilience to economic cycles. Australia is also in the world’s top 10 for business legislation (complexity of tariff, equal opportunity and efficiency of clearance processes), judicial independence and rule of law.

COST-COMPETITIVE LOCATION FOR OFFICE SPACE The cost of prime office space in Melbourne, Brisbane and Perth is inexpensive relative to Beijing, Tokyo, New Delhi, Shanghai, Seoul and Singapore; and less than a quarter of the cost of Hong Kong and London. Office space in Sydney’s CBD is a third of the cost of Hong Kong SAR (Central) and around half the cost of New York (Midtown Manhattan) and London (West End).

ENVIABLE QUALITY OF LIFE

Australia’s major capital cities continue to offer the world’s highest quality of living and are attractive destinations for expatriates on assignment. Sydney ranks 10th, Melbourne 16th and Perth 21st in Mercer’s 2018 Quality of Living Rankings. These three cities top the rankings across the Asian region, above Singapore (25th), Tokyo (50th), Hong Kong SAR (71st), Shanghai (103th), Beijing (119th) and Mumbai (154th).