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What are the solutions to Australia’s economic woes?

Thu 21 Nov 2019; Updated Fri 22 Nov 2019 Expires: Friday 18 October

In part four of 7.30’s economy special we look at the solutions to our economic woes. Without China’s voracious appetite for our resources, the economy would be far worse off than it currently is. The answer might be more exports and better productivity.

Transcript

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KRISTY CARR, CEO, BUBS AUSTRALIA: My name is Kristy Carr. I’m the CEO of Bubs Australia and I founded the company back in 2006, and we have a full range of infant nutrition products made in Australia.

ALAN KOHLER, REPORTER: This farm in the Victorian region of Gippsland is thousands of kilometres from Beijing but it’s a fast growing part of Australia’s massive China play.

KRISTY CARR: We saw a lot of Chinese consumers starting to buy our products.

We’re a very small company. We’ve grown from, prior to listing a $4 million company, to $48.6 million in FY 19.

The Bubs brand resonates with Chinese parents because of our clean, green, trustworthy products but in particular the goat dairy infant formula is very well received because of their intolerances to the cow milk protein.

ALAN KOHLER: From the farm to the factory.

At this warehouse in outer Melbourne, the vast majority of the huge amounts of milk powder processed here will end up in China.

Australia is like a business with one dominant customer – China.

They buy our food, they fill and pay for our universities, they arrive by the plane load as tourists and, above all, they buy our minerals.

Exports to China total $120 billion a year and the good news is that this has allowed Australia to record its first balance of payment surplus in 44 years.

The bad news, especially with what’s going on with the United States at the moment, is that without China Australia would be in recession and the federal budget in permanent deficit.

GERARD MINACK, ECONOMIST: The tension with China, China verses the developed economies are actually, it is bigger than just Mr Trump. It’s bigger than trade and indeed, it’s bigger than just the US.

My hunch is, even if Mr Trump was to move out of the White House, strategic tension with China would continue and it will continue to put Australia in an awkward position – torn between a Western bloc that is our natural home in terms of values versus China who is our largest trading partner.

ALAN KOHLER: And the product Australia sells far more of than anything else is iron ore.

ELIZABETH GAINES, CEO, FORTESCUE METALS GROUP: China has been Western Australia’s largest market for exports since 2006 and Western Australia is the largest source of iron ore for China.

ALAN KOHLER: So, do we have too many eggs in one basket?

ELIZABETH GAINES: I think this sort of period we’re entering of protracted trade negotiations and tariffs and I think history has proven that when you have this protectionism globally it’s not very conducive to world growth.

So I think it is a concern more broadly about what’s happening in the world, what it might mean for growth.

ALAN KOHLER: As Fortescue’s Elizabeth Gaines well knows for Australia to grow, we desperately need to improve our productivity.

One way to do that is innovation and that begins with domestic spending on research and development.

ELIZABETH GAINES: I think there doesn’t necessarily have to be tension between investing in growth and paying dividends and I think actually Fortescue is a great example.

We are investing for growth, we’re investing $AU5.5 billion over the next three years in our two significant iron ore projects in the Pilbara but we’re also investing in innovation as well.

We’ve got a great opportunity, particularly with our mining industry. We’re at the forefront of innovation globally and I’m not sure that’s always recognised.

ALAN KOHLER: Do you think the policy settings are right?

ELIZABETH GAINES: I think there’s more that can be done to support and to provide incentives for innovation more broadly and I think with research and development, there has been some slowing down in terms of the support for research and development and I think we could do more.

ALAN KOHLER: Whatever the Government does, ultimately the answers lie in the private sector.

The trouble is Australia’s big companies are too busy paying billions in dividends to spend much on R and D.

R and D spending has increased in the past 20 years yet it is still nowhere near as important as keeping investors happy – but maybe change is coming.

There’s a whole class of smaller and more agile firms that are sending Australian tech to the world.

JOHN SHARMAN, CEO, MEDICAL DEVELOPMENTS INTERNATIONAL: I’m John Sharman. I’m CEO of Medical Developments. We make a pharmaceutical called Penthrox commonly known as the green whistle which is about to be sold throughout the world.

Penthrox is an Australian invention. It’s used for acute pain, trauma incidents.

It will take your worst pain imaginable away in 10 breaths.

ALAN KOHLER: The company is working with the CSIRO on technology that could revolutionise pharmaceutical production by pumping medicine out of the labs continuously instead of in batches.

For Penthrox, that means five times the output for half the cost.

JOHN SHARMAN: Penthrox has the potential to dominate the planet. Growth should be 20 times where we are today.

ALAN KOHLER: Penthrox was developed in the mid-1970s but for decades it’s only been sold locally.

John Sharman’s mission is to sell Penthrox to the world but he says many other Australian firms are reluctant to take that leap.

JOHN SHARMAN: I don’t think we lack the skills and the intuition, or the intelligence to do it.

Traditionally the Australians have been happy taking on the Australian market and I think a lot of that agenda is set by boards and I think boards in Australia are inherently conservative for global opportunity particularly because it can involve spending a lot of money and failing.

ALAN KOHLER: Growing a company is not just about mindset – you also need money from investors.

And there are some strange things going on with investment dollars in Australia lately.

This data from Deloitte Access Economics shows that project investments in Australia’s north and west has fallen by an incredible $236 billion.

But at the same time project investment in Australia’s east and south has gone up by $56 billion.

That’s private sector money flowing out of mining in the west while record amounts of government money is being spent on infrastructure projects on the east coast to prop up our stalling economy.

Ultimately, government spending can’t maintain long-term growth but there are other answers. We just have to harness Australian talent and brains to make it work.

MARK BURGESS, CEO, QUICKSTEP HOLDINGS: There is not a capability deficit. We’ve got really talented engineers, really talented technicians and when we set our minds to it, we can achieve some really fabulous things.

Australia also doesn’t have a great reputation for advanced manufacturing or innovation, which is really frustrating because there are lots of great examples of both but it doesn’t have that global reputation for either of those things.

My name is Mark Burgess. I’m the CEO of Quickstep. Quickstep is a carbon fibre company.

Carbon fibre is the material of choice in the aerospace industry. You can’t build aircraft out of steel.

So the company has grown quite dramatically over the last 10 years. We will do $80 million of revenue this year and employ about 243 people.

The planes that we supply for are the C-130 Super Hercules which is a transport aircraft produced by Lockheed Martin in the US and sold to more than 30 countries around the world.

We also supply the F-35 program. We produce about 35 unique components for that aircraft.

There needs to be a much greater emphasis on backing ourselves, backing ourselves in a global context and believing that we can meet and beat any competition anywhere in the world.

Find your niche, be world class and succeed internationally.

PROF. IAN HARPER, MELBOURNE BUSINESS SCHOOL: We will get our head around productivity improvements. We will make the changes that are necessary to do that.

In this economy we have a history of essentially not getting around it until we absolutely have to and low growth will induce us to make those sorts of changes and never let a good crisis go to waste.

ALAN KOHLER: The Australian economy is in a strange place indeed.

It’s muddling along, neither boom nor bust and it feels weird, and more than a bit depressing and that affects all of us.

The state of the economy means that a lot of people are missing out, especially with inequality rising and with interest rates at record lows, there are growing calls for the Federal Government to stop squeezing the budget towards surplus and to ramp up some fiscal stimulus if Australia is to break out of the current cycle.

Related

What are the solution to Australia’s economic woes?

7.30 Report

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SOURCE: https://www.abc.net.au/7.30/what-are-the-solution-to-australias-economic-woes/11727072

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