Over the past decade or so Australians have been lucky enough to witness a great mining investment boom.
We are now witnessing something else of equal significance – the successful transition of Australia’s economy to a prosperous, post-mining boom era.
Sceptics had claimed that with a downturn in commodity prices and slower growth in major trading partners such as China, Australia’s record of unbroken growth would end.
Well, I am pleased it isn’t showing signs of that yet.
In fact, far from falling flat, Australia’s economy is now growing at a faster rate than all other major developed economies.
In 2015, real GDP increased by 3 per cent and Australia is now in its 25th consecutive year of economic expansion.
That growth created almost 300,000 new jobs last year – the fastest rate of job creation since 2010.
So how is it the case? What’s Australia done to keep on keeping on?
Why is it that when resources-heavy economies like Canada and Brazil have gone into recession, that Australia has not?
How has Australia been so agile as to hurdle over the end of the largest commodity boom in history and the massive falls in commodity prices?
This record of success calls for some type of explanation, so I thank Credit Suisse for the opportunity today to be able to share some thoughts about how Australians are creating this new, diversified economy.
Economic growth is a complex story.
But I’d like to focus on two critical steps to creating fresh sources of it in Australia.
The first is our growing list of Free Trade Agreements in Asia, which promise to drive growth in those areas of two-way trade that previously faced high levels of protection.
They are also attracting investment into sectors of the economy benefiting from the improved competitiveness they provide.
The second critical step was refocusing our investment priorities to complement this process, facilitating foreign investment in areas where Australia has a comparative advantage.
This investment, and the technology and knowledge that accompany it, coupled with the microeconomic reforms the Government is pursuing, is transforming our economy to be as competitive, as it can be.
It sounds simple, but over my years in politics I've often observed how the squeaky wheel gets the attention and leads to obsessing about our weaknesses, instead of playing to our strengths.
That's no longer the case, and the Australian Government has created a new framework in which our economy is moving ahead.
Underlying this shift was a change in our economic philosophy.
As a nation, we wanted to be ‘open for business’ again, especially after the global financial crisis and the tapering of investment in the resources sector.
Around the globe, we've seen fiscal and monetary policy lose their potency as governments grapple with persistent deficits and already ultra-low interest rates.
As a government, we deliberately eschewed an approach that relied on economic growth being driven by public spending, debt and big government.
Instead, we focused on micro-economic reforms to unlock growth through supply-side initiatives.
Our approach was to pursue productivity gains and wealth creation by encouraging the energies and initiative of the private sector.
We wanted to cut costs for business and create a culture of personal responsibility, both at the corporate and individual levels.
That involved deregulation and the cutting of red tape that stymied initiative and added to the burden of businesses, such as the now-scrapped carbon and mining taxes.
At the domestic level, being ‘open for business’ encouraged entrepreneurial initiative and inspired people to take responsibility for their economic fortunes.
These principles underpinned Prime Minister Turnbull's announcement in November of an Innovation package containing tax and deregulatory measures aimed at the start-up sector.
At the international level it meant a renewed emphasis on further opening up the Australian economy through free trade agreements with China, Japan and Korea.
At their core, these are critical supply-side policy measures, designed to open up new markets, or make us more competitive in existing ones, and triggering new investment to take advantage of these opportunities.
Of course, the agreements also remove the last vestiges of tariff protection on imports coming into Australia from these countries, benefiting consumers and businesses alike.
And best of all, this doesn’t involve Government spending – it's private sector led and will increase the pie for all Australians.
As the centre of global growth shifts further to Asia, Australia is prepared to engage with the region as a lean and capable partner.
This is an ongoing process because new opportunities require further change.
Australia needs to expand market access even further through Free Trade Agreements and continue to increase inward investment.
Australia’s economic integration into Asia has proceeded steadily for the past generation or more.
Seven of our top 10 two-way trading partners are now to be found here, along with seven of our top 10 export markets.
Altogether, about 74.6 per cent of Australia’s exports were sold to Asia in 2014-15, worth AUD$237.7 billion.
In the past year and a half, the pace of integration has intensified.
Australia, as I mentioned, is implementing historic Free Trade Agreements with its biggest trading partners in North Asia – China, Japan and Korea.
These countries alone already represent about 38 per cent of our two-way trade, and the stage is set for further expansion.
Under the China-Australia Free Trade Agreement, or ChAFTA, more than 86 per cent of goods exports now enter China duty-free, rising to 94 per cent in January 2019 and 96 per cent in January 2029.
Chinese tariffs on dairy will go completely by 2026; on beef by 2024; on wine by 2019; and on wool China committed to providing an “Australia only” duty-free quota.
In the first year of our agreements with Korea and Japan we saw a sharp upward jump in many areas of agricultural trade where protection was cut or removed completely.
With Korea we saw:
- Exports of fresh Australian beef increase 37 per cent by value to $396 million and frozen beef up 30 per cent to $848 million
- Exports of fresh cherries increase more than ten-fold to over $4 million
- Bottled wine an increase of 53 per cent to $11 million
With Japan we saw:
- Exports of fresh beef increase 22 per cent to just over $1 billion and horticultural products increase by 29 per cent.
And, in the three months since ChAFTA began, Australian goods are on their way to China’s cities in greater than ever quantities benefiting from two tariff cuts in quick succession.
Cherries from Tasmania; mutton to Tianjin; frozen beef, wine and coal to Xiamen; beef and seafood to Shanghai.
An increased flow of goods and services to China under the ChAFTA has only just begun.
Alongside these FTAs Australia has signed the Trans Pacific-Partnership, or TPP – the biggest trade and investment deal in more than 20 years.
Linking economies such as the US and Mexico across the Pacific to Japan and Australia, the TPP includes 12 nations which comprise almost 40 per cent of global GDP.
The TPP eliminates 98 per cent of tariffs among member nations.
And we, like all TPP Parties are moving towards ratification as soon as possible but its entry into force may take some time.
These FTAs affect not only trade: they create synergies that drive investment.
For example, ChAFTA will deepen the investment relationship by liberalising the Foreign Investment Review Board threshold for private investors in non-sensitive sectors.
The total stock of China’s investments in Australia have gone from about AUD$2 billion ten years ago to about AUD$64.5 billion now.
There is now a secular upward trend for Chinese FDI in place that will have a dramatic effect on the development of our nation.
We’re also pleased that a substantial amount of investor involvement coming from Hong Kong such as MTR’s role in the North West Rail Link Project in Sydney and Melbourne’s metropolitan train network.
I’ll mention a few more examples as we go along.
The construction investments and commodity prices that underpinned our historic mining boom have eased.
However, it's important to remember the mining boom also created income-yielding assets that will contribute to our economy for decades to come.
Australia, for instance, is set to become the world’s largest producer of LNG by 2018, a development that the Reserve Bank has forecasted to add one percentage point to GDP.
Something else of importance is now becoming apparent to investors in the wake of the mining boom – the Australian economy is much more diversified than they realised.
Australia has a comparative advantage in a whole range of goods and services that the world – especially Asia – will need in the years ahead, which extend way beyond our headline resources sector mainstay.
Australia is in a strong position to cater to future global demand in sectors including agribusiness, gas, tourism, health, international education and wealth management.
Australia also has a plentiful supply of land, energy resources and coastline; is close to the world’s fastest growing markets in Asia; and, has a trusted regulatory and tax regime.
But Australia now also has a unique additional advantage to add to an already-compelling pitch for global investment – what I like to call an “FTA investment advantage”.
The FTAs we have in force with China, Japan and Korea give Australia, alone among major advanced economies, unmatched preferential access into all three giant markets.
So for global investors scouring the world for opportunities – particularly in agriculture – Australia is now the “go to” place to invest, if you want that quality of access to these key consumer markets.
For these reasons, the Government believes there is great potential to accelerate the development of Northern Australia, a region located at the intersection of two great areas of economic and population growth – Asia, and the tropics.
Australia’s North contains 17 million hectares of arable land and receives 60 per cent of the nation’s rainfall.
Yet for over a century, development of crops and horticulture on pastoral leases – which made up the bulk of private sector landholdings in the North – was essentially not permitted.
Until recent regulatory changes, the biggest impediment to development of the largest undeveloped arable land mass in the world was government.
To spur much-needed investment in common-user infrastructure and facilitate development in Australia's North, the Government’s White Paper on Northern Australia released last year announced a $5 billion Northern Australia Infrastructure Facility.
That facility will provide concessional loans to build common-user infrastructure in energy, water, transport and communications.
Already, we are seeing strong interest from a range of public-private infrastructure partnerships.
In terms of demand, Asia’s middle class will grow within a generation from 525 million in 2009 to over 3 billion by 2030.
That’s a staggering figure when you think about its impact on tastes and demand.
It's why the Australian Government established a refocused set of national investment priorities that reflect some of these considerations - to facilitate private sector investment in areas that we do as well as anyone and better than most.
These priorities include resources and energy, food and agribusiness, economic infrastructure, advanced manufacturing, services and technology and tourism infrastructure.
This is where we believe the future lies in terms of economic diversification and opportunities for foreign investors.
I’d like to give you a brief sense of the diversity of foreign investment opportunities in Australia.
Australia’s $20 billion in international education exports is one industry with especially strong prospects.
Almost 300,000 student visas were granted in 2014-2015, the fourth consecutive year of growth in student visa applications.
We’re expecting more strong growth in 2016, thanks in part to a depreciating currency making Australia’s quality education providers even more competitive internationally.
Australia is already the third most popular destination for higher education students choosing to study overseas, attracting more international students than much larger economies like Japan, Germany and France.
Areas such as student accommodation are beginning to attract significant attention from investors such as Goldman Sachs, which recently entered a joint venture in Australia to develop what is planned to be $1 billion student housing portfolio across a number of Australian cities.
Australia’s reputation as a clean, green and reliable producer of agricultural goods is a deserved one.
There is an existing capacity to supply food to 60 million people, and agribusiness has an even brighter future as a premium food producer to Asia.
The Australian Government’s peak industrial science agency, CSIRO, has noted several megatrends in agriculture over the next 20 years that will favour this sector.
The world will be hungrier; it will be wealthier; consumers will be more discerning; and transformative technologies in the digital space and genetics will change existing production routines.
One project that illustrates the opportunity is the proposed Northern Australia Beef Supply Chain Project in Julia Creek, Queensland, which is seeking investment of around $A90 million to create an integrated beef processing, logistics and trading business.
This would help reduce costs by creating a local processing facility in the heart of the region’s beef production belt, allowing more direct transport to markets in Asia.
Another opportunity is Project Sea Dragon, a $1.45 billion green-field project that will build a large-scale aquaculture operation producing around 120,000 tonnes of premium black tiger prawns in the Northern Territory and Western Australia.
Hong Kong investors are showing greater interest in Australian agriculture and we’re getting some great examples of collaboration, such as that between the Hong Kong-based private firm Genius Link Management and Australia’s Country Choice.
Together they have entered a joint venture partnership to develop a beef and livestock export supply chain business.
Several Hong Kong-based companies have been active in the Australian wine industry and, in 2015, we saw First Pacific Company Limited partner with Wilmar International to acquire the leading food company Goodman Fielder.
The “FTA investment advantage” is most evident in agriculture – where barriers remain highest in North Asia – and where Australia can offer preferential access that cannot be matched by any other major advanced economy.
And of course, there are many more investment opportunities in Australian agriculture, especially in Northern Australia.
International visitor numbers are at record levels in Australia. This is yielding record spending levels.
Last year saw the highest-ever growth in international visitor expenditure in dollar terms, with an 18 per cent increase during 2015 to a record high of $36.6 billion – a rise of $5.5 billion in just one year.
A million Chinese visited Australia last year an, increase of 21 per cent, spending $8.3 billion.
Over 200,000 came from Hong Kong, an increase of around 9 per cent over the same period.
It is not just growth from China, international visitor across the board but particularly from Asia are set to grow.
Demand for hotels and other types of tourist infrastructure is therefore strong.
Some recent investments by Hong Kong and mainland Chinese investors give you an idea of the scale of interest.
They include the construction of the $900m Jewel development, Gold Coast, Queensland by Wanda Commercial Properties and Ridong Group; the acquisition of Hilton Sydney by Bright Ruby
Resources for $442m and of the Westin Sydney by Sino Land for $445m.
Daydream Island has also been purchased for refurbishment by China Development Capital Group; and White Horse Group has purchased Lindeman Island for a proposed redevelopment.
And, the $1 billion Upper West Side residential and hotel development in Melbourne which includes a Ritz-Carlton by local company Far East Consortium. Additional Ritz-Carltons are planned for Perth and Brisbane.
Complementary to developing our tourism infrastructure is our work on increased aviation capacity to support the sector.
Some examples from the immediate region:
- Xiamen Airlines now has three weekly services between Fuzhou and Sydney and two weekly services between Xiamen and Sydney.
- China Southern Airlines has begun services between Shenzhen and Sydney.
- Hong Kong Airlines has commenced services between Hong Kong and my home town of the Gold Coast (returning via Cairns).
These are just a few of the new links being created.
There is a saying in Australia that economic reform is like a footrace to an ever-receding finishing line: it’s never really complete.
A simpler way of saying this is that you can never stand still when it comes to getting the right settings for trade and investment.
That is why the Australian Government is forging ahead to create better access to markets.
It's why we are pursuing further trade agreements with India, Indonesia and the Gulf Cooperation Council members;
It's why we are also considering negotiations for an FTA with the European Union and negotiating a Regional Comprehensive Economic Partnership (RCEP) with the ASEAN nations and their existing trade partners.
And it's why we continue to encourage our businesses to expand into overseas markets and “fly the flag” of Australia through large but targeted trade missions, like the one I will lead to China next week with 1,000 business leaders to participate in the second Australia Week in China.
Australia is one of the world’s most dynamic economies and has taken decisive steps to engage more closely with its trading partners. Our diversified economy means new drivers of growth have awoken as the mining sector has ebbed.
All of this means Australia is set to maintain good growth in a low-growth world and therefore should be a priority destination for foreign investors.
- Trade Minister's Office: (02) 6277 7420
- DFAT Media Liaison: (02) 6261 1555