Trade and Investment -- Australia's potential

Far-reaching structural reform and opening of the economy to global competition over the past decade has made Australia a more competitive exporter of a diverse range of goods and services, and an increasingly attractive location for foreign investment.

The pattern of Australia's trade has changed markedly over the past decade. Rural and mineral commodities, partly responsible for Australia's tag as the "Lucky Country", still make a massive contribution to Australian exports. However, in the past decade, Australia has undergone a significant shift towards manufacturing and services exports.

There have been other changes. Exporting is increasingly becoming the domain of small to medium enterprises, and Australia continues to integrate with the Asian region.

Underpinning much of this change reflects Australia's consistent commitment in bilateral, regional and multilateral negotiations to the liberalization of trade and investment, including the reduction of tariff and nontariff barriers to the free flow of goods and services.

"A leaner, more efficient, domestic economy is making Australia a more internationally competitive exporter", Deputy Prime Minister and Minister for Trade Tim Fisher said last August when addressing the Australian Business in Europe group in Melbourne.

"The government is establishing a framework for economic growth for years to come with responsible macroeconomic policy, the acceleration of microeconomic reform, and by reducing the regulatory burden on business.

"A key aim of our macroeconomic framework is to improve public and private savings. In our first term of government we will have turned an underlying budget deficit of more than A$10 billion into a surplus of $1.6 billion. By 2000/2001, the budget should be in the black to the tune of $10 billion."

Australia achieved a surplus of $1.4 billion on the balance of trade in goods and services in 1996/1997, compared with a deficit of $2.1 billion in 1995/1996. For the first time, both merchandise and services trade were balanced or in surplus.

In a statement last February, Fischer told the Australian Parliament that overseas markets had become more important for sectors of the Australian economy, which, in days gone by, were sheltered and could not venture beyond domestic borders.

This is reflected in changes in the type of firms exporting and the composition of Australia's exports. Once, exporting had been the domain of large firms but today, more than 4,500 small and medium enterprises trade overseas and generate earnings of around $6.5 billion a year.

The value of Australia's exports of manufactures and services has grown around three times as fast as primary product exports over the past decade. Australia has developed a competitive edge in the supply of computing equipment, medical equipment, and telecommunications and pharmaceuticals.

And rapid growth in services exports has been driven by sectors such as tourism, international education, music, information technology, and other advanced industries.

Engineering, construction and mining company PT Petrosea, a subsidiary of Clough Engineering, is just one example of successful Australian investment in Indonesia.

International education has also been growing rapidly. In the four years 1993 to 1996, international student numbers in Australia increased 69 percent.

Of the international students in Australia in 1996, more than 121,000 were from Asia, 6,090 from Europe, 3,255 from the Americas, and 1,567 from Africa. This source of income generated $3 billion for Australia in 1996.

Six of Australia's 10 largest trading partners are in East Asia. Together, they account for just under 60 percent of Australia's exports. Australia's closer trade links with Asia reflects proximity, and our status as a major supplier of raw materials and intermediate products -- key inputs into Asian production.

The recent currency instability in East Asia reflects financial market recognition of structural weaknesses in domestic financial systems, exposed by the export slowdown in 1996. A number of factors will determine how severe and prolonged the slowdown in Asia will be, including responses by regional governments to underlying problems, investor confidence and the expected rebound in export growth due to improved competitiveness.

While the economic adjustments in play will curtail growth in the next year or two, the medium-term outlook remains sound provided governments put in place policies to address these weaknesses.

Australia also continues to increase its investment links with the world.

Foreign investment in Australia has grown at 11 percent over the past decade, reaching $438 billion at the end of financial year 1995/1996. Australian investment abroad stood at $152 billion at the end of financial year 1995/1996, compared with $43 billion at the end of 1985/19986. The East Asia region is the fastest growing area for Australian investment abroad, with annual average growth of 18 percent over the past decade.

The government's commitment to further reform and deregulation will enhance Australia's international competitiveness and attractiveness as an investment location.