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Streering the way through: How will exporters fare after budget

22 May, 2009

When the going gets tough, Australia’s exporters keep going. That’s been the experience of past global economic downturns and the current Global Financial Crisis (GFC) is no exception. Source: Tim Harcourt.

According to the latest Austrade/Sensis research the proportion of Australian small and medium sized enterprises (SMEs) engaged globally is holding up well and last week’s trade numbers from the Australian Bureau of Statistics (ABS) showed exporters hanging on with Australia achieving its second highest trade surplus on record at $2.5 billion.

Given that the global economy has experienced a massive collapse in international trade – particularly in capital goods and consumer durables – the resilience of Australian exporters is all the more remarkable.
But as the economic commentators have said, times are still going to be tough and exporters will need assistance to navigate their way through the unchartered waters that lie ahead. Fortunately, there are a range of measures in the 2009 Federal Budget to help steer exporters through to recovery. So how did exporters fare in the budget?
First of all, there’s Export assistance. The main scheme – the Export Market Development Grant (EMDG) Scheme – has been boosted by an extra $50 million in 2008-09 to help SME exporters get through the GFC and into recovery. According to Trade Minister Simon Crean: “It is vital we ensure much needed liquidity to those exporters who continue to pursue trade opportunities despite the most difficult export conditions in living memory.”
Secondly, there’s been strong boost in Infrastructure – including $3.4 billion for roads, $4.6 billion for metro rail and $389 million for ports and freight. This is vital to our trade future, as during the boom times, exporters claimed that ‘supply side’ constraints, or ‘bottlenecks’ were adversely affecting their ability to get goods to market. Support for the National broadband network will also boost Australia’s communications infrastructure and help break down the tyranny of distance for exporters looking to market themselves to consumers around the world.
Thirdly, there’s Education. The budget is boosting education through a $2.6 billion injection in universities and research from the Education Investment Fund. This is important to exporters – particularly in professional services, ICT and advanced manufacturing areas – where investment in human capital is the name of the game. In short, we need an education revolution to have an export revolution.
Fourthly, there’s the Clean Energy initiative worth $4.5 billion (including $1 billion of existing funding). Australia has great potential as an exporter of clean energy technology and services (our global environmental credential were on display at the Beijing Olympics with the Water Cube and other examples of Environmentally sustainable architecture) but we need to do more to make it a key component of our national ‘brand’ that we promote to the world (putting more green into the green and gold).

The clean energy missions that we have recently organised in Chile, Europe and the USA is evidence of this potential and last year at the ‘Energy Camp’ in Copenhagen, there was anticipation of the role Australia would play on the world stage on environmental issues at COP15.

Austrade will have clean energy specialists working in both trade and investment as part of this new strategy in areas as diverse as renewable energy (solar, wind, geothermal, marine, bioenergy and biofuels), carbon capture and storage, energy efficiency, water technologies, sustainable urban design and waster management.

Sir Nicholas Stern spoke of Australia’s enormous environmental export potential – particularly to emerging markets such as China and India – in his famous Stern report in the UK, and these initiatives are consistent with some of his messages for Australia in his landmark report.
Finally, there are a range of additional measures announced in the budget in areas such as Innovation that are part and parcel of increasing our export effort but also assisting our domestic businesses. The strong focus on education, R & D and infrastructure – both in terms physical and human capital – will provide spillovers to the exporter community and also encourage more Australian businesses to have the confidence to invest both at home and beyond our shores.
Overall, the Budget measures are important as the 45,000 strong Australian exporter community plays a crucial role in the Australian economy in raising average levels of productivity, driving creativity and innovation, and helping raise living standards by creating prosperity for the whole community.

Exporters play a very important role as employers, as Austrade research shows that they make ‘better bosses’ by paying higher wages and providing higher standards in terms of occupational health and safety, equal opportunity, education and training and job security, on average, than non-exporters.

Most exporters know as employers, that there are high costs involved in firing in a recession and then hiring again in a recovery, and that’s it’s better to hang onto their workers in a downturn. After all, the most successful exporters are loyal in a business sense, that is, they stick with their customers, partners and suppliers in a global downturn and therefore are welcomed back in recovery.

This was the experience of many exporters during the Asian financial crisis of 1997-99, who stuck with their Asian business partners, “through thick and through thin”, and were welcomed back with open arms when Asia bounced back sooner than most economists expected.

Therefore, exporters who are loyal to their business partners are loyal to their other partners – their employees – as well, and are therefore rewarded when labour markets tighten during recovery. Exporters, therefore play an important role in helping support job security in a downturn and creating new jobs moving into recovery.
And what can we expect in the labour market and the rest of the economy? Like the Reserve Bank of Australia (RBA) last week, the Commonwealth Treasury believes that the Australian economy will fare better than most of our trading partners in the GFC and that the data is now showing some signs of economic recovery. But there was some tough data to digest in the Budget. For example, economic growth is expected to be flat in 2008-09 and -1/2 of a per cent next year before jumping to 2 ¼  in 2010-11.

Unemployment, despite the recent and unexpected good numbers last month, is still expected to rise to 6 per cent in 2008-09 and over 8 per cent for the next two years. And of course, the sharp fall in commodity prices and collapse in the terms of trade is hitting budget revenues, and Australia can expect to be in deficit until 2015-06. Most market economists quite rightly have endorsed the fiscal stimulus and have eschewed ‘deficit fetishism’, believing that it is better to run a deficit to aid recovery and to boost economic growth and employment rather than running a surplus and prolonging a recession.

Naturally, much depends on the global picture, but the Treasury, like the RBA has focussed on the positive effects that the stimulus packages may have domestically in our major trading partners. In fact, there are already some good signs of this occurring, for instance in China, with Beijing’s focus on boosting infrastructure in the second third tier cities is helping Australian building and construction and engineering services exporters.
Overall, on the Budget’s scenario, given the severity of the global downturn, Australia may effectively dodge the bullet – or at least absorb it with minimal impact – with exporters, as usual, playing an important role as both shock-absorbers in the downturn and innovators looking for the way forward.

However, whilst its early days, some signs may indicate that (an albeit slow) recovery is on its way, and with these Budget measures underpinning their efforts, exporters will again be leading the charge on behalf of the whole Australian community in the battlegrounds of the global economy.

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