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Which markets matter most to Aussie exporters?

19 November, 2007

When it comes to trade most of the news is ‘big picture’. We hear about the Doha round in the World Trade Organization (WTO), and this year we heard a lot about APEC as Sydney hosted the APEC Summit. Source: Tim Harcourt.

Bilateral and regional trade pacts are also in the news. For instance, just in the last four years or so, we have seen the establishment of several free trade agreements (FTAs), with the USA, Singapore and Thailand. And looking ahead there are the negotiations with Japan, China and the Gulf Co-operation countries. In addition, Malaysia and Chile, the Latin American ‘Jaguar’ (the equivalent of an Asian ‘Tiger’) have been added to the list.  There are also the regional negotiations between the Association of South East Asian Nations (ASEAN) and the Closer Economic Relations (CER) partners in Australia and New Zealand.

Of course, there should be a lot of headlines about big trade deals – especially in areas like LNG and iron ore - as their export potential are huge dollar terms. This is mainly because of the resources boom and it is where we anticipate Australian strong growth in export values as a result of the high prices we are receiving for key commodities. Naturally, this focuses our attention on export destinations – that is, whether China and India will largely drive our growth (mainly through insatiable appetites for resource exports) or whether the rest of Asia, the USA and Europe will also play a role. And as Scott Haslem, Chief Economist of UBS has pointed out there’s the ‘best of the rest’ with emerging markets like the UAE and South Africa and parts of Europe and the Pacific also doing well.  Potential is also gathering momentum in rising stars like Russia and Mexico and Brazil.

However, whilst these big developments are important, the focus is mainly on export revenue and the gains at the top end of town with less focus on the exporting companies themselves – particularly the ‘up and comers’.  So what about the exporting companies then? How many are there and where are they heading?

Fortunately, courtesy of some new research from the Australian Bureau of Statistics (ABS) and Austrade we now are getting a better handle on some of these questions.

First of all, we now know that there were 44,310 exporting businesses in the ‘exporter community’ in 2006-07.  This tally comprises 42,645 goods exporters and 2,638 service exporters – although the count excludes in-bound services (like tourism and education) that are also important to the national export effort. This number of exporters in Australia has grown by around 5 per cent over the year with the ABS estimating that there 42,194 exporters in 2005-06.

But where are all exporters going? The exporter community (in terms of goods) can be broken down by country destination and the results make some pretty interesting reading.

First of all, our Trans-Tasman cousins, New Zealand were top of the pops, with 17,815 Australian businesses having exported to the shaky isles in 2006-07. This indicates that many exporters actually find exporting ‘across the ditch’ relatively easy and that Kiwiland is a good ‘nursery’ to start with when learning the craft of exporting. According to Austrade/Sensis data too, New Zealand is the top market for small and medium sized enterprises (SMEs) too, with 36 per cent of all exporting SMEs heading for the land of the long white cloud.

The United States is second, with 9316 exporters.  Many SMEs get their start in the USA as they are attracted by the size of the market.  Australia also has a free trade agreement (FTA) with the USA and according to Austrade/Sensis research showed that there has been a steady rise in the proportion of exporting (SMEs) selling to the USA since the FTA has been place.

Another FTA country, Singapore is in third place with 6538 exporters and then comes the UK with 5668 and Hong Kong on 5116. ‘Entrepot’ economies like Singapore and Hong Kong tend to have lots of wholesale trading houses and act as a hub port for exporters (and importers). For instance, Singapore has played the role of a gateway port for South East Asia, whilst in the past; Hong Kong has played a similar role in the North East Asia – particularly before China opened up more to international trade and commerce.

In the UK’s case, there is the “Kylie effect” to consider. According to the data, the UK is light years ahead of any other European country, indicating that many Australian exporters (like our pop-stars) head to Britain (because of cultural and historical links etc) and have use the UK as a base to expand into Europe and the rest of the world.

In sixth place comes China on 4257 which has leap frogged over Papua New Guinea (PNG) with an additional 442 exporters. China’s position supports the Austrade/Sensis survey that showed many SMEs looking to the Middle Kingdom as an export destination – joining the larger Australian blue chip corporates such as Rio Tinto, ANZ, Elders, BHP Billiton and Woodside who have been in the Middle Kingdom for some time.

PNG is in seventh place on 3987 exporters. In fact, the data shows the importance of our near neighbours to small business exporters with three Pacific destinations in the top ten and four in the top twenty as New Caledonia edged out The Philippines last year to take 20th spot which that have retained.  Malaysia is in 8th spot on 3586 edging out Japan on 3564. Fiji is 10th but they have seen a largest decline with 329 less exporters than last year.

The ‘second top ten’ is still heavily focussed in Asia but includes both mature and emerging markets. Germany is solidly in 11th place with 2637 exporters followed by Indonesia on 2582, Thailand on 2541 and Canada on 2398. South Korea is on 2314 and Taiwan has slipped a net loss of 79 companies.

South Africa is the main destination in Africa at 2226 exporters, and then comes United Arab Emirates (UAE) on 2004 building on Dubai’s central role as the ‘Singapore of the Middle East’. The has just edged out India who attracted 1994 exporters in 2006-07 but with a very healthy result in terms of export value due to the strong demand for Australian commodity exports.

It should be noted in the analysis that many exporters have multiple destinations, so they may be counted twice in terms of country though not in the region. The analysis of company numbers is also not necessarily a reflection of value. For instance, whilst New Zealand attracts over 17,000 exporters and Japan just under 3,600, the value of those exports to Japan was over $32 billion, whilst New Zealand’s was worth just over $9 billion. That is, the average value of Australian exports per company to Japan was $9.2 million, whilst to New Zealand it was $0.5 million. Generally speaking, North East Asia is dominant in terms of value with Japan, Korea and China alone accounting for over $68 billion in exports. In addition, India is play an important role with those 1994 Australian goods exporters earning over $10 billion in exports (up just over 36 per cent on the previous year).

Does the data change over the years? From the limited data available, the top 20 remains pretty stable with a few countries changing positions. However, if you look at longer term snapshots, you see a bit more movement. For example, a comparison of the 1989-90 rankings with the present shows - you guessed it – China charging up the table and with countries like India, UAE and South Africa growing in importance.

In conclusion, in terms of exporters, we have an exporter base in Australia that is spread far and wide across the globe but concentrated enough in the bigger markets to get a good bang for their buck. And exporting seems to be delivering to all Australian exporters – both large and small. Austrade research shows that exporters, on average, grow faster, are more profitable, more innovation and pay higher wages than non-exporters. This research indicates that many Australian exporters are finding themselves in the right place at the right time to take advantage of opportunities in the global economy.

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