Commonwealth of Australia Business Guide
Introduction
The Commonwealth of Australia is a country in the Southern Hemisphere comprising the mainland of the world's smallest continent, the major island of Tasmania and a number of other islands in the Southern, Indian and Pacific Oceans. The neighbouring countries are Indonesia, East Timor and Papua New Guinea to the north, the Solomon Islands, Vanuatu and the French dependency of New Caledonia to the north-east, and New Zealand to the south-east. On January 1, 1901, the six colonies became a federation, and the Commonwealth of Australia was formed. Since federation, Australia has maintained a stable liberal democratic political system and remains a Commonwealth Realm. The capital city is Canberra, located in the Australian Capital Territory. The population is 20.8 million, and is concentrated in the mainland state capitals of Sydney, Melbourne, Brisbane, Perth and Adelaide.
Economy
Australia has a prosperous, Western-style mixed economy, with a per capita GDP slightly higher than those of the UK, Germany and France in terms of purchasing power parity. The country was ranked third in the United Nations' 2006 Human Development Index and sixth in The Economist worldwide quality-of-life index 2005. The absence of an export-oriented manufacturing industry has been considered a key weakness of the Australian economy. More recently, rising prices for Australia's commodity exports and increasing tourism have made this criticism less relevant. Nevertheless, Australia has the world's fourth largest current account deficit in absolute terms (in relative terms it is more than 7% of GDP). This is considered problematic by some economists, especially as it has coincided with the high terms of trade and low interest rates that make the cost of servicing the foreign debt low.
The Hawke Government started the process of economic reform by floating the Australian dollar in 1983, and partially deregulating the financial system. The Howard government has continued the process of microeconomic reform, including a partial deregulation of the labour market and the privatisation of state-owned businesses, most notably in the telecommunications industry. The indirect tax system was substantially reformed in July 2000 with the introduction of a 10% Goods and Services Tax, which has slightly reduced the heavy reliance on personal and company income tax that characterises Australia's tax system.
As of January 2007, unemployment was 4.6%, with 10,033,480 people employed. Over the past decade, inflation has typically been 2–3% and base interest rates 5–6%. The service sector of the economy, including tourism, education, and financial services, comprises 69% of GDP. Agriculture and natural resources comprise 3% and 5% of GDP but contribute substantially to export performance. Australia's largest export markets include Japan, China, the US, South Korea and New Zealand.
Market Overview
Australia has enjoyed annual economic growth without interruption for nearly two decades, and 2007 seems likely to represent the ixteenth year in that trend. However the economy’s rate of growth has slowed slightly in the past year, and most economic forecasts expect annual growth of between 2-2.5% in 2007.
This represents the economy catching its breath, rather than slowing to a stop, as a key demand-driver of the economy shows no sign of weakening. Australia is a sophisticated and thoroughly modern economy, yet primary resources (such as mineral and agricultural commodities) play an important role. Asian demand for minerals, metals, and energy resources has been an engine for growth nationally and in specific regions of the country. While creating wealth that ripples through the economy, the resource boom has revealed Australia’s existing infrastructure is inadequate to keep pace with the needs of exporters. As a consequence, investment in public and private infrastructure will continue in order to increase capacity, remove bottlenecks, and let Australian exports respond more directly and successfully to foreign demand. Major public infrastructure projects are underway and slated in all Australian states. In addition to capacity constraints, economists cite the persistent drought across much of Australia as shaving nearly a percentage point from GDP growth. Other drags on growth, such as high oil prices and consumer debt loads, are familiar to American businesses, and have no greater effect on sales prospects than in the United States’ economy.
Yet these challenges create opportunities for American exporters across multiple industry sectors. The need to increase productivity, reduce costs, and add net new production capacity fuels both private and public purchases and investments. We advise American firms examining the Australian markets to pay attention to macro measures of opportunity, noting Australia’s high income per capita, improving terms of trade, and strong currency give it tremendous purchasing power. When coupled with a Free Trade Agreement, the case for entering or expanding in the Australian market is stronger than a population of 20 million might suggest.
Australia’s appeal is still compelling: few barriers to entry, a familiar legal and corporate framework, sophisticated consumer and industrial demand, and a straightforward business culture. The Australia-U.S. Free Trade Agreement enhances the long and successful trading relationship by eliminating tariffs on almost all manufactured and agricultural goods. We believe 2007 is an excellent time for American companies with innovative products and technologies to develop an entry strategy for the Australian market, or to re-examine previous business plans for this market. The remainder of this report will be helpful in either case, and we invite you to contact us to help you execute those plans.
Market Challenges
Competitive Market: Australia’s history, distance from the rest of the world, and relatively small population led to some sectors’ market dominance by a few large firms. However, Australia is fully integrated into the world economy and has become a commercial and financial center for the region. American companies will find competitors in Australia and existing – sometimes iconic -- Australian companies enjoy the advantages of long-established brands, strong reputations and existing supplier relationships. Australia has ready access to Asian and other low cost producers. American firms must therefore demonstrate sufficient added value to overcome the costs of getting the product to market, and to compete against lower cost producers in the region. We urge American firms to investigate the market thoroughly.
Market Opportunities
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AUSFTA’s elimination of tariffs provides new opportunities for U.S. manufacturers across the board,
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Mining, oil and gas, and environmental technologies, and the medical device sector are among the many current opportunities in this market. However, these sectors have well-established competitors and supplier relationships.
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Infrastructure projects, both public and private, are likely to offer business opportunities to American companies ranging across engineering, building products, construction machinery and a host of ancillary industries.
