Australia in Focus

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-By John Boley

Working on Business in Focus, one hears such a wide variety of views from so many sectors of industry and activity across this vast country. In 2011, we talked to importers and exporters, retailers and manufacturers, of crop sprayers and crabs, sailing boats and sandstone, unbreakable computers, broken computers, the biggest port and the smallest, miners and bridge builders – among many more. All were experts in their field, most were amusing, some were nonchalant and others enthusiastic. But they all have one thing in common: they are successful at what they do.

Add in the talks with leaders in the building and resources industries for our stablemates Australian Resource Focus and Australian Construction Focus, and the opinions heard start to blur until it becomes impossible to discern the truth or the trends. That’s both a blessing and a curse – which is extremely apposite, because Australia and its economy is a series of contradictions right now. Of the hundreds of companies we talked to, many ranged from the stoic to the downright pessimistic. Very few believe – or are prepared to be quoted as saying – that things are not so bad after all.

Some have good reasons not to be dancing in the streets. The banana growers of north Queensland, for example, had the most basic justification in the form of natural disaster in a year when Nature reminded all of us of our relative insignificance. Floods and fires in Australia were matched by the Christchurch earthquake which was almost obliterated from the world stage within days by the even worse Japan quake and tsunami. Nowhere was the resilience of the region better demonstrated than in the All Blacks hoisting aloft the Rugby World Cup in October – however much it pains us to say so.

But for so many, corporately and privately, there remains a sort of unease about the realisation that things are – well – pretty damn good, really, in absolute terms as well as relative. Australia is the world’s seventh richest country (in terms of per capita wealth); it is also the world’s 13th largest economy. This region regularly features in numerous “world’s most liveable cities” indices and this year has been no exception. CNBC larded its top 15 with European cities (possibly after a long holiday there?) and included only Sydney in 11th spot (with Wellington 13th and Auckland right up at number three). But the EIU’s survey proved more predictable, with half the top ten:

  1. Vancouver
  2. Melbourne
  3. Vienna
  4. Toronto
  5. Calgary
  6. Helsinki
  7. Sydney
  8. Perth
  9. Adelaide
  10. Auckland

And – by the way – do you know how cold those other five cities are? Seems like the EIU favours winter sports.

In today’s global economy, Australasia cannot be entirely insulated. Goldman Sachs just downgraded its forecasts for Australia’s growth, stocks and dollar after making a string of revisions due to the further deterioration of Europe’s economy. Australia’s real GDP “will grow just 1.5 per cent in 2011 and 3 per cent in 2012, after earlier expecting growth of 1.7 per cent and 3.5 per cent, respectively.” Underlying inflation is expected to grow 2.6 per cent on average in 2011 and 2.9 per cent in 2012, down from forecasts of 2.7 per cent and 3 per cent previously.

Australia’s currency is expected to trade at US0.95 in three months and $US1 in six and 12 months. ‘Pinch of salt’ time here, though – Goldman Sachs previously “expected” the Australian dollar at $US1.08 in three months and $US1.10 in six and 12 months. Nevertheless, the days of a US$0.80 Aussie dollar seem to have disappeared for the foreseeable future.

Australia, then, is wealthy, but that wealth is very unevenly distributed – farmers and miners, for example, might be on a different planet. There is the constant danger of a two speed economy, there is a patchy over- and under-supply of housing, and staff are difficult and pricey to hang onto.

According to recent figures from The Economist (House of Horrors 2, November 26, 2011) Australia has some of the world’s most overvalued housing, too high by 38 per cent (against per capita disposable income) or a whopping 53 per cent (against rental prices). Australia (along with Britain, Canada, the Netherlands, New Zealand, Spain and Sweden) has “even higher household-debt burdens in relation to income than America did at the peak of its bubble. Overvalued prices and large debts leave households vulnerable to a rise in unemployment or higher mortgage rates. A credit crunch or recession could cause house prices to tumble.” Would a correction (or crash, depending on your view) in house prices hurt, or would it benefit and stimulate the market?

The MRRT and carbon tax debates dominated discussion in 2011. It was no surprise to anyone in the resources industry that we didn’t get any apologies from Martin Ferguson, the federal minister responsible. Commenting on the MRRT, he told us: “To a large extent within industry there is an acceptance that a profit-based tax is a fair outcome and an appreciation that the tax will come into operation from July 2012.” However: “Obviously you get speeches from the likes of Andrew Forrest [non-executive chairman of Fortescue Metals Group], but that’s not surprising. He wanted to design a tax to suit Andrew Forrest’s needs – this is about a tax that suits Australia’s needs while at the same time maintains Australia as an attractive place for investment. Commodity prices are exceptionally good and the Australian community expects that each gets a share of the huge increase in prices that have occurred.”

Ian Harrison, chief executive of the Australian Made, Australian Grown campaign, tried to see the positives in a year when many bemoaned the strength of the dollar. “We’re seen as an open cut mine by the rest of the world so we must have some pretty effective project management and support services for that sector. And in our region we are seen as providing good education.”

Resources include wind and sun and biomass. Rightly or wrongly, Australians are known globally as having the biggest per capita carbon footprint as well as being “concerned” about the future of the planet. There’s yet another paradox – we’re the dirtiest and the most worried about it. The carbon tax looks like a reality (though nothing is certain in the current political climate) and as many of our interviewees said during the year, some companies will have to be dragged along kicking and screaming, but a lot more out there have realised the way of the future and are already seeking to get on board the sustainability train. People are seeing the light. Companies coming on board at this stage are not doing so solely for financial reasons, but for ethical and responsible reasons as well. One MD said: “I think this generation of management has already started to stand up and say ‘we are responsible.’ I think that’s fantastic.”

Australia each year becomes a more integral part of Asia. Some distrust the closer relationships forged with China, but engagement is surely the best way to deal with “the elephant in the room” – and good business too. Asia is the future and Oz is part of it. Yet our interviewees betrayed the fact that the nation remains touchy and insecure – so the wish for 2012 is a bit more of that self-confidence that the Old Country (England) used to regard as ‘brash’ or even ‘pushy’.

So, with all this in mind, here are Old Boley’s predictions for 2012:

  • Solar and wind power will achieve economies of scale without subsidies and pass the tipping point where renewable energy is economically advantageous
  • House prices will fall sharply, stimulating demand
  • The dollar will remain around parity with the US dollar and exporters will learn to live with it
  • Banks will continue to ignore their obligations and refuse to lend on anything that isn’t a racing certainty (e.g. tourism)
  • Good people will be hard to find and labour costs will stay well above what is reasonable, economically sound or globally competitive
  • Australia’s cricketers will wallop India and West Indies but the rugby Wallabies will fall unaccountably short in the Four Nations and Super 15 and Mark Webber will again fail to press home his advantage as the tallest man in Formula One
  • We will interview another hundred or more fascinating, busy and successful top executives of proudly Australian companies to feature in these pages

To all of them, to our readers, and to all who gave us their views in 2011, we wish a happy, safe and prosperous New Year.

Making Sense of Management

Management is the art, or science, of getting things done through people. Sounds fairly straightforward – except for the fact that people are not robots waiting to do our bidding. People have their own minds, motivations, and goals. So how do managers keep operations – and the people behind them – running as planned?

December 19, 2018, 5:33 PM AEDT