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Five ways services can be Australia’s job future

The mining boom is in the past and Australian manufacturing is on its last legs. Where does this leave Australia's export industry? On its knees? The answer is no.

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With the right investment, by 2030 services can become Australia's number-one export to Asia in terms of total value added, in the process supporting a million Australian jobs.

"By 2030, services can become Australia’s number-one export to Asia in terms of total value added."
Mark Whelan

This dramatic step change can be achieved by closing just half of the gap between our level of services engagement with our Asian regional neighbours and our traditional western trading partners.

Jobs can be generated through increases in direct exports of services from Australia, expansion of offshore operations by Australian services businesses and services industries supporting growth in Australian exports of goods.

According to a new report prepared by ANZ, PwC and AsiaLink Business entitled 'Australia's jobs future – the rise of Asia and the services opportunity', by 2030 Australia's annual services exports to Asia could be worth $A163 billion, a more than 135 per cent increase from 2013.

In addition, sales by Asian branches of Australian services companies could grow from $A14 billion in 2013 to as much as $A78 billion by 2030. The services sector is on track to become Australia's number one exporter to Asia by 2030, and will support more jobs than all other exports combined.

Big little secret

Australia's services sector is positioned to underpin future job growth in Australia by increasing its engagement in international trade – expanding exports of services, enhancing the competitiveness of goods exporters and expanding the offshore operations of Australian services businesses.

Services industries already employ almost nine out of every 10 Australian workers and are the largest contributor to the Australian economy

Australia's trade secret is that its biggest export is services. Services account for 41 per cent of Australia's exports earnings when measured in terms of total value-added, compared to 37 per cent for mining, and 23 per cent collectively for agriculture and manufacturing.

Australia can now take advantage of this opportunity but it will not happen automatically. Australian services firms will face stiff competition from local services industries and from other foreign providers. Australian firms will need to ensure they are competitive.

What needs to be done

How can Australia meet Asia's growing demand for world-class services? The country can position itself as a key services provider to Asia in five core ways:

  • Ensuring the Australian marketplace is open so Australian services industries are internationally competitive
  • Advocating for the liberalisation of international trade in services and of foreign direct investment to expand opportunities for Australian services firms to sell into Asia
  • Recognising and promoting offshore investment by Australian businesses to increase the revenues received by foreign affiliates of Australian companies
  • Re-assessing the way Australia measures the value of exports in order to better understand which industries are generating the greatest returns from international trade
  • Continuing to develop an Asia-capable and internationally oriented work force.

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No substitute

Trade has long been central to Australia's economic development, providing jobs and incomes for millions of Australians. Goods, particularly resources and agricultural products will continue to be the cornerstone of Australian exports.

Exports of services will play a growing role in generating jobs and wealth in those cornerstone industries. Transport, finance, information technology and engineering services firms supply specialised capabilities to export-oriented businesses.

The growth of services is not a substitute for growth of manufacturing, agriculture or resources but is a valuable complement and support mechanism for those industries as well as a provider of services to the community.

It is therefore unsurprising that the 2.9 million new jobs created by Australia's services industries since 2000 have more than offset a collective reduction of 256,000 jobs in agriculture and manufacturing. In the same period, employment in the resources sector increased by 165,000.

As well as accounting for the lion's share of GDP and employment growth, Australian services - led by financial, transport, education and professional services – have delivered substantial export earnings.

Taking into account the earnings from direct service exports and the value added by services supplied to other export industries, the services sector generated $A112 billion in value-added export earnings in 2013, supporting 1.1 million Australian jobs.

By comparison, mining exports were worth $A101 billion supporting 227,000 jobs. Indeed, Australia's largest export category is not agriculture, manufacturing nor mining; it is the services sector.

The urbanisation and modernisation of Asian economies will also create opportunities and jobs for Australian businesses supplying services directly from Australia, for example in financial services, education, business services, transport and health.

Australia will also need to increase the offshore presence of Australian businesses to be close to our future customers and provide links between Australia and the region. Today, the contribution of offshore Australian businesses to the economy is not reported in export statistics but it will assume a growing importance.

The rise of Asia and the services opportunity

The Asian century

Demand in Asian economies for services will expand with the burgeoning middle class in the region – from around 500 million today to 3.2 billion people by 2030.

Services underpin Australia's export economy but services exports to Asia and Australian income from Asian investments are underperforming relative to our traditional trading partners. Services made up 34 per cent of Australia's exports to Asia compared with 54 per cent of exports to the rest of the world.

The performance gap can principally be attributed to the lower stage of economic development in key Asian trading partners (where services contribute less to economic growth than in developed economies) and the barriers to foreign-service providers in these economies.

Research also suggests the Asia-capabilities of Australia's workforce are underdeveloped. Even so, Australia's services exports to Asia in 2013 were worth $A69 billion, and were only surpassed by exports from the mining sector, which totalled $A89 billion.

Asia's hunger for resources is expected to moderate as the region develops. In 2014, Chinese demand for iron ore fell for the first time in 14 years.

However, the region's industrialisation and expanding middle-class are driving growing demand for world-class services and Asian governments are already beginning to grant improved access for foreign services firms. Future export growth will depend on Australia's ability to meet Asia's growing demand for high-quality services.

Our direct services trade with Asia and regional offshore presence are relatively nascent. New free-trade agreements and the liberalisation of Asian economies will create new market opportunities. But more can be done to realise the opportunity.

An immense prize awaits Australia with the growth that is occurring on our doorstep. With better understanding of the role of services, a sharper focus by business on the opportunity and a supportive public policy environment, that prize can be realised.

The infographic on this page is also available in a pdf version.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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