In recent months, and particularly in the lead-up to the Federal Election, politicians have been spruiking the line that as the economy moves away from the resources boom, the slack is being taken up by 'tourism and education'. As reported in a recent AFR report of 14th April, commentator Philip Baker has 'belled this cat'. Citing an independent analysis prepared by Capital Economics, he states that the economists have concluded that "it would take a phenomenal set of circumstances for tourism and education exports to provide a major boost to the economy over the next decade". They also conclude that the level of impact to the economy would be of the order of 0.1% to GDP. The article critically examines the rationale for these conclusions based on a study of the two market segments in China and India.
However, the report did not attempt to look at the size of the emerging gap in revenues to Australia's external account caused by the slump in commodity prices - it is truly awesome, and tourism and education frevenue streams alone are quite insufficent to replace what has been recently lost, reported to be of the order of around A$40 billion. The only area capable of filling this gap is the manufacturing sector, particularly in high value-add manufactures. From my reckoning, this sector in its totality currently contributes around A$13 billion annually, compared to a similar sized economy such as Taiwan where a similar grouping of exports total around US$160 billion annually, a result that has taken over 40 years of manufacturing and trade development to achieve.
In short, Australia needs to triple its current level of high value manufacturing exports to fill this gap, and as we all know, this kind of growth won't be achieved in the short term, more likley to take 15-20 years, and certainly not within the short term period of four years- the life of the current 'manufacturing growth centre' strategy as being espoused by the Australian Government.
It's about time politicans and economic commentators woke up to the reality of the economic crisis facing Australia and stop deluding themselves and the Australian public with false hopes about the growth of other 'service industry' sectors which lack the capacity and potential to restore our revenue shortfalls which service our external account.
All very well to have an 'ideas boom' and a focus on innovation, but better for governments and Australian industry to work out a long term and robust, co-investment-focused strategy for re-industrialisation, a process underpinned by a substantive commitment to 'high value add' manufacturing (embracing both manufactures and bundled product related services) to respond to emerging global market opportunities.