07 Apr 2005 questionsarchive

I seek leave to make a brief explanation before asking the Minister for Industry and Trade a question about export growth.

The Hon. J.M.A. LENSINK: An article published in The Advertiser yesterday in the business section entitled ‘Export growth now slowing’, and subtitled ‘Manufacturing’, refers to an Australian industry briefing held in Adelaide on 5 April.

Those at the briefing heard the following:

The high currency exchange rate and infrastructure capacity constraints were hampering export growth for the manufacturing sector. Australian Industry Group Senior Economist Simon Calder said manufacturers entered 2005 feeling confident. Sales forecast were steady for 2005 and, ‘after two years of contracting export volumes’, manufacturers were expecting a slightly more favourable year. However, Mr Calder said the recent performance of the manufacturing index showed South Australia was less optimistic than the national average. Of the outlook for the next year the proportion of firms anticipating high production had fallen from 46 to 39 per cent.

PricewaterhouseCoopers managing partner Jim McMillan is then quoted as saying:

The thing that struck me the most from the results is that they are in contrast to the past two or three years, where South Australia has generally been outperforming the national position. We will be looking at the June results with great interest to see if this is a shortterm blip or a sign of something longer.

My question is: does the minister stand by his commitment that the government will be able to expand exports at the phenomenal rate it has said it has?

The Hon. P. HOLLOWAY (Minister for Industry and trade): Certainly the export target set by this government was always going to be a difficult one, but we will continue to stick to our goal. At the current time, if one looks over the past three or four years, the value of the Australian dollar, relative to the US dollar, has increased by around 60 per cent.

About three or four years ago the Australian dollar was less than 50 cents to the US dollar and it is now around the 80¢ mark. The federal government and federal minister for trade, federal Treasurer and others, and many economic commentators around the country, have made the comment that the current terms of trade, particularly in relation to the US dollar, will have a significant impact on exports, as it must do.

You cannot increase the price of your goods by over 60 per cent over three or four years and expect no impact.

Nonetheless, one always has these fluctuations in the exchange rate and other factors that come in, and we have a target set over a 10-year period. We are already some years into that, but there will be some variation. Conditions will improve, but at the same time one also needs to consider, if one is looking at commodities prices, that such things can have a significant impact on achieving export volumes. One only has to look at iron ore. One report in The Advertiser (I do not know whether it was correct) said that BHP was getting a 70 per cent increase in iron ore prices with China.

If you are exporting millions of tonnes of iron ore worth billions of dollars and you get a 70 per cent increase in Australian dollar terms, that does very nicely for those states that are fortunate enough to have those resources in terms of their exchange rate.

As I have indicated on a number of occasions in this chamber, we are certainly seeking to try to expand our mining industry within this state so that we can capture some of that benefit. Unfortunately, we do not have those huge resources of coal and iron ore that are increasing by such large amounts.

Whilst there is a boom in commodity prices, particularly with minerals being sold to China, it has an impact on the exchange rate, which in turn impacts on our traditional manufacturing industries. I note that yesterday, in answer to a question by the Hon. Bob Sneath in relation to Access Economics, it was said that, although conditions are very good in this state—and that has been reaffirmed today with the release of the latest employment figures (the March figures)—full-time employment in South Australia grew for the thirteenth month in a row. In trend terms, that is an increase of 2 000 full-time jobs in one month.

So, in fact, this state has been performing very well over the past three years. However, I am mindful of the fact that, when you have those exchange rate pressures, it will have an impact on industries such as manufacturing. If our goods are becoming more and more expensive because of the exchange rate, it will impact on the competitiveness of our goods on global markets.

Certainly, the government is mindful of the challenge it faces, particularly in some of our manufacturing areas, with the terms of trade as they are at the moment. However, there are also many other bright spots in the economy, and I think we need to look at the picture as a whole. The figures which came out today and which were released in a ministerial statement by my colleague the Hon. Stef Key present, certainly in employment terms, a fairly rosy picture for the economy of this state.

The Hon. J.M.A. LENSINK: I have a supplementary question. To what does the minister attribute specifically the discrepancy between South Australia and Australia, given that we have the same exchange rate as all other states in Australia?

The Hon. P. HOLLOWAY: I thought I answered that question. If you were likeWestern Australia and had millions of tonnes of iron ore and got 70 per cent more for it, you would not have to export any more volume, but you would get a 70 per cent increase in that particular part of your exports. In spite of the terms of trade, the reason why commodities are going up is essentially the boom in China.

China is drawing in resources from all over the world. I think almost a third of the world’s steel and 40 per cent of the aluminium is going to China, and all those raw materials are being used to produce manufactured goods, which are coming back on the market at a cheap price. That is really the nature of the world we face.

Australia is currently negotiating a free trade agreement with China, and that is one of the big issues we have to look at in terms of the impact. What is obvious is that over the next five to 10 years there will be a huge impact on our economy, as there has been in the past, because of the growth in China. Indeed, one could throw in India and some of the markets in our region.

If one is looking at raw commodities, those states which are exporting coal, iron ore and other mineral commodities, which have gone up very rapidly—and we are talking about increases of 30 to 70 per cent in recent years—then, yes, their export figures will grow very rapidly. Unfortunately, we do not have those resources. But, at the same time, this state is doing very nicely in terms of the services sector. That sector is not doing as spectacularly well in terms of those price increases, but there has been significant growth in exports in areas such as the electronics sector, health products and agricultural and environmental services. They are all sectors where this state is seeing and grasping export opportunities.

They are not as spectacular in dollar terms as the massive increases in commodity prices, but I would suggest that in the long term they will be more sustainable.