Like most of us, Australia’s wealthiest entrepreneurs would have started 2011 in an optimistic mood.
The Australian economy is growing nicely, the global recovery is underway, the GFC fades from view with every week – surely this year will be better for the rich than 2010, when if you weren’t a miner or James Packer you had a hard time just holding your fortune steady.
But while the wealthy are generally a glass-half-full bunch, the list of worries facing the members of Australia’s rich list is long and growing.
Weak consumer sentiment still plagues many sectors, credit remains constrained and some have even been forced to confront the unexpected natural disaster of the Queensland floods.
Here are the top 10 items on the worry list of the wealthy.
A number of rich list members have been caught up in the flood crisis, including Toowoomba rich list member Clive Berghofer (who sustained some damage to his property holdings) and Clive Palmer (who was forced to use his helicopter to rescue staff at his flooded horse stud farm in the Lockyer Valley). But the floods will create long-term problems for many entrepreneurs, including those in the resources sector, the tourism sector and the retail sector, who will be bracing for a long delay before the state’s economy is back to normal.
So many of Australia’s biggest fortunes are dependent on the spending of their fellow citizens. The empires of shopping centre magnate Frank Lowy, retail billionaires Gerry Harvey and Solomon Lew, pub owners such as Bruce Mathieson and even food entrepreneurs like Robert Ingham and Richard Smith can rise or fall with consumer spending. After a tough 2010, these entrepreneurs will be looking for consumers to get more comfortable with the growing economy and open their wallets again. But rising interest rates might mean this takes some time to actually happen.
While we are talking about the retailers and shopping centre owners, we should mention the issue at the top of Gerry Harvey and Solomon Lew’s worry list – the extent to which they are losing sales to online competitors, particularly those based overseas. The retailers have rightly if belatedly pinpointed a major structural shift in their industry and like media investors such as Rupert Murdoch, Kerry Stokes and James B. Fairfax, it’s not exactly clear how their fortunes will be affected. Long-term, these entrepreneurs look like they have a challenge on their hands.
It seems a pretty safe bet that the Chinese economy will power on for another 12 months, which should ensure another good year for Australia’s resources barons, led by Gina Rinehart, Andrew Forrest, Clive Palmer and Chris Wallin. But there is always a worry that the China story might suddenly come to an end with a slowdown (perhaps due to a change in government policy) or some sort of crisis. It might be unlikely, but the impact this would have on some of our biggest fortunes means it belongs on our worry list.
Another worry for those in the resources sector is the regulatory environment. As the Government continues to work through the details of its mining resources rent tax, the impact on individual entrepreneurs such as Forrest, Rinehart, Chris Wallin and Palmer is still a little unclear. Other entrepreneurs watching politics closely this year will likely include Bruce Mathieson (who will be asking whether the Government will go further on gambling legislation) and John Symond (who will be looking to see how Wayne Swan’s banking reforms pan out).
The global economy is supposed to be recovering, but the reality is very different for many entrepreneurs. Take Gordon Merchant, the founder and major shareholder of Billabong, which released a profit warning in late 2010 after stating overseas sales were weak, particularly in North America. Education entrepreneurs Shesh Gale and Rod Jones will also be hoping to see improvement in global economic conditions to ensure international student numbers pick up.
Other wealthy entrepreneurs hoping for an increase in international visitors include those involved in the tourism sector, including Flight Centre boss Graham Turner, Wotif founder and major shareholder Graeme Wood, and the owners of the hospitality group Toga Holdings, Ervin and Charlotte Vidor. Clearly, the strength of the Australian dollar is a factor here – unfortunately, it does not appear the currency is falling any time soon.
There’s nothing worse than a bit of inflation eroding your fortune – it’s enough to make a wealthy entrepreneur put their money in gold. But rising inflation will also mean skills shortages are pushing up wages, costs are increasing and margins are potentially shrinking. Entrepreneurs such as Perth construction veteran Len Buckeridge are likely to feel this most sharply, as the resources boom drags workers to the mines and pushes salaries higher. Of course, inflation will also mean interest rates are likely to rise, increasing borrowing costs and potentially stretching balance sheets. For entrepreneurs whose companies are carrying large amounts of debt this could be a new problem.
Following on from the problems of inflation and rates is the issue of access to credit. In some sectors, particularly property, the cost and availability of credit is an ongoing problem and one that is limiting expansion. Even if wealthy entrepreneurs are not directly affected by this – and some who are looking for financing for big projects may well be – then they will be indirectly affected. For example, if credit to the property construction sector does not improve, entrepreneurs such as Buckeridge (who sells building materials and residential construction services), the Wagner family (owners of a Toowomba-based cement empire) and the Barro family (heavy investors in the building materials sector) will be affected.
For financial sector heavyweights such as Kerr Neilson, London-based Michael Hintze and veteran David Hains, the performance of global sharemarkets is an ever-present worry. While most commentators expect markets in Australia, the US and Europe to rise over the course of the year, the gains are unlikely to be large and risks remain present. A stunted US economy, European debt fears and concerns about China could all weigh on investor sentiment during the year.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
