The worst effects of the global financial crisis (GFC) are over according to Australian exporters. The DHL Export Barometer has found that whilst Australian exporters have been adversely affected by the GFC, export orders are expected to pick up over the coming year. Exporters are expecting growth in markets such as the Middle East, India, Latin America and China to make up for the adverse effects on their orders over the past year in the USA, the UK, Europe and Japan.
Considering Australia’s increasing unemployment rate, the main concern of the global downturn has been its potential impact on jobs. But there’s good labour market news in the Barometer, as exporters expect to either maintain their employment levels or actually increase them. The fears of massive job losses in the export sector have been abated, as exporters are choosing to retain their workers and avoid costs associated with rehiring and retraining.
Obtaining trade finance has been an issue for exporters this year, with 60% of all exporters experiencing difficulty. The majority of exporters asked for advance payment and letters of credit to deal with this issue.
Although it has been a rough 12 months, the Barometer is evidence that optimism never dies. Whatever they may have suffered in the past months, exporters are equally as confident as they were in 2008 that the coming months will only see export orders increase. That’s good news for business, good news for workers and ultimately, good news for the whole country.
Export confidence – things can only get better?
According to the Barometer, business is going to get better, albeit slowly. While, 43% of exporters believe orders will improve over the next three months, a clear majority of 60% believe orders will increase over the coming year. In fact, 79% of exporters think orders will increase or at least stay the same over the next 12 months. Only one in five expect a reduction in orders.
Export markets – diversity is prosperity
The diversity of Australian exporters is evident by where they are selling to and investing in. Over the next 12 months, exporters expect an increase in orders to the Middle East (mainly the UAE), South Asia (mainly India), Latin America, China and ASEAN. This is a change in ranking compared to previous Barometers. While China and India are regularly in medal contention (with China usually in first place), UAE and ASEAN are usually in the top half of the table. But Latin America is a new story with Chile and Brazil leading the charge followed by Peru and Colombia.
Part of the reason for the Middle East’s charge has been relatively strong credit conditions (relative to Europe and the USA), and also the increasing role that the UAE (both Dubai and now Abu Dhabi) are playing as an trading hub for small niche exporters in areas as diverse as construction, manufacturing and professional services.
The Global Financial Crisis – don’t blame me, it’s the GFC
As expected, the GFC has taken its toll on exporters. According to the Barometer, 71% of exporters have been adversely affected by the global downturn. The biggest impacts have been felt in WA and in the mining and tourism sectors. The GFC has mainly affected big business (who provide the lion’s share of the nation’s export revenue) and experienced exporters, while medium-sized players and new exporters have been less affected.
Up to 65% of exporters said the GFC has had a negative impact on sales revenue and 60% of exporters identify the GFC as having a negative impact on profit.
State by state
New South Wales and ACT, Victoria and Tasmania were the states least impacted by the GFC in the past 12 months. Western Australia, South Australia and Northern Territories appeared to have borne the brunt of the past 12 months, with 80 per cent of WA exporters and 78 per cent of SA/NT exporters having been negatively impacted by the GFC. This is partly due to the expected fall in commodity prices that affects those states in particular.
Industry by industry
Result of the Barometer show that it is the mining and tourism industries that have been most affected in the last 12 months as a result of the GFC; 89% and 81%, respectively, reported a negative impact. Interestingly enough, the mining industry is also expecting the greatest increase of export orders in the following 12 months; 71% anticipating an increase. The agriculture and manufacturing industries were the least affected with 63 and 64% reporting adverse affects as a result of the GFC. Again this is a commodity story, especially with major contracts being negotiated.
Employment and profitability – exporters make better bosses
A major concern of the GFC has been unemployment and the Barometer highlights the role that exporters play in the labour market in terms of wages and job security. The 2009 survey shows the amount of companies anticipating to employ more staff in the coming 12 months (34%) at its lowest level since April 2004. However, there’s some good news. While companies aren’t anticipating hiring more staff, they won’t be laying people off either, as 55% of exporters indicated they would keep employment levels the same over the next 12 months.
Profitability has also taken a hit in 2009. The amount of exporters anticipating to increase profitability in the next 12 months (50%) is also at its lowest level since April 2004.
In with the new
While experience is expected to count in the GFC, it is the new kids on the block (those with less than five years exporting experience) who are expecting the largest increase in export orders in the coming 12 months. 67% of exporters with less than five years experience are confident their export orders will increase in the coming 12 months, compared to 55% of exporters with more than 20 years experience.
New exporters are also the most optimistic when it comes to anticipating increases in relation to profitability and number of employees for the year ahead; 64% of exporters with less than five years exporting experience say they will increase profitability in the next 12 months, compared to only 34% of more experienced exporters. While 46% of exporters with less than five years experience also anticipate taking on new staff this year, compared to only 19% of experienced exporters.
Past crises (in the mid-1980s and during the Asian Financial Crisis of 1997-99) have led to a similar surge in new exporters. New entrants have entered global markets, especially when there is a large devaluation (as occurred earlier in the year), and a softening of competition from our trading partners (hit harder by recession). The exchange rate and lower levels of competition enable the new chums to gain a “beach head” in the market, before the exchange rate readjusts and global conditions improve. These occasions in the past have led to a steady increase in Australia’s export culture so we may be again be seeing some new trade opportunities picked up that will be sustained in economic recovery.
All the way with FTAs
Exporters were happy with the benefits derived from free trade agreements and c loser economic partnerships. Of the existing agreements, the arrangements with the USA and New Zealand were regarded as the most beneficial to date. Of the potential agreements, exporters nominated China, the EU, India, Japan and the Gulf States as markets where they’d like to see an economic pact forged.
Tim Harcourt is Chief Economist with the Australian Trade Commission and the author of The Airport Economist (www.theairporteconomist.com).
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