“Australia’s reputation as a stable and predictable environment for business and investment is being significantly impacted.” That was the retort from a senior executive from a major Asia-based investment fund on the sidelines of a recent alternative investment forum I attended in Singapore.
A number of investment funds in our region of the world are keeping a close eye on the opportunity to put money to work here in Australia, but there is a growing sense that our market is seen as having lost one of its most notable competitive advantages: that we have a stable and predictable political and policy environment.
The observation was by no means a one-off. Many others have expressed a similar concern and also wondered if, as a community, we had recognised the impact that the uncertainty was having on our brand as an attractive investment market.
The judgments being passed from offshore about our capacity to effectively compete for capital cut right to the heart of a very real challenge that we have on our hands.
Confidence is key
We are a capital-importing country that relies on the confidence of offshore investors to make long-term decisions about where they allocate tens of billions of dollars of money, often for time horizons that can stretch out to a decade or more. When you’re in the hot-seat for making decisions within that context, it’s completely understandable that stability and certainty are amongst your highest priorities.
Domestically, we now have clear evidence our economy is not firing on all cylinders because business confidence is at near-record lows, and consumers are continuing to constrain spending. Consumers are holding back on making big decisions for fear of not knowing what shocks and uncertainties might be around the corner.
Turns out that the concerns of consumers may have been well-founded.
Political instability is the enemy of business confidence
The on-going political ructions mean that it is very difficult to predict what the next few months – or worse still, what the next few weeks – will hold for our economy.
We are now only a matter of weeks away from the government handing down the 2015-16 federal budget, which will be keenly watched by many observers as a marker for our short and medium-term economic outlook. Offshore investors will also be monitoring the impact of the budget on business and consumer confidence.
Structural reforms to drive investment
The consistent expectation across businesses, as well as domestic and offshore investors, is that we need to map out a decisive plan that catalyses more capital investment right across our economy. A pickup in consumer sentiment on the back of a more stable and certain political environment will also play directly into a boost for business confidence.
Ensuring that offshore investors continue to see us as a sophisticated and expanding growth market with close ties to the rapidly expanding Asian region is absolutely essential if we are to re-position ourselves competitively.
The government has done some tremendous work in putting place free trade agreements with key markets in our region, but if our core value proposition for trade and investment is weakened, then those agreements will not realise their full potential for Australian businesses.
We simply cannot afford to be relegated to a second-tier option for offshore investors, yet that’s precisely the message from some of those offshore investors who warn us of the consequences of being distracted and losing our focus.
Another experienced investment professional told me at the Singapore forum that “capital is highly mobile, and if Australia isn’t doing everything it can to roll-out the red carpet, we will look at other markets that will – we don’t see that we have to invest in Australia. It’s optional.”
Tackle challenges, improve competitiveness, and collaborate
There’s no question that there are some significant fiscal and social policy challenges confronting our economy right now. We have to take hard decisions that set us up for prosperity into the longer-term. In some instances, it may be the case that we have take a small step backwards in order for us to be able to build momentum to take two steps forwards.
The role of government is to define and then help guide the direction of the nation. From a business viewpoint, the best thing the government can do is work with the private sector to ensure the right policies are in place to garner the right outcomes from the marketplace.
But much like any business, defining the best strategy and the best way to move things forward is often the most difficult aspect of any comprehensive plan for the future. And that’s precisely where broad consultation, complemented with the best thinking and ideas, is most critical.
Here in Australia we are fortunate to have access to some of the best minds anywhere on the face of the earth. Our history confirms that there aren’t many policy challenges for which we can’t devise world-class innovative solutions.
Many of us in the business community have been saying for a long time now that there should be a much greater level of collaboration than there has been in the past on major policy issues. We haven’t always spent enough time working together on solutions to our major policy challenges.
There is another, critically important, benefit that can flow from a greater level of collaboration: a much deeper level of buy-in and support for the decisions that are ultimately made.
While everyone accepts that from time-to-time political machinations will need to be dealt with in order to reset the focus of government and get on with a new strategy, there aren’t many out there who support a never-ending cycle of uncertainty and instability.
The business community is united in the view that the government must move quickly and decisively back to focusing on the implementation of important structural policy reforms that will reassure domestic and offshore investors that we are indeed an attractive place to invest, and that we recognise the need to be competitive.
Rebuilding some of the reputational damage that has been done to “brand Australia” over the years should be an important and urgent priority for the government. Stewardship of our economy, and a sharp focus on addressing the long-term policy challenges that will confront us in the next decade and beyond is exactly what the community wants from its elected representatives.
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