Australia has an unsophisticated economy in desperate need of a wake-up call to prevent looming and rapid decline, a new report from a major consultancy firm warns.
Analysis by Deloitte has ranked the nation’s economy in 37th place in the world on a sophistication index, saying it is too reliant on mining and agriculture, and vulnerable to a global shift towards renewable energy.
That ranking is on par with the likes of Latvia, Brazil and Greece.
The damning examination warns a dramatic transformation is needed for Australia’s economy to avoid devastation in the post-pandemic world.
It is “pigeonholed as an economy about rocks, crops and cameras (tourism)”, according to Deloitte economist and report author Dr Pradeep Philip, who said Australia had “traded economic sophistication and resilience for short-term sugar hits”.
Australia has an unsophisticated economy that needs a major wake-up call before GDP growth is devastated, new report from a major consultancy firm warns.
The report, Australia remade: a country fit for the age of disruption, is a call to arms to capitalise on current exceptional events including dramatic technological advancements, climate change, heightened global tensions and the Covid-19 crisis.
“In this environment, Australia’s economic performance has been historically strong, but our economy has also become inherently fragile,” Dr Philip said.
“Even as we’re facing new challenges that are highly complex, we’ve also become complacent. And that’s a big problem.
“Complacency poisons investing in the new — letting the good times roll has come at a cost when we haven’t built the capabilities and capacity to ensure the resilience of our economy.”
Five key issues:
- We’re not as successful an economy as we think we are. While GDP is high, Australia’s economy is not very complex – in fact, it’s quite fragile
- We’ve relied on luck and it’s created complacency
- We’ve neglected sectors with the greatest future potential. Rather than taking a long-term view, Australia has focused on sectors like mineral resources and agriculture that provided historical wealth
- We’re not well connected to the rest of the world. This makes it more challenging to improve economic complexity, especially with the rise of Asia on Australia’s doorstep
- We’re at risk of the ‘tyranny of distance’ – again. With the world looking locally for supply chains, Australia is at risk because it isn’t engaging enough in the Asia Pacific region
Australia has defied global shocks to record three decades of economic prosperity but Covid-19 has provided a “crisis in capitalism”, according to the report, leading to an inflection point to either transform and continue to grow or slide under a “return to normal” approach.
Camera IconThe report says Australia is at an inflection point. Credit: Supplied
Deloitte said the riches from agriculture and mining fossil fuels had been buoyant for the economy but had created complacency and a lack of diversification.
It also warned Australia needed to be more productive in embracing globalism, particularly doing business with rising Asian economies.
“The good news is that we have many comparative and competitive advantages that we can amplify and build on as we become more diverse, more sustainable and more connected, and more sophisticated, as an economy,” Dr Philip said.
The analysis outlines seven opportunities to improve the sophistication of the economy.
“These will build on our existing strengths, create new competitive advantage and produce what the world needs,” Dr Philip said.
“Some will allow us to amplify our natural advantages and build upon the foundations we know so well, while others will move us beyond these, to be more relevant, to be more connected and to find new opportunities for future growth.”
Seven opportunities outlined in report:
- Feeding the world – Demand for Australian food is strong, but the core industries involved in Australian food production – agriculture, forestry, and fishing – are among the least sophisticated
- Decarbonising the world – With competitive advantage in natural resources, technologies and energy, Australia can really take part in the move to global decarbonisation by producing new sustainable energy
- Shaping the future of health – Australia can create new value by using technology to turn its world-class health research into implementable health and wellbeing solutions
- Looking to the sky (and beyond) – Australia has a strong track record in the areas we have chosen to play in space, but also needs to grow its capabilities from niche research and manufacturing to end-to-end products and services
- Manufacturing the future – To play a greater role in global manufacturing, Australia should have a clear focus on moving up the value chain by connecting advanced manufacturing into areas of greatest economic opportunity
- Satisfying the senses – There is no ecosystem more agile and ever-changing than one that follows consumer demands. Australian organisations need to continue to be responsive and innovative by co-designing products and services
- Servicing the world’s businesses – Using virtual and digital technology, a significant opportunity exists to export B2B services such as engineering, telecommunications, professional services, and financial and insurance services.