Ai Group: Lower dollar a positive but trade challenges remain

The report tracked the positive impact of the lower dollar on Australian businesses and manufacturers in particular. It found that the lower dollar is clearly helping Australian economic growth transition away from its reliance on mining-related resources investment and output growth, towards a pattern of growth that is spread more evenly across sectors and geographies.

Drawing on responses from the CEOs of 248 businesses across Australia, the new report – Business Responses to the Australian Dollar –sees the sustained lower Australian dollar together with greater trade opportunities as having long-term and overall positive impacts on Australian-based manufacturing and services businesses. At the same time, however, the lower dollar is causing increases in some key inputs, with many businesses finding it hard to pass on these cost increases amid intense competition and a generally weak consumer inflation environment that makes it harder to justify price increases. The widespread use of imported inputs means that this is tightening margins across many businesses.

Almost all export and import competing manufacturers stated that they can remain competitive at exchange rates under $0.70 AUD/USD, however significantly fewer businesses estimated they will be competitive above this level in 2016, compared to previous years in which the dollar was higher. 83% of exporting manufacturers and 76% of manufacturers competing with imports said they can be competitive in 2016 between 71 cents and 80 cents, compared to 94% for both categories in the 2015 survey.

Significantly fewer businesses believe they can be competitive in the 81 cent to 90 cents range in 2016, with 44% of exporting manufacturers and 35% of manufacturers competing with imports believing they can remain competitive, compared to 63% and 66% respectively in the 2015 survey. Only 11% of exporters and 16% of manufacturers competing with imports say they can remain competitive at the 91 cents to $1 range, compared to 29% and 24% respectively in the 2015 survey.

As detailed in the report, 43% of exporting manufacturers expect their export income to increase in 2016 (up from a 24% actual increase in 2015). For services businesses, 25% of exporting businesses expect their export income to increase (up from a 19% actual increase in 2015). The lower dollar is a major factor in opening opportunities for exporters, with 61% noting that expanding overseas markets was one of their growth strategies. For service businesses, 48% nominated expanding overseas markets as a growth strategy. These proportions are significantly higher than in recent years.

The lower dollar has assisted businesses take advantage of opportunities created by free-trade agreements and the growing middle class markets in Asia – particularly in sectors like food & beverage manufacturing, agribusiness and tourism.

“Opportunity itself is not enough to ensure the continuing success of Australian businesses,” said Ai Group CEO Innes Willox. “Australia’s international trade competitiveness could be better. Many Australian businesses are still developing as exporters of high value-added goods and services and many are not as well integrated into global supply networks as a means of realising the value of more complex goods and services.

“Australian exporting businesses and those competing with imports need to be increasingly focussed on efficiency, reliability, innovation, collaboration and continuous improvement. They need to be looking at delivering a more diverse and higher value array of goods and services and becoming more tightly integrated into global supply chains and global marketing networks.”