Australia’s social progress falters after decade of political uncertainty

10 October 2018 Consultancy.com.au

Australia is one of the wealthiest countries in the world. There is a common assumption that with wealth comes a national obligation to increase the living standards of the citizens which collectively accumulated said wealth. The notion of sharing wealth evenly amongst compatriots is also considered linear. It does not stop nor reverse, regardless of the policy of the day. In Australia however, it seems that the instability of national politics is effecting the health of the community.

As a forward note: In this context, socially progressive does not have anything to do with left-wing or right-wing, nor with conservative or progressive. Rather the dataset rests on a measure which looks beyond economic means – gross domestic product etc. – and focuses on basic human needs, the foundations of wellbeing and opportunity (including what facilitates both). Within these sets may include concepts which are attributed to one side of politics or the other, but are united by their definition of ‘what makes a healthy society’. 

Australia at the beginning of the 21st century was one of the most socially progressive countries in the world. The country was making strides when it came to renewable energy policy and was creating a framework for limiting the amount of carbon that was released into the atmosphere. Australia was also making leaps in terms of access to knowledge, inclusiveness and access to information and communications. All built on top of a hundred years of institutional rights, freedoms and democratic values.

Today, Australia sits at 15th on the Social Progress Imperative’s Index 2018 – a global non-profit supported by Deloitte – and whilst that’s not a bad position overall, Australia has slowed down on it’s commitment to society as a whole, beyond economics. In real terms, Australia has regressed six spots over the past year and dropped from fourth spot in 2016. It’s not the position that’s the issue, it’s the drop.

“Australia hasn’t performed badly. It is just that our gains have been modest and other nations had recorded a greater improvement in key areas, pushing us from 9th to 15th place on the Index,” said Rob Hillard, Deloitte Australia Chief Strategy and Innovation officer.

Australia’s social progress falters after decade of political uncertainty

 As a collaborative, the world at large is advancing in terms of both the social and environmental health in communities. However Australia has now joined a small group of countries including civil war-torn Yemen, economic and political crisis-wretched Brazil and Donald Trump’s United States, the likes of which have experienced some of the biggest declines over the past year. Whilst Australia may consider itself the lucky country, that luck is not being shared the way that it is across top performers. 

“We are still a country with an enviable standard of living and score highly in diverse areas such as for our clean water, education, freedom of expression. But the Index notes Australia’s high greenhouse emissions and marks us down for the refugees being held on Manus Island and Narau,” Hillard said.

These issues frame a picture of polarisation in Australia which has led to the rise of political instability across the country. Whilst this is not an endemic issue to Australia, the results are the same; Australia is a country which is loosing its grip on the things which enabled its prosperity in the first place. The two party political system is feeding the clash between both Liberal and Labor as well as in-party fighting and is putting a handbrake on any progress with a focus on long term gains.

“You need continuity of political decision making on complex policy areas. The rate of change that we’ve had in political leadership has made this very difficult," states Hillard. “If you change government too often, and you change policy too often, it actually doesn’t matter whether a policy is ideal or not, you’re not leveraging the best of that policy in the time you've got.”

“If you change government too often, and you change policy too often, it actually doesn’t matter whether a policy is ideal or not, you’re not leveraging the best of that policy in the time you've got.”
– Rob Hillard, Deloitte Australia

This can be seen time and time again when it comes to Australian policy. Think the carbon tax, the NBN or the East-West link in Victoria for an example of when changing government reverses the policy of the outgoing party. In house fighting and the Rudd-Gillard-Rudd-Abbott-Turnbull-Morrison saga also hamper efforts to create best long-term policy and instead sets a focus on short term political gain.

Political stability leads to economic vitality

It is another common assumption that economic growth is built through political stability or at least on the basis of it. This is especially true for international investors and business when considering to put money into an international expansion or foreign opportunity. An often-cited example of this is The Netherlands – where multiparty government coalitions build of existing policy and enact long term strategies – and perhaps a more controversial example is China and the one party system.

Within these two examples, there is no infighting between two parties and no political backflips when the other of two parties takes office every four years. Thus when an investment is made in their country, it is unlikely that in a further four years, the regulations or political climate will change drastically. A recent example of this is Brexit. Today, with one party for and the other against leaving the European Union, it is impossible to predict how an investment today in the UK will fair in the next few years or beyond.

However, Hillard admits that this is not all bad news as political inaction on social progress has prompted the business community to become movers and shakers. Deloitte are a prime example of a multinational firm who are utilising their position as industry leaders to promote positive impact issues. This can be seen in itself in the consulting firm’s involvement in the Social Progress Index.

“With an increasingly complex set of global challenges we believe that business should actively collaborate to drive policies and initiatives that seek to improve the wellbeing of society and facilitate economic growth,” Hillard concludes. 

Related: Deloitte places the value of Great Barrier Reef at $56 billion.

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Chinese investment into Australia plunges to eight-year low

09 April 2019 Consultancy.com.au

Chinese investment into Australia plunged to US$6.2 billion last year according to the latest KPMG analysis, down by more than 35 percent to an eight-year low. 

A study from global professional services firm KPMG in conjunction with The University of Sydney has found that Chinese investment into Australia dropped by 36.3 percent in 2018, despite Chinese outbound direct investment growing by 4.2 percent globally to nearly US$130 billion. Taking in mergers and acquisitions, joint ventures, and green-field projects, Chinese investment into Australia totaled US$6.2 billion in 2018, down from US$10 billion the previous year.

As part of an ongoing collaboration between the Big Four firm and Sydney Uni, the latest release in the ‘Demystifying Chinese Investment in Australia’ report series (now into its fifteenth edition) points to Chinese domestic policy changes for the decline, with the local downward rate of investment now coming into line with trends seen in the US and Canada, which last year recorded respective Chinese inbound investment drops of 83 percent and 47 percent (in USD terms).Value of Chinese ODI into US, Europe and Australia 2012-2018

Designed to reduce its international exposure, the policy measures being implemented in China since early 2017 require overseas investments by Chinese firms to be non-speculative, only undertaken after fully considering major potential risks, and consistent with the company’s strategy and the country’s socio‑economic development goals – with certain categories of investment encouraged and others prohibited or restricted.

With 80 percent of Chinese executives stating that it was more difficult to get capital out of China in 2018 compared with 65 percent the year prior, the result is the second-lowest Chinese inbound investment in Australia since the mining & gas driven investment peak of 2008, with over US$16 billion coming into the country. Outside of the US$3.9 billion figure in 2010, the investment sum hasn’t dipped below US$8 billion in a decade.Chinese investment into Australia - 2007 to 2018

Yet, despite the domestic policy measures and downturn in inbound investment, Australia is still seen as a relatively safe investment destination according to a cross-sector survey of Chinese executives, with an improving political climate (those cautious due to the local political debate dropped from 70 percent in 2017 to 59 percent last year) and slight increase in the sense of being welcomed – up three points to 38 percent, although those feeling ‘unwelcome’ also rose by four points to 19 percent.

“Whilst Chinese investors confirm they remain positive about many aspects of the Australian market and its prospects compared with many other countries, there is an increasing concern around transparency of regulations, high costs and their continued perception of being unwelcome as reflected by negative Australian media coverage.” the report states.  “We need to be aware of the very real impact that poorly received, politically motivated public discourse and unbalanced media coverage can have on the future level of Chinese capital entering Australia.”2018 Chinese investment into Australia by sector

As an investment breakdown, private Chinese companies accounted for 87 percent of the deal value in 2018 and over 92 percent of deal volume, with state-owned entities contributing only 13 percent of value and 8 percent of the volume – which in total, dropped by 28 percent from 102 transactions in 2017 to 74 last year. As per those deals, over 40 percent of the investment total was made in the Australian healthcare sector, a more than 110 percent increase on the prior year.

According to the analysts, Chinese investors are primarily interested in scalable medical services and healthcare products which can be scaled in their home market, and the Australian healthcare sector has gained increased interest due in part to the ‘Australia package’ – ‘the combination of transferable management know‑how, high‑level care service experience, state of the art technology, the ‘clean, green and healthy’ image of Australian products.”

Meanwhile, new mining investment has dropped sharply – down 90 percent from a spike last year for just 5.6 percent of the total – opening the door for commercial real estate (predominantly mixed-use development and office stock according to figures provided by Knight Frank) to claim the second highest levels of Chinese investment at ~37 percent (albeit down 31 percent on 2017 levels). The remaining deal value was mostly in oil & gas (8.8 percent, up 295 percent) and renewable energy (4.8 percent, up 217 percent) sectors.2018 Chinese investment into Australia by geography

Perhaps of further note, at least in terms of demystifying Chinese-Australian investment, ‘Northern Australia’ attracted at most just 8 percent of total investment, with Queensland accounting for only 5 percent, Western Australia 3 percent, and zero deals made in the Northern Territory. Here, the bulk of the inbound investment was made in New South Wales (56 percent) and Victoria (27 percent) with South Australia (8 percent) claiming the majority of the remainder.

“While this annual result brings Chinese ODI in Australia back to the second lowest level since 2008, there is no reason why Australia can’t return to higher levels seen historically,” the report concludes. “2018 need not define a trend, but it is a period to reflect upon. There are a great many opportunities for Chinese companies to contribute towards the development and internationalisation of Australian industries and supply chains in the coming years and there is much that can be done to improve the perception of the Australian market to Chinese investors and vice versa.”