For over the past three decades, the World Economic Forum’s annual Global Competitiveness Reports have studied and benchmarked the many factors underpinning national competitiveness. In the most recent report Australia ranked 20th out of 142 economies. On the surface Australia appears to perform well relative to its peers, but it’s not until you dig into the details that you soon realise Australia is beginning to slip on the global competitiveness scale. In the previous year, Australia ranked 16th, falling 4 places as other countries move ahead. Australia performed well in the categories relating to its financial and education system, macroeconomic situation and its transparent corporate environment. The decline in Australia’s ranking has been largely the result of its poor performance in the categories of innovation and business sophistication.
Innovation and business sophistication must be continually re-invented, particularly in a global economic environment shrouded by uncertainty. Australia’s economy is currently being carried by the current mining boom which is being fuelled by the immense amount of growth in China. China’s reliance on our resources has helped shield Australia from any major downturn stemming from the recent crisis. However, in an environment where innovation and business sophistication is slowing, our sole reliance on the resources sector to forge our economic future has serious risks.
What economists call Dutch Disease has been used to describe the current state of Australia’s economy. Dutch Disease broadly refers to the adverse effects that arise from large increases in a country’s income and exchange rate from strong demand for natural resources and the impact this has on non-mining related sectors. Early symptoms of Dutch Disease have already begun to emerge in Australia. The mining boom is drawing capital and labour away from the rest of the economy which is pushing the exchange rate up and putting pressure on trade exposed industries such as manufacturing and tourism.
This issue is compounded further when innovation, productivity and business sophistication slow. In 2011 Saul Eslake published a report for the Reserve Bank of Australia on the productivity issues currently impacting Australia. This research confirms that Australia’s productivity performance has deteriorated substantially since the late 1990’s where productivity growth was measured at around three per cent before falling to one per cent in the last few years. It is widely accepted that innovation plays a very important role in increasing productivity through the creation of more efficient processes, better products, more effective workplaces and access to new markets (DIISR, 2011).
The issues outlined above pose questions about the future demand trends for office space across Australia’s office markets. The resources sector has undoubtedly been the major driver of tenant demand in the Brisbane and Perth office markets, helping drive vacancy down in these two markets to below their long term average levels. However, the resources sector is only a small proportion of overall office demand. In order to achieve sustainable long term demand in Australia’s office markets we must rely on policy makers and business leaders to work towards new strategies that will increase innovation and business sophistication to underpin a diverse and healthy economy.
