Professor Raja Junankar

Any plans to fast track US migrants for the construction and mining industries won’t help these industries find workers – because few people using a 457 work in mining, and most of them don’t come from the US anyway.

The Australian Government has announced it is going to fast track the assessment process for skilled workers. Under the agreement, US workers will able to complete a skills assessment before coming to Australia. The change will speed up the process of approving 457 visas. However I feel Chris Evans’ announcement about relaxing the rules for the 457 visa for US citizens seems to have missed the point – it appears an odd, short-sighted decision.

If there is really a shortage in workers due to the mining boom, then we should look at bringing in more plumbers and electricians, whereas the 457 visas mainly go to professionals.

Looking at the data on the ‘class 457’ visas, in 2011 72% of class 457 visas went to managers and professionals, and only 21% to trades and technicians. He says “The Australian states that received the vast majority of class 457 visa applicants was in New South Wales – which isn’t known as a big mining area. WA gained 23%, and Victoria 20%. Not Queensland, or the Northern Territory.

Also, look at how much they are earning. Wages for professionals are rising strongly, unlike those for non-professionals such as tradies: electricians, plumbers and the like. Certainly in the mining states such as Queensland, there is no increase in wages, compared with other states. This goes against what the miners are telling us – if there was a shortage, surely we would see wages go up.

The data for the 457 visas seems to go against what we are told they are for. The 3 main industries getting 457 visas are construction, health services and ‘other services’: nothing connected to mining. Also if we look at where people have come from that get a 457, the list in order is the UK, India, Ireland and then at 4^th, the USA. So we have to look at why the USA has been singled out to be fast-tracked, and the only conclusion I can come to is that it has nothing to do with demand, but is just down to being nice to the US. If the government really wanted to help mining companies they would help the UK, Ireland and India too.

We are told that fast tracked Americans will get mining jobs, doing the fly-in fly-out rotation, often from the US. But this seems a little odd – most of the jobs in mining are in very difficult conditions, and workers will not fly from the US to take them for a fortnight and then fly back. The USA market is also depressed, but not that many people will want to move over to take a job in a remote area. It just seems like the wrong move to make.

Professor Raja Junankar is a Professorial Visiting Fellow in Economics at the Australian School of Business.

Tim Harcourt

For The Airport Economist, it’s been a really frenetic few weeks as far as India and Australia are concerned. In November, I was on a Bollywood film set on the Sydney campus of The University of New South Wales (UNSW). In the film to be released next year, “From Sydney with Love” the story is set partly in Sydney and partly in India and comes as a result of the Filmmaker Prateek Chakravorty’s own love affair with Sydney when he was a student. It’s not unusual to film a Bollywood flick in Australia but it is unusual to have part of the storyline set in Australia. The film is strong on Australian references and even the UNSW’s own Vice Chancellor Professor Fred Hilmer has a walk on part in the film.

After Bollywood Sydney style I was off to Bollywood itself as part of the UNSW’s Australian Graduate School of Management (AGSM) MBA study tour to India and China. UNSW has teamed up with the SP Jain Center of Management in Mumbai and can now teach MBAs across Asia and the Middle East with in-depth courses on doing business in the new India. Everything was covered from the Mumbai Commodities Exchange to insights into Indian advertising, marketing and political economy. And of course there was a visit to a Bollywood film set and to the TV set of Indian master chef.

After Mumbai, it’s now back to Australia and to the Sydney Cricket Ground (SCG) as India aims to recover from its shock loss in Melbourne and to see ‘the little master’ Sachin Tendulkar score his 100^th ton either the second innings in the SCG’s hundredth match of test cricket or later in the series. Adelaide Oval would be a fitting place given Sachin’s connections with Bradman.

So why all this interest in India? Is it just to do with the cricket?

Cricket is certainly part of the story with the Indian Premier League (IPL) and the rise of the 2020 game. IPL has been the biggest revolution in the game since Kerry Packer’s World Series Cricket as the centre of gravity of global cricket power has shifted to the subcontinent. Just 25 years ago you couldn’t get Australian cricketers to even tour India (then captain Greg Chappell used to send Kim Hughes in his place to face the music) but now Australian cricketers, past and present, can’t wait to get over there, with Brett Lee singing Hindi songs, Matthew Hayden flogging cook books, Adam Gilchrist promoting Australian education and our GenY cricketers getting paid big bucks in the IPL.

But it’s also to do with economics too. Australian businesses were like our cricketers 25 years ago, when it came to India it was a matter of ‘where the bolly hell are you?’ But India’s economic resurgence has changed the business landscape significantly.

Whilst we’ve seen China grow as an export destination at test match pace, India has moved up our export ranks like an Indian Premier League 20/20 match. Ten years ago, India was not even in our top ten export destinations, now it is in the top 5. In fact, it recently passed the USA, as our 4^th largest export destination, accounting for $18.8 billion or 6.6 per cent of our exports. India now joins China, Japan and Korea as ‘The Big 4’ in Asia who account for just under $140 billion or nearly half of our total exports. There are now over 2,100 Australian businesses exporting goods to India with a rapidly growing services sector to the tune of $4 billion two-way services trade between India and Australia.

Why is it so? It’s partly due to the rapid rise of India’s economy in terms of scale. In fact, according to the Reserve Bank, India’s real GDP has tripled since 1990 (whilst Europe and the USA’s real growth has increased by 50 per cent over that period, and China’s has grown by six times its 1990 level). India’s industrial production has also grown, with Indian car sales, for example, trebling over the past eight years.

But is it all rocks and crops? Certainly coal, gold and other resources have played an important role in India’s rise given the commodity boom over the decade but it’s been happening at the chalk face as well as at the coal face. After some well-publicised attacks in Victoria on Indian students, Australia has diplomatically ramped up its commitment to its education relationship with India. This is not surprising given that India, together with China, accounts for one third of all students in Australia (compared to only 9 per cent a decade ago).  In fact, one reason for the filming of “From Sydney with Love” was Chakravorty’s affection for Australia based on his times here as a student. India’s rising middle class is opening up tourism export opportunities as well.

But India is an investment story as much as a trade story when considering the contribution made Indian investors to Australia’s development. Indian investment in Australia has increased 10 fold over the decade to the tune of over $1 billion, according to KPMG research and has diversified significantly into pharmaceuticals, ICT, healthcare, and consumer good as well as into resources. All the major global Indian brands are in Australia such as TATA Infosys, Wipro and Dr Reddy’s labs along with some major financial institutions such as the State Bank of India, Union Bank and the Punjab National Bank. For their part Australian businesses are also looking more to India as an investment destination. Australia’s corporate presence in India includes many major infrastructure companies such as Linfox, Leightons, Snowy Mountains Engineering Corporation (SMEC) along with household names in Corporate Australia like Macquarie, Woolworths, Qantas and ANZ bank. Also franchisees are finding India to be a lucrative market with Cookie Man, Accor Hospitality and Flight Centre taking advantage of the growth of India’s young consumer orientated middles class.

One reason for Australia’s success in India has been the efforts of Peter Linford, Australia’s dynamic Senior Trade Commissioner in New Delhi. During Linford’s term in New Delhi there has been a ramping up of trade and investment interest between Australia and India with a major expansion of Australian diplomatic and commercial resources under his watch including the expansion of new Austrade offices in Ahmedabad, Chandigarh, Jaipur, Kochi and Pune and offices in Bengaluru, Hyderabad and Kolkata to bring the total number of Australian trade offices in the sub-continent to 11. Linford describes sport particularly cricket “as an important mechanism for developing business interest between Australia and India” and is leading major business efforts at the SCG to introduce senior Indian business representatives to Australia. Linford, who works closely with Steve Waugh and Adam Gilchrist has an excellent track record in turning sporting links into business outcomes and has been described by AFL legend Kevin Sheedy as “the most effective representative of the Australian government he has ever worked with.”

Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business, UNSW and the author of The Airport Economist:  www.timharcourt.com

Tim Harcourt

The global economic outlook has deteriorated significantly, according to the Organisation for Economic Cooperation and Development (OECD), and that could have a significant impact on the Australian economy.

The OECD outlook shows how much of a drag Europe is putting on global growth. This is a reason for concern because the world economy needs Europe to grow or at least tread water. These forecasts are pretty dire, and it’s surprising how quickly this has gone from a drama to a crisis.

In its twice-yearly report on the global economic outlook, the OECD has lowered its growth forecasts for the world’s largest economies, and has warned that the euro-zone is headed toward a recession. It also warned that the debt crisis, now affecting countries previously seen as safe havens, could massively escalate economic disruption if not addressed, and create a new worldwide credit crunch, where countries become so worried about getting their money back, they refuse to lend to one another.

The central message is to keep calm. Australia has no reason for direct concern because our trading links are strongly tied to the Asia Pacific. The last three decades of economic reform here has enabled us to move from The Tyranny of Distance to the Power of Proximity. That is, away from the UK and Europe, and more towards our closer neighbours such as Asia and the emerging economies.

The OECD has urged the European Central Bank to act decisively to prevent the euro-zone sovereign debt crisis from deepening, which could drag the worldwide economy to the brink of recession, due to the size of the European economy, and its global reach.

China has strong trade ties to Europe, because China now exports more manufactured goods to Europe than to the USA. We in turn provide most of the raw materials for those exports, and so any impact on China could affect Australia. Even if there are no green shoots of recovery in the USA and Europe, in Australia we will still need bamboo shoots in China.

I do believe however we shouldn’t be too pessimistic. The OECD did say that Australia would maintain a healthy economic growth rate of 4 per cent in 2011 and down a bit to 3.5 per cent in 2012. So we should hopefully be immune from Eurosclerosis, but the world economy overall could do with some Eurovision.

Tim Harcourt is the first J.W. Nevile Fellow in economics at the Australian School of Business at the University of NSW and author of The Airport Economist www.theairporteconomist.com .

Vic Edwards

China could be about to witness a sharp economic contraction. Although the World Bank has played down fears of a hard landing in China, the dynamics of Australia’s relations with China are undergoing a rapid process of change, and this will reshape international and foreign policy between our two countries.

China’s growth this year is below last year’s level as weakening external demand has hurt investment and exports. Very poor Chinese manufacturing data shows it is at a 32 month low. Alas, contagion from Europe is impacting China, and that is causing pressure on Australia.

China’s economy faces growing risks from Europe’s sovereign debt crisis and from debt held by local Chinese governments but it could engineer a soft landing by easing monetary policy, according to a report yesterday by the World Bank. It expects Chinese growth will slow to 8.4 per cent in 2012.

I feel other events will also cause problems for our relations with China. There will be some reappraisal of where China stands with Australia, following the new Trans-Pacific trade-bloc know as the Trans-Pacific Partnership that includes nine nations including Australia and the USA, but China was not given an invitation to be a member nation. We should be concerned that there is now some doubt in China as to how much Australia can be trusted and relied upon.

For some years now, China has been able to rely on Australia as being a good trading partner and friendly nation no matter whether Labor or the Coalition were in power. However in just the past week President Barack Obama’s strong admonishment of China’s currency policy, the decision by Prime Minister Julia Gillard to reverse Labor’s long standing policy of banning the sale of uranium to India, and the agreement to locate a powerful 2,500-strong American marine task force near Darwin area all reshaping international and foreign policy between Australia and China. This is particularly so because China was not consulted on several of these, and Australia has been closely associated with all events. In China’s eyes, it doesn’t look good.

The World Bank has forecast that inflation will fall further, down from the 37 month high of 6.5 per cent in July, as its economy slows.

Will China react poorly to Australia by not buying iron ore, natural gas, bauxite from us?

I think not. However, it may cause them to re-evaluate their long term trading partnerships and future investments and they will most likely diversify their sources of supply – for example more iron ore from Brazil and Mozambique and less from Australia. They may also invest in developing the plant and equipment necessary to make high grade steel in these countries. However, the measures taken in the last week have also brought Australia closer to India and this may be seen as a good longer term play as India is tipped to overtake China as a production power engine in about the year 2030.

Vic Edwards is a Visiting Fellow in Banking and Finance at the Australian School of Business

Professor Neal Stoughton

Bad economic news over the past week has led some analysts to worry that the United States and hence the world is on the brink of a new economic downturn.

However the downgrade will have little practical impact as the US remained the world’s biggest economy and Europe provides no alternative to US bonds as a safe haven.

The downgrade of the US credit ratings on Friday by S&P is mostly cosmetic.  US bonds were already on ‘credit watch’ status, which has now actually been removed, although that has received little attention. The prospect of a real default by the US on its debt is remote.

There is still some room for manoeuvre, by engaging in yet more Quantitative Easing – or printing more money to ease an ongoing credit crunch. Unlike the European Union, or indeed any other enterprise in the world, the US Federal Reserve still has the unique ability to print more US dollars if it – and the US Treasury – deems that this is in the US economic interest.

The G7 group of major industrial powers has pledged to take whatever action is needed to stabilise the market, including a third version of Quantitative easing, or QE3.

It is far easier to simply inflate the money supply which results in a ‘soft default’ whereupon US dollars are devalued.  Given that yields on long term treasuries are still extremely low by historical standards – despite the ratings downgrade – the impact of having to borrow at slightly higher interest rates is very small.

Consider the comparison with Italy which is now having to borrow at around 6% yields which causes much more pain on its fiscal budgets. Therefore the upshot of this S&P ratings downgrade is not that significant in the scheme of things, especially when compared with the real crisis going on in Europe, which has comparatively greater issues.

Professor Neal Stoughton is the inaugural Macquarie Group Chair in Financial Services at the Australian School of Business.