Services Sector

Today a mystery was solved, courtesy of an economist who has given me the clues I have been seeking.

He said that the floating of the Australian dollar in the 1980’s has allowed our economy to buffer itself against changes and hence remain stable and in growth for almost three decades.

His actual words were that “the free floating dollar is our shock absorber”.

But it has also meant that our exports are mostly limited to resources, agriculture and just two segments of the services sector, education and tourism.

In education and tourism we import people and provide services to them while they are in the country.

There are no strong exports of services themselves and now I know why.

Our currency fluctuates wildly and this discourages people from exporting services because there is too much risk on cash flow when one is selling into a foreign currency but the costs are in local currency.

So services companies are actively encouraged to focus only on the domestic market where costs and revenues are in the same currency.

Added to this encouragement is the stable nature of the local market, itself a product of the currency’s free floating habits.

It’s a double whammy that works against our services sector expanding into exports other than where we are servicing foreigners buying their services in Australian dollars.

Given that the services sector is now 68% of our GDP I see a problem ahead if resources and agriculture remain depressed.

We possibly need to find another way to import people and get them to use local services while they are here. Gaols maybe? The Chinese buying real estate is another.

Or we need to find service sector exports that don’t require local labour and have costs in other currencies. One example is the disintermediating internet businesses like Uber and AirBnB. But to develop these we also need risk capital, and lots of it; we don’t have it.

Otherwise we must rely on the four current export sectors and live with any currency-led depression of our individual and collective purchasing power. It’s not such a bad option when I think about it properly.