Higher dollar blamed as Australia drops to 15th in list of best countries to do business in

Australia is losing its competitive business edge because of the higher dollar, a skills shortage and a large number of industries going through negative structural changes, a new survey of international rankings has revealed.

The rankings, released by the Swiss business school IMD and the Committee for Economic Development of Australia, found Australia slipped from 5th to 15th over two years out of 59 countries overall.

Hong Kong, the United States and Switzerland rounded out the top three.

CEDA chief executive Stephen Martin told SmartCompany this morning much of the blame lies with the higher dollar.

“The bottom line really comes down to that,” he says. “We need to look at what this has meant in terms of Australia’s competitiveness, which is what this system measures.”

The dollar rose as high as $US1.10 this year, but in the past few weeks has plummeted to US97.5 cents on fears over the European financial crisis, along with the Reserve Bank’s decision to cut rates.

This morning, the dollar fell again to US97.01 cents. But Martin says the pain has already been felt in tourism and export markets.

“Our industry just can’t compete with low costs overseas. Retailers are finding it extremely difficult, and we only need to look at the Australian Bureau of Statistics figures to see that. Everyone is offering a sale, and not just that, but people are reflecting on what’s happening in Europe as well,” Martin says.

“We very much have a two-speed economy.”

That two-speed economy has been spotlighted this year, he says, as the Reserve Bank has rushed to cut rates by 50 basis points even as the IMF and OECD continue to praise Australia’s economy as one of the world’s most stable.

Yesterday the ABS revealed retail sales fell by 0.2% in April, prompting talk of another rate cut in June. Economists expect more cuts this year.

“We’ve become so cautious,” says Martin. “That, among other things, has hurt competitiveness.”

“Looking at industries like tourism and trade, these markets are built on competitive pricing models. The changes in the dollar have hurt them as well.”

The countries are ranked using a broad set of criteria, but Australia has fallen on individual metrics as well as the overall index, including the business factors, labour market and government efficiency measures.

Martin says the skills shortage has exacerbated some competition issues, and said the trend of businesses moving abroad could even hit the mining sector if conditions worsen.

“There is still uncertainty around big projects and, with terms of trade perhaps easing off a little, the trickle-down effect is not as strong as it once was.”

“And just look at individual industries: The car market is propped up by subsidies and Qantas is laying off even more staff. The smaller industries are really hurting.”

“There is a fair amount of structural adjustment going on, and it raises questions about government priorities.”

Martin says the Federal Government should start focusing on science and technology to perform better in the rankings, including investment in skills to make Australians more attractive and able employees.

This would include investment in high-tech manufacturing, Martin says, along with easing regulatory burdens.

“Everyone’s been really happy to watch how the resources boom has gone but, at the end of the day, it’s confined to Queensland and Western Australia. We are a service economy.”

“We need to look at ways in which we can develop an export culture around high value services, whether it be in law, business services or consulting, or whatever industry we can export. Services are the key.”

“These are the sorts of things people should be looking at, to see if we can get any more government money directed towards those areas.”

Emerging economies in the list fell as well, along with many Asian economies, although Hong Kong remained in the top spot.