Only technology exports can secure Australia’s future

If Australia were a start-up, investors would recoil at its “concentration risk”. Far too much of our export income is derived from a single customer, and too much of what we ship falls into a few enormous categories. These are dire problems and as a start-up we would struggle to raise funds.

Every Australian instinctively knows that selling rocks to China comprises a huge export market but some data will add perspective.

According to the World Bank, 35¢ in every Australian export dollar comes from China. Even more worryingly, 56 per cent of all Aussie exports are classified as “raw materials” with limited value-add.

DFAT data concurs, with iron ore and coal comprising 31 per cent of exports and natural gas a further 10 per cent. These “big three” rose 25 per cent in value from 2017 to 2019, from $139 billion to $197 billion, and they alone now comprise 42 per cent of all export value (up from 37 per cent.)

In summary, more than a third of Australia’s export income is paid by China and, if you add gold and aluminium, around half of the value derives from five things we mine.

Viewed through this prism, it’s surprising we aren’t all fixated on spot mineral prices. This is no criticism of China, whose purchasing has supported our lifestyle, nor of miners, who are important employers and whose exports have driven much of our recent prosperity.

But it is an urgent problem that threatens to extend our economic suffering far beyond the pain we will endure from COVID-19. Any happy and prosperous society must create high-value, satisfying jobs that sustainably drive high-margin exports.

Globally, the tech sector has proven best at fulfilling these requirements and is an integral part of any advanced economy. The risk of low export growth in this sector over the coming decade is a huge threat to our national interest.

This may sound alarmist at first. After all, DFAT’s technology category reported a large 34 per cent rise in exports from 2017 to 2019. But this comforting headline masks a terrible detail; that tech rose from a paltry 0.9 per cent of total exports to an equally demoralising 1.1 per cent.

This means that in 2019, Australia recorded just $5 billion of technology exports compared to more than $77 billion of iron ore.

It is the tech sector, and particularly earlier stage companies, that contributes virtually all net jobs growth to a developed economy. Last month, Britain released a statement precisely to this effect.

Jobs for NSW got there earlier and identified the same trend in 2017. We now face the challenge of competing with other countries who have also woken up and are aggressively boosting exposure to this sector, including the US, Britain, France, Netherlands, Ireland, Singapore, and South Korea, to name but a few.

It’s a global war for tech and these countries have all either provided comprehensive packages of support to the tech industry during COVID-19, or already provide much deeper government programs than Australia.

The gold standard in transitioning to a tech-driven economy is the “start-up nation”, Israel. From its founding in 1948 until the 1990s, Israel was a developing, agrarian economy with rampant inflation. By contrast, over the decade to 2019 its tech exports increased an incredible 160 per cent, from $22 billion to $55 billion.

Tech now contributes almost half of all exports. Israel and its 9 million inhabitants generated 11 times more tech export dollars than Australia, despite our much larger population of 25 million.

Luckily, there are some significant rays of hope in Australia. The federal Minister for Industry, Science and Innovation, Karen Andrews, is a mechanical engineer with significant industry experience and thus understands the challenges. She is also a close Morrison ally and should provide some much-needed stability to the role.

In a speech last week to the National Press Club, Andrews advocated strongly for the promotion of tech-driven advanced manufacturing in Australia. This theme is enjoying a much-needed rise in popularity and is also championed by influential industry leaders including NCCC Chairman Nev Power, current CSIRO chairman David Thodey, and former Dow Chemicals CEO Andrew Liveris.

Advanced manufacturing is a great initiative, but it alone won’t fix our export problem. Pleasingly, there are also signs that the decades of hard work on the innovation front are beginning to bear fruit more broadly.

It is widely known that several rising stars in government are strong advocates of Australia’s need to strengthen the technology sector. Chairman of Innovation and Science Australia, Andrew Stevens, is also well respected and is building on the intelligent work undertaken by predecessor Bill Ferris and former board members, including AirTree Ventures' Daniel Petre and Atlassian's Scott Farquhar.

It will be interesting to read the government’s response to a recently released ISA paper that outlined a new and novel approach to nurturing software and other critical technology innovation in Australia.

Another positive trend is the maturing of the industry itself over the past decade, across the entire technology ecosystem. This has included the emergence of an increasingly sophisticated venture capital industry, the growth of publicly listed Australian global technology leaders, a slew of home-grown billion-dollar “unicorn” tech companies, and many more $100 million-plus start-ups.

Australia clearly has the talent to achieve great outcomes, provided we have the desire, focus and support.

Conversely, the Australian tech industry is still fragile and requires significant government support to fill large gaps.

Although VC has grown significantly, it still totals only $36 per capita versus $114 in the UK, $303 in the US, and $674 in Israel.

Local start-ups still rely heavily on a strong program of R&D incentives for their early survival. And the COVID-19 crisis has exposed the need for a broadly inclusive and persuasive technology industry roof body to better engage with government and elevate these urgent issues onto the national agenda.

Australia finds itself at a historically significant moment. We enjoy a wonderful, “Lucky Country” lifestyle and almost uniquely avoided recession during the GFC. But continued heavy dependence on the export of raw materials to one significant buyer poses an existential risk to this lifestyle.

This structure cannot deliver the jobs growth, export resilience, and national strategic flexibility we require for a secure future.

To continue our long run of prosperity, it is vital we advance the economy so that exporting technology plays a leading role. Industry, together with government and academia, must use the COVID-19 recovery as an opportunity to unite in pursuit of the highest ideal; the protection of our laudable societal values and the sustainable happiness of our citizens.

Adir Shiffman is the executive chairman of Catapult Group.