MODERNISING AUSTRALIA’S ECONOMY - BOOSTING ECONOMIC COMPLEXITY

The Australian economy is dominated by service-based businesses, constituting around 70% of GDP. Exports are heavily skewed towards the resources sector, with primary products such as minerals, metals, and coal constituting 64% of all Australia’s exports.

According to Klaus Schwab, executive chairman of the World Economic Forum, ‘the extent to which an economy can develop higher value-added products, processes and business models through innovation is a major determinant of long-term, sustained prosperity.’41

Schwab notes the importance of ‘a strong scientific and technological base, investment from public and private sectors, links between businesses and research centers, a high-quality education system, political transparency, and a culture that encourages entrepreneurship and risk-taking.’

The economic complexity index (ECI) is a broad measure of the production characteristics of countries. It was developed by economists at Harvard and MIT to explain an economic system as a whole and to identify the knowledge accumulated in a country’s population and expressed in the country’s industrial output.

The ECI is a measure of the degree to which a nation is able to produce a range of goods varying in complexity from extracting and selling unprocessed natural resources to building and selling complex industrial products.

Harvard Economist Professor Ricardo Hausmann has described Australia as having ‘an amazingly primitive export basket’. Hausmann warned that could lead Australia gradually to become one of the worst performers in the region in terms of GDP growth.42 Professor Hausmann's advice for the Australian economy was ‘think of new areas of global activity where [we] can lead, have new products, new ideas and new industries that are going to be the sources of growth for the future.’ 

Australia’s ECI has declined over the last 20 years to a value of -0.60 in 2017 (the latest year for which ECI has been calculated), ranking 93rd out of 133 countries (Figure 20). Australia ranks alongside Senegal (92nd), Uganda (91st), Pakistan (94th) and behind countries like Guatemala (79th) and Albania (78th).

FIGURE 20: AUSTRALIA’S FALLING ECONOMIC COMPLEXITY
crossroads 2019 WEB Charts Figure 20

The following pages provide a visual representation of the export profiles of Australia and Italy, the 8th and 14th biggest economies in the world respectively. The visualisations are broken down by type and complexity of products in each country’s export basket.

Australia’s profile is dominated by minerals, fuels and ores (iron ore, coal, gas, copper, etc), precious metals (mostly gold), and agricultural goods (grains, animal meats, wine, wool, etc). These are predominantly very simple goods. Complex goods account for a small fraction of the overall basket. It is worth noting that international education, a $32 billion export industry for Australia, is bundled with ‘travel and tourism’ and therefore may be given less weight in these numbers.

In contrast, Italy, ranked 13th in the world on this measure, has a strikingly different profile. Despite having a reputation for food and manufactured goods, Italy’s ICT sector is almost twice as large as Australia’s as a percentage of exports. That, coupled with a large volume of industrial machinery, vehicles, and electrical machinery, makes Italy’s complexity atlas look very different. Compared with Australia, Italy’s agriculture and metals industries are much less significant components of its export profile, but also show more evidence of addition of value - for example producing industrial steel tubing rather than iron ore or pasta rather than wheat.

AUSTRALIA 2017
crossroads 2019 WEB Charts Australia GEDI Table
ITALY 2017
crossroads 2019 WEB Charts Italy GEDI Table