A primer on Australia’s export of services

13 Nov 2015

Tags

  • Mark Thirlwell
  • Australian Economy
  • International Trade

For more than a decade, Australia’s exports have been dominated by the commodity super-cycle and the resultant surge in resource exports. Meanwhile, the share of service exports fell to a low of just 16 per cent in 2011-12. While a significant increase in the supply capacity of the mining and energy sector means that resources will continue to play an important part in Australia’s overall export profile, more recently, improving competitiveness and strong external demand have encouraged a marked increase in both the value and volume of exports of services.

primer Aust export services_01

The performance of exports of tourism and education services has been particularly strong, to the extent that tourism related services (a broad category which also includes exports of education) may now be challenging coal to be Australia’s second-largest export.1

primer Aust export services_02 

Services account for the vast majority of Australian output and employment but on conventional measures they only comprise a relatively modest share of total exports – a bit less than 20 per cent of gross exports in 2014 15. But as we’ve noted before, traditional balance of payments statistics significantly under-estimate service sales for two key reasons. First, they don’t capture the sale of services by the foreign affiliates of Australian businesses. And second, they do not take into account the critical role played by services embodied in the export of goods.

primer Aust export services_03 

Australia’s current gross exports of services are dominated by tourism and education, which can both be classified as travel services and Australia stands out from many of its OECD peers in this regard.

primer Aust export services_04 

But professional, financial and other business services are also important, and in recent years exports of these ‘modern’ service categories have grown more rapidly than ‘traditional’ service exports, facilitated by rapid innovation in information and communications technology that has boosted their ‘tradability’.

Rising incomes in Asia and the associated process of economic development offer substantial opportunities for Australia to further expand its service exports in coming years. However, barriers to trade in services remain significant in many regional (and global) markets, including some of Australia’s most important trading partners. 2

primer Aust export services_05 

For (much) more detail, see this primer on Australia’s exports of services.

1 Note that according to the ABS, the tourism-related services series should be seen as an indicator of movements in tourism related activities, and not as an absolute measure of the level of these activities. The indicator is derived by combining total travel services (business, education-related and other personal travel) and passenger transportation services (which includes agency fees and commissions for air transport). It’s likewise important to note that this indicator is not the same as the series on tourism exports produced as part of the Tourism Satellite Account (TSA), with the notes to the TSA stating that while these ‘tourism-related services credits’ are closely related to exports of tourism goods and services, there are also some significant differences. These include the fact that the TSA excludes the expenditure of overseas students with a course length of stay of greater than one year and non-resident to resident transactions which occur in other countries (that is, the delivery of services by Australian residents in other countries) both of which are included in the balance of payments series. In addition, the TSA includes imputations for non-market services provided to overseas visitors, margins on foreign exchange transactions and the value of products provided to overseas visitors within private households, and these imputations are generally not recorded in the balance of payments.
2 Information on barriers to services trade based on the OECD’s Services Trade Restrictiveness Index (STRI), which provides scores for 18 sectors. The chart presents a simple average of these sectoral scores.