Service exports: we offer more than sightseeing and text books

28 Oct 2016

Tags

  • Tim Quinn
  • Australian Economy
  • International Trade

For the calendar year 2015, the value of Australia's exports of services totalled $66.2 billion, representing almost 20 per cent of total exports[1]. Within this aggregate, the data show significant differences between Australia’s ‘traditional’ and ‘modern’ export sectors can exist[2][3].

For the purposes of this analysis we categorise ‘traditional’ service exports as those tourism and travel related – Visitor Economy exports – plus transport services. In 2015, these exports were worth almost $47 billion increasing on average 6.0 per cent over the past decade.

'Modern' service categories such as Financial Services, Insurance and Pension Services, Telecommunications, Computer and Information Services, Other Business Services are growing solidly. In 2015, these exports were worth almost $17 billion with a compound growth rate slightly higher than that of ‘traditional’ exports averaging 7.2 per cent over the past decade.

Australia’s service export markets average a ratio of 71 per cent ‘traditional’ to 26 per cent ‘modern’. Within our top-ten service export markets there are a few stand-outs[4]. Both the United States and Singapore scored above fifty per cent for ‘modern’ services – approximately double that of the average (26 per cent) – at 53 per cent and 51 per cent, respectively. ‘Traditional’, or Visitor Economy, service exports to South Korea are 25 percentage points higher than the average with ‘modern’ service exports to that market 22 percentage points below.

Modern service exports to the United States and Singapore exceed visitor economy exports

A previous post reporting results from Australia’s International Businesses Survey 2016 noted that the United States had the attributes such as ‘strong growth and profit opportunities, low barriers to trade and investment, easy/safe business environment and familiar culture/language.’

Additionally, 52 per cent of businesses reported ‘ease of doing business’ being on par with Australia, nine per cent noting it ‘easier’, and nine per cent ‘much easier’. Singapore was marginally higher scoring 75 per cent for the grouping ‘same’, ‘easier, and ‘much easier’. Therefore, it is no surprise that ‘modern’ service sectors are expanding solidly in the United States where this category of exports were worth $4.2 billion in 2015 (traditional service exports were worth $3.0 billion).

A business environment supported by well-established regulatory settings, trend-based demographic and productivity change resulting in high per capita income levels, hub locality (notably for Singapore), and modern economic and information and communications technology frameworks are all favourable stimulants for business growth.

With Singapore an important hub for Australia’s Visitor Economy, it may come as a surprise that it’s ‘traditional’ sector’s share is significantly lower than the average, especially given its relative proximity to Australia. Reasons for this include a lower than average higher education ratio and tourists spending $1,400 less per trip than the market average, that is, $3,900 compared to the average of $5,300[5].

Australia’s ‘modern’ service exports are increasingly in demand and with an expected middle class of 3.2 billion by 2030 likely to continue to consume a higher share of modern services this trend looks set to continue. While ‘modern’ service exports to the OECD are currently almost three times higher than that of ASEAN ($29 billion compared to $10.6 billion), it’s the growth opportunity that’s on Australia’s doorstep that’s apparent. Over the past ten years, ‘modern’ service exports to ASEAN markets have increased at an average annual rate of 12.1 per cent while ‘traditional’ service exports to the ASEAN group have increased by 4.7 per cent. In comparison, growth in ‘modern’ service exports to the OECD have been almost half that of ASEAN’s, averaging 7.0 per cent per annum, with ‘traditional’ service exports increasing by 1.1 per cent per annum.

Click on the image below to check out our interactive visualisation.

[1]  The statistics used in this note are based on traditional ABS balance of payments statistics. These significantly under-estimate service sales for two key reasons: 1/ they don't capture the sale of services by the foreign affiliates of Australian businesses; and 2/ they do not take into account the critical role played by services embodied in the export of goods. More information.
[2]  Main markets have been derived from DFAT’s Trade in Services 2015 publication.
[3]  ABS International Trade: Supplementary Information, Calendar Year, 2015 (ABS cat no 5368.0.55.004)
[4]  As published by the Department of Foreign Affairs and Trade, Australia’s top ten service export markets are (in order of value) China, United States of America, United Kingdom, New Zealand, Singapore, India, Hong Kong, Malaysia, Japan, and South Korea.
[5]  Tourism Research Australia, International Visitors in Australia: June 2016 Quarterly Results of the International Visitor Survey