Our second largest export earner: introducing Australia’s Visitor Economy
03 Jun 2016
- Australian Economy
- International Economy
- Visitor Economy
We’ve noted in previous posts that Australia’s economy is service orientated. For every dollar of gross domestic product, the services sector contributes almost eighty cents1. We’ve also noted that while for some time services exports have been on the rise, their share is far more modest than their goods ‘counterparts’, at around one fifth that of total exports.
In this post we introduce Austrade’s concept of the ‘Visitor Economy’ which we estimate accounts for almost two-thirds of services exports. This post summarises the first in a series of Visitor Economy-related papers with the focus being presenting the case for Australia’s second largest export sector – ahead of coal.
The ‘Visitor Economy’ is not a new concept. The impact of a visitor economy has been considered by all levels of government and industry, in particular pre- and post- cultural and sporting events2. However, many analyses have focussed only on the direct and indirect economic benefit derived from ‘tourism’. This is usually measured via a tourism satellite account (TSA). While tourism is important, contributing three per cent to Australian gross domestic product in 2014-15, with exports up nine per cent to $30.7 billion, using this approach means that the importance of Australia’s $18.2 billion international education export sector may not have been fully digested by all stakeholders3.
International education is measured under the travel services category of the Balance of Payments (BoP). Travel-related services, as defined by the BoP, valued these exports at almost $40.0 billion.
There are significant similarities between the tourism and education components of travel services exports. For example, both are defined not by the actions of an ‘industry’ but by the actions of the consumer which in this case is the ‘visitor’4. In our view, it is therefore useful to analyse both international tourism and international education together, paying regard to common attributes shared by these visitor-driven exports. These include sensitivities to demand drivers beyond just price and income. Each faces strong competitive pressures globally with business models for supply rapidly transforming with factors such as technology and access playing a key role to attract the consumer.
Strong growth in the value of exports for both sectors occurred in 2014-15 driven by strong growth in the number of visitors. International visitor arrivals grew by 6.6 per cent to 7.1 million while the number of international students studying in Australia on a student visa in 2015 grew ten per cent to almost half a million.
Due to collection differences that exist between the TSA and BoP interpreting both the value and ranking of Visitor Economy sectors can be difficult. For example, the TSA only accounts for short term visitor activity while the BoP accounts for short and long-term visitors. Depending on just how these collections are used, estimates of the value of the Visitor Economy could range between $39.7 billion and $48.7 billion5.
In order to measure Australia’s Visitor Economy in a more accurate, consistent, and specific manner, Austrade has developed an indicator that combines TSA and BoP reported Visitor Economy exports by:
- itemising individual TSA and BoP items;
- removing any double counting generated in various statistical collections for either tourism or education; and
- aggregating non-overlapping line items derived from both collections.
Using this methodology Austrade estimates Visitor Economy exports to be worth $41.1 billion in 2014-156. Over the period 2005-06 to 2014-15, international education (less than one year) has averaged growth of 15.7 per cent per annum (to $7.5 billion); international education (greater than one year) grew on average 14.0 per cent per annum to $10.4 billion, while tourism (arrivals for less than one year and excluding international education in this case) grew on average by seven per cent per annum to $23.2 billion.
Using this approach we estimate the Visitor Economy represents almost two thirds (65 per cent) of all services exports and 13 per cent of total Australian exports. And when ranked, the Visitor Economy is Australia’s second largest export earner ahead of coal ($38.0 billion in 2014-15).
With the Australian economy continuing to evolve after the mining investment boom, new drivers for the economy are required to drive growth in a manner that is at least consistent with our ten year average of 2.8 per cent. Granted, growth in Visitor Economy exports can be volatile and can be highly affected by factors such as income, price, terrorism, or medical health and we do not expect sensitivities to such events will moderate. But despite this volatility, we judge that the Visitor Economy will remain a critical driver of Australia’s export performance.
This makes the ‘Visitor Economy’ a key force in Australia’s economic diplomacy and in our overall economic performance. Services will play an even greater role in Australian exports in coming years with key drivers already in place such as a readjustment of the Australian dollar, our proximity to Asia and the growing Asian middle class, the quality of our services sectors, and strong economic and cultural relationships. It follows that there is a strong case for analysing the economics of, and outlook for, a Visitor Economy.
For (much) more detail, including a ‘Datamap’ on Visitor Economy data sources, refer to this Trade and Investment Note: Our Second Largest Export Earner: Introducing Australia’s Visitor Economy.
Based on services including ownership of dwellings and including construction. Estimates of the precise size of that contribution can vary according to which industries are classified as services and whether the resulting total is expressed as a ratio to GDP or to gross value added (GVA). For further information refer A primer on Australia's services exports
Further analysis of visitor economy strategies will be presented in a third paper in our forthcoming series on the Visitor Economy, An Overview of Visitor Economy Strategies
According to the Australian Bureau of Statistics (ABS), international education exports grew 14.5 per cent to $18.2 billion in 2014-15.
While tourism and international education are commonly seen, and referred to, as ‘industries’ they are aggregates of formally defined industries engaged in the economic activity of supplying particular goods or services to the ‘visitor’ – which in this case can be a tourist or a student.
Tourism Research Australia’s International Visitor Survey
was also used to derive the $48.7 billion estimate, in particular to disaggregate short-term expenditure.
This compares to a gross aggregate of $48.7 billion if sectoral overlaps were not properly accounted for.