Australia’s Investment Lure

Eighteen years ago I was invited to Australia on the first Emirates flight to Melbourne to write about two-way investment and business opportunities for Gulf Business. I was the founding editor that year.

Last month the Victorian Government business office in Dubai organised a return trip.

Re-reading what I saw as the future for Australia and the GCC back in 1996 was interesting because it also tells you
a great deal about the opportunities that exist now. They have not disappeared. Far from it they have just got bigger like the economies of the GCC and Australia.

In 1996 the economies of the GCC and Australia had nominal GDPs of $235 billion and around $200 billion respectively. Fast forward 18 years and they both have a GDP of some $1.5 trillion. That’s been remarkably high growth.

Investing in the right country is as important as picking the right giant company, like Warren Buffett investing in Coca-Cola decades ago for long-term gains.

Australia has been a much better long-term pick than say the US or UK. Why is that?

It is a commodities story. Australia is hugely rich in many commodities, from iron and copper to gold and agriculture. The GCC’s wealth comes from different commodities – oil and gas – though Australia will be a larger producer of LNG than Qatar as soon as 2018.

Warren Buffett maintains it is more important to buy a business with a great product than a great management. You can observe many differences in the way business and government is done between Australia and the Gulf states. But the actual economic outcome has been remarkably similar over the past 18 years.

Emirates Airline whose debut in Melbourne I witnessed all those years ago has mushroomed to dominate long-haul travel out of Australia except to Asia. It’s also a prime sponsor of events like the Melbourne Cup that both market the airline and publicise the city. Quite how much Emirates has invested in this route is a moot point but it must run to billions in planes alone.

The impact on trade and two-way business has been incalculable.

My main message to readers 18 years ago was that Australia was outstandingly cheap due to its weak exchange rate with high growth prospects and the ‘Lucky Country’ has delivered, without a single recession in that time.

That could be about to change now with a recession looming in China. Australia is a major exporter of raw materials to the Asian giant and would suffer the most of any advanced economy except perhaps Japan.

Shorting the now high Australian dollar is already a favorite trade to profit from the Chinese slowdown.

For overseas investors a recession could prove a major opportunity to buy into the Australian economy cheaply, ready for it to resume its long run five per cent average growth rate.

To be honest I thought the Melbourne economy looked a little overheated.

When we passed the branch of the H&M fashion store that opened last week there was a queue around the block. Indeed, there are 23 new retail brands due to open in Melbourne in the next nine months. This looked like a top- of-the-market indicator.

But Melbourne will bounce back from any slowdown and continue to be Australia’s fastest growing urban area. The city has a 30-year plan to expand towards the port district and to the West, and attract many more immigrants, particularly from Asia.

Expanding Melbourne is going to require multi-billion dollar investments in roads, tunnels, railways and bridges, much of
it in public-private partnerships that will provide opportunities for major Arabian investors.

The Victorian Government’s trade commissioner, John Butler, is talking to GCC funds and families about how to invest directly as these giant infrastructure projects emerge. It looks just as much a win-win situation for these investors as it did 18 years ago.