Australia Economic Strategy Report Australia Economic
Strategy Report
Chapter 2

Understanding the business environment

The ease of doing business index reflects the extent of regulation and business environment that supports and protects the growth of business in a country, in comparison with other countries in the world. Australia has a favorable environment for carrying out business and has been ranked amongst the top 20 countries globally for ease of doing business in the last decade.66 Australia was ranked 18th amongst 190 economies considered by the World Bank while determining the ‘Ease of Doing Business’ ranks for 2019.67 Various factors that have directly or indirectly impacted the ability of Australia to nurture businesses in the country include:

  1. Macroeconomic environment: Australia has a robust and resilient economy that has been continuously growing for 27 years at a CAGR of 3% each year. The economy has also remained recession free since 1992. Australia has a balanced economy owing to steady Government policies and institutions, a positive investment outlook as well as good trade relations with other countries.
  2. International trade: Australia has emerged as an international hub for foreign investment with the 9th largest FDI inflows in the world valued at USD 48 billion in 2016.68 However, carrying out business in Australia also requires extensive documentation and incurring high border compliance costs. Under the Doing Business Index for 2019, Australia is ranked 103rd in ‘Trading across borders’ as compared to USA (36th), Canada (50th) and Japan (56th).
  3. Banking and Financial systems: The banking and financial system in the country has been resilient and stable owing to a high level of financial supervision by the Government. Local businesses are supported by easy access to credit facilities, but Indian businesses have found it almost impossible to get credit from local banks. Consequently it is only the limited number of Indian banks, which are available to lend to Indian businesses in Australia. Commercial lending increased from USD 258 million in 2010 to USD 364 million in 201769. Additionally, Australia has also emerged as the fourth largest pension fund market in the world valued at USD 1.9 trillion in 2018, with large investments in businesses routed through these superannuation funds.70 Australia does not provide any assurance to investors for their capital protection. Corporate Tax rate is high and Fringe Benefit Tax rate is 97% which is one of the highest in the world. Insurance market is complex, expensive, and there are a number of hidden charges.
  4. Education and skill development: Australia is home to a highly educated and skilled workforce that is employed across a diverse portfolio of industries. The workforce is also characterized by its diversity, hailing from different parts of the world (> 30% of the total people employed in the country). The services sector is the biggest employer of the Australian workforce (about 80%).71
  5. Strength of institutions: As per the World Governance Indicators, Australia has a high quality of governance. It ranks in the top 10th percentile on most indicators including accountability, government effectiveness, quality of regulatory frameworks and control of corruption.72 The judiciary is independent from the Government, which ensures quick and unbiased enforcement of laws and dispute resolution. Australia ranks 5th in the world for timely enforcement of contracts under the ‘Doing Business’ Indicators.
  6. Infrastructure: Australia has well-developed infrastructure with continuous and easy access to power, water, electricity, transportation and telecommunications-all necessary for modern economic activity and these facilities are at par with other large global economies.
  7. Business Environment: The Australian Government has been supportive of entrepreneurship, and this support has resulted in the reduction in time taken for starting a business, lesser regulations on minimum capital requirements, etc. As a result of this, the number of new businesses started in the country increased from 281,553 in FY15 to 354,520 in FY18.73 Further, business regulations are conducive to sole proprietorships as well as private companies. Australian businesses are traditionally risk averse, and this perhaps stems from the security of trading in natural resources. This has resulted in trade dependencies on traditional markets and a consequent reluctance to diversify. There is also high intent, but relatively low conversion of business plans, especially when it comes to diversification. Indian businesses, if they are new to the market, will therefore need to be persuasive and patient. The layers of government - federal, state and local can, at times, create multiple bureaucratic hurdles to cross in business, especially for foreign entities. Indian businesses, especially in the mining sector have found it extremely difficult and time consuming to get environmental clearances. Overall, Australian businesses are more process driven owing to a strong regulatory and social environment. The environment supports methodical and sustainable growth of businesses and consequently, there is a relatively low accountability of outcomes. Despite the fact that Australia has put into place a theoretically tough regulatory/ approval system, many Indian investors in Australia felt that there is no guarantee for last mile approval. Sometimes, approvals were denied on flimsy grounds. Some businesses felt that day to day operations were also impacted due to delay in regular clearances. The practice of hiring a lobbyist to facilitate these clearances is therefore the preferred route of such businesses. Transparency International released its corruption perceptions index in the beginning of 2020, where Australia is among 21 nations with perceived corruption worsening “significantly” over the past 8 years, even as the country is much better off than most on the corruption scale around the world. Its report of August 2020 (https://transparency. pdf) notes that many political scandals involving suspect “political donations, conflicts of interest and undue influence” erode public trust in politicians and calls for setting up a strong national integrity commission. TIA states that “While Australia still ranks among the world’s most corruption-free countries, for a number of years the very institutions that keep us honest have been sorely tested.
  8. Innovation capabilities: Australia has a well-developed research and development environment and the Government is increasingly supporting entrepreneurship by establishing incubator hubs across the country. The Australian Government’s innovation agenda is to promote growth and economic development through digital transformation of the industry and the economy.
  9. Understanding of India: Traditionally, Australian businesses had a limited understanding of Indian companies and business environment in India. USA, Europe, Japan, South Korea and China have been the preferred markets . This is changing rapidly due to the efforts of business associations and government to diversify and find new business partners. Despite government legislation and sustained efforts against racism, a Scanlon Commission2017 “Mapping Social Cohesion Report” carried out by Monash University found that 39%of respondents born in India reported having experienced discrimination in Australia. Some migrant Indians interviewed felt that executives in Banks or IT professionals often experience discrimination when they are informed that high net worth clients do not want to deal with Indians. In this sense, many of them were unable to reach their true potential, the experience was frustrating and challenging, thus making it impossible to cope with discriminatory practices
  10. Chinese influence in Australian institutions and Business: According to a June 2020 analysis by Australian Strategic Policy Institute (ASPI), an independent think tank operatives from the United Front Work Department (UFWD) of the Chinese Communist Party are on a mission to infiltrate and influence almost every aspect of Australian life, from politics to business to the media. This has been done through funding, directing and supporting a mammoth number of communities, business and student organizations who rarely disclose their close links with China. A number of business entities with links to China have sought to build networks in politics at the state and federal level. Big businesses in Australia have also been targeted. These links are also a central component of China’s legal as well as illegal technology transfer efforts from Australia.

66 Doing Business Reports 2008-2019, World Bank
67 Doing Business 2019-Australia Profile Report, World Bank
68 World Investment Report 2018 - Investment and New Industrial Policies, UNCTAD
69 ABS statistics
70 Australia has the Fourth Largest Pension Fund Assets in the World, 2019, Austrade
71 Australia Benchmark report, 2017, Austrade
72 Worldwide Governance Indicators, World Bank
73 ABS 8165.0 Counts of Australian Businesses, including Entries and Exits