High Dollar Crushes Our Exporters
"If you thought Australia's exports were going well, it might be time to think again," says Ian Murray, Executive Director of the Australian Institute of Export. "Yes" he said, "mining exports are continuing to increase but exports outside of the mining sector are feeling the effects of the GFC and an ever climbing dollar."
The Institute launched its most recent survey on the effect of the rising dollar and our exports, and it's not a pretty picture. From a sample of over 250 respondents, 61% said the strong Australian Dollar is having a negative impact on their export sales. Of those, more than half (55%)said the decline in sales was between 10% and 30% while nearly one quarter (24%) experiencing a drop of more than 30%.
"The Institute was surprised by the response and more surprised at the number of
companies that are experiencing difficulties," Mr. Murray said.
"What was even more alarming was the belief among many exporters that if the dollar remains high, an even greater number will be hurting. Concerning too was the fact that while some cases sales volume is being maintained, margins are under real pressure from the strength of currency."
"The industries that appear most affected are Education, Australian based companies working for overseas clients, and Agriculture: where there are no imported components to help offset the cost of production." Mr. Murray said, "Wine exports, particularly those who depend on price, are now having trouble selling to the Europe and USA."
"What seems to really worry exporters is the threat of rising interest rates at the same time as having a strong Aussie dollar. This will put many export companies under an even greater pressure as it will slow marking investment when it is need most," Mr Murray said.
Some companies are going against the trend and importing a significant part of their raw materials at very good prices. Some of them are stockpiling while the dollar is high, and other larger companies are relying on their long term contracts and their ability to manage risk more efficiently.
The study made it clear that exporters need some assistance if Australia is to retain a healthy and diverse export base. "The first thing that needs to be done is to build the finance skills, and in particular the foreign exchange capabilities of small to medium size exporters. If we don't, companies will continue to find themselves in trouble," Mr Murray said.
Travelex Regional Divisional Director, Asia Pacific, Kerry Agiasotis said the current climate was an important reminder for both importers and exporters that they should always focus on how to protect their profit rather speculating on where the dollar might go.
"Unfortunately, every company that conducts business internationally is likely to be exposed to movements in the value of the $AUD. Businesses need to understand the risk to their bottom line of adverse movements in the dollar and take steps to protect their profit margins.
"With the high dollar presenting a number of challenges for exporters, now is the perfect time for exporters to review their FX strategy. While it can appear daunting, managing your foreign exchange doesn't need to be complicated and small businesses should look to partner with providers who can help them to develop a foreign exchange solution that meets their needs"
Mr. Murray said that as well as building skills among exporters, it was also critically important to inject confidence back into the sector's bloodstream so that companies will have the courage to spend more on marketing. As part of the study, exporters were asked whether they would spend more on marketing if they received their full 50% entitlement from the Export Market Development Grants scheme and over 150 said yes. "This is where the Government needs to start. The $50 Million that the Gillard Government took out of the scheme should go back in immediately and for the long term, the scheme must be capped at $200 Million and indexed."
Australia is highly dependent on export earnings for income and jobs. Governments around the world are spending on an export led recovery when their currency and interests rates are at historical lows. There has never been a more important time for the Australian Government to support its exporters. "They need to act now."
Ian Murray, Executive Director
Tel: 02 8243 7440 or 0430 172 458
Gavin Melvin, Statecraft
Tel: 0401 430 299