Australia's export base has narrowed to levels approaching that of a "banana republic,'' a former government adviser says, raising the specter of the country's economic nadir almost 30 years ago.
The concentration of shipments abroad is at the highest level in more than 50 years, according to Andrew Charlton, who counselled former Prime Minister Kevin Rudd on economic policy. The nation's budget is "hostage'' to global iron ore prices, with a $10 drop taking up to A$10 billion from forecast revenue, he said.
The global iron ore price has dropped more than $12 in the past month, further exposing Australia's lack of export alternatives.
"Australian governments have been operating on the assumption that, once the mining boom passed, low interest rates and a falling dollar would be enough to bring the non-resource sectors dancing out of their graves," Charlton, now director of consultancy AlphaBeta, said in a research report. "Unfortunately, no such resurrection is occurring."
"Australia watched idly as the rust-belt manufacturing suburbs around Sydney and Melbourne were transformed from red-brick factories into red-hot real estate,'' he said. "Even some low-income countries like Nepal, Kenya, and Tanzania have greater export diversity than Australia.''
His analysis again raises the question of what Australia will fall back on as the resources tide recedes. Exports have gone backwards as a proportion of the economy over the last 15 years in almost every non-resources industry, and services are now too small to offset mining.
His concerns hark back to problems in 1986, when weak international commodity prices led to a collapse in exports, prompting then-Treasurer Paul Keating to warn Australia risked becoming a "banana republic" if it failed to change.
"If this government cannot get the adjustment, get manufacturing going again, and keep moderate wage outcomes and a sensible economic policy, then Australia is basically done for,'' Keating said in an interview on radio in 1986, after the nation recorded what was then its biggest current account deficit. "We will end up being a third-rate economy.''