Imagine shipping iron ore from Australia through a branch office in Dublin or Luxembourg to sell it to China. Absurd? Unthinkable? Of course, but this is exactly the situation facing our financial services exporters, writes JOHN BROGDEN, CEO of the FSC.

Through a system of regulatory recognition, European-based invest­ment funds are able to offer their investment products to a large number of countries in Asia. In contrast, Australia’s lack of regulatory mutual recognition denies our investment products access to our own region. For Australian investment managers to access Asian markets, they have little choice but the expensive option of establishing an office in Europe to launch their products into Asia. Equally, Australian investors are generally unable to access investment products from Asia that offer opportunities to diversify into fast-growing Asian markets. As a result, only 5 per cent of the $1.4 trillion managed in Australia comes from overseas. Compare that with the 50 per cent of sales of all eligible European-based investment products that originate outside the European Union.

This regulatory absurdity has denied real opportunities to Australia’s world-leading funds management businesses. But there is hope. Australia has done well to reduce the barriers to trade facing agriculture and manufacturing. However, the future of export growth through trade negotiation is not in these sectors. We are at a tipping point in trade negotiations – our largest sector, services, needs to dominate trade negotiation and drive export growth. At 10.8 per cent of GDP, financial services is the largest industry in the Australian economy – larger than manufacturing at 9.4 per cent, mining at 7.7 per cent, and agriculture at 2.6 per cent. Financial services provide an example of the challenges of services trade reform. Driven in the main by compulsory superannuation, Australia has the fourth largest pool of investment funds under management in the world and the largest in Asia.

That means we are very skilled at managing collective investments. Australia’s position is extraordinary for an economy of our size – given that our international renown is linked with resources – but it is worth pausing to note that Luxembourg ranks second in the world for funds under management. Yes, Luxembourg, with a population of 500,000. And why? As outlined above, much of Luxembourg’s success relates to its regulatory access to Europe and Asia, as well as a strong domestic focus on facilitating cross-border financial services activity. Our financial services industry is on the doorstep of the booming Asian market. Asia’s population is 4.2 billion and expected to grow 17 per cent by 2050 and, according to the OECD, will age rapidly between this year and 2030. Many Asian countries have established pension schemes to help fund the ageing of their populations, but participation is very low. In the East Asia-Pacific region, 18 per cent only of people of working age are members of pension schemes, compared with the OECD average of 70 per cent.

Leave a comment